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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 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
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 .
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Commission File Number: 1-9046
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Cablevision Systems Corporation
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(Exact name of registrant as specified in its charter)
Delaware 11-2776686
- ----------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Media Crossways, Woodbury, New York 11797
- --------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 364-8450
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Securities registered pursuant to Section 12(b)
of the Act:
Title of each class: Class A Common Stock
Name of each exchange on which registered: American Stock Exchange
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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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 Registrant's 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. X
-------
Aggregate market value of voting stock held by nonaffiliates of the registrant
based on the closing price at which such stock was sold on the American Stock
Exchange on March 28, 1994: $554,603,787
Number of shares of common stock outstanding as of March 28, 1994:
Class A Common Stock - 10,892,922
Class B Common Stock - 12,411,532
Documents incorporated by reference - The Company 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 on Form 8 to this
report containing the information required to be disclosed under Part III of
Form 10-K.
Exhibits 3.1B, 3.1C, 10.44C, 10.56 and 10.57 have been omitted.
TABLE OF CONTENTS
Page
----
Part I
- ------
Item 1. Business. 3
2. Properties. 31
3. Legal Proceedings. 31
4. Submission of Matters to a Vote of
Security Holders. 31
Part II
- --------
5. Market for the Registrant's Common Equity
and Related Stockholder Matters. 32
6. Selected Financial Data. 33
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 35
8. Consolidated Financial Statements. 50
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 87
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. 87
* 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 on Form 8 to this report containing the
information required to be disclosed under Part III of Form 10-K.
(2)
PART I
ITEM 1. BUSINESS
THE COMPANY
Cablevision Systems Corporation, a Delaware corporation and its majority owned
subsidiaries (the "Company") own and operate cable television systems in six
states with approximately 1,379,000 subscribers at December 31, 1993. The
Company also has ownership interests in and/or manages other cable television
systems which served an aggregate of approximately 853,000 subscribers at
December 31, 1993 and has interests in companies that produce and distribute
national and regional programming services and that provide advertising sales
services for the cable television industry.
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 and radio 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, satellite-delivered "superstations" such as
WTBS (Atlanta), certain other news, information and entertainment channels such
as Cable News Network ("CNN"), CNBC, ESPN and MTV: Music Television and certain
premium services such as HBO, Showtime, The Movie Channel 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 installation charges, from the sales of
pay-per-view movies and events, and from the sale of advertising time on
advertiser supported programming. Certain services and equipment provided by
substantially all of the Company's cable television systems are subject to
regulation. See "Business - Cable Television Operations - Regulation - 1992
Cable Act."
For financing purposes, the Company is structured as a restricted group,
consisting of Cablevision Systems Corporation and certain of its subsidiaries
(the "Restricted Group"), and an unrestricted group of subsidiaries, consisting
primarily of V Cable, Inc. ("V Cable"), Cablevision of New York City ("CNYC"),
Rainbow Programming Holdings, Inc. ("Rainbow Programming") and Rainbow
Advertising Sales Corporation ("Rainbow Advertising"). In addition, the Company
has an unrestricted group of investments, consisting of investments in A-R Cable
Services, Inc. ("A-R Cable"), U.S. Cable Television Group, L.P. ("U.S. Cable"),
Cablevision of Boston Limited
(3)
Partnership ("Cablevision of Boston"), Cablevision of Chicago and Cablevision
of Newark.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for a discussion of the financing
of the Company including a discussion of restrictions on investments by the
Restricted Group.
The Company's consolidated cable television systems are concentrated in the New
York City greater metropolitan area (80.9% of the Company's total subscribers)
and the greater Cleveland metropolitan area (14.3% of total subscribers). The
Company believes that its cable systems on Long Island comprise the largest
group of contiguous cable television systems under common ownership in the
United States (measured by number of subscribers).
RECENT DEVELOPMENTS
On March 11, 1994, Cablevision of Cleveland, L.P. ("Cablevision Cleveland"), a
partnership comprised of subsidiaries of the Company, purchased substantially
all of the assets and assumed certain liabilities of North Coast Cable Limited
Partnership, which operated a cable television system in Cleveland, Ohio. The
purchase price aggregated $133.0 million which amount includes: (i)
approximately $98.8 million paid in cash; (ii) $4.0 million paid in a short-term
promissory note secured by a letter of credit; (iii) approximately $13.2 million
paid by the surrender of the Company's 19% interest in North Coast and the
satisfaction of certain management fees owed to the Company; and (iv)
approximately $17.0 million paid by the assumption of certain capitalized lease
obligations and certain other liabilities. The net cash purchase price of the
acquisition was financed by borrowings under the Company's Credit Agreement (as
hereinafter defined) and Cablevision Cleveland is part of the Restricted Group.
At December 31, 1993 North Coast Cable served approximately 82,900 basic
subscribers.
The partnership agreement relating to one of Rainbow Programming's businesses,
American Movie Classics Company ("AMCC"), contains a provision allowing any
partner to commence a buy-sell procedure by establishing a stated value for the
AMCC partnership interests. On August 2, 1993, Rainbow Programming received a
notice from the AMCC partner affiliated with Liberty Media Corporation
initiating the buy-sell procedure and setting a stated value of $390 million for
all the partnership interests in AMCC. The partnership agreement provides that
the non-initiating partner has a period of 45 days from receipt of the buy-sell
notice to elect to purchase the initiating partner's interest at the stated
value or sell its interest at the stated value. On September 16, 1993, Rainbow
Programming notified its partners in AMCC that it had elected to purchase
Liberty Media's 50% interest in AMCC at the stated value. The Company
anticipates that the transaction will be consummated in the second quarter of
1994.
On October 26, 1993, Cablevision MFR, Inc. ("Cablevision MFR"), a wholly-owned
subsidiary of the Company, entered into agreements to purchase substantially all
of the assets of Monmouth Cablevision Associates, L.P. ("Monmouth Cablevision"),
(4)
Riverview Cablevision Associates, L.P. ("Riverview Cablevision") and Framingham
Cablevision Associates, L.P. ("Framingham Cablevision"), each a limited
partnership operated by Sutton Capital Associates. Each of Monmouth Cablevision
and Riverview Cablevision own and operate cable television systems in New
Jersey. Framingham Cablevision owns and operates a cable television system in
Massachusetts. It is anticipated that Cablevision MFR will be an unrestricted
subsidiary of the Company.
On January 12, 1994 Cablevision MFR assigned its rights and obligations under
its agreement to purchase the assets of Framingham Cablevision to Cablevision of
Framingham Holdings, Inc. ("CFHI"), currently a wholly-owned subsidiary of the
Company. The Company has entered into an agreement with Warburg, Pincus
Investors, L.P. ("Warburg Pincus"), pursuant to which Warburg Pincus will (i)
purchase 60% of the common stock of CFHI for cash and (ii) purchase preferred
stock of CFHI, from time to time, for a purchase price sufficient to pay 70% of
the interest and principal payments on the Framingham Cablevision promissory
note described below. The Company agreed to purchase preferred stock of CFHI,
from time to time, for a purchase price sufficient to pay 30% of the interest
and principal payments on the Framingham Cablevision promissory note.
Agreements between the Company and Warburg Pincus with respect to management of
Framingham Cablevision and purchase and sale rights are substantially similar to
those reached with respect to Warburg Pincus' investment in A-R Cable, which
arrangements are described under "Cable Television Operations - Other Cable
Affiliates" below.
The aggregate purchase price for the two New Jersey systems is expected to be
$422.3 million. The Company expects that $244.6 million of such purchase price
will be financed by senior credit facilities in newly formed unrestricted
subsidiaries of the Company secured by the assets of the systems. The remaining
$177.7 million of such purchase price will be paid by the issuance, by
Cablevision MFR, of promissory notes due in 1998 and bearing interest at 6%
until the third anniversary and 8% thereafter (increasing to 8% and 10%,
respectively, if interest is paid in shares of the Company's Class A Common
Stock). The purchase price for the Framingham Cablevision assets is expected
to be $41.1. The Company expects that approximately $22.8 million of such
purchase price will be financed by a senior credit facility of a wholly-owned
subsidiary of CFHI secured by the assets of such system. Approximately $13.3
million of such purchase price will be paid by the issuance by CFHI of a
promissory note issued on the same terms as the promissory note of Cablevision
MFR described above. The remaining approximately $5.0 million will consist
of a $1.0 million loan to CFHI from its stockholders and an approximate $4.0
million capital contribution to CFHI from its stockholders. Principal and
interest on the notes, which may be paid, at the maker's election, in cash or
in shares of the Company's Class A common stock, will be guaranteed by the
Company. The Company's obligations under the guarantee will rank pari passu
with the Company's public subordinated debt. Under the Company's senior
credit facility, the Company is only permitted to pay such amount in common
stock. In certain circumstances, Cablevision MFR or CFHI (as the case may be)
may extend the maturity date of the promissory notes until 2003 for certain
additional consideration.
(5)
Consummation of the transaction is subject to the receipt of necessary
regulatory approvals and other customary closing conditions. There can be no
assurance that this transaction will be successfully consummated. As of
December 31, 1993, the two New Jersey systems served approximately 155,400
subscribers, in the aggregate, and Framingham Cablevision served approximately
16,200 subscribers.
On November 5, 1993, A-R Cable Partners, a partnership comprised of subsidiaries
of the Company and E.M. Warburg, Pincus & Co., Inc., entered into an agreement
to purchase certain assets of Nashoba Communications ("Nashoba"), a group of
three limited partnerships which operate three cable television systems in
Massachusetts. A-R Cable Partners is controlled in a manner substantially
similar to the way A-R Cable Services, Inc. is controlled. The purchase price
is $90.0 million, subject to certain adjustments, of which up to $55.0 million
is expected to be provided by a senior credit facility provided to A-R Cable
Partners secured by the assets of such system. The remainder will be provided
by equity contributions from the partners in A-R Cable Partners. The Company
will provide 30% of such equity through drawings under its senior credit
facility. Consummation of the transaction is subject to regulatory approval, as
well as other customary closing conditions. As of December 31, 1993, Nashoba
served approximately 34,800 basic subscribers.
On March 31, 1994, the Company issued and sold 100,000 shares of a new series of
preferred stock (the "Preferred Shares") to Toronto-Dominion Investments, Inc.
in a private transaction. The Preferred Shares were sold for a purchase price
of $1,000 per share and carry a liquidation preference of a like amount plus
accrued and unpaid dividends. Dividends accrue at a floating rate of LIBOR plus
2.5 percent and are payable, at the Company's option, either in cash or in
registered shares of Class A common stock with a value equalling 105 percent of
the required dividend. Additional dividend payments may be required with
respect to the availability of the dividend received deduction. The Preferred
Shares are redeemable at any time at the option of the Company at par plus
accrued and unpaid dividends to the redemption date and are convertible after
March 31, 1995 into Class A common stock, at the option of the holder, at a
conversion rate based on 95 percent of the average closing price of the Class A
Common Stock for the twenty business days prior to conversion. Additionally,
the holders of the Preferred Shares have the right to convert their shares in
connection with certain change in control transactions (regardless of when they
occur) into a number of shares of Class A Common Stock which would yield
$100,000,000 based upon an auction process involving the Class A Common Stock
issuable on such conversion or, at the holder's election, at a conversion rate
based on 95 percent of the average closing price of the Class A Common Stock for
the twenty business days prior to conversion. The Company has the right to
suspend the conversion of the Preferred Shares from March 31, 1995 through
March 31, 1997 as long as it is in compliance with its Restricted Group
financial covenants and is current in dividend payments on the Preferred Shares.
The Preferred Shares are not transferrable except with the Company's consent,
not to be unreasonably withheld. The Preferred Shares are exchangeable, at the
option of the holder, into a separate series of preferred stock with terms
substantially identical to the
(6)
Preferred Shares, except that such series (i) are not convertible into common
stock or exchangeable for any other class of securities, and (ii) are freely
transferable. The Company has granted registration rights with respect to the
common stock issuable upon a conversion of the Preferred Shares and with respect
to the series of preferred stock into which the Preferred Shares are
exchangeable. Also, if the Company completes an offering on non-convertible,
non-exchangeable shares of preferred stock, Preferred Shares, if not previously
exchanged or converted, also may be converted into a new series of preferred
stock having terms identical to or based upon the other series issued by the
Company.
The Preferred Shares do not have voting rights, other than as required by law,
except that (i) the vote of 60% of such shares is necessary to authorize the
issuance of capital stock ranking senior to the Preferred Shares, or certain
mergers or consolidations, in each case unless provision is made to redeem the
Preferred Stock; (ii) if the Company misses four consecutive quarterly dividends
in the Preferred Stock or in the event that certain covenants are breached, the
holders of the Preferred Stock have the right to cause an increase in the size
of the Company's Board of Directors and to elect one director during the
continuation of such default in dividend payments or covenant breach. The
Company also has the right to require conversion by the holders of the Preferred
Shares in certain circumstances.
On February 22, 1994 the Federal Communications Commission ("FCC") ordered a
further reduction in rates for the basic service tier in effect on September 30,
1992. See "Cablevision Television Operations -- Regulation", below.
(7)
CABLE TELEVISION OPERATIONS
GENERAL.
As of December 31, 1993, the Company's consolidated cable television systems
served approximately 1,379,000 subscribers in New York, Ohio, Connecticut, New
Jersey, Michigan, and Massachusetts.
The following table sets forth certain statistical data regarding the Company's
consolidated cable television operations (1):
AS OF DECEMBER 31,
------------------------
1993 1992 1991
---- ---- ----
Homes passed (2):
Restricted Group . . . . . . . . . . . 1,086,000 1,079,000 1,072,000
V Cable. . . . . . . . . . . . . . . . 509,000 504,000 499,000
CNYC . . . . . . . . . . . . . . . . . 645,000 436,000 -
A-R Cable. . . . . . . . . . . . . . . - - 434,000
--------- --------- ---------
Company consolidated. . . . . . . . 2,240,000 2,019,000 2,005,000
--------- --------- ---------
--------- --------- ---------
Basic service subscribers:
Restricted Group . . . . . . . . . . . 815,000 790,000 762,000
V Cable. . . . . . . . . . . . . . . . 350,000 338,000 327,000
CNYC . . . . . . . . . . . . . . . . . 214,000 134,000 -
A-R Cable. . . . . . . . . . . . . . . - - 283,000
--------- --------- ---------
Company consolidated. . . . . . . . 1,379,000 1,262,000 1,372,000
--------- --------- ---------
--------- --------- ---------
Average number of premium units per
basic subscriber:
Restricted Group . . . . . . . . . . . 1.8 2.0 2.2
V Cable. . . . . . . . . . . . . . . . 1.3 1.4 1.1
CNYC . . . . . . . . . . . . . . . . . 4.9 5.4 -
A-R Cable. . . . . . . . . . . . . . . - - 1.0
--------- --------- ---------
Company consolidated. . . . . . . . 2.2 2.2 1.7
Average revenue per basic subscriber (3):
Restricted Group . . . . . . . . . . . $38.01 $38.85 $38.20
V Cable. . . . . . . . . . . . . . . . 30.56 31.30 30.17
CNYC . . . . . . . . . . . . . . . . . 41.12 46.62 -
A-R Cable. . . . . . . . . . . . . . . - - 29.20
--------- --------- ---------
Company consolidated. . . . . . . . $36.59 $37.64 $34.43
- ---------------------------
(1) No information is provided in this table for any period in which an entity
was not a consolidated subsidiary of the Company.
(2) 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.
(3) 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
"Business -- Cable Television Operations -- Subscriber Rates and Services;
Marketing and Sales".
(8)
The following table sets forth certain statistical data regarding the
Company's managed, unconsolidated cable television operations (1):
AS OF DECEMBER 31,
-------------------------
1993 1992 1991
---- ---- ----
Homes passed (2):
Cablevision of Boston . . . . . . 252,000 249,000 244,000
Cablevision of Chicago. . . . . . 193,000 193,000 191,000
A-R Cable . . . . . . . . . . . . 442,000 438,000 -
CNYC. . . . . . . . . . . . . . . - - 270,000
U.S. Cable. . . . . . . . . . . . 317,000 305,000 -
North Coast Cable . . . . . . . . 214,000 213,000 204,000
Newark. . . . . . . . . . . . . . 118,000 117,000 -
-------- -------- --------
1,536,000 1,515,000 909,000
-------- -------- --------
-------- -------- --------
Basic service subscribers:
Cablevision of Boston . . . . . . 129,000 122,000 115,000
Cablevision of Chicago. . . . . . 83,000 79,000 76,000
A-R Cable . . . . . . . . . . . . 299,000 292,000 -
CNYC. . . . . . . . . . . . . . . - - 83,000
U.S. Cable. . . . . . . . . . . . 213,000 202,000 -
North Coast Cable . . . . . . . . 83,000 79,000 75,000
Newark. . . . . . . . . . . . . . 46,000 45,000 -
-------- -------- --------
853,000 819,000 349,000
-------- -------- --------
-------- -------- --------
Average number of premium units per
basic subscriber:
Cablevision of Boston . . . . . . 2.1 2.1 2.3
Cablevision of Chicago. . . . . . 1.6 1.7 1.8
A-R Cable . . . . . . . . . . . . 0.9 0.9 -
CNYC. . . . . . . . . . . . . . . - - 6.0
U.S. Cable. . . . . . . . . . . . 0.8 0.4 -
North Coast Cable . . . . . . . . 1.4 1.5 1.6
Newark. . . . . . . . . . . . . . 2.0 1.6 -
Average revenue per basic subscriber (3):
Cablevision of Boston . . . . . . $36.81 $35.89 $35.93
Cablevision of Chicago. . . . . . $32.21 $34.80 $34.07
A-R Cable . . . . . . . . . . . . $28.42 $29.70 -
CNYC. . . . . . . . . . . . . . . - - $49.03
U.S. Cable. . . . . . . . . . . . $25.72 $26.10 -
North Coast Cable . . . . . . . . $33.95 $34.47 $32.07
Newark. . . . . . . . . . . . . . $37.12 $36.85 -
- -----------------------------
(1) No information is provided in this table for any period in which an entity
was not a managed and unconsolidated affiliate of the Company.
(2) 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.
(3) 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
"Business -- Cable Television Operations -- Subscriber Rates and Services;
Marketing and Sales".
(9)
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,
satellite-delivered "superstations" and certain other news, information and
entertainment channels such as CNN, CNBC, ESPN and MTV: Music Television. For
additional charges, the Company's cable television systems provide certain
premium services such as HBO, Showtime, The Movie Channel and Cinemax, which may
be purchased either individually (in conjunction with Family Cable) or in
combinations or in tiers.
In addition, the Company's cable television systems recently introduced a basic
package which includes broadcast network local affiliates and public,
educational or governmental channels and certain public leased access channels.
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. In
addition, most systems offer a "Rainbow" package consisting of between five and
seven premium services, and a "Rainbow Gold" package consisting of between eight
and ten premium services.
Since its existing cable television systems, other than the CNYC system, are
substantially fully built, the Company's sales efforts are primarily directed
toward increasing penetration and revenues in its franchise areas. The Company
sells its cable television services through door-to-door selling supported by
telemarketing, direct mail advertising, promotional campaigns and local media
and newspaper advertising.
Certain services and equipment provided by substantially all of the Company's
cable television systems are subject to regulation. See "Business -- Cable
Television Operations -- Regulation -- 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 35 channels and 70% of its
subscribers are currently served by systems having a capacity of at least 52
channels. As a result of currently ongoing upgrades, the Company expects that
by December 1995 virtually all of its subscribers will be served by systems
having a capacity of at least 52 channels and 66% by systems having a capacity
of at least 77 channels. A substantial portion of the system upgrades either
completed or underway will utilize fiber optic cable.
(10)
PROGRAMMING.
Adequate programming is available to the Company from a variety of sources.
Program suppliers' compensation is typically a fixed per subscriber monthly fee
based, in most cases, either on the number of total subscribers of the cable
systems of the Company and certain of its affiliates, or on the number of
subscribers subscribing to the particular service. The Company's programming
contracts are generally for a fixed period of time and are subject to negotiated
renewal. The Company's 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. Management believes that the Company will
continue to have access to programming services at reasonable price levels.
FRANCHISES.
The Company's cable television systems are operated primarily under nonexclusive
franchise agreements with local governmental franchising authorities, in some
cases with the approval of state cable television authorities. Franchising
authorities generally charge a fee of up to 5% based on a percentage of certain
revenues of the franchisee. In 1993 franchise fee payments made by the Company
aggregated approximately 3.9% of total revenues.
The Company's franchise agreements are generally for a term of ten to fifteen
years from the date of grant, although recently renewals have often been for
five to ten year terms. Some of the franchises grant the Company an option to
renew. Except for the Company's franchise for the Town of Brookhaven, New York
which expired in 1991, the expiration dates for the Company's ten largest
franchises range from 1995 to 2001. In certain cases, including the Town of
Brookhaven, the Company is operating under temporary licenses while negotiating
renewal terms with the franchising authorities. Franchises usually require the
consent of the franchising authority prior to the sale, assignment, transfer or
change in ownership or operating control of the franchisee.
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 "Business -- Cable Television Operations --
Regulation". In connection with a renewal, a franchising authority may impose
different and more stringent terms. The Company has never lost a franchise as a
result of a failure to obtain a renewal.
(11)
COMPETITION.
The Company's cable television 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
direct antenna reception as compared to the number and quality of signals
distributed by the cable system. The Company's cable television systems also
compete to varying degrees with other communications and entertainment media,
including movies, theater and other entertainment activities.
The 1984 Cable Act, Federal Communications Commission ("FCC") regulations and
the 1982 federal court consent decree (the "Modified Final Judgment") that
settled the 1974 antitrust suit against American Telephone & Telegraph Company
regulate the provision of video programming and other information services by
telephone companies. A federal district court in 1991 issued an opinion, upheld
on appeal, lifting the Modified Final Judgment prohibition on the provision of
information services by the seven Bell Operating Companies ("BOCs"), allowing
the BOCs to acquire or construct cable television systems outside of their own
service areas. Several BOCs have purchased or made investments in cable systems
outside their service areas in reliance on this decision. The 1984 Cable Act
codified FCC cross-ownership regulations which, in part, prohibit local exchange
telephone companies, including the BOCs, from providing video programming
directly to subscribers within their local exchange service areas, except in
rural areas or by specific waiver of FCC rules. The statutory provision and
corresponding FCC regulations are of particular competitive importance because
these telephone companies already own much of the plant necessary for cable
television operations, such as poles, underground conduit, associated
rights-of-way and connections to the home.
One telephone company has been successful in a lawsuit in a Virginia federal
court challenging the constitutionality of the existing statutory ban on
unrestricted telephone company ownership of cable systems. The federal
government has appealed this decision. The ruling applies to telephone company
ownership of cable systems in one state in which the Company owns systems.
Similar lawsuits have been filed in several other states in which the Company
owns systems. Legislation to repeal this ban, subject to certain regulatory
requirements, has been introduced in the U.S. Senate and House of
Representatives; repeal has also been endorsed by the Clinton Administration.
The bills would also, inter alia, preempt state and locally-imposed barriers to
the provision of intrastate and interstate telecommunications services by the
Company and other cable system operators in competition with local telephone
companies.
In July 1992, the FCC voted to authorize additional competition to cable
television by video programmers using broadband common carrier facilities
constructed by telephone companies. The FCC allowed telephone companies to take
ownership interests of up to 5% in such programmers. The FCC also reaffirmed an
earlier holding, currently on appeal to a federal court, that programmers using
such a telephone company-provided "video dial tone" system would not need to
obtain a state or municipal franchise. Several telephone companies have sought
approval from the FCC to build such "video
(12)
dial tone" systems. Such a system has been proposed in several communities in
Connecticut in which the Company currently holds a cable franchise and approval
of one such system has been granted in a franchise area adjoining a cable
television system of the Company.
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 Company is
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 Company's cable television
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.
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 FCC has
recently streamlined its MDS regulations and opened substantially more microwave
channels to MDS and SMATV operators, which could increase the strength of their
competition with cable television systems.
In January 1993, the FCC proposed establishing a new local multipoint
distribution service ("LMDS", sometimes referred to as "cellular cable") in the
virtually unused 28 GHz band 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 proposed issuing two LMDS licenses
per market, using auctions or lotteries to select licensees. Suite 12 Group,
the originator of this service, currently holds an experimental license and has
constructed a video transmission service using the 28 GHz band in a portion of
the Company's New York City service area.
The 1984 Cable Act specifically legalized, under certain circumstances,
reception by private home earth stations of satellite-delivered cable
programming services. By law, dish owners have the right to receive broadcast
superstations and network affiliate
(13)
transmissions in return for a compulsory copyright fee. Cable programmers have
developed new marketing efforts to reach these viewers. Direct broadcast
satellite ("DBS") systems currently 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. New higher power DBS systems providing
transmissions over the Ku-Band will permit the use of smaller receiver antennae
and thus may be more appealing to customers. A consortium of cable operators
(other than the Company), formed PrimeStar, a joint venture to operate a medium
power Ku-Band DBS system which began operations in 1990. In addition, other
mid- and high-power DBS ventures have announced their intentions to begin
operations during 1994. Both C-Band and Ku-Band DBS delivery of television
signals are competitive alternatives to cable television.
Other technologies supply services that may compete with certain services
provided by cable television. These technologies include translator stations
(which rebroadcast signals at different frequencies at lower power to improve
reception) and low-power television stations (which operate on a single channel
at power levels substantially below those of most conventional broadcasters and,
therefore, reach a smaller service area).
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 will not become dominant
in the future and render cable television systems less profitable or even
obsolete. In particular, certain major telephone companies have demonstrated an
interest in acquiring cable television systems or providing video services to
the home through fiber optic technology. Changes in the laws and regulations
mentioned above governing telephone companies could allow these companies in the
future to provide information and entertainment services to the home.
Although substantially all the Company's cable television franchises 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 Company operates or a municipality could build a competing cable
system. One company has applied for a franchise to build and operate a
competing cable television system in several communities in Connecticut in which
the Company currently holds a cable franchise. The state regulatory authority
is currently conducting hearings on this application and a decision is expected
during the second or third fiscal quarters of 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.
(14)
REGULATION.
1984 CABLE ACT. In 1984, Congress enacted the 1984 Cable Act, which 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, 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 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. On October 5, 1992, Congress enacted the 1992 Cable Act. The
1992 Cable Act represents 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 Company's 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. On April 1, 1993,
the FCC adopted rules implementing the rate regulation provisions of the 1992
Cable Act.
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 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 April 1, 1993 rate regulation rules, a
cable operator whose per channel rates as of September 30, 1992 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. On February 22, 1994, after reconsideration, the FCC ordered a
further reduction of 7% in rates for the basic service tier in effect on
September 30, 1992, for an overall reduction of 17% from those rates. The
amount of this 17% decrease that is below a new per channel benchmark need not
be implemented pending
(15)
completion of FCC studies of the costs of below-benchmark cable systems. In the
interim, however, the amount of the 17% decrease that is below this benchmark
must be computed by the cable system and must be offset against otherwise
allowable rate increases by these systems. 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
service to additional sets unless the operator incurs additional programming
costs in connection with the delivery of the regulated service to multiple sets.
The FCC may, in response to complaints by a subscriber, municipality or other
governmental entity, reduce the rates for service packages other than the basic
service package if it finds that such rates are unreasonable. Under the FCC's
April 1, 1993 rules, a cable operator whose per channel rates for such service
packages as of September 30, 1992, exceeded an FCC established benchmark was
required to reduce its per channel rates for such packages by up to 10% unless
it could justify higher rates on the basis of its costs. On February 22, 1994,
the FCC also determined on reconsideration to authorize a further rate reduction
of 7% applicable to FCC-regulated tiers, subject to the same interim constraints
on further decreases in the basic tier rates below new benchmarks discussed
above. The FCC will in response to complaints also regulate, on the basis of
actual cost, the rates for equipment used only to receive these higher packages.
Services offered on a per channel or per program basis or packages comprised
only of services that are also available on a per channel or per program basis
are not subject to rate regulation by either municipalities or the FCC. The FCC
on February 22, 1994 adopted criteria to assess whether certain discounted
packages of "a la carte" or per channel offerings should be regulated as a tier
of services by the FCC, or treated as unregulated per channel offerings.
The regulations adopted by the FCC on April 1, 1993, including the original rate
benchmarks, became effective on September 1, 1993. The new rate regulations
adopted by the FCC on February 22, 1994, including the new benchmarks, are
expected to become effective in May, 1994.
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 or any other regulated package of service may not
exceed an inflation indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and increased
programming costs that exceed the inflation index. A cable operator may not
pass through to subscribers any amounts paid by the operator on or before
October 6, 1994, to broadcast stations for the retransmission of their
(16)
signals. Increases in retransmission fees above those in effect on that day may
be passed through to subscribers. As part of the implementation of its rate
regulations, the FCC has frozen all cable service rates in effect on April 5,
1993 until May 15, 1994. Challenges to rates then in effect were required to be
filed within six months from September 1, 1993.
On February 22, 1994, the FCC 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. Such
justification would be based upon (i) the operator's costs in operating a cable
television system (including certain operating expenses, depreciation and taxes)
and (ii) a return on the investment the operator has made to provide regulated
cable television services in such system (such investment being referred to as
its "ratebase", which includes working capital and certain costs associated with
the construction of such system). The guidelines (1) create a rebuttable
presumption that excludes from a cable television operator's ratebase any
"excess acquisition costs" (equal to the excess of the purchase price for a
cable television system over the original construction cost of such system, or
its book value at the time of acquisition), (2) include in the rate base the
costs associated with certain intangibles such as franchise rights and customer
lists, (3) set a uniform rate of return for regulated cable television service
of 11.25% after taxes, and (4) include a "productivity offset feature" that
could reduce otherwise justifiable rate increases based on a claimed increase in
a cable television system's operational efficiencies.
Under the 1992 Cable Act, systems may not require subscribers to purchase any
service package 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.
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,
(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) above concerning limitations on affiliated
programming, the FCC has 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 households that any cable company can serve. In connection with
clause (iv) above concerning
(17)
retransmission of a local broadcaster's signals, a substantial number of local
broadcast stations are currently carried by the Company's systems and have
elected to negotiate with the Company for Retransmission Consent. Although the
Company has obtained Retransmission Consent agreements with all broadcast
stations it currently carries, a number of these agreements are temporary in
nature and the potential remains for discontinuation of carriage if an agreement
is not ultimately reached.
The FCC has 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, and disposition of a
customer's home wiring. The FCC has also issued a report to Congress on
proposals for compatibility with other consumer electronic equipment such as
"cable ready" television sets and videocassette recorders and has issued a
notice of proposed rulemaking seeking comments on proposed equipment
compatibility regulations.
A number of lawsuits have been filed in federal court challenging the
constitutionality of various provisions of the 1992 Cable Act. A challenge to
the constitutionality of the 1992 Cable Act's Must Carry rules was denied by a
federal court in April 1993. A stay of the rules pending an appeal to the
United States Supreme Court was denied. Argument on those rules was heard by
the United States Supreme Court in January 1994. Other lawsuits filed
challenging the application of the Must Carry rules to particular cable
television systems have been unsuccessful. Most other challenged provisions of
the 1992 Cable Act have been upheld at the federal district court level,
including provisions governing rate regulation and retransmission consent, but
an appeal to the District of Columbia Court of Appeals of that decision has been
filed. Other challenges to the FCC rate freeze and other provisions of the
FCC's rate regulation scheme have been separately brought directly to the D.C.
Circuit. The Company cannot predict the outcome of any of the foregoing
litigation affecting the 1992 Cable Act.
OTHER FCC REGULATION. In addition to the rules and regulations promulgated by
the FCC under the 1984 Cable Act and the 1992 Cable 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 Company's
programming options for their cable systems.
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 Company's cable television systems operate
have done so. The FCC's technical guidelines for signal leakage became
substantially more stringent in 1990, requiring upgrading expenditures by the
Company. Two-way radio stations, microwave-relay stations and satellite earth
stations used by the Company's cable television systems are licensed by the FCC.
(18)
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 has recommended to
Congress the abolition of the compulsory licenses for cable television carriage
of broadcast signals. Any such action by Congress could adversely affect the
Company's ability to obtain such programming and could increase the cost of such
programming.
CABLE TELEVISION CROSS-MEDIA OWNERSHIP LIMITATIONS. The 1984 Cable Act
prohibits any person or entity from owning broadcast television and cable
properties in the same market. The 1984 Cable Act also bars co-ownership of
telephone companies and cable television systems operating in the same service
areas, with limited exceptions for rural areas. The FCC may also expand the
rural exemption for telephone companies offering cable service within their
service areas. The FCC has modified its rule that formerly barred the
commercial broadcasting networks (NBC, CBS and ABC) from owning cable television
systems. The FCC rule does not allow the networks to acquire cable systems in
markets in which they already own a broadcast station, and sets limitations on
the percentage of homes that can be passed, both nationally and locally, by
network-owned cable systems. There is no federal bar to newspaper ownership of
cable television systems. The 1992 Cable Act imposed limits on new acquisitions
of SMATV or MMDS systems by cable operators in their franchise areas. The
Company does not have any prohibited cross-ownership interests.
STATE AND LOCAL REGULATION. 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 expands 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. 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 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.
(19)
CONSOLIDATED CABLE AFFILIATES
V CABLE. On December 31, 1992, the Company consummated a significant
restructuring and reorganization involving its unrestricted subsidiary V Cable,
U.S. Cable and General Electric Capital Corporation ("GECC"), V Cable's
principal creditor (the "V Cable Reorganization"). In the V Cable
Reorganization, V Cable acquired, for $20.0 million, a 20% partnership interest
in U.S. Cable, and U.S. Cable acquired, for $3.0 million, a 19% non-voting
interest in a newly incorporated subsidiary of V Cable ("VC Holding") that was
formed to hold substantially all of V Cable's assets. As a result, V Cable now
owns an effective 84.8% interest in VC Holding. GECC then provided new
long-term credit facilities to each of V Cable, VC Holding and U.S. Cable. The
debt of V Cable and VC Holding is guaranteed by, and secured by a pledge of all
of the assets of, V Cable, VC Holding and each of their subsidiaries, including
a pledge of all direct and indirect ownership interests in such subsidiaries.
The debt of U.S. Cable is guaranteed by all subsidiaries of U.S. Cable, and
secured by all the assets of each subsidiary of U.S. Cable; U.S. Cable's debt is
also guaranteed (and cross-collateralized in most cases) by each of V Cable, VC
Holding and each of their subsidiaries. All of the V Cable, VC Holding and U.S.
Cable credit facilities are non-recourse to the Company other than with respect
to the common stock of V Cable owned by the Company. The Company manages the
U.S. Cable properties and the V Cable systems under management agreements that
provide for cost reimbursement, including an allocation of overhead charges.
In connection with the V Cable Reorganization, V Cable will assume, on
December 31, 1997, approximately $121.0 million face value of debt of U.S. Cable
($78.3 million present value as of December 31, 1993), which amount is subject
to adjustment, upward or downward, depending on U.S. Cable's ratio of debt to
cash flow (as defined) in 1997. Each year thereafter, until the final
adjustment upon occurrence of an exchange described below, the amount of U.S.
Cable debt assumed by V Cable may be similarly adjusted, upward or downward.
V Cable has the option to exchange its interest in U.S. Cable for all of U.S.
Cable's interest in VC Holding and thus recover full ownership of the V Cable
systems from and after January 1, 1998. Upon such an exchange, the guarantee
and cross collateralization by V Cable and VC Holding of any portion of the
U.S. Cable senior credit facilities not assumed by V Cable would terminate.
Such option may not be exercised prior to November 30, 2001 unless the U.S.
Cable systems have been sold for a net purchase price sufficient to repay to
GECC certain of the U.S. Cable loans not assumed by V Cable, as well as a fixed
additional amount. In addition, V Cable may exercise the option prior to
January 1, 1998 if the U.S. Cable systems have been sold, all outstanding
indebtedness of V Cable, VC Holding and U.S. Cable to GECC (other than junior
subordinated debt and certain other excluded indebtedness) is repaid, and an
additional fixed amount is paid to GECC.
The Company accounts for its investment in U.S. Cable using the equity method of
accounting.
(20)
CABLEVISION OF NEW YORK CITY. In July 1992, the Company acquired (the "CNYC
Acquisition") substantially all of the remaining interests in Cablevision of New
York City -- Phase I through Phase V ("CNYC"), the operator of a cable
television system that is under development in The Bronx and parts of Brooklyn,
New York. Prior to the CNYC Acquisition, the Company had a 15% interest in CNYC
and Charles F. Dolan, the chief executive officer and principal shareholder of
the Company, owned the remaining interests. Mr. Dolan remains a partner in
CNYC, with a 1% interest and the right to certain preferential payments.
CNYC holds franchises that permit construction of the franchised areas in
specified phases. Construction of the systems in the Brooklyn and The Bronx
franchises will take place in five and four phases, respectively. Construction
of Phases I, II, III and IV in Brooklyn and Phases I, II and III in The Bronx
has been substantially completed. Construction of Phase IV in The Bronx and
Phase V in Brooklyn is scheduled to be substantially fully built by the end of
1995.
Under the agreement between the Company and Mr. Dolan, a new limited partnership
("CNYC LP") was formed and holds 99% of the partnership interests in CNYC. The
remaining 1% interest in CNYC is owned by the existing corporate general
partner, which is a wholly-owned subsidiary of the Company. The Company owns
99% of the partnership interests in CNYC LP and Mr. Dolan retains a 1%
partnership interest in CNYC LP plus certain preferential rights. Mr. Dolan's
preferential rights entitle him to an annual cash payment (the "Annual Payment")
of 14% multiplied by the outstanding balance of his "Minimum Payment". The
Minimum Payment is $40.0 million and is to be paid to Mr. Dolan prior to any
distributions from CNYC LP to partners other than Mr. Dolan. In addition, Mr.
Dolan has the right, exercisable on December 31, 1997, and as of the earlier of
(1) December 31, 2000 and (2) December 31 of the first year after 1997 during
which CNYC achieves an aggregate of 400,000 subscribers, to require the Company
to purchase (Mr. Dolan's "put") his interest in CNYC LP. The Company has the
right to require Mr. Dolan to sell his interest in CNYC LP to the Company (the
Company's "call") during the three-year period commencing one year after the
expiration of Mr. Dolan's second put. In the event of a put, Mr. Dolan will be
entitled to receive from the Company the Minimum Payment, any accrued but unpaid
Annual Payments, a guaranteed return on certain of his investments in CNYC LP
and a Preferred Payment defined as a payment (not exceeding $150.0 million)
equal to 40% of the Appraised Equity Value (as defined) of CNYC LP after making
certain deductions including a deduction of a 25% compound annual return on
approximately 85% of the Company's investments with respect to the construction
of Phases III, IV and V of CNYC and 100% of certain of the Company's other
investments in CNYC, including Mr. Dolan's Annual Payment. In the event the
Company exercises its call, the purchase price will be computed on the same
basis as for a put except that there will be no payment in respect of the
Appraised Equity Value amount.
The Company has the right to make payment of the put or call exercise price in
the form of shares of the Company's Class B Common Stock or, if Mr. Dolan so
elects, Class A Common Stock, except that all Annual Payments must be paid in
cash to the
(21)
extent permitted under the Company's Credit Agreement (as defined below). Under
the Credit Agreement, the Company is currently prohibited from paying the put or
call exercise price in cash and, accordingly, without the consent of the bank
lenders, would be required to pay it in shares of the Company's Common Stock.
The Company has agreed to invest in CNYC LP sufficient funds to permit CNYC LP
to make the required Annual Payments to Mr. Dolan and to make certain equity
contributions to CNYC. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Restricted Group."
The subsidiaries of the Company that own all of the Company's interests in CNYC
have succeeded to the rights and obligations of Mr. Dolan under a security
agreement relating to CNYC's credit agreement and in connection therewith have
pledged all of the Company's interests in CNYC and CNYC LP to secure the
obligations to the bank lenders under the CNYC credit agreement. Recourse
against these subsidiaries, which are members of the Restricted Group, is
limited solely to the pledged interests in CNYC and CNYC LP.
OTHER CABLE AFFILIATES
A-R CABLE. On May 11, 1992, A-R Cable purchased approximately $237 million
principal amount of its Senior Subordinated Deferred Interest Notes due December
30, 1997 (the "A-R Cable Notes") representing approximately 86.9% of the
principal amount of A-R Cable Notes outstanding. Concurrent with the purchase
of the A-R Cable Notes, Warburg, Pincus Investors, L.P. ("Warburg Pincus")
purchased a new Series A Preferred Stock of A-R Cable for a cash investment of
$105.0 million, and the Company purchased a new Series B Preferred Stock of A-R
Cable for a cash investment of $45.0 million. The Company acquired the funds
for its investment in A-R Cable through borrowings under the Company's credit
agreement. In addition, GECC provided A-R Cable with an additional $70.0
million under a secured revolving credit line. The proceeds from the sale of
the Series A and Series B Preferred Stock and the additional GECC loans were
used to purchase the A-R Cable Notes.
In connection with Warburg Pincus' investment in A-R Cable, upon the receipt of
certain franchise approvals, Warburg Pincus will be permitted to elect three of
the six members of the A-R Cable board of directors, will have approval rights
over certain major corporate decisions of A-R Cable and will be entitled to 60%
of the vote on all matters on which holders of capital stock are entitled to
vote (other than the election of directors). A wholly-owned subsidiary of the
Company continues to own the common stock, as well as the Series B Preferred
Stock, of A-R Cable and the Company continues to manage A-R Cable under a
management agreement that provides for cost reimbursement, an allocation of
overhead charges and a management fee of 3-1/2% of gross receipts, as defined,
with interest on unpaid annual amounts thereon at a rate of 10% per annum. The
3-1/2% fee and interest thereon is payable by A-R Cable only after repayment in
full of its senior debt and certain other obligations. Under certain
circumstances, the fee is subject to reduction to 2-1/2% of gross receipts.
(22)
After May 11, 1997, either Warburg Pincus or the Company may irrevocably cause
the sale of A-R Cable, subject to certain conditions. In certain circumstances,
Warburg Pincus may cause the sale of A-R Cable prior to that date. If Warburg
Pincus initiates the sale, the Company will have the right to purchase A-R Cable
through an appraisal procedure. The Company's purchase right may be forfeited
in certain circumstances. Upon the sale of A-R Cable, the net sales proceeds,
after repayment of all outstanding indebtedness and other liabilities, will be
used as follows: first, to repay Warburg Pincus' original $105.0 million
investment in the Series A Preferred Stock; second, to repay the Company's
original investment of $45.0 million in the Series B Preferred Stock; third, to
repay the accumulated unpaid dividends on the Series A Preferred Stock (19%
annual rate); fourth, to repay the accumulated unpaid dividends on the Series B
Preferred Stock (12% annual rate); fifth, to pay the Company for all accrued and
unpaid management fees together with accrued but unpaid interest thereon; sixth,
pro rata 60% to the Series A Preferred Stockholders, 4% to the Series B
Preferred Stockholders and 36% to the common stockholder(s).
Also in connection with the purchase of the A-R Cable Notes, A-R Cable retired
its previously outstanding preferred stock (undesignated as to series) which it
had purchased from an affiliate for nominal consideration. In connection with
the purchase of the preferred stock, a transaction fee agreement between A-R
Cable and GECC was terminated and A-R Cable's obligations thereunder were
extinguished.
As a result of the rights to which Warburg Pincus is entitled discussed above,
the Company no longer has financial or voting control over A-R Cable's
operations. Accordingly, the Company no longer consolidates the financial
position or results of operations of A-R Cable. For reporting purposes, the
deconsolidation of A-R Cable became effective on January 1, 1992 and the Company
is accounting for its investment using the equity method of accounting.
The Company continues to guarantee the debt of A-R Cable to GECC under a limited
recourse guarantee wherein recourse to the Company is limited solely to the
common stock and Series B Preferred Stock of A-R Cable owned by a wholly-owned
subsidiary of the Company.
In October and November 1992, A-R Cable repurchased approximately an aggregate
$6.9 million principal amount of the A-R Cable Notes at an average price of
$98.60 per $100 principal amount. The funds for such repurchase were obtained
by additional borrowings under A-R Cable's secured revolving credit line. In
February 1993, A-R Cable redeemed the remaining principal amount of A-R Cable
Notes and accrued interest thereon in the aggregate amount of $29.3 million.
The funds for such redemption were obtained from an additional revolving credit
line provided by GECC.
CABLEVISION OF BOSTON. Cablevision of Boston, a Massachusetts limited
partnership, is engaged in the construction, ownership and operation of cable
television systems in Boston and Brookline, Massachusetts. The Company had
advanced net funds to Cablevision of Boston as of December 31, 1993 amounting to
approximately $52.0 million. Due to uncertainties existing during 1985 (which
subsequently were resolved),
(23)
the Company wrote off for accounting purposes its entire investment in and
advances to Cablevision of Boston of $34.5 million as of September 30, 1985.
Subsequent to 1985, a subsidiary of the Company exchanged $45.7 million of
advances, consisting of amounts previously written off of $34.5 million,
interest of $3.2 million that had not been recognized for accounting purposes,
and $8.0 million of subsequent advances, for $45.7 million of preferred equity
in Cablevision of Boston. After this exchange, the Company advanced an
additional $9.5 million to Cablevision of Boston; in addition, at December 31,
1993, $81.2 million of unpaid distributions had accrued on the Company's
preferred equity. At December 31, 1993, as a result of the write-off referred
to above and non-recognition for accounting purposes of the unpaid
distributions, the Company's consolidated financial statements reflected $17.5
million due from Cablevision of Boston. The Company's preferred equity is
subordinated to the indebtedness of Cablevision of Boston (including the
Company's $9.5 million of advances not converted to preferred equity) and
accrued but unpaid management fees due to a corporation owned by the managing
general partner, which indebtedness and management fees aggregated approximately
$92.2 million at December 31, 1993, and any working capital deficit incurred in
the ordinary course of business.
In addition to the Company's preferred equity interest in Cablevision of Boston,
the Company is a limited partner in Cablevision of Boston and currently holds a
7% prepayout interest and a 20.7% postpayout interest. Mr. Dolan holds directly
or indirectly a 1% prepayout general partnership interest and a 23.5% postpayout
general partnership interest in Cablevision of Boston. With respect to
Cablevision of Boston, "payout" means the date on which the limited partners
are distributed the amount of their original investment.
CABLEVISION OF CHICAGO. Cablevision of Chicago owns cable television systems
operating in the suburban Chicago area. The Company does not have a material
ownership interest in Cablevision of Chicago but had loans and advances
outstanding to Cablevision of Chicago in the amount of $12.4 million (plus $10.1
million in accrued interest which the Company has fully reserved) as of December
31, 1993, which loans and advances are subordinated to Cablevision of Chicago's
senior credit facility. Mr. Dolan currently holds directly or indirectly an
approximate 1% prepayout and a 32.7% postpayout general partnership interest in
the cable television systems owned and operated by Cablevision of Chicago. With
respect to Cablevision of Chicago, "payout" means the date on which the limited
partners in Cablevision of Chicago are distributed the amount of their original
investment, plus interest thereon, if applicable. In February, 1993 Cablevision
of Chicago amended its credit facility, increasing the maximum amount available
under such facility to $85.0 million and obtaining the ability to pay certain
subordinated debt.
CABLEVISION OF NEWARK. In April 1992, Cablevision of Newark, a partnership 25%
owned and managed by the Company and 75% owned by an affiliate of Warburg
Pincus, acquired cable television systems located in Newark and South Orange,
New Jersey ("Gateway Cable") from Gilbert Media Associates, L.P. for a cash
purchase price of approximately $76.5 million. The Company's total capital
contributions to Cablevision of Newark were approximately $6.0 million. The
Company manages the
(24)
operations of Cablevision of Newark for a fee equal to 3-1/2% of gross receipts,
as defined, plus reimbursement of certain costs and an allocation of certain
selling, general and administrative expenses.
U.S. CABLE. In connection with the V Cable Reorganization (see Note 2 of Notes
to Consolidated Financial Statements), V Cable acquired for $20.0 million a 20%
interest in U.S. Cable. The Company has managed the properties of U.S. Cable
since June 1992 under management agreements that provide for cost reimbursement,
including an allocation of overhead charges.
(25)
PROGRAMMING OPERATIONS
GENERAL.
The Company conducts its programming activities through Rainbow Programming, its
wholly owned subsidiary, and through subsidiaries of Rainbow Programming in
partnership with certain unaffiliated entities, including National Broadcasting
Company, Inc. ("NBC") and Liberty Media Corporation ("Liberty"). Rainbow
Programming's businesses include eight regional SportsChannel services, two
national entertainment services (American Movie Classics Company ("AMCC") and
Bravo Network ("Bravo")), News 12 Long Island (a regional news service serving
Long Island, New York) and the national backdrop sports services of Prime
SportsChannel Networks ("Prime SportsChannel"). Rainbow Programming also owns
an interest in Courtroom Television Network. Rainbow Programming's
SportsChannel services provide regional sports programming to the New York,
Philadelphia, New England, Chicago, Cincinnati, Cleveland, San Francisco and
Florida areas. AMCC is a national program service featuring classic, unedited
and non-colorized films from the 1930s through the 1970s. Bravo is a national
program service offering international films and performing arts programs,
including jazz, dance, classical music, opera and theatrical programs.
Rainbow Programming acts as managing partner for each of these programming
businesses, other than Courtroom Television Network (which is managed by Time
Warner), and reflects its share of the profits or losses in these businesses
using the equity method of accounting. Rainbow Programming may from time to
time sell equity interests in certain of these businesses, which sale(s) would
reduce Rainbow Programming's ownership interests therein. Certain of Rainbow
Programming's programming interests are held through Rainbow Program Enterprises
("RPE"), which is substantially wholly owned by Rainbow Programming.
In December 1992, Rainbow Programming, NBC and Liberty entered into an agreement
to form Prime SportsChannel, a partnership to supply national sports
programming, including live and taped sports events and sports news, to regional
sports markets in the United States. The partnership, which is owned 50% by an
affiliate of Liberty and 25% each by affiliates of Rainbow and NBC, delivers two
national sports program services: Prime Network, consisting primarily of live
and taped events, and SportsChannel America, featuring sports news and
occasional events. In addition, an affiliate of Liberty concurrently acquired a
one-third partnership interest in SportsChannel Prism Associates ("Prism"),
which operates two regional sports and entertainment programming services in
Philadelphia. Following this transaction, affiliates of Liberty, Rainbow
Programming and NBC are equal one-third partners in Prism.
In January 1993, Liberty exercised the remainder of its option to purchase an
additional 0.1% interest in SportsChannel Chicago Associates equally from both
Rainbow Programming and NBC. Accordingly, Liberty now has a 50% ownership
interest while Rainbow and NBC each have a 25% interest in the company.
(26)
As previously announced, the Company is considering possible transactions that
could result in Rainbow Programming, or another entity holding the Company's
programming interests, becoming a publicly-held company, including a spin-off of
all or a portion of Rainbow Programming or such entity to the Company's common
stockholders.
Rainbow Programming and NBC formed a venture to exploit the pay-per-view
television rights to the 1992 Summer Olympics. Rainbow Programming's share of
the losses of the venture amounted to its maximum obligation of $50 million and
this payment was made to NBC in January 1993.
On August 2, 1993, Rainbow Programming received a notice from the AMCC partner
affiliated with Liberty Media Corporation initiating the buy-sell procedure and
setting a stated value of $390 million for all the partnership interests in
AMCC. The partnership agreement provides that the non-initiating partner has a
period of 45 days from receipt of the buy-sell notice to elect to purchase the
initiating partner's interest at the stated value or sell its interest at the
stated value. On September 16, 1993, Rainbow Programming notified its partners
in AMCC that it had elected to purchase Liberty Media's 50% interest in AMCC at
the stated value. The Company anticipates that the transaction will be
consummated in the second quarter of 1994.
Rainbow Programming's financing needs have been funded by the Restricted Group's
investments in and advances to Rainbow Programming, by sales of equity interests
in various programming businesses and, to a limited extent, through separate,
external debt financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources".
COMPETITION.
There are numerous programming services with which Rainbow Programming competes
for cable television system distribution and for subscribers, including network
television, other national and regional cable services, independent broadcast
television stations, television superstations, the home videocassette industry,
and developing pay-per-view services. Rainbow Programming and the other
programming services are competing for limited channel capacity and for
inclusion in the basic service tier of the systems offering their programming
services. Many of these program distributors are large, publicly-held companies
which have greater financial resources than Rainbow Programming.
Rainbow Programming also competes for the availability of programming, through
competition for telecast rights to films and competition for rights agreements
with sports teams. The Company anticipates that such competition will increase
as the number of programming distributors increases.
(27)
In general, the programming services offered by Rainbow Programming compete with
other forms of television-related services and entertainment media on the basis
of the price of services, the variety and quality of programming offered and the
effectiveness of Rainbow Programming's marketing efforts.
REGULATION.
Cable television program distributors such as Rainbow Programming are not
regulated by the FCC under the Communications Act of 1934. 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, the business of
Rainbow Programming will be directly affected. As discussed above under
"Business - Cable Television Operations - Regulation", the 1992 Cable Act limits
in certain ways the Company's ability to freely manage the Rainbow Programming
services or carry the Rainbow Programming services on their affiliates' systems
or could impose other regulations on the Rainbow Programming companies.
The 1984 Cable Act prohibits localities from requiring carriage of specific
programming services, providing a more open market for Rainbow Programming and
other cable program distributors. The 1984 Cable Act limits the number of
commercial leased access channels that a cable television operator must make
available for potentially competitive services but the 1992 Cable Act empowers
the FCC to set the rates and conditions for such leased access channels. The
reimposition of the FCC's rules requiring blackout of syndicated programming on
distant broadcast signals for which a local broadcasting station has an
exclusive contract opened new channels for Rainbow Programming's services.
Satellite common carriers, from whom Rainbow Programming 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 Programming 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
Programming 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.
(28)
ADVERTISING SERVICES
Rainbow Advertising represents certain of the Company's cable television systems
in the sales of advertising time to regional and local advertisers. Rainbow
Advertising also represents each of the SportsChannel regional programming
services and the News 12 Long Island programming service in the sales of
advertising time to national and regional advertisers. Rainbow Advertising
represents cable television systems unaffiliated with the Company in the sales
of spot advertising to national and regional advertisers. Rainbow Advertising
also has contracted with certain unaffiliated cable television operators to act
as their exclusive representative for the sales of advertising time to local
advertisers.
OTHER AFFILIATES
ATLANTIC PUBLISHING. Atlantic Cable Television Publishing Corporation
("Atlantic Publishing") holds a minority equity interest and a debt interest in
a company that publishes a weekly cable television guide which is offered to the
Company's subscribers and to other unaffiliated cable television operators. As
of December 31, 1993, the Company had advanced an aggregate of approximately
$18.3 million to Atlantic Publishing, of which approximately $0.7 million was
advanced during 1992 and approximately $0.5 million was paid back during 1993.
The Company has written off all of its advances to Atlantic Publishing other
than $4.0 million. Atlantic Publishing is owned by a trust for certain Dolan
family members; however, the Company has the option to purchase Atlantic
Publishing for an amount equal to the owner's net investment therein plus
interest. The current owner has made only a nominal investment in Atlantic
Publishing to date.
RADIO STATION WKNR. In 1990, the Company and a partner purchased Cleveland
Radio Associates ("WKNR"), an AM radio station serving the Cleveland
metropolitan area. The Company purchased its partner's interest and its total
purchase price for its 100% interest in the radio station was $2.5 million. The
Company has implemented a change for WKNR to an all-sports format. The Company
purchased WKNR in order to explore possible synergies that may exist between
radio and its cable television systems and regional sports channel service in
the Cleveland market.
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1993, the Company had 3,197 full-time, 370 part-time and 69
temporary employees. During 1991, the International Brotherhood of Electrical
Workers ("IBEW") conducted an organizing campaign among employees involved in
the operation of News 12 Long Island. In connection with that campaign, the
IBEW claimed that various unfair labor practices were committed. An NLRB
administrative law judge found that News 12's downsizing of its work force in
1991 was based upon valid economic factors and was not an unfair labor practice.
The IBEW intends to appeal this determination. The administrative law judge has
also found that News 12 offered improper promises to certain employees and
improper threats of retaliation to
(29)
others. News 12 intends to appeal this determination. As of December 31, 1993,
News 12 Long Island had 40 full-time, 7 part-time and 102 temporary employees.
In January 1993, IBEW Local 3 filed a Petition seeking to organize certain
employees in CNYC's engineering department. At an election held on March 23,
1994, the employees voted not to be represented by the union. CNYC currently
employs 642 employees of whom approximately 145 comprise the proposed bargaining
unit.
There are no collective bargaining agreements with employees in effect, and the
Company believes that its relations with its employees are satisfactory.
(30)
ITEM 2. PROPERTIES
The Company generally leases the 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. Significant leasehold properties include eleven business
offices, comprising the Company's headquarters located in Woodbury, New York
with approximately 248,000 square feet of space, and the headend sites. The
Company believes its properties are adequate for its use.
The Company generally owns all assets (other than real property) related to the
cable television operations of the Restricted Group, 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. Similarly, the unconsolidated entities managed by
the Company generally own such assets related to their cable television
operations. The Company generally leases its service and other vehicles.
Substantially all of the assets of the Restricted Group, CNYC, V Cable and
VC Holding are pledged to secure borrowings under their respective credit
agreements.
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. See Note 12
of Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
(31)
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A Common Stock, par value $.01 per share ("Class A Common
Stock"), is traded on the American 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 for the
periods indicated.
1993 1992
------------- -------------
Quarter High Low High Low
------- ---- --- ---- ---
First 44 34-3/8 36 29
Second 38-7/8 29-3/8 32-1/2 27
Third 49-5/8 37-1/2 35 25-3/4
Fourth 72 48-1/4 35 24-7/8
As of March 15, 1994, there were 719 holders of record of Class A Common Stock.
There is no public trading market for the Company's Class B Common Stock, par
value $.01 per share ("Class B Common Stock"). As of March 15, 1994, there were
23 holders of record of Class B Common Stock.
DIVIDENDS. The Company has not paid any dividends on shares of Class A or Class
B Common Stock. The Company intends to retain earnings to fund the growth of
its business and does not anticipate paying any cash dividends on shares of
Class A or Class B Common Stock in the foreseeable future.
The Company may pay cash dividends on its capital stock only from surplus as
determined under Delaware law. Holders of Class A and Class B Common Stock are
entitled to receive dividends equally on a per share basis if and when such
dividends are declared by the Board of Directors of the Company from funds
legally available therefor. No dividend may be declared or paid in cash or
property on shares of either Class A or Class B Common Stock unless the same
dividend is paid simultaneously on each share of the other class of common
stock. In the case of any stock dividend, holders of Class A Common Stock are
entitled to receive the same percentage dividend (payable in shares of Class A
Common Stock) as the holders of Class B Common Stock receive (payable in shares
of Class B Common Stock). In addition, the Company is restricted from paying
dividends on its capital stock, other than the Company's 8% Series C Cumulative
Preferred Stock, under the provisions of its debt agreements.
Under the most restrictive of these provisions, cash dividends could not be paid
on Class A or Class B Common Stock at December 31, 1993. Dividends may not be
paid in respect of shares of Class A or Class B Common Stock unless all
dividends due and payable in respect of the preferred stock of the Company have
been paid or provided for.
(32)
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
the Company. Acquisitions made by the Company 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 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. The operating data for 1992
reflects the deconsolidation of the Company's A-R Cable subsidiary for reporting
purposes, effective January 1, 1992. The selected financial data presented
below should be read in conjunction with the financial statements of the Company
and notes thereto included in Item 8 of this Report.
CABLEVISION SYSTEMS CORPORATION
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
(Dollars in thousands, except per share data)
Operating Data:
- ---------------
Net revenues . . . . . . . . . . . . . . . . . . . . . . . $ 666,724 $ 572,487 $ 603,272 $ 562,989 $ 492,688
Operating expenses
Technical . . . . . . . . . . . . . . . . . . . . . . 241,877 204,449 213,059 202,850 181,513
Selling, general and administrative . . . . . . . . . 172,687 120,356 121,527 118,825 105,940
Depreciation and amortization . . . . . . . . . . . . 194,904 168,538 215,326 216,288 191,310
------- ------- ------- ------- -------
Operating profit . . . . . . . . . . . . . . . . . . . . . 57,256 79,144 53,360 25,026 13,925
Other income (expense):
Interest expense, net . . . . . . . . . . . . . . . . (230,327) (193,379) (257,189) (261,114) (226,467)
Share of affiliates' net loss . . . . . . . . . . . . (61,017) (47,278) (23,780) (39,980) (34,019)
Gain (loss) on sale of programming interests, net (330) 7,053 15,505 - 102,212
Gain on sale of securities, net . . . . . . . . . . . - 733 5,806 - 4,502
Provision for loss on Olympic venture . . . . . . . . - (50,000) - - -
Loss on sale of preferred stock . . . . . . . . . . . - (20,000) - - -
Write off of deferred financing costs . . . . . . . . (1,044) (12,284) - - -
Settlement of litigation and related matters. . . . . - (5,655) (9,677) - -
Provision for preferential payment to party . . . . . (5,600) ( 2,662) - - -
Transaction fees . . . . . . . . . . . . . . . . . . - - - 14,759 (13,029)
Minority interest . . . . . . . . . . . . . . . . . . 3,000 - - - -
Miscellaneous, net. . . . . . . . . . . . . . . . . . (8,720) (6,175) (11,224) (10,066) (746)
------- ------- ------- ------- -------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . (246,782) (250,503) (227,199) (271,375) (153,622)
Preferred dividend requirement . . . . . . . . . . . . . . (885) (885) (4,464) (4,065) (3,710)
------- ------- ------- ------- -------
Net loss applicable to common shareholders . . . . . . . . $(247,667) $(251,388) $(231,663) $(275,440) $(157,332)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Net loss per common share . . . . . . . . . . . . . . . . $ (10.83) $ (11.17) $ (10.32) $ (12.36) $ (7.12)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Average number of common shares outstanding (in thousands) 22,859 22,512 22,446 22,290 22,082
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Cash dividends declared per common share . . . . . . . . . $ - $ - $ - $ - $ -
------- ------- ------- ------- -------
------- ------- ------- ------- -------
CABLEVISION SYSTEMS CORPORATION
---------------------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------------------
1993 1992 1991 1990 1989
(DOLLARS IN THOUSANDS)
Balance Sheet Data:
- -------------------
Total assets . . . . . . . . . . . . . . . . . . . $1,309,444 $ 1,251,157 $1,475,672 $1,641,612 $1,756,271
Total debt . . . . . . . . . . . . . . . . . . . . 2,235,499 2,004,452 2,211,056 2,170,275 2,015,642
Deficit investment in affiliate. . . . . . . . . . 307,758 251,679 - - -
Minority interest. . . . . . . . . . . . . . . . . - 3,000 - - -
Cumulative Redeemable Preferred Stock. . . . . . . - - 32,094 28,515 25,335
Stockholders' deficiency . . . . . . . . . . . . . (1,503,244) (1,250,248) (932,428) (702,448) (427,876)
Statistical Data:
- -----------------
Homes passed by cable. . . . . . . . . . . . . . . 2,240,000 2,019,000 2,005,000 1,976,000 1,946,000
Basic service subscribers. . . . . . . . . . . . . 1,379,000 1,262,000 1,372,000 1,326,000 1,274,000
Basic service subscribers as a percentage of
homes passed. . . . . . . . . . . . . . . . . 61.5% 62.5% 68.4% 67.1% 65.5%
Number of premium television units . . . . . . . . 3,003,000 2,802,000 2,326,000 2,401,000 2,397,000
Average number of premium units per basic
subscriber at period end. . . . . . . . . . . 2.2 2.2 1.7 1.8 1.9
Average monthly revenue per basic subscriber (1) . $36.59 $37.64 $34.43 $34.09 $33.12
- ------------------------
(1) Based on recurring service revenues divided by average subscribers for the month of December.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
RECENT CABLE REGULATORY DEVELOPMENTS
As a result of the initial FCC rate regulations, significant rate reductions
were required in a number of the Company's cable television systems. The
Company estimates that rate changes and other adjustments, effective
September 1, 1993, made in compliance with the initial FCC regulations, caused
revenues and operating cash flow (operating profit before depreciation and
amortization) to decline $14.9 million and $13.4 million, respectively, for the
period from September 1, through December 31, 1993 from those that would have
existed absent such adjustments. On February 22, 1994, the FCC ordered a
further reduction in rates in effect on September 30, 1992 for the basic service
tier. For a further description see Item 1 - "Business - Cable Television
Operations - Competition and Regulation".
The Company is currently in the process of attempting to analyze the impact of
the revised rate regulations announced by the FCC in February 1994. Because the
Company has not yet had an opportunity to review the formal text of the revised
regulations, it is not possible at this time to predict the ultimate financial
impact of these rate regulations on the Company and its subsidiaries; however,
the Company expects further rate reductions will be required in a number of its
cable television systems.
In connection with the implementation of its revised rate structure resulting
from the initial FCC rate regulation, the Company introduced a number of
measures, including the provision of alternate service offerings and repackaging
of certain services in order to mitigate the negative impact of FCC regulation
on the Company's rate structure. Following the latest FCC rate regulation, the
Company intends to introduce additional marketing measures. The Company is not
able to predict fully the extent of the effect any of such measures will have in
mitigating the impact of rate regulation.
RECENT ACQUISITIONS AND RESTRUCTURINGS
The Company's high levels of interest expense and depreciation and amortization,
largely associated with acquisitions made by the Company in the past, have had
and will continue to have a negative impact on the reported results of the
Company. Consequently, the Company expects to report substantial net losses for
at least the next several years.
For a description of the Company's recent acquisitions and restructurings, see
Item 1 - "Business - Consolidated Cable Affiliates and Other Cable Affiliates"
and Note 2 of Notes to Consolidated Financial Statements. For a description of
the Company's pending acquisitions see Item 1 - "Business - Recent
Developments".
(35)
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated. The
results of operations of CNYC are included in 1992 from the date of acquisition.
YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992
------------------- -------------------- (INCREASE)
% OF NET % OF NET DECREASE
AMOUNT REVENUES AMOUNT REVENUES IN NET LOSS
------ -------- ------ -------- -----------
(Dollars in thousands)
Net revenues......................................... $ 666,724 100% $ 572,487 100% $ 94,237
Operating expenses:
Technical.......................................... 241,877 36 204,449 36 (37,428)
Selling, general & administrative.................. 172,687 26 120,356 21 (52,331)
--------- --------- --------
Operating cash flow.................................. 252,160 38 247,682 43 4,478
Depreciation and amortization........................ 194,904 29 168,538 29 (26,366)
--------- --------- --------
Operating profit..................................... 57,256 9 79,144 14 (21,888)
Other income (expense):
Interest expense, net.............................. (230,327) (35) (193,379) (34) (36,948)
Share of affiliates' net loss...................... (61,017) (9) (47,278) (8) (13,739)
Gain (loss) on sale of programming interests, net.. (330) - 7,053 1 (7,383)
Gain on sale of marketable securities, net......... - - 733 - (733)
Provision for loss on Olympics venture............. - - (50,000) (9) 50,000
Loss on sale of preferred stock.................... - - (20,000) (3) 20,000
Write off of deferred financing costs.............. (1,044) - (12,284) (2) 11,240
Settlement of litigation and related matters....... - - (5,655) (1) 5,655
Provision for preferential payment to related party (5,600) (1) (2,662) - (2,938)
Minority interest.................................. 3,000 - - - 3,000
Miscellaneous...................................... (8,720) (1) (6,175) (1) (2,545)
--------- --------- --------
Net loss............................................. $(246,782) (37)% $(250,503) (44)% $ 3,721
--------- --------- --------
--------- --------- --------
Currently payable interest expense, net.............. $ 182,225 27% $ 141,843 25%
--------- ---------
--------- ---------
COMPARISON OF YEAR ENDED DECEMBER 31, 1993 VERSUS YEAR ENDED DECEMBER 31, 1992.
NET REVENUES for the year ended December 31, 1993 increased $94.2 million (16%)
as compared to net revenues for the prior year. Approximately $45.8 million
(8%) of the increase is attributable to the CNYC Acquisition on July 10, 1992;
approximately $37.1 million (6%) to internal growth of over 112,700 (9%) in the
average number of subscribers during the year; and approximately $11.6 million
(2%) resulted from an increase in other revenue sources such as advertising.
These increases were offset slightly by a decrease of approximately $0.3 million
attributable to decreased revenue per subscriber resulting primarily from
compliance with FCC regulations. See "Recent Cable Regulatory Developments"
above.
TECHNICAL EXPENSES for 1993 increased $37.4 million (18%) over the 1992 amount.
Approximately 11% of the 18% increase is attributable to the CNYC Acquisition
(whose programming costs reflect high premium service penetration); the
remaining
(36)
7% is attributable to increased costs directly associated with the growth in
subscribers and revenues discussed above. As a percentage of net revenues,
technical expenses increased less than 1% during 1993 as compared to 1992;
excluding the effect of the CNYC Acquisition, such expenses would have remained
relatively constant during 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $52.3 million (43%) for
1993 as compared to the 1992 level. Approximately 13% of this 43% increase is
directly attributable to the CNYC Acquisition, 17% to expense adjustments
related to an incentive stock plan and 13% to general cost increases, including
higher administrative and sales and marketing costs (a portion of which was
attributable to compliance with FCC regulation during the third quarter of
1993). As a percentage of net revenues, selling, general and administrative
expenses increased 5%; excluding the effects of the CNYC Acquisition and the
incentive stock plan expense adjustments, such expenses, as a percent of net
revenues, would have decreased 1% during 1993.
OPERATING CASH FLOW (operating profit before depreciation and amortization)
increased $4.5 million (2%) to $252.2 million for 1993 from $247.7 million for
1992. A $7.8 million (3%) increase, attributable to the CNYC Acquisition, was
partially offset by the combined effect of the revenue and expense changes,
primarily the impact of the higher selling, general and administrative expenses,
noted above.
DEPRECIATION AND AMORTIZATION EXPENSE increased $26.4 million (16%) during 1993
as compared to the 1992 amount. The acquisition of CNYC contributed $8.6
million (5%) of this increase. The components of the remaining increase in
depreciation and amortization of $17.8 million (11%) are as follows:
Depreciation expense for the Company, excluding CNYC, increased $10.7 million
during 1993 resulting primarily from depreciation charges on capital
expenditures made during 1993 and 1992. Amortization expense, excluding CNYC,
increased $7.1 million, reflecting an increase
of $10.1 million due to the implementation of SFAS 109 during 1993 offset to
some extent by a decrease of $3.0 million primarily due to certain intangible
assets becoming fully amortized.
NET INTEREST EXPENSE increased $36.9 million (19%) during 1993 compared to
1992. Approximately $3.7 million (2%) of the increase is attributable to the
CNYC Acquisition. An increase of $18.2 million (9%) is due to the net effect
of the repayment of bank debt, bearing lower average interest rates with the
issuances of a series of senior subordinated debentures as well as to an
increase in average debt levels in 1993. An additional $15.0 million (8%)
increase resulted from V Cable's debt restructuring on December 31, 1992,
primarily from amortization of deferred interest expense incurred in
connection therewith.
SHARE OF AFFILIATES' NET LOSSES of $61.0 million for 1993 and $47.3 million for
1992 consist primarily of the Company's share of A-R Cable's net losses ($56.4
million in 1993 and $30.3 million in 1992), the Company's net share of the
profits and losses in certain programming businesses in which the Company has
varying ownership interests, (amounting to an $8.8 million profit in 1993 and a
$12.4 million loss in
(37)
1992) and the Company's share of the net losses of other entities, primarily
U.S. Cable (in 1993) and Cablevision of Newark (in 1993 and 1992), which
amounted to $13.4 million and $4.6 in 1993 and 1992, respectively.
MINORITY INTEREST in 1993 represents U.S. Cable's share of the losses of VC
Holding, limited to its $3.0 million investment. At December 31, 1992, as part
of a restructuring and reorganization involving the Company's unrestricted
subsidiary V Cable, V Cable acquired a 20% interest in U.S. Cable for $20
million, and U.S. Cable acquired a 19% interest in VC Holding (a subsidiary of V
Cable formed to hold substantially all of V Cable's assets) for $3.0 million.
OTHER ITEMS
During 1993, net deferred financing charges of approximately $1.0 million
associated with the reduction of the Company's credit facility with proceeds
from the issuance of the Company's $150 million debentures in April, were
written off.
In connection with the acquisition of CNYC, for the year ended December 31,
1993, the Company expensed $5.6 million representing the proportionate amount
due with respect to the Annual Payment. For the year ended December 31, 1993,
the Company has provided for an additional $22.7 million due Mr. Dolan in
respect of the Preferred Payment that would be due him in the event he exercises
his "put" as further described under "Business - Cable Television Operations -
Consolidated Cable Affiliates - Cablevision of New York City". the additional
provision is based on management's estimate of the Appraised Equity Value of the
system at December 31, 1993 and has been charged to par value in excess of
capital contributed in the accompanying consolidated financial statements. The
total amount due Mr. Dolan as of December 31, 1993 in respect of the Preferred
Payment amounted to $91.6 million, reflecting a reduction of $3.7 million in
1993 representing Mr. Dolan's obligation to reimburse the Company in connection
with certain claims paid or owing by CNYC. See Note 2 of Notes to Consolidated
Financial Statements.
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS 115
"Accounting for Certain Investments in Debt and Equity Securities". SFAS 115
addresses the accounting and reporting for investments in equity securities that
have readily determinable fair values, other than those accounted for under the
equity method or as investments in consolidated subsidiaries, and all
investments in debt securities. SFAS 115 is effective for fiscal years
beginning after December 15, 1993. The effect of initially adopting SFAS 115
will be reported in a manner similar to a cumulative effect of a change in
accounting principle. Management of the Company believes that the
implementation of SFAS 115 will not have a material effect on the financial
position and results of operations of the Company.
In November 1992, the FASB issued SFAS No. 112 "Employers Accounting for
Postemployment Benefits". This statement is effective for fiscal years
beginning after December 15, 1993 and management of the Company believes that
the implementation
(38)
of this statement will not have a significant impact on the results of
operations or financial position of the Company.
INFLATION. The effects of inflation on the Company's costs have generally been
offset by increases in subscriber rates.
COMPARISON OF YEAR ENDED DECEMBER 31, 1992 VERSUS YEAR ENDED DECEMBER 31, 1991,
AS ADJUSTED.
As a result of the A-R Cable Restructuring discussed above, effective January 1,
1992, the Company no longer consolidates the financial position and results of
operations of A-R Cable, but rather is accounting for its investment in A-R
Cable using the equity method of accounting. Accordingly, in order to provide
comparability between the 1992 and 1991 periods presented, the following table
reflects adjustments made to 1991 to deconsolidate and show on the equity basis
the results of operations of A-R Cable for the year ended December 31, 1991.
The results of operations of CNYC are included in 1992 from the date of
acquisition. The following discussion and analysis of financial condition and
results of operations refers to the adjusted results reflected in the table
except as otherwise noted.
YEARS ENDED DECEMBER 31,
----------------------------------------------
1992 1991 (ADJUSTED)
-------------------- ---------------------
(INCREASE)
% OF NET % OF NET DECREASE
AMOUNT REVENUES AMOUNT REVENUES IN NET LOSS
------ -------- ------ -------- -----------
(DOLLARS IN THOUSANDS)
Net revenues..................................................... $ 572,487 100% $ 503,113 100% $ 69,374
Operating expenses:
Technical...................................................... 204,449 36 178,974 36 (25,475)
Selling, general & administrative.............................. 120,356 21 104,570 21 (15,786)
--------- --------- --------
Operating cash flow.............................................. 247,682 43 219,569 44 28,113
Depreciation and amortization.................................... 168,538 29 164,712 33 (3,826)
--------- --------- --------
Operating profit................................................. 79,144 14 54,857 11 24,287
Other income (expense):
Interest expense, net.......................................... (193,379) (34) (187,775) (37) (5,604)
Share of affiliates' net loss.................................. (47,278) (8) (100,622) (20) 53,344
Gain on sale of programming interests, net..................... 7,053 1 15,505 3 (8,452)
Gain on sale of marketable securities, net..................... 733 - 5,806 1 (5,073)
Provision for loss on Olympics venture......................... (50,000) (9) - - (50,000)
Loss on sale of preferred stock................................ (20,000) (3) - - (20,000)
Write off of deferred financing costs.......................... (12,284) (2) - - (12,284)
Settlement of litigation and related matters................... (5,655) (1) (9,677) (2) 4,022
Provision for preferential payment to related party............ (2,662) - - - (2,662)
Miscellaneous.................................................. (6,175) (1) (8,872) (2) 2,697
---------- ---------- --------
Net loss......................................................... $(250,503) (44)% $(230,778) (46)% $(19,725)
---------- ---------- --------
---------- ---------- --------
Currently payable interest expense, net.......................... $ 141,843 25% $ 145,605 29 %
--------- ---------
--------- ---------
(39)
NET REVENUES for the year ended December 31, 1992 increased $69.4 million (14%)
as compared to adjusted net revenues for the prior year. Approximately $35.8
million (7%) of the increase is attributable to the CNYC Acquisition on July 10,
1992; approximately $17.3 million (3%) to an increase of over 40,300 (3.8%) in
the average number of subscribers during the year; approximately $9.3 million
(2%) to increased revenue per subscriber resulting primarily from rate
increases; and approximately $7.0 million (2%) resulted from an increase in
non-recurring revenues such as advertising.
TECHNICAL EXPENSES for 1992 increased $25.5 million (14%) over the adjusted 1991
amount. Approximately 10% of the increase is attributable to the CNYC
Acquisition (whose programming costs reflect high premium service penetration)
and 4% is attributable to increased costs directly associated with the other
growth in revenues and subscribers discussed above, together with increased
rates paid for certain programming services. As a percentage of net revenues,
technical expenses remained relatively constant in 1992 as compared to 1991;
excluding the effect of the CNYC Acquisition, such expenses would have declined
0.8% during 1992.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased $15.8 million (15%) for
1992 as compared to the adjusted 1991 level (11% of this increase is directly
attributable to the CNYC Acquisition); excluding the effects of the CNYC
Acquisition, such expenses would have increased approximately $3.7 million (4%),
primarily due to general cost increases. As a percentage of net revenues,
selling, general and administrative expenses remained relatively constant;
excluding the effect of the CNYC Acquisition, such expenses would have declined
0.6%, as a percent of net revenues, during 1992.
OPERATING CASH FLOW (operating profit before depreciation and amortization)
increased $28.1 million (13%) to $247.7 million for 1992 from $219.6 million for
1991, as adjusted. Approximately $6.0 million (3%) of the increase is
attributable to the CNYC Acquisition; the remaining $22.1 million (10%) increase
is attributable to the combined effect of the revenue and expense increases
noted above.
DEPRECIATION AND AMORTIZATION EXPENSE increased $3.8 million (2%) during 1992 as
compared to the adjusted 1991 amount. The acquisition of CNYC contributed an
increase of $8.6 million (5%) in depreciation and amortization during 1992.
Depreciation expense for the Company, excluding CNYC, increased $3.2 million
(2%) during 1992 resulting from depreciation charges on capital expenditures
made during 1992 and 1991. Amortization expense, excluding CNYC, decreased $8.0
million (5%) as the result of certain intangible assets becoming fully amortized
during 1992 and 1991.
NET INTEREST EXPENSE increased $5.6 million (3%) during 1992 compared to 1991,
as adjusted. Interest expense increased by $11.4 million ($3.1 million (2%)
attributable to the CNYC Acquisition; $6.9 million (4%) to increasing
amortization of the original issue discount on the subordinated notes payable
of V Cable; and $1.4 million (1%) to interest incurred on a special funding
revolver). These increases were partially offset by a net reduction of
approximately $5.8 million (4%) attributable primarily to lower average interest
rates during 1992 on the Company's bank debt and on the term loans
(40)
of V Cable. Included in the calculation of the net $5.8 million reduction is
$21.2 million of interest on the Company's $275 million 10-3/4% Senior
Subordinated Debentures issued in April 1992, the proceeds of which were used to
repay bank debt, on which an estimated $17.8 million of interest would have been
charged.
SHARE OF AFFILIATES' NET LOSSES of $47.3 million for 1992 and $100.6 million for
1991, as adjusted, consist primarily of the Company's share of A-R Cable's net
losses ($30.3 million in 1992 and $76.8 million in 1991, as adjusted), $12.3
million and $4.9 million due to the Company's share of losses in a regional
sports programming business which was discontinued on December 31, 1992 and its
net share of the profits and losses in other entities, primarily certain
programming businesses in which the Company has varying ownership interests,
which amounted to an aggregate net loss of $4.7 million and $18.9 million in
1992 and 1991, respectively.
OTHER ITEMS
During the year ended December 31, 1992, the Company recorded gains of $7.1
million on the sale of certain programming interests and $0.7 million on the
sale of marketable securities. During 1991, the Company recorded gains on the
sale of certain programming interests approximating $15.5 million, and on the
sale of marketable securities approximating $5.8 million.
In 1992, the Company provided for the loss it incurred, $50.0 million, with
respect to Rainbow Programming's agreement with NBC relating to the telecast of
the 1992 Summer Olympics. This amount was paid in January 1993 with borrowings
under the Company's Credit Agreement. See Note 8 of Notes to Consolidated
Financial Statements.
In connection with the V Cable Reorganization described above, the Company
recognized a loss on sale of preferred stock amounting to $20.0 million in the
year ended December 31, 1992.
The cost of debt restructuring, for the year ended December 31, 1992 includes
the write-off of deferred financing charges of approximately $4.8 million
associated with that portion of bank debt that was repaid ($267 million) with
the proceeds of the Company's 10-3/4% subordinated debentures issued in April
1992. In addition, $7.5 million of deferred financing costs was written off in
relation to the debt that V Cable carried before the V Cable Reorganization was
consummated on December 31, 1992. See Item 1 - "Business - Consolidated Cable
Affiliates - V Cable" and Note 2 of Notes to Consolidated Financial Statements.
In 1992, the Company provided an additional $5.7 million for settlement of
claims and potential claims related to certain litigation that had been pending
against Mr. Dolan and the Company, as described in Note 12 of Notes to
Consolidated Financial Statements.
(41)
In connection with the acquisition of CNYC, the Company provided for the $40.0
million minimum payment due Mr. Dolan and, for the year ended December 31, 1992,
expensed $2.7 million representing the proportionate amount due with respect to
the Annual Payment. As of December 31, 1992, the Company has provided for an
additional $27.0 million due Mr. Dolan in respect of the Preferred Payment that
would be due him in the event he exercises his "put" as further described under
"Business - Cable Television Operations - Consolidated Cable Affiliates -
Cablevision of New York City". The additional provision is based on
management's estimate of the Appraised Equity Value of the system at
December 31, 1992 and has been charged to par value in excess of capital
contributed in the accompanying consolidated financial statements. See Note 2
of Notes to Consolidated Financial Statements.
INFLATION. The effects of inflation on the Company's costs have generally been
offset by increases in subscriber rates.
LIQUIDITY AND CAPITAL RESOURCES
For financing purposes, the Company is structured as the Restricted Group,
consisting of Cablevision Systems Corporation and certain of its subsidiaries
and an unrestricted group of certain subsidiaries which includes V Cable
(including VC Holding), CNYC, Rainbow Programming, WKNR and Rainbow
Advertising. The Restricted Group, V Cable and CNYC are individually and
separately financed. Equity funding for CNYC will, however, be provided by the
Restricted Group. Rainbow Programming does not have external financing and its
cash requirements have been financed to date by the Restricted Group, although
one of the programming businesses in which Rainbow Programming invests has
separate financing. WKNR and Rainbow Advertising do not have external
financing and havebeen financed to date by the Restricted Group.
(42)
The following table presents selected historical results of operations and other
financial information related to the captioned groups or entities for the year
ended December 31, 1993. (Rainbow Programming, Rainbow Advertising, and WKNR
are included in "Other Unrestricted Subsidiaries").
Other Cablevision
Restricted Unrestricted Systems
Group V Cable CNYC Subsidiaries Corporation
---------- -------- -------- ------------ -----------
(Dollars in thousands)
Net revenues $393,815 $137,853 $101,539 $ 33,517 $ 666,724
Operating expenses:
Technical 134,001 51,570 49,135 7,171 241,877
Selling, general and
administrative 63,054 20,494 33,601 55,538 172,687
Depreciation and
amortization 90,407 80,287 20,959 3,251 194,904
--------- --------- --------- --------- ----------
Operating profit (loss) $106,353(1) $(14,498) $ (2,156) $(32,443) $ 57,256
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Currently payable
interest expense $126,377 $ 48,469 $ 7,357 $ 22 $ 182,225
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Total interest expense $129,799 $ 94,452 $ 8,161 $ 22 $ 232,434
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Senior debt $359,022 $832,964 $129,106 $ 7 $1,321,099
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Subordinated debt $822,781 $ - $ - $ - $ 822,781
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Obligation to related party $ - $ - $ 91,619 (2)$ - $ 91,619
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Deficit investment
in affiliate $307,758 $ - $ - $ - $ 307,758
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
Capital expenditures $106,379 $ 20,304 $ 86,669 $ 3,514 $ 214,604(3)
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
(1) Includes management fees from CNYC of $3,538, payment of which is
restricted under the CNYC Credit Agreement.
(2) Obligation of NYC LP Corp., a wholly-owned Unrestricted Group subsidiary,
relating to the acquisition of Cablevision of NYC, which obligation has
been guaranteed by the Company.
(3) Includes intercompany eliminations of $2,262.
(43)
At December 31, 1993, the Company's consolidated debt was $2,235.5 million
(excluding the Company's deficit investment in A-R Cable of $307.8 million), of
which $833.0 million represented V Cable's debt and $220.7 million represented
CNYC's debt including the $91.6 million obligation to a related party.
RESTRICTED GROUP
The Company is party to a credit facility with a group of banks led by
Toronto-Dominion (Texas) as agent, (the "Credit Agreement"). The maximum amount
available to the Restricted Group under the Credit Agreement is $695.6 million
with a final maturity at December 31, 2000. The facility consists of a $291.0
million term loan, which begins amortizing on a scheduled quarterly basis
beginning December 31, 1993 with 68% being amortized by December 31, 1998; and a
$404.6 million revolving loan with scheduled facility reductions starting on
December 31, 1993 resulting in a 66.25% reduction by December 31, 1998. On
March 18, 1994, the Restricted Group had outstanding bank borrowings of $427.0
million. An additional $18.4 million was reserved under the Credit Agreement
for letters of credit issued on behalf of the Company.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $250.2 million at March 18, 1994.
The Credit Agreement contains certain financial covenants that may limit the
Restricted Group's 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.
The amount outstanding under a separate credit agreement for the Company's New
Jersey subsidiary ("CNJ"), which is part of the Restricted Group, was $58.5
million as of March 18, 1994. The Company and CNJ are jointly and severally
liable for this debt. On March 31, 1993, the CNJ revolving facility converted
to an amortizing term loan. The CNJ facility began amortizing on a scheduled
quarterly basis on June 30, 1993 with 68.25% being amortized by December 31,
1998.
As of March 18, 1994 the Company had entered into interest exchange (swap)
agreements with several of its banks on a notional amount of $200.0 million, on
which its pays a fixed rate of interest and receives a variable rate of interest
for periods ranging from one to four years. The average effective annual
interest rate on all bank debt outstanding at February 28, 1994 was
approximately 8.2%.
On February 17, 1993, the Company issued $200.0 million of its 9-7/8% senior
subordinated debentures due 2013. The net proceeds of $193.1 million were
initially used to repay borrowings under the Company's Credit Agreement. With
respect to such issuance the Company had obtained the consent of its bank
lenders to waive the provisions of the Credit Agreement that require the Company
to reduce the facility by 50% of the gross proceeds of any debenture issue.
(44)
In April 1993, the Company issued $150,000 of its 9-7/8% senior subordinated
debentures due 2023. Approximately $105.0 million of the net proceeds of $145.9
million was used to repay borrowings under the Credit Agreement. As a result of
such issuance, the maximum amount available under the Credit Agreement was
reduced by $75.0 million.
The Restricted Group made capital expenditures of $106.4 million during 1993 and
$65.3 million in 1992, primarily in connection with system upgrades, the
expansion of existing cable plant to pass additional homes and other general
capital needs.
The cable systems located in New York State that are owned by the Restricted
Group and VC Holding are subject to agreements (the "New York Upgrade
Agreements") with the New York State Commission on Cable Television (the "New
York Cable Commission"). The New York Upgrade Agreement applicable to the
Restricted Group requires the substantial upgrade of its systems, ultimately to
a 77 channel capacity by 1995-1996, subject to certain minor exceptions. As
part of this planned upgrade of the Restricted Group's New York systems, the
Company expects to use fiber optic cable extensively in its trunk and
distribution networks. The Company believes that the remaining portion of the
upgrade to 77 channels will cost up to an additional $80 million which would be
spent during the period 1994 to 1996. In addition, the Company anticipates
upgrading certain of its New York systems beyond the level required by the New
York Upgrade Agreements along with upgrading certain other of its Restricted
Group systems. The Company anticipates that the capital costs of these
additional upgrades may be substantial.
In July 1992, the Company acquired substantially all of the remaining interests
in CNYC. CNYC is separately financed by a $185 million bank credit agreement.
Under an agreement with the City of New York, the Company undertook to make
aggregate equity contributions in Phases III, IV and V of CNYC of $71.0 million
or such lesser amount as the CNYC banks deem necessary. Recourse by the City
of New York with respect to such obligation is limited to remedies available
under the CNYC franchises. As of March 1, 1994, the Restricted Group had
advanced $48.2 million of equity to CNYC and had the ability to invest the
balance of the $71.0 million in CNYC. Under the CNYC purchase agreement, the
Restricted Group has guaranteed an annual payment to Mr. Dolan of $5.6 million
(the "Annual Payment" as defined) and a $40.0 million minimum payment (the
"Minimum Payment", as defined). The Minimum Payment can be made in either cash
or stock at the Company's option. Under its Credit Agreement, the Company is
currently prohibited from paying the Minimum Payment and any amounts in respect
of the Preferred Payment in cash. See Item 1 -- "Business -- Consolidated Cable
Affiliates -- Cablevision of New York City".
In March 1994, the Company purchased the assets of North Coast Cable for an
aggregate purchase price of $133 million. The Company's cash requirement for
this acquisition amounted to approximately $98.8 million. The remainder of the
purchase price was paid with distributions owed the Company with respect to its
existing minority interest and accrued management fees owing from North Coast
Cable, through the assumption of certain liabilities of North Coast Cable and
certain other
(45)
adjustments. The net cash purchase price was provided by borrowings under the
Restricted Group's Credit Agreement. See "Business -- Recent Developments".
The Company believes that, for the Restricted Group, and based upon a
preliminary analysis of the impact of the revised FCC rate regulations referred
to above, as announced by the FCC in February 1994, internally generated funds
together with funds available under its existing Credit Agreement, as well as
the proceeds from the issuance of the Preferred Shares, will be sufficient
through December 31, 1995 (i) to meet its debt service requirements including
its amortization requirements under the Credit Agreement, (ii) to fund its
normal capital expenditures, including the required upgrades under the New York
Upgrade Agreement, and (iii) to fund its anticipated investments, including its
$75 million investment in Rainbow Programming in connection with Rainbow
Programming's purchase of Liberty Media's 50% interest in AMCC, the $5.6 million
annual payments to Charles Dolan in connection with the CNYC Acquisition and the
equity requirements in connection with the build out of the CNYC cable systems.
Further acquisitions and other investments by the Company, if any, will be
funded by undrawn borrowing capacity and by possible increases in the amount
available under the Credit Agreement, additional borrowings from other sources,
and/or possible future sales of debt, equity or equity related securities.
The senior secured indebtedness incurred by A-R Cable and V Cable is guaranteed
by the Restricted Group, but recourse against the Restricted Group is limited
solely to the common stock of A-R Cable and of V Cable pledged to A-R Cable's
and V Cable's senior secured lenders, respectively.
Under the terms of the agreement relating to Warburg Pincus' investment in A-R
Cable, the Company pledged the stock of the subsidiary which owns all of the A-R
Cable common stock and the A-R Cable Series B Preferred Stock as collateral for
the Company's indemnification obligations under such agreement.
Under the terms of its Credit Agreement, as amended, the Company is permitted to
make unspecified investments of up to $200 million, which include the Company's
planned investment in Rainbow Programming, in the remaining equity contributions
to CNYC and any equity contributions the Company may make to A-R Cable and V
Cable.
The terms of the instruments governing A-R Cable's and V Cable's indebtedness
prohibit transfer of funds (except for certain payments related to corporate
overhead allocations by A-R Cable and V Cable and pursuant to an income tax
allocation agreement with respect to V Cable) from A-R Cable and V Cable to the
Restricted Group and are expected to prohibit such transfer of funds for the
foreseeable future. Payments to the Restricted Group in respect of its
investments in and advances to Cablevision of Chicago and Cablevision of Boston
are also presently prohibited by the terms of those companies' applicable debt
instruments and are expected to be prohibited for the foreseeable future. The
Restricted Group does not expect that such
(46)
limitations on transfer of funds or payments will have an adverse effect on the
ability of the Company to meet its obligations.
V CABLE
The new long-term credit facilities extended by GECC to V Cable and VC Holding
in connection with the V Cable Reorganization refinanced all of V Cable's
pre-existing debt on December 31, 1992. Under the credit agreement between V
Cable and GECC (the "V Cable Credit Agreement"), GECC has provided a term loan
(the "V Cable Term Loan") in the amount of $20.0 million to V Cable, which
accretes interest at a rate of 10.62% compounded semi-annually until
December 31, 1997 (the reset date) and is payable in full on December 31, 2001.
In addition, GECC has extended to VC Holding a $505 million term loan (the
"Series A Term Loan), a $25 million revolving line of credit (the "Revolving
Line") and a $202.6 million term loan (the "Series B Term Loan") all three of
which comprise the VC Holding Credit Agreement. The Series A Term Loan and any
amounts drawn under the Revolving Line pay current cash interest and mature on
December 31, 2001. The Series B Term Loan does not pay cash interest but rather
accretes interest at a rate of 10.62% compounded semi-annually until December
31, 1997 (the reset date) and is payable in full on December 31, 2001. On March
18, 1994 VC Holding had no outstanding borrowings under the Revolving Line but
did have letters of credit issued approximating $2.0 million. Accordingly,
unrestricted and undrawn funds under the VC Holding Revolving Line amounted to
approximately $23.0 million on March 18, 1994.
The VC Holding Credit Agreement also provides for the assumption by VC Holding
of certain loans of U.S. Cable, as described under Item 1 -- "Business --
Consolidated Cable Affiliates -- V Cable".
The outstanding principal amount of the V Cable Term Loan is payable in full,
with accreted interest, at maturity on December 31, 2001. VC Holding is
obligated to make principal payments on a portion of the Series A Term Loan
beginning on June 30, 1997 totalling $18 million, $20 million, $30 million, $40
million and $56 million for the years ending December 31, 1997, 1998, 1999, 2000
and 2001, respectively. The remaining balance of the Series A Term Loan, as
well as any amounts borrowed under the VC Holding Revolving Line, is due
December 31, 2001. In addition, VC Holding and V Cable are required to apply
all consolidated available cash flow (as defined), as well as the net proceeds
of any disposition of assets, to the reduction of the VC Holding Term Loans and
the V Cable Term Loan.
V Cable made capital expenditures of approximately $20.3 million in 1993 and
$17.6 million in 1992, primarily in connection with the expansion of existing
cable plant to pass additional homes and for system upgrades and other general
capital needs. The New York Upgrade Agreement applicable to V Cable requires
the substantial upgrade of its systems in New York State, ultimately to a 77
channel capacity in 1995. In 1992 V Cable completed the first phase of this
required upgrade, under which it expanded all of its New York cable systems to a
52 channel capacity. The Company
(47)
believes that the upgrade of V Cable's New York systems from 52 to 77 channels
will cost up to an additional $9.9 million, which would be spent during 1994 and
1995.
V Cable anticipates that its cash flow from operations and amounts available
under the VC Holding Revolving Line will be sufficient to service its debt, to
fund its capital expenditures and to meet its working capital requirements
through 1995. However, after taking into account the anticipated reductions to
regulated revenue arising from the latest round of FCC regulation, V Cable
believes that it is likely that it will be unable to meet several of its
financial covenants during such period. To remedy the anticipated covenant
defaults, V Cable may request waivers and/or amendments to its credit agreement
and/or seek equity contributions from the Restricted Group. There can be no
assurance as to V Cable's ability to accomplish any of these alternatives or the
terms or timing of such alternatives.
CABLEVISION OF NEW YORK CITY
CNYC is party to an $185 million credit facility with a group of banks led by
the Chase Manhattan Bank, N.A. as agent (the "CNYC Credit Agreement") which is
restricted to the construction and operating needs of Phases I through V in
Brooklyn and The Bronx. In Brooklyn, CNYC has completed construction of Phases
I through IV. In The Bronx, CNYC has completed construction of Phases I, II and
III. For additional information concerning the CNYC acquisition, see Item I --
"Business -- Consolidated Cable Affiliates -- Cablevision of New York City" and
Note 2 of Notes to Consolidated Financial Statements.
At March 18, 1994 CNYC had outstanding bank borrowings of $140.0 million and an
additional $7.2 million was reserved under the CNYC Credit Agreement for letters
of credit issued on behalf of CNYC. Unrestricted and undrawn funds available to
CNYC under the most restrictive borrowing condition of the CNYC Credit
Agreement amounted to approximately $37.6 million at March 18, 1994.
As of March 18, 1994, the Restricted Group had contributed $48.2 million. The
CNYC Credit Agreement requires that the Restricted Group contribute $55 million
of equity for Phases III and IV.
CNYC made capital expenditures of approximately $86.7 million in 1993 and $31.1
million in 1992 (from the date of acquisition). At December 31, 1993, the cost
to complete CNYC construction was estimated at $122.0 million. CNYC expects the
remaining costs for all CNYC construction will be financed by the amounts
available under the CNYC Credit Agreement, committed equity contributions and
cash flow generated from operations. To eliminate the need for further equity
contributions, CNYC expects to refinance the CNYC Credit Facility in 1994 to
provide for additional amounts to complete construction.
If CNYC fails to complete construction of the systems after construction of
Phase IV in The Bronx and Phase V in Brooklyn has commenced, the City of New
York could
(48)
(among other remedies under the franchises) revoke the franchises, upon which
CNYC would have 180 days to find a buyer for the system acceptable to the City.
Substantially all of the assets of the Phase Partnerships (as well as the
interests in the Phase Partnerships held directly or indirectly by the Company
and Mr. Dolan) are pledged to secure the obligations to the banks under the CNYC
Credit Facility.
The Company is party to a management agreement with CNYC which requires the
Company to provide management assistance to CNYC in exchange for 3-1/2% of gross
revenues, as defined, plus reimbursement of general and administrative expenses
and overhead. Payment of the 3-1/2% management fee is restricted under the CNYC
Credit Facility, although a one time payment of $2.4 million was made to the
Company in 1992 as permitted by the CNYC bank group. Unpaid management fees
accrue interest at a rate equal to 2% above the average borrowing rate of CNYC
under the CNYC Credit Agreement, compounded quarterly. As of December 31,
1993, CNYC owed the Company approximately $7.1 million for unpaid management
fees and accrued interest thereon.
RAINBOW PROGRAMMING
Rainbow Programming's financing needs have been funded by the Restricted Group's
investments in and advances to Rainbow Programming, by sales of equity interests
in the programming businesses and in the case of one of the programming
businesses, through separate external debt financing. The Company expects that
the future cash needs of Rainbow Programming's current programming partnerships
will increasingly be met by internally generated funds, although certain of such
partnerships will at least in the near future rely to some extent upon their
partners (including Rainbow Programming) for certain cash needs. The partners'
contributions may be supplemented through the sale of additional equity
interests in, or through the incurrence of indebtedness by, such programming
businesses.
On September 16, 1993 Rainbow Programming notified its partners in AMCC that it
has elected to purchase Liberty Media's 50% interest in AMCC at the stated
value. As described above, the Company anticipates that $75 million will be
contributed to Rainbow Programming by the Company through drawings under its
senior credit facility. Rainbow Programming has obtained an underwriting
commitment from a commercial bank for the balance of the funds required. The
Company anticipates that the transaction will be consummated in the second
quarter of 1994.
(49)
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report . . . . . . . . . . . . . . . . . . 51
Consolidated Balance Sheets -- December 31, 1993 and 1992. . . . 52
Consolidated Statements of Operations -- years
ended December 31, 1993, 1992 and 1991. . . . . . . . . . . . 54
Consolidated Statements of Stockholders' Deficiency -- years
ended December 31, 1993, 1992 and 1991. . . . . . . . . . . . 55
Consolidated Statements of Cash Flows -- years ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . 56
Notes to Consolidated Financial Statements . . . . . . . . . . . 58
(50)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Cablevision Systems Corporation
We have audited the accompanying consolidated balance sheets of Cablevision
Systems Corporation and subsidiaries as of December 31, 1993 and 1992, 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, 1993.
In connection with our audits of the consolidated financial statements, we also
audited the financial statement schedules as listed in Item 14(a)(2). These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated
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, 1993 and 1992, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
As described in Note 6 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on a
prospective basis in 1993.
/s/ KPMG Peat Marwick
-------------------------
KPMG Peat Marwick
Jericho, New York
March 4, 1994
(51)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(Dollars in thousands)
ASSETS 1993 1992
---------- ----------
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 12,944 $ 2,721
Marketable securities. . . . . . . . . . . . . . . . . . . . . . . . 835 752
Accounts receivable trade (less allowance for doubtful accounts of
$5,055 and $3,232). . . . . . . . . . . . . . . . . . . . . . . 49,211 42,288
Notes receivable affiliates. . . . . . . . . . . . . . . . . . . . . 2,858 3,670
Notes and other receivables. . . . . . . . . . . . . . . . . . . . . 8,730 9,483
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 6,236 7,161
Property, plant and equipment, net . . . . . . . . . . . . . . . . . 643,499 529,151
Investments in affiliates. . . . . . . . . . . . . . . . . . . . . . 27,574 32,960
Advances to affiliates . . . . . . . . . . . . . . . . . . . . . . . 38,157 41,432
Acquisition related costs and deposits . . . . . . . . . . . . . . . 16,737 -
Other investments, at cost . . . . . . . . . . . . . . . . . . . . . 1,971 2,173
Subscriber lists, net of accumulated amortization of
$237,456 and $165,523. . . . . . . . . . . . . . . . . . . . . . . 39,799 56,786
Franchises, net of accumulated amortization of
$183,599 and $129,362 . . . . . . . . . . . . . . . . . . . . . 131,362 124,594
Excess costs over fair value of net assets acquired and other
intangible assets, net of accumulated amortization of
$174,211 and $154,118 . . . . . . . . . . . . . . . . . . . . . 221,790 284,494
Deferred financing, acquisition and other costs, net of
accumulated amortization of $20,780 and $15,059 . . . . . . . . 51,550 43,254
Deferred interest expense, net of accumulated amortization of
$14,047 in 1993 . . . . . . . . . . . . . . . . . . . . . . . . 56,191 70,238
----------- -----------
$ 1,309,444 $ 1,251,157
----------- -----------
----------- -----------
See accompanying notes to
consolidated financial statements.
(52)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(Dollars in thousands)
1993 1992
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . $ 100,017 $ 72,947
Accrued liabilities:
Interest . . . . . . . . . . . . . . . . . . . . . . . . 29,172 20,020
Payroll and related benefits . . . . . . . . . . . . . . 27,068 19,273
Franchise fees . . . . . . . . . . . . . . . . . . . . . 18,809 20,413
Litigation settlement and related matters. . . . . . . . 4,227 4,227
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 73,902 40,609
Accrued obligation, Olympics venture . . . . . . . . . . - 50,000
Accounts payable to affiliates. . . . . . . . . . . . . . . . 16,236 14,785
Bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . 480,079 656,272
Senior debt . . . . . . . . . . . . . . . . . . . . . . . . . 832,866 798,792
Senior subordinated debentures. . . . . . . . . . . . . . . . 822,781 474,247
Obligation to related party . . . . . . . . . . . . . . . . . 91,619 67,000
Capital lease obligations and other debt. . . . . . . . . . . 8,154 8,141
Minority interest . . . . . . . . . . . . . . . . . . . . . . - 3,000
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . . . . . 2,504,930 2,249,726
---------- ----------
Deficit investment in affiliate . . . . . . . . . . . . . . . 307,758 251,679
---------- ----------
Commitments and contingencies
Stockholders' deficiency:
8% Series C Cumulative Preferred Stock, $.01 par value,
112,500 shares authorized, 110,622 shares issued
($100 per share liquidation preference) . . . . . . 1 1
8% Series D Cumulative Preferred Stock, $.01 par value,
112,500 shares authorized, none issued ($100 per
share liquidation preference) . . . . . . . . . . . - -
Class A Common Stock, $.01 par value,
50,000,000 shares authorized, 10,853,607
and 10,192,606 shares issued. . . . . . . . . . . . 108 102
Class B Common Stock, $.01 par value,
20,000,000 shares authorized,
12,411,532 and 12,423,532 shares issued . . . . . . 124 124
Par value in excess of capital contributed . . . . . . . (80,255) (78,157)
Accumulated deficit. . . . . . . . . . . . . . . . . . . (1,419,985) (1,172,318)
---------- -----------
(1,500,007) (1,250,248)
Less treasury stock, at cost (50,000 shares in 1993) (3,237) -
----------- -----------
Total stockholders' deficiency (1,503,244) (1,250,248)
----------- -----------
$ 1,309,444 $ 1,251,157
----------- -----------
----------- -----------
See accompanying notes
to consolidated financial statements.
(53)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars in thousands except per share data)
1993 1992 1991
---------- ---------- ----------
Gross revenues (including affiliate amounts of $7,135, $6,441 and
$5,448). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $675,862 $ 578,141 $ 608,985
Less bad debts and subscriber credits. . . . . . . . . . . . . . . . . . . 9,138 5,654 5,713
---------- ---------- ----------
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 666,724 572,487 603,272
---------- ---------- ----------
Operating expenses:
Technical (including affiliate amounts of $26,732, $23,388 and
$27,400). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241,877 204,449 213,059
Selling, general and administrative (including affiliate amounts of
$(1,479), $(2,332) and $(4,166)). . . . . . . . . . . . . . . . . . . 172,687 120,356 121,527
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . 194,904 168,538 215,326
---------- ---------- ----------
609,468 493,343 549,912
---------- ---------- ----------
Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,256 79,144 53,360
---------- ---------- ----------
Other income (expense):
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (232,434) (194,628) (258,794)
Interest income (including affiliate amounts of $567, $822 and $1,161) . . 2,107 1,249 1,605
Share of affiliates' net loss. . . . . . . . . . . . . . . . . . . . . . . (61,017) (47,278) (23,780)
Gain (loss) on sale of programming interests, net. . . . . . . . . . . . . (330) 7,053 15,505
Gain on sale of marketable securities, net . . . . . . . . . . . . . . . . - 733 5,806
Provision for loss on Olympics venture . . . . . . . . . . . . . . . . . . - (50,000) -
Loss on sale of preferred stock. . . . . . . . . . . . . . . . . . . . . . - (20,000) -
Write off of deferred financing costs. . . . . . . . . . . . . . . . . . . (1,044) (12,284) -
Settlement of litigation and related matters . . . . . . . . . . . . . . . - (5,655) (9,677)
Provision for preferential payment to related party. . . . . . . . . . . . (5,600) (2,662) -
Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 - -
Miscellaneous, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,720) (6,175) (11,224)
---------- ---------- ----------
(304,038) (329,647) (280,559)
---------- ---------- ----------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (246,782) (250,503) (227,199)
Dividend requirement applicable to Preferred Stock. . . . . . . . . . . . . . . (885) (885) (4,464)
---------- ---------- ----------
Net loss applicable to common shareholders. . . . . . . . . . . . . . . . . . . $(247,667) $(251,388) $ (231,663)
--------- --------- ----------
--------- --------- ----------
Net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (10.83) $ (11.17) $ (10.32)
---------- ---------- ----------
---------- ---------- ----------
Average number of common shares outstanding (in thousands). . . . . . . . . . . 22,859 22,512 22,446
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes
to consolidated financial statements.
(54)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years Ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
Par Value
Series C Class A Class B in Excess
Preferred Common Common of Capital Accumulated Treasury
Stock Stock Stock Contributed Deficit Stock Total
--------- ------- ------- ----------- ----------- -------- -------
Balance December 31, 1990. . . . . . $ 1 $ 91 $ 133 $(13,406) $ (689,267) $ - $ (702,448)
Net loss - year ended
December 31, 1991. . . . . . . - - - - (227,199) - (227,199)
Employee stock transactions. . . - 7 (6) 1,682 - - 1,683
Preferred dividend requirement . - - - - (4,464) - (4,464)
----- ----- ----- ---------- ---------- ------- -----------
Balance December 31, 1991. . . . . . 1 98 127 (11,724) (920,930) - (932,428)
Net loss - year ended
December 31, 1992. . . . . . . - - - - (250,503) - (250,503)
Cost of acquisitions . . . . . . - - - (71,333) - - (71,333)
Employee stock transactions. . . - 4 (3) 4,900 - - 4,901
Preferred dividend requirement . - - - - (885) - (885)
----- ----- ----- ---------- ---------- ------- -----------
Balance December 31, 1992. . . . . . 1 102 124 (78,157) (1,172,318) - (1,250,248)
Net loss - year ended
December 31, 1993. . . . . . . - - - - (246,782) - (246,782)
Cost of acquisitions . . . . . . - 2 - (11,977) - - (11,975)
Employee stock transactions. . . - 2 2 9,879 - - 9,883
Purchase of treasury stock . . . (3,237) (3,237)
Conversion of Class B to Class A - 2 (2) - - - -
Preferred dividend requirement . - - - - (885) - (885)
----- ----- ----- ---------- ---------- ------- -----------
Balance December 31, 1993. . . . . . $ 1 $ 108 $ 124 $(80,255) $(1,419,985) $(3,237) $(1,503,244)
----- ----- ----- ---------- ---------- ------- -----------
----- ----- ----- ---------- ---------- ------- -----------
See accompanying notes
to consolidated financial statements.
(55)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
(Dollars in thousands)
1993 1992 1991
------- ------- -------
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(246,782) $(250,503) $(227,199)
--------- --------- ---------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . 194,904 168,538 215,326
Share of affiliates' net loss. . . . . . . . . . . . . . . . . . . . . 61,017 47,278 23,780
Loss on sale of programming interests, net . . . . . . . . . . . . . . 330 (7,053) (15,505)
Gain on sale of marketable securities, net . . . . . . . . . . . . . . - (733) (5,806)
Write off of deferred financing costs. . . . . . . . . . . . . . . . . 1,044 12,284 -
Loss on sale of equipment, net . . . . . . . . . . . . . . . . . . . . 2,106 1,185 713
Amortization of deferred financing . . . . . . . . . . . . . . . . . . 3,950 4,134 4,550
Amortization of deferred interest expense. . . . . . . . . . . . . . . 14,047 - -
Amortization of debenture discount . . . . . . . . . . . . . . . . . . 138 74 75
Accretion of interest on debt. . . . . . . . . . . . . . . . . . . . . 32,074 - -
Amortization of original issue discount on subordinated notes payable. - 47,203 73,988
Change in assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable trade . . . . . . . . . . . . . (6,888) (8,351) (690)
Decrease in notes receivable affiliates . . . . . . . . . . . . 812 722 1,998
(Increase) decrease in notes and other receivables. . . . . . . 753 (3,944) (1,231)
(Increase) decrease in prepaid expenses . . . . . . . . . . . . 939 138 (2,397)
(Increase) decrease in advances to affiliates . . . . . . . . . 3,275 (221) (1,159)
Increase in accounts payable. . . . . . . . . . . . . . . . . . 27,070 28,513 493
Increase (decrease) in accrued liabilities. . . . . . . . . . . 48,463 (6,093) 20,528
Increase (decrease) in accrued obligation, Olympics venture . . (50,000) 50,000 -
Increase (decrease) in accounts payable to affiliates . . . . . 1,451 1,017 (1,341)
--------- --------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335,485 334,691 313,322
--------- --------- ---------
Net cash provided by operating activities . . . . . . . . . . . . . . . . 88,703 84,188 86,123
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . (214,604) (108,802) (71,405)
Payments for acquisitions, net of cash acquired. . . . . . . . . . . . . . . (30,783) (67,292) -
Proceeds from sale of programming interests. . . . . . . . . . . . . . . . . 543 8,254 22,907
Proceeds from sale of securities . . . . . . . . . . . . . . . . . . . . . . - 4,096 17,443
Proceeds from sale of equipment. . . . . . . . . . . . . . . . . . . . . . . 3,643 3,576 260
Increase in investments in affiliates. . . . . . . . . . . . . . . . . . . . (425) (66,123) (15,240)
Increase in acquisition related costs and deposits . . . . . . . . . . . . . (16,737) - -
(Increase) decrease in marketable securities and other investments . . . . . 119 (633) (697)
Additions to intangible assets, net. . . . . . . . . . . . . . . . . . . . . (978) - (252)
--------- --------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . (259,222) (226,924) (46,984)
--------- --------- ---------
See accompanying notes
to consolidated financial statements.
(56)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 and 1991
(Dollars in thousands)
(continued)
1993 1992 1991
-------- -------- --------
Cash flows from financing activities:
Proceeds from bank debt. . . . . . . . . . . . . . . . . $ 197,286 $ 185,301 $ 60,196
Repayment of bank debt . . . . . . . . . . . . . . . . . (373,479) (393,632) (80,193)
Proceeds from senior debt. . . . . . . . . . . . . . . . 25,750 46,236 57,050
Repayment of senior debt . . . . . . . . . . . . . . . . (23,750) (16,950) (65,550)
Issuance of senior subordinated debentures . . . . . . . 348,396 275,000 -
Preferred stock dividends. . . . . . . . . . . . . . . . (885) (885) (885)
Issuance of common stock . . . . . . . . . . . . . . . . 9,883 4,901 1,683
Purchase of treasury stock . . . . . . . . . . . . . . . (3,237) - -
Obligation to related party. . . . . . . . . . . . . . . 21,919 67,000 -
Payments on capital lease obligations and other debt . . (2,682) (4,920) (5,545)
Minority interest. . . . . . . . . . . . . . . . . . . . (3,000) 3,000 -
Additions to deferred financing and other. . . . . . . . (15,459) (22,233) (8,258)
---------- --------- ---------
Net cash provided by (used in) financing activities . 180,742 142,818 (41,502)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents . . . 10,223 82 (2,363)
Cash and cash equivalents at beginning of year . . . . . . 2,721 2,639 5,002
---------- --------- ---------
Cash and cash equivalents at end of year . . . . . . . . . $ 12,944 $ 2,721 $ 2,639
---------- --------- ---------
---------- --------- ---------
See accompanying notes
to consolidated financial statements.
(57)
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cablevision
Systems Corporation and its majority owned subsidiaries (the "Company"). All
significant intercompany transactions and balances have been eliminated in
consolidation.
REVENUE RECOGNITION
The Company recognizes revenues as cable television services are provided to
subscribers.
MARKETABLE SECURITIES
Marketable securities are recorded at cost. At December 31, 1993 and 1992, the
market value of such securities exceeded their cost by approximately $3,575 and
$3,881, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including construction materials, are carried at
cost, which 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.
DEFERRED FINANCING COSTS
Costs incurred in obtaining debt are deferred and amortized, on the
straight-line basis, over the life of the related debt.
SUBSCRIBER LISTS, FRANCHISES, AND OTHER INTANGIBLE ASSETS
Subscriber lists are amortized on the straight-line basis over varying periods
(2 to 8 years) during which subscribers are expected to remain connected to the
systems. Franchises are amortized on the straight-line basis over the average
remaining terms (7 to 11 years) of the franchises. Other intangible assets are
amortized on the straight-line basis over the periods benefited (2 to 20 years).
Excess costs over fair value of net assets acquired are being amortized over
periods ranging from 7 to 20 years on the straight line basis. The Company
assesses the recoverability of such excess costs based upon undiscounted
anticipated future cash flows of the businesses acquired.
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INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the liability method of accounting for deferred income
taxes and permits the recognition of deferred tax assets, subject to an ongoing
assessment of realizability. Adoption of SFAS 109 had no material impact on the
operations of the Company.
LOSS PER SHARE
Net loss per common share is computed based on the average number of common
shares outstanding after giving effect to dividend requirements on the Company's
preferred stock. Common stock equivalents were not included in the computation
as their effect would be to decrease net loss per share.
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 expense of
approximately $173,073, $142,807 and $179,246 during 1993, 1992 and 1991,
respectively. During 1993, 1992 and 1991, the Company's noncash investing and
financing activities included capital lease obligations of $2,695, $5,953 and
$760, respectively, incurred when the Company entered into leases for new
equipment, preferred stock dividend requirements in 1991 of $3,579 and the
present value of debt to be assumed by V Cable in 1997 of $70,238 recorded in
1992 (see Note 4).
INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company accounts for its investments in affiliates using the equity method
of accounting whereby the Company records its appropriate share of the net
income or loss of the affiliate. The Company's advances to affiliates are
carried at cost adjusted for any known diminution in value (see Note 8).
NOTE 2. ACQUISITIONS, RESTRUCTURINGS AND DISPOSITIONS
1993 ACQUISITIONS:
In December 1986, the Company had purchased substantially all the limited
partnership interests in Cablevision of Connecticut. In November 1993, the
Company purchased
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the remaining interests in exchange for 164,051 shares of the Company's Class A
Common Stock which had a fair market value of approximately $10,725. Such
amount was charged to excess cost over fair value of net assets acquired and
will be amortized over the remaining original amortization period.
In November 1993, the Company purchased the business of CATV Enterprises, Inc.
("CATV") in Riverdale, The Bronx, New York following the expiration of CATV's
temporary permit to operate its cable television system in Riverdale. The cost
of $8,500 is included in excess cost over fair value of net assets acquired.
1992 RESTRUCTURINGS:
V CABLE, INC.
On December 31, 1992, the Company consummated a significant restructuring and
reorganization (the "V Cable Reorganization") involving its subsidiary, V Cable,
Inc. ("V Cable"), U.S. Cable Television Group, L.P. ("U.S. Cable") and General
Electric Capital Corporation ("GECC"), V Cable's principal creditor. In the
V Cable Reorganization, V Cable acquired a 20% interest in U.S. Cable for
$20,000 and U.S. Cable acquired a 19% non-voting interest in a newly
incorporated subsidiary of V Cable that holds substantially all of V Cable's
assets ("VC Holding") for $3,000. As a result, V Cable now owns an effective
84.8% interest in VC Holding. GECC has provided new long-term credit facilities
to each of V Cable, VC Holding and U.S. Cable, secured in each case by the
assets of the borrower and in most cases cross-collateralized by the assets of
the other two entities. The credit facilities are non-recourse to the Company
other than with respect to the common stock of V Cable owned by the Company (see
Note 4). The Company has management responsibility for the U.S. Cable
properties, and for the V Cable systems. The Company accounts for its
investment in U.S. Cable using the equity method of accounting and accordingly
its share of losses in U.S. Cable for 1993 amounted to $8,566. Also in 1993,
included in the accompanying consolidated statements of operations is U.S.
Cable's share of losses in VC Holding, limited to its $3,000 investment
described above.
In contemplation of the V Cable Reorganization, in May, 1992 GECC provided a
$20,000 loan to V Cable, which lent the proceeds to one of its operating
subsidiaries. Also in May, 1992, the operating subsidiary of V Cable paid GECC
an aggregate of $20,000 in order to acquire all of the then outstanding shares
of A-R Cable Services, Inc. ("A-R Cable") preferred stock from GECC and to
obtain the termination of the transaction fee agreements between each of V Cable
and A-R Cable, on the one hand, and GECC, on the other, pursuant to which GECC
was entitled under certain circumstances to receive payments from V Cable and
A-R Cable. On May 11, 1992, A-R Cable purchased, for a nominal amount, the
shares of A-R Cable preferred stock held by the operating subsidiary of V Cable.
For the purposes of these consolidated financial statements, the Company
recognized a net loss of $20,000 on the purchase and retirement of the shares of
A-R Cable's preferred stock.
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In consideration of V Cable's assumption of U.S. Cable debt in 1997 (see Note 4)
and the cross-collateralization of U.S. Cable debt by V Cable and VC Holding, V
Cable has the option to exchange its interest in U.S. Cable for all of U.S.
Cable's interest in VC Holding and thus recover full ownership of the V Cable
systems from and after January 1, 1998, subject to certain limitations. Upon
such an exchange, the guarantee by V Cable and VC Holding of any portion of the
U.S. Cable senior credit facilities not assumed by V Cable, as well as the
guarantee and cross-collateralization by U.S. Cable of the V Cable and VC
Holding credit facilities, would terminate.
The V Cable Reorganization resulted in significant changes to V Cable's debt
levels and maturities. See Note 4.
A-R CABLE. In May 1992 the Company and A-R Cable consummated a restructuring
and refinancing transaction (the "A-R Cable Restructuring") that had the effect
of retiring a substantial portion of A-R Cable's subordinated debt and reducing
the Company's economic and voting interest in A-R Cable. Among other things,
this transaction involved an additional $45,000 investment in A-R Cable by the
Company to purchase a new Series B Preferred Stock, the purchase of a new Series
A Preferred Stock in A-R Cable by Warburg Pincus Investors, L.P. ("Warburg
Pincus") for $105,000, and GECC providing an additional $70,000 to A-R Cable
under a secured revolving credit line. After the receipt of certain pending
franchise approvals, the Company will have a 40% economic and voting interest in
A-R Cable. As a result of the A-R Cable Restructuring, the Company no longer
has financial or voting control over A-R Cable's operations. Accordingly the
Company no longer consolidates the financial position or results of operations
of A-R Cable. For reporting purposes, the deconsolidation of A-R Cable became
effective on January 1, 1992 and the Company is accounting for its investment in
A-R Cable using the equity method of accounting.
Included in share of affiliates' net loss in the accompanying consolidated
statements of operations for the year ended December 31, 1993 and 1992 is
$56,420 and $30,326, respectively, representing A-R Cable's net loss plus
dividend requirements for the Series A Preferred Stock of A-R Cable, which is
not owned by the Company. The deficit investment in affiliate of $307,758 and
$251,679, respectively, represents A-R Cable losses and external dividend
requirements recorded by the Company in excess of amounts invested by the
Company therein. At December 31, 1993 and 1992 and for the years then ended,
A-R Cable's total assets, liabilities and net revenues amounted to $288,348 and
$294,111; $650,099 and $594,294; $108,711 and $105,629, respectively.
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The Company continues to guarantee the debt of A-R Cable to GECC under a limited
recourse guarantee wherein recourse to the Company is limited solely to the
common and Series B Preferred Stock of A-R Cable owned by the Company.
The Company continues to manage A-R Cable under a management agreement that
provides for cost reimbursement, an allocation of overhead charges and a
management fee of 3-1/2% of gross receipts, as defined, with interest on unpaid
amounts thereon at a rate of 10% per annum. The 3-1/2% fee and interest thereon
is payable by A-R Cable only after repayment in full of its senior debt and
certain other obligations. Under certain circumstances, the fee is subject to
reduction to 2-1/2% of gross receipts.
After May 11, 1997, either Warburg Pincus or the Company may irrevocably cause
the sale of A-R Cable, subject to certain conditions. In certain circumstances,
Warburg Pincus may cause the sale of A-R Cable prior to that date. Upon the
sale of A-R Cable, the net sales proceeds, after repayment of all outstanding
indebtedness and other liabilities, will be used as follows: first, to repay
Warburg Pincus' original $105,000 investment in the Series A Preferred Stock;
second, to repay the Company's original investment of $45,000 in the Series B
Preferred Stock; third, to repay the accumulated unpaid dividends on the Series
A Preferred Stock (19% annual rate); fourth, to repay the accumulated unpaid
dividends on the Series B Preferred Stock (12% annual rate); fifth, to pay the
Company for all accrued and unpaid management fees together with accrued but
unpaid interest thereon; sixth, pro rata 60% to the Series A Preferred
Stockholders, 4% to the Series B Preferred Stockholders and 36% to the common
stockholder(s).
1992 ACQUISITION:
In July 1992, the Company acquired (the "CNYC Acquisition") substantially all of
the remaining interests in Cablevision of New York City - Phase I through Phase
V (collectively, "CNYC" or "Phase Partnerships"), the operator of a cable
television system which is under development in The Bronx and parts of Brooklyn,
New York. Prior to the CNYC Acquisition, the Company had a 15% interest in CNYC
and Charles F. Dolan, the chief executive officer and principal shareholder of
the Company, owned the remaining interests. Mr. Dolan remains a partner in CNYC
with a 1% interest and the right to certain preferential payments.
Mr. Dolan's preferential rights entitle him to an annual cash payment (the
"Annual Payment") of 14% multiplied by the outstanding balance of his "Minimum
Payment". The Minimum Payment is $40,000 and is to be paid to Mr. Dolan prior
to any distributions to partners other than Mr. Dolan. In addition, Mr. Dolan
has the right, exercisable beginning on December 31, 1997 to require the Company
to purchase his
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interest. Mr. Dolan would be entitled to receive from the Company the Minimum
Payment, any accrued but unpaid Annual Payments, a guaranteed return on certain
of his investments in CNYC and a Preferred Payment defined as a payment (not
exceeding $150,000) equal to 40% of the Appraised Equity Value (as defined) of
CNYC after making certain deductions.
The Company has accounted for the purchase of CNYC in a manner similar to a
pooling of interests whereby the assets and liabilities of CNYC have been
recorded at historical values and the excess of the purchase price over the book
value of the net assets acquired, amounting to approximately $44,000, has been
charged to par value in excess of capital contributed. The total assets and
liabilities of CNYC at acquisition date amounted to $109,000 and $92,000,
respectively. Based upon estimates for accounting purposes of the Appraised
Equity Value of CNYC made by the Company at December 31, 1993 and 1992,
approximately $22,700 and $27,000, respectively, was accrued as additional
obligations to Mr. Dolan relating to the Company's purchase of CNYC, which have
also been charged to par value in excess of capital contributed. The total
amount owed to Mr. Dolan at December 31, 1993 of approximately $91,600 in
respect of the Preferred Payment reflects a reduction of approximately $3,700 in
1993 representing Mr. Dolan's obligation to reimburse the Company in connection
with certain claims paid or owed by CNYC.
SALE OF PROGRAMMING INTERESTS:
In February 1991, Rainbow Programming Holdings, Inc. ("RPH"), a wholly-owned
subsidiary of the Company, and certain majority-owned and wholly-owned
subsidiaries of RPH (RPH and such subsidiaries are hereinafter referred to as
"Rainbow Programming") transferred to NBC Cable Holding Inc. ("NBC Cable"), a
subsidiary of the National Broadcasting Company, Inc. ("NBC") a 25% general
partnership interest in the American Movie Classics Company ("AMCC") (reducing
Rainbow Programming's interest in AMCC to a 25% general partnership interest).
In connection with this transfer, Rainbow Programming received $15,407 and the
Company recorded a gain of approximately $9,966.
In July 1991, Rainbow Programming consummated transactions with NBC,
Tele-Communications, Inc. ("TCI") and Liberty Media Corporation ("Liberty"),
relating to sports programming offered in the San Francisco Bay area, Florida
and Chicago through SportsChannel regional cable sports networks. Viacom Inc.
("Viacom") is also a party to the San Francisco Bay area transaction. The
agreements extend the carriage of Rainbow Programming's SportsChannel services
on certain TCI and Viacom owned and operated cable systems in those areas. As
part of the
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transactions, TCI acquired a 25% general partnership interest in SportsChannel
Chicago (12.5% from each of Rainbow Programming and NBC Cable) plus an option to
purchase an additional 25% interest for a total of $15,000 and Liberty acquired,
for a nominal amount, a 50% general partnership interest (25% from each of
Rainbow Programming and NBC Cable) in SportsChannel Pacific. In connection with
these transactions the Company recorded a net gain of approximately $5,539.
In October 1992 and January 1993, TCI exercised its option to purchase from each
of NBC Cable and Rainbow Programming an additional 12.5% of SportsChannel
Chicago for an aggregate purchase price of approximately $15,000 plus
approximately $1,600 in interest. In connection with this transaction, the
Company recorded a net gain of approximately $7,100.
The partnership agreement relating to one of Rainbow Programming's businesses,
American Movie Classics Company ("AMCC"), contains a provision allowing any
partner to commence a buy-sell procedure by establishing a stated value for the
AMCC partnership interests. On August 2, 1993, Rainbow Programming received a
notice from the AMCC partner affiliated with Liberty Media Corporation
initiating the buy-sell procedure and setting a stated value of $390 million for
all the partnership interests in AMCC. The partnership agreement provides that
the non-initiating partner has a period of 45 days from receipt of the buy-sell
notice to elect to purchase the initiating partner's interest at the stated
value or sell its interest at the stated value. On September 16, 1993, Rainbow
Programming notified its partners in AMCC that it had elected to purchase
Liberty Media's 50% interest in AMCC at the stated value. The Company
anticipates that the transaction will be consummated in the second quarter of
1994.
(64)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
------------------------- Estimated
1993 1992 Useful Lives
---------- -------- ------------
Cable television transmission
and distribution systems:
Converters. . . . . . . . . . . . . . . . . $ 189,287 $151,265 3 to 5 years
Headends. . . . . . . . . . . . . . . . . . 52,100 31,984 6 to 9 years
Distribution systems. . . . . . . . . . . . 764,717 621,865 10 to 15 years
Program, service and test
equipment. . . . . . . . . . . . . . . . . 64,302 54,581 4 to 7 years
Microwave equipment . . . . . . . . . . . . 4,787 3,358 7 1/2 years
Construction in progress (including
materials and supplies). . . . . . . . . . 22,112 25,541
Furniture and fixtures . . . . . . . . . . . . . 16,540 15,053 5 to 12 years
Vehicles . . . . . . . . . . . . . . . . . . . . 19,482 16,777 2 to 4 years
Leasehold improvements . . . . . . . . . . . . . 38,447 35,033 Term of lease
Land and land improvements . . . . . . . . . . . 3,971 3,936
---------- ----------
1,175,745 959,393
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . 532,246 430,242
---------- ----------
$ 643,499 $529,151
---------- ----------
---------- ----------
At December 31, 1993 and l992, property, plant and equipment include
approximately $7,714 and $7,879, respectively, of net assets recorded under
capital leases.
NOTE 4. DEBT
BANK DEBT
RESTRICTED GROUP
The Company is party to a credit agreement (the "Credit Agreement") in the
amount of $695,625 with a group of banks led by Toronto Dominion (Texas), Inc.,
as agent. The total amount of bank debt outstanding at December 31, 1993 and
1992 was $292,556 and $524,810, respectively. As of December 31, 1993,
approximately $19,384 was restricted for certain letters of credit issued for
the Company. Undrawn
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funds available to the Company under the Credit Agreement amounted to
approximately $385,241 at December 31, 1993. The Credit Agreement contains
numerous covenants that may limit the Company's usage of and ability to utilize
the undrawn amount of funds available thereunder.
In addition, the Company has a separate credit agreement with the banks that are
parties to the Credit Agreement to finance the Company's New Jersey subsidiary
(collectively with the Credit Agreement, the "Credit Agreements"), in the amount
of $58,500. The amount outstanding at December 31, 1993 and 1992 amounted to
$58,500 and $52,962, respectively. There were no additional funds available to
the Company under this separate credit agreement at December 31, 1993.
Interest on outstanding amounts may be paid, at the option of the Company, based
on various formulas which relate to the prime rate, rates for certificates of
deposit or other prescribed rates. In addition, the Company has entered into
interest rate swap agreements with several banks on a notional amount of
$275,000 as of December 31, 1993 whereby the Company pays a fixed rate of
interest and receives a variable rate. Interest rates and terms vary in
accordance with each of the agreements. As of December 31, 1993, the interest
rate agreements expire at various times through 2000 and have a weighted average
life of approximately two years. 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 was
8.9% and 8.2% on December 31, 1993 and 1992, respectively. The Company is also
obligated to pay fees of 3/8 of 1% per annum on the unused loan commitment and
from 1-3/8% to 1-5/8% per annum on letters of credit issued under the Credit
Agreement.
Beginning in 1993, total commitments under the Credit Agreements decline on a
scheduled quarterly basis with a final maturity in 2000. The Credit Agreements
contain various restrictive covenants, among which are limitations on the amount
of investments that may be made in affiliated entities and certain other
subsidiaries, the maintenance of various financial ratios and tests, and
limitations on various payments, including preferred dividends. The Company is
restricted from paying any dividends on its common stock. The Company was in
compliance with the covenants of its Credit Agreements at December 31, 1993.
Substantially all of the assets of the Company, (excluding the assets of
V Cable, CNYC, Rainbow Programming, Rainbow Advertising Sales Corporation and
certain other subsidiaries), amounting to approximately $1,255,600 at December
31, 1993, have been pledged to secure the borrowings under the Credit
Agreements.
(66)
CNYC
CNYC is party to a credit agreement, in the amount of $185,000 with a group of
banks led by Chase Manhattan, N.A., as agent (the "CNYC Credit Agreement"). The
amounts outstanding at December 31, 1993 and 1992 were $126,500 and $78,500,
respectively. In addition CNYC has a $5,000 line of credit provided by the Bank
of New York under which $2,523 and $0 was outstanding at December 31, 1993 and
1992, respectively. Available funds are limited by certain covenants of the
CNYC Credit Agreement.
Interest on outstanding amounts under the CNYC Credit Agreement, may be paid, at
the option of the Company, based on various formulas which relate to the prime
rate, rates for certificates of deposit or other prescribed rates. In addition,
CNYC has entered into three interest rate swap agreements with several banks on
a total notional amount of $35,000 whereby CNYC pays a fixed rate and receives a
variable rate of interest. These agreements expire at various times through
1997. 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 CNYC's bank indebtedness was 5.8% and 7.2%, respectively, on
December 31, 1993 and 1992, respectively. CNYC is also obligated to pay fees on
the unused portion of the loan commitment.
On December 31, 1994, borrowings under the CNYC Credit Agreement convert to a
six year term facility in a maximum amount of $185,000. The balance thereafter
declines on a scheduled quarterly basis with a final maturity at June 30, 2000.
Substantially all of the assets of CNYC, amounting to approximately $207,500 at
December 31, 1993, have been pledged to secure the borrowings under the CNYC
Credit Agreement.
The CNYC Credit Agreement contains various restrictive covenants, among which
are the maintenance of various financial ratios and tests and limitations on
various payments. CNYC was in compliance with all the covenants of the CNYC
Credit Agreement at December 31, 1993.
SENIOR SUBORDINATED DEBENTURES
In February 1993, the Company issued $200,000 face amount of its 9-7/8% Senior
Subordinated Debentures due 2013 (the "2013 Debentures"). Interest is payable
on the 2013 Debentures semi-annually on February 15 and August 15. The 2013
Debentures
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are redeemable, at the Company's option, on February 15, 2003, February 15,
2004, February 15, 2005 and February 15, 2006 at the redemption price of
104.80%, 103.60%, 102.40% and 101.20%, respectively, of the principal amount and
thereafter at the redemption price of 100% of the principal amount, in each case
together with accrued interest to the redemption date. The indenture under
which the 2013 Debentures were issued contains various covenants, which are
generally less restrictive than those contained in the Company's Credit
Agreement, with which the Company was in compliance at December 31, 1993. The
2013 Debentures are not entitled to the benefits of a sinking fund. The net
proceeds of approximately $193,150 were used to reduce bank borrowings.
In April 1993, the Company, through a private placement offering, issued
$150,000 face amount of its 9-7/8% Senior Subordinated Debentures due 2023 (the
"2023 Debentures"). Interest is payable on the 2023 Debentures semi-annually on
April 1 and October 1. The 2023 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. The indenture under
which the 2023 Debentures were issued contains various covenants, which are
generally less restrictive than those contained in the Company's Credit
Agreement, with which the Company was in compliance at December 31, 1993. The
2023 Debentures are not entitled to the benefits of a sinking fund.
Approximately $105,000 of the net proceeds of $145,896 were used to reduce bank
borrowings. In connection with such repayment, the Company wrote off
approximately $1,044 of deferred financing costs.
In August 1993, the Company consummated an exchange offer pursuant to which it
exchanged $1 principal amount of its 9-7/8% Senior Subordinated Debentures due
April 1, 2023 (the "New Debentures") which have been registered under the
Securities Act of 1933, as amended (the "Securities Act") for each $1 principal
amount of the outstanding 2023 Debentures. The form and terms of the New
Debentures are identical in all material respects to the form and terms of the
2023 Debentures except that the New Debentures have been registered under the
Securities Act.
In April 1992, the Company completed a public offering of $275,000 of its
10-3/4% Senior Subordinated Debentures due 2004 (the "2004 Debentures").
Interest is payable on the 2004 Debentures semi-annually on April 1 and October
1. The 2004 Debentures are redeemable, at the Company's option, on April 1,
1997 and April 1, 1998 at the redemption price of 103.071% and 101.536%,
respectively, of the principal amount, and on April 1, 1999 and thereafter at
the redemption price of 100% of the principal amount, in each case together with
accrued interest to the redemption date. The Indenture under which the 2004
Debentures were issued contains various
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covenants, which are generally less restrictive than those contained in the
Company's Credit Agreement, with which the Company was in compliance at
December 31, 1993. The Indenture requires a sinking fund providing for the
redemption on April 1, 2002 and April 1, 2003 of $68,750 principal amount of the
2004 Debentures, at a redemption price equal to 100% of the principal amount,
plus accrued interest to the redemption date.
The net proceeds of approximately $267,000 from the offering were used to repay
borrowings under the Company's Credit Agreement. In connection with such
repayment, the Company wrote off approximately $4,783 of deferred financing
costs.
In November 1988, the Company issued $200,000 face amount of its 12-1/4% Senior
Subordinated Reset Debentures due November 15, 2003 (the "Reset Debentures").
Interest is payable on the Reset Debentures semi-annually on May 15 and
November 15. The Indenture under which the Reset Debentures were issued
contains various restrictive covenants with which the Company was in compliance
at December 31, 1993. The Reset Debentures are redeemable, at the Company's
option, beginning on May 15, 1994 at the redemption price of 101.5% of the
principal amount, and thereafter with the redemption price gradually lowered at
six month intervals to 100% of the principal amount by November 15, 1995. The
Company is required to redeem $20,000 principal amount of Reset Debentures on
each of November 15, 2000 and 2001 and $40,000 on November 15, 2002. Effective
on May 15, 1991, the interest rate on the Reset Debentures was reset to a rate
of 14%. At December 31, 1993 and 1992 the balance outstanding was $199,321 and
$199,247, respectively.
SENIOR DEBT
In connection with the V Cable Reorganization, all of V Cable's senior and
subordinated debt with GECC outstanding at December 31, 1992 was restructured.
V Cable's Senior Subordinated Deferred Interest Notes (the "V Cable Notes") and
its Junior Subordinated Note (the "Junior Note") were replaced with new
long-term credit facilities provided by GECC to V Cable and VC Holding. Under
the credit agreement between V Cable and GECC (the "V Cable Credit Agreement"),
GECC has provided a term loan (the "V Cable Term Loan") in the amount of $20,000
to V Cable, which loan will accrete interest at a rate of 10.62% compounded
semi-annually until December 31, 1997 (the reset date). In addition, GECC has
extended to VC Holding a $505,000 term loan (the "Series A Term Loan), a $25,000
revolving line of credit (the "Revolving Line") and a $202,554 term loan (the
"Series B Term Loan"), all of which comprise the VC Holding Credit Agreement.
Interest on the Series A Term Loan and on any amounts drawn under the Revolving
Line of credit is payable currently.
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Interest on the Series B Term Loan accretes at a rate of 10.62% compounded
semi-annually until December 31, 1997 (the reset date) and is payable in full on
December 31, 2001. At December 31, 1993 and 1992, amounts outstanding under the
V Cable Term Loan, the Series A Term Loan, the Series B Term Loan and the
Revolving Line were $22,187 and $20,000; $505,000 and $505,000; $221,373 and
$199,554; and $6,000 and $4,000, respectively. Unrestricted and undrawn funds
available to VC Holding at December 31, 1993 amounted to $17,221.
Approximately $7,501 of deferred financing costs related to V Cable's debt prior
to its restructuring with GECC were written off.
Interest rates on $254,000 of the Series A Term Loan are fixed at 10.12% through
December 31, 1997. The remaining $251,000 bears interest at rates based on
either GECC's Index Rate (as defined) or LIBOR plus applicable percentages.
Interest on any borrowings under the Revolving Line is paid based on either
GECC's Index Rate (as defined) or LIBOR plus applicable percentages which vary
depending upon certain prescribed financial ratios. Scheduled quarterly
principal payments on the Series A Term Loan commence June 30, 1997 and continue
through December 31, 2001.
Also in connection with the V Cable Reorganization, V Cable agreed to assume on
December 31, 1997, approximately $121,000 of debt of U.S. Cable, which amount is
subject to adjustment, upward or downward, depending on U.S. Cable's ratio of
debt to cash flow (as defined) in 1997 and thereafter. Included in Senior Debt
at December 31, 1993 is $78,306 which represents the present value of debt of
U.S. Cable to be assumed in 1997. The difference of approximately $42,694 will
be charged to interest expense during the period from January 1, 1994 to
December 31, 1997. The effective interest rate on this debt is approximately
11%. This debt matures on December 31, 2001. Amortization of deferred interest
expense in connection with the assumption of U.S. Cable's debt, which is being
amortized on a straight line basis through December 31, 1997, amounted to
$14,047 for 1993.
The debt of V Cable and VC Holding is guaranteed by, and secured by a pledge of
all of the assets of, V Cable, VC Holding and each of their subsidiaries,
including a pledge of all direct and indirect ownership interests in such
subsidiaries. U.S. Cable's debt is also guaranteed and cross-collateralized by
each of V Cable, VC Holding and each of their subsidiaries. All of the V Cable,
VC Holding and U.S. Cable credit facilities are non-recourse to the Company
other than with respect to the common stock of V Cable owned by the Company.
Substantially all of the assets of V Cable, amounting to approximately $536,600
at December 31, 1993, have been pledged to secure borrowings under the V Cable
and VC Holding Credit Agreements. At
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December 31, 1993 V Cable's liabilities exceeded its assets by approximately
$331,215.
The V Cable and VC Holding Credit Agreements contain various restrictive
covenants, among which are the maintenance of certain financial ratios,
limitations regarding certain transactions, prohibitions against the transfer of
funds to the parent company (except for reimbursement of certain expenses), and
limitations on levels of permitted capital expenditures. V Cable and VC Holding
were in compliance with all of the covenants of their loan agreements at
December 31, 1993.
Due to anticipated reductions to regulated revenue arising from the latest round
of FCC regulation, V Cable believes that it is likely that it will be unable to
meet several of its financial covenants during 1994 and 1995. To remedy the
anticipated covenant defaults, V Cable may request waivers and/or amendments to
its credit agreement and/or seek equity contributions from the Company. There
can be no assurance as to V Cable's ability to accomplish any of these
alternatives or the terms or timing of such alternatives.
SUMMARY OF FIVE YEAR DEBT MATURITIES
Total amounts payable by the Company and its subsidiaries (excluding V Cable and
CNYC) under its various debt obligations, including capital leases, during the
five years subsequent to December 31, 1993 amount to $20,035 in 1994, $36,828 in
1995, $54,838 in 1996, $57,344 in 1997 and $73,378 in 1998. Total amounts
payable by V Cable and CNYC respectively, under their various debt obligations,
including capital leases, during the five years subsequent to December 31, 1993
amount to $98 and $83 in 1994; $0 and $2,500 in 1995; $0 and $17,700 in 1996;
$18,000 and $24,000 in 1997; and $20,000 and $31,600 in 1998.
NOTE 5. PREFERRED STOCK
The holders of the Company's 8% Series C Cumulative Preferred Stock ("Series C
Preferred Stock") may require the Company to redeem for cash at any time
commencing December 31, 1997 all or a portion of the outstanding shares of the
Series C Preferred Stock. The Company has the right, upon notice to the holders
requesting redemption, to convert all or a part of such shares into shares of
Class B Common Stock. If, in the future, holders require the Company to redeem
their Series C Preferred Stock, it is the Company's intention to convert such
shares into Class B Common Stock.
(71)
NOTE 6. INCOME TAXES
The Company and its majority-owned subsidiaries file consolidated federal income
tax returns. At December 31, 1993 the Company had consolidated net operating
loss carry forwards for tax purposes of approximately $713,934, which expires in
2001 to 2008.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the liability method of accounting for deferred income
taxes and permits the recognition of deferred tax assets, subject to an ongoing
assessment of realizability.
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, 1993 are as follows:
Deferred Asset
(Liability)
--------------
Depreciation and amortization $(108,327)
Receivables from affiliates 29,135
Benefit plans 17,939
Allowance for doubtful accounts 2,210
Deficit investment in affiliate 168,975
Benefits of tax loss carry forwards 299,852
Other 5,562
---------
Net deferred tax assets 415,346
Valuation allowance (415,346)
---------
$ -0-
---------
---------
The Company has provided a valuation allowance for the total amount of net
deferred tax assets since realization of these assets was not assured due
principally to the Company's history of operating losses. The amounts of net
deferred tax assets and corresponding valuation allowance increased by $146,151
during the year ended December 31, 1993. Also, in connection with acquisitions
made prior to 1993, the Company recorded certain fair value adjustments net of
their tax effects. In accordance with SFAS 109, these assets have been adjusted
to their remaining pre tax amounts. Accordingly, property, plant and equipment,
franchises, and subscriber lists have been increased by $3,658, $38,470 and
$20,892, respectively, with a corresponding decrease in excess costs over fair
value of net assets acquired.
(72)
NOTE 7. OPERATING LEASES
The Company leases certain office, production and transmission facilities under
terms of leases expiring at various dates through 2004. The leases generally
provide for fixed annual rentals plus certain real estate taxes and other costs.
Rent expense for the years ended December 31, 1993, 1992 and 1991 amounted to
$10,849, $10,071 and $10,292, 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, 1993, 1992 and 1991 amounted to approximately $6,177, $5,042 and
$5,458, respectively. The minimum future annual rentals for all operating
leases during the next five years, including pole rentals from January 1, 1994
through December 31, 1998, and thereafter, at rates now in force are
approximately: 1994, $14,748; 1995, $13,514; 1996, $12,316; 1997, $10,377,
1998, $9,535; thereafter, $9,912.
NOTE 8. AFFILIATE TRANSACTIONS
The Company has affiliation agreements with certain cable television
programming companies, varying ownership interests in which were held, directly
or indirectly, by RPH during the three years ended December 31, 1993. RPH's
investment in these programming companies is accounted for on the equity basis
of accounting. Accordingly, the Company recorded income and (losses) of
approximately $8,828, $(12,428) and $(20,290) in 1993, 1992 and 1991,
respectively, representing its percentage interests in the results of operations
of these programming companies. At December 31, 1993 and 1992, the Company's
investment in these programming companies amounted to approximately $17,721 and
$10,682, respectively, which exceeded the Company's underlying equity in the net
assets of these companies by approximately $290 and $652, respectively. This
excess has been classified as other intangible assets in the accompanying
consolidated balance sheets. Costs incurred by the Company for programming
services provided by these affiliates and included in technical expense for the
years ended December 31, 1993, 1992 and 1991 amounted to approximately $26,732,
$23,388 and $27,400, respectively. At December 31, 1993 and 1992, amounts due
from certain of these programming affiliates aggregated $1,367 and $2,352,
respectively, and are included in advances to affiliates. Also, at December 31,
1993 and 1992 amounts due to certain of these affiliates, primarily for
programming services provided to the Company, aggregated $16,236 and $14,785,
respectively, and are included in accounts payable to affiliates.
(73)
Summarized combined financial information relating to these programming
companies at December 31, 1993, 1992 and 1991 and for the years then ended is as
follows:
1993 1992 1991
----------- --------- ---------
Current assets $ 133,060 $115,806 $115,231
----------- --------- ---------
----------- --------- ---------
Noncurrent assets $ 126,826 $ 86,812 $ 78,073
----------- --------- ---------
----------- --------- ---------
Current liabilities $ 93,071 $ 95,841 $ 65,906
----------- --------- ---------
----------- --------- ---------
Noncurrent liabilities $ 123,184 $ 102,847 $ 38,311
----------- --------- ---------
----------- --------- ---------
Net revenues $ 363,727 $ 322,019 $ 289,849
----------- --------- ---------
----------- --------- ---------
Net income (loss) $ 39,423 $ (9,272) $ (16,523)
----------- --------- ---------
----------- --------- ---------
NBC and RPH formed a partnership which distributed on a multi-channel,
pay-per-view basis certain events of the 1992 Summer Olympics. This
distribution was in addition to NBC's conventional broadcast network coverage of
those games. Pursuant to the agreement, profits and losses from the broadcast
network coverage and the pay-per-view coverage of the 1992 Summer Games were
shared equally by NBC and RPH; however, RPH's liability under this agreement was
limited to $50,000. The partnership paid its share of the loss ($50,000) in
January 1993 with borrowings under the Credit Agreement.
Cablevision of Boston Limited Partnership ("Cablevision Boston") is a
Massachusetts limited partnership in which Mr. Dolan is the general partner and
in which the Company has certain direct and indirect partnership interests. The
Company is a limited partner in Cablevision Boston and currently holds a 7%
prepayout (prior to repayment of capital contributions to limited partners)
interest and a 20.7% postpayout interest in Cablevision Boston.
As of December 31, 1993 and 1992, the Company's consolidated financial
statements reflect advances ($8,000 of which were converted to Preferred Equity
in Cablevision Boston) to Cablevision Boston of approximately $17,540 and
$18,345, respectively. Such amounts are fully subordinated to certain of
Cablevision Boston's obligations to other lenders aggregating approximately
$68,250 and $71,250 plus accrued interest at December 31, 1993 and 1992,
respectively.
The Company has also advanced funds to Cablevision of Chicago ("Cablevision
Chicago"), an Illinois limited partnership and an affiliate whose general
partner is Mr. Dolan. At December 31, 1993 and 1992 approximately $12,445 and
$12,473, respectively, was owed the Company and is included in advances to
affiliates in the accompanying consolidated balance sheets. Of the amount
owed, approximately $12,314 principal amount is evidenced by a subordinated note
bearing interest at the rate of 14% per annum, payable as to principal and
interest, on demand. Repayment
(74)
of this subordinated note and accrued interest thereon is restricted until
repayment of Cablevision Chicago's bank indebtedness.
During 1993, 1992 and 1991, the Company made advances 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 $6,805 and $8,262 at December 31, 1993 and 1992, respectively and
are included in advances to affiliates.
In April 1992, Cablevision of Newark, a partnership 25% owned and managed by the
Company and 75% owned by an affiliate of Warburg Pincus, acquired cable
television systems located in Newark and South Orange, New Jersey from Gilbert
Media Associates, L.P. ("Gateway Cable") for a purchase price of approximately
$76,483. The Company's capital contributions to Cablevision of Newark amounted
to approximately $6,000. The Company's share of the net losses of Cablevision
of Newark amounted to $4,206 and $3,070 in 1993 and 1992. The Company manages
the operations of Cablevision of Newark for a fee equal to 3-1/2% of gross
receipts, as defined, plus reimbursement of certain costs and an allocation of
certain selling, general and administrative expenses. For 1993 and 1992, such
management fees and expenses amounted to $1,632 and $1,526, respectively, of
which $800 and $506 for 1993 and 1992, representing management fees, has been
fully reserved by the Company.
In connection with the V Cable Reorganization (see Note 2), V Cable acquired for
$20,000, a 20% interest in U.S. Cable. The Company has managed the properties
of U.S. Cable, since June 1992, under management agreements that provide for
cost reimbursement, including an allocation of overhead charges. For 1993 and
1992, such cost reimbursement amounted to $4,894 and $2,160, respectively, which
included the allocation of overhead charges of $2,604 and $1,200, respectively.
The Company also manages A-R Cable under a management agreement that provides
for cost reimbursement, an allocation of overhead charges and a management fee
of 3-1/2% of gross receipts, as defined, with interest on unpaid annual amounts
thereon at a rate of 10% per annum beginning in 1993. Such management fees
amounted to $3,801 and $2,383 for 1993 and 1992, respectively; interest thereon
amounted to $244 for 1993. Management fees and interest thereon have been fully
reserved by the Company.
On December 14, 1993, the Company purchased 50,000 shares of Class A Common
Stock from John Tatta, a director of the Company and the Chairman of the
Executive
(75)
Committee, for $64.75 per share, the closing price of a share of Class A common
stock on such date. These shares are being held as treasury stock.
NOTE 9. PENSION PLANS
The Company maintains the CSSC Supplemental Benefit Plan (the "Benefit Plan")
for the benefit of certain officers and employees of the Company. As part of
the Benefit 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. Participants vest in all components of the
Benefit Plan 40% after four years of service and 10% for each additional year of
service. Net periodic pension cost for the years indicated consisted of the
following:
1993 1992 1991
------ ------ -----
Service cost for benefits earned
during the year $350 $378 $328
Interest cost on projected benefit
obligation 346 373 314
Actual return on plan assets (1,292) (1,091) (836)
Net amortization and deferral 964 756 631
----- ----- -----
Total pension cost $368 $416 $437
----- ----- -----
----- ----- -----
The following table sets forth the funded status of the Benefit Plan at
December 31, 1993 and 1992:
1993 1992
------ -------
Actuarial present value of:
Vested benefit obligation $3,843 $4,229
Non vested benefits 10 93
------ -------
Projected benefit obligation 3,853 4,322
Plan assets at fair value 5,578 4,544
------ -------
Assets greater than (less than)
projected benefit obligation 1,725 222
Unrecognized net gain (1,602) (278)
Remaining unrecognized obligation 567 630
------ -------
Prepaid pension cost $ 690 $ 574
------ -------
------ -------
The projected benefit obligation for the plan was determined using an assumed
discount rate and assumed long range rate of return of 8% in 1993 and 1992. No
assumed rate of salary increase was used to compute the projected benefit
obligation, since substantially all participants are currently at their maximum
benefit level.
(76)
In addition, the Company accrues a liability in the amount of 7% of certain
officers' and employees' compensation, as defined. Each year the Company also
accrues for the benefit of these officers and employees interest on such
amounts. The officer or employee will receive such amounts upon termination of
employment. Such benefits will vest 40% after four years of service and 10%
each additional year of service. The cost associated with this plan for the
years ended December 31, 1993, 1992 and 1991 was approximately $497, $358 and
$328, respectively.
Prior to 1993 the Company, with other affiliates, maintained a defined
contribution pension plan covering substantially all employees. The Company
contributed 3% of eligible employees' annual compensation (as defined), and
employees could voluntarily contribute up to 10% of their annual compensation.
Employee contributions were fully vested. Employer contributions became vested
in years three through seven.
Effective January 1, 1993, the Board of Directors of the Company approved the
adoption of an amended and restated Pension and 401(K) Savings Plan (the
"Plan"), in part to permit employees of the Company and its affiliates to make
contributions to the Plan on a pre-tax salary reduction basis in accordance with
the provisions of Section 401(K) of the Internal Revenue Code, and to introduce
new investment options under the Plan. The Company contributes 1-1/2% of
eligible employees' annual compensation, as defined, to the defined contribution
portion of the Plan (the "Pension Plan") and an equivalent amount to the Section
401(K) portion of the Plan (the "Savings Plan"). Employees may voluntarily
contribute up to 15% of eligible compensation, subject to certain restrictions,
to the Savings Plan, with an additional matching contribution by the Company of
1/4 of 1% for each 1% contributed by the employee, up to a maximum contribution
by the Company of 1/2 of 1% of eligible base pay. Employee contributions are
fully vested as are employer base contributions to the Savings Plan. Employer
contributions to the Pension Plan and matching contributions to the Savings Plan
become vested in years three through seven.
The cost associated with these plans was approximately $2,905, $2,322 and $2,212
for the years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 10. STOCK BENEFIT PLANS
In June 1992, the Stockholders of the Company approved the Amended and Restated
Employee Stock Plan (the "Amended Plan") which consolidated the Company's prior
Stock Plan, Nonqualified Plan and Bonus Award Plan (the "Prior Plans"). Under
the Amended Plan the Company is authorized to issue a maximum of 3,500,000
shares. The Company may grant incentive stock options, nonqualified stock
options, restricted stock, conjunctive stock appreciation rights, stock grants
and stock bonus awards. The
(77)
exercise price of stock options may not be less than the fair market value per
share of class A common stock on the date the option is granted and expire no
longer than ten years from date of grant. Conjunctive stock appreciation rights
permit the employee to elect to receive payment in cash, either in lieu of the
right to exercise such option, or in addition to the stock received upon the
exercise of such option, 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 Amended Plan, during 1993 the Company issued options to purchase
15,225 shares of class A common stock, stock appreciation rights related to
15,225 shares under option and stock awards of 10,225 common shares. The
options and related conjunctive stock appreciation rights are exercisable at
various prices ranging from $27.625 to $38.25 per share in 25% and 33% annual
increments beginning from the date of grant. The stock awards vest 100% by May
of 1996.
Under the Amended Plan, during 1992 the Company issued options to purchase
211,350 shares of class A common stock, stock appreciation rights related to
211,350 shares under option and stock awards of 211,350 common shares. The
options and related conjunctive stock appreciation rights are exercisable at
$27.625 per share in 25% annual increments beginning one year from the date of
grant. The stock awards vest 100% four years from date of grant. Also, during
1992 the Company granted to certain employees conjunctive stock appreciation
rights with respect to 472,500 shares under options granted in prior years under
the Company's 1985 Employee Stock Plan. Those options are exercisable at prices
ranging from $16.625 to $36.00 and vest at various times during the period from
October 1992 through October 1996.
Under the Nonqualified Plan, nonqualified options to purchase 24,000 shares were
granted in 1991 at an exercise price of $25.00 per share. These options are
exercisable one-third per year beginning July 30, 1992.
Pursuant to a Bonus Award Plan ("Bonus Plan"), adopted in 1986, in 1990 the
Company granted to fifteen employees the right to receive 118,900 shares of
class A common stock or, at the election of the Stock Option Committee, cash
equal to the product of such number of shares times the closing price of a share
of Class A Common Stock at the time of issuance. In May 1992, in accordance
with the provisions of the Bonus Plan, the Company paid in cash the value of
59,450 shares based on a market price of $28-6/8, totalling $1,709. Rights to
the remaining 59,450 shares vest on May 17, 1994. In addition, in 1990 the
Company granted to seven employees the right to receive 111,180 shares of class
A common stock or, at the
(78)
election of the Stock Option Committee, cash equal to the product of such number
of shares times the closing price of a share of class A common stock at the time
of issuance. On March 28, 1991, in accordance with the provisions of the Bonus
Plan, the Company paid in cash the value of 91,180 shares based on a market
price of $24-5/8, totalling $2,245. On December 31, 1992, the Company paid in
cash the value of the remaining 20,000 shares based on a market price of $35
totalling $700.
Stock transactions under the Amended Plan and Prior Plans are as follows:
Shares Stock Stock or
Under Appreciation Bonus Available Option
Option Rights Awards For Grant Price Range
---------- ------------- ------- ---------- -------------
Balance, December 31, 1990 2,258,900 282,350 438,530 289,689 $14.50-$37.13
Granted 24,000 25,000 (49,000) $25.00
Exercised/issued (16,487) (987) (40,000) $16.63-$24.50
Cancelled (16,425) (6,425) (97,880) 114,305 $21.25-$29.88
---------- -------- -------- ---------
Balance, December 31, 1991 2,249,988 274,938 325,650 354,994 $14.50-$37.13
Granted 211,350 683,850 211,350 (422,700) $16.63-$36.00
Exercised/issued (132,537) (8,387) (92,825) $14.50-$24.50
Cancelled (6,675) (6,675) (85,700) 92,375 $24.50-$27.625
---------- -------- -------- --------
Balance, December 31, 1992 2,322,126 943,726 358,475 24,669 $14.50-$37.13
Granted 15,225 15,225 10,225 (25,450) $27.63-$38.25
Exercised/issued (478,582) (84,017) (15,000) $14.50-$36.00
Cancelled (124,074) (19,989) (28,050) 152,124 $16.63-$37.13
---------- -------- -------- --------
Balance, December 31, 1993 1,734,695 854,945 325,650 151,343 $14.50-$38.25
---------- -------- -------- --------
---------- -------- -------- --------
Of the total shares awarded, 77,700 shares were restricted at December 31, 1993.
Also at December 31, 1993, options for approximately 1,467,000 shares were
exercisable. As a result of the stock awards, bonus awards and stock
appreciation rights, the Company expensed approximately $28,234, $9,656 and
$6,668 in 1993, 1992 and 1991, respectively.
In June, 1986, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan enabled employees of the Company and its
subsidiaries to purchase class A common stock of the Company through payroll
deductions of up to $1,250 each year per employee. The price to be paid for a
share of stock was 85% of the market price on the last business day of each
month. The discount increased to 20% after twelve months of continuous
participation in the Purchase Plan and to 25%
(79)
after twenty-four months of continuous participation. Under the Purchase Plan,
employees purchased 26,499 and 34,757 shares during 1992 and 1991, respectively,
for which, $796 and $842 was paid to the Company.
In connection with the adoption of the amended and restated Pension and 401(K)
Savings Plan, the Company discontinued the Purchase Plan. (See Note 9.)
NOTE 11. COMMITMENTS AND CONTINGENCIES
Cablevision Systems Service Corporation ("CSSC"), an affiliate of the Company,
purchases a premium programming service from an unaffiliated program supplier.
CSSC makes such service available to the Company and its affiliates at CSSC's
cost in return for the Company's assumption of its proportionate share, based on
subscriber usage, of CSSC's obligations under its agreement with such
unaffiliated program supplier. The Company is contingently liable for
approximately $13,399 through 1994 in respect of this agreement.
The Company, through Rainbow Programming, has entered into several contracts
relating to cable television programming in the normal course of its business,
including rights agreements with professional and other sports teams. These
contracts typically require substantial payments over extended periods of time.
Mr. Dolan, the Company's chairman, has an employment agreement with the Company
expiring in January 1995, with automatic renewals for successive one-year terms
unless terminated by either party at least three months prior to the end of the
then existing term. The agreement provides for a base salary of $400 per year
payable to Mr. Dolan or, upon his death during the term of such agreement, a
death benefit payment to his estate in an amount equal to the greater of one
year's salary or one-half of the compensation that would have been payable to
Mr. Dolan during the remaining term of such agreement.
John Tatta, the Company's former president, has a three-year consulting
agreement with the Company expiring in January 1995, which provides for a fee of
$485 per year plus reimbursement of certain expenses payable to Mr. Tatta or,
upon his death during the term of such agreement, a death benefit payable to his
estate in an amount equal to the greater of one year's fee or one-half of the
fee that would have been payable to him during the remaining term of such
agreement.
(80)
Income tax returns of the Company's predecessor entities are currently under
examination for 1985 and prior years. The Internal Revenue Service has proposed
adjustments which the Company intends to vigorously oppose through the IRS
appeals process. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position.
The Company does not provide postretirement benefits to any of its employees.
NOTE 12. LEGAL MATTERS
During 1992, the Company recorded expenses of $5,655 in connection with the
settlement of certain litigation pending against Mr. Dolan and the Company and
other related matters. The litigation was based upon an alleged breach of
fiduciary duty by Mr. Dolan, as the general partner of Cablevision Programming
Investments and Rainbow Program Enterprises ("RPE"), involving the allocation of
partnership profits from 1983 through 1986 and RPH's offer to purchase limited
partnership interests in 1986. The amounts provided also include an estimated
value of certain untendered interests in RPE based upon the values utilized in
connection with the settlements relating to Cablevision Programming Investments.
In addition, the Company is party to various other 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 13. ACQUISITION RELATED COSTS AND DEPOSITS
In March 1994, Cablevision of Cleveland, L.P. ("Cablevision Cleveland"), a
partnership currently comprised of subsidiaries of the Company, purchased
substantially all of the assets and assumed certain liabilities of North Coast
Cable Limited Partnership (the "North Coast Cable Acquisition"), which operates
a cable television system in Cleveland, Ohio. As of December 31, 1993, the
Company made deposits and or incurred expenses in connection with the North
Coast Cable Acquisition amounting to approximately $3,213 (see Note 15).
On October 26, 1993, Cablevision MFR, Inc. ("Cablevision MFR"), a wholly-owned
subsidiary of the Company, entered into agreements to purchase substantially all
of the assets of Monmouth Cablevision Associates, L.P. ("Monmouth Cablevision"),
Riverview Cablevision Associates, L.P. ("Riverview Cablevision") and Framingham
Cablevision Associates, L.P. ("Framingham Cablevision"), each a limited
partnership operated by Sutton Capital Associates. Each of Monmouth Cablevision
and Riverview
(81)
Cablevision own and operate cable television systems in New Jersey. Framingham
Cablevision owns and operates a cable television system in Massachusetts.
On January 12, 1994 Cablevision MFR assigned its rights and obligations under
its agreement to purchase the assets of Framingham Cablevision to Cablevision of
Framingham Holdings, Inc. ("CFHI"), currently a wholly-owned subsidiary of the
Company. The Company has entered into an agreement with Warburg, Pincus
Investors, L.P. ("Warburg Pincus"), pursuant to which Warburg Pincus will (i)
purchase 60% of the common stock of CFHI for cash and (ii) purchase preferred
stock of CFHI, from time to time, for a purchase price sufficient to pay 70% of
the interest and principal payments on the Framingham Cablevision promissory
note described below. The Company agreed to purchase preferred stock of CFHI,
from time to time, for a purchase price sufficient to pay 30% of the interest
and principal payments on the Framingham Cablevision promissory note. The
aggregate purchase price for the two New Jersey systems is expected to be
$422,300. The purchase price for the Framingham assets is expected to be
$41,100. Consummation of the transaction is subject to the receipt of necessary
regulatory approvals and other customary closing conditions. There can be no
assurance that this transaction will be successfully consummated.
As of December 31, 1993, the Company made deposits and/or incurred expenses in
connection with the acquisition of these three systems amounting to
approximately $10,796.
On November 5, 1993, A-R Cable Partners, a partnership comprised of subsidiaries
of the Company and E. M. Warburg, Pincus & Co., Inc., entered into an agreement
to purchase certain assets of Nashoba Communications ("Nashoba"), a group of
three limited partnerships which operate three cable television systems in
Massachusetts. A-R Cable Partners will be controlled in a manner substantially
similar to the way A-R Cable Services, Inc. is controlled. The purchase price
is $90,000, subject to certain adjustments, of which up to $55,000 is expected
to be provided by separate financing. The remainder will be provided by equity
contributions from the partners in A-R Cable Partners. The Company will provide
30% of such equity through drawings under its senior credit facility. The
Company will account for its investment in Nashoba using the equity method of
accounting. Consummation of the transaction is subject to regulatory approval,
as well as other customary conditions. The Company currently anticipates
consummation of this acquisition in the second quarter of 1994. As of December
31, 1993, the Company made deposits and/or incurred expenses related to the
Nashoba acquisition amounting to approximately $2,728.
(82)
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS
CASH AND CASH EQUIVALENTS, TRADE ACCOUNTS RECEIVABLE, NOTES AND OTHER
RECEIVABLES, ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND ACCOUNTS PAYABLE TO
AFFILIATES
The carrying amount approximates fair value due to the short maturity of these
instruments.
MARKETABLE SECURITIES AND NOTES RECEIVABLE -- AFFILIATES
The fair value of the Company's marketable securities are based on quoted market
prices. The fair value of notes receivable -- affiliates is based on current
rates for notes with similar maturities.
OTHER INVESTMENTS
The fair values of the Company's Other Investments are generally based on
multiples of the investees' cash flow, after adjustment for net assets or
liabilities.
BANK DEBT, SENIOR TERM LOANS, SENIOR SUBORDINATED DEBENTURES, AND SUBORDINATED
NOTES PAYABLE
The fair values of each of the Company's long-term debt instruments are based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
INTEREST RATE SWAP AGREEMENTS
The fair values of interest rate swap 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 carrying amount
represents accrued or deferred income arising from the unrecognized financial
instruments.
OBLIGATION TO RELATED PARTY
The fair values of Obligation to Related Party is estimated based on current
rates for debt with similar maturities.
(83)
The fair value of the Company's financial instruments are summarized as follows:
DECEMBER 31, 1993
-------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
Marketable securities and notes
receivable - affiliates $ 3,693 $ 7,268
---------- ----------
Other investments $ 1,971 $ 1,971
---------- ----------
Long term debt instruments:
Bank debt $ 480,079 $ 480,079
Senior debt 832,866 832,866
Senior subordinated debentures 822,781 928,060
Obligation to related party 91,619 91,619
---------- ----------
$2,227,345 $2,332,624
---------- ----------
Interest rate swap agreements:
In a net payable position $ 3,745 $ 21,248
---------- ----------
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. SUBSEQUENT EVENTS
On February 22, 1994, after reconsideration, the Federal Communications
Commission ("FCC") ordered a further reduction in rates for the basic service
tier in effect on September 30, 1992. As the formal text of these new
regulations has not yet been released, the Company cannot yet determine the
impact on its operations.
In March 1994, Cablevision Cleveland, a partnership comprised of subsidiaries of
the Company, purchased substantially all of the assets and assumed certain
liabilities of North Coast Cable Limited Partnership, which operated a cable
television system in Cleveland, Ohio. The purchase price aggregated $133,000
which amount includes: (i) approximately $98,800 paid in cash; (ii) $4,000 paid
in a short-term promissory note
(84)
secured by a letter of credit; (iii) approximately $13,200 paid by the surrender
of the Company's 19% interest in North Coast and the satisfaction of certain
management fees owed to the Company; and (iv) approximately $17,000 to be paid
by the assumption of certain capitalized lease obligations and certain other
liabilities. The net cash purchase price of the acquisition was financed by
borrowings under the Company's Credit Agreement and Cablevision Cleveland is
part of the Restricted Group.
(85)
NOTE 16. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the fiscal
years ended December 31, 1993 and 1992.
The operating data for the quarters ended March 31, and June 30, 1992 have been
restated to reflect as of January 1, 1992 the deconsolidation of the Company's
A-R Cable subsidiary for reporting purposes. The Company is accounting for its
investment in A-R Cable using the equity method of accounting. Amounts
previously reported in the Company's Form 10-Q for the quarter ended March 31,
1992 for net revenues, operating expenses and operating profit were $153,585,
$138,072 and $15,513, respectively, and for the quarter ended June 30, 1992,
$162,153, $140,563 and $21,590, respectively.
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
------------------ ------------------ ------------------ ------------------ --------------------
1993 1992 1993 1992 1993 1992 1993 1992 1993 1992
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Net revenues . . . . . . . $157,023 $127,887 $168,170 $135,782 $169,563 $151,278 $171,968 $157,540 $ 666,724 $ 572,487
Operating expenses . . . . 139,850 112,312 147,465 114,510 149,083 130,358 173,070 136,163 609,468 493,343
-------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
Operating profit (loss). . $ 17,173 $ 15,575 $ 20,705 $ 21,272 $ 20,480 $ 20,920 $ (1,102) $ 21,377 $ 57,256 $ 79,144
-------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
-------- -------- -------- -------- -------- -------- --------- --------- --------- ---------
Net loss applicable to
common shareholders. . $(55,910) $(52,753) $(49,007) $(86,052) $(55,649) $(46,174) $(87,101) $(66,409) $(247,667) $(251,388)
-------- -------- -------- -------- -------- -------- -------- --------- --------- ---------
-------- -------- -------- -------- -------- -------- -------- --------- --------- ---------
Net loss per common
share . . . . . . . . $ (2.46) $ (2.35) $ (2.15) $ (3.83) $ (2.44) $ (2.05) $ (3.78) $ (2.94) $ (10.83) $ (11.17)
--------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
--------- -------- -------- -------- -------- -------- -------- -------- --------- ---------
(86)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The information called for by 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 the Company's
definitive proxy statement for its Annual Meeting of Shareholders anticipated to
be held in June, 1994 or if such definitive proxy statement is not filed with
the Commission prior to April 30, 1994, to an amendment to this report on Form
10-K filed under cover of Form 8.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, 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 is set forth on
page 50.
2. Financial Statement schedules:
Page
No.
Schedules supporting consolidated financial statements:
Schedule V - Property, Plant and Equipment 88
Schedule VI - Accumulated Depreciation and Amortization
of Property, Plant and Equipment 90
Schedule VIII - Valuation and Qualifying Accounts 92
Schedule X - Supplementary Income Statement Information 93
Schedules other than those listed above have been omitted, since they are either
not applicable, not required or the information is included elsewhere herein.
3. Independent auditors report and accompanying financial statements of
A-R Cable Services, Inc. are filed as part of this report on page 94.
4. The Index to Exhibits is on page 116.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the last quarter of the fiscal
period covered by this report.
(87)
CABLEVISION SYSTEMS CORPORATION
SCHEDULE V
PROPERTY, PLANT & EQUIPMENT
(Dollars in thousands)
OTHER
BALANCE AT CHANGES- BALANCE AT
BEGINNING ADDITIONS (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD(2) PERIOD
-------------- --------- --------- ----------- --------- ----------
For the Year Ended December 31, 1993
Converters. . . . . . . . . . . . . . $151,265 $ 40,513 $ (4,226) $ 1,735 $ 189,287
Headends. . . . . . . . . . . . . . . 31,984 19,966 (55) 205 52,100
Distribution systems. . . . . . . . . 621,865 88,777 47,437 (1) 6,638 764,717
Program, service & test equipment . . 54,581 12,656 (2,868) (67) 64,302
Microwave equipment . . . . . . . . . 3,358 71 - 1,358 4,787
Construction in progress. . . . . . . 25,541 46,538 (49,967) (1) - 22,112
Furniture and fixtures. . . . . . . . 15,053 2,095 (233) (375) 16,540
Vehicles. . . . . . . . . . . . . . . 16,777 3,104 (215) (184) 19,482
Leasehold improvements. . . . . . . . 35,033 3,544 (126) (4) 38,447
Land and land improvements. . . . . . 3,936 35 - - 3,971
-------- -------- -------- -------- ----------
$959,393 $217,299 $(10,253) $ 9,306 $1,175,745
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
For the Year Ended December 31, 1992 (3)
Converters. . . . . . . . . . . . . . $120,743 $ 14,208 $ (4,381) $ 20,695 $ 151,265
Headends. . . . . . . . . . . . . . . 24,547 5,897 (1) 1,541 31,984
Distribution systems. . . . . . . . . 495,780 53,111 5,615 (1) 67,359 621,865
Program, service & test equipment . . 41,401 14,353 (3,503) 2,330 54,581
Microwave equipment . . . . . . . . . 3,084 138 - 136 3,358
Construction in progress. . . . . . . 1,633 16,546 (5,962) (1) 13,324 25,541
Furniture and fixtures. . . . . . . . 12,411 2,222 (316) 736 15,053
Vehicles. . . . . . . . . . . . . . . 12,543 2,429 (146) 1,951 16,777
Leasehold improvements. . . . . . . . 26,756 5,730 (326) 2,873 35,033
Land and land improvements. . . . . . 3,937 172 (173) - 3,936
-------- -------- -------- -------- ----------
$742,835 $114,806 $ (9,193) $110,945 $ 959,393
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
(1) Includes transfer of completed construction.
(2) Includes the value of plant and equipment purchased through acquisitions of other companies and, in 1993, the effects of
adjustments made to reflect the provisions of SFAS 109 (see Note 1 of Notes to Consolidated Financial Statements).
(3) Reflects the deconsolidation of A-R Cable, effective January 1, 1992.
(continued)
(88)
CABLEVISION SYSTEMS CORPORATION
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
OTHER
BALANCE AT CHANGES- BALANCE AT
BEGINNING ADDITIONS (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD PERIOD
-------------- ------------ --------- ----------- -------- ----------
For the Year Ended December 31, 1991
Converters . . . . . . . . . . . . . . . . . $131,477 $16,073 $(1,720) $ - $145,830
Headends . . . . . . . . . . . . . . . . . . 34,213 2,102 (48) - 36,267
Distribution systems . . . . . . . . . . . . 560,646 41,818 2,186 (1) - 604,650
Program, service & test equipment. . . . . . 42,332 3,971 (543) - 45,760
Microwave equipment. . . . . . . . . . . . . 4,182 25 - - 4,207
Construction in progress . . . . . . . . . . 1,854 2,430 (2,241)(1) - 2,043
Furniture and fixtures . . . . . . . . . . . 12,014 1,410 (31) - 13,393
Vehicles . . . . . . . . . . . . . . . . . . 14,377 2,823 (181) - 17,019
Leasehold improvements . . . . . . . . . . . 28,571 1,471 (458) - 29,584
Land and land improvements . . . . . . . . . 4,747 42 - - 4,789
--------- --------- --------- -------- --------
$834,413 $72,165 $(3,036) $ - $903,542
--------- --------- --------- -------- --------
--------- --------- --------- -------- --------
(1) Includes transfer of completed construction.
(89)
CABLEVISION SYSTEMS CORPORATION
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
OTHER
BALANCE AT CHANGES- BALANCE AT
BEGINNING ADDITIONS (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD (2) PERIOD
-------------- ----------- --------- ----------- -------- ----------
For the Year Ended December 31, 1993
Converters. . . . . . . . . . . . . . . . $101,250 $ 20,359 $ (1,784) $ 1,524 $ 121,349
Headends. . . . . . . . . . . . . . . . . 13,742 4,166 (22) (90) 17,796
Distribution systems. . . . . . . . . . . 251,882 61,482 (274) 3,092 316,182
Program, service & test equipment . . . . 28,120 7,622 (1,859) (124) 33,759
Microwave equipment . . . . . . . . . . . 2,443 310 - 208 2,961
Furniture and fixtures. . . . . . . . . . 7,696 1,580 (232) 55 9,099
Vehicles. . . . . . . . . . . . . . . . . 10,610 2,963 (213) (184) 13,176
Leasehold improvements. . . . . . . . . . 14,499 3,601 (120) (56) 17,924
--------- -------- ------- ------- --------
$430,242 $102,083 $(4,504) $ 4,425 $532,246
--------- -------- ------- ------- --------
--------- -------- ------- ------- --------
For the Year Ended December 31, 1992 (1)
Converters. . . . . . . . . . . . . . . . $ 79,467 $16,793 $ (744) $ 5,734 $101,250
Headends. . . . . . . . . . . . . . . . . 10,101 3,199 (1) 443 13,742
Distribution systems. . . . . . . . . . . 188,342 50,139 (201) 13,602 251,882
Program, service & test equipment . . . . 23,633 6,425 (2,338) 400 28,120
Microwave equipment . . . . . . . . . . . 2,069 329 - 45 2,443
Furniture and fixtures. . . . . . . . . . 6,290 1,525 (316) 197 7,696
Vehicles. . . . . . . . . . . . . . . . . 7,533 2,364 (158) 871 10,610
Leasehold improvements. . . . . . . . . . 10,755 3,003 (163) 904 14,499
--------- -------- ------- ------- --------
$328,190 $83,777 $(3,921) $22,196 $430,242
--------- -------- ------- ------- --------
--------- -------- ------- ------- --------
(1) Reflects the deconsolidation of A-R Cable, effective January 1, 1992.
(2) Includes accumulated depreciation on plant and equipment purchased through
acquisitions of other companies and, in 1993, includes the effects of
adjustments made to reflect the provisions of SFAS 109 (see Note 1 of Notes
to Consolidated Financial Statements).
(continued)
(90)
CABLEVISION SYSTEMS CORPORATION
SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
OTHER
BALANCE AT CHANGES- BALANCE AT
BEGINNING ADDITIONS (DEDUCT) END OF
CLASSIFICATION OF PERIOD AT COST RETIREMENTS ADD (1) PERIOD
------------- ----------- --------- ----------- --------- ----------
For the Year Ended December 31, 1991
Converters. . . . . . . . . . . . . . . . . $ 81,169 $18,339 $(1,262) $ - $ 98,246
Headends. . . . . . . . . . . . . . . . . . 12,735 4,600 (23) - 17,312
Distribution systems. . . . . . . . . . . . 168,370 51,838 (45) - 220,163
Program, service & test equipment . . . . . 21,331 5,942 (515) - 26,758
Microwave equipment . . . . . . . . . . . . 2,545 504 - - 3,049
Furniture and fixtures. . . . . . . . . . . 5,330 1,571 (7) - 6,894
Vehicles. . . . . . . . . . . . . . . . . . 7,944 3,085 (177) - 10,852
Leasehold improvements. . . . . . . . . . . 9,095 2,649 (34) - 11,710
--------- -------- -------- ------ --------
$308,519 $88,528 $(2,063) $ $394,984
--------- -------- -------- ------ --------
--------- -------- -------- ------ --------
(91)
CABLEVISION SYSTEMS CORPORATION
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
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, 1993
- ----------------------------
Allowance for doubtful accounts. . . . $3,232 $9,138 $ - $(7,315) $5,055
------ ------ ------ ------- ------
------ ------ ------ ------- ------
Year Ended December 31, 1992
- ----------------------------
Allowance for doubtful accounts. . . . $1,965 (1) $5,654 $1,972 $(6,359) $3,232
------ ------ ------ ------- ------
------ ------ ------ ------- ------
Year Ended December 31, 1991
- ----------------------------
Allowance for doubtful accounts. . . . $2,585 $5,713 $ - $(6,039) $2,259
------ ------ ------ ------- ------
------ ------ ------ ------- ------
(1) Balance reflects the deconsolidation of the Company's A-R Cable subsidiary,
effective January 1, 1992.
(92)
CABLEVISION SYSTEMS CORPORATION
SCHEDULE X
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(Dollars in thousands)
CHARGED TO COSTS AND EXPENSES
----------------------------------------------------
YEAR YEAR YEAR
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1992 1991
------------- -------------- --------------
Maintenance and repairs. . . . . . . . . . . . $ 8,168 $ 8,236 $ 9,871
-------- -------- ---------
-------- -------- ---------
Taxes, other than payroll and income taxes:
Franchise fees . . . . . . . . . . . . . . . $ 24,488 $ 20,168 $ 19,634
Real estate and personal property taxes. . . 6,865 6,004 6,534
-------- -------- ---------
$ 31,353 $ 26,172 $ 26,168
-------- -------- ---------
-------- -------- ---------
Advertising. . . . . . . . . . . . . . . . . . $ 3,475 $ 1,489 $ 2,380
-------- -------- ---------
-------- -------- ---------
Amortization of Intangible Assets:
Subscriber lists . . . . . . . . . . . . . . $ 37,879 $ 29,798 $ 36,442
Franchises . . . . . . . . . . . . . . . . . 32,680 27,069 48,438
Broadcast, production and program rights . . 52 1,521 5,183
Other. . . . . . . . . . . . . . . . . . . . 22,210 26,373 36,735
-------- -------- ---------
$ 92,821 $ 84,761 $126,798
-------- -------- ---------
-------- -------- ---------
Depreciation . . . . . . . . . . . . . . . . . $102,083 $ 83,777 $ 88,528
-------- -------- ---------
-------- -------- ---------
(93)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of
Cablevision Systems Corporation)
Consolidated Financial Statements
December 31, 1993 and 1992
(With Independent Auditors' Report Thereon)
(94)
INDEPENDENT AUDITORS' REPORT
The Board of Directors
A-R Cable Services, Inc.
We have audited the accompanying consolidated balance sheets of A-R Cable
Services, Inc. (a wholly-owned subsidiary of Cablevision Systems Corporation)
and subsidiaries as of December 31, 1993 and 1992, 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, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 consolidated
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 A-R Cable Services,
Inc. and subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As described in Note 7 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes", on a
prospective basis in 1993.
/s/ KPMG PEAT MARWICK
------------------------
KPMG PEAT MARWICK
Jericho, New York
March 4, 1994
(95)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(in thousands)
1993 1992
-------- --------
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 398 $ 517
Accounts receivable trade (less allowance for doubtful
accounts of $260 and $204) . . . . . . . . . . . . . . . 1,369 1,393
Notes and other receivables. . . . . . . . . . . . . . . . 1,524 1,061
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 647 615
Property, plant and equipment, net . . . . . . . . . . . . 99,109 89,019
Subscriber lists, net of accumulated amortization of
$46,080 and $25,344. . . . . . . . . . . . . . . . . . . 14,720 14,784
Franchises, net of accumulated amortization of
$194,320 and $106,875. . . . . . . . . . . . . . . . . . 45,880 51,657
Excess costs over fair value of net assets acquired, net of
accumulated amortization of $52,077 and $43,474. . . . . 120,439 129,042
Deferred financing and other costs, net of accumulated
amortization of $4,665 and $3,513. . . . . . . . . . . . 4,262 6,023
-------- --------
$288,348 $294,111
-------- --------
-------- --------
See accompanying notes to
consolidated financial statements.
(96)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(in thousands)
1993 1992
--------- --------
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 14,566 $ 9,268
Accrued liabilities:
Interest . . . . . . . . . . . . . . . . . . . . . . . . 1,754 647
Payroll and related benefits . . . . . . . . . . . . . . 1,956 1,379
Franchise fees . . . . . . . . . . . . . . . . . . . . . 1,556 1,433
Insurance. . . . . . . . . . . . . . . . . . . . . . . . 989 1,139
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 6,673 4,530
Amounts payable to affiliates, net . . . . . . . . . . . . 602 794
Due to parent. . . . . . . . . . . . . . . . . . . . . . . 7,191 2,899
Senior term loan . . . . . . . . . . . . . . . . . . . . . 397,500 375,361
Subordinated notes payable . . . . . . . . . . . . . . . . - 28,793
Capital lease obligations. . . . . . . . . . . . . . . . . 232 531
Subscriber deposits. . . . . . . . . . . . . . . . . . . . 873 950
Deferred income taxes. . . . . . . . . . . . . . . . . . . 20,127 -
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . 454,019 427,724
--------- ---------
Commitments and contingencies
Preferred Stock - Series A . . . . . . . . . . . . . . . . 141,578 118,066
--------- ---------
Preferred Stock - Series B . . . . . . . . . . . . . . . . 54,502 48,504
--------- ---------
Stockholder's deficiency:
Common stock $.50 par value, 20,000 shares
authorized, 19,000 shares issued and
outstanding. . . . . . . . . . . . . . . . . . . . . . 9,500 9,500
Paid-in capital. . . . . . . . . . . . . . . . . . . . . 41,350 40,500
Accumulated deficit. . . . . . . . . . . . . . . . . . . (412,601) (350,183)
--------- ---------
Total stockholder's deficiency . . . . . . . . . . . . (361,751) (300,183)
--------- ---------
$ 288,348 $ 294,111
--------- ---------
--------- ---------
See accompanying notes
to consolidated financial statements.
(97)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(in thousands)
1993 1992 1991
---- ---- ----
Net revenues . . . . . . . . . . . . . . . . . . . . . . . $108,711 $105,629 $100,159
-------- -------- --------
Operating expenses:
Technical expenses (including affiliate amounts of
$2,787, $2,690 and $3,127) . . . . . . . . . . . . . . 38,316 36,107 34,085
Selling, general and administrative expenses (including
affiliate amounts of $7,174, $5,102 and $1,813). . . . 24,664 19,860 16,957
Depreciation and amortization. . . . . . . . . . . . . . 63,731 50,204 50,614
-------- -------- --------
126,711 106,171 101,656
-------- -------- --------
Operating loss . . . . . . . . . . . . . . . . . . . (18,000) (542) (1,497)
Other income (expense):
Interest expense, net (including affiliate amount of
$244 in 1993). . . . . . . . . . . . . . . . . . . . . (27,894) (44,326) (69,414)
Loss on retirement of debt . . . . . . . . . . . . . . . (390) (2,435) -
Gain on retirement of 1987 Cumulative Preferred
Stock. . . . . . . . . . . . . . . . . . . . . . . . . - 33,509 -
Miscellaneous, net . . . . . . . . . . . . . . . . . . . (792) (2,051) (595)
Tax settlement . . . . . . . . . . . . . . . . . . . . . - - (1,757)
-------- -------- --------
Net loss before income tax benefit . . . . . . . . . . . . (47,076) (15,845) (73,263)
Income tax benefit . . . . . . . . . . . . . . . . . . . . 14,168 - -
-------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . (32,908) (15,845) (73,263)
-------- -------- --------
Dividend requirements applicable to:
1987 Cumulative Preferred Stock. . . . . . . . . . . . . - (1,415) (3,579)
Series A Preferred Stock . . . . . . . . . . . . . . . . (23,512) (13,066) -
Series B Preferred Stock . . . . . . . . . . . . . . . . (5,998) (3,504) -
-------- -------- --------
(29,510) (17,985) (3,579)
-------- -------- --------
Net loss applicable to common stockholder. . . . . . . . . $(62,418) $(33,830) $(76,842)
-------- -------- --------
-------- -------- --------
See accompanying notes
to consolidated financial statements.
(98)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(in thousands)
Common Stock
------------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- --------- -----
Balance December 31, 1990. . . . . . . 19,000 $9,500 $40,500 $(239,511) $(189,511)
Preferred dividend requirement . . . - - - (3,579) (3,579)
Net loss . . . . . . . . . . . . . . - - - (73,263) (73,263)
------- ------ ------- --------- ---------
Balance December 31, 1991. . . . . . . 19,000 9,500 40,500 (316,353) (266,353)
Preferred dividend requirements. . . - - - (17,985) (17,985)
Net loss . . . . . . . . . . . . . . - - - (15,845) (15,845)
------- ------ ------- --------- ---------
Balance December 31, 1992. . . . . . . 19,000 9,500 40,500 (350,183) (300,183)
Preferred dividend requirements. . . - - - (29,510) (29,510)
Net loss . . . . . . . . . . . . . . - - - (32,908) (32,908)
Capital contributions. . . . . . . . - - 850 - 850
------- ------ ------- --------- ---------
Balance December 31, 1993. . . . . . . 19,000 $9,500 $41,350 $(412,601) $(361,751)
------- ------ ------- --------- ---------
------- ------ ------- --------- ---------
See accompanying notes
to consolidated financial statements.
(99)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(in thousands)
1993 1992 1991
---- ---- ----
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . $(32,908) $(15,845) $(73,263)
-------- -------- --------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Income tax benefit . . . . . . . . . . . . . (14,168) - -
Depreciation and amortization. . . . . . . . 63,731 50,204 50,614
Amortization of deferred financing costs . . 1,577 1,487 1,259
Amortization of original issue discount
on subordinated notes payable. . . . . . . - 16,911 33,661
Loss on retirement of debt . . . . . . . . . 390 2,435 -
Gain on retirement of cumulative preferred
stock. . . . . . . . . . . . . . . . . . . - (33,509) -
(Gain) loss on sale of equipment . . . . . . (104) 449 72
Change in assets and liabilities:
Decrease in accounts receivable trade. . . . 24 371 292
Increase in notes and other receivables. . . (463) (238) (310)
Decrease (increase) in prepaid expenses. . . (32) 60 (80)
Increase in accounts payable . . . . . . . . 5,298 1,112 1,891
Increase (decrease) in accrued liabilities . 3,800 (5,316) (1,231)
Decrease in subscriber deposits. . . . . . . (77) (69) (103)
Increase (decrease) in amounts payable to
affiliates, net. . . . . . . . . . . . . . (192) 73 180
Increase in due to parent. . . . . . . . . . 4,292 2,034 715
-------- -------- --------
Total adjustments. . . . . . . . . . . . . 64,076 36,004 86,960
-------- -------- --------
Net cash provided by operating activities. 31,168 20,159 13,697
-------- -------- --------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . (25,220) (10,724) (10,111)
Proceeds from sale of equipment. . . . . . . . . 242 137 19
-------- -------- --------
Net cash used in investing activities. . . . . $(24,978) $(10,587) $(10,092)
-------- -------- --------
See accompanying notes
to consolidated financial statements.
(100)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(in thousands)
(continued)
1993 1992 1991
---- ---- ----
Cash flows from financing activities:
Repayment of capital lease obligations . . . . . . . $ (299) $ (451) $ (348)
Proceeds from senior debt. . . . . . . . . . . . . . 39,639 95,803 17,000
Repayments of senior debt. . . . . . . . . . . . . . (17,500) (31,692) (20,750)
Redemption of subordinated notes payable . . . . . . (28,793) (219,861) -
Proceeds from issuance of Series A Preferred
Stock. . . . . . . . . . . . . . . . . . . . . . . - 105,000 -
Proceeds from issuance of Series B Preferred
Stock. . . . . . . . . . . . . . . . . . . . . . . - 45,000 -
Capital contributions. . . . . . . . . . . . . . . . 850 - -
Additions to deferred financing and other costs. . . (206) (3,611) (232)
-------- -------- --------
Net cash used in financing activities. . . . . . . (6,309) (9,812) (4,330)
-------- -------- --------
Net decrease in cash and cash equivalents. . . . . . . (119) (240) (725)
Cash and cash equivalents at beginning of year . . . . 517 757 1,482
-------- -------- --------
Cash and cash equivalents at end of year . . . . . . . $ 398 $ 517 $ 757
-------- -------- --------
-------- -------- --------
See accompanying notes
to consolidated financial statements.
(101)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1993, 1992 and 1991
(Dollars in thousands)
NOTE 1. THE COMPANY
A-R Cable Services, Inc. ("A-R Cable" or the "Company") became a wholly-owned
subsidiary of Cablevision Systems Corporation ("CSC") on January 4, 1988 in
accordance with the terms of a merger agreement dated July 15, 1987.
NOTE 2. 1992 RESTRUCTURING
On May 11, 1992, the Company and CSC consummated a restructuring and refinancing
transaction whereby the Company repurchased approximately $236,841 principal
amount of Senior Subordinated Deferred Interest Notes (the "A-R Cable Notes"),
representing approximately 86.9% principal amount of the A-R Cable Notes
outstanding pursuant to the terms of a tender offer. In connection with the
consummation of the tender offer, Warburg, Pincus Investors, L.P. ("Warburg
Pincus") purchased a new Series A Preferred Stock of the Company for a cash
investment of $105,000, and CSC purchased a new Series B Preferred Stock of the
Company for a cash investment of $45,000. In addition, General Electric Capital
Corporation ("GECC") provided the Company with an additional $70,000 under a
secured revolving credit line. In connection with the investment by Warburg
Pincus, the Company incurred costs of approximately $1,725.
In connection with Warburg Pincus' investment in the Company, upon the receipt
of certain franchise approvals, Warburg Pincus will be permitted to elect three
of the six members of the Company's board of directors, will have approval
rights over certain major corporate decisions of the Company and will be
entitled to 60% of the vote on all matters on which holders of capital stock are
entitled to vote (other than the election of directors). CSC (through a wholly-
owned subsidiary) continues to own the common stock, as well as the Series B
Preferred Stock, and CSC continues to manage the Company under a management
agreement that provides for cost reimbursement, an allocation of overhead
charges and a management fee of 3-1/2% of gross receipts, as defined, with
interest on unpaid annual amounts thereon at a rate of 10% per annum. The
3-1/2% fee is payable by the Company only after repayment in full of its senior
debt and certain other obligations. Under certain circumstances, the fee is
subject to reduction to 2-1/2% of gross receipts.
After May 11, 1997, either Warburg Pincus or CSC may irrevocably cause the sale
of the Company, subject to certain conditions. In certain circumstances,
Warburg Pincus may cause the sale of the Company prior to that date. If Warburg
Pincus initiates the sale, CSC will have the right to purchase the Company
through an appraisal procedure. CSC's purchase right may be forfeited in
certain circumstances. Upon the sale of the
(102)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Company, the net sales proceeds, after repayment of all outstanding indebtedness
and other liabilities, will be used as follows: first, to repay Warburg Pincus'
original $105,000 investment in the Series A Preferred Stock; second, to repay
CSC's original investment of $45,000 in the Series B Preferred Stock; third, to
repay the accumulated unpaid dividends on the Series A Preferred Stock (19%
annual rate); fourth, to repay the accumulated unpaid dividends on the Series B
Preferred Stock (12% annual rate); fifth, to pay CSC for all accrued and unpaid
management fees together with accrued but unpaid interest thereon; sixth, pro
rata 60% to the Series A Preferred Stockholders, 4% to the Series B Preferred
Stockholders and 36% to the common stockholder(s).
Also in connection with the purchase of the A-R Cable Notes, the Company
purchased from an affiliate, for nominal consideration, and retired its
previously outstanding 1987 Cumulative Preferred Stock ("1987 Preferred Stock").
The affiliate had purchased the 1987 Preferred Stock from GECC. In connection
with the purchase of the 1987 Preferred Stock, a transaction fee agreement
between the Company and GECC was terminated and the Company's obligations
thereunder were extinguished. The Company recognized a gain of $33,509 on its
purchase of the 1987 Preferred Stock.
In October and November 1992, the Company repurchased approximately $6,900
principal amount of the A-R Cable Notes at an average price of $98.60 per $100
principal amount. The funds for such repurchase were obtained by additional
borrowings under A-R Cable's secured revolving credit line. In connection with
the purchase of A-R Cable Notes the Company incurred a loss of approximately
$211.
On February 9, 1993, the Company redeemed all of its remaining outstanding A-R
Cable Notes in the aggregate principal amount of $28,793 (plus accrued interest
of $522) in accordance with the terms of the Indenture with respect to the A-R
Cable Notes. In connection with this redemption the Company incurred a loss of
approximately $390. The funds for such redemption were obtained from the
proceeds of an additional $30,000 provided by GECC under the Company's secured
revolving credit line.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
(103)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
REVENUE RECOGNITION
The Company recognizes revenues as cable television services are provided to
subscribers.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including construction materials, are recorded at
cost, which 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.
Plant and equipment are being depreciated over their estimated useful lives
using the straight-line method for financial reporting purposes. Leasehold
improvements are amortized over the shorter of their useful lives or the term of
the related leases.
DEFERRED FINANCING COSTS
Costs incurred in obtaining debt are deferred and amortized on the straight-line
basis over the life of the related debt.
SUBSCRIBER LISTS, FRANCHISES, AND EXCESS COSTS OVER FAIR VALUE OF NET ASSETS
ACQUIRED
Subscriber lists are amortized on the straight-line basis over varying periods
during which subscribers are expected to remain connected to the system
(averaging approximately 8 years). Franchises are amortized on the
straight-line basis over the average remaining term of the franchises
(approximately 7 years). Excess costs over fair value of net assets acquired
are being amortized over 20 years on the straight-line basis. The Company
assesses the recoverability of such excess costs based upon undiscounted
anticipated future cash flows of the businesses acquired.
INCOME TAXES
The Company is not a member of the CSC consolidated group for federal tax
purposes and, accordingly, files its federal income tax return on behalf of
itself and its consolidated subsidiaries and not as part of a CSC consolidated
group.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the liability method of accounting for deferred income
taxes and
(104)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
permits the recognition of deferred tax assets, subject to an ongoing assessment
of realizability. Prior years' financial statements have not been restated to
reflect the provisions of SFAS 109.
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 expense of
approximately $25,030, $43,008 and $36,472 during the years ended December 31,
1993, 1992 and 1991, respectively. During 1993, 1992 and 1991 the Company's
noncash investing and financing activities included capital lease obligations of
$0, $65 and $259, respectively, incurred when the Company entered into leases
for new equipment, and preferred stock dividend requirements of $29,510, $17,985
and $3,579, respectively.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items which are
depreciated over the estimated useful lives shown below:
December 31, December 31, Estimated
1993 1992 Useful Lives
------------ ------------ ------------
Distribution systems. . . . . . . $178,469 $155,931 5-15 years
Machinery and equipment . . . . . 5,532 4,617 5-7 years
Furniture and fixtures. . . . . . 1,229 1,003 7 years
Vehicles. . . . . . . . . . . . . 6,387 5,236 4 years
Buildings . . . . . . . . . . . . 2,047 2,032 25 years
Leasehold improvements. . . . . . 1,075 863 Life of lease
Land. . . . . . . . . . . . . . . 920 852 -
---------- ----------
195,659 170,534
Less accumulated depreciation
and amortization. . . . . . . . 96,550 81,515
---------- ----------
$ 99,109 $ 89,019
---------- ----------
---------- ----------
At December 31, 1993 and 1992 property, plant and equipment include
approximately $310, and $643, respectively, of net assets recorded under capital
leases.
(105)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 5. DEBT
SENIOR TERM LOAN
The Company's outstanding borrowings under its senior term loan and revolving
lines of credit (the "Senior Term Loan") with GECC amounted to $397,500 at
December 31, 1993 and 1992, respectively. The facility consists of a $285,000
senior term loan, $95,000 in special funding advances and a $45,000 revolving
line of credit; all of the loans are non-amortizing and mature on December 30,
1997. Aggregate undrawn funds available under the revolving line of credit at
December 31, 1993 amounted to approximately $27,500 of which $400 was
restricted.
Interest rates on the $397,500 of the Senior Term Loan, are at floating rates
based on either GECC's LIBOR (as defined in the agreement) or Index Rate plus
applicable percentages which vary depending upon certain prescribed financial
ratios. Such floating rate approximated 6.8% at December 31, 1993. In
addition, the Company entered into an interest rate cap agreement with a bank on
a notional amount of $155,000 which limits the interest rate the Company will
pay to 7.25% on the $155,000. The cap agreement terminates in May 1995. The
Company is exposed to credit loss in the event of nonperformance by the other
party to the cap agreement. However, the Company does not anticipate
nonperformance by the counterparty.
Substantially all of the assets of the Company have been pledged to secure the
borrowings under the Senior Term Loan agreement.
The Senior Term Loan agreement contains various restrictive covenants, among
which are the maintenance of certain financial ratios, limitations regarding
certain transactions by the Company, prohibitions against the transfer of funds
to the parent company (except for reimbursement of certain expenses) and
limitations on levels of permitted capital expenditures. The Company was in
compliance with all of the covenants of its Senior Term Loan agreement at
December 31, 1993.
SUBORDINATED NOTES PAYABLE
In January 1988, the Company issued $125,000 ($272,533 face amount) of the A-R
Cable Notes due December 30, 1997. No interest was payable on the A-R Cable
Notes until June 30, 1993 at which time interest at 16-3/4% per annum became
payable. The original issue discount of $147,533 was being charged to
operations over the period from January 1988 to December 1992. During 1992, the
Company repurchased approximately $243,740 principal amount of the A-R Cable
Notes
(106)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
pursuant to the terms of a tender offer. In connection with the purchase of the
A-R Cable Notes, the Company incurred a loss aggregating approximately $2,435.
On February 9, 1993, the Company redeemed all of its remaining outstanding A-R
Cable Notes in the aggregate principal amount of $28,793 in accordance with the
terms of the Indenture with respect to the A-R Cable Notes. The funds for such
redemption were obtained from the proceeds of an additional $30,000 provided by
GECC under the Company's secured revolving credit line.
CAPITAL LEASES
The Company's minimum future obligations under capital leases as of December 31,
1993 are approximately as follows:
1994 . . . . . . . . . . . . . . . . . . . . . . . . $ 180
1995 . . . . . . . . . . . . . . . . . . . . . . . . 65
1996 . . . . . . . . . . . . . . . . . . . . . . . . 10
1997 . . . . . . . . . . . . . . . . . . . . . . . . -
1998 . . . . . . . . . . . . . . . . . . . . . . . . -
------
Total minimum lease payments. . . . . . . . . . . 255
Less amount representing interest. . . . . . . . . . 23
------
Present value of net minimum lease payments under
capital leases (including current maturities
of $162). . . . . . . . . . . . . . . . . . . . . $ 232
------
------
NOTE 6. PREFERRED STOCK
In January, 1988, the Company issued and GECC purchased 200,000 shares of the
1987 Preferred Stock for a purchase price of $100 per share. The 1987 Preferred
Stock bore cumulative annual dividends of $12 per share payable quarterly.
Dividends on or before January 4, 1993 were payable in additional shares of
preferred stock at a rate of one share per $100. The 1987 Preferred Stock was
mandatorily redeemable, at a redemption price of $100 per share.
In connection with the purchase of the A-R Cable Notes, the Company purchased
from an affiliate, (which in 1992 had purchased the 1987 Preferred Stock from
GECC) for nominal consideration, and retired the 1987 Preferred Stock. The
Company recognized a gain of $33,509 on its purchase of the 1987 Preferred
Stock.
(107)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
In connection with the consummation of the tender offer, Warburg Pincus
purchased a new Series A Preferred Stock of the Company for a cash investment of
$105,000, and CSC purchased a new Series B Preferred Stock of the Company for a
cash investment of $45,000. The Series A Preferred Stock is entitled to a 19%
annual dividend. The Series B Preferred Stock is entitled to a 12% annual
dividend. Dividends on the Series A and Series B Preferred Stock are not
payable until the repayment in full of all outstanding indebtedness to GECC
under the A-R Cable credit agreement.
NOTE 7. INCOME TAXES
As a result of an Internal Revenue Service ("IRS") examination of the Company's
predecessor's tax returns for the years 1981 to 1983, the Company accrued
approximately $1,757 in 1991 representing amounts due for federal income taxes
and interest thereon, in full settlement of that audit. The Company's tax
returns for the years 1984 to 1989 have been examined by the IRS and certain
issues related to the amortization of intangible assets are being appealed by
the Company. Management believes that any settlement arising out of this
examination will not have a material adverse effect on the financial position of
the Company.
At December 31, 1993, the Company had a net operating loss carry forward for
income tax purposes of approximately $206,752, which expires in the years 2003
to 2008. Due to the transaction on May 11, 1992, described in Note 2 above, the
Company underwent an ownership change within the meaning of Internal Revenue
Code Section 382. This would limit the amount of net operating loss carry
forward from the period prior to the transaction which could be utilized to
offset any taxable income in periods subsequent to the transaction. There is a
pro rata allocation in the year that the ownership change occurs. Therefore, of
the $206,752 of net operating loss carry forwards for tax purposes, $201,588 is
restricted and $5,164 is currently available.
Usage of the $201,588 net operating loss carry forward is limited to a fixed
annual amount, calculated using the Federal long-term tax-exempt rate times the
value of the Company prior to the ownership change. This amount is increased in
any year in which the Company recognizes any built in gain from the sale of
assets owned prior to the ownership change. Based on this formula, none of the
$201,588 restricted net operating loss carry forwards would currently be
available to the Company.
Effective January 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires the liability method of accounting for deferred income
taxes and
(108)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
permits the recognition of deferred tax assets, subject to an ongoing
assessment of realizability. Prior years' financial statements have not been
restated to reflect the provisions of SFAS 109.
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, 1993 are as follows:
Deferred Asset
(Liability)
----------------
Depreciation and amortization $ (39,294)
Benefit plans 1,111
Allowance for doubtful accounts 118
Benefits of tax loss carry forwards 78,566
Other 1,055
----------
Net deferred tax assets 41,556
Valuation allowance (61,683)
----------
Net deferred tax liabilities $ (20,127)
----------
----------
The Company has provided a valuation allowance of $61,683 for deferred tax
assets since realization of these assets was not assured due to the Company's
history of operating losses. The amounts of deferred tax assets and
corresponding valuation allowance increased by $11,590 during the year ended
December 31, 1993, principally due to a provision for potential state tax
benefits. Also, in connection with the acquisition of the Company by CSC in
January 1988, the Company recorded certain fair value adjustments net of their
tax effects. In accordance with SFAS 109, these assets have been adjusted to
their remaining pre tax amounts. Accordingly, property, plant and equipment,
franchises, and subscriber lists have been increased by $68, $26,611 and $7,616,
respectively. Amortization of these amounts in 1993 resulted in the recognition
of income tax benefits of $14,168.
NOTE 8. AFFILIATE TRANSACTIONS
As a result of the restructuring described in Note 2, the Company entered into a
management agreement with CSC whereby the Company continues to be managed by CSC
in exchange for a management fee of 3-1/2% of gross receipts, as defined, and
interest on unpaid annual amounts thereon at a rate of 10% per annum
commencing
(109)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
January 1, 1993. Such management fees amounted to $3,801 and $2,383 for 1993
and 1992, respectively. Interest on such management fees amounted to $244 for
1993.
The Company is also charged for cost reimbursement and an allocation of certain
selling, general and administrative expenses by CSC. For the years ended
December 31, 1993, 1992 and 1991 these cost reimbursements and expense
allocations approximated $3,373, $2,719, and $1,813, respectively. In
accordance with certain restrictive covenants contained in its Senior Term Loan
agreement, the Company may not pay in excess of the amounts permitted relating
to the allocation of selling, general and administrative expenses, subject to
certain escalation provisions, of corporate overhead expenses charged by CSC in
any fiscal year. At December 31, 1993 and 1992, the total balance due CSC for
management fees, cost reimbursement and expenses amounted to $7,191 and $2,899,
respectively.
CSC has interests in several companies engaged in providing cable television
services and programming services to the cable television industry, including
the Company. During 1993, 1992 and 1991, the Company was charged approximately
$2,787, $2,690 and $3,127, respectively, by these companies for these services.
The total amount due these companies at December 31, 1993 and 1992 was $602 and
$794, respectively.
Cablevision Systems Services Corporation ("CSSC"), a company owned by CSC's
chairman, Charles F. Dolan, entered into an agreement with a certain premium
program service supplier allowing all cable systems managed by CSSC or CSC to
offer that premium program service to their subscribers. The contract requires
minimum annual payments escalating to approximately $13,399 in 1994. Each of
the related cable systems offering this service, including the Company, pays its
proportionate share of the minimum annual payment based on subscriber usage of
the service. In 1993, 1992 and 1991, the Company was charged $949, $976 and
$907, respectively, for such usage.
NOTE 9. PENSION PLANS
Prior to 1993 the Company was a participant, with other affiliates, in a defined
contribution pension plan (the "Pension Plan") covering substantially all of its
employees. The Company contributed three percent of each eligible employee's
annual compensation, as defined, and employees could voluntarily contribute up
to ten percent of their annual compensation.
Effective January 1, 1993, the Board of Directors of CSC approved the adoption
of an amended and restated Pension and 401(K) Savings Plan (the "Plan"), in part
to permit
(110)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
employees of CSC and its affiliates to make contributions to the Plan on a
pre-tax salary reduction basis in accordance with the provisions of Section
401(K) of the Internal Revenue Code, and to introduce new investment options
under the Plan. The Company contributes 1-1/2% of eligible employees' annual
compensation, as defined, to the defined contribution portion of the Plan (the
"Pension Plan") and an equivalent amount to the section 401(K) portion of the
Plan (the "Savings Plan"). Employees may voluntarily contribute up to 15% of
eligible compensation, subject to certain restrictions, to the Savings Plan,
with an additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1%. Employee contributions are fully vested as are employer base
contributions to the Savings Plan. Employer contributions to the Pension Plan
and matching contributions to the Savings Plan become vested in years three
through seven. Total expense related to these plans for the years ended
December 31, 1993, 1992 and 1991 was approximately $339, $234 and $235,
respectively.
The Company does not provide any postretirement benefits to its employees.
NOTE 10. OPERATING LEASES
The Company leases certain office, production, satellite transponder, and
transmission facilities under terms of operating leases expiring at various
dates through the year 2017. The leases generally provide for fixed annual
rentals plus certain real estate taxes and other costs. Rent expense for the
years ended December 31, 1993, 1992 and 1991, was approximately $842, $910 and
$952, 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, 1993, 1992 and 1991 was approximately $1,507, $1,265 and $1,247,
respectively.
The minimum future annual rentals for all operating leases, including pole
rentals from January 1, 1994 through December 31, 1998, and thereafter, at rates
now in force are approximately: 1994, $2,198; 1995, $2,188; 1996, $2,113; 1997,
$1,785; 1998, $1,555; thereafter, $213.
(111)
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 11. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS
CASH AND CASH EQUIVALENTS, TRADE ACCOUNTS RECEIVABLE, NOTES AND OTHER
RECEIVABLES, ACCOUNTS PAYABLE, ACCRUED LIABILITIES, ACCOUNTS PAYABLE TO
AFFILIATES AND DUE TO PARENT
The carrying amount approximates fair value because of the short maturity of
these instruments.
SENIOR TERM LOAN
The fair values of the Company's long-term debt instruments are based on quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities.
INTEREST RATE CAP AGREEMENT
The fair value of the interest rate cap agreement is obtained from dealer
quotes. This value represents 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 carrying amount
represents a deferred expense arising from the unrecognized financial
instrument.
The fair value of the Company's financial instruments are summarized as follows:
December 31, 1993
---------------------
Carrying Estimated
Amount Fair Value
-------- ----------
Long term debt instruments:
Senior term loans. . . . . . . . . . $ 397,500 $ 397,500
-------- ---------
Interest rate cap agreement
In a net payable position. . . . . . $ 922 $ 4
--------- ---------
--------- ---------
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.
(112)
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 29th day of
March, 1994.
Cablevision Systems Corporation
By: /s/ William J. Bell
-------------------------
Name: William J. Bell
Title: Vice Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Francis F. Randolph, Jr., Marc A. Lustgarten 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.
Name Title Date
---- ----- ----
/s/ Charles F. Dolan
- ------------------------------- Chairman of the Board of Directors March 29, 1994
Charles F. Dolan and Chief Executive Officer
(Principal Executive Officer)
/s/ Barry J. O'Leary
- ------------------------------- Senior Vice President-Finance and March 29, 1994
Barry J. O'Leary Treasurer (Principal Financial
Officer)
/s/ Jerry Shaw
- ------------------------------- Vice President and Controller March 29, 1994
Jerry Shaw (Principal Accounting Officer)
(113)
SIGNATURES
(continued)
/s/ William J. Bell
- ------------------------------- Vice Chairman and Director March 29, 1994
William J. Bell
- ------------------------------- Vice Chairman and Director
Marc A. Lustgarten
/s/ Francis F. Randolph, Jr.
- ------------------------------- Vice Chairman and Director March 29, 1994
Francis F. Randolph, Jr.
/s/ Robert S. Lemle
- ------------------------------- Executive Vice President, General March 29, 1994
Robert S. Lemle Counsel, Secretary and Director
/s/ Daniel T. Sweeney
- ------------------------------- Senior Vice President and Director March 29, 1994
Daniel T. Sweeney
- ------------------------------- Vice President and Director
James L. Dolan
/s/ Sheila A. Mahony
- ------------------------------- Vice President and Director March 29, 1994
Sheila A. Mahony
- ------------------------------- Director and Chairman of the
John Tatta Executive Committee
- ------------------------------- Director
Patrick F. Dolan
/s/ Charles D. Ferris
- ------------------------------- Director March 29, 1994
Charles D. Ferris
/s/ Richard H. Hochman
- ------------------------------- Director March 29, 1994
Richard H. Hochman
/s/ Victor Oristano
- ------------------------------- Director March 29, 1994
Victor Oristano
- ------------------------------- Director
A. Jerrold Perenchio
(114)
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- -----
3.1 --Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-1
dated January 17, 1986, File No. 33-1936 (the "S-1"))
3.1A --Amendment to Certificate of Incorporation and
complete copy of amended and restated Certificate of
Incorporation (incorporated herein by reference to
Exhibits 3.1A(i) and 3.1A(ii) to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1989 (the "1989 10-K"))
3.1B --Certificate of Designations for the Series E
Redeemable Exchangeable Convertible Preferred Stock
3.1C --Certificate of Designations for the Series F
Redeemable Preferred Stock
3.2 --By-laws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the S-1)
3.2A --Amendment to By-laws and complete copy of amended
and restated By-laws (incorporated herein by
reference to Exhibit 3.2 to the 1989 10-K)
3.2B --Amendment to By-laws and complete copy of amended
and restated By-laws (incorporated herein by
reference to Exhibit 3.2B to the Company's Annual
Report on Form 10K for the fiscal year ended
December 31, 1992 (the "1992 10-K").
4.1 --Indenture dated as of November 10, 1988 relating to
the Registrant's $200,000,000 Senior Subordinated
Debentures due October 15, 2003 (incorporated herein
by reference to Exhibit 4.6 to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1988, File No. 1-9046 (the "1988 10-K").
4.2 --Indenture dated as of April 1, 1992 relating to the
Registrant's $275,000,000 10 3/4% Senior Subordinated
Debentures due April 1, 2004 (incorporated herein by
reference to Exhibit 4.2 to the 1992 10-K).
(115)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
4.3 --Indenture dated as of February 15, 1993 relating
to the Registrant's $200,000,000 9 7/8% Senior
Subordinated Debentures due February 15, 2013
(incorporated herein by reference to Exhibit 4.3 to
the 1992 10-K).
10.1 --Registration Rights Agreement between Cablevision
Systems Company and the Registrant (incorporated
herein by reference to Exhibit 10.1 of the S-1).
10.2 --Registration Rights Agreement between CSC
Holdings Company and the Registrant (incorporated
herein by reference to Exhibit 10.2 to the S-1)
10.4 --Form of Right of First Refusal Agreement between
Dolan and the Registrant (incorporated herein by
reference to Exhibit 10.4 to the S-1)
10.5 --Supplemental Benefit Plan of the Registrant
(incorporated herein by reference to Exhibit 10.7
to the S-1)
10.6 --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 the S-1)
10.6A --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).
10.7 --Employment Agreement between Charles F. Dolan and
the Registrant dated January 27, 1986 (incorporate
herein by reference to Exhibit 10.9 to the S-1)
10.8 --Amended and Restated Agreement dated as of
June 1, 1983 between SportsChannel Associates and
Cablevision Systems Holdings Company (incorporated
herein by reference to Exhibit 10.11 to the S-1)
(116)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- -----
10.9 --Assignment of Partnership Interest dated as of
November 30, 1984 between Cablevision Systems
Company, Cablevision Company and Cablevision of
Boston Limited Partnership (incorporated herein by
reference to Exhibit 10.15 to the S-1)
10.10 --Promissory Note of Cablevision of Chicago dated
November 30, 1984 payable to Cablevision Company
(incorporated herein by reference to Exhibit 10.16
to the S-1)
10.11 --Promissory Note of Cablevision of Chicago dated
August 11, 1989 payable to Cablevision Systems
Corporation (incorporated herein by reference to
Exhibit 10.16A to the 1989 10-K)
10.12 --Lease Agreement dated as of October 9, 1978
between Cablevision Systems Development Company and
Industrial and Research Associates Co. and
amendment dated June 21, 1985 between Industrial
and Research Associates Co. and Cablevision Company
(incorporated herein by reference to Exhibit 10.18
to the S-1)
10.13 --Lease Agreement dated May 1, 1982 between
Industrial and Research Associates Co. and
Cablevision Systems Development Company
(incorporated herein by reference to Exhibit 10.19
to the S-1)
10.14 --Agreement of Sublease dated as of July 9, 1982
between Cablevision Systems Development Company and
Ontel Corporation (incorporated herein by reference
to Exhibit 10.20 to the S-1)
10.15 --Agreement of Sublease dated as of June 21, 1985
between Grumman Data Systems Corporation and
Cablevision Company (incorporated herein by
reference to Exhibit 10.21 to the S-1)
10.16 --Agreement dated as of June 21, 1985 between
Industrial and Research Associates Co., Grumman
Data Systems Corporation and Cablevision Company
(incorporated herein by reference to Exhibit 10.22
to the S-1)
(117)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------ ----------- ----
10.17 --Lease Agreement dated as of June 21, 1985 between
Industrial and Research Associates Co. and
Cablevision Company (incorporated herein by
reference to Exhibit 10.23 to the S-1)
10.18 --Lease Agreement dated as of February 1, 1985
between Cablevision Company and County of Nassau
(incorporated herein by reference to Exhibit 10.24
to the S-1)
10.19 --Lease Agreement dated as of January 1, 1981
between Cablevision Systems Development Company and
Precision Dynamics Corporation and amendment dated
January 15, 1985 between Cablevision Company and
Nineteen New York Properties Limited Partnership
(incorporated herein by reference to Exhibit 10.25
to the S-1)
10.20 --Option Certificate for 840,000 Shares Issued
Pursuant to the 1986 Nonqualified Stock Option Plan
of the Registrant (incorporated herein by reference
to Exhibit 10.29 to the S-1)
10.21 --Stock Purchase Agreement dated as of February 17,
1989 among the Registrant, Viacom, Inc. and Arsenal
Holdings II, Inc. (incorporated herein by reference
to Exhibit 10.29 to the 1988 10-K)
10.23 --Acquisition Agreement, dated as of April 20,
1989, among Rainbow Programming Holdings, Inc.,
Rainbow Program Enterprises and SportsChannel
America Holding Corporation, and National
Broadcasting Company, Inc. and NBC Cable Holding,
Inc. (incorporated herein by reference to Exhibit
2.1 to the Registrant's Report on Form 8-K under
the Securities Exchange Act of 1934 dated April 20,
1989) (the "April 1989 8-K"))
10.24 --Investment Agreement, dated as of April 20, 1989,
among Rainbow Programming Holdings, Inc., CNBC
Holding Corporation, National Broadcasting Company,
Inc. and CNBC, Inc. (incorporated herein by
reference to Exhibit 2.2 to the April 1989 8-K)
(118)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ---------- ----------- ----
10.25 --New Ventures Agreement, dated as of April 20,
1989, among the Registrant and certain of its
subsidiaries, and National Broadcasting Company,
Inc. and certain of its subsidiaries (incorporated
herein by reference to Exhibit 2.3 to the April
1989 8-K)
10.26 --Olympics Agreement, dated as of April 20, 1989,
between Rainbow Programming Holdings, Inc.,
National Broadcasting Company, Inc. and Rainbow NBC
Olympics Company (incorporated herein by reference
to Exhibit 2.5 to the April 1989 8-K)
10.27 --Agreement for Asset Trade, dated as of August 25,
1989 among CSC Acquisition Corporation, Times
Mirror Cable Television of Long Island, Inc. and
Time Mirror Cable Television of Haverhill, Inc.
(incorporated herein by reference to Exhibit 10.40
to the 1990 10-K)
10.29 --Letter Agreement dated as of December 19, 1991
among U.S. Cable Television Group, L.P., V Cable,
Inc. and General Electric Capital Corporation
(incorporated herein by reference to Exhibit 2(a)
to the January 1992 8-K).
10.30 --Letter Agreement dated as of December 19, 1991
among General Electric Capital Corporation, the
Registrant and V Cable, Inc. (incorporated herein
by reference to Exhibit 2(b) to the January 1992
8-K).
10.31 --Amendment dated February 12, 1992 to Letter
Agreement dated as of December 19, 1991 among
General Electric Capital Corporation, the
Registrant and V Cable, Inc. (incorporated herein
by reference to Exhibit 2(b) to the March 1992 Form
8).
10.32 --Purchase and Reorganization Agreement dated as of
December 20, 1991 between the Registrant and
Charles F. Dolan (incorporated herein by reference
to Exhibit 2(c) to the January 1992 8-K).
(119)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- -----
10.33 --Amendment No. 1 dated as of March 28, 1992 to
Purchase and Reorganization Agreement dated as of
December 20, 1991 between the Registrant and
Charles F. Dolan (incorporated herein by reference
to Exhibit 2(g) to the March 1992 Form 8).
10.34 --Letter Agreement dated February 12, 1992, among
the Registrant, A-R Cable Services, Inc. and
Warburg Pincus Investors, L.P. (incorporated herein
by reference to Exhibit 28(a) to the Registrant's
Current Report on Form 8-K under the Securities
Exchange Act of 1934 dated February 21, 1992 (the
"February 1992 8-K")).
10.35 --Letter Agreement dated February 12, 1992 among
the Registrant, A-R Cable Services, Inc. and
General Electric Capital Corporation (incorporated
herein by reference to Exhibit 28(b) to the
February 1992 8-K).
10.36 --Letter Agreement dated February 12, 1992 among
the Registrant and A-R Cable Services, Inc.
(incorporated herein by reference to Exhibit 28(b)
to the February 1992 8-K).
10.37 --Non-Competition Agreement, dated as of
December 31, 1992, among V Cable, Inc., VC Holding,
Inc. and the Registrant, for the benefit of
V Cable, Inc., VC Holding, Inc. and General
Electric Capital Corporation (incorporated herein
by reference to Exhibit 10.37 to the 1992 10-K).
10.38 --Non-Competition Agreement, dated as of
December 31, 1992, between U.S. Cable Television
Group, L.P. and the Registrant, for the benefit of
U.S. Cable Television Group, L.P. and General
Electric Capital Corporation (incorporated herein
by reference to Exhibit 10.38 to the 1992 10-K).
10.39 --CSC Nonrecourse Guaranty and Pledge Agreement,
dated as of December 31, 1992, between the
Registrant and General Electric Capital
Corporation, as Agent for the Lenders (incorporated
herein by reference to Exhibit 10.39 to the 1992
10-K).
(120)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- -----
10.40 --U.S. Cable Investment Agreement, dated as of
June 30, 1992, among V Cable, Inc., V Cable GP,
Inc., U.S. Cable Television Group, L.P. and U.S.
Cable Partners (incorporated herein by reference to
Exhibit 10.40 to the 1992 10-K).
10.41 --Newco Investment Agreement, dated as of
December 31, 1992, among VC Holding, Inc., V Cable,
Inc. and U.S. Cable Television Group (incorporated
herein by reference to Exhibit 10.41 to the 1992
10-K).
10.42 --Senior Loan Agreement, dated as of December 31,
1992, among V Cable, Inc., the Lenders named
therein and General Electric Capital Corporation,
as Agent for the Lenders and as Lender
(incorporated herein by reference to Exhibit 10.42
to the 1992 10-K).
10.43 --Senior Loan Agreement, dated as of December 31,
1992, among U.S. Cable Television Group, L.P., the
Lenders named therein and General Electric Capital
Corporation, as Agent for the Lenders and as Lender
(incorporated herein by reference to Exhibit 10.43
to the 1992 10-K).
10.44 --Third Amended and Restated Credit Agreement dated
as of June 24, 1992 (the "Third Amended and
Restated Credit Agreement") among the Registrant,
the Restricted Subsidiaries (as defined therein),
the banks which are parties thereto and Toronto
Dominion (Texas), Inc. as Agent and Bank of
Montreal, Chicago Branch, The Bank of New York, The
Bank of Nova Scotia, and The Canadian Imperial Bank
of Commerce, as Co-Agents (incorporated herein by
reference to Exhibit 10.44 to the 1992
10-K).
10.44A --Amendment No. 1, dated as of August 4, 1992, to
Third Amended and Restated Credit Agreement
(incorporated herein by reference to Exhibit 10.44A
to the 1992 10-K).
10.44B --Amendment No. 2 and waiver, dated as of
November 8, 1993 to the Third Amended and Restated
Credit Agreement.
(121)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- -----
10.44C --Amendment No. 3 and waivers, dated as of March
__, 1994 to the Third Amended and Restated Credit
Agreement.
10.46 --Cablevision Systems Corporation Amended and
Restated Employee Stock Plan (incorporated herein
by reference to Exhibit 10.46 to the 1992 10-K).
10.47 --Cablevision Systems Corporation 401(K) Savings
Plan (incorporated herein by reference to Exhibit
10.47 to the 1992 10-K).
10.49 --Fourth Amended and Restated Credit Agreement,
dated as of June 18, 1993, among Cablevision of New
York City - Phase I L.P., Cablevision Systems New
York City Corporation, Cablevision of New York
City- Master L.P., each of the Banks signatory
thereto, The Chase Manhattan Bank (National
Associates) as Agent and The First National Bank of
Chicago and CIBC, Inc. each as Co-Agent.
10.50 --Asset Purchase Agreement, dated as of July 23,
1993, by and between Cablevision of Cleveland, L.P.
and North Coast Cable Limited Partnership
(incorporated herein by reference to Exhibit 10.50
to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1993).
10.51 --Master Agreement, dated as of October 26, 1993,
between Cablevision MFR, Inc., Monmouth Cablevision
Associates, Framingham Cablevision Associates and
Riverview Cablevision Associates, L.P.
(incorporated herein by reference to Exhibit 10.51
to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended September 30, 1993 (the
"September 1993 10-Q").
10.52 --Asset Purchase Agreement, dated as of October 26,
1993, between Monmouth Cablevision Associates and
Cablevision MFR, Inc. (incorporated herein by
reference to Exhibit 10.52 to the September 1993
10-Q).
(122)
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- -----
10.53 --Asset Purchase Agreement, dated as of October 26,
1993, between Framingham Cablevision Associates,
Limited Partnership and Cablevision MFR, Inc.
(incorporated herein by reference to Exhibit 10.53
to the September 1993 10-Q).
10.54 --Asset Purchase Agreement, dated as of October 26,
1993 between Riverview Cablevision Associates, L.P.
and Cablevision MFR, Inc. (incorporated herein by
reference to Exhibit 10.54 to the September 1993
10-Q).
10.55 --Asset Purchase Agreement among A-R Cable
Partners, Nashoba Communications Limited
Partnership, Nashoba Communications Limited
Partnership No. 7 and Nashoba Communications of
Belmont Limited Partnership dated as of November 5,
1993 (incorporated herein by reference to Exhibit
10.55 to the September 1993 10-Q).
10.56 --Preferred Stock Purchase Agreement, dated as of
March 30, 1994, by and among the Company and
Toronto Dominion Investments, Inc.
10.57 --Registration Rights Agreement, dated as of March
30, 1994, by and among the Company and Toronto
Dominion Investments, Inc.
22 --Subsidiaries of the Registrant
23.1 --Consent of Independent Auditors
28.1 --Form of Guarantee and Indemnification Agreement
among Dolan, the Registrant and directors and
officers of the Registrant (incorporated herein by
reference to Exhibit 28 to the S-1)
(123)