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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, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
- - ------ ---------------------------- ------------------
1-14764 Cablevision Systems Corporation 11-3415180
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
1-9046 CSC Holdings, Inc. 11-2776686
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each Exchange on which Registered:
Cablevision Systems Corporation New York Stock Exchange
- - -------------------------------
Class A Common Stock
Securities registered pursuant to Section 12(g) of the Act:
Cablevision Systems Corporation None
CSC Holdings, Inc. None
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Cablevision Systems Corporation Yes |X| No |_|
CSC Holdings, Inc. Yes |X| No |_|
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Aggregate market value of voting stock held by nonaffiliates of Cablevision
Systems Corporation based on the closing price at which such stock was sold on
the New York Stock Exchange on March 17, 2000: $8,020,730,025.
Number of shares of common stock outstanding as of March 17, 2000:
Cablevision Systems Corporation Class A Common Stock - 130,258,082
Cablevision Systems Corporation Class B Common Stock - 43,126,836
CSC Holdings, Inc. Common Stock - 1,000
Documents incorporated by reference - The Registrants intend to file with the
Securities and Exchange Commission, not later than 120 days after the close of
their fiscal year, a definitive proxy statement or an amendment to this report
containing the information required to be disclosed under Part III of Form 10-K
under cover of Form 10-K/A.
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business. 1
2. Properties. 25
3. Legal Proceedings. 25
4. Submission of Matters to a Vote of
Security Holders. 25
Part II
5. Market for the Registrants' Common Equity
and Related Stockholder Matters. 26
6. Selected Financial Data. 28
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 32
7A. Quantitative and Qualitative Disclosures About
Market Risk. 54
8. Consolidated Financial Statements. 55
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 131
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. 131
* These items are omitted because the registrant intends to file with the
Securities and Exchange Commission, not later than 120 days after the
close of its fiscal year, a definitive proxy statement or an amendment to
this report containing the information required to be disclosed under Part
III of Form 10-K under cover of Form 10-K/A.
PART I
Item 1. Business
This combined Annual Report on Form 10-K is separately filed by Cablevision
Systems Corporation ("Cablevision Parent" or the "Company") and CSC Holdings,
Inc. ("CSC Holdings").
Cablevision Parent
Cablevision Parent is a Delaware corporation which was organized in 1997.
Cablevision Parent's only asset is all of the common stock of CSC Holdings. All
of the ownership interests Cablevision Parent held in the entities that own
certain cable television systems acquired from Tele-Communications, Inc. in 1998
(the "TCI Systems") and the interest it held in CCG Holdings, Inc., which owns
the Company's motion picture theater assets were contributed to CSC Holdings in
1999. References herein to the "Systems" refer to the cable television systems
owned by CSC Holdings, and, from and after March 4, 1998, such systems and the
TCI Systems.
CSC Holdings
CSC Holdings is a Delaware corporation which was organized in 1985 and owns and
operates cable television systems in 7 states with approximately 3,492,000
subscribers at December 31, 1999. Through Rainbow Media Holdings, Inc. ("Rainbow
Media"), a company owned 74% by CSC Holdings and 26% by a subsidiary of NBC
Cable Holding, Inc. ("NBC Cable"), a subsidiary of National Broadcasting
Company, Inc. ("NBC"), CSC Holdings owns interests in and manages numerous
national and regional programming networks, the Madison Square Garden sports and
entertainment business and cable television advertising sales companies. CSC
Holdings, through Cablevision Lightpath, Inc. ("Lightpath"), a wholly-owned
subsidiary of CSC Holdings, provides switched telephone service. CSC Holdings
also owns Cablevision Electronics Investments, Inc., doing business as The WIZ,
an electronics retailer operating 41 retail locations in the New York
metropolitan area and CCG Holdings, Inc. which owns 64 motion picture theaters
containing a total of 293 screens in the New York metropolitan area.
The Holding Company Reorganization and TCI Transactions
Until March 4, 1998, CSC Holdings was known as Cablevision Systems Corporation.
On that date, CSC Holdings completed a reorganization whereby it formed a
holding company (now named Cablevision Systems Corporation) and CSC Holdings
became a subsidiary of Cablevision Systems Corporation. This transaction is
referred to herein as the "Reorganization".
Prior to the Reorganization, CSC Holdings had two outstanding classes of common
stock. Its Class A Common Stock was publicly traded on the American Stock
Exchange (the "ASE") and its Class B Common Stock was privately held. In the
Reorganization, the Class A Common Stock and Class B Common Stock of CSC
Holdings were converted into identical securities of Cablevision Parent and the
Class A Common Stock of Cablevision Parent became listed on the ASE and traded
under
(1)
the symbol "CVC". On December 7, 1999, the Company's Class A Common Stock began
trading on the New York Stock Exchange. Cablevision Parent owns all of the
common stock of CSC Holdings.
CSC Holdings' outstanding preferred stock and debt was unaffected by the
Reorganization except that CSC Holdings' 8-1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock was convertible into Cablevision Parent's Class A
Common Stock rather than CSC Holdings' Class A Common Stock. As of December 31,
1999, all shares of the Series I Preferred Stock had been converted into
Cablevision Parent's Class A Common Stock or redeemed for cash.
In connection with the Reorganization, Tele-Communications, Inc. ("TCI") caused
to be contributed to Cablevision Parent, and Cablevision Parent acquired, the
TCI Systems. These systems, which are located in New Jersey, on Long Island and
in New York's Rockland and Westchester counties, served approximately 833,000
cable subscribers as of the contribution date. In consideration for those cable
television systems, Cablevision Parent issued to certain TCI entities 48,942,172
shares of Cablevision Parent Class A Common Stock and assumed certain
liabilities related to such systems. See "Cable Television Operations - TCI
Transactions" below for a discussion of these transactions.
Stock Splits
On March 4, 1998, Cablevision Parent's Board of Directors declared a two-for-one
stock split in the form of a stock dividend on the outstanding Class A Common
Stock and Class B Common Stock of Cablevision Parent. The dividend was paid on
March 30, 1998 to stockholders of record on March 19, 1998. Additionally, on
July 22, 1998, Cablevision Parent's Board of Directors declared a two-for-one
stock split that was effected as a special stock distribution of one share of
Class A Common Stock for each share of Class A Common Stock issued and
outstanding as of August 10, 1998 and one share of Class B Common Stock for each
share of Class B Common Stock issued and outstanding as of August 10, 1998. The
stock dividend was paid on August 21, 1998 to stockholders of record on August
10, 1998. All share and per share amounts of Cablevision Parent and CSC Holdings
in this Form 10-K have been restated to reflect the stock splits.
Cable Television Operations
General
Cable television is a service that delivers multiple channels of television
programming to subscribers who pay a monthly fee for the services they receive.
Television signals are received over-the-air or via satellite delivery by
antennas, microwave relay stations and satellite earth stations and are
modulated, amplified and distributed over a network of coaxial and fiber optic
cable to the subscribers' television sets. Cable television systems typically
are constructed and operated pursuant to non-exclusive franchises awarded by
local governmental authorities for specified periods of time.
The Company's cable television systems offer varying levels of service which may
include, among other programming, local broadcast network affiliates and
independent television stations, certain
(2)
other news, information and entertainment channels such as CNN, CNBC, ESPN, and
MTV, and certain premium services such as HBO, Showtime, The Movie Channel,
Starz and Cinemax.
The Company's cable television revenues are derived principally from monthly
fees paid by subscribers. In addition to recurring subscriber revenues, the
Company derives revenues from the sales of pay-per-view movies and events, from
the sale of advertising time on advertiser supported programming and from
installation charges. Certain services and equipment provided by substantially
all of the Company's cable television systems are subject to regulation.
As of December 31, 1999, the Company's cable television systems served
approximately 3,492,000 subscribers, primarily in the greater New York, Boston
and Cleveland metropolitan areas.
The following table sets forth certain statistical data regarding the Company's
cable television operations.
As of December 31,
--------------------------------------------
1999 1998 1997
---------------------------------------------
Homes passed by cable (1)..................................... 5,200,000 5,115,000 4,398,000
Basic service subscribers..................................... 3,492,000 3,412,000 2,844,000
Basic service subscribers as a percentage of
homes passed............................................. 67.2% 66.7% 64.7%
Number of premium television units (3)........................ 7,715,000 6,754,000 4,471,000
Average number of premium units per basic
subscriber at period end (3)............................. 2.2 2.0 1.6
Average monthly revenue per basic subscriber (2).............. $44.38 $42.56 $38.53
- - ----------
(1) Homes passed is based upon homes actually marketed and does not include
multiple dwelling units passed by the cable plant that are not connected
to it.
(2) Based on recurring service revenues for the last month of the period,
excluding installation charges and certain other non-recurring revenues
such as pay-per-view, advertising and home shopping revenues. See
"Subscriber Rates and Services; Marketing and Sales."
(3) Restated for 1998 and 1997 to conform to 1999's definition and reflects in
1997 the operations of certain cable television systems which had
relatively lower premium unit penetration and were sold by December 1998.
The Company's cable television systems are concentrated in the New York City
greater metropolitan area (80% of the Company's total subscribers as of December
31, 1999), the Boston and suburban Massachusetts areas (10% of total subscribers
as of December 31, 1999) and the greater Cleveland metropolitan area (9% of
total subscribers as of December 31, 1999). The Company believes that its cable
systems in the New York City greater metropolitan area comprise the largest
metropolitan cluster of cable television systems under common ownership in the
United States (measured by number of subscribers).
Cable Television System Sales
In 1997 and 1998, the Company completed the sale or transfer of cable television
systems in Alabama, Florida, Illinois, Kentucky, Maine, Missouri, upstate New
York, North Carolina, Toledo, Ohio and neighboring states, representing
approximately 440,000 subscribers for an aggregate sales price of $514.7 million
in cash.
(3)
In addition, in October 1998, the Company transferred its cable television
system in Rensselaer, New York (which served approximately 29,600 subscribers at
September 30, 1998), plus approximately $16 million in cash to Time Warner
Entertainment Company, L.P. in exchange for Time Warner's Litchfield,
Connecticut system (which served approximately 28,400 subscribers at date of
transfer).
In December 1999, the Company entered into definitive agreements with Adelphia
Communications Corporation ("Adelphia") under which the Company will sell its
cable television systems in the greater Cleveland metropolitan area to Adelphia
for total consideration of $1.53 billion ($990 million in cash and $540 million
in Adelphia class A common stock), subject to certain adjustments.
In March 2000, the Company entered into a definitive agreement to sell its
Kalamazoo, Michigan system to Charter Communications, Inc. in exchange for
$172.5 million in Charter Communications, Inc. common stock.
TCI Transactions
On March 4, 1998, Cablevision Parent completed transactions with TCI ("TCI
Transactions") pursuant to which Cablevision Parent acquired certain cable
television systems owned and operated by TCI and located in New Jersey, on Long
Island and in New York's Rockland and Westchester counties. Cablevision Parent
issued to certain TCI entities an aggregate of 48,942,172 shares of Cablevision
Parent's Class A Common Stock (See "The Holding Company Reorganization and TCI
Transactions"). In addition, Cablevision Parent assumed certain related
liabilities, including an aggregate amount of indebtedness for borrowed money
equal to $669 million (the "Assumed Debt"). The Assumed Debt was refinanced
immediately following the closing of the transactions with borrowings under a
new $800 million bridge revolving credit facility entered into by wholly-owned
subsidiaries of Cablevision Parent that were acquired from TCI or that hold
assets contributed by TCI (the "Contributed Business Subsidiaries"), with a
group of banks led by Toronto-Dominion (Texas), Inc., as administrative and
arranging agent. The Contributed Business Subsidiaries were wholly-owned
(directly or indirectly) by Cablevision Parent until April 1999 when Cablevision
Parent contributed these entities to CSC Holdings.
Contemporaneous with the Reorganization, CSC Holdings acquired the remaining 1%
interest in Cablevision of New York City, L.P. of Mr. Charles F. Dolan ("Mr.
Dolan"), the Company's Chairman of the Board of Directors, and satisfied certain
payment obligations for a cash payment of approximately $194 million. This
transaction was effected pursuant to the provisions of agreements entered into
in 1992, as amended in 1997 to delay the exercise date to coincide with the
consummation of the Reorganization and related transactions.
In connection with securing certain regulatory approvals for the TCI
Transactions, the Company agreed to divest certain cable television system
assets of the Contributed Business Subsidiaries that are located in Paramus and
Hillsdale, New Jersey. These systems (which served approximately 5,300
subscribers at November 30, 1998) were sold in December 1998.
(4)
The agreement effecting the TCI Transactions (the "Contribution Agreement")
permitted Cablevision Parent to combine the cable operations of CSC Holdings and
the Contributed Business Subsidiaries.
Cablevision Parent contributed the Contributed Business Subsidiaries to CSC
Holdings in April 1999. In November 1999, Cablevision Parent received a private
letter ruling from the Internal Revenue Service that would permit CSC Holdings
to distribute the stock of its subsidiary, Rainbow Media, to Cablevision Parent.
If such a distribution were made, Rainbow Media would become a direct subsidiary
of Cablevision Parent. The Company has made no decision regarding such a
distribution. Such a distribution is dependent upon compliance with the
Company's covenants under its indentures and bank credit facilities and upon the
receipt of certain other approvals.
In connection with the TCI Transactions, Cablevision Parent, TCI and certain
holders of Cablevision Parent Class B Common Stock entered into a Stockholders
Agreement providing, among other things, for TCI's right to designate two Class
B directors to Cablevision Parent's Board of Directors, limits on TCI's ability
to buy more than an additional 10% of Cablevision Parent Class A Common Stock
and limitations on TCI's ability to transfer Cablevision Parent Class A Common
Stock.
On March 9, 1999, TCI merged with a subsidiary of AT&T Corp. and became a
wholly-owned subsidiary of AT&T Corp.
In April 1999, Cablevision Parent contributed the Contributed Business
Subsidiaries to CSC Holdings in a transaction accounted for in a manner similar
to a pooling of interests, whereby the assets and liabilities of the Contributed
Business Subsidiaries were recorded at historical book value. The Contributed
Business Subsidiaries served an aggregate of approximately 847,000 subscribers
as of March 31, 1999. The total assets and liabilities of the Contributed
Business Subsidiaries at March 31, 1999 amounted to $1.1 billion and $635
million, respectively.
Subscriber Rates and Services; Marketing and Sales.
The Company's cable television systems offer a package of services, generally
marketed as "Family Cable", which includes, among other programming, broadcast
network local affiliates and independent television stations and certain other
news, information and entertainment channels such as CNN, CNBC, ESPN and MTV.
For additional charges, the Company's cable television systems provide certain
premium services such as HBO, Showtime, The Movie Channel, Starz and Cinemax,
which may be purchased either individually (in conjunction with Family Cable) or
in combinations or in tiers.
In addition, the Company's cable television systems offer a basic package which
includes broadcast network local affiliates and public, educational or
governmental channels and certain leased access channels.
The Company has a branded product offering called "OptimumTV", which packages
all of the premium networks available on its cable systems at discounted prices.
Optimum TV includes the Family and basic services noted above, as well as all of
the premium a la carte programming
(5)
available on the cable system, grouped into three premium packages. Optimum TV
also includes additional pay-per-view channels that offer movies and sporting
events on a transactional basis.
In other areas, the Company offers premium services on an individual basis and
as components of different "tiers". Successive tiers include additional premium
services for additional charges that reflect discounts from the charges for such
services if purchased individually. For example, in most of the Company's cable
systems, subscribers may elect to purchase Family Cable plus one, two or three
premium services with declining incremental costs for each successive tier. In
addition, many 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 are substantially fully built, the
Company's sales efforts are primarily directed toward increasing penetration and
revenues in its franchise areas. The Company markets its cable television
services through in person selling, as well as telemarketing, direct mail
advertising, promotional campaigns and local media and newspaper advertising.
Certain services and equipment (converters supplied to subscribers) provided by
substantially all of the Company's cable television systems are subject to
regulation. See "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 42 channels. Currently 87% of its
homes are served by at least 77 channels. As a result of ongoing upgrades, the
Company expects that by December 2000 approximately 96% of its subscribers will
be served by systems having a capacity of at least 77 channels. All of the
system upgrades either completed or underway will utilize fiber optic cable.
Programming.
Adequate programming is available to the Systems from a variety of sources
including that available from Rainbow Media and affiliates of AT&T, Fox
Entertainment Group, Inc. and NBC. Program suppliers' compensation is typically
a fixed, per subscriber monthly fee based, in most cases, either on the total
number of subscribers of the cable systems and certain of its affiliates, or on
the number of subscribers subscribing to the particular service. The programming
contracts are generally for a fixed period of time and are subject to negotiated
renewal. Cable programming costs have increased in recent years and are expected
to continue to increase due to additional programming being provided to most
subscribers, increased costs to produce or purchase cable programming and other
factors. Management believes that the Systems will continue to have access to
programming services at reasonable price levels.
(6)
Franchises.
The 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.
The franchise agreements are generally for a term of ten to fifteen years from
the date of grant, although some recent renewals have been for five to ten year
terms. Some of the franchises grant the cable television system an option to
renew. The expiration dates for the Company's ten largest franchises range from
2001 to 2009. In situations where the Company's franchises have expired or not
been renewed, the Company is operating under temporary operating authority or
without a license 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 - Regulation - Cable Television". 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.
Programming and Entertainment Operations
General.
The Company conducts its programming activities through Rainbow Media, a company
currently 74% owned by CSC Holdings and 26% by NBC Cable (which may be increased
by up to an additional 1% under certain circumstances without additional cash
payment).
Rainbow Media's businesses include national and regional programming networks
and the Madison Square Garden sports and entertainment business. Rainbow Media
also owns interests in cable television advertising businesses.
Rainbow Media's national entertainment networks include American Movie Classics
(which features American theatrically released classic films and original
programming), Bravo (which features films and performing arts programs,
including jazz, dance, classical music and theatrical and original programming),
Romance Classics (which features theatrically released films, mini-series, made
for television movies and original programming having a romantic theme),
MuchMusic (which features a diverse mix of new and established musical artists)
and The Independent Film Channel (which features independent films made outside
the traditional Hollywood system). National Sports Partners is a national sports
network featuring Fox Sports Net, which provides national sports programming to
regional sports networks. National Sports Partners is 50% owned by Rainbow Media
and is managed and 50% owned by Fox Sports Networks, LLC ("Fox").
(7)
Rainbow Media owns a 60% interest in, and manages, Regional Programming
Partners, a partnership with Fox. Regional Programming Partners owns Madison
Square Garden, a sports and entertainment company that owns and operates the
Madison Square Garden Arena and the adjoining Theater at Madison Square Garden,
the New York Knickerbockers professional basketball team, the New York Rangers
professional hockey team, the New York Liberty professional women's basketball
team, the New England Seawolves professional arena football team, the Hartford
Wolf Pack professional hockey team, the Madison Square Garden Network, Fox
Sports Net New York and Radio City Entertainment (which operates Radio City
Music Hall in New York City). Additionally, Madison Square Garden manages and
operates the Hartford Civic Center. Regional Programming Partners also owns
interests in regional sports networks that provide regional sports programming
to the New England, Chicago, Cincinnati, Cleveland, San Francisco and Florida
areas, in addition to Madison Square Garden Network and Fox Sports Net New York
which provide regional sports programming to the New York City metropolitan
area, as well as MetroChannels which provide regional and local sports, news and
educational programming to the New York metropolitan area.
Rainbow Media owns Rainbow News 12 which operates regional news networks
servicing suburban areas surrounding New York City. Rainbow Media also owns and
operates Rainbow Advertising Sales Corporation, a cable television advertising
company and owns a 50% interest in National Advertising Partners, which sells
national advertising for regional sports networks and is managed and 50% owned
by Fox.
(8)
The following table sets forth ownership information and estimated subscriber
information as of December 31, 1999 for each of the programming businesses whose
ownership interest is held directly or indirectly by Rainbow Media and which
Rainbow Media manages. Rainbow Media is currently a 74% owned subsidiary of CSC
Holdings. NBC owns the remaining 26% interest. Regional Programming Partners
("RPP") is a 60% owned subsidiary of Rainbow Media, with the remaining 40%
interest owned by Fox.
Affiliated
Programming Viewing Basic
Businesses Subscribers Subscribers (1) Ownership (2)
- - ---------- ----------- --------------- -------------
(In Millions)
National Entertainment:
American Movie Classics 66.4 71.6 Rainbow Media - 100%
Romance Classics 19.2 31.0 Rainbow Media - 100%
Bravo 38.1 52.1 Rainbow Media - 100%
Bravo Latin America 5.8 7.0 Rainbow Media - 100%
The Independent Film Channel 11.2 34.4 Rainbow Media - 100%
MuchMusic 10.5 14.9 Rainbow Media and Chum, Ltd. - 50% each
Sports:
Madison Square Garden Network/FSNNY 12.2 15.5 RPP - 100%
Fox Sports Net Bay Area 3.0 3.3 RPP and Fox - 50% each
Fox Sports Net Chicago 3.3 3.5 RPP and Fox - 50% each
Fox Sports Net New England 3.4 3.9 RPP and Media One - 50% each
Fox Sports Net Ohio 2.2 2.4 RPP - 100%
Fox Sports Net Cincinnati 2.5 2.7 RPP - 100%
SportsChannel Florida 3.2 3.3 RPP - 30%; Front Row - 70% (3)
News Services:
News12 Long Island .8 .8 Rainbow Media - 100%
News12 Connecticut .2 .2 Rainbow Media - 100%
News12 New Jersey 1.7 1.7 Rainbow Media - 88.6%; Newark Star Ledger - 11.4%
News12 Westchester .2 .3 Rainbow Media - 100%
News12 Bronx .3 .3 Rainbow Media - 100%
Neighborhood News L.I. .2 .2 Rainbow Media - 100%
Other:
Metro Guide 3.8 4.1 RPP - 100%
Metro Traffic and Weather 2.5 2.7 RPP - 100%
Metro Learning 2.5 2.7 RPP - 100%
- - ----------
(1) Represents the total number of basic subscribers available in systems that
carry the service.
(2) Various of these programming businesses, other than those which are
wholly-owned by Rainbow Media, are subject to puts, calls, rights of first
refusal and restrictions on transfer.
(3) In January 2000, RPP acquired Front Row Communications' controlling 70%
interest in SportsChannel Florida.
(9)
Rainbow Media's existing structure reflects three significant transactions that
were consummated in 1997.
NBC Transaction
On April 1, 1997, Rainbow Media consummated a transaction in which Rainbow
Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed
subsidiary of CSC Holdings. In addition, NBC Cable received a 25% equity
interest (which interest has been increased to 26% and may be further increased
by up to an additional 1% under certain circumstances without additional cash
payment) in common stock of Rainbow Media. CSC Holdings owned the remaining 75%
equity interest in Rainbow Media (which interest is currently 74%). The
partnership interests in certain of Rainbow Media's programming services
formerly owned by NBC Cable are now owned by subsidiaries of Rainbow Media.
Fox Transactions
On December 18, 1997, Rainbow Media organized three partnerships with Fox:
Regional Programming Partners (the partnership that owns Madison Square Garden
and interests in the regional sports programming businesses previously owned by
Rainbow Media), National Sports Partners (the partnership that owns and operates
Fox Sports Net) and National Advertising Partners (the partnership that manages
and sells national advertising for certain of the regional sports networks in
which Regional Programming Partners owns interests and certain regional sports
networks owned by Fox) (the "Fox Transactions").
In connection with the formation of Regional Programming Partners, affiliates of
Rainbow Media, through various indirect transfers, contributed to Regional
Programming Partners, in consideration for the issuance of a 60% general
partnership interest, their interests in Madison Square Garden, SportsChannel
Chicago, SportsChannel Pacific, SportsChannel New England, SportsChannel Ohio,
SportsChannel Cincinnati, SportsChannel Florida and Metro Channel LLC. Fox
contributed $850 million in cash to Regional Programming Partners in exchange
for a 40% general partnership interest. A subsidiary of Rainbow Media is the
managing general partner of Regional Programming Partners.
In connection with the formation of National Sports Partners, Rainbow Media
contributed to National Sports Partners, in consideration for the issuance of a
50% general partnership interest, its interests in American Sports Classics LLC,
Prime SportsChannel and SportsChannel Ventures, Inc. Fox contributed, in
consideration for the issuance of a 50% general partnership interest, certain
assets, including the assets pertaining to or used in the business of Fox and
interests in Prime SportsChannel and Fox Watch Productions Inc. A subsidiary of
Fox is the managing partner of National Sports Partners.
In connection with the formation of National Advertising Partners, Rainbow Media
contributed to National Advertising Partners, in consideration for the issuance
of a 50% general partnership interest, certain assets relating to the national
advertising of certain of the regional sports programming services in which
Rainbow Media had an interest. Fox contributed, in consideration for the
issuance of a 50% general partnership interest, certain assets relating to the
national
(10)
advertising of the regional sports programming services in which Fox had an
interest. A subsidiary of Fox is the managing general partner of National
Advertising Partners.
Madison Square Garden
On June 17, 1997, Madison Square Garden redeemed a portion of ITT Corporation's
("ITT's") interest in Madison Square Garden for $500 million and Rainbow Media
contributed its SportsChannel Associates programming company to Madison Square
Garden, which, together with the redemption, increased Rainbow Media's interest
in Madison Square Garden to 89.8% and reduced ITT's interest to 10.2%. In
connection with the Fox Transactions discussed above, Rainbow Media's interest
in Madison Square Garden was contributed to Regional Programming Partners. ITT's
interest in Madison Square Garden was further reduced to 7.8% as a result of the
$450 million capital contribution by Regional Programming Partners to Madison
Square Garden as of December 18, 1997, which was used by Madison Square Garden
to pay down outstanding debt. ITT's interest was further reduced to 3.7% in June
1998, when Madison Square Garden redeemed, for $94 million, a portion of ITT's
interest following ITT's exercise of its first put right. In April 1999, ITT
exercised its second put for the remainder of its interest in Madison Square
Garden and settled certain matters between the parties for a net payment of $87
million.
CSC Holdings and Rainbow Media entered into agreements with the National Hockey
League (the "NHL") and the National Basketball Association ("NBA"), agreeing,
among other things, to conduct themselves in accordance with the relevant rules
of each league. The approvals of the NHL and the NBA are required for certain
transactions involving Cablevision Parent, CSC Holdings, Rainbow Media, Regional
Programming Partners and Madison Square Garden, including certain transfers of
ownership interests.
In December 1997, Madison Square Garden purchased Radio City Productions, LLC,
the production company that operates Radio City Music Hall in New York City and
produces The Radio City Christmas Spectacular and shows featuring the Radio City
Rockettes and simultaneously entered into a 25-year lease for Radio City Music
Hall.
Tracking Stock
In December 1999, the Company announced that its Board of Directors had
authorized the creation of a new tracking stock related to its programming and
entertainment assets, principally residing in its Rainbow Media subsidiary. No
determination has been made of the specific programming and entertainment assets
to be included in the tracking stock or the method of distribution to
shareholders. The tracking stock proposal must be approved by each class of the
Company's shareholders.
SportsChannel Florida
In January 2000, Regional Programming Partners acquired the 70% interest in
SportsChannel Florida held by Front Row Communications for $130.1 million
(including the repayment of $20 million in debt) increasing its ownership to
100%.
(11)
Telephone and Modem Services
The Company, through Lightpath, a Competitive Local Exchange Carrier, provides
basic and advanced local telecommunications services to the business market.
Lightpath provides a full range of local dial tone, switched services, private
line and advanced networking features on the local and long distance levels on
its own facilities and network. As of December 31, 1999, Lightpath serviced over
1,500 industrial, commercial and institutional accounts on Long Island. In
addition, the Company provides residential telephone and cable modem internet
access service in portions of the greater New York City metropolitan area and
parts of southern Connecticut. At December 31, 1999, the Company served
approximately 52,100 modem subscribers.
The WIZ
In February 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $93 million, including
transaction costs, for the assets. In addition, prior to closing, Cablevision
Electronics provided approximately $8 million for TWI to meet certain operating
costs. The WIZ is an electronics retailer selling primarily video and audio
equipment, home office equipment, compact disks and other pre-recorded music,
digital video disks, and VHS video and other pre-recorded movies.
Theaters
In December 1998, a subsidiary of the Company acquired all of the outstanding
shares of stock of Clearview Cinema Group, Inc. ("Clearview") pursuant to an
Agreement and Plan of Merger entered into in August 1998. The total purchase
price amounted to approximately $158.7 million (including assumed debt of $80
million) of which approximately $33.4 million was paid in shares of Cablevision
Parent's Class A Common Stock.
From December 1998 through February 1999, a subsidiary of the Company acquired a
total of 16 movie theaters from Loews Cineplex Entertainment Corporation
("Loews"), for an aggregate purchase price of approximately $89.8 million. These
theaters are located in the New York metropolitan area.
Additionally, in 1999, a subsidiary of the Company acquired a total of 7 movie
theaters in New York and New Jersey for an aggregate purchase price of $7.2
million.
At Home Corporation
The Company owns warrants to acquire approximately 20.4 million shares of common
stock of At Home Corporation, which warrants are exercisable at $.25 per share.
At Home Corporation distributes high-speed interactive services to residences
and businesses using its own network architecture and a variety of transport
options, including the cable industry's hybrid fiber coaxial infrastructure and
offers media services through the Excite Network. These warrants were issued to
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the Company in exchange for certain agreements of the Company with respect to
the distribution of the At Home internet access service to cable subscribers.
In certain areas, the Company also agreed to distribute the At Home service
exclusively.
There have been a number of performance issues associated with the At Home
service. The Company is continuing to use its Optimum Online service for new
internet installations in order to take full advantage of the current market
opportunity while these performance issues are addressed by At Home Corporation.
The Company is making payments to At Home Corporation consistent with what would
have applied if the Company had continued to use the At Home service.
PCS
CSC Holdings holds a 49.9% interest, and certain preferential distribution
rights, in NorthCoast Communications, LLC ("NorthCoast"). NorthCoast holds
certain licenses to conduct a personal communications service ("PCS") business.
CSC Holdings has contributed an aggregate of approximately $50.1 million as of
December 31, 1999 to NorthCoast (either directly or through a loan to NorthCoast
Operating Co., Inc., the other member in NorthCoast).
Other Investments
Rainbow Media holds a 50% interest in R/L DBS Company LLC, a joint venture with
Loral Space and Communications, Ltd. ("R/L DBS"). R/L DBS holds certain
frequencies granted by the FCC for the operation of a direct broadcast satellite
business. CSC Holdings has contributed an aggregate of approximately $15.5
million through December 31, 1999 to R/L DBS or its predecessor businesses.
Competition
Cable Television
The Systems generally compete with the direct reception of broadcast television
signals by antenna and with other methods of delivering television signals to
the home for a fee. The extent of such competition depends upon the number and
quality of the signals available by broadcast antenna reception as compared to
the number and quality of signals distributed by the cable system. The Systems
also compete to varying degrees with other communications and entertainment
media, including movies, theater and other entertainment activities. The primary
current competitor to cable television systems is from direct broadcast
satellite ("DBS").
The 1984 Cable Act specifically legalized, under certain circumstances,
reception by private home earth stations of satellite-delivered cable
programming services. DBS systems permit satellite transmissions from the
low-power C-Band to be received by antennae approximately 60 to 72 inches in
diameter at the viewer's home. Higher power DBS systems providing transmissions
over the Ku-Band permit the use of smaller receiver antennae and thus are more
appealing to customers.
Two DBS systems are now operational in the United States, with investments by
companies with substantial resources such as Hughes Electronics Corp. Both
C-Band and Ku-Band DBS delivery of television signals are competitive
alternatives to cable television. Legislation was recently enacted to change the
federal copyright laws to permit DBS systems to retransmit local broadcast
television signals to DBS customers. This has enhanced the competitive position
of DBS systems.
(13)
The Telecommunications Act of 1996 ("1996 Telecom Act") repealed the 1984 Act
prohibition against telco-cable cross-ownership and provides that a local
exchange telephone company may provide video programming directly to subscribers
through a variety of means, including (1) as a radio-based (MMDS or DBS)
multichannel video programming distributor; (2) as a cable operator, fully
subject to the franchising, rate regulation and other provisions of the 1984 and
1992 Cable Acts; and (3) through an "open video system" ("OVS") that is
certified by the Federal Communications Commission ("FCC") to be offering
nondiscriminatory access to a portion of its channel capacity for unaffiliated
program distributors, subject only to selected portions of the regulations
applicable to cable operators. Non-telephone companies may also become an OVS
and provide video competition to cable systems without obtaining a franchise,
although a recent court decision has restored certain municipal franchising
powers over OVS, making OVS a less attractive alternative. A local telephone
company also may provide the "transmission of video programming" on a common
carrier basis. As noted below, telephone companies in several of the Company's
franchise areas have applied for franchises to offer cable service fully subject
to the 1984 and 1992 Cable Acts. Several companies have sought to become an OVS
in areas in which the Company operates cable systems in Boston, New York City,
Westchester County, New York and northern New Jersey. One, RCN Corporation
("RCN") is currently operating an OVS or franchised cable systems in Boston, New
York City, and a number of Massachusetts communities in which the Company
operates cable systems. Additionally, RCN has received local authorization to
commence construction and operation of an OVS in two of the New Jersey
communities in which the Company operates cable systems.
The 1996 Telecom Act also prohibits a telephone company or a cable system
operator in the same market from acquiring each other, except in limited
circumstances, such as in areas of smaller population.
Cable television also competes with the home video industry. Owners of
videocassette recorders are able to rent many of the same movies, special events
and music videos that are available on certain premium services. The
availability of videocassettes has affected the degree to which the Systems are
able to sell premium service units and pay-per-view offerings to some of its
subscribers.
Multipoint distribution services ("MDS"), which deliver premium television
programming over microwave superhigh frequency channels received by subscribers
with a special antenna, and multichannel multipoint distribution service
("MMDS"), which is capable of carrying four channels of television programming,
also compete with certain services provided by the Systems. By acquiring several
MMDS licenses or subleasing from several MMDS operators and holders of other
types of microwave licenses, a single entity can increase channel capacity to a
level more competitive with cable systems. MDS and MMDS systems are not required
to obtain a municipal franchise, are less capital intensive, require lower
up-front capital expenditures and are subject to fewer local and FCC regulatory
requirements than cable systems. The ability of MDS and MMDS systems to serve
homes and to appeal to consumers is affected by their less extensive channel
capacity and the need for unobstructed line of sight over-the-air transmission.
The Systems compete with MDS and MMDS operators generally in its metropolitan
service areas.
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Satellite master antenna systems ("SMATV") generally serve large multiple
dwelling units. The FCC has preempted all state and local regulation of SMATV
operations. SMATV is limited to the buildings within which the operator has
received permission from the building owner to provide service. The Systems
compete with SMATV operators primarily in the New York City metropolitan area.
The 1996 Telecom Act amends the definition of cable system to exclude facilities
that do not use public rights-of-way (e.g., SMATV operators serving multiple
buildings not under common ownership or control), thus exempting such facilities
from franchise and other requirements applicable to cable operators.
The FCC has established a new local multipoint distribution service ("LMDS",
sometimes referred to as "cellular cable") in the higher bands of the
electromagnetic spectrum that could be used to offer multichannel video in
competition with cable systems, as well as two-way communications services. The
FCC has held auctions to select licensees. The FCC barred both telephone and
cable companies from initially bidding for LMDS frequencies in their own service
areas. The legal restriction on cable ownership interests in overlapping LMDS
licenses will sunset in June 2000, unless extended by the FCC.
The full extent to which developing media will compete with cable television
systems may not be known for several years. There can be no assurance that
existing, proposed or as yet undeveloped technologies, including technologies
that provide video over the internet, will not become dominant in the future and
render cable television systems less profitable or even obsolete.
Although substantially all the franchises of the Systems are non-exclusive, most
franchising authorities have granted only one franchise in an area. Other cable
television operators could receive franchises for areas in which the Systems are
operated or a municipality could build a competing cable system. Southern New
England Telephone ("SNET"), the dominant telephone company in Connecticut, has
obtained a statewide franchise to build and operate a competing cable television
system in the communities in Connecticut in which the Systems are operating
pursuant to cable franchises. Ameritech has obtained franchises to offer cable
service in certain of the Company's franchise areas in the Midwest. RCN has
obtained or applied for cable franchises in a number of communities in
Massachusetts in which the Company operates. 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.
Programming and Entertainment
Rainbow Media competes with numerous programming services 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 Media and the other programming services are
competing for limited channel capacity and for inclusion in the most widely
distributed 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 Media.
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Rainbow Media 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.
In general, Rainbow Media's programming services 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 marketing efforts.
Numerous businesses compete with Madison Square Garden, Radio City Entertainment
and CCG Holdings, Inc. for the entertainment expenditures of consumers.
Telephone and Modem Services
Lightpath faces substantial competition from incumbent local exchange carriers
("ILECs"), such as Bell Atlantic, which are the dominant providers of local
telephone services in their respective service areas. ILECs have significant
advantages over Lightpath, including greater capital resources, an existing
fully operational local network, and long-standing relationships with customers.
While Lightpath and the ILECs are competitors, Lightpath must enter into
interconnection agreements with each ILEC so that Lightpath's customers can make
and receive calls from customers served by the ILEC. Federal and State law and
regulations require ILECs to enter into such agreements and provide such
facilities and services, and establish the methodology for setting the price for
these facilities and services. The specific price, terms and conditions of each
agreement, however, depends on the outcome of negotiations between Lightpath and
an ILEC. Agreements are also subject to approval by the state public service
commission. Lightpath has entered into interconnection agreements with Bell
Atlantic for New York, New Jersey, Connecticut and Massachusetts which have been
approved by the respective state commissions. In addition, it has reached an
agreement with SNET covering SNET's service area in Connecticut, which has been
approved by the Connecticut Department of Public Utility Control.
Lightpath also faces competition from one or more competitive access providers
("CAPs") and other new entrants in the local telecommunications marketplace,
such as Teleport Communications Group, Inc. ("Teleport"), now part of AT&T and
MFS Communications Company, Inc. ("MFS"), now part of MCI/Worldcom. In addition
to the ILECs and competitive service providers, other potential competitors
capable of offering private line and special access services include electric
utilities, long distance carriers, microwave carriers, wireless telephone system
operators (such as cellular, PCS, and specialized mobile radio), and private
networks built by large end users. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to Lightpath.
Many ILECs and certain of Lightpath's other potential competitors have
financial, personnel and other resources significantly greater than those of
Lightpath. Some of these competitors have existing networks or conduits that
could be adapted to provide local exchange services. There can
(16)
be no assurance that Lightpath will be able to compete effectively against these
competitors. Lightpath may also face competition from new technologies and
services introduced in the future.
Retail Electronics
The consumer retail electronics business is highly competitive. The WIZ competes
with national and regional retail electronics chains which continue to expand in
the New York metropolitan area, as well as with computer, office product and
entertainment superstores, general merchandise retailers, discount stores and
mail order and e-commerce services. Some of these competitors operate on a
significantly larger scale than Cablevision Electronics and are able to
translate their scale to purchasing and pricing advantage in the New York
marketplace. Competition is primarily based on price, service and selection of
merchandise. The WIZ competes on the basis of these factors, with special
emphasis placed on the quality of the customer experience in the stores and on
selling and bundling merchandise that supports the in-home connectivity of the
Company's high speed data, video and telephony services.
Regulation
Cable Television
1984 Cable Act. The 1984 Cable Act set uniform national guidelines for cable
regulation under the Communications Act of 1934. While several of the provisions
of the 1984 Cable Act have been amended or superseded by the 1992 Cable Act
and/or the 1996 Telecom Act, each described below, other provisions of the 1984
Act, including the principal provisions relating to the franchising of cable
television systems, remain in place. The 1984 Cable Act authorizes states or
localities to franchise cable television systems but sets limits on their
franchising powers. It sets a ceiling on cable franchise fees of 5% of gross
revenues and prohibits localities from requiring cable operators to carry
specific programming services. The 1984 Cable Act protects cable operators
seeking franchise renewals by limiting the factors a locality may consider and
requiring a due process hearing before denial. The 1984 Cable Act does not,
however, prevent another cable operator from being authorized to build a
competing system. The 1992 Cable Act prohibits franchising authorities from
granting exclusive cable franchises and from unreasonably refusing to award an
additional competitive franchise.
The 1984 Cable Act allows localities to require free access to public,
educational or governmental channels, but sets limits on the number of
commercial leased access channels cable television operators must make available
for potentially competitive services. The 1984 Cable Act prohibits obscene
programming and requires the sale or lease of devices to block programming
considered offensive.
1992 Cable Act. The 1992 Cable Act represented a significant change in the
regulatory framework under which cable television systems operate.
After the effective date of the 1984 Cable Act, and prior to the enactment of
the 1992 Cable Act, rates for cable services were unregulated for substantially
all of the Systems. The 1992 Cable Act reintroduced rate regulation for certain
services and equipment provided by most cable systems in
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the United States, including substantially all of the Company's systems. While
several of the provisions of the 1992 Cable Act have been amended or superseded
by the 1996 Telecom Act, other provisions remain in place.
The 1992 Cable Act requires each cable system to establish a basic service
package consisting, at a minimum, of all local broadcast signals and all
non-satellite delivered distant broadcast signals that the cable system wishes
to carry, and all public, educational and governmental access programming. The
rates for the basic service package are subject to regulation by local
franchising authorities. Under the FCC's 1993 rate regulation rules, a cable
operator whose per channel rates exceeded an FCC established benchmark was
required to reduce its per channel rates for the basic service package by up to
10% unless it could justify higher rates on the basis of its costs. In 1994,
after reconsideration, the FCC ordered a further reduction of 7% in rates for
the basic service tier, for an overall reduction of 17%. Franchise authorities
(local municipalities or state cable television regulators) are also empowered
to regulate the rates charged for the installation and lease of the equipment
used by subscribers to receive the basic service package (including a converter
box, a remote control unit and, if requested by a subscriber, an addressable
converter box or other equipment required to access programming offered on a per
channel or per program basis), including equipment that may also be used to
receive other packages of programming, and the installation and monthly use of
connections for additional television sets. The FCC's rules require franchise
authorities to regulate rates for equipment and connections for additional
television sets on the basis of an actual cost formula developed by the FCC,
plus a return of 11.25%. No additional charge is permitted for the delivery of
regulated services to additional sets unless the operator incurs additional
programming costs in connection with the delivery of such services to multiple
sets.
The FCC, prior to March 31, 1999, could in response to complaints by a
franchising authority, reduce the rates for service packages other than the
basic service package if it found that such rates were unreasonable. The FCC
would in response to complaints also regulate, on the basis of actual cost, the
rates for equipment used only to receive these higher packages. Services offered
on a per channel or per program basis were never subject to rate regulation by
either municipalities or the FCC.
The FCC's rules provide that, unless a cable operator can justify higher rates
on the basis of its costs, increases in the rates charged by the operator for
the basic service package may not exceed an inflation indexed amount, plus
increases in certain costs beyond the cable operator's control, such as taxes,
franchise fees and increased programming costs that exceed the inflation index.
Increases in fees paid to broadcast stations for the retransmission of their
signals above those in effect on October 6, 1994 may be passed through to
subscribers.
In 1994 the FCC also adopted guidelines for cost-of-service showings that
establish a regulatory framework pursuant to which a cable television operator
may attempt to justify rates in excess of the benchmarks. In addition, the FCC
has adopted guidelines that permit rate adjustments attributed to the cost of a
rebuild or substantial upgrade of a cable system to be added to the operator's
benchmark rate.
(18)
In 1994 the FCC also reversed its prior policy regarding rate regulation of
packages of a la carte services. A la carte services that are offered in a
package were subjected to rate regulation by the FCC.
The FCC, in addition to revising its rules governing a la carte channels, also
revised its regulations governing the manner in which cable operators could
charge subscribers for new cable programming services. The FCC instituted a
three-year flat fee mark-up plan, now lapsed, for charges relating to new
channels of cable programming services in addition to the basic formula for
calculating the permissible rate for new services.
Under the 1992 Cable Act, systems may not require subscribers to purchase any
cable programming service tier other than the basic service package as a
condition of access to video programming offered on a per channel or per program
basis. Cable systems are allowed up to ten years to the extent necessary to
implement the necessary technology to facilitate this access. It is expected
that the Systems will be capable of implementing the technology mandated by the
1992 Cable Act by the Act's deadline.
In addition, the 1992 Cable Act:
(i) requires cable programmers under certain circumstances to offer their
programming to present and future competitors of cable television such as
MMDS, SMATV and DBS, and prohibits new exclusive contracts with program
suppliers without FCC approval,
(ii) directs the FCC to set standards for limiting the number of channels that
a cable television system operator could program with programming services
controlled by such operator,
(iii) bars municipalities from unreasonably refusing to grant additional
competitive franchises,
(iv) requires cable television operators to carry ("Must Carry") all local
broadcast stations (including home shopping broadcast stations), or, at
the option of a local broadcaster, to obtain the broadcaster's prior
consent for retransmission of its signal ("Retransmission Consent"),
(v) requires cable television operators to obtain the consent of any non-local
broadcast station prior to retransmitting its signal, and
(vi) regulates the ownership by cable operators of other media such as MMDS and
SMATV.
In connection with clause (ii) of the immediate preceding paragraph concerning
limitations on affiliated programming, the FCC 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. This 30% national limit, because of court proceedings, has never been
implemented. The FCC recently revised its rules to consider the presence in the
national market of all multichannel video programming providers rather than
cable operators alone in applying its national percentage limit. The FCC also
modified its cable ownership attribution rules, maintaining its 5% voting stock
benchmark, but attributing cable subscribers if held by a partnership if a
limited partner is involved in the partnership's "video programming" activities.
These rule modifications affect the Company because of AT&T's investment in the
Company.
(19)
In connection with clause (iv) above concerning retransmission of a local
broadcaster's signals, a substantial number of local broadcast stations are
currently carried by the Systems and have elected to negotiate for
Retransmission Consent. The Systems have Retransmission Consent agreements with
most broadcast stations they currently carry, but a number of these agreements
are temporary in nature and the potential remains for discontinuation of
carriage if an agreement is not renewed following their expiration. The Company
has had to drop a few local stations because of failure to reach retransmission
consent agreements. The FCC is currently considering whether to adopt similar
"Must Carry" rules for broadcasters' new digital TV channels.
In connection with clause (i) above the 1992 Cable Act prohibits a cable
programmer that is owned by or affiliated with a cable operator (such as Rainbow
Media) from unreasonably discriminating among or between cable operators and
other multichannel video distribution systems with respect to the price, terms
and conditions of sale or distribution of the programmer's satellite-delivered
services and from unreasonably refusing to sell any such service to any
multichannel video programming distributor. In several instances, Rainbow Media
has been ordered by the FCC to provide satellite-delivered programming to
multi-channel video programmers after such multi-channel video programmers have
filed complaints pursuant to these program-access rules. The FCC has declined to
extend these program-access rules to cover some terrestrial-delivered
programming by programmers such as Rainbow Media, but proposals have been made
to Congress in support of such extensions. It is not possible to predict whether
such an extension might in the future be adopted by the FCC or Congress and, if
so, what effect it might have on the Company.
The FCC adopted or imposed new regulations under the 1992 Cable Act in the areas
of customer service, technical standards, equal employment opportunity, privacy,
rates for leased access channels, obscenity and indecency, disposition of a
customer's home wiring and compatibility between cable systems and other
consumer electronic equipment such as "cable ready" television sets and
videocassette recorders.
1996 Telecom Act. The 1996 Telecom Act deregulated the rates for non-basic tiers
of service provided by all cable operators after March 31, 1999. It permitted
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. It
also eliminated the right of individual subscribers to file rate complaints with
the FCC concerning certain non-basic cable programming service tiers, and
required such complaints to be filed by franchising authorities following
receipt of at least two subscriber complaints.
The 1992 Cable Act provided that all rate regulation, for both the upper tiers
and for basic service, is eliminated when a cable system is subject to
"effective competition" from another multichannel video programming provider
such as MMDS, DBS, a telephone company, or a combination of all of these. The
1996 Telecom Act expanded the definition of "effective competition" to include
instances in which a local telephone company or its affiliate (or a multichannel
video programming distributor using the facilities of a telephone company or its
affiliates) offers comparable video programming directly to subscribers by any
means (other than DBS) in the cable operator's franchise area. Since telephone
companies are providing or planning to provide video services in several of the
franchise areas served by the Systems, this provision will allow the Systems
greater flexibility in packaging and pricing in those markets if the FCC makes a
finding of "effective
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competition" in these markets based on telephone company competition. The
Company has been successful in obtaining such an FCC finding in certain markets,
and has filed petitions for such findings in other markets.
The 1996 Telecom Act also eliminated the uniform rate structure requirements of
the 1992 Cable Act for cable operators in areas subject to effective competition
or for video programming offered on a per channel or per program basis, and
allowed non-uniform bulk discount rates to be offered to multiple dwelling
units.
The 1996 Telecom Act also directed the FCC to initiate a process through which
the cable industry would develop standards such that subscribers can use set top
boxes purchased or leased from any distributor.
Other FCC Regulation. In addition to the rules and regulations promulgated by
the FCC under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act,
the FCC has promulgated other rules affecting the Company. FCC rules require
that cable systems black out certain network and sports programming on imported
distant broadcast signals upon request. The FCC also requires that cable systems
delete syndicated programming carried on distant signals upon the request of any
local station holding the exclusive right to broadcast the same program within
the local television market and, in certain cases, upon the request of the
copyright owner of such programs. These rules affect the diversity and cost of
the programming options for the Systems.
FCC regulation also includes matters regarding restrictions on origination and
cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; ownership and control of cable home
wiring in single family residences and multiple dwelling units and limitations
on advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC has adopted requirements
for payment of annual "regulatory fees" which may be passed on to subscribers as
"external cost" adjustments to basic cable service. Fees are also assessed for
other licenses held by cable operators, including licenses for business radio,
cable television relay systems (CARS) and earth stations, which, however, may
not be collected directly from subscribers.
The FCC has the authority to regulate utility company rates for cable rental of
pole and conduit space. States can establish preemptive regulations in this
area, and the states in which the Systems operate have done so. The 1996 Telecom
Act modified the pole attachment provisions of the Communications Act by
requiring that utilities provide cable systems and telecommunications carriers
with nondiscriminatory access to any pole, conduit or right-of-way controlled by
the utility. The FCC has adopted regulations to govern the charges for pole
attachments used by companies providing telecommunications services, including
cable operators. These regulations are likely to increase significantly the
rates charged to cable companies providing voice and data, in addition to video
services. These new pole attachment regulations do not become effective,
however, until 2001, and subsequent increases in attachment rates resulting from
the FCC's new regulations will be phased in equal annual increments over a
subsequent period of five years, until 2006.
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The FCC's technical guidelines for signal leakage became substantially more
stringent in 1990, requiring upgrading expenditures by the Systems. Two-way
radio stations, microwave-relay stations and satellite earth stations used by
the Systems are licensed by the FCC.
Federal Copyright Regulation. There are no restrictions on the number of distant
broadcast television signals that cable television systems can import, but cable
systems are required to pay copyright royalty fees to receive a compulsory
license to carry them. The United States Copyright Office has increased the
royalty fee from time to time. The FCC and the Copyright offices have, at
different times, recommended to Congress changes in the compulsory licenses for
cable television carriage of broadcast signals. This could adversely affect the
ability of the Systems to obtain such programming and could increase the cost of
such programming. No prediction can be made as to whether Congress will enact
any such changes to the copyright laws.
Cable Television Cross-Media Ownership Limitations. In addition to the
prohibition on telephone company-cable cross-ownership, now removed by the 1996
Telecom Act, the 1984 Cable Act prohibited any person or entity from owning
broadcast television and cable properties in the same market. The 1992 Cable Act
imposed limits on new acquisitions of SMATV or MMDS systems by cable operators
in their franchise areas. The 1996 Telecom Act repealed the statutory ban on
cable-broadcast station cross-ownership to permit common ownership or control of
a television station and a cable system with overlapping service areas, but left
in place the cable system-television station cross-ownership restriction
contained in the FCC's rules and does not prejudge the Commission's review of
the regulation, which was initiated in 1998. The FCC has eliminated its
regulations concerning broadcast network-cable cross-ownership to permit common
control of both a television network and a cable system, as required by the 1996
Telecom Act. The 1996 Telecom Act removes the statutory ban on cable-MMDS
cross-ownership on any cable operator in a franchise area where one cable
operator is subject to effective competition.
State and Municipal Regulation of Cable Television. Regulatory responsibility
for essentially local aspects of the cable business such as franchisee
selection, system design and construction, safety, and consumer services remains
with either state or local officials and, in some jurisdictions, with both. The
1992 Cable Act expanded the factors that a franchising authority can consider in
deciding whether to renew a franchise and limits the damages for certain
constitutional claims against franchising authorities for their franchising
activities. New York law provides for comprehensive state-wide regulation,
including approval of transfers of cable franchises and consumer protection
legislation. Massachusetts, New Jersey and Connecticut also have substantial
cable regulatory authority at the state level. State and local franchising
jurisdiction is not unlimited, however, and must be exercised consistently with
the provisions of the 1984 Cable Act and the 1992 Cable Act. Among the more
significant restrictions that the 1984 Cable Act imposes on the regulatory
jurisdiction of local franchising authorities is a 5% ceiling on franchise fees
and mandatory renegotiation of certain franchise requirements if warranted by
changed circumstances.
Telecommunications Regulation. The 1996 Telecom Act removes barriers to entry in
the local telephone market that is now monopolized by the Bell Operating
Companies ("BOCs") and other incumbent local exchange carriers by preempting
state and local laws that restrict competition and by requiring incumbent local
exchange telephone companies to provide nondiscriminatory access and
interconnection to potential competitors, such as cable operators and long
distance companies.
(22)
At the same time, the law eliminated the Modified Final Judgment and permits the
BOCs to enter the market for long distance service (through a separate
subsidiary), on a state-by-state basis, after they satisfy a "competitive
checklist." The 1996 Telecom Act also facilitates the entry of utility companies
into the telecommunications market. One utility company, Boston Edison, has
teamed with one of the Company's competitors, RCN, to provide bundled
telecommunications and video services in the Boston market.
The 1996 Telecom Act also eliminates or streamlines many of the requirements
applicable to local exchange carriers, and requires the FCC and states to review
universal service programs and encourage access to advanced telecommunications
services provided by all entities, including cable companies, by schools,
libraries and other public institutions. The FCC and, in some cases, states have
conducted numerous rulemaking proceedings to implement these provisions.
Programming and Entertainment
Cable television program distributors such as Rainbow Media are not directly
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 Media will be directly affected. As discussed above under "Business -
Regulation - Cable Television," the 1992 Cable Act limits in certain ways the
Company's ability to manage freely the Rainbow Media services or carry the
Rainbow Media services on their affiliates' systems and imposes or could impose
other regulations on the Rainbow Media companies. The "program access"
provisions of the 1992 Cable Act require that Rainbow Media services be sold,
under certain circumstances, to multichannel video programming providers that
compete with the Company's local cable systems. The 1996 Telecom Act extends the
program access requirements of the 1992 Cable Act to a telephone company that
provides video programming by any means directly to subscribers, and to
programming in which such a company holds an attributable ownership interest,
thus allowing the Company's cable systems similar access to programming
developed by their telephone company competitors.
Under a mandate in the 1996 Telecom Act, the FCC has also imposed requirements
on cable operators that, in effect, require certain Rainbow Media services to
provide closed captioning for the hearing-impaired. The FCC is also considering
rules that would force certain Rainbow Media services to provide video
descriptions for the sight-impaired.
The 1984 Cable Act limits the number of commercial leased access channels that a
cable television operator must make available for potentially competitive
services but the 1992 Cable Act empowered the FCC to set the rates and
conditions for such leased access channels, which it has done in a manner
designed to increase use of such channels.
Satellite common carriers, from whom Rainbow Media 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
(23)
and the number of channels available for program producers and distributors such
as Rainbow Media and its affiliates. Nevertheless, there are at present numerous
competing satellite services that provide transponders for video services to the
cable industry.
All common carriers must offer their communications service to Rainbow Media and
others on a nondiscriminatory basis (including by means of a lottery). A
satellite carrier cannot unreasonably discriminate against any customer in its
charges or conditions of carriage.
The operations of the professional sports franchises owned by Madison Square
Garden, L.P., are regulated by the leagues in which the teams participate. Both
the NBA and the NHL have regulations governing, among other things, player
matters and transfers of ownership interests and licensing matters.
Telephone and Modem Services
As a telecommunications carrier, Lightpath is subject to regulation by the FCC
and by the state public service commission in each state in which it provides
service. In order to provide service, moreover, Lightpath must seek approval
from each such state commission. Lightpath has obtained this approval from the
state commissions in New York, Connecticut, Massachusetts, New Jersey and Ohio.
Lightpath's regulatory obligations vary from state to state and include some or
all of the following requirements: filing tariffs (rates, terms and conditions);
filing operational, financial, and customer service reports; seeking approval to
transfer the assets or capital stock of the telephone company; seeking approval
to issue stocks, bonds, and other forms of indebtedness of the telephone
company; and filing all contracts or other documentation involving transactions
between the telephone company and its affiliates. States may also impose
requirements on competitive carriers to contribute to the funding of discounted
"universal" telecommunications services for educational institutions, low income
persons, and persons in rural areas.
As Lightpath offers interstate long distance services, it is subject to various
FCC requirements, including the payment of regulatory fees, Telecommunication
Relay Services funding, and the contributions to the maintenance of "universal
service" as required by the 1996 Telecom Act. Also under the 1996 Telecom Act,
Lightpath must compensate carriers that terminate calls originating on
Lightpath's network (Lightpath is entitled to compensation from carriers when it
terminates calls); interconnect directly or indirectly with other carriers; make
its telecommunications services available for resale; and provide number
portability, dialing parity, and access-to-rights-of-way.
Employees and Labor Relations
As of December 31, 1999, the Company had 13,666 full-time, 4,037 part-time and
5,710 temporary employees of which 600, 994 and 3,107, respectively, were
covered under collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
(24)
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. The Company occupies a leased headquarters building located
in Bethpage, New York with approximately 536,000 square feet of space and
several business offices in Woodbury, New York with an aggregate of
approximately 173,000 square feet of space. Other significant leasehold
properties include approximately 140,000 square feet housing Madison Square
Garden's office operations and approximately 569,000 square feet comprising
Radio City Music Hall. Cablevision Electronics leases 41 retail store locations,
a warehouse and a corporate office aggregating approximately 1,703,000 square
feet. In addition, in February 2000, the Company entered into a long-term lease
for business offices in Jericho, New York with approximately 311,000 square feet
of space.
The Company generally owns all assets (other than real property) related to its
cable television operations, including its program production equipment, headend
equipment (towers, antennae, electronic equipment and satellite earth stations),
cable system plant (distribution equipment, amplifiers, subscriber drops and
hardware), converters, test equipment, tools and maintenance equipment. The
Company, through Madison Square Garden, also owns the Madison Square Garden
arena and theater complex in New York City comprising approximately 1,016,000
square feet.
CCG Holdings, Inc. leases 51 theaters with approximately 45,800 seats and owns
an additional 13 theaters with approximately 10,900 seats.
The Company generally leases its service and other vehicles.
The Company believes its properties are adequate for its use.
Item 3. Legal Proceedings
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of such lawsuits will have a
material adverse impact on the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
(25)
PART II
Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters
Cablevision Systems Corporation's Class A Common Stock and CSC Holdings, Inc.'s
Class A Common Stock prior to the consummation of the Holding Company
Reorganization on March 4, 1998, was traded on the American Stock Exchange. On
December 7, 1999, Cablevision Systems Corporation's Class A Common Stock began
trading on the New York Stock Exchange, under the symbol "CVC". The following
table sets forth the high and low sales prices (adjusted for the two-for-one
stock splits) for the last two years of Class A Common Stock as reported by the
American Stock Exchange or the New York Stock Exchange, as applicable, for the
periods indicated.
1999 1998
-------------------------- ----------------------------
Quarter High Low High Low
------- ---- --- ---- ---
First 77-7/16 49-7/8 33-1/2 21-25/32
Second 91-7/8 60-1/2 42 26-9/16
Third 79-3/8 67-1/4 45-15/16 32
Fourth 80-1/8 58-7/8 50-1/4 36-1/2
As of March 17, 2000, there were 892 holders of record of Cablevision Systems
Corporation Class A Common Stock.
There is no public trading market for the Cablevision Systems Corporation Class
B Common Stock, par value $.01 per share ("Class B Common Stock"). As of March
17, 2000, there were 25 holders of record of Class B Common Stock.
All outstanding shares of common stock of CSC Holdings are held by Cablevision
Systems Corporation.
See Item 1. "Business - The Holding Company Reorganization and TCI Transactions"
for a description of the changes to the Company's capitalization as a result of
the Reorganization.
Dividends. Neither CSC Holdings (prior to the Reorganization) nor Cablevision
Systems Corporation (after the Reorganization) have paid any dividends on shares
of Class A or Class B Common Stock. Cablevision Systems Corporation does not
anticipate paying any cash dividends on shares of Cablevision Systems
Corporation Class A or Class B Common Stock in the foreseeable future.
Cablevision Systems Corporation and CSC Holdings may pay cash dividends on their
capital stock only from surplus as determined under Delaware law. Holders of
Cablevision Parent Class A and Cablevision Parent 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 Cablevision Parent from
funds legally available therefore. No dividend may be declared or paid in cash
or property on shares of either Cablevision Parent Class A or Cablevision Parent
Class B Common Stock unless the same dividend is paid simultaneously on each
share of the other class of common stock. In the
(26)
case of any stock dividend, holders of Cablevision Parent Class A Common Stock
are entitled to receive the same percentage dividend (payable in shares of
Cablevision Parent Class A Common Stock) as the holders of Cablevision Parent
Class B Common Stock receive (payable in shares of Cablevision Parent Class B
Common Stock). In December 1998, CSC Holdings paid a dividend of $42.1 million
to Cablevision Parent.
CSC Holdings paid $21.9 million of cash dividends on the Series I Preferred
Stock and $148.2 million of dividends in additional shares of Series H and M
Preferred Stock in 1999. CSC Holdings is restricted from paying dividends on its
preferred stock under the provisions of its senior credit agreement if a default
has occurred and is continuing under such agreement. Additionally, CSC Holdings'
senior credit agreement, senior debentures and senior subordinated debt
instruments may restrict the payment of dividends in respect of any shares of
capital stock in certain circumstances.
Dividends may not be paid in respect of shares of the Company's common stock
unless all dividends due and payable in respect of the preferred stock of CSC
Holdings have been paid or provided for. See Item 7. - "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources-Restricted Group."
(27)
Item 6. Selected Financial Data
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected
financial data have been derived from the consolidated financial statements of
Cablevision Systems Corporation and CSC Holdings, Inc. Acquisitions made by
these companies were accounted for under the purchase method of accounting and,
accordingly, the acquisition costs were allocated to the net assets acquired
based on their fair value, except for assets previously owned by Mr. Dolan or
affiliates of Mr. Dolan which were recorded at historical cost. Acquisitions are
reflected in operating, balance sheet and statistical data from the time of
acquisition. CSC Holdings, Inc.'s operating, balance sheet and statistical data
prior to April 5, 1999 has been restated to include the financial position,
results of operations and statistical information of the TCI Systems from March
4, 1998. The selected financial data presented below should be read in
conjunction with the consolidated financial statements of Cablevision Systems
Corporation and CSC Holdings, Inc. and the notes thereto included in Item 8 of
this Report.
Cablevision Systems Corporation
------------------------------------------------------------------
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Operating Data:
Revenues, net .................................................. $ 3,942,985 $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060
Operating expenses:
Technical and operating ................................... 1,535,423 1,268,786 853,800 538,272 412,479
Retail electronics cost of sales .......................... 484,760 367,102 -- -- --
Selling, general and administrative ....................... 1,203,119 906,465 514,574 313,476 266,209
Depreciation and amortization ............................. 893,797 734,107 499,809 388,982 319,929
----------- ----------- ----------- ----------- -----------
Operating profit (loss) ........................................ (174,114) (11,317) 81,175 74,412 79,443
Other income (expense):
Interest expense, net ..................................... (465,740) (402,374) (363,208) (265,015) (311,887)
Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) (82,028) (93,024)
Gain on sale of programming interests and cable assets, net -- 170,912 372,053 -- 35,989
Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 -- --
Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) (37,784) (5,517)
Provision for preferential payment to related party ....... -- (980) (10,083) (5,600) (5,600)
Minority interests ........................................ (120,524) (124,677) (209,461) (137,197) (28,886)
Miscellaneous, net ........................................ (16,570) (19,218) (12,606) (6,647) (8,225)
----------- ----------- ----------- ----------- -----------
Net loss ....................................................... $ (800,607) $ (448,504) $ (12,104) $ (459,859) $ (337,707)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common share .................... $ (5.12) $ (3.16) $ (.12) $ (4.63) $ (3.54)
=========== =========== =========== =========== ===========
Average number of common shares outstanding (in thousands) ..... 156,503 142,016 99,608 99,308 95,304
=========== =========== =========== =========== ===========
Cash dividends declared per common share ....................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
(28)
Cablevision Systems Corporation
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................... $ 7,130,308 $ 7,061,062 $ 5,614,788 $ 3,034,725 $ 2,502,305
Total debt ..................................... 6,094,701 5,357,608 4,694,062 3,334,701 3,157,107
Minority interests ............................. 592,583 719,007 821,782 -- --
Deficit investment in affiliates ............... -- -- -- 512,800 453,935
Preferred stock of CSC Holdings, Inc. .......... 1,404,511 1,579,670 1,456,549 1,338,006 590,492
Stockholders' deficiency ....................... (3,067,083) (2,611,685) (2,711,514) (2,707,026) (2,224,417)
Cablevision Systems Corporation
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Statistical Data:
Homes passed by cable .......................... 5,200,000 5,115,000 4,398,000 3,858,000 3,328,000
Basic service subscribers ...................... 3,492,000 3,412,000 2,844,000 2,445,000 2,061,000
Basic service subscribers as a percentage of
homes passed .............................. 67.2% 66.7% 64.7% 63.4% 61.9%
Number of premium television units (1) ......... 7,715,000 6,754,000 4,471,000 4,221,000 3,734,000
Average number of premium units per basic
subscriber at period end (1) .............. 2.2 2.0 1.6 1.7 1.8
Average monthly revenue per basic subscriber (2) $ 44.38 $ 42.56 $ 38.53 $ 36.71 $ 37.07
- - ----------
(1) Restated for 1995 through 1998 to conform to 1999's definition and
reflects in 1995 through 1997 the operations of certain cable television
systems which had relatively lower premium unit penetration and were sold
by December 1998.
(2) Based on recurring service revenues divided by average subscribers for the
month of December.
(29)
CSC Holdings, Inc.
-------------------------------------------------------------------
December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Operating Data:
Revenues, net .................................................. $ 3,942,985 $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060
Operating expenses:
Technical and operating ................................... 1,535,423 1,268,786 853,800 538,272 412,479
Retail electronics cost of sales .......................... 484,760 367,102 -- -- --
Selling, general and administrative ....................... 1,203,119 906,465 514,574 313,476 266,209
Depreciation and amortization ............................. 893,797 734,107 499,809 388,982 319,929
----------- ----------- ----------- ----------- -----------
Operating profit (loss) ........................................ (174,114) (11,317) 81,175 74,412 79,443
Other income (expense):
Interest expense, net ..................................... (465,740) (402,374) (363,208) (265,015) (311,887)
Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) (82,028) (93,024)
Gain on sale of programming interests and cable assets, net -- 170,912 372,053 -- 35,989
Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 -- --
Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) (37,784) (5,517)
Provision for preferential payment to related party ....... -- (980) (10,083) (5,600) (5,600)
Minority interests ........................................ 49,563 37,195 (60,694) (9,417) (8,637)
Miscellaneous, net ........................................ (16,570) (19,218) (12,606) (6,647) (8,225)
----------- ----------- ----------- ----------- -----------
Net income (loss) .............................................. (630,520) (286,632) 136,663 (332,079) (317,458)
Dividend requirements applicable to preferred stock ............ (170,087) (161,872) (148,767) (127,780) (20,249)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common shareholder ...................... $ (800,607) $ (448,504) $ (12,104) $ (459,859) $ (337,707)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common share* ................... $ -- $ -- $ (.12) $ (4.63) $ (3.54)
=========== =========== =========== =========== ===========
Average number of common shares outstanding (in thousands)* .... -- -- 99,608 99,308 95,304
=========== =========== =========== =========== ===========
Cash dividends declared per common share* ...................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
- - ----------
* Per share information for the years ended December 31, 1999 and 1998 are
not presented since CSC Holdings, Inc. became a wholly-owned subsidiary of
Cablevision Parent in 1998.
(30)
CSC Holding, Inc.
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................... $ 7,130,308 $ 7,061,025 $ 5,614,788 $ 3,034,725 $ 2,502,305
Total debt ..................................... 6,094,701 5,357,608 4,694,062 3,334,701 3,157,107
Minority interests ............................. 592,583 719,007 821,782 -- --
Deficit investment in affiliates ............... -- -- -- 512,800 453,935
Redeemable preferred stock ..................... 1,404,511 1,256,339 1,123,808 1,005,265 257,751
Stockholder's deficiency ....................... (3,078,413) (2,286,744) (2,711,514) (2,707,026) (2,224,417)
CSC Holding, Inc.
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Statistical Data:
Homes passed by cable .......................... 5,200,000 5,115,000 4,398,000 3,858,000 3,328,000
Basic service subscribers ...................... 3,492,000 3,412,000 2,844,000 2,445,000 2,061,000
Basic service subscribers as a percentage of
homes passed .............................. 67.2% 66.7% 64.7% 63.4% 61.9%
Number of premium television units (1) ......... 7,715,000 6,754,000 4,471,000 4,221,000 3,734,000
Average number of premium units per basic
subscriber at period end (1) .............. 2.2 2.0 1.6 1.7 1.8
Average monthly revenue per basic subscriber (2) $ 44.38 $ 42.56 $ 38.53 $ 36.71 $ 37.07
- - ----------
(1) Restated for 1995 through 1998 to conform to 1999's definition and
reflects in 1995 through 1997 the operations of certain cable television
systems which had relatively lower premium unit penetration and were sold
by December 1998.
(2) Based on recurring service revenues divided by average subscribers for the
month of December.
(31)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward looking statements are not guarantees of future performance or results
and involve risks and uncertainties and that actual results or developments may
differ materially from the forward looking statements as a result of various
factors. Factors that may cause such differences to occur include but are not
limited to:
(i) the level of growth in the Company's revenues;
(ii) subscriber demand, competition, the cost of programming and industry
conditions;
(iii) whether expenses of the Company continue to increase or increase at a rate
faster than expected;
(iv) whether any unconsummated transactions are consummated on the terms and at
the times set forth (if at all);
(v) new competitors entering the Company's franchise areas;
(vi) other risks and uncertainties inherent in the cable television business;
(vii) financial community and rating agency perceptions of the Company and its
business, operations, financial condition and the industry in which it
operates; and
(viii) the factors described in the Company's registration statement on Form
S-3, including the section entitled "Risk Factors" contained therein.
The information contained herein concerning Year 2000 issues ("Y2K") constitutes
forward looking information. The identification and remediation of Y2K issues is
a technological effort that has never been undertaken before and estimates of
the outcome, time and expense of this endeavor are, for that reason,
particularly hard to make with any certainty. As a result, the Company's
estimates may prove to be materially inaccurate.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
(32)
Recent Transactions
1999 Acquisitions. In April 1999, CSC Holdings purchased ITT's remaining
minority interest in Madison Square Garden. In 1999, CSC Holdings acquired
interests in the real property and assets related to certain movie theaters.
1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of
Clearview and certain assets from Loews. In June 1998, CSC Holdings purchased
50% of ITT's then remaining minority interest in Madison Square Garden. In March
1998, Cablevision Parent acquired certain cable television systems in New York
and New Jersey from TCI. In addition, in February 1998, Cablevision Electronics
acquired substantially all of the assets associated with 40 The WIZ consumer
electronics store locations (the "WIZ Transaction").
1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. and the sale of several
smaller cable television systems. Also in 1998, CSC Holdings transferred its
cable television system in Rensselaer, New York plus approximately $16 million
in cash to Time Warner in exchange for Time Warner's Litchfield, Connecticut
system. In addition, in January 1998, Rainbow Media completed the sale of an
interest in a regional sports programming business.
1997 Acquisitions and Transactions. In December 1997, Rainbow Media completed
certain transactions with Fox. Also in December 1997, Madison Square Garden
acquired all of the membership interests in Radio City Productions, LLC. In July
1997, CSC Holdings acquired from Warburg Pincus the Series A Preferred Stock of
A-R Cable Services, Inc. ("A-R Cable") which resulted in the consolidation of
A-R Cable's operations from the date of the transaction. In June 1997, CSC
Holdings acquired from Warburg Pincus the equity interest that Warburg Pincus
had in certain cable television systems in Massachusetts giving the Company full
ownership of these systems. In June 1997, CSC Holdings redeemed a portion of
ITT's interest in Madison Square Garden which increased Rainbow Media's interest
in Madison Square Garden from 50% to 89.8%. In April 1997, CSC Holdings
exchanged 25% of its interest in Rainbow Media for NBC's interest in certain of
Rainbow Media's programming entities.
1997 Dispositions. In 1997, CSC Holdings completed the sale of certain cable
television systems and Rainbow Media completed the sale of the assets of a radio
station.
The above transactions completed in 1999, 1998 and 1997 are collectively
referred to as the "Net Acquisitions."
(33)
Results of Operations - Cablevision Systems Corporation
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
Years Ended December 31,
-----------------------------------------------------
1999 1998
----------------------- ------------------------
(Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net....................................... $3,942,985 100% $3,265,143 100% $677,842
Operating expenses:
Technical and operating.......................... 1,535,423 39 1,268,786 39 (266,637)
Retail electronics cost of sales................. 484,760 12 367,102 11 (117,658)
Selling, general & administrative................ 1,203,119 31 906,465 28 (296,654)
Depreciation and amortization.................... 893,797 23 734,107 22 (159,690)
--------- --------- ---------
Operating loss...................................... (174,114) (4) (11,317) - (162,797)
Other income (expense):
Interest expense, net............................ (465,740) (12) (402,374) (12) (63,366)
Equity in net loss of affiliates................. (19,234) (1) (37,368) (1) 18,134
Gain on sale of programming interests and cable
assets, net.................................. - - 170,912 5 (170,912)
Write off of deferred interest and financing costs (4,425) - (23,482) (1) 19,057
Provision for preferential payment to related party - - (980) - 980
Minority interests............................... (120,524) (3) (124,677) (4) 4,153
Miscellaneous, net............................... (16,570) - (19,218) (1) 2,648
--------- --------- ---------
Net loss............................................ $(800,607) (20)% $(448,504) (14)% $(352,103)
========= ========= =========
Years Ended December 31,
-----------------------------------------------------
1998 1997
----------------------- ------------------------
(Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net....................................... $3,265,143 100% $1,949,358 100% $1,315,785
Operating expenses:
Technical and operating.......................... 1,268,786 39 853,800 44 (414,986)
Retail electronics cost of sales................. 367,102 11 - - (367,102)
Selling, general & administrative................ 906,465 28 514,574 26 (391,891)
Depreciation and amortization.................... 734,107 22 499,809 26 (234,298)
--------- --------- ---------
Operating profit (loss)............................. (11,317) - 81,175 4 (92,492)
Other income (expense):
Interest expense, net............................ (402,374) (12) (363,208) (19) (39,166)
Equity in net loss of affiliates................. (37,368) (1) (27,165) (1) (10,203)
Gain on sale of programming interests and cable
assets, net.................................. 170,912 5 372,053 19 (201,141)
Gain on redemption of subsidiary preferred stock. - - 181,738 9 (181,738)
Write off of deferred interest and financing costs (23,482) (1) (24,547) (1) 1,065
Provision for preferential payment to related party (980) - (10,083) - 9,103
Minority interests............................... (124,677) (4) (209,461) (11) 84,784
Miscellaneous, net............................... (19,218) (1) (12,606) (1) (6,612)
--------- --------- ---------
Net loss............................................ $(448,504) (14)% $ (12,104) (1)% $(436,400)
========= ========= =========
(34)
Comparison of Year Ended December 31, 1999 Versus Year Ended December 31, 1998.
Consolidated Results - Cablevision Systems Corporation
Revenues for the year ended December 31, 1999 increased $677.8 million (21%) as
compared to revenues for the prior year. Approximately $306.6 million (9%) of
the increase was attributable to the Net Acquisitions, approximately $279.1
million (9%) was from increases in other revenue sources such as Rainbow Media's
programming and entertainment services, advertising on the Company's cable
television systems, revenue derived from the developing commercial telephone
business and revenue recognized in connection with the warrants received in the
At Home transaction; and approximately $58.6 million (2%) resulted from higher
revenue per subscriber. The remaining increase of $33.5 million (1%) was
attributable to internal growth of 65,700 in the average number of subscribers
during the year.
Technical and operating expenses for 1999 increased $266.6 million (21%) over
the 1998 amount. Approximately $177.3 million (14%) reflected increased costs
directly associated with the growth in revenues and subscribers discussed above,
as well as increases in programming costs for cable television services, with
the remaining $89.3 million (7%) attributable to the Net Acquisitions. As a
percentage of revenues, technical and operating expenses remained relatively
constant during 1999 as compared to 1998.
Retail electronics cost of sales amounted to approximately $484.8 million (80%
of retail electronics sales) for the year ended December 31, 1999, compared to
approximately $367.1 million (79% of retail electronics sales) from the date of
the WIZ Transaction through December 31, 1998. Cost of sales includes the cost
of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs for the Company's retail electronics segment.
Selling, general and administrative expenses increased $296.7 million (33%) for
1999 as compared to the 1998 level. Approximately $110.9 million (12%) was due
to charges related to an incentive stock plan and approximately $97.1 million
(11%) resulted from higher administrative, sales and marketing and customer
service costs. Approximately $59.4 million (7%) was directly attributable to the
Net Acquisitions with the remaining $29.3 million (3%) due to Year 2000
remediation costs. As a percentage of revenues, selling, general and
administrative expenses increased 3% in 1999 compared to 1998. Excluding the
effects of the incentive stock plan and Year 2000 remediation costs, as a
percentage of revenues such costs remained relatively constant during 1999 as
compared to 1998.
Operating profit before depreciation and amortization decreased $3.1 million to
$719.7 million for 1999 from $722.8 million for 1998. The decrease resulted from
the $110.9 million (15%) increase in charges related to an incentive stock plan,
partially offset by an increase of $67.4 million (9%) resulting from the
combined effect of the revenue and other expense changes discussed above, with
an increase of approximately $40.4 million (6%) attributable to the Net
Acquisitions. On a pro forma basis, giving effect to the Net Acquisitions as if
they had occurred on January 1, 1998 and excluding the incentive stock plan
charges referred to above and the costs of Year 2000 remediation, operating
profit before depreciation and amortization would have increased 11.7% in 1999.
Operating profit before depreciation and amortization is presented here to
provide additional information about the Company's ability to meet future debt
service, capital expenditures and working capital requirements. Operating profit
before depreciation and amortization should be
(35)
considered in addition to and not as a substitute for net income (loss) and cash
flows as indicators of financial performance and liquidity as reported in
accordance with generally accepted accounting principles.
Depreciation and amortization expense increased $159.7 million (22%) during 1999
as compared to 1998. Approximately $103.2 million (14%) of the increase was
directly attributable to the Net Acquisitions (including approximately $35.5
million relating to the write off of goodwill relating to The WIZ). The
remaining $56.5 million (8%) increase resulted primarily from depreciation on
new plant assets, partially offset by a decrease in amortization expense
resulting from certain intangible assets becoming fully amortized during 1999.
Net interest expense increased $63.4 million (16%) during 1999 compared to 1998.
The net increase is primarily attributable to debt incurred to fund acquisitions
and capital expenditures, partly offset by generally lower interest rates.
Equity in net loss of affiliates decreased to $19.2 million in 1999 from $37.4
million in 1998. Such amounts consist of the Company's share of the net profits
and losses of certain programming and PCS businesses in which the Company has
varying minority ownership interests.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1998 consists primarily of a gain of $153.3 million from the
disposition of certain cable television systems and $17.7 million from the sale
of an interest in a regional sports programming business.
Write off of deferred interest and financing costs of $4.4 million in 1999
consists principally of the write off of deferred financing costs in connection
with amendments to the Company's credit agreements. The write off of deferred
interest and financing costs of $23.5 million in 1998 consists principally of
the $14.9 million premium paid to redeem Clearview's senior notes payable and
the write off of deferred financing costs of $4.7 million in connection with
amendments to the Company's credit agreements.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment to Mr. Dolan made
in connection with the acquisition of Cablevision of New York City. Effective
March 4, 1998 these preferential payments were terminated upon the retirement of
Mr. Dolan's preferred interest.
Minority interests for the years ended December 31, 1999 and 1998 include CSC
Holdings' preferred stock dividend requirements, Fox's 40% share of the net
income of Regional Programming Partners, ITT's share of the net loss of Madison
Square Garden through April 8, 1999 and NBC's share of the net loss of Rainbow
Media.
Net miscellaneous expense decreased to $16.6 million for the year ended December
31, 1999 compared to $19.2 million for the prior year. In 1999, miscellaneous
expense included a charge of $15.1 million resulting from the write off of an
investment held by Rainbow Media, $6.7 million relating to federal, state and
local income taxes and $5.7 million relating to various other items, partially
offset by a gain of $10.9 million resulting from the sale of certain
investments. In 1998, miscellaneous expense included $13.5 million relating to
federal, state and local income taxes and $5.7 million relating to various other
items.
(36)
Business Segments Results - Cablevision Systems Corporation
The Company classifies its business interests into three segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media, consisting principally
of interests in cable television programming networks and MSG, which owns and
operates professional sports teams, regional cable television networks, live
productions and entertainment venues; and Retail Electronics, which represents
the operations of Cablevision Electronics' retail electronics stores. The
Company allocates certain costs to each segment based upon their proportionate
estimated usage of services.
Telecommunication Services
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's telecommunication services segment.
Years Ended December 31,
--------------------------------------------------------------
1999 1998
----------------------------- ----------------------------
% of % of
Amount Revenues Amount Revenues
--------------- ------------ -------------- ------------
(dollars in thousands)
Revenues, net...................................... $ 2,151,308 100% $ 1,886,190 100%
Technical and operating expenses................... 866,739 40 767,177 41
Selling, general and administrative expenses....... 508,499 24 432,435 23
Depreciation and amortization...................... 616,795 29 547,629 29
----------- -----------
Operating profit.............................. $ 159,275 7% $ 138,949 7%
=========== ===========
Revenues for the year ended December 31, 1999 increased $265.1 million (14%) as
compared to revenues for the prior year. Approximately $103.7 million (5%) of
the increase was attributable to the Net Acquisitions; approximately $58.6
million (3%) resulted from higher revenue per subscriber and approximately $43.0
million (2%) was attributable to revenues from the Company's developing
telephone business and revenue recognized in connection with the At Home
transaction. Approximately $33.5 million (2%) of the increase was attributable
to internal growth of 65,700 in the average number of subscribers during the
year. The remaining increase of approximately $26.3 million (2%) resulted from
increases in other revenue sources, such as advertising and pay-per-view.
Technical and operating expenses for 1999 increased $99.6 million (13%) over the
1998 amount. Approximately $59.2 million (8%) was attributable to increased
costs directly associated with the growth in subscribers and revenues discussed
above, as well as to increases in programming costs for cable television
services. Approximately $40.4 million (5%) was attributable to the Net
Acquisitions. As a percentage of revenues, operating expenses decreased 1%
during 1999 as compared to 1998.
Selling, general and administrative expenses increased $76.1 million (18%) in
1999 as compared to the 1998 level. Approximately $59.6 million (14%) was due to
charges related to an incentive stock plan. Approximately $5.9 million (1%) was
attributable to Year 2000 remediation costs and approximately $6.4 million (2%)
was directly attributable to the Net Acquisitions. The remaining $4.2 million
(1%) increase was attributable to increases in sales and marketing, customer
service and subscriber billing costs. As a percentage of revenues, selling,
general and administrative
(37)
expenses increased 1% in 1999 compared to 1998. Excluding the effects of the
incentive stock plan and Year 2000 remediation costs, as a percentage of
revenues such costs decreased 2%.
Depreciation and amortization expense increased $69.2 million (13%) during 1999
as compared to 1998. Approximately $42.7 million (8%) of the increase was
directly attributable to the Net Acquisitions. The remaining $26.5 million (5%)
increase resulted primarily from depreciation on new plant assets, partially
offset by a decrease in amortization expense resulting from certain intangible
assets becoming fully amortized during 1999.
Rainbow Media
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Rainbow Media.
Years Ended December 31,
-------------------------------------------------------------
1999 1998
---------------------------- ---------------------------
% of % of
Amount Revenues Amount Revenues
--------------- ----------- -------------- -----------
(dollars in thousands)
Revenues, net...................................... $1,234,113 100% $1,007,639 100%
Technical and operating expenses................... 728,567 59 590,151 58
Selling, general and administrative expenses....... 450,093 36 351,727 35
Depreciation and amortization...................... 161,669 13 166,661 17
---------- ----------
Operating loss................................ $ (106,216) (9)% $ (100,900) (10)%
========== ==========
Revenues for the year ended December 31, 1999 increased $226.5 million (22%) as
compared to revenues for the prior year. Approximately $104.7 million (10%) of
the increase was attributable to internal growth in programming network
subscribers, rate increases and new channel launches. Approximately $78.2
million (8%) of the increase was attributable to a greater number of events at
Madison Square Garden including the Knicks and Rangers and other special events
during the 1999 period, partially offset by a decrease resulting from fewer
performances at Radio City Music Hall due to its temporary closing in 1999 for
restoration. The remaining $43.6 million (4%) increase was attributable to
higher advertising revenues.
Technical and operating expenses increased $138.4 million (23%) for the year
ended December 31, 1999 over the same 1998 period. Approximately $93.4 million
(16%) of the increase was attributable to a greater number of sporting events
including the Knicks and Rangers, partially offset by fewer concerts and other
events due to the temporary closing of Radio City Music Hall for restoration.
Increases of $20.5 million (3%) were due to new programming service launches
with the remaining $24.5 million (4%) increase attributable to costs directly
associated with the increases in revenues discussed above. As a percentage of
revenues, operating expenses increased 1% during 1999 compared to 1998.
Selling, general and administrative expenses increased $98.4 million (28%) for
1999 as compared to the 1998 level. Approximately $51.3 million (15%) of the
increase was due to charges related to an incentive stock plan. Approximately
$32.7 million (9%) was attributable to increases in sales and marketing
initiatives, including the promotion of new channel launches and other general
cost increases. The remaining $14.4 million (4%) increase was a result of Year
2000 remediation costs. As a percentage of revenues, selling, general and
administrative expenses increased 1% in 1999
(38)
compared to 1998. Excluding the effects of the incentive stock plan and Year
2000 remediation costs, as a percentage of revenues such costs decreased 2%.
Depreciation and amortization expense decreased $5.0 million (3%) during 1999 as
compared to 1998. Increased depreciation on fixed asset additions was more than
offset by a reduction in amortization as certain intangible assets became fully
amortized.
Retail Electronics
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's retail electronics segment, Cablevision Electronics. The
information presented is for the year ended December 31, 1999 and for the period
from the date of acquisition, February 9, 1998, through December 31, 1998.
Year Ended Period Ended
December 31, 1999 December 31, 1998
----------------------------- ----------------------------
% of % of
Amount Revenues Amount Revenues
--------------- ------------ -------------- ------------
(dollars in thousands)
Revenues, net...................................... $ 603,294 100% $ 464,388 100%
Retail electronics cost of sales................... 484,760 80 367,102 79
Selling, general and administrative expenses....... 160,597 27 117,452 25
Depreciation and amortization...................... 44,940 7 4,293 1
--------- ---------
Operating loss................................ $ (87,003) (14)% $ (24,459) (5)%
========= =========
Revenues for the year ended December 31, 1999 amounted to approximately $603.3
million compared to revenues of approximately $464.4 million for the period
ended December 31, 1998. The revenues for the period ended December 31, 1998
include operations of Cablevision Electronics from the date of the WIZ
Transaction, February 9, 1998, through December 31, 1998.
Retail electronics cost of sales amounted to approximately $484.8 million (80%
of revenues) for the year ended December 31, 1999 compared to $367.1 million
(79% of revenues) for the period ended December 31, 1998. Cost of sales includes
the cost of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs.
Selling, general and administrative expenses amounted to approximately $160.6
million (27% of revenues) for the year ended December 31, 1999 and approximately
$117.5 million (25% of revenues) from the date of acquisition through December
31, 1998. Selling, general and administrative expenses consist of all retail
store expenses (excluding store occupancy costs), the salaries and commissions
of sales personnel, the costs of advertising, the costs of operating the
distribution center and corporate support functions other than buying.
Depreciation and amortization expense amounted to approximately $44.9 million
(7% of revenues) for the year ended December 31, 1999 and includes approximately
$35.5 million relating to the write off of goodwill resulting from the
acquisition. For the period ended December 31, 1998, depreciation and
amortization expense amounted to $4.3 million (1% of revenues). Depreciation and
amortization expense includes the depreciation of all property and equipment and
the amortization of intangible assets which resulted from the acquisition.
(39)
Comparison of Year Ended December 31, 1998 Versus Year Ended December 31, 1997.
Consolidated Results - Cablevision Systems Corporation
Revenues for the year ended December 31, 1998 increased $1,315.8 million (67%)
as compared to revenues for the prior year. Approximately $1,093.7 million (56%)
of the increase was attributable to the Net Acquisitions; approximately $88.8
million (5%) resulted from higher revenue per subscriber; and approximately
$101.1 million (5%) was from increases in other revenue sources such as Rainbow
Media's programming services, advertising on the Company's cable television
systems, revenue derived from the developing commercial telephone business and
revenue recognized in connection with the warrants received in the At Home
transaction. The remaining increase of $32.2 million (1%) was attributable to
internal growth of 67,300 in the average number of subscribers during the year.
Technical and operating expenses for 1998 increased $415.0 million (49%) over
the 1997 amount. Approximately $317.7 million (38%) was attributable to the Net
Acquisitions, with the remaining $97.3 million (11%) attributable to increased
costs directly associated with the growth in subscribers and revenues discussed
above, as well as to increases in programming costs for cable television
services. As a percentage of revenues, technical and operating expenses
decreased 5% during 1998 as compared to 1997.
Retail electronics cost of sales for 1998 amounted to approximately $367.1
million (79% of retail electronics sales) from the date of the WIZ Transaction
through December 31, 1998. Cost of sales includes the cost of merchandise sold,
including freight costs incurred, as well as store occupancy and buying costs
for the Company's retail electronics segment.
Selling, general and administrative expenses increased $391.9 million (76%) for
1998 as compared to the 1997 level. Approximately $236.5 million (45%) was
directly attributable to the Net Acquisitions and $74.7 million (15%) was due to
charges related to an incentive stock plan. The remaining $80.7 million (16%)
increase resulted from higher customer service, administrative and sales and
marketing costs. As a percentage of revenues, selling, general and
administrative expenses increased 2% in 1998 compared to 1997. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
remained relatively constant during 1998 as compared to 1997.
Operating profit before depreciation and amortization increased $141.8 million
(24%) to $722.8 million for 1998 from $581.0 million for 1997. The Net
Acquisitions contributed approximately $172.4 million (29%) of the increase.
This increase was partially offset by a decrease of $30.6 million (5%) resulting
from the combined effect of the revenue and expense changes discussed above. On
a pro forma basis, giving effect to the Net Acquisitions as if they had occurred
on January 1, 1997 and excluding the incentive stock plan charges referred to
above, operating profit before depreciation and amortization would have
increased 11.2% in 1998. Operating profit before depreciation and amortization
is presented here to provide additional information about the Company's ability
to meet future debt service, capital expenditures and working capital
requirements. Operating profit before depreciation and amortization should be
considered in addition to and not as a substitute for net income (loss) and cash
flows as indicators of financial performance and liquidity as reported in
accordance with generally accepted accounting principles.
(40)
Depreciation and amortization expense increased $234.3 million (47%) during 1998
as compared to 1997. Approximately $212.6 million (43%) of the increase was
directly attributable to the Net Acquisitions. The remaining $21.7 million (4%)
increase resulted primarily from depreciation on new plant assets, offset by a
decrease in amortization expense resulting from certain intangible assets
becoming fully amortized during 1998.
Net interest expense increased $39.2 million (11%) during 1998 compared to 1997.
The net increase is primarily attributable to debt incurred to fund acquisitions
and capital expenditures, partly offset by lower interest rates.
Equity in net loss of affiliates increased to $37.4 million for 1998 from $27.2
million in 1997. For the year ended December 31, 1998, such amount consisted of
the Company's share of the net profits and losses of certain programming
businesses in which the Company has varying minority ownership interests. For
the year ended December 31, 1997, such amount consisted primarily of the
Company's share of net losses in certain cable affiliates for the period prior
to consolidation ($37.9 million) and the Company's share of the net profits in
certain programming businesses in which the Company had varying ownership
interests.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1998 consists primarily of a gain of $153.3 million from the
disposition of certain cable television systems and $17.7 million from the sale
of an interest in a regional sports programming business. For the year ended
December 31, 1997, the gain consists primarily of a gain of approximately $305.0
million resulting from the Fox transactions, a gain of approximately $59.0
million resulting from the sale of certain cable television systems, and a gain
of approximately $7.4 million from the sale of Rainbow Media's radio station.
Gain on redemption of subsidiary preferred stock for the year ended December 31,
1997 represents the gain recognized upon the redemption of A-R Cable's Series A
Preferred Stock of $181.7 million. Such gain represents primarily the reversal
of accrued preferred dividends in excess of amounts paid.
Write off of deferred interest and financing costs of $23.5 million in 1998
consists principally of the premium of $14.9 million paid to redeem Clearview's
senior notes payable. Additionally, in 1998 the Company wrote off deferred
financing costs of $4.7 million in connection with amendments to the Company's
credit agreements. The write off of deferred interest and financing costs of
$24.5 million in 1997 consists principally of the payment of a premium of $8.4
million to redeem the Company's 10 3/4% Senior Subordinated Debentures due 2004
and the write off of $5.3 million in deferred financing costs in connection with
such redemption. In addition, the Company wrote off deferred financing costs of
$4.1 million in connection with the repayment of Cablevision of Ohio's bank debt
and $6.5 million in connection with the amendment to and repayment of the term
loans of the Madison Square Garden credit facility.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment to Charles F.
Dolan made in connection with the acquisition of Cablevision of New York City.
Effective March 4, 1998 these preferential payments were terminated upon the
retirement of Mr. Dolan's preferred interest.
(41)
Minority interests for the year ended December 31, 1998 include CSC Holdings'
preferred stock dividend requirements, Fox's 40% share of the net income of
Regional Programming Partners, ITT's share of the net loss of Madison Square
Garden and NBC's share of the net loss of Rainbow Media. Minority interests for
the year ended December 31, 1997 include CSC Holdings' preferred stock dividend
requirements, Fox's 40% share of the net income of Regional Programming Partners
since the date of the transaction, ITT's share of the net income of Madison
Square Garden since the date of acquisition and NBC's 25% share of the net
income of Rainbow Media since the date of the transaction.
Net miscellaneous expense increased to $19.2 million for the year ended December
31, 1998 compared to $12.6 million for the prior year. Approximately $9.6
million of the increase related to federal alternative minimum taxes and state
income taxes. The remaining decrease of $3.0 million reflects a reduction in
various other miscellaneous items.
Business Segments Results - Cablevision Systems Corporation
The Company classifies its business interests into three fundamental areas:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media, consisting principally
of interests in cable television programming networks and MSG, which owns and
operates professional sports teams, regional cable television networks, live
productions and entertainment venues; and Retail Electronics, which represents
the operations of Cablevision Electronics' retail electronics stores. The
Company allocates certain costs to each segment based upon their proportionate
estimated usage of services.
Telecommunication Services
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's telecommunication services segment.
Years Ended December 31,
--------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
% of % of
Amount Revenues Amount Revenues
--------------- ------------ -------------- ------------
(dollars in thousands)
Revenues, net...................................... $ 1,886,190 100% $ 1,364,264 100%
Technical and operating expenses................... 767,177 41 549,951 41
Selling, general and administrative expenses....... 432,435 23 301,762 22
Depreciation and amortization...................... 547,629 29 399,056 29
----------- -----------
Operating profit.............................. $ 138,949 7% $ 113,495 8%
=========== ===========
Revenues for the year ended December 31, 1998 increased $521.9 million (38%) as
compared to revenues for the prior year. Approximately $333.4 million (24%) of
the increase was attributable to the Net Acquisitions; approximately $88.8
million (7%) resulted from higher revenue per subscriber and approximately $32.2
million (2%) was attributable to internal growth of 67,300 in the average number
of subscribers during the year. Approximately $56.0 million (4%) was
attributable to revenues from the Company's developing telephone business and
revenue
(42)
recognized in connection with the At Home transaction. The remaining increase of
approximately $11.5 million (1%) resulted from other revenue sources.
Technical and operating expenses for 1998 increased $217.2 million (39%) over
the 1997 amount. Approximately $137.2 million (25%) was attributable to the Net
Acquisitions, with the remaining $80.0 million (14%) attributable to increased
costs directly associated with the growth in subscribers and revenues discussed
above, as well as to increases in programming costs for cable television
services. As a percentage of revenues, operating expenses remained relatively
constant during 1998 as compared to 1997.
Selling, general and administrative expenses increased $130.7 million (43%) for
1998 as compared to the 1997 level. Approximately $48.8 million (16%) was
directly attributable to the Net Acquisitions and $36.1 million (12%) was due to
charges related to an incentive stock plan. The remaining $45.8 million (15%)
increase resulted from higher customer service, administrative and sales and
marketing costs. As a percentage of revenues, selling, general and
administrative expenses increased 1% in 1998 compared to 1997. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
decreased 1%.
Depreciation and amortization expense increased $148.6 million (37%) during 1998
as compared to 1997. Approximately $135.6 million (34%) of the increase was
directly attributable to the Net Acquisitions. The remaining $13.0 million (3%)
increase resulted primarily from depreciation on new plant assets, partially
offset by a decrease in amortization expense resulting from certain intangible
assets becoming fully amortized during 1998.
Rainbow Media
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
Rainbow Media.
Years Ended December 31,
--------------------------------------------------------------
1998 1997
----------------------------- ----------------------------
% of % of
Amount Revenues Amount Revenues
--------------- ------------ -------------- ------------
(dollars in thousands)
Revenues, net...................................... $1,007,639 100% $ 637,648 100%
Technical and operating expenses................... 590,151 58 351,578 55
Selling, general and administrative expenses....... 351,727 35 214,912 34
Depreciation and amortization...................... 166,661 17 90,634 14
---------- ---------
Operating loss................................ $ (100,900) (10)% $ (19,476) (3)%
========== =========
Revenues for the year ended December 31, 1998 increased $370.0 million (58%) as
compared to revenues for the prior year. Approximately $332.5 million (52%) of
the increase was attributable to the Net Acquisitions; approximately $24.8
million (4%) resulted from internal growth in programming network subscribers;
and approximately $7.4 million (1%) from an increase in cable television
advertising sales. The remaining increase of $5.3 million (1%) was primarily
attributable to the launch of new programming networks.
Technical and operating expenses for 1998 increased $238.6 million (68%) over
the 1997 amount. Approximately $218.0 million (62%) was attributable to the Net
Acquisitions, with the remaining
(43)
$20.6 million (6%) attributable to increased costs directly associated with the
growth in revenues discussed above. As a percentage of revenues, operating
expenses increased 3% during 1998 as compared to 1997.
Selling, general and administrative expenses increased $136.8 million (64%) for
1998 as compared to the 1997 level. Approximately $70.2 million (33%) was
directly attributable to the Net Acquisitions and $38.5 million (18%) was due to
charges related to an incentive stock plan. The remaining $28.1 million (13%)
increase was primarily attributable to sales and marketing initiatives related
to the promotion of new and established programming networks and from higher
administrative costs. As a percentage of revenues, selling, general and
administrative expenses increased 1% in 1998 compared to 1997. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
decreased 1%.
Depreciation and amortization expense increased $76.0 million (84%) during 1998
as compared to 1997. Approximately $71.4 million (79%) of the increase was
directly attributable to the Net Acquisitions. The remaining $4.6 million (5%)
increase resulted primarily from depreciation on new fixed assets.
Retail Electronics
The table below sets forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenue for
the Company's retail electronics segment, Cablevision Electronics. The
information presented is for the period from the date of acquisition, February
9, 1998, through December 31, 1998.
Period Ended December 31, 1998
------------------------------------------
Amount % of Revenues
-------------------- ------------------
(dollars in thousands)
Revenues, net...................................... $ 464,388 100%
Retail electronics cost of sales................... 367,102 79
Selling, general and administrative expenses....... 117,452 25
Depreciation and amortization...................... 4,293 1
---------
Operating loss................................ $ (24,459) (5)%
=========
Revenues for the period ended December 31, 1998 amounted to approximately $464.4
million. Approximately $179.5 million (39%) was derived from the sale of video
equipment, $112.8 million (24%) from the sale of audio equipment and $94.6
million (20%) from the sale of home office equipment. The remaining $77.5
million (17%) of the revenue was derived from the sale of compact disks and
other pre-recorded music, digital video disks, VHS video and other pre-recorded
movies and warranty and service contracts.
Retail electronics cost of sales for 1998 amounted to approximately $367.1
million (79% of revenues) from the date of acquisition through December 31,
1998. Cost of sales includes the cost of merchandise sold, including freight
costs incurred, as well as store occupancy and buying costs.
(44)
Selling, general and administrative expenses amounted to approximately $117.5
million (25% of revenues) from the date of acquisition through December 31,
1998. Selling, general and administrative expenses consist of all retail store
expenses (excluding store occupancy costs), the salaries and commissions of
sales personnel, the costs of advertising, the cost of operating the
distribution center and corporate support functions other than buying.
Depreciation and amortization expense amounted to approximately $4.3 million (1%
of revenues) from the date of acquisition through December 31, 1998.
Depreciation and amortization expense includes the depreciation of all property
and equipment and the amortization of intangible assets which resulted from the
acquisition.
Results of Operations - CSC Holdings, Inc.
In April 1999, Cablevision Parent contributed the TCI Systems to CSC Holdings.
This transaction was accounted for in a manner similar to a pooling of
interests, whereby the assets and liabilities of the TCI Systems were recorded
at historical book value. Prior period consolidated financial statements of CSC
Holdings have been restated to include the financial position and results of
operations of the TCI Systems from March 4, 1998. As a result, the operations of
CSC Holdings are identical to the operations of Cablevision Systems Corporation,
except for dividends attributable to the preferred stock of CSC Holdings which
have been reported in minority interests in the consolidated financial
statements of Cablevision Systems Corporation. Refer to Cablevision Systems
Corporation's Management's Discussion and Analysis of Financial Condition and
Results of Operations on page 32 through 53 of this Form 10-K.
(45)
Liquidity and Capital Resources
Cablevision Systems Corporation does not have any operations independent of its
subsidiaries. In addition, Cablevision Systems Corporation has no borrowings and
does not have outstanding any securities other than its Class A Common Stock and
Class B Common Stock, on which it does not intend to pay any dividends in the
foreseeable future. Accordingly, Cablevision Systems Corporation does not have
cash needs independent of the needs of its subsidiaries.
Cablevision Systems Corporation is structured as a restricted group and an
unrestricted group of subsidiaries.
The Restricted Group includes all of CSC Holdings' cable operations in and
around the greater New York City metropolitan area, in and around the greater
Cleveland, Ohio metropolitan area, in and around the Boston, Massachusetts
metropolitan area, and in Kalamazoo, Michigan and the commercial telephone
operations of the Company's subsidiary, Cablevision Lightpath, Inc. on Long
Island, New York. As of April 5, 1999, the cable television subscribers of the
TCI Systems (847,432 at March 31, 1999) became part of the Restricted Group upon
the transfer of the TCI Systems from Cablevision Systems Corporation to CSC
Holdings, Inc. At December 31, 1999, the Restricted Group encompassed
approximately 3,492,000 cable television subscribers, including approximately
357,000 subscribers in its Ohio and Kalamazoo, Michigan systems held for sale
(see Note 3 - "Net Assets Held for Sale").
The Unrestricted Group includes principally Rainbow Media, including Madison
Square Garden, and other companies engaged in certain developmental activities
("New Media") including high-speed cable modem service, residential telephone
service, developing (non-Long Island) commercial telephone service, research and
development expenses and deferred revenue amortization related to the At Home
transaction. The Unrestricted Group also includes Cablevision Electronics which
operates 41 The WIZ consumer electronics store locations and CCG Holdings, Inc.
which owns the Company's motion picture theater assets.
2000 Outlook
In the New York metropolitan area, the Company forecasts capital investment of
between $800 million and $850 million in its cable, Long Island commercial
telephone and New Media businesses in 2000. This capital includes investments
for digital video services in anticipation of a pilot rollout of SONY digital
boxes in the fourth quarter of 2000, cable modem services as the Company
doubles the number of homes marketed for such service and the development of
commercial telephone services outside Long Island. In addition, the Company
forecasts capital investments aggregating between $225 million and $275 million
for Madison Square Garden, Rainbow Media, retail electronics, theatres and
corporate activities in 2000.
The Company's non-New York metropolitan area systems, primarily in Massachusetts
and including operations of systems held for sale in Ohio and Kalamazoo,
Michigan, are anticipated to have capital requirements of between $200 million
to $250 million, covering primarily plant rebuild and developmental activities.
(46)
The following table presents selected historical results of operations and other
financial information related to the captioned groups or entities as of and for
the year ended December 31, 1999.
Interest Capital
Revenues AOCF* Expense Expenditures
-------- ----- ------- ------------
(dollars in thousands)
Restricted Group**....................... $2,080,554 $ 916,107 $404,696 $643,526
New Media***............................. 70,754 126 115 89,003
Rainbow Media (including MSG and AMC).... 1,234,113 190,646 56,556 91,268
Retail Electronics....................... 603,294 (37,934) 10,192 35,106
Other (including eliminations)........... (45,730) (51,996) (1,010) 12,263
---------- ---------- -------- --------
Total................................ $3,942,985 $1,016,949 $470,549 $871,166
========== ========== ======== ========
- - ----------
* Defined as operating income (loss) before depreciation and amortization
and excluding incentive stock plan expense of $255,789 and the costs of
Year 2000 remediation of $41,477.
** Includes the TCI Systems and systems held for sale.
*** Consists of developmental operations, including those of systems held for
sale.
Restricted Unrestricted
Group Group Total
----- ----- -----
(dollars in thousands)
Debt and Redeemable Preferred Stock
Senior debt........................................... $1,486,702 $ - $1,486,702
Senior notes and debentures........................... 2,692,602 - 2,692,602
Subordinated notes and debentures..................... 1,048,513 - 1,048,513
---------- ---------- ----------
5,227,817 - 5,227,817
---------- ---------- ----------
Redeemable preferred stock of CSC Holdings............ 1,404,511 - 1,404,511
Rainbow Media
Rainbow Media senior debt......................... - 78,016 78,016
AMC senior debt................................... - 317,818 317,818
MSG senior debt................................... - 364,724 364,724
---------- ---------- ----------
Total Rainbow Media debt..................... - 760,558 760,558
---------- ---------- ----------
Retail Electronics debt............................... - 80,693 80,693
Other debt............................................ - 25,633 25,633
---------- ---------- ----------
Total debt and redeemable preferred stock.... $6,632,328 $ 866,884 $7,499,212
========== ========== ==========
(47)
Restricted Group
The Restricted Group's plant upgrade, combined with additional amounts required
in respect of the start up and operation of new businesses such as high speed
internet access, digital video services, the expansion of residential telephone
services and the roll out of non-Long Island based commercial telephone
business, as well as additional investments or acquisitions will require
significant additional funding. The Company expects to obtain the requisite
funds through internally generated funds, amounts available under the CSC
Holdings' credit facility, proceeds from asset sales and/or additional capital
market issuances.
In December 1999, the Company announced the sale of its Ohio system to Adelphia
Communications Corporation for $990 million in cash and $540 million in Adelphia
class A common stock, subject to certain adjustments. In March 2000, the Company
entered into a definitive agreement with Charter Communications, Inc. for the
sale of its Kalamazoo, Michigan system in exchange for $172.5 million in Charter
Communications, Inc. common stock. The Company expects to apply the cash
proceeds received, which may include cash proceeds from the monetization of
stock, toward the reduction of outstanding debt. The consummation of each of
these transactions is subject to the receipt of franchise transfer and other
required approvals.
In September 1999, the Company announced the redemption of CSC Holdings' Series
I Cumulative Convertible Exchangeable Preferred Stock. A total of 13,797,625
depositary shares (out of 13,800,000 outstanding) were converted to 20,458,925
shares of the Company's Class A Common Stock, with the remaining 2,375
depositary shares being redeemed for cash.
In July 1999, CSC Holdings issued $500 million face amount of 8 1/8% Senior
Notes due 2009. The net proceeds of $491 million were used to repay outstanding
borrowings under CSC Holdings' credit facility.
As of March 3, 2000, the Restricted Group had in total $2.2 billion in reducing
revolving credit facilities, consisting of a $1.2 billion facility available to
Cablevision MFR, Inc. and certain of the Company's New Jersey subsidiaries and a
$1.0 billion facility available to CSC Holdings, Inc. and other Restricted Group
subsidiaries. Both facilities mature in March 2007 and begin to reduce in June
2001. As of March 3, 2000, the Restricted Group had total drawings under these
credit facilities of $1,637 million and letters of credit of $39.3 million.
Unrestricted and undrawn funds available to the Restricted Group amounted to
approximately $523.7 million as of March 3, 2000.
----------------------------------------------------
As of March 3, 2000
(in thousands)
----------------------------------------------------
CSC Holdings MFR Total
------------ --- -----
Total facility.................... $ 1,000,000 $ 1,200,000 $ 2,200,000
Outstanding debt.................. 741,000 896,000 1,637,000
Outstanding letters of credit..... 39,300 - 39,300
----------- ----------- -----------
Availability................. $ 219,700 $ 304,000 $ 523,700
=========== =========== ===========
(48)
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.
As of March 3, 2000, CSC Holdings had entered into interest exchange (swap)
agreements with several of its banks covering a notional principal amount of
$300 million. Swaps in the aggregate amount of $250 million require CSC Holdings
to pay a floating rate of interest and mature in 2001 and 2002. The remainder of
the swaps require payment of a fixed rate of interest by CSC Holdings and mature
in August 2000. The weighted average effective interest rate on all Restricted
Group bank debt outstanding, including the swap agreements, as of March 3, 2000,
was approximately 7.0%.
TCI Systems
In May 1998, the TCI Systems entered into an $800 million credit facility which
was reduced by $100 million in July 1998. In April 1999, the TCI Systems were
transferred to CSC Holdings. The commitments under the TCI facility were
terminated and the balance outstanding was repaid on April 5, 1999 with
borrowings under the MFR credit facility.
Rainbow Media and American Movie Classics
As of March 3, 2000, Rainbow Media had a $300 million non-amortizing revolving
credit facility maturing on December 31, 2000 of which $79.5 million was
restricted to provide for repayment of a like amount of intercompany borrowings
from Regional Programming Partners ("RPP") as described below. On January 4,
2000, Rainbow Media repaid $100.5 million of its $180 million loan from RPP with
borrowings under its credit facility. Direct borrowings as of March 3, 2000,
amounted to $189.5 million, leaving a balance of $31 million available to
Rainbow Media under the credit facility as of that date.
In May 1999, American Movie Classics, a wholly-owned subsidiary of Rainbow
Media, entered into a new $425 million credit facility consisting of a $200
million reducing revolving credit facility and a $225 million amortizing term
loan, both of which mature on March 31, 2006. The amount of the available
commitment under the revolver will not begin to be reduced until June 2004. As
of March 3, 2000, American Movie Classics had outstanding borrowings of $319
million, leaving unrestricted funds available of $106 million.
In May 1999 and December 1999, American Movie Classics distributed to its
parent, Rainbow Media, approximately $97 million and $28 million, respectively,
which Rainbow Media used to repay outstanding borrowings plus interest and fees
under its credit facility and to repay a portion of Rainbow Media's intercompany
loan from RPP.
Both the Rainbow Media and American Movie Classics credit facilities contain
certain financial covenants that may limit the ability to utilize all of the
undrawn funds available, including covenants requiring that certain financial
ratios be maintained.
(49)
The Company believes that for Rainbow Media and its wholly-owned subsidiaries,
which includes American Movie Classics, internally generated funds, together
with funds available under their existing credit agreements will be sufficient
for the next twelve months to meet their projected funding requirements
(excluding the repayment of Rainbow Media's credit facility). Repayment of
Rainbow Media's credit facility at maturity may be met by refinancing the
facility or through funds provided by other sources, including, without
limitation, the Company. There can be no assurance that Rainbow Media will be
able to obtain refinancing or funds from other sources on acceptable terms or at
all.
RPP
In June 1998, RPP, a partnership which is 60% owned by Rainbow Media and 40%
owned by Fox, made an intercompany loan to Rainbow Media of $180 million, of
which $79.5 million was outstanding as of March 3, 2000. RPP funded this loan
from cash on hand. The intercompany loan is a four year demand note maturing
March 31, 2002 which requires quarterly interest payments at LIBOR plus 7/8% per
annum, is subordinated to Rainbow Media's bank debt and requires that Rainbow
Media maintain sufficient availability under its revolving credit to permit the
repayment in full to RPP if RPP requires the funds for its own operating needs.
On January 4, 2000, Rainbow Media repaid $100.5 million of the $180 million
intercompany loan with borrowings under its credit facility.
In April 1999, RPP utilized $87 million of its cash on hand to purchase ITT's
remaining interest in MSG and settle certain matters between the parties.
In January 2000, RPP acquired the 70% interest in SportsChannel Florida held by
Front Row Communications for $130.1 million (including the repayment of $20
million in debt) increasing its ownership to 100%. The acquisition was funded
with cash on hand and the proceeds from the repayment by Rainbow Media of $100.5
million of intercompany loans.
The Company believes that RPP's cash on hand of $15.2 million as of March 3,
2000, combined with the remaining intercompany loan receivable of $79.5 million
will be sufficient to meet its projected funding requirements for the next
twelve months.
MSG
MSG has a $500 million revolving credit facility maturing on December 31, 2004
(the "MSG Credit Facility"). As of March 3, 2000, outstanding debt under the MSG
Credit Facility was $375 million. In addition, MSG had outstanding letters of
credit of $3.3 million resulting in unrestricted and undrawn funds available
amounting to $121.7 million. The MSG Credit Facility contains certain financial
covenants that may limit its ability to utilize all of the undrawn funds
available thereunder, including covenants requiring MSG to maintain certain
financial ratios. The Company believes that for MSG, internally generated funds,
together with funds available under its existing credit agreement will be
sufficient to meet its projected funding requirements for the next twelve
months.
Garden Programming, LLC, an unrestricted subsidiary of MSG, has a $20 million
term loan maturing on July 11, 2002. Garden Programming, LLC has in turn made a
$40 million loan to an unrelated entity, maturing on November 1, 2011.
(50)
Retail Electronics
As of March 3, 2000, Cablevision Electronics had a $130 million stand alone
credit facility. Under the terms of the credit facility, the total amount of
borrowings available to Cablevision Electronics is subject to an availability
calculation based on a percentage of eligible inventory. On March 3, 2000, usage
under the credit facility was $65.7 million with $1.9 million available
thereunder, based on the level of inventory as of that date. On December 31,
1999, the Company converted $71 million of intercompany loans to Cablevision
Electronics to equity. As of March 3, 2000, CSC Holdings' total cash investment
in Cablevision Electronics, including equity and intercompany loans, totaled
$193.5 million. Cablevision Electronics has also received other financial
support from CSC Holdings of approximately $51.0 million through March 3, 2000
in the form of letters of credit, guarantees and intercompany receivables. The
Company believes that Cablevision Electronics will require additional financial
support from CSC Holdings in respect of planned increases in inventory
purchases, capital expenditures and other operating requirements and that funds
available under Cablevision Electronics' credit agreement, together with this
additional financial support, will be sufficient to meet its projected funding
requirements for the next twelve months.
CCG Holdings
CCG Holdings, Inc., which owns the Company's motion picture theater assets,
currently has a $15 million revolving credit bank facility maturing on June 30,
2003. As of March 3, 2000, $9.2 million was outstanding under this bank
facility. The Company believes that for CCG Holdings, Inc., internally generated
funds, together with funds available under the existing credit agreement will be
sufficient to meet its projected funding requirements for the next twelve
months.
Financial Instruments
In July 1999, the Company entered into a $100 million facility with a third
party for the Company to acquire a beneficial interest in shares of its Class A
Common Stock through a forward swap contract facility that is available through
June 2000 with a final maturity date for all executed swaps of February 2001.
The terms of the facility provide for the settlement of any obligations of the
Company thereunder either in cash or the Company's Class A Common Stock. The
Company's obligation is guaranteed by CSC Holdings. Currently there are no
outstanding contracts under this facility.
(51)
Cablevision Systems Corporation
Operating Activities
Cash provided by operating activities amounted to $274.1 million for the year
ended December 31, 1999 compared to $400.1 million for the year ended December
31, 1998. The 1999 cash provided by operating activities consisted primarily of
$238.9 million of income before depreciation, amortization and other non-cash
items and a net increase in cash resulting from changes in assets and
liabilities of $35.2 million.
Cash provided by operating activities amounted to $400.1 million for the year
ended December 31, 1998 compared to $241.5 million for the year ended December
31, 1997. The 1998 cash provided by operating activities consisted primarily of
$278.8 million of income before depreciation, amortization and other non-cash
items and a net increase in cash resulting from changes in assets and
liabilities of $121.3 million.
Cash provided by operating activities amounted to $241.5 million for the year
ended December 31, 1997. The 1997 cash provided by operating activities
consisted primarily of $177.9 million of income before depreciation,
amortization and other non-cash items and a net increase in cash resulting from
changes in assets and liabilities of $63.6 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 1999 was
$1,031.5 million compared to $468.4 million for the year ended December 31,
1998. The 1999 investing activities consisted of $871.2 million of capital
expenditures, $117.7 million of payments for acquisitions and other items of
$53.5 million, partially offset by net proceeds of $10.9 million from the sale
of investments.
Net cash used in investing activities for the year ended December 31, 1998 was
$468.4 million compared to $248.6 million for the year ended December 31, 1997.
The 1998 investing activities consisted of $561.6 million of capital
expenditures, $317.6 million of payments for acquisitions and other items of
$35.5 million, partially offset by net proceeds of $446.3 million from the sale
of programming interests and cable assets.
Net cash used in investing activities for the year ended December 31, 1997 was
$248.6 million. The 1997 investing activities consisted of $457.6 million of
capital expenditures and $747.1 million of payments for acquisitions, partially
offset by net proceeds of $945.5 million from the sale of programming interests
and cable assets and other items of $10.6 million.
Financing Activities
Cash provided by financing activities amounted to $646.2 million for the year
ended December 31, 1999 compared to net cash used in financing activities of
$168.0 million for the year ended December 31, 1998. In 1999 the Company's
financing activities consisted primarily of $497.7 million derived from the
issuance of senior notes, $202.9 million from the net proceeds from bank debt,
partially offset by other net cash payments aggregating $54.4 million.
(52)
Cash used in financing activities amounted to $168.0 million for the year ended
December 31, 1998 compared to net cash provided by financing activities of
$405.7 million for the year ended December 31, 1997. In 1998 the Company's
financing activities consisted primarily of the net repayment of bank debt,
subordinated notes payable, senior notes payable and senior debt of $1,221.0
million, the repayment of an obligation to a related party of $197.2 million and
other net cash payments aggregating $45.9 million, partially offset by $1,296.1
million derived from the issuance of senior notes and debentures.
Cash provided by financing activities amounted to $405.7 million for the year
ended December 31, 1997. In 1997 the Company's financing activities consisted of
$898.0 million from the issuance of senior notes and debentures and $238.5
million of net proceeds from bank debt, partially offset by the redemption of
subordinated debentures of $283.4 million, net repayments of senior debt of
$285.9 million, the redemption of A-R Cable's Series A Preferred Stock of $112.3
million and other net cash payments aggregating $49.2 million.
Year 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999.
The Company completed all phases of its program to assess and address the Y2K
issue by December 31, 1999 and has not experienced any Y2K issues that had or
could reasonably be expected to have a material adverse effect on the Company.
For the years ended December 31, 1999 and 1998, the Company recorded
approximately $41.5 million and $7.6 million, respectively, of expenses relating
to Y2K remediation.
Accounting Standards Issued But Not Yet Adopted
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), requires that all derivative
financial instruments, such as interest rate swap contracts, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or stockholders' equity
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. SFAS 133, as amended,
is effective for fiscal years beginning after June 15, 2000. The Company does
not expect that the adoption of SFAS 133 will have a material effect on the
Company's financial condition or results of operations.
(53)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks from changes in interest rates and
certain equity security prices. The Company's exposure to interest rate
movements results from its use of floating and fixed rate debt to fund its
working capital, capital expenditures, and other operational and investment
requirements. To manage interest rate risk, the Company has from time to time
entered into interest rate swap contracts to adjust the proportion of total debt
that is subject to variable and fixed interest rates. Such contracts fix the
borrowing rates on floating rate debt to hedge against the risk of rising rates
and/or convert fixed rate borrowings to variable rate to hedge against the risk
of higher borrowing costs in a declining interest rate environment. The Company
does not enter into interest rate derivative contracts for speculative or
trading purposes. The Company's exposure to changes in equity security prices
stems from its investment in At Home Corporation common stock warrants. The
value of these warrants fluctuates based on changes in the stock price of the
underlying security.
Fair Value of Debt: Based on the level of interest rates prevailing at December
31, 1999, the fair value of the Company's fixed-rate debt and redeemable
preferred stock exceeded its carrying cost of $5,146 million by approximately
$105 million. The fair value of these financial instruments is estimated based
on reference to quoted market prices for these or comparable securities. The
Company's floating rate borrowings bear interest at current market rates and
thus approximate fair value. The effect of a hypothetical 100 basis point
decrease in interest rates prevailing at December 31, 1999 would increase the
estimated fair value of debt and redeemable preferred stock instruments by
approximately $352 million. This estimate is based on the assumption of an
immediate and parallel shift in interest rates across all maturities.
Interest Rate Hedge Contracts: As of December 31, 1999, the Company had
outstanding interest rate swap contracts to pay fixed rates of interest
(generally at 8.0% through August 2000) and to receive variable rates of
interest (based upon LIBOR with the latest maturity in 2002) covering a total
notional principal amount of $300 million. As of December 31, 1999, the fair
market liability of all interest rate hedge contracts was approximately $3.3
million. Assuming an immediate and parallel shift in interest rates across the
yield curve, a 100 basis point increase in interest rates from December 31, 1999
prevailing levels would increase the fair market value liability of all hedge
contracts by $4.7 million to a liability of $8.0 million.
Equity Price Risk: As of December 31, 1999, the fair market value of the
Company's warrants to acquire At Home Corporation's common stock was $867.1
million, which exceeded its carrying value of $248.1 million. The potential
change in the fair value of this investment, assuming a 10% change in price,
would be approximately $87.7 million.
(54)
Item 8. Consolidated Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Independent Auditors' Report.................................... 56
Consolidated Balance Sheets - December 31, 1999 and 1998........ 57
Consolidated Statements of Operations - years
ended December 31, 1999, 1998 and 1997..................... 59
Consolidated Statements of Stockholders' Deficiency - years
ended December 31, 1999, 1998 and 1997..................... 60
Consolidated Statements of Cash Flows - years ended
December 31, 1999, 1998 and 1997........................... 61
Notes to Consolidated Financial Statements...................... 63
CSC HOLDINGS, INC. AND SUBSIDIARIES
Independent Auditors' Report.................................... 95
Consolidated Balance Sheets - December 31, 1999 and 1998........ 96
Consolidated Statements of Operations - years
ended December 31, 1999, 1998 and 1997..................... 98
Consolidated Statements of Stockholder's Deficiency - years
ended December 31, 1999, 1998 and 1997..................... 99
Consolidated Statements of Cash Flows - years ended
December 31, 1999, 1998 and 1997........................... 100
Notes to Consolidated Financial Statements...................... 102
(55)
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, 1999 and 1998, 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, 1999. In
connection with our audits of the consolidated financial statements, we also
audited the financial statement schedule listed in Item 14(a)(2). These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cablevision Systems
Corporation and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Melville, New York
March 13, 2000
(56)
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
ASSETS 1999 1998
---- ----
Cash and cash equivalents............................................................... $ 62,665 $ 173,826
Accounts receivable trade (less allowance for doubtful accounts of
$35,357 and $34,377)................................................................. 226,304 197,726
Notes and other receivables............................................................. 129,596 188,455
Inventory, prepaid expenses and other assets............................................ 219,487 206,073
Property, plant and equipment, net...................................................... 2,752,495 2,506,834
Investments in affiliates............................................................... 306,557 276,231
Advances to affiliates.................................................................. 46,685 36,964
Feature film inventory.................................................................. 335,826 293,310
Net assets held for sale................................................................ 269,349 11,006
Franchises, net of accumulated amortization of
$703,237 and $640,735................................................................ 651,777 850,653
Affiliation and other agreements, net of accumulated amortization of
$244,249 and $181,928................................................................ 173,250 206,456
Excess costs over fair value of net assets acquired and other
intangible assets, net of accumulated amortization of
$727,134 and $775,557................................................................ 1,816,030 2,003,128
Deferred financing, acquisition and other costs, net of
accumulated amortization of $51,063 and $41,882...................................... 140,287 110,400
---------- ----------
$7,130,308 $7,061,062
========== ==========
See accompanying notes to
consolidated financial statements.
(57)
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable ....................................................... $ 411,804 $ 423,039
Accrued liabilities:
Interest ........................................................... 117,854 88,798
Employee related costs ............................................. 463,925 330,700
Other .............................................................. 466,844 465,990
Feature film and contract obligations .................................. 371,126 373,722
Deferred revenue ....................................................... 274,043 334,213
Bank debt .............................................................. 2,254,487 2,051,549
Senior notes and debentures ............................................ 2,692,602 2,194,443
Subordinated notes and debentures ...................................... 1,048,513 1,048,375
Capital lease obligations and other debt ............................... 99,099 63,241
----------- -----------
Total liabilities .................................................. 8,200,297 7,374,070
----------- -----------
Minority interests ..................................................... 592,583 719,007
----------- -----------
Preferred Stock of CSC Holdings, Inc. .................................. 1,404,511 1,579,670
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares authorized,
none issued .................................................... -- --
Class A Common Stock, $.01 par value, 400,000,000 shares authorized,
130,091,237 and 108,276,606 shares issued ...................... 1,301 1,083
Class B Common Stock, $.01 par value, 160,000,000 shares authorized,
43,126,836 and 43,226,836 shares issued ........................ 431 432
Paid-in capital .................................................... 731,986 386,495
Accumulated deficit ................................................ (3,800,302) (2,999,695)
----------- -----------
(3,066,584) (2,611,685)
Treasury stock, at cost (7,118 shares) ............................. (499) --
----------- -----------
Total stockholders' deficiency ..................................... (3,067,083) (2,611,685)
----------- -----------
$ 7,130,308 $ 7,061,062
=========== ===========
See accompanying notes
to consolidated financial statements.
(58)
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 1998 AND 1997
(Dollars in thousands, except per share amounts)
1999 1998 1997
----------- ----------- -----------
Revenues, net (including retail electronics sales of
$603,294, $464,388 and $-0-) .............................. $ 3,942,985 $ 3,265,143 $ 1,949,358
----------- ----------- -----------
Operating expenses:
Technical and operating ................................... 1,535,423 1,268,786 853,800
Retail electronics cost of sales .......................... 484,760 367,102 --
Selling, general and administrative ....................... 1,203,119 906,465 514,574
Depreciation and amortization ............................. 893,797 734,107 499,809
----------- ----------- -----------
4,117,099 3,276,460 1,868,183
----------- ----------- -----------
Operating profit (loss) ...................................... (174,114) (11,317) 81,175
----------- ----------- -----------
Other income (expense):
Interest expense .......................................... (470,549) (426,402) (368,700)
Interest income ........................................... 4,809 24,028 5,492
Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165)
Gain on sale of programming interests and cable assets, net -- 170,912 372,053
Gain on redemption of subsidiary preferred stock .......... -- -- 181,738
Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547)
Provision for preferential payment to related party ....... -- (980) (10,083)
Minority interests ........................................ (120,524) (124,677) (209,461)
Miscellaneous, net ........................................ (16,570) (19,218) (12,606)
----------- ----------- -----------
(626,493) (437,187) (93,279)
----------- ----------- -----------
Net loss ..................................................... $ (800,607) $ (448,504) $ (12,104)
=========== =========== ===========
Basic and diluted net loss per common share .................. $ (5.12) $ (3.16) $ (.12)
=========== =========== ===========
Average number of common shares outstanding (in thousands) ... 156,503 142,016 99,608
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(59)
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
Class A Class B
Common Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 ............ $ 544 $ 452 $ (168,935) $(2,539,087) $ -- $(2,707,026)
Net loss .......................... -- -- -- (12,104) -- (12,104)
Employee stock transactions ....... 8 -- 7,608 -- -- 7,616
Conversion of Class B to Class A .. 8 (8) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 ............ 560 444 (161,327) (2,551,191) -- (2,711,514)
Net loss .......................... -- -- -- (448,504) -- (448,504)
Employee stock transactions ....... 12 -- 12,071 -- -- 12,083
Issuance of common stock .......... 499 -- 535,751 -- -- 536,250
Conversion of Class B to Class A .. 12 (12) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 ............ 1,083 432 386,495 (2,999,695) -- (2,611,685)
Net loss .......................... -- -- -- (800,607) -- (800,607)
Employee stock transactions ....... 11 -- 15,159 -- -- 15,170
Conversion of Class B to Class A .. 1 (1) -- -- -- --
Issuance of common stock .......... 1 -- 7,304 -- -- 7,305
Conversion of CSC Holdings'
Series I preferred to Class A 205 -- 323,028 -- -- 323,233
Purchase of treasury stock ........ -- -- -- -- (499) (499)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 ............ $ 1,301 $ 431 $ 731,986 $(3,800,302) $ (499) $(3,067,083)
=========== =========== =========== =========== =========== ===========
See accompanying notes
to consolidated financial statements.
(60)
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net loss ............................................................. $ (800,607) $ (448,504) $ (12,104)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ................................... 893,797 734,107 499,809
Equity in net loss of affiliates ................................ 19,234 37,368 27,165
Minority interests .............................................. 98,609 95,336 179,237
Gain on sale of programming interests and cable assets, net ..... -- (170,912) (372,053)
Gain on sale of investments ..................................... (10,861) -- --
Write off of investment in affiliate ............................ 15,100 -- --
Write off of deferred interest and financing costs .............. 4,425 23,482 24,547
Gain on redemption of subsidiary preferred stock ................ -- -- (181,738)
(Gain) loss on sale of equipment, net ........................... 9,811 (604) 5,325
Amortization of deferred financing and debenture discount ....... 9,407 8,532 7,707
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade ................................... (31,419) 19,007 (34,268)
Notes and other receivables ................................. 33,961 (94,164) (67,683)
Inventory, prepaid expenses and other assets ................ (23,243) (51,425) 1,232
Advances to affiliates ...................................... (10,461) (21,701) (528)
Feature film inventory ...................................... (42,516) (112,734) (8,269)
Other deferred costs ........................................ 955 11,689 --
Accounts payable ............................................ 3,952 133,891 50,667
Accrued liabilities ......................................... 165,645 174,557 91,497
Feature film and contract obligations ....................... (2,596) 81,376 (258)
Deferred revenue ............................................ (60,170) (18,268) 37,664
Minority interests .......................................... 1,094 (961) (6,486)
----------- ----------- -----------
Net cash provided by operating activities .......................... 274,117 400,072 241,463
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ................................................. (871,166) (561,642) (457,590)
Payments for acquisitions, net of cash acquired ...................... (117,660) (317,594) (747,134)
Net proceeds from sale of programming interests and cable assets ..... -- 446,284 945,534
Proceeds from sale of equipment ...................................... 1,467 8,817 1,930
Proceeds from sale of investments .................................... 10,861 -- --
(Increase) decrease in investments in affiliates, net ................ (49,938) (31,035) 9,267
Additions to other intangible assets ................................. (5,076) (13,253) (623)
----------- ----------- -----------
Net cash used in investing activities .............................. $(1,031,512) $ (468,423) $ (248,616)
----------- ----------- -----------
See accompanying notes
to consolidated financial statements.
(61)
CABLEVISION SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
(continued)
1999 1998 1997
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ............................. $ 3,791,073 $ 5,442,101 $ 3,385,703
Repayment of bank debt .............................. (3,588,135) (6,304,757) (3,147,165)
Proceeds from senior debt ........................... -- -- 147,750
Repayment of senior debt ............................ -- (112,500) (433,617)
Repayment of subordinated notes payable ............. -- (151,000) --
Redemption of senior notes payable .................. -- (94,848) --
Redemption of senior subordinated debt .............. -- -- (283,445)
Issuance of senior notes and debentures ............. 497,670 1,296,076 897,983
Redemption of subsidiary preferred stock ............ (98) (9,409) (112,301)
Issuance of common stock ............................ 15,170 12,082 7,616
Obligation to related party ......................... -- (197,183) 4,364
Payments on capital lease obligations and other debt (22,036) (12,306) (7,501)
Additions to deferred financing and other costs ..... (46,911) (36,220) (53,705)
Purchase of treasury stock .......................... (499) -- --
----------- ----------- -----------
Net cash provided by (used in) financing activities 646,234 (167,964) 405,682
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ... (111,161) (236,315) 398,529
Cash and cash equivalents at beginning of year ......... 173,826 410,141 11,612
----------- ----------- -----------
Cash and cash equivalents at end of year ............... $ 62,665 $ 173,826 $ 410,141
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(62)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
CSC Parent Corporation ("Parent") was formed on November 21, 1997 as a
wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision").
Parent did not conduct any business activities prior to March 4, 1998, other
than those incident to its formation and the execution of certain documents in
connection with contributions to Parent of certain partnership interests and
assets of TCI Communications, Inc. (see Note 2).
In connection with the Contribution and Merger Agreement described in Note 2, a
wholly-owned subsidiary of Parent was merged with and into Cablevision and
Cablevision became a wholly-owned subsidiary of Parent (the "Merger"). In the
Merger, each outstanding share of Cablevision Class A Common Stock and
Cablevision Class B Common Stock was converted into one share of Parent Class A
Common Stock and Parent Class B Common Stock, respectively. Subsequent to the
Merger, Cablevision changed its name to CSC Holdings, Inc. ("CSC Holdings") and
Parent changed its name to Cablevision Systems Corporation (the "Company"). The
Merger was accounted for in a manner similar to a pooling of interests, whereby
the assets and liabilities of CSC Holdings have been recorded at historical book
value. Cablevision Systems Corporation's historical financial information
represents the historical financial information of CSC Holdings. References to
the "Company" refer to Cablevision Systems Corporation or CSC Holdings, Inc. as
the context may require.
The Company owns and operates cable television systems and has ownership
interests in companies that produce and distribute national and regional
entertainment and sports programming services, including Madison Square Garden,
L.P. ("MSG"). The Company also owns companies that provide advertising sales
services for the cable television industry, provide switched telephone service,
operate a retail electronics chain and operate motion picture theaters. The
Company classifies its business interests into three segments: Telecommunication
Services, consisting principally of its cable television, telephone and modem
services operations; Rainbow Media, consisting principally of interests in cable
television programming networks and MSG, which owns and operates professional
sports teams, regional cable television networks, live productions and
entertainment venues; and Retail Electronics, which represents the operations of
its retail electronics stores.
Authorized Common Stock
In 1999, the shareholders of the Company authorized an amendment to the
Certificate of Incorporation to increase the number of authorized shares of
Class A Common Stock from 200 million to 400 million and the Class B Common
Stock from 80 million to 160 million.
(63)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Two-for-One Stock Splits
On March 4, 1998 and July 22, 1998, the Company's Board of Directors declared a
two-for-one stock split to be effected in the form of a common stock dividend of
one share of Class A Common Stock for each share of Class A Common Stock issued
and outstanding and one share of Class B Common Stock for each share of Class B
Common Stock issued and outstanding. The stock dividends were paid on March 30,
1998 and August 21, 1998 to stockholders of record on March 19, 1998 and August
10, 1998, respectively. All share and per share information has been adjusted to
reflect the two-for-one stock splits described above.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The Company's interests in less
than majority-owned entities and until July 2, 1997, its 100% common stock
interest in A-R Cable Services, Inc., are carried on the equity method.
Subsequent to July 2, 1997, results of operations of A-R Cable Services, Inc.
are consolidated with those of the Company (see Note 2). Advances to affiliates
are recorded at cost, adjusted when recoverability is doubtful. All significant
intercompany transactions and balances are eliminated in consolidation.
Revenue Recognition
The Company recognizes cable television, internet access, telephony and
programming revenues as services are provided to subscribers. Advertising
revenues are recognized when commercials are telecast. Revenue from retail
electronic sales is recognized upon delivery, with an appropriate provision for
returned merchandise based upon historical experience. Revenues derived from
other sources are recognized when services are provided or events occur.
Long-Lived Assets
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. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television system programming agreements) are amortized on a
straight-line basis over periods ranging from 8 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (1 to
15 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 6 to 40
years. The Company reviews its long-lived assets (property, plant and equipment,
and related intangible assets that arose from business combinations accounted
for under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
(64)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
of the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are charged to
technical and operating expense on a straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 1999 related to feature film telecast rights are $60,310 in 2000, $37,777 in
2001, $35,095 in 2002, $31,791 in 2003, and $26,664 in 2004.
Inventory
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized, on a straight-line
basis, over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Loss Per Share
Basic and diluted net loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding. Potential dilutive
common shares of approximately 7,460,000 were not included in the computation as
their effect would be antidilutive. Loss per share amounts have been adjusted,
for all years presented, to reflect the two-for-one stock splits of the
Company's common stock effective March 30, 1998 and August 21, 1998 (see
discussion above).
Segment Information
On December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, 'Disclosures about Segments of an Enterprise and Related
Information' ('SFAS 131').
(65)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The new rules establish revised standards for public companies relating to the
reporting of financial and descriptive information about their operating
segments in financial statements. The adoption of SFAS 131 did not have a
material effect on the Company's primary financial statements, but did affect
the disclosure of segment information contained elsewhere herein (see Note 15).
Reclassifications
Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform to the 1999 presentation.
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. The Company paid cash interest expense of
approximately $432,086, $383,179 and $352,660 during 1999, 1998 and 1997,
respectively.
During 1999, 1998 and 1997, the Company's noncash investing and financing
activities were as follows:
Years Ended December 31,
------------------------
1999 1998 1997
--------- --------- ---------
Capital lease obligations......................... $ 57,919 $ 28,795 $ 24,820
Issuance of common stock in connection
with the redemption of CSC Holdings'
preferred stock.............................. 323,233 - -
Issuance of common stock in connection
with acquisitions and redemption
of partnership interests..................... 7,305 536,250 -
Receipt of warrants from At Home
Corporation.................................. - 74,788 173,346
Capital contribution of equipment by
minority partner............................. - - 38,000
Comprehensive Income
The Company has not provided a separate statement of comprehensive income as
items of other comprehensive income for all periods presented were not material.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets
(66)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
and liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
Acquisitions
1999 Acquisitions
At various times during 1999, the Company acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
consolidated with those of the Company as of the acquisition dates. The purchase
price will be allocated to the specific assets acquired when an independent
appraisal is obtained.
In December 1999, the Company acquired cable television systems with
approximately 4,500 subscribers located in the Port Jervis, New York area for
approximately $7,400, $7,300 of which was paid in shares of the Company's Class
A Common Stock.
In April 1999, ITT Corporation ("ITT") exercised its second put for the
remainder of its interest in MSG and settled certain matters between the parties
for a payment of $87,000.
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
The WIZ
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $101,300 for the assets
(including transaction costs and pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of the
stores being consolidated with the operations of the Company as of the date of
acquisition. The purchase price was allocated to the specific assets acquired
based upon independent appraisals as follows:
(67)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Inventory.................................................. $ 66,200
Property and equipment..................................... 16,800
Other assets............................................... 4,000
Liabilities................................................ (24,000)
Excess cost over fair value of net assets acquired......... 38,300
--------
$101,300
========
In 1999, the Company recorded an impairment loss of $35,490 representing the
balance of unamortized goodwill recorded on the TWI acquisition. Current losses
and projected future operating losses caused the Company to reassess the
recoverability of the goodwill. The impairment loss resulted from the carrying
amount of this asset exceeding its estimated fair value based on discounted
estimated future cash flows.
TCI Systems
On March 4, 1998, the Company completed a holding company reorganization (the
"Holding Company Reorganization") pursuant to an Amended and Restated
Contribution and Merger Agreement, dated June 6, 1997 (the "Contribution and
Merger Agreement"), by and among the Company, CSC Holdings and TCI
Communications, Inc. ("TCI").
Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed
to the Company or its designees all of the partnership interests and capital
stock of certain entities owned directly or indirectly by TCI and all the assets
related to the businesses of certain cable television systems owned and operated
directly or indirectly by TCI ("TCI Systems"). In consideration for those cable
television systems, the Company issued to certain TCI entities an aggregate of
48,942,172 shares (after adjusting for the March 1998 and August 1998
two-for-one stock splits discussed in Note 1) of the Company's Class A Common
Stock, valued for accounting purposes at approximately $498,000, and assumed
certain liabilities related to such systems (including an aggregate amount of
indebtedness for borrowed money equal to $669,000).
The acquisition was accounted for as a purchase with the operations of the
acquired systems being consolidated with those of the Company as of the
acquisition date. The excess of the purchase price over the net book value of
assets acquired of approximately $746,769 was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property, plant and equipment........................... $(17,133)
Franchises.............................................. 594,921
Excess cost over fair value of net assets acquired...... 168,981
--------
$746,769
========
(68)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In April 1999, the Company contributed the TCI Systems to CSC Holdings.
Madison Square Garden
In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option, increasing
Regional Programming Partners' interest in MSG to 96.3% (see discussion below
and "1999 Acquisitions" above).
Clearview
In December 1998, the Company acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000) of which approximately $33,400 was paid in shares of
the Company's Class A Common Stock.
The acquisition was accounted for as a purchase with the operations of the
acquired business being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows.
Property, plant and equipment........................... $ 34,787
Other assets............................................ 21,518
Liabilities............................................. (16,433)
Excess cost over fair value of net assets acquired...... 118,851
--------
$158,723
========
In April 1999, the Company contributed its interest in the subsidiary formed to
purchase Clearview to CSC Holdings.
Loews
In December 1998, the Company acquired interests in the real property and assets
specifically related to 15 movie theaters from Loews Cineplex Entertainment
Corporation ("Loews") for an aggregate purchase price of approximately $67,300.
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property and equipment................................ $ 9,700
Other assets.......................................... 2,200
Excess cost over fair value of net assets acquired.... 55,400
-------
$67,300
=======
(69)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
1997 Acquisitions:
NBC Transaction
On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a
transaction in which Rainbow Programming Holdings, Inc. merged with and into
Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC Cable,
Inc. (a subsidiary of National Broadcasting Company ("NBC")) received a 25%
equity interest (which interest was increased to 26% in February 2000 and may be
further increased by up to an additional 1% under certain circumstances without
additional cash payment) in common stock of Rainbow Media. The Company owns the
remaining 74% equity interest in Rainbow Media. The partnership interests in
certain of Rainbow Media's programming services formerly owned by NBC are now
owned by subsidiaries of Rainbow Media. The exchange of 25% of the Company's
interest in Rainbow Media for NBC's interests, in April 1997, in certain
entities was accounted for at historical cost with the difference between the
cost basis of a 25% interest in Rainbow Media and the partnership interests
received in exchange recorded as goodwill of $54,385, which is being amortized
over a 10 year period.
Madison Square Garden
In February 1997, Rainbow Media made a payment to ITT of $168,750 plus interest,
fully equalizing its interest in MSG, a partnership among subsidiaries of
Rainbow Media and subsidiaries of ITT, and bringing Rainbow Media's total
payments at that time to $360,000, plus interest payments aggregating $47,700.
In April 1997, the Company and certain of its affiliates and ITT and certain of
its affiliates entered into definitive agreements relating to the acquisition by
subsidiaries of the Company of ITT's 50 percent interest in MSG. The transaction
closed on June 17, 1997 when MSG borrowed $799,000 under its credit facility
which was used to redeem a portion of ITT's interest in MSG for $500,000 and to
repay its existing indebtedness. Rainbow Media contributed its SportsChannel
Associates programming company to MSG, which, together with the redemption,
increased Rainbow Media's interest in MSG to 89.8% and reduced ITT's interest to
10.2%. In connection with the Fox transaction discussed below, Rainbow Media's
interest in MSG was contributed to Regional Programming Partners. ITT's interest
in MSG was further reduced to 7.8% as a result of the $450,000 capital
contribution by Regional Programming Partners to MSG which was used by MSG to
pay down outstanding debt. See "1998 Acquisitions" and "1999 Acquisitions" above
for a discussion of the Company's purchase of the remaining interest in MSG. The
acquisition was accounted for using the purchase method of accounting. The
assets and liabilities and results of operations of MSG have been consolidated
with those of the Company as of June 17, 1997. Previously, the Company's
investment in MSG was accounted for using the equity method of accounting. The
excess of the purchase price over the net book value of assets acquired of
(70)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
approximately $397,093 was allocated to the specific assets acquired based upon
independent appraisals as follows:
Property, plant and equipment............................ $ 19,687
Affiliation and other agreements......................... 34,168
Franchises............................................... 46,125
Excess cost over fair value of net assets acquired....... 297,113
--------
$397,093
========
In connection with the Company and ITT's acquisition of MSG in 1995, certain
liabilities relating to a long-term sports rights contract were recorded. In
1999, 1998 and 1997, approximately $23,000, $21,900 and $21,700, respectively,
of this liability was amortized to reduce operating expenses in respect of those
rights.
Warburg Transactions
In June 1997, the Company acquired from Warburg Pincus Investors, L.P.
("Warburg") the interests that the Company did not already own in A-R Cable
Partners ("Nashoba") and Cablevision of Framingham Holdings, Inc. ("CFHI") for a
purchase price of approximately $33,348 and $7,865, respectively. The
acquisitions of Nashoba and CFHI were accounted for as purchases with the
operations of these companies being consolidated with those of the Company as of
the acquisition date. The excess of the purchase price over the net book value
of assets acquired approximates $97,015 and has been allocated based upon
independent appraisals as follows:
Property, plant and equipment........................... $ 4,060
Franchises.............................................. 59,923
Excess cost over fair value of net assets acquired...... 33,032
-------
$97,015
=======
On July 2, 1997, the Company redeemed from Warburg the Series A Preferred Stock
of A-R Cable Services, Inc. ("A-R Cable") for an aggregate amount of
approximately $112,301. The assets and liabilities of A-R Cable have been
consolidated with those of the Company as of July 2, 1997. Previously, the
Company's investment in A-R Cable was accounted for using the equity method of
accounting. In connection with this transaction, the Company recognized a gain
of $181,738 representing principally the reversal of accrued preferred dividends
in excess of amounts paid.
Radio City
On December 5, 1997, MSG purchased all of the membership interests in Radio City
Productions, LLC ("Radio City"), the production company that operates Radio City
Music Hall in New York City, for approximately $70,000 in cash. Simultaneously,
Radio City entered into a 25-year lease for Radio City Music Hall. The assets
and liabilities and results of operations of Radio City have been consolidated
with those of the Company as of the date of acquisition. The excess of the
(71)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
purchase price over the net book value of assets acquired of approximately
$76,200 was allocated to the specific assets acquired based upon independent
appraisals as follows:
Property, plant and equipment............................ $ 1,500
Capital lease obligation................................. (80,000)
Other liabilities........................................ (13,400)
Excess cost over fair value of net assets acquired....... 168,100
---------
$ 76,200
=========
Dispositions
Cable Systems
In October 1998, A-R Cable transferred its cable television system in
Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. The Company recognized a gain of approximately
$15,500 in connection with this transaction.
In 1998 and 1997, the Company completed the sale of cable television systems for
aggregate sales prices of approximately $426,500 and $88,200, respectively, and
recognized aggregate gains of approximately $137,700 and $59,000, respectively.
Regional Programming Partners
In December 1997, Rainbow Media and Fox Sports Networks, LLC ("Fox") organized
Regional Programming Partners (a partnership that owns MSG and interests in
regional sports programming businesses previously owned by Rainbow Media)
("RPP"). In connection with the formation of RPP, affiliates of Rainbow Media
indirectly contributed to RPP in consideration for the issuance of a 60% general
partnership interest in RPP their ownership interests in several regional sports
networks, including their interest in MSG. In consideration for the issuance of
a 40% general partnership interest in RPP, Fox contributed $850,000 in cash to
RPP. Thereafter, RPP made a capital contribution of approximately $450,000 to
MSG which was used by MSG to repay a portion of MSG's debt. As a result of RPP's
investment in MSG, RPP's interest in MSG increased from 89.8% to 92.2%. In
connection with this transaction, Rainbow Media recognized a gain of
approximately $305,000. See discussions above under "1998 Acquisitions" and
"1999 Acquisitions" for further increases in RPP's interest in MSG.
Other
In 1998 and 1997, RPP and Rainbow Media completed the sale of an interest in a
sports programming business and substantially all of the assets of a radio
station. In connection with these sales, RPP and Rainbow Media recognized gains
of $17,700 and $7,400, respectively.
(72)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
A-R Cable Restructuring
In 1992, the Company and A-R Cable consummated a restructuring and refinancing
transaction (the "A-R Cable Restructuring"). 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 and the purchase of a new
Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of
the A-R Cable Restructuring, the Company no longer had financial or voting
control over A-R Cable's operations. Prior to the redemption of A-R Cable's
Series A Preferred Stock on July 2, 1997 (see discussion above), the Company
accounted for its investment in A-R Cable using the equity method of accounting
whereby the Company recorded 100% of the net losses of A-R Cable since it
continued to own 100% of A-R Cable's outstanding common stock.
Included in equity in net loss of affiliates in the accompanying consolidated
statements of operations for the period ended July 1, 1997 is $35,835,
representing A-R Cable's net loss plus dividend requirements for the Series A
Preferred Stock of A-R Cable, which was not owned by the Company. Beginning on
July 2, 1997, the operations of A-R Cable have been consolidated with those of
the Company.
Pro Forma Results of Operations
The following unaudited pro forma condensed results of operations are presented
for the year ended December 31, 1998 as if the acquisition of the TCI Systems
and the sale of assets of certain cable systems had occurred on January 1, 1998.
Results of operations for acquisitions made in 1999 are not material.
Year Ended
December 31, 1998
-----------------
Net revenues............................ $3,329,627
==========
Net loss................................ $ (520,968)
==========
Net loss per common share............... $ (3.47)
==========
The pro forma information presented above gives effect to certain adjustments,
including the amortization of acquired intangible assets and increased interest
expense on acquisition debt. The pro forma information has been prepared for
comparative purposes only and does not purport to indicate the results of
operations which would actually have occurred had the transactions been made at
the beginning of the periods indicated or which may occur in the future.
(73)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 3. NET ASSETS HELD FOR SALE
The Company had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 1999 and 1998.
In December 1999, the Company entered into definitive agreements with Adelphia
Communications Corporation ("Adelphia") under which the Company will sell its
cable television systems in the Greater Cleveland metropolitan area to Adelphia
for total cash and stock consideration of $1,530,000, subject to certain
adjustments.
In January 1998, the Company, CSC Holdings and a subsidiary of TCI entered into
a non-binding letter of intent for the Company to acquire certain of TCI's cable
television systems in exchange for cash, stock and certain cable systems
including those serving Kalamazoo, Michigan. This non-binding letter of intent
is no longer in effect. In March 2000, the Company entered into an agreement to
sell its cable system serving Kalamazoo, Michigan to Charter Communications,
Inc. for total consideration of $172,500 in Charter Communications, Inc. common
stock.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 1999 and 1998
have been classified in the consolidated balance sheet as net assets held for
sale and are included in the telecommunications segment (see Note 15). Such net
assets consist of the following:
December, 31
--------------------
1999 1998
-------- ---------
Property, plant and equipment, net.............. $222,695 $ 14,548
Intangible assets, net.......................... 73,055 215
Other assets (including trade
receivables, prepaid expenses, etc.)....... 9,796 603
-------- ---------
Total assets.................................... 305,546 15,366
Total liabilities............................... (36,197) (4,360)
-------- ---------
Net assets...................................... $269,349 $ 11,006
======== =========
The accompanying consolidated statement of operations for the years ended
December 31, 1999 and 1998 includes net revenues aggregating approximately
$177,904 and $18,937, respectively, and net income (loss) aggregating
approximately $(4,109) and $9,095, respectively, relating to the cable systems
held for sale or transfer.
(74)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
----------------------------- Estimated
1999 1998 Useful Lives
----------- ----------- ------------
Communication transmission and distribution systems:
Customer equipment............................... $ 600,271 $ 615,867 3 to 8 years
Headends......................................... 118,311 125,013 7 to 15 years
Multimedia....................................... 18,732 9,075 4 years
Central office equipment......................... 132,191 87,208 10 years
Infrastructure................................... 2,189,863 2,189,625 5 to 12 years
Program, service and data processing equipment... 571,773 380,350 2 to 9 years
Microwave equipment.............................. 21,881 16,947 2 to 9 years
Construction in progress (including
materials and supplies)........................ 227,991 133,848 -
Furniture and fixtures............................... 230,742 195,660 1 to 8 years
Transportation equipment............................. 143,511 131,476 4 to 15 years
Building and building improvements................... 185,118 171,567 20 to 40 years
Leasehold improvements............................... 276,015 140,766 Term of lease
Land and land improvements........................... 47,914 45,573 -
---------- ----------
4,764,313 4,242,975
Less accumulated depreciation and amortization....... 2,011,818 1,736,141
---------- ----------
$2,752,495 $2,506,834
========== ==========
NOTE 5. DEBT
Bank Debt
Restricted Group/TCI Systems
For financing purposes, CSC Holdings, Inc. and certain of its subsidiaries are
collectively referred to as the "Restricted Group". In May 1998, CSC Holdings
and certain other subsidiaries of the Company entered into a new $2.8 billion
reducing revolving credit facility (the "Credit Agreement") with a group of
banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as
administrative and arranging agent. This Credit Agreement replaced a $1.7
billion facility that was also with a group of banks led by Toronto-Dominion.
The $2.8 billion reducing revolving credit facility, maturing in March 2007,
consisted of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR
credit facility of which $600,000 was available, and an $800,000 credit facility
for the TCI Systems. While the $800,000 TCI Systems credit facility was in
place, only $600,000 of the $1.4 billion MFR facility could be utilized.
(75)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In July 1998, CSC Holdings' credit facility was reduced by $400,000 to $1.0
billion, and the MFR credit facility was reduced by $200,000 to $1.2 billion,
which included a reduction of the TCI Systems credit facility by $100,000 to
$700,000.
The TCI Systems credit facility matured on April 4, 1999 and concurrent with the
transfer of the TCI Systems to CSC Holdings, which occurred on April 5, 1999,
the restriction on the MFR credit facility was eliminated and the borrowings
under the MFR facility increased by an amount equal to the borrowings
outstanding under the TCI Systems credit facility.
The total amount of bank debt outstanding under the Credit Agreement, including
amounts outstanding under a separate overdraft facility at December 31, 1999 and
1998 was $1,454,206 and $1,410,226, respectively. At December 31, 1999, $613,000
and $828,500 was outstanding under the CSC Holdings facility and the MFR credit
facility, respectively. As of December 31, 1999, approximately $39,274 was
restricted for certain letters of credit issued on behalf of CSC Holdings.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $719,226 at December 31, 1999. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. The Company was in compliance with the covenants of its Credit Agreement
at December 31, 1999.
Interest on outstanding amounts may be paid, at the option of the Company, based
on the prime rate or Eurodollar rate. As of December 31, 1999, CSC Holdings had
outstanding interest exchange (swap) agreements with several of its banks with a
total notional value of $300,000. Swaps with an aggregate notional amount of
$250,000 require CSC Holdings to pay a floating rate of interest based on LIBOR
in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a
maturity of 18 to 31 months. The remainder of the swaps require payment of a
fixed rate of interest by CSC Holdings in exchange for floating rate payments
and have a maturity of 6 months. CSC Holdings enters into interest rate swap
agreements to hedge against interest rate risk and accounts for these agreements
as hedges whereby interest expense is recorded using the revised rate with any
fees or other payments amortized as yield adjustments. The Company is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements; however, the Company does not anticipate nonperformance by
the counterparties.
The weighted average interest rate on all bank indebtedness was 7.11% and 6.48%
on December 31, 1999 and 1998, respectively. The Company is also obligated to
pay fees from .1875% to .25% per annum on the unused loan commitment and from
.4% to 2.0% per annum on letters of credit issued under the Credit Agreement.
(76)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Unrestricted Group
Rainbow Media
Rainbow Media has a $300,000, three year credit facility with Canadian Imperial
Bank of Commerce and Toronto-Dominion as co-agents and a group of banks which
matures on December 31, 2000. The credit facility contains certain financial
covenants that may limit Rainbow Media's ability to utilize all the undrawn
funds available thereunder, including covenants requiring it to maintain certain
financial ratios. The facility bears interest at varying rates above the lead
bank's base or Eurodollar rate depending on the ratio of debt to borrower value,
as defined in the credit agreement. The loan is secured by a pledge of the
Company's stock in Rainbow Media, a pledge of all of the stock of all
wholly-owned subsidiaries of Rainbow Media and is guaranteed by the subsidiaries
of Rainbow Media, as permitted.
At December 31, 1999 and 1998, Rainbow Media had outstanding borrowings under
its credit facility including amounts outstanding under a separate overdraft
facility of $52,317 and $71,241, respectively. Undrawn funds available to
Rainbow Media under the credit facility amounted to approximately $51,000 at
December 31, 1999.
The weighted average interest rate on Rainbow Media's bank debt was 8.9% and
7.7% on December 31, 1999 and 1998, respectively. The credit agreement contains
various restrictive covenants with which Rainbow Media was in compliance at
December 31, 1999.
American Movie Classics Company
On May 12, 1999, American Movie Classics Company ("AMC"), a wholly-owned
subsidiary of Rainbow Media, entered into a new $425,000 credit facility
consisting of a $200,000 reducing revolving credit facility and a $225,000
amortizing term loan, both of which mature on March 31, 2006 ("AMC Credit
Facility"). The amount of the available commitment under the revolver will not
begin to be reduced until June 2004. Borrowings under the AMC Credit Facility
bear interest at varying rates at or above the lead bank's base lending rate or
above the Eurodollar rate depending on the ratio of debt to cash flow, as
defined in the AMC Credit Facility. At December 31, 1999, the weighted average
interest rate on bank indebtedness was 7.6%. On May 12, 1999, AMC distributed to
Rainbow Media, approximately $97,000, which Rainbow Media used to repay
outstanding borrowings plus interest and fees under its credit facility. As of
December 31, 1999, AMC had outstanding borrowings of $309,456 (including amounts
outstanding under a separate overdraft facility), leaving unrestricted funds
available of $117,000.
Prior to May 12, 1999, AMC's credit facility was comprised of a $146,000 term
loan and a $100,000 revolving loan ("AMC Loan Agreement"). Borrowings under the
AMC Loan Agreement bore interest at varying rates above or at the lead bank's
base or above the Eurodollar rate depending on the ratio of debt to cash flow,
as defined in the AMC Loan Agreement. At
(77)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
December 31, 1998, the weighted average interest rate on bank indebtedness was
6.1%. On December 31, 1998, $128,000 was outstanding under the term loan,
$64,250 was outstanding under the revolving loan and $3,290 was outstanding
under a separate overdraft facility.
Substantially all of the assets of AMC, amounting to approximately $320,192 at
December 31, 1999, have been pledged to secure the borrowings under the AMC
Credit Facility. The AMC Credit Facility contains various restrictive covenants
with which AMC was in compliance at December 31, 1999.
Madison Square Garden
MSG has a $500,000 credit facility (the "MSG Credit Facility") with a group of
banks led by Chase Manhattan Bank, as agent, which expires on December 31, 2004.
Loans under the MSG Credit Facility bear interest at current market rates plus a
margin based upon MSG's consolidated leverage ratio. At December 31, 1999 and
1998, loans outstanding amounted to $335,000 and $310,000, respectively, and
bore interest at a weighted average rate of 7.0% and 6.038%, respectively. The
MSG Credit Facility contains certain financial covenants with which MSG was in
compliance at December 31, 1999. The MSG Credit Facility also contains certain
financial covenants that may limit MSG's ability to utilize all of the undrawn
funds available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bear interest at LIBOR plus a
margin (8.19% and 7.22% at December 31, 1999 and 1998, respectively) and mature
in July 2002.
Cablevision Electronics
In February 1998, Cablevision Electronics entered into a three year $130,000
revolving credit facility maturing on February 9, 2001. Under the terms of the
credit facility, the total amount of borrowings available to Cablevision
Electronics is subject to an availability calculation based on a percentage of
eligible inventory. The total amount outstanding under the credit agreement at
December 31, 1999 and 1998 was approximately $73,817 and $44,542, respectively,
and bore interest at 7.8% and 7.2%, respectively. As of December 31, 1999,
$26,874 was restricted for certain letters of credit issued on behalf of
Cablevision Electronics. Unrestricted and undrawn funds available amounted to
$29,309 on December 31, 1999 based on the level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 1999.
(78)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
CCG Holdings, Inc.
CCG Holdings, Inc. has a $15,000 revolving credit bank facility maturing on June
30, 2003. As of December 31, 1999, there was $9,691 outstanding under this bank
facility, leaving undrawn funds available of $5,309. There were no outstanding
borrowings under this bank facility as of December 31, 1998.
Senior Notes and Debentures
In July 1999, CSC Holdings issued $500,000 face amount ($497,786 amortized
amount at December 31, 1999) of 8-1/8% Senior Notes due 2009. The net proceeds
were used to reduce bank borrowings. The notes are not redeemable by CSC
Holdings prior to maturity.
In December 1998, the Company redeemed Clearview's 10-7/8% Senior Notes for
approximately $94,800 in cash. This payment included a premium of $11,200, a
consent fee of $3,600 and accrued interest of $48.
In July 1998, CSC Holdings issued $500,000 principal amount of 7-1/4% Senior
Notes due 2008 (the "2008 Notes") and $500,000 principal amount ($499,541 and
$499,516 amortized amount at December 31, 1999 and 1998, respectively) of 7-5/8%
Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a
discount of $495. The 2008 Notes and Debentures are not redeemable by CSC
Holdings prior to maturity.
In February 1998, CSC Holdings issued $300,000 principal amount ($296,893 and
$296,721 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Debentures due 2018 (the "2018 Debentures"). The 2018 Debentures were
issued at a discount of $3,429. The 2018 Debentures are not redeemable by CSC
Holdings prior to maturity.
In December 1997, CSC Holdings issued $500,000 principal amount ($499,584 and
$499,532 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Notes due 2007 (the "2007 Notes"). The 2007 Notes were issued at a
discount of $525. The 2007 Notes are not redeemable by CSC Holdings prior to
maturity.
In August 1997, CSC Holdings issued $400,000 principal amount ($398,798 and
$398,674 amortized amount at December 31, 1999 and 1998, respectively) of 8-1/8%
Senior Debentures due 2009 (the "2009 Notes"). The 2009 Notes were issued at a
discount of $1,492. The 2009 Notes are not redeemable by CSC Holdings prior to
maturity.
The indentures under which the senior notes and debentures were issued contain
various convenants, which are generally less restrictive than those contained in
the Company's Credit Agreement, with which the Company was in compliance at
December 31, 1999.
(79)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Subordinated Notes and Debentures
In May 1996, CSC Holdings issued $150,000 principal amount ($149,558 and
$149,545 amortized amount at December 31, 1999 and 1998, respectively) of 9-7/8%
Senior Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal
amount of 10-1/2% Senior Subordinated Debentures due 2016 (the "2016
Debentures"). The 2006 Notes are redeemable at CSC Holdings' option, in whole or
in part, on May 15, 2001, May 15, 2002 and May 15, 2003 at the redemption price
of 104.938%, 103.292% and 101.646%, respectively, of the principal amount and
thereafter at 100% of the aggregate principal amount, in each case together with
accrued interest to the redemption date. The 2016 Debentures are redeemable at
CSC Holdings' option, in whole or in part, on May 15, 2006, May 15, 2007, May
15, 2008, and May 15, 2009, at the redemption price of 105.25%, 103.938%,
102.625%, and 101.313%, respectively, of the principal amount and thereafter at
100% of the aggregate principal amount, in each case together with accrued
interest to the redemption date.
In November 1995, CSC Holdings issued $300,000 principal amount of 9-1/4% Senior
Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at
CSC Holdings' option, in whole or in part, on November 1, 2000, November 1, 2001
and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%,
respectively, of the principal amount and thereafter at 100% of the principal
amount, in each case together with accrued interest to the redemption date.
In February 1993, CSC Holdings issued $200,000 face amount ($199,180 and
$199,117 amortized amount at December 31, 1999 and 1998, respectively) of its
9-7/8% Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013
Debentures are redeemable, at CSC Holdings' 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.
Also in 1993, CSC Holdings issued $150,000 face amount ($149,775 and $149,713
amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023
Debentures are redeemable, at CSC Holdings' option, on and after April 1, 2003
at the redemption price of 104.938% reducing ratably to 100% of the principal
amount on and after April 1, 2010, in each case together with accrued interest
to the redemption date.
The indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement and with which the Company was in
compliance at December 31, 1999.
(80)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Summary of Five Year Debt Maturities
Total amounts payable by the Company and its subsidiaries under its various debt
obligations, including capital leases, during the five years subsequent to
December 31, 1999 are as follows:
2000 $91,000
2001 124,000
2002 61,000
2003 54,000
2004 632,000
NOTE 6. PREFERRED STOCK OF CSC HOLDINGS, INC.
The following summarizes the changes in each series of CSC Holdings' preferred
stock:
Series I Preferred Series M Preferred Series H Preferred Total
Shares Balance Shares Balance Shares Balance Balance
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1996 ............. 13,800,000 $ 323,331 7,157,585 $ 715,759 2,895,063 $ 289,506 $ 1,328,596
Dividends paid in
additional shares ........ -- -- 830,018 83,001 355,415 35,542 118,543
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1997 ............. 13,800,000 323,331 7,987,603 798,760 3,250,478 325,048 1,447,139
Dividends paid in
additional shares ........ -- -- 926,260 92,626 399,050 39,905 132,531
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1998 ............. 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953 1,579,670
Dividend paid in
additional shares ........ -- -- 1,033,678 103,368 448,042 44,804 148,172
Redemption .................... (13,800,000) (323,331) -- -- -- -- (323,331)
----------- ----------- ----------- ----------- ----------- ----------- -----------
December 31, 1999 ............. -- $ -- 9,947,541 $ 994,754 4,097,570 $ 409,757 $ 1,404,511
=========== =========== =========== =========== =========== =========== ===========
In September 1999, CSC Holdings exercised its right to redeem all of its
outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of the Company's Class A Common
Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of the
Company's Class A Common Stock, with the remaining 2,375 depositary shares being
redeemed for cash. CSC Holdings paid a cash dividend on the Series I Preferred
of approximately $21,898 in 1999 and $29,325 in each of 1998 and 1997.
In February 1996, CSC Holdings issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in
August 1996 with terms identical to the Series L Preferred Stock.
(81)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The depositary shares are exchangeable, in whole but not in part, at the option
of CSC Holdings, for CSC Holdings' 11-1/8% Senior Subordinated Debentures due
2008. CSC Holdings is required to redeem the Series M Preferred Stock on April
1, 2008 at a redemption price equal to the liquidation preference of $10,000 per
share plus accumulated and unpaid dividends. The Series M Preferred Stock is
redeemable at various redemption prices beginning at 105.563% at any time on or
after April 1, 2003, at the option of CSC Holdings, with accumulated and unpaid
dividends thereon to the date of redemption. Before April 1, 2001, dividends
may, at the option of CSC Holdings, be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. On and after April 1, 2001,
dividends must be paid in cash.
In September 1995, CSC Holdings issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
CSC Holdings is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends may, at the option of CSC Holdings, be paid in cash or by issuing
fully paid and nonassessable shares of Series H Preferred Stock with an
aggregate liquidation preference equal to the amount of such dividends. On and
after October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit CSC Holdings, at its option, to exchange the Series H
Preferred Stock for CSC Holdings' 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock.
Preferred stock dividend requirements of CSC Holdings are included in minority
interests in the accompanying consolidated statements of operations.
NOTE 7. INCOME TAXES
The Company and certain of its subsidiaries file consolidated income tax
returns. Effective April 1, 1997, as a result of the transaction described in
Note 2, Rainbow Media files a separate consolidated federal income tax return
with its subsidiaries. At December 31, 1999, the Company had consolidated net
operating loss carry forwards of approximately $1,250,000 and Rainbow Media had
consolidated federal net operating loss carry forwards of approximately $570,000
expiring on various dates through 2019. As a result of a Holding Company
Reorganization and the 1997 change in Rainbow Media's ownership described in
Note 2, Rainbow Media's loss carry forwards may be subject to annual limitations
on deductions. The Company's net operating loss carry forwards reflect
approximately $50,000 in stock expense which would result in an adjustment to
paid-in capital upon realization of such net operating loss carry forward.
(82)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The tax effects of temporary differences which give rise to significant portions
of deferred tax assets or liabilities and the corresponding valuation allowance
at December 31, 1999 and 1998 are as follows:
1999 1998
-------- ------
Deferred Asset (Liability)
Depreciation and amortization............ $ (54,085) $(182,226)
Receivables from affiliates.............. 27,476 23,406
Benefit plans............................ 120,847 108,495
Allowance for doubtful accounts.......... 10,526 7,016
Deferred gain............................ (185,287) (130,650)
Benefits of tax loss carry forwards...... 764,625 596,175
Other.................................... - (50)
---------- ---------
Net deferred tax assets.............. 684,102 422,166
Valuation allowance...................... (684,102) (422,166)
---------- ---------
$ - $ -
========== =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences or net operating loss carry forwards become
deductible. Management considers scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies which
can be implemented by the Company in making this assessment.
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater, event, and
retail store facilities under terms of leases expiring at various dates through
2027. The leases generally provide for fixed annual rentals plus certain real
estate taxes and other costs. Rent expense for the years ended December 31,
1999, 1998 and 1997 amounted to $97,300, $83,003 and $26,773, 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, 1999, 1998 and 1997 amounted to approximately $13,081, $12,490 and
$10,737, respectively.
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2000 through December 31, 2004,
and thereafter, at rates now in force
(83)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
are approximately: 2000, $99,835; 2001, $95,902; 2002, $93,872; 2003, $91,645;
2004, $89,105; thereafter, $664,104.
NOTE 9. AFFILIATE TRANSACTIONS
The Company purchases services from certain cable television programming and
advertising companies, in which Rainbow Media directly or indirectly held
varying ownership interests during the three years ended December 31, 1999.
Costs incurred by the Company for programming and advertising services provided
by these non-consolidated affiliates and included in operating expense for the
years ended December 31, 1999, 1998 and 1997 amounted to approximately $4,691,
$2,942 and $16,581, respectively. At December 31, 1999 and 1998 amounts due to
certain of these affiliates, primarily for programming services provided to the
Company, aggregated $1,391 and $3,644, respectively, and are included in
accounts payable. At December 31, 1999 and 1998, amounts due from certain of
these programming and advertising affiliates aggregated $801 and $13,075,
respectively, and are included in advances to affiliates.
The Company's equity in the net income (losses) of these affiliates was
approximately $(11,318), $(31,851) and $10,672 in 1999, 1998 and 1997,
respectively. At December 31, 1999, the Company's investment in these
programming and advertising companies amounted to approximately $46,420. At
December 31, 1998, the Company's net deficit investment in these programming and
advertising companies amounted to approximately $338.
During 1999, 1998 and 1997, the Company provided programming services to or
incurred costs on behalf of other affiliates engaged in providing cable
television, cable television programming, and related services. Amounts due from
these affiliates amounted to $16,518 and $310 at December 31, 1999 and 1998,
respectively and are included in advances to affiliates.
In 1992, the Company acquired from Mr. Dolan substantially all of the interests
in Cablevision of New York City ("CNYC") that it did not previously own. Mr.
Dolan remained a 1% partner in CNYC and was entitled to certain preferential
payments. The total amount owed to Mr. Dolan at December 31, 1997 amounted to
approximately $197,183. In 1998, the Company paid all amounts due Mr. Dolan.
In October 1997, the Company entered into an agreement with At Home Corporation
("@Home") and certain of its shareholders, pursuant to which the Company agreed
to enter into agreements for the distribution of the @Home service over certain
of the Company's cable television systems on the same terms and conditions as
@Home's founding partners, TCI, Comcast Corporation and Cox Communications, Inc.
The Company received a warrant to purchase 15,751,568 shares of @Home's Series A
Common Stock at an exercise price of $.25 per share. Additionally, in 1998 a
warrant to purchase 4,711,028 shares of @Home's Series A Common Stock at $.25
per share was received in connection with the acquisition of the TCI Systems
(see Note 2). The @Home network distributes high-speed interactive services to
residences and businesses using its own network
(84)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
architecture and a variety of transport options, including the cable industry's
hybrid fiber coaxial infrastructure.
The aggregate fair market value of the warrants received of $248,134, as
determined by independent appraisals, has been recorded in investments in
affiliates in the accompanying consolidated balance sheets. The difference
between the appraised value of the warrants and the price paid has been recorded
as deferred revenue and is being amortized to income over the period which the
Company is obligated to provide the necessary services to @Home. In 1999 and
1998, the Company recorded $50,136 and $35,821, respectively, of revenue
relating to this transaction.
In August 1996, the Company entered into an agreement with NorthCoast Operating
Co., Inc. ("NorthCoast") and certain of its affiliates, to form a limited
liability company (the "LLC") to participate in the auctions conducted by the
Federal Communications Commission ("FCC") for certain licenses to conduct a
personal communications service ("PCS") business. The Company has contributed an
aggregate of approximately $50,100 to the LLC (either directly or through a loan
to NorthCoast) and holds a 49.9% interest in the LLC and certain preferential
distribution rights. The Company recorded a loss of $7,916 and $5,517 in 1999
and 1998, respectively, representing its share of the losses of the LLC.
NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a
nephew of Charles F. Dolan and a cousin of James L. Dolan.
In 1996, Rainbow Media invested in a joint venture formed with a subsidiary of
Loral Space and Communications, Ltd. for the purpose of exploiting certain
direct broadcast satellite ("DBS") frequencies. Rainbow Media also contributed
to the joint venture its interest in certain agreements with the licensee of
such frequencies. Rainbow Media's investment amounted to $386 and $14,913 at
December 31, 1999 and 1998, respectively. In 1999, based upon its then current
business plans, the Company determined that it could no longer recover its
investment in the joint venture and wrote down its investment by $15,100.
NOTE 10. BENEFIT PLANS
Effective January 1, 1998, the Company established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced the Company's former money purchase
pension plan for the benefit of employees other than those of MSG, The WIZ and
CCG Holdings, Inc. Under the Retirement Plan, the Company will credit a certain
percentage of eligible base pay into an account established for each participant
which will earn a market based rate of return annually. Net periodic pension
cost for the years ended December 31, 1999 and 1998 amounted to $6,218 and
$5,555, respectively. At December 31, 1999 and 1998, the accumulated benefit
obligation amounted to $11,309 and $5,312, respectively.
The Company also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. The
Company also makes matching contributions for a portion of employee
contributions to the 401(k) savings plan.
(85)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The cost associated with the money purchase pension plan and the 401(k) savings
plan was approximately $6,102, $4,492 and $7,445 for the years ended December
31, 1999, 1998 and 1997, respectively.
The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of the Company. As part
of the Supplemental Plan, the Company established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 1999, 1998 and 1997 was negligible. At December 31, 1999 and 1998, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $3,071 and $2,688, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 1999 and 1998, the
accrued benefit cost amounted to $10,796 and $8,883, respectively, and for the
years ended December 31, 1999, 1998 and 1997, net periodic pension cost amounted
to $2,611, $2,254 and $1,613, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal retirement under MSG's retirement plan. The
welfare plan is insured through a managed care provider and MSG funds these
benefits with premium payments. For the years ended December 31, 1999, 1998 and
1997, the periodic postretirement benefit cost amounted to $204, $84 and $133,
respectively, and the accrued benefit cost amounted to $6,154 and $6,087,
respectively.
NOTE 11. STOCK BENEFIT PLANS
The Company has an Employee Stock Plan (the "Stock Plan") under which the
Company is authorized to issue a maximum of 14,000,000 shares. Pursuant to its
terms, no awards could be granted under the Stock Plan after December 5, 1995.
Under the Stock Plan, the Company granted incentive stock options, nonqualified
stock options, restricted stock, stock appreciation rights, stock grants and
stock bonus awards. The exercise price of stock options could not be less than
the fair market value per share of Class A Common Stock on the date the option
was granted and the options could expire no longer than ten years from date of
grant. Stock appreciation rights 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, in an amount equal to the
difference between the fair market value of the stock as of the date the right
is exercised, and the exercise price.
(86)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In June 1996, the Company's shareholders approved the First Amended and Restated
1996 Employee Stock Plan, as amended, (the "1996 Plan"), under which the Company
is authorized to issue a maximum of 13,000,000 shares. Under the 1996 Plan, the
Company is able to grant incentive stock options, nonqualified stock options,
restricted stock, conjunctive and alternative stock appreciation rights, stock
grants and stock bonus awards. The other terms of the 1996 Plan are
substantially identical to those of the Stock Plan except that under the 1996
Plan the Compensation Committee has the authority, in its discretion, to add
performance criteria as a condition to any employee's exercise of an award
granted under the 1996 Plan.
During 1999, the Company granted options under the 1996 Plan to purchase
3,108,561 shares of Class A Common Stock and stock appreciation rights related
to 1,512,449 shares under option. The options and related stock appreciation
rights are exercisable at various prices ranging from $67.50 to $76.31 per share
and vest in 33 1/3% annual increments beginning one year from the date of grant.
During 1998, the Company granted options under the 1996 Plan to purchase
2,265,500 shares of Class A Common Stock and stock appreciation rights related
to 2,265,500 shares under option. The options and related stock appreciation
rights are exercisable at various prices ranging from $27.63 to $43.50 per share
and vest in 33 1/3% annual increments beginning one year from the date of grant.
During 1997, the Company granted options under the 1996 Plan to purchase
2,230,888 shares of Class A Common Stock and stock appreciation rights related
to 2,210,288 shares under option. The options and related stock appreciation
rights are exercisable at prices of $7.13 and $7.88 per share and vest in either
25% or 33 1/3% annual increments beginning one year from the date of the grant
or the beginning of 1997.
As a result of stock awards, bonus awards, stock appreciation rights and the
expensing of the cash payment made for certain executive stock options, the
Company recorded expense of approximately $255,789, $146,179 and $64,361 in
1999, 1998 and 1997, respectively. These amounts reflect vesting schedules for
applicable grants as well as fluctuations in the market price of the Company's
Class A Common Stock.
The Company applies APB 25 and related interpretations in accounting for its
stock option plans. Had compensation cost been recognized consistent with
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), for options
granted in 1995 through 1999, the Company's net loss would have increased by
$45,607, $16,151 and $7,323 in 1999, 1998 and 1997, respectively. Pro forma net
loss per share would have been $(5.41), $(3.27) and $(.20) for the years ended
December 31, 1999, 1998 and 1997, respectively.
(87)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The per share weighted average value of stock options issued by the Company
during 1999, 1998 and 1997, as determined by the Black-Scholes option pricing
model, was $35.27, $14.25 and $3.32, respectively, on the date of grant. In
these years, the Company assumed no declaration of dividends and an expected
life of five years in determining the value of stock options granted. In
addition, the calculations assumed a risk free interest rate of approximately
6.3%, 5.0% and 5.9% and expected volatility of 49.7%, 52.8% and 43.5% in 1999,
1998 and 1997, respectively.
Stock transactions under the Stock Plan and the 1996 Plan are as follows:
Shares Stock
Under Appreciation Stock Available Option
Option Rights Awards For Grant Price Range
------ ------ ------ --------- -----------
Balance, December 31, 1996 5,492,616 5,624,016 615,650 3,477,770 $3.63-$13.04
Granted 2,230,888 2,210,288 - (2,230,888) $7.13-$7.88
Exercised/issued (950,924) (1,245,160) - - $5.32-$13.03
Cancelled-Stock Plan (964,356) (948,024) (31,196) - $5.32-$13.03
Cancelled-1996 Plan (300,676) (300,176) (45,452) 346,128 $7.13-$12.38
----------- ----------- ---------- -----------
Balance, December 31, 1997 5,507,548 5,340,944 539,002 1,593,010 $5.32-$13.03
1996 Plan amendment - - - 7,000,000
Granted 2,265,500 2,265,500 - (2,265,500) $27.63-$43.50
Exercised/issued (1,263,220) (1,164,932) (221,852) - $6.13-$30.16
Cancelled-Stock Plan (6,604) (6,604) (6,840) - $6.91-$13.03
Cancelled-1996 Plan (345,364) (345,360) (32,060) 377,424 $7.13-$12.38
----------- ----------- ---------- -----------
Balance, December 31, 1998 6,157,860 6,089,548 278,250 6,704,934 $6.13-$43.50
Granted 3,108,561 1,512,449 9,180 (3,117,741) $67.50-$76.31
Exercised/issued (1,174,609) (1,740,534) - - $6.13-$42.88
Cancelled-Stock Plan (22,852) (28,400) - - $6.13-$42.88
Cancelled-1996 Plan (609,301) (812,535) (28,538) 637,839 $7.13-$12.38
----------- ----------- ---------- -----------
Balance, December 31, 1999 7,459,659 5,020,528 258,892 4,225,032 $6.13-$76.31
=========== =========== ========== ===========
(88)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Ranges of Remaining Exercise Exercise
Exercise Prices Shares Life in Years Price Shares Price
- - -----------------------------------------------------------------------------------------------------------------
$ 6.13 - 7.63 1,576,058 6.9 $ 7.10 1,576,058 $ 7.10
7.64 - 15.26 910,538 5.7 11.42 685,013 11.37
15.27 - 22.89 4,667 8.1 22.47 2,833 22.47
22.90 - 30.53 1,983,562 8.3 27.49 693,968 27.41
30.54 - 38.16 40,000 8.2 33.73 40,000 33.73
38.17 - 45.79 116,001 8.1 41.54 34,674 41.56
61.05 - 68.68 2,266,000 8.9 67.47 208,333 67.40
68.69 - 76.31 562,833 5.9 75.44 261,500 76.31
At December 31, 1999, options for 7,459,659 shares were outstanding with a
weighted average exercise price of $37.23 and a weighted average remaining life
of 7.6 years. At December 31, 1999, options for 3,502,379 shares were
exercisable with a weighted average exercise price of $21.37.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Media, has entered into several contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. In addition, Rainbow Media, through MSG, has
employment agreements with both players and coaches of its professional sports
teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met. Future cash payments
required under these contracts as of December 31, 1999 are as follows:
2000 $271,398
2001 217,300
2002 172,800
2003 136,164
2004 109,968
Thereafter 1,020,554
----------
Total $1,928,184
==========
The Company and its cable television affiliates have an affiliation agreement
with a program supplier whereby the Company is obligated to make base rate
annual payments, as defined and subject to certain adjustments pursuant to the
agreement, through 2004. The Company would be contingently liable for the base
rate annual payments, based on subscriber usage, of approximately
(89)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
$13,335 in 2000 and for the years 2001 through 2004 such payments would increase
by percentage increases in the Consumer Price Index, or five percent, whichever
is less, over the prior year's base rate annual payment.
NOTE 13. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of these lawsuits will have a
material adverse impact on the financial position of the Company.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the quoted market price of
the underlying securities.
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock of CSC Holdings
The fair values of each of the Company's long-term debt instruments and
redeemable preferred stock of CSC Holdings are based on quoted market prices for
the same or similar issues or on the current rates offered to the Company for
instruments of the same remaining maturities.
Interest Rate Swap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
(90)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The fair value of the Company's financial instruments are summarized as follows:
December 31, 1999
---------------------------
Carrying Estimated
Amount Fair Value
At Home warrants ............................. $ 248,134 $ 867,103
========== ==========
Long term debt instruments:
Bank debt .................................. $2,254,487 $2,254,487
Senior notes and debentures ................ 2,692,602 2,608,845
Subordinated notes and debentures .......... 1,048,513 1,102,500
Redeemable exchangeable preferred
stock of CSC Holdings ................... 1,404,511 1,539,173
---------- ----------
$7,400,113 $7,505,005
========== ==========
Interest rate swap agreements:
In a net payable position .................. $ -- $ 3,265
========== ==========
December 31, 1998
---------------------------
Carrying Estimated
Amount Fair Value
At Home warrants ............................. $ 248,134 $ 755,479
========== ==========
Long term debt instruments:
Bank debt .................................. $2,051,549 $2,051,549
Senior notes and debentures ................ 2,194,443 2,271,340
Subordinated notes and debentures .......... 1,048,375 1,168,375
Redeemable exchangeable preferred
stock of CSC Holdings ................... 1,256,339 1,417,241
---------- ----------
$6,550,706 $6,908,505
========== ==========
Interest rate swap agreements:
In a net payable position .................. $ -- $ 4,116
========== ==========
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 15. SEGMENT INFORMATION
The Company classifies its business interests into three segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media, consisting principally
of interests in cable television programming networks and MSG,
(91)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
which owns and operates professional sports teams, regional cable television
networks, live productions and entertainment venues; and Retail Electronics,
which represents the operations of Cablevision Electronics' retail electronics
stores.
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization, incentive stock plan expense and the costs of year 2000
remediation). The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
are accounted for at fair value as if the sales were to third parties.
Information as to the operations of the Company's business segments is set forth
below.
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues
Telecommunication Services ..... $ 2,151,308 $ 1,886,190 $ 1,364,264
Rainbow Media .................. 1,234,113 1,007,639 637,648
Retail Electronics ............. 603,294 464,388 --
All Other ...................... 85,529 6,614 1,707
Intersegment eliminations ...... (131,259) (99,688) (54,261)
----------- ----------- -----------
Total ............... $ 3,942,985 $ 3,265,143 $ 1,949,358
=========== =========== ===========
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Adjusted Operating Cash Flow (unaudited)
Telecommunication Services ............. $ 916,233 $ 762,823 $ 545,927
Rainbow Media .......................... 190,646 135,259 101,122
Retail Electronics ..................... (37,934) (19,737) --
All Other .............................. (51,996) (1,783) (1,704)
----------- ----------- -----------
Total ....................... $ 1,016,949 $ 876,562 $ 645,345
=========== =========== ===========
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Assets
Telecommunication Services ............ $ 4,490,364 $ 4,411,194 $ 2,927,640
Rainbow Media ......................... 2,682,235 2,720,127 2,838,987
Retail Electronics .................... 220,898 199,194 --
Other ................................. 274,003 253,564 10,270
Corporate and intersegment eliminations (537,192) (523,017) (162,109)
----------- ----------- -----------
Total ...................... $ 7,130,308 $ 7,061,062 $ 5,614,788
=========== =========== ===========
(92)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues
Total revenue for reportable segments .................... $ 3,988,715 $ 3,358,217 $ 2,001,912
Other revenue and intersegment eliminations .............. (45,730) (93,074) (52,554)
----------- ----------- -----------
Total consolidated revenue ........................ $ 3,942,985 $ 3,265,143 $ 1,949,358
=========== =========== ===========
Adjusted Operating Cash Flow to Net Loss
Total adjusted operating cash flow for reportable
segments (unaudited) .............................. 1,068,945 878,345 647,049
Other adjusted operating cash flow deficit (unaudited) ... (51,996) (1,783) (1,704)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (893,797) (734,107) (499,809)
Incentive stock plan expense ...................... (255,789) (146,179) (64,361)
Year 2000 remediation ............................. (41,477) (7,593) --
Interest expense .................................. (470,549) (426,402) (368,700)
Interest income ................................... 4,809 24,028 5,492
Equity in net loss of affiliates .................. (19,234) (37,368) (27,165)
Gain on sale of programming interests and cable
assets, net .................................. -- 170,912 372,053
Gain on redemption of subsidiary preferred stock .. -- -- 181,738
Write off of deferred interest and financing costs (4,425) (23,482) (24,547)
Provision for preferential payment to related party -- (980) (10,083)
Minority interests ................................ (120,524) (124,677) (209,461)
Miscellaneous, net ................................ (16,570) (19,218) (12,606)
----------- ----------- -----------
Net loss ................................ $ (800,607) $ (448,504) $ (12,104)
=========== =========== ===========
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
(93)
CABLEVISION SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 16. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the years
ended December 31, 1999 and 1998.
MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
Revenues ..................... $ 933,708 $ 675,728 $ 946,309 $ 805,190 $ 902,310 $ 806,871
Operating expenses ........... 1,040,755 686,888 954,580 785,935 922,674 790,822
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) ...... $ (107,047) $ (11,160) $ (8,271) $ 19,255 $ (20,364) $ 16,049
=========== =========== =========== =========== =========== ===========
Net loss ..................... $ (238,647) $ (27,204) $ (167,847) $ (122,951) $ (178,063) $ (113,614)
=========== =========== =========== =========== =========== ===========
Basic and diluted
net loss per
common share.............. $ (1.57) $ (.23) $ (1.10) $ (.82) $ (1.17) $ (.75)
=========== =========== =========== =========== =========== ===========
DECEMBER 31, TOTAL
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues ..................... $ 1,160,658 $ 977,354 $ 3,942,985 $ 3,265,143
Operating expenses ........... 1,199,090 1,012,815 4,117,099 3,276,460
----------- ----------- ----------- -----------
Operating profit (loss) ...... $ (38,432) $ (35,461) $ (174,114) $ (11,317)
=========== =========== =========== ===========
Net loss ..................... $ (216,050) $ (184,735) $ (800,607) $ (448,504)
=========== =========== =========== ===========
Basic and diluted
net loss per
common share............... $ (1.27) $ (1.22) $ (5.12) $ (3.16)
=========== =========== =========== ===========
(94)
INDEPENDENT AUDITORS' REPORT
The Stockholder
CSC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of CSC Holdings,
Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999. In
connection with our audits of the consolidated financial statements, we also
audited the financial statement schedule listed in Item 14(a)(2). These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CSC Holdings, Inc.
and subsidiaries at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule
referred to above, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Melville, New York
March 13, 2000
(95)
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands)
ASSETS 1999 1998
---------- ----------
Cash and cash equivalents ............................. $ 62,665 $ 173,826
Accounts receivable trade (less allowance for
doubtful accounts of $35,357 and $34,377) .......... 226,304 197,726
Notes and other receivables ........................... 129,596 188,455
Inventory, prepaid expenses and other assets .......... 219,487 206,073
Property, plant and equipment, net .................... 2,752,495 2,506,834
Investments in affiliates ............................. 306,557 276,231
Advances to affiliates ................................ 46,685 36,927
Feature film inventory ................................ 335,826 293,310
Net assets held for sale .............................. 269,349 11,006
Franchises, net of accumulated amortization of
$703,237 and $640,735 .............................. 651,777 850,653
Affiliation and other agreements, net of accumulated
amortization of $244,249 and $181,928 .............. 173,250 206,456
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $727,134 and $775,557 .............. 1,816,030 2,003,128
Deferred financing, acquisition and other costs, net of
accumulated amortization of $51,063 and $41,882 .... 140,287 110,400
---------- ----------
$7,130,308 $7,061,025
========== ==========
See accompanying notes to
consolidated financial statements.
(96)
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Dollars in thousands, except per share amounts)
1999 1998
----------- -----------
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Accounts payable ............................................................. $ 423,158 $ 423,039
Accrued liabilities:
Interest ................................................................ 117,854 88,798
Employee related costs .................................................. 463,925 330,700
Other ................................................................... 466,820 464,343
Feature film and contract obligations ........................................ 371,126 373,722
Deferred revenue ............................................................. 274,043 334,213
Bank debt .................................................................... 2,254,487 2,051,549
Senior notes and debentures .................................................. 2,692,602 2,194,443
Subordinated notes and debentures ............................................ 1,048,513 1,048,375
Capital lease obligations and other debt ..................................... 99,099 63,241
----------- -----------
Total liabilities ....................................................... 8,211,627 7,372,423
----------- -----------
Minority interests ........................................................... 592,583 719,007
----------- -----------
Series H Redeemable Exchangeable Preferred Stock ............................. 409,757 364,953
----------- -----------
Series M Redeemable Exchangeable Preferred Stock ............................. 994,754 891,386
----------- -----------
Commitments and contingencies
Stockholder's deficiency:
Series A Cumulative Convertible Preferred Stock,
200,000 shares authorized, none issued ............................. -- --
Series B Cumulative Convertible Preferred Stock,
200,000 shares authorized, none issued ............................. -- --
8% Series D Cumulative Preferred Stock, $.01 par value,
112,500 shares authorized, none issued ($100 per
share liquidation preference) ...................................... -- --
8-1/2% Series I Cumulative Convertible Exchangeable Preferred Stock, $.01
par value, 1,380,000 shares authorized, 0 and 1,380,000
shares issued ($250 per share liquidation preference) .............. -- 14
Common Stock, $.01 par value, 10,000,000 shares authorized,
1,000 shares issued ................................................ 1 1
Paid-in capital ......................................................... 763,947 754,995
Accumulated deficit ..................................................... (3,842,361) (3,041,754)
----------- -----------
Total stockholder's deficiency .......................................... (3,078,413) (2,286,744)
----------- -----------
$ 7,130,308 $ 7,061,025
=========== ===========
See accompanying notes
to consolidated financial statements.
(97)
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except per share amounts)
1999 1998 1997
----------- ----------- -----------
Revenues, net (including retail electronics sales of
$603,294, $464,388 and $-0-) ....................................... $ 3,942,985 $ 3,265,143 $ 1,949,358
----------- ----------- -----------
Operating expenses:
Technical and operating ............................................ 1,535,423 1,268,786 853,800
Retail electronics cost of sales ................................... 484,760 367,102 --
Selling, general and administrative ................................ 1,203,119 906,465 514,574
Depreciation and amortization ...................................... 893,797 734,107 499,809
----------- ----------- -----------
4,117,099 3,276,460 1,868,183
----------- ----------- -----------
Operating profit (loss) ............................................... (174,114) (11,317) 81,175
----------- ----------- -----------
Other income (expense):
Interest expense ................................................... (470,549) (426,402) (368,700)
Interest income .................................................... 4,809 24,028 5,492
Equity in net loss of affiliates ................................... (19,234) (37,368) (27,165)
Gain on sale of programming interests and cable assets, net ........ -- 170,912 372,053
Gain on redemption of subsidiary preferred stock ................... -- -- 181,738
Write off of deferred interest and financing costs ................. (4,425) (23,482) (24,547)
Provision for preferential payment to related party ................ -- (980) (10,083)
Minority interests ................................................. 49,563 37,195 (60,694)
Miscellaneous, net ................................................. (16,570) (19,218) (12,606)
----------- ----------- -----------
(456,406) (275,315) 55,488
----------- ----------- -----------
Net income (loss) ..................................................... (630,520) (286,632) 136,663
Dividend requirements applicable to preferred stock ................... (170,087) (161,872) (148,767)
----------- ----------- -----------
Net loss applicable to common shareholder ............................. $ (800,607) $ (448,504) $ (12,104)
=========== =========== ===========
Basic and diluted net loss per common share........................... $ -- $ -- $ (.12)
=========== =========== ===========
Average number of common shares outstanding (in thousands) ............ -- -- 99,608
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(98)
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
Series C Series I Class A Class B
Preferred Preferred Common Common Common Paid-in
Stock Stock Stock Stock Stock Capital
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 ........ $ 1 $ 14 $ -- $ 544 $ 452 $ 163,791
Net income ..................... -- -- -- -- -- --
Employee stock transactions .... -- -- -- 8 -- 7,608
Conversion of Class B to Class A -- -- -- 8 (8) --
Preferred dividend requirements
-- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 ........ 1 14 -- 560 444 171,399
Net loss ....................... -- -- -- -- -- --
Contribution of assets by Parent -- -- -- -- -- 584,708
Employee stock transactions .... -- -- -- -- -- 2,444
Redemption of preferred stock .. (1) -- -- -- -- (9,408)
Dividend payment to Parent ..... -- -- -- -- -- --
Issuance of stock .............. -- -- -- -- -- 4,849
Common stock conversion ........ -- -- 1 (560) (444) 1,003
Preferred dividend requirements
-- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 ........ -- 14 1 -- -- 754,995
Net loss ....................... -- -- -- -- -- --
Conversion of Series I Preferred
Stock to Parent Class A .... -- (14) -- -- -- 14
Contribution of assets by Parent -- -- -- -- -- 8,938
Preferred dividend requirements -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 ........ $ -- $ -- $ 1 $ -- $ -- $ 763,947
=========== =========== =========== =========== =========== ===========
Accumulated
Deficit Total
----------- -----------
Balance December 31, 1996 ........ $(2,539,087) $(2,374,285)
Net income ..................... 136,663 136,663
Employee stock transactions .... -- 7,616
Conversion of Class B to Class A -- --
Preferred dividend requirements
(148,767) (148,767)
----------- -----------
Balance December 31, 1997 ........ (2,551,191) (2,378,773)
Net loss ....................... (286,632) (286,632)
Contribution of assets by Parent -- 584,708
Employee stock transactions .... -- 2,444
Redemption of preferred stock .. -- (9,409)
Dividend payment to Parent ..... (42,059) (42,059)
Issuance of stock .............. -- 4,849
Common stock conversion ........ -- --
Preferred dividend requirements
(161,872) (161,872)
----------- -----------
Balance December 31, 1998 ........ $(3,041,754) $(2,286,744)
Net loss ....................... (630,520) (630,520)
Conversion of Series I Preferred
Stock to Parent Class A .... -- --
Contribution of assets by Parent -- 8,938
Preferred dividend requirements (170,087) (170,087)
----------- -----------
Balance December 31, 1999 ........ $(3,842,361) $(3,078,413)
=========== ===========
See accompanying notes
to consolidated financial statements.
(99)
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) .......................................................... $ (630,520) $ (286,632) $ 136,663
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ........................................ 893,797 734,107 499,809
Equity in net loss of affiliates ..................................... 19,234 37,368 27,165
Minority interests ................................................... (49,563) (37,195) 60,694
Gain on sale of programming interests and cable assets, net .......... -- (170,912) (372,053)
Gain on sale of investments .......................................... (10,861) -- --
Write off of investment in affiliate ................................. 15,100 -- --
Write off of deferred interest and financing costs ................... 4,425 23,482 24,547
Gain on redemption of subsidiary preferred stock ..................... -- -- (181,738)
(Gain) loss on sale of equipment, net ................................ 9,811 (604) 5,325
Amortization of deferred financing and debenture discount ............ 9,407 8,532 7,707
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade ...................................... (31,419) 19,007 (34,268)
Notes and other receivables .................................... 33,961 (94,164) (67,683)
Inventory, prepaid expenses and other assets ................... (23,243) (51,425) 1,232
Advances to affiliates ......................................... (10,400) (21,664) (528)
Feature film inventory ......................................... (42,516) (112,734) (8,269)
Other deferred costs ........................................... 955 11,689 --
Accounts payable ............................................... 15,306 133,891 50,667
Accrued liabilities ............................................ 167,268 172,910 91,497
Feature film and contract obligations .......................... (2,596) 81,376 (258)
Deferred revenue ............................................... (60,170) (18,268) 37,664
Minority interests ............................................. 1,094 (961) (6,486)
----------- ----------- -----------
Net cash provided by operating activities ................................ 309,070 427,803 271,687
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ....................................................... (871,166) (561,642) (457,590)
Payments for acquisitions, net of cash acquired ............................ (117,660) (264,287) (747,134)
Net proceeds from sale of programming interests and cable assets ........... -- 446,284 945,534
Proceeds from sale of equipment ............................................ 1,467 8,817 1,930
Proceeds from sale of investments .......................................... 10,861 -- --
(Increase) decrease in investments in affiliates, net ...................... (49,938) (31,035) 9,267
Additions to other intangible assets ....................................... (3,443) (13,253) (623)
----------- ----------- -----------
Net cash used in investing activities .................................... $(1,029,879) $ (415,116) $ (248,616)
----------- ----------- -----------
See accompanying notes
to consolidated financial statements.
(100)
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(Dollars in thousands)
(continued)
1999 1998 1997
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ............................. $ 3,791,073 $ 5,442,101 $ 3,385,703
Repayment of bank debt .............................. (3,588,135) (6,304,757) (3,147,165)
Proceeds from senior debt ........................... -- -- 147,750
Repayment of senior debt ............................ -- (112,500) (433,617)
Repayment of subordinated notes payable ............. -- (151,000) --
Redemption of senior notes payable .................. -- (94,848) --
Redemption of senior subordinated debt .............. -- -- (283,445)
Issuance of senior notes and debentures ............. 497,670 1,296,076 897,983
Redemption of subsidiary preferred stock ............ -- -- (112,301)
Redemption of preferred stock ....................... (98) (9,409) --
Dividends applicable to preferred stock ............. (21,915) (29,341) (30,224)
Payment of dividend to shareholder .................. -- (42,059) --
Issuance of common stock ............................ -- 2,444 7,616
Obligation to related party ......................... -- (197,183) 4,364
Payments on capital lease obligations and other debt (22,036) (12,306) (7,501)
Additions to deferred financing and other costs ..... (46,911) (36,220) (53,705)
----------- ----------- -----------
Net cash provided by (used in) financing activities 609,648 (249,002) 375,458
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ... (111,161) (236,315) 398,529
Cash and cash equivalents at beginning of year ......... 173,826 410,141 11,612
----------- ----------- -----------
Cash and cash equivalents at end of year ............... $ 62,665 $ 173,826 $ 410,141
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(101)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
On March 4, 1998, CSC Holdings, Inc. (the "Company") completed a holding company
reorganization (the "Holding Company Reorganization") pursuant to an Amended and
Restated Contribution and Merger Agreement (the "Contribution and Merger
Agreement"), by and among the Company, CSC Parent Corporation ("Parent"), CSC
Merger Corporation, and TCI Communications, Inc., ("TCI"). Pursuant to the
Contribution and Merger Agreement, each outstanding share of the Company's Class
A Common Stock and each outstanding share of the Company's Class B Common Stock
were automatically converted on a share for share basis for Class A Common Stock
and Class B Common Stock of Parent.
As a result of the Holding Company Reorganization, Parent became the holding
company of the Company. In connection with the Holding Company Reorganization,
the Company's name, which formerly was Cablevision Systems Corporation, was
changed to CSC Holdings, Inc. and Parent's name was changed to Cablevision
Systems Corporation.
The preferred stock and debt of the Company remain unchanged as securities of
CSC Holdings, Inc., except that the Company's 8-1/2% Cumulative Convertible
Exchangeable Preferred Stock, par value $0.01 per share (the "Series I Preferred
Stock"), in accordance with its terms, became exchangeable for Parent's Class A
Common Stock instead of being convertible into the Company's Class A Common
Stock.
In April 1999, Parent contributed certain cable television systems acquired from
TCI (the "TCI Systems") on March 4, 1998 to the Company. This transaction was
accounted for in a manner similar to a pooling of interests, whereby the assets
and liabilities of the TCI Systems were recorded at historical book value (net
assets of $509,574). Prior period consolidated financial statements of the
Company have been restated to include the financial position and results of
operations of the TCI Systems from March 4, 1998.
The Company and its majority-owned subsidiaries own and operate cable television
systems and have ownership interests in companies that produce and distribute
national and regional entertainment and sports programming services, including
Madison Square Garden, L.P. ("MSG"). The Company also owns companies that
provide advertising sales services for the cable television industry, provide
switched telephone service, operate a retail electronics chain and operate
motion picture theaters. Parent allocates certain costs to the Company based
upon its proportionate estimated usage of services. The Company classifies its
business interests into three segments: Telecommunication Services, consisting
principally of its cable television, telephone and modem services operations;
Rainbow Media, consisting principally of interests in cable television
programming networks and MSG, which owns and operates professional sports teams,
regional cable television networks, live productions and
(102)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
entertainment venues; and Retail Electronics, which represents the operations of
its retail electronics stores.
Authorized Capital Stock
In 1999, the Company's Board of Directors approved an amendment to the Company's
Certificate of Incorporation increasing the authorized capital stock from 10
million to 20 million shares (10 million shares of Common Stock and 10 million
shares of Preferred Stock).
Two-for-One Stock Splits
On March 4, 1998 and July 22, 1998, Parent's Board of Directors declared a
two-for-one stock split to be effected in the form of a common stock dividend of
one share of Class A Common Stock for each share of Class A Common Stock issued
and outstanding and one share of Class B Common Stock for each share of Class B
Common Stock issued and outstanding. The stock dividends were paid on March 30,
1998 and August 21, 1998 to stockholders of record on March 19, 1998 and August
10, 1998, respectively.
For purposes of the accompanying consolidated financial statements of the
Company, all share and per share information has been adjusted for the
two-for-one splits discussed above.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. The Company's interests in less
than majority-owned entities and until July 2, 1997, its 100% common stock
interest in A-R Cable Services, Inc., are carried on the equity method.
Subsequent to July 2, 1997, results of operations of A-R Cable Services, Inc.
are consolidated with those of the Company (see Note 2). Advances to affiliates
are recorded at cost, adjusted when recoverability is doubtful. All significant
intercompany transactions and balances are eliminated in consolidation.
Revenue Recognition
The Company recognizes cable television, internet access, telephony and
programming revenues as services are provided to subscribers. Advertising
revenues are recognized when commercials are telecast. Revenue from retail
electronic sales is recognized upon delivery, with an appropriate provision for
returned merchandise based upon historical experience. Revenues derived from
other sources are recognized when services are provided or events occur.
(103)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Long-Lived Assets
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. Franchises are amortized on the
straight-line basis over the average remaining terms (5 to 12 years) of the
franchises at the time of acquisition. Affiliation and other agreements
(primarily cable television system programming agreements) are amortized on a
straight-line basis over periods ranging from 8 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (1 to
15 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 6 to 40
years. The Company reviews its long-lived assets (property, plant and equipment,
and related intangible assets that arose from business combinations accounted
for under the purchase method) for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum
of the expected cash flows, undiscounted and without interest, is less than the
carrying amount of the asset, an impairment loss is recognized as the amount by
which the carrying amount of the asset exceeds its fair value.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with
the related obligations are recorded at the contract value. Costs are charged to
technical and operating expense on a straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 1999 related to feature film telecast rights are $60,310 in 2000, $37,777 in
2001, $35,095 in 2002, $31,791 in 2003, and $26,664 in 2004.
Inventory
Carrying amounts of retail merchandise are determined on an average cost basis
and are stated at the lower of cost or market.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized, on a straight-line
basis, over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
(104)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Loss Per Share
Basic and diluted net loss per common share for the year ended December 31, 1997
is computed by dividing net loss after deduction of preferred stock dividends by
the weighted average number of common shares outstanding. Potential dilutive
common shares were not included in the computation as their effect would be
antidilutive. Basic and diluted net loss per common share for the years ended
December 31, 1999 and 1998 are not presented since the Company is a wholly-owned
subsidiary of Parent. The loss per share amount has been adjusted to reflect the
two-for-one stock splits discussed above.
Segment Information
On December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, `Disclosures about Segments of an Enterprise and Related
Information' (`SFAS 131'). The new rules establish revised standards for public
companies relating to the reporting of financial and descriptive information
about their operating segments in financial statements. The adoption of SFAS 131
did not have a material effect on the Company's financial statements, but did
affect the disclosure of segment information contained elsewhere herein (see
Note 15).
Reclassifications
Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform to the 1999 presentation.
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. The Company paid cash interest expense of
approximately $432,086, $383,179 and $352,660 during 1999, 1998 and 1997,
respectively.
During 1999, 1998 and 1997, the Company's noncash investing and financing
activities were as follows:
Years Ended December 31,
------------------------
1999 1998 1997
-------- -------- --------
Capital lease obligations ..................... $ 57,919 $ 28,795 $ 24,820
Preferred stock dividends ..................... 148,172 132,531 118,542
Issuance of common stock to redeem
certain limited partnership interests .... -- 4,849 --
Receipt of warrants from At Home Corporation .. -- 74,788 173,346
Capital contribution of equipment by
minority partner ......................... -- -- 38,000
Contribution of assets by Parent .............. 8,938 584,708 --
Redemption of preferred stock with Parent's
common stock ............................. 323,233 -- --
(105)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Comprehensive Income
The Company has not provided a separate statement of comprehensive income as
items of other comprehensive income for all periods presented were not material.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
Acquisitions
1999 Acquisitions
At various times during 1999, the Company acquired interests in the real
property and assets specifically related to certain movie theaters for an
aggregate purchase price of approximately $29,700. The acquisitions were
accounted for as purchases with the operations of the acquired theaters being
consolidated with those of the Company as of the acquisition dates. The purchase
price will be allocated to the specific assets acquired when an independent
appraisal is obtained.
In December 1999, Parent acquired cable television systems with approximately
4,500 subscribers located in the Port Jervis, New York area for approximately
$7,400, $7,300 of which was paid in shares of Parent's Class A Common Stock.
Concurrent with the acquisition, the acquired assets were contributed to the
Company.
In April 1999, ITT Corporation ("ITT") exercised its second put for the
remainder of its interest in MSG and settled certain matters between the parties
for a payment of $87,000.
See also "Dispositions" for a discussion of an exchange of cable television
assets.
1998 Acquisitions
The WIZ
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of the Company, acquired substantially
all of the assets associated with
(106)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
40 The WIZ consumer electronics store locations from The Wiz, Inc. and certain
of its subsidiaries and affiliates (collectively, "TWI"). TWI had filed for
bankruptcy protection on December 16, 1997. Cablevision Electronics paid
approximately $101,300 for the assets (including transaction costs and
pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of the
stores being consolidated with the operations of the Company as of the date of
acquisition. The purchase price was allocated to the specific assets acquired
based upon independent appraisals as follows:
Inventory ........................................ $ 66,200
Property and equipment ........................... 16,800
Other assets ..................................... 4,000
Liabilities ...................................... (24,000)
Excess cost over fair value of net assets acquired 38,300
---------
$ 101,300
=========
In 1999, the Company recorded an impairment loss of $35,490 representing the
balance of unamortized goodwill recorded on the TWI acquisition. Current losses
and projected future operating losses caused the Company to reassess the
recoverability of the goodwill. The impairment loss resulted from the carrying
amount of this asset exceeding its estimated fair value based on discounted
future cash flows.
Madison Square Garden
In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option, increasing
Regional Programming Partners' interest in MSG to 96.3% (see discussion below
and "1999 Acquisitions" above).
Clearview
In December 1998, Parent acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including
assumed debt of $80,000) of which approximately $33,400 was paid in shares of
Parent's Class A Common Stock. In April 1999, Parent contributed its interest in
the subsidiary formed to purchase Clearview, CCG Holdings, Inc., to the Company.
This transaction was accounted for in a manner similar to a pooling of
interests, whereby the assets and liabilities of CCG Holdings, Inc. were
recorded at historical book value. The operations of Clearview have been
consolidated with those of the Company since the date of the acquisition.
The acquisition of Clearview was accounted for as a purchase with the operations
of the acquired business being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
(107)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Property and equipment ........................... $ 34,787
Other assets ..................................... 21,518
Liabilities ...................................... (16,433)
Excess cost over fair value of net assets acquired 118,851
---------
$ 158,723
=========
Loews
In December 1998, a subsidiary of the Company acquired interests in the real
property and assets specifically related to 15 movie theaters from Loews
Cineplex Entertainment Corporation ("Loews") for an aggregate purchase price of
approximately $67,300.
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property and equipment ........................... $ 9,700
Other assets ..................................... 2,200
Excess cost over fair value of net assets acquired 55,400
-------
$67,300
=======
1997 Acquisitions:
NBC Transaction
On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a
transaction in which Rainbow Programming Holdings, Inc. merged with and into
Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC Cable,
Inc. (a subsidiary of National Broadcasting Company ("NBC")) received a 25%
equity interest (which interest increased to 26% in February 2000 and may be
further increased by up to an additional 1% under certain circumstances without
additional cash payment) in common stock of Rainbow Media. The Company owns the
remaining 74% equity interest in Rainbow Media. The partnership interests in
certain of Rainbow Media's programming services formerly owned by NBC are now
owned by subsidiaries of Rainbow Media. The exchange of 25% of the Company's
interest in Rainbow Media for NBC's interests, in April 1997, in certain
entities was accounted for at historical cost with the difference between the
cost basis of a 25% interest in Rainbow Media and the partnership interests
received in exchange recorded as goodwill of $54,385, which is being amortized
over a 10 year period.
(108)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Madison Square Garden
In February 1997, Rainbow Media made a payment to ITT of $168,750 plus interest,
fully equalizing its interest in MSG, a partnership among subsidiaries of
Rainbow Media and subsidiaries of ITT, and bringing Rainbow Media's total
payments at that time to $360,000, plus interest payments aggregating $47,700.
In April 1997, the Company and certain of its affiliates and ITT and certain of
its affiliates entered into definitive agreements relating to the acquisition by
subsidiaries of the Company of ITT's 50 percent interest in MSG. The transaction
closed on June 17, 1997 when MSG borrowed $799,000 under its credit facility
which was used to redeem a portion of ITT's interest in MSG for $500,000 and to
repay its existing indebtedness. Rainbow Media contributed its SportsChannel
Associates programming company to MSG, which, together with the redemption,
increased Rainbow Media's interest in MSG to 89.8% and reduced ITT's interest to
10.2%. In connection with the Fox transaction discussed below, Rainbow Media's
interest in MSG was contributed to Regional Programming Partners. ITT's interest
in MSG was further reduced to 7.8% as a result of the $450,000 capital
contribution by Regional Programming Partners to MSG which was used by MSG to
pay down outstanding debt. See "1998 Acquisitions" and "1999 Acquisitions" above
for a discussion of the Company's purchase of the remaining interest in MSG. The
acquisition was accounted for using the purchase method of accounting. The
assets and liabilities and results of operations of MSG have been consolidated
with those of the Company as of June 17, 1997. Previously, the Company's
investment in MSG was accounted for using the equity method of accounting. The
excess of the purchase price over the net book value of assets acquired of
approximately $397,093 was allocated to the specific assets acquired based upon
independent appraisals as follows:
Property, plant and equipment .................... $ 19,687
Affiliation and other agreements ................. 34,168
Franchises ....................................... 46,125
Excess cost over fair value of net assets acquired 297,113
--------
$397,093
========
In connection with the Company and ITT's acquisition of MSG in 1995, certain
liabilities relating to a long-term sports rights contract were recorded. In
1999, 1998 and 1997, approximately $23,000, $21,900 and $21,700, respectively,
of this liability was amortized to reduce operating expenses in respect of those
rights.
Warburg Transactions
In June 1997, the Company acquired from Warburg Pincus Investors, L.P.
("Warburg") the interests that the Company did not already own in A-R Cable
Partners ("Nashoba") and Cablevision of Framingham Holdings, Inc. ("CFHI") for a
purchase price of approximately
(109)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
$33,348 and $7,865, respectively. The acquisitions of Nashoba and CFHI were
accounted for as purchases with the operations of these companies being
consolidated with those of the Company as of the acquisition date. The excess of
the purchase price over the net book value of assets acquired approximates
$97,015 and has been allocated based upon independent appraisals as follows:
Property, plant and equipment .................... $ 4,060
Franchises ....................................... 59,923
Excess cost over fair value of net assets acquired 33,032
-------
$97,015
=======
On July 2, 1997, the Company redeemed from Warburg the Series A Preferred Stock
of A-R Cable Services, Inc. ("A-R Cable") for an aggregate amount of
approximately $112,301. The assets and liabilities of A-R Cable have been
consolidated with those of the Company as of July 2, 1997. Previously, the
Company's investment in A-R Cable was accounted for using the equity method of
accounting. In connection with this transaction, the Company recognized a gain
of $181,738 representing principally the reversal of accrued preferred dividends
in excess of amounts paid.
Radio City
On December 5, 1997, MSG purchased all of the membership interests in Radio City
Productions, LLC ("Radio City"), the production company that operates Radio City
Music Hall in New York City, for approximately $70,000 in cash. Simultaneously,
Radio City entered into a 25-year lease for Radio City Music Hall. The assets
and liabilities and results of operations of Radio City have been consolidated
with those of the Company as of the date of acquisition. The excess of the
purchase price over the net book value of assets acquired of approximately
$76,200 was allocated to the specific assets acquired based upon independent
appraisals as follows:
Property, plant and equipment .................... $ 1,500
Capital lease obligation ......................... (80,000)
Other liabilities ................................ (13,400)
Excess cost over fair value of net assets acquired 168,100
---------
$ 76,200
=========
Dispositions
Cable Systems
In October 1998, A-R Cable transferred its cable television system in
Rensselaer, New York plus approximately $16,000 in cash to Time Warner
Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's
Litchfield, Connecticut system. The Company recognized a gain of approximately
$15,500 in connection with this transaction.
(110)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In 1998 and 1997, the Company completed the sale of cable television systems for
aggregate sales prices of approximately $426,500 and $88,200, respectively, and
recognized aggregate gains of approximately $137,900 and $59,000, respectively.
Regional Programming Partners
In December 1997, Rainbow Media and Fox Sports Networks, LLC ("Fox") organized
Regional Programming Partners (a partnership that owns MSG and interests in
regional sports programming businesses previously owned by Rainbow Media)
("RPP"). In connection with the formation of RPP, affiliates of Rainbow Media
indirectly contributed to RPP in consideration for the issuance of a 60% general
partnership interest in RPP their ownership interests in several regional sports
networks, including their interest in MSG. In consideration for the issuance of
a 40% general partnership interest in RPP, Fox contributed $850,000 in cash to
RPP. Thereafter, RPP made a capital contribution of approximately $450,000 to
MSG which was used by MSG to repay a portion of MSG's debt. As a result of RPP's
investment in MSG, RPP's interest in MSG increased from 89.8% to 92.2%. In
connection with this transaction, Rainbow Media recognized a gain of
approximately $305,000. See discussions above under "1998 Acquisitions" and
"1999 Acquisitions" for further increases in RPP's interest in MSG.
Other
In 1998 and 1997, RPP and Rainbow Media completed the sale of an interest in a
sports programming business and substantially all of the assets of a radio
station. In connection with these sales, RPP and Rainbow Media recognized gains
of $17,700 and $7,400, respectively.
A-R Cable Restructuring
In 1992, the Company and A-R Cable consummated a restructuring and refinancing
transaction (the "A-R Cable Restructuring"). 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 and the purchase of a new
Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of
the A-R Cable Restructuring, the Company no longer had financial or voting
control over A-R Cable's operations. Prior to the redemption of A-R Cable's
Series A Preferred Stock on July 2, 1997 (see discussion above), the Company
accounted for its investment in A-R Cable using the equity method of accounting
whereby the Company recorded 100% of the net losses of A-R Cable since it
continued to own 100% of A-R Cable's outstanding common stock.
Included in equity in net loss of affiliates in the accompanying consolidated
statements of operations for the period ended July 1, 1997 is $35,835,
representing A-R Cable's net loss plus dividend requirements for the Series A
Preferred Stock of A-R Cable, which was not owned by the
(111)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Company. Beginning on July 2, 1997, the operations of A-R Cable have been
consolidated with those of the Company.
Pro Forma Results of Operations
The following unaudited pro forma condensed results of operations are presented
for the year ended December 31, 1998 as if the acquisition of the TCI Systems
and the sale of assets of certain cable systems had occurred on January 1, 1998.
Results of operations for acquisitions made in 1999 are not material.
Year Ended
December 31, 1998
-----------------
Net revenues.............................. $ 3,329,627
===========
Net loss.................................. $ (520,968)
===========
The pro forma information presented above gives effect to certain adjustments,
including the amortization of acquired intangible assets and increased interest
expense on acquisition debt. The pro forma information has been prepared for
comparative purposes only and does not purport to indicate the results of
operations which would actually have occurred had the transactions been made at
the beginning of the periods indicated or which may occur in the future.
NOTE 3. NET ASSETS HELD FOR SALE
The Company had entered into definitive agreements covering the sale of certain
cable television systems as of December 31, 1999 and 1998.
In December 1999, the Company entered into definitive agreements with Adelphia
Communications Corporation ("Adelphia") under which the Company will sell its
cable television systems in the Greater Cleveland metropolitan area to Adelphia
for total cash and stock consideration of $1,530,000, subject to certain
adjustments.
In January 1998, the Company, Parent and a subsidiary of TCI entered into a
non-binding letter of intent for Parent to acquire certain of TCI's cable
television systems in exchange for cash, stock and certain cable systems
including those serving Kalamazoo, Michigan. This non-binding letter of intent
is no longer in effect. In March 2000, the Company entered into an agreement to
sell its cable system serving Kalamazoo, Michigan to Charter Communications,
Inc. for total consideration of $172,500 in Charter Communications, Inc. common
stock.
(112)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 1999 and 1998
have been classified in the consolidated balance sheet as net assets held for
sale and are included in the telecommunications segment (see Note 15). Such net
assets consist of the following:
December, 31
------------
1999 1998
---- ----
Property, plant and equipment, net ....... $ 222,695 $ 14,548
Intangible assets, net ................... 73,055 215
Other assets (including trade receivables,
prepaid expenses, etc.) ............. 9,796 603
--------- ---------
Total assets ............................. 305,546 15,366
Total liabilities ........................ (36,197) (4,360)
--------- ---------
Net assets ............................... $ 269,349 $ 11,006
========= =========
The accompanying consolidated statement of operations for the years ended
December 31, 1999 and 1998 includes net revenues aggregating approximately
$177,904 and $18,937, respectively, and net income (loss) aggregating
approximately $(4,109) and $9,095, respectively, relating to the cable systems
held for sale or transfer.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following assets, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
------------------------------ Estimated
1999 1998 Useful Lives
----------- ----------- ------------
Communication transmission and distribution systems:
Customer equipment................................. $ 600,271 $ 615,867 3 to 8 years
Headends........................................... 118,311 125,013 7 to 15 years
Multimedia......................................... 18,732 9,075 4 years
Central office equipment........................... 132,191 87,208 10 years
Infrastructure..................................... 2,189,863 2,189,625 5 to 12 years
Program, service and data processing equipment..... 571,773 380,350 2 to 9 years
Microwave equipment................................ 21,881 16,947 2 to 9 years
Construction in progress (including
materials and supplies).......................... 227,991 133,848 -
Furniture and fixtures.................................. 230,742 195,660 1 to 8 years
Transportation equipment................................ 143,511 131,476 4 to 15 years
Building and building improvements...................... 185,118 171,567 20 to 40 years
Leasehold improvements.................................. 276,015 140,766 Term of lease
Land and land improvements.............................. 47,914 45,573 -
----------- -----------
4,764,313 4,242,975
Less accumulated depreciation and amortization.......... 2,011,818 1,736,141
----------- -----------
$ 2,752,495 $ 2,506,834
=========== ===========
(113)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 5. DEBT
Bank Debt
Restricted Group/TCI Systems
For financing purposes, the Company and certain of its subsidiaries are
collectively referred to as the "Restricted Group". In May 1998, the Company and
certain other subsidiaries of Parent entered into a new $2.8 billion reducing
revolving credit facility (the "Credit Agreement") with a group of banks led by
Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as administrative and
arranging agent. This Credit Agreement replaced a $1.7 billion facility that was
also with a group of banks led by Toronto-Dominion.
The $2.8 billion reducing revolving credit facility, maturing in March 2007,
consisted of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR
credit facility of which $600,000 was available, and an $800,000 credit facility
for the TCI Systems. While the $800,000 TCI Systems credit facility was in
place, only $600,000 of the $1.4 billion MFR facility could be utilized.
In July 1998, CSC Holdings' credit facility was reduced by $400,000 to $1.0
billion, and the MFR credit facility was reduced by $200,000 to $1.2 billion,
which included a reduction of the TCI Systems credit facility by $100,000 to
$700,000.
The TCI Systems credit facility matured on April 4, 1999 and concurrent with the
transfer of the TCI Systems to the Company, which occurred on April 5, 1999, the
restriction on the MFR credit facility was eliminated and the borrowings under
the MFR facility increased by an amount equal to the borrowings outstanding
under the TCI Systems credit facility.
The total amount of bank debt outstanding under the Credit Agreement, including
amounts outstanding under a separate overdraft facility at December 31, 1999 and
1998 was $1,454,206 and $1,410,226, respectively. At December 31, 1999, $613,000
and $828,500 was outstanding under the CSC Holdings and the MFR credit facility,
respectively. As of December 31, 1999, approximately $39,274 was restricted for
certain 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 $719,226 at December 31, 1999. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends and dividends on its common
stock. The Company was in compliance with the covenants of its Credit Agreement
at December 31, 1999.
(114)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Interest on outstanding amounts may be paid, at the option of the Company, based
on the prime rate or Eurodollar rate. As of December 31, 1999, the Company had
outstanding interest exchange (swap) agreements with several of its banks with a
total notional value of $300,000. Swaps with an aggregate notional amount of
$250,000 require the Company to pay a floating rate of interest based on LIBOR
in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a
maturity of 18 to 31 months. The remainder of the swaps require payment of a
fixed rate of interest by the Company in exchange for floating rate payments and
have a maturity of 6 months. The Company enters into interest rate swap
agreements to hedge against interest rate risk and accounts for these agreements
as hedges whereby interest expense is recorded using the revised rate with any
fees or other payments amortized as yield adjustments. The Company is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements; however, the Company does not anticipate nonperformance by
the counterparties.
The weighted average interest rate on all bank indebtedness was 7.11% and 6.48%
on December 31, 1999 and 1998, respectively. The Company is also obligated to
pay fees from .1875% to .25% per annum on the unused loan commitment and from
.4% to 2.0% per annum on letters of credit issued under the Credit Agreement.
Unrestricted Group
Rainbow Media
Rainbow Media has a $300,000, three year credit facility with Canadian Imperial
Bank of Commerce and Toronto-Dominion as co-agents and a group of banks which
matures on December 31, 2000. The credit facility contains certain financial
covenants that may limit Rainbow Media's ability to utilize all the undrawn
funds available thereunder, including covenants requiring it to maintain certain
financial ratios. The facility bears interest at varying rates above the lead
bank's base or Eurodollar rate depending on the ratio of debt to borrower value,
as defined in the credit agreement. The loan is secured by a pledge of the
Company's stock in Rainbow Media, a pledge of all of the stock of all
wholly-owned subsidiaries of Rainbow Media and is guaranteed by the subsidiaries
of Rainbow Media, as permitted.
At December 31, 1999 and 1998, Rainbow Media had outstanding borrowings under
its credit facility including amounts outstanding under a separate overdraft
facility of $52,317 and $71,241, respectively. Undrawn funds available to
Rainbow Media under the credit facility amounted to approximately $51,000 at
December 31, 1999.
The weighted average interest rate on Rainbow Media's bank debt was 8.9% and
7.7% on December 31, 1999 and 1998, respectively. The credit agreement contains
various restrictive covenants with which Rainbow Media was in compliance at
December 31, 1999.
(115)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
American Movie Classics Company
On May 12, 1999, American Movie Classics Company ("AMC"), a wholly-owned
subsidiary of Rainbow Media, entered into a new $425,000 credit facility
consisting of a $200,000 reducing revolving credit facility and a $225,000
amortizing term loan, both of which mature on March 31, 2006 ("AMC Credit
Facility"). The amount of the available commitment under the revolver will not
begin to be reduced until June 2004. Borrowings under the AMC Credit Facility
bear interest at varying rates at or above the lead bank's base lending rate or
above the Eurodollar rate depending on the ratio of debt to cash flow, as
defined in the AMC Credit Facility. At December 31, 1999, the weighted average
interest rate on bank indebtedness was 7.6%. On May 12, 1999, AMC distributed to
Rainbow Media approximately $97,000, which Rainbow Media used to repay
outstanding borrowings plus interest and fees under its credit facility. As of
December 31, 1999, AMC had outstanding borrowings of $309,456 (including amounts
outstanding under a separate overdraft facility), leaving unrestricted funds
available of $117,000.
Prior to May 12, 1999, AMC's Credit Facility was comprised of a $146,000 term
loan and a $100,000 revolving loan (the "AMC Loan Agreement"). Borrowings under
the AMC Loan Agreement bore interest at varying rates above or at the lead
bank's base or above the Eurodollar rate depending on the ratio of debt to cash
flow, as defined in the AMC Loan Agreement. At December 31, 1998, the weighted
average interest rate on bank indebtedness was 6.1%. On December 31, 1998,
$128,000 was outstanding under the term loan, $64,250 was outstanding under the
revolving loan and $3,290 was outstanding under a separate overdraft facility.
Substantially all of the assets of AMC, amounting to approximately $320,192 at
December 31, 1999, have been pledged to secure the borrowings under the AMC
Credit Facility. The AMC Credit Facility contains various restrictive covenants
with which AMC was in compliance at December 31, 1999.
Madison Square Garden
MSG has a $500,000 credit facility (the "MSG Credit Facility") with a group of
banks led by Chase Manhattan Bank, as agent, which expires on December 31, 2004.
Loans under the MSG Credit Facility bear interest at current market rates plus a
margin based upon MSG's consolidated leverage ratio. At December 31, 1999 and
1998, loans outstanding amounted to $335,000 and $310,000, respectively, and
bore interest at a weighted average rate of 7.0% and 6.038%, respectively. The
MSG Credit Facility contains certain financial covenants with which MSG was in
compliance at December 31, 1999. The MSG Credit Facility also contains certain
convenants that may limit MSG's ability to utilize all of the undrawn funds
available thereunder.
In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory
notes with various lending institutions which bear interest at LIBOR plus a
margin (8.19% and 7.22% at December 31, 1999 and 1998, respectively) and mature
in July 2002.
(116)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Cablevision Electronics
In February 1998, Cablevision Electronics entered into a three year $130,000
revolving credit facility maturing on February 9, 2001. Under the terms of the
credit facility, the total amount of borrowings available to Cablevision
Electronics is subject to an availability calculation based on a percentage of
eligible inventory. The total amount outstanding under the credit agreement at
December 31, 1999 and 1998 was approximately $73,817 and $44,542, respectively
and bore interest at 7.8% and 7.2%, respectively. As of December 31, 1999,
$26,874 was restricted for certain letters of credit issued on behalf of
Cablevision Electronics. Unrestricted and undrawn funds available amounted to
$29,309 on December 31, 1999 based on the level of inventory as of that date.
Borrowings under the credit agreement are secured by Cablevision Electronics'
assets. The credit agreement contains various restrictive covenants with which
Cablevision Electronics was in compliance at December 31, 1999.
CCG Holdings, Inc.
CCG Holdings, Inc. has a $15,000 revolving credit bank facility maturing on June
30, 2003. As of December 31, 1999, there was $9,691 outstanding under this bank
facility, leaving undrawn funds available of $5,309. There were no outstanding
borrowings under this facility at December 31, 1998.
Senior Notes and Debentures
In July 1999, the Company issued $500,000 face amount ($497,786 amortized amount
at December 31, 1999) of 8-1/8% Senior Notes due 2009. The net proceeds were
used to reduce bank borrowings. The notes are not redeemable by the Company
prior to maturity.
In December 1998, the Company redeemed Clearview's 10-7/8% Senior Notes for
approximately $94,800 in cash. This payment included a premium of $11,200, a
consent fee of $3,600 and accrued interest of $48.
In July 1998, the Company issued $500,000 principal amount of 7-1/4% Senior
Notes due 2008 (the "2008 Notes") and $500,000 principal amount ($499,541 and
$499,516 amortized amount at December 31, 1999 and 1998, respectively) of 7-5/8%
Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a
discount of $495. The 2008 Notes and Debentures are not redeemable by the
Company prior to maturity.
In February 1998, the Company issued $300,000 principal amount of ($296,893 and
$296,721 amortized amount at December 31, 1999 and 1998, respectively) 7-7/8%
Senior Debentures due
(117)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
2018 (the "2018 Debentures"). The 2018 Debentures were issued at a discount of
$3,429. The 2018 Debentures are not redeemable by the Company prior to maturity.
In December 1997, the Company issued $500,000 principal amount ($499,584 and
$499,532 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8%
Senior Notes due 2007 (the "2007 Notes"). The 2007 Notes were issued at a
discount of $525. The 2007 Notes are not redeemable by the Company prior to
maturity.
In August 1997, the Company issued $400,000 principal amount ($398,798 and
$398,674 amortized amount at December 31, 1999 and 1998, respectively) of 8-1/8%
Senior Debentures due 2009 (the "2009 Notes"). The 2009 Notes were issued at a
discount of $1,492. The 2009 Notes are not redeemable by the Company prior to
maturity.
The indentures under which the senior notes and debentures were issued contain
various convenants, which are generally less restrictive than those contained in
the Company's Credit Agreement, with which the Company was in compliance at
December 31, 1999.
Subordinated Notes and Debentures
In May 1996, the Company issued $150,000 principal amount ($149,558 and $149,545
amortized amount at December 31, 1999 and 1998, respectively) of 9-7/8% Senior
Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal amount of
10-1/2% Senior Subordinated Debentures due 2016 (the "2016 Debentures"). The
2006 Notes are redeemable at the Company's option, in whole or in part, on May
15, 2001, May 15, 2002 and May 15, 2003 at the redemption price of 104.938%,
103.292% and 101.646%, respectively, of the principal amount and thereafter at
100% of the aggregate principal amount, in each case together with accrued
interest to the redemption date. The 2016 Debentures are redeemable at the
Company's option, in whole or in part, on May 15, 2006, May 15, 2007, May 15,
2008, and May 15, 2009, at the redemption price of 105.25%, 103.938%, 102.625%,
and 101.313%, respectively, of the principal amount and thereafter at 100% of
the aggregate principal amount, in each case together with accrued interest to
the redemption date.
In November 1995, the Company issued $300,000 principal amount of 9-1/4% Senior
Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at
the Company's option, in whole or in part, on November 1, 2000, November 1, 2001
and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%,
respectively, of the principal amount and thereafter at 100% of the principal
amount, in each case together with accrued interest to the redemption date.
In February 1993, the Company issued $200,000 face amount ($199,180 and $199,117
amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013
Debentures are redeemable, at the
(118)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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.
Also in 1993, the Company issued $150,000 face amount ($149,775 and $149,713
amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2023 (the "2023 Debentures"). 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 indentures under which the subordinated notes and debentures were issued
contain various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement and with which the Company was in
compliance at December 31, 1999.
Summary of Five Year Debt Maturities
Total amounts payable by the Company and its subsidiaries under its various debt
obligations, including capital leases, during the five years subsequent to
December 31, 1999 are as follows:
2000 $91,000
2001 124,000
2002 61,000
2003 54,000
2004 632,000
NOTE 6. PREFERRED STOCK
The following summarizes the changes in each series of the Company's preferred
stock:
Series I Preferred Series M Preferred Series H Preferred
Shares Balance Shares Balance Shares Balance
------------ ----------- ----------- ----------- ----------- -----------
December 31, 1996 .... 13,800,000 $ 323,331 7,157,585 $ 715,759 2,895,063 $ 289,506
Dividends paid in
additional shares -- -- 830,018 83,001 355,415 35,542
------------ ----------- ----------- ----------- ----------- -----------
December 31, 1997 .... 13,800,000 323,331 7,987,603 798,760 3,250,478 325,048
Dividends paid in
additional shares -- -- 926,260 92,626 399,050 39,905
------------ ----------- ----------- ----------- ----------- -----------
December 31, 1998 .... 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953
Dividend paid in
additional shares -- -- 1,033,678 103,368 448,042 44,804
Redemption ........... (13,800,000) (323,331) -- -- -- --
------------ ----------- ----------- ----------- ----------- -----------
December 31, 1999 .... -- $ -- 9,947,541 $ 994,754 4,097,570 $ 409,757
============ =========== =========== =========== =========== ===========
(119)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In September 1999, the Company exercised its right to redeem all of its
outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock ("Series I Preferred"). The redemption occurred on November 2,
1999, at a price equal to 102.8% of the liquidation preference, plus accrued
dividends. Investors held the Series I Preferred through interests in depositary
shares (each of which represented a 1/10th interest in a share of the Series I
Preferred) which were redeemable simultaneously. Each depositary share was
convertible into approximately 1.4828 shares of Parent's Class A Common Stock.
As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000
depositary shares outstanding had been converted into 20,458,925 shares of
Parent's Class A Common Stock, with the remaining 2,375 depositary shares being
redeemed for cash. The Company paid a cash dividend on the Series I Preferred of
approximately $21,898 in 1999 and $29,325 in each of 1998 and 1997.
In February 1996, the Company issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock"), which were subsequently exchanged for Series M
Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in
August 1996 with terms identical to the Series L Preferred Stock. The depositary
shares are exchangeable, in whole but not in part, at the option of the Company,
for the Company's 11-1/8% Senior Subordinated Debentures due 2008. The Company
is required to redeem the Series M Preferred Stock on April 1, 2008 at a
redemption price equal to the liquidation preference of $10,000 per share plus
accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at
various redemption prices beginning at 105.563% at any time on or after April 1,
2003, at the option of the Company, with accumulated and unpaid dividends
thereon to the date of redemption. Before April 1, 2001, dividends may, at the
option of the Company, be paid in cash or by issuing fully paid and
nonassessable shares of Series M Preferred Stock with an aggregate liquidation
preference equal to the amount of such dividends. On and after April 1, 2001,
dividends must be paid in cash.
In September 1995, the Company issued 2,500,000 shares of its $.01 par value
11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H
Preferred Stock") with an aggregate liquidation preference of $100 per share.
The Company is required to redeem the Series H Preferred Stock on October 1,
2007 at a redemption price per share equal to the liquidation preference of $100
per share, plus accrued and unpaid dividends thereon. Before October 1, 2000,
dividends may, at the option of the Company, be paid in cash or by issuing fully
paid and nonassessable shares of Series H Preferred Stock with an aggregate
liquidation preference equal to the amount of such dividends. On and after
October 1, 2000, dividends must be paid in cash. The terms of the Series H
Preferred Stock permit the Company, at its option, to exchange the Series H
Preferred Stock for the Company's 11-3/4% Senior Subordinated Debentures due
2007 in an aggregate principal amount equal to the aggregate liquidation
preference of the shares of Series H Preferred Stock.
(120)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 7. INCOME TAXES
The Company, Parent and certain of its subsidiaries file consolidated federal
income tax returns. Effective April 1, 1997, as a result of the transaction
described in Note 2, Rainbow Media is no longer included in Parent's
consolidated federal income tax returns, but rather files a separate
consolidated federal income tax return with its subsidiaries. At December 31,
1999, Parent had consolidated net operating loss carry forwards of approximately
$1,250,000 and Rainbow Media had consolidated federal net operating loss carry
forwards of approximately $570,000 expiring on various dates through 2019. As a
result of the Holding Company Reorganization, described in Note 1 and the 1997
change in Rainbow Media's ownership described in Note 2, Rainbow Media's loss
carry forwards may be subject to annual limitations on deductions. The Company's
net operating loss carry forwards reflect approximately $50,000 in stock expense
which would result in an adjustment to paid-in capital upon realization of such
net operating loss carry forward.
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, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred Asset (Liability)
Depreciation and amortization ............... $ (54,085) $(182,226)
Receivables from affiliates ................. 27,476 23,406
Benefit plans ............................... 120,847 108,495
Allowance for doubtful accounts ............. 10,526 7,016
Deferred gain ............................... (185,287) (130,650)
Benefits of tax loss carry forwards ......... 764,625 596,175
Other ....................................... -- (50)
--------- ---------
Net deferred tax assets ................ 684,102 422,166
Valuation allowance ......................... (684,102) (422,166)
--------- ---------
$ -- $ --
========= =========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will be realized. The ultimate realization of the deferred tax asset is
dependent upon the generation of future taxable income during the periods in
which temporary differences or net operating loss carry forwards become
deductible. Management considers scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies which
can be implemented by the Company in making this assessment.
(121)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater, event, and
retail store facilities under terms of leases expiring at various dates through
2027. The leases generally provide for fixed annual rentals plus certain real
estate taxes and other costs. Rent expense for the years ended December 31,
1999, 1998 and 1997 amounted to $97,300, $83,003 and $26,773, 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, 1999, 1998 and 1997 amounted to approximately $13,081, $12,490 and
$10,737, respectively.
The minimum future annual rentals for all operating leases during the next five
years, including pole rentals from January 1, 2000 through December 31, 2004,
and thereafter, at rates now in force are approximately: 2000, $99,835; 2001,
$95,902; 2002, $93,872; 2003, 91,645; 2004, $89,105; thereafter, $664,104.
NOTE 9. AFFILIATE TRANSACTIONS
The Company purchases services from certain cable television programming and
advertising companies, in which Rainbow Media directly or indirectly held
varying ownership interests during the three years ended December 31, 1999.
Costs incurred by the Company for programming and advertising services provided
by these non-consolidated affiliates and included in operating expense for the
years ended December 31, 1999, 1998 and 1997 amounted to approximately $4,691,
$2,942, and $16,581, respectively. At December 31, 1999 and 1998 amounts due to
certain of these affiliates, primarily for programming services provided to the
Company, aggregated $1,391 and $3,644, respectively, and are included in
accounts payable. At December 31, 1999 and 1998, amounts due from certain of
these programming and advertising affiliates aggregated $801 and $13,075,
respectively, and are included in advances to affiliates.
The Company's equity in the net income (losses) of these affiliates was
approximately $(11,318), $(31,851) and $10,672 in 1999, 1998 and 1997,
respectively. At December 31, 1999, the Company's investment in these
programming and advertising companies amounted to approximately $46,420. At
December 31, 1998, the Company's net deficit investment in these programming and
advertising companies amounted to approximately $338.
During 1999, 1998 and 1997, the Company provided programming services to or
incurred costs on behalf of other affiliates engaged in providing cable
television, cable television programming, and related services. Amounts due from
these affiliates amounted to $16,518 and $310 at December 31, 1999 and 1998,
respectively and are included in advances to affiliates.
(122)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
In 1992, the Company acquired from Mr. Dolan substantially all of the interests
in Cablevision of New York City ("CNYC") that it did not previously own. Mr.
Dolan remained a 1% partner in CNYC and was entitled to certain preferential
payments. The total amount owed to Mr. Dolan at December 31, 1997 amounted to
approximately $197,183. In 1998, the Company paid all amounts due Mr. Dolan.
In October 1997, the Company entered into an agreement with At Home Corporation
("@Home") and certain of its shareholders, pursuant to which the Company agreed
to enter into agreements for the distribution of the @Home service over certain
the Company's cable television systems on the same terms and conditions as
@Home's founding partners, TCI, Comcast Corporation and Cox Communications, Inc.
The Company received a warrant to purchase 15,751,568 shares of @Home's Series A
Common Stock at an exercise price of $.25 per share. Additionally, in 1998 a
warrant to purchase 4,711,028 shares of @Home's Series A Common Stock at $.25
per share was received in connection with Parent's acquisition of the TCI
Systems. The @Home network distributes high-speed interactive services to
residences and businesses using its own network architecture and a variety of
transport options, including the cable industry's hybrid fiber coaxial
infrastructure.
The aggregate fair market value of the warrants received of $248,134, as
determined by independent appraisals, has been recorded in investments in
affiliates in the accompanying consolidated balance sheets. The difference
between the appraised value of the warrants and the price paid has been recorded
as deferred revenue and is being amortized to income over the period which the
Company is obligated to provide the necessary services to @Home. In 1999 and
1998, the Company recorded $50,136 and $35,821, respectively, of revenue
relating to this transaction.
In August 1996, the Company entered into an agreement with NorthCoast Operating
Co., Inc. ("NorthCoast") and certain of its affiliates, to form a limited
liability company (the "LLC") to participate in the auctions conducted by the
Federal Communications Commission ("FCC") for certain licenses to conduct a
personal communications service ("PCS") business. The Company has contributed an
aggregate of approximately $50,100 to the LLC (either directly or through a loan
to NorthCoast) and holds a 49.9% interest in the LLC and certain preferential
distribution rights. The Company recorded a loss of $7,916 and $5,517 in 1999
and 1998, respectively, representing its share of the losses of the LLC.
NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a
nephew of Charles F. Dolan and a cousin of James L. Dolan.
In 1996, Rainbow Media invested in a joint venture formed with a subsidiary of
Loral Space and Communications, Ltd. for the purpose of exploiting certain
direct broadcast satellite ("DBS") frequencies. Rainbow Media also contributed
to the joint venture its interest in certain agreements with the licensee of
such frequencies. Rainbow Media's investment amounted to $386 and $14,913 at
December 31, 1999 and 1998, respectively. In 1999, based upon its then current
business plans, the Company determined that it could no longer recover its
investment in the joint venture and wrote down the investment by $15,100.
(123)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 10. BENEFIT PLANS
Effective January 1, 1998, the Company established a Cash Balance Retirement
Plan (the "Retirement Plan"), which replaced the Company's former money purchase
pension plan for the benefit of employees other than those of MSG, The WIZ and
CCG Holdings, Inc. Under the Retirement Plan, the Company will credit a certain
percentage of eligible base pay into an account established for each participant
which will earn a market based rate of return annually. Net periodic pension
cost for the years ended December 31, 1999 and 1998 amounted to $6,218 and
$5,555, respectively. At December 31, 1999 and 1998, the accumulated benefit
obligation amounted to $11,309 and $5,312, respectively.
The Company also maintains a 401(k) savings plan, pursuant to which an employee
can contribute a percentage of eligible annual compensation, as defined. The
Company also makes matching contributions for a portion of employee
contributions to the 401(k) savings plan.
The cost associated with the money purchase pension plan and the 401(k) savings
plan was approximately $6,102, $4,492 and $7,445 for the years ended December
31, 1999, 1998 and 1997, respectively.
The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental
Plan") for the benefit of certain officers and employees of the Company. As part
of the Supplemental Plan, the Company established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Supplemental Plan. Net periodic pension cost for the years ended December
31, 1999, 1998 and 1997 was negligible. At December 31, 1999 and 1998, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $3,071 and $2,688, respectively.
MSG sponsors several non-contributory pension plans covering MSG's employees.
Benefits payable to retirees under these plans are based upon years of service
and participant's compensation and are funded through trusts established under
the plans. Plan assets are invested primarily in common stocks, bonds, United
States government securities and cash. At December 31, 1999 and 1998, the
accrued benefit cost amounted to $10,796 and $8,883, respectively, and for the
years ended December 31, 1999, 1998 and 1997, net periodic pension cost amounted
to $2,611, $2,254 and $1,613, respectively.
MSG also sponsors a welfare plan which provides certain postretirement health
care and life insurance benefits to certain employees and their dependents who
are eligible for early or normal retirement under MSG's retirement plan. The
welfare plan is insured through a managed care provider and MSG funds these
benefits with premium payments. For the years ended
(124)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
December 31, 1999, 1998 and 1997, the periodic postretirement benefit cost
amounted to $204, $84 and $133, respectively, and the accrued benefit cost
amounted to $6,154 and $6,087, respectively.
NOTE 11. STOCK BENEFIT PLANS
Parent has Employee Stock Plans (the "Stock Plans") under which it is authorized
to issue incentive stock options, nonqualified stock options, restricted stock,
stock appreciation rights, stock grants and stock bonus awards. The exercise
price of stock options can not be less than the fair market value per share of
Parent's Class A Common Stock on the date the option was granted and the options
expire no longer than ten years from date of grant. Stock appreciation rights
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, in an amount equal to the difference between the fair
market value of the stock as of the date the right is exercised, and the
exercise price.
Under the Stock Plans, employees of the Company have received stock awards,
bonus awards, stock appreciation rights and cash payments for certain executive
stock options. As a result, the Company recorded expense of approximately
$255,789, $146,179 and $64,361 in 1999, 1998 and 1997, respectively. These
amounts reflect vesting schedules for applicable grants as well as fluctuations
in the market price of Parent's Class A Common Stock.
NOTE 12. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Media, has entered into several contracts,
including rights agreements, with professional sports teams and others relating
to cable television programming. In addition, Rainbow Media, through MSG, has
employment agreements with both players and coaches of its professional sports
teams. Certain of these contracts, which provide for payments that are
guaranteed regardless of employee injury or termination, are covered by
disability insurance if certain conditions are met. Future cash payments
required under these contracts as of December 31, 1999 are as follows:
2000 $271,398
2001 217,300
2002 172,800
2003 136,164
2004 109,968
Thereafter 1,020,554
----------
Total $1,928,184
==========
The Company and its cable television affiliates have an affiliation agreement
with a program supplier whereby the Company is obligated to make base rate
annual payments, as defined and subject to certain adjustments pursuant to the
agreement, through 2004. The Company would be
(125)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
contingently liable for its proportionate share of the base rate annual
payments, based on subscriber usage, of approximately $13,335 in 2000 and for
the years 2001 through 2004 such payments would increase by percentage increases
in the Consumer Price Index, or five percent, whichever is less, over the prior
year's base rate annual payment.
NOTE 13. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of these lawsuits will have a
material adverse impact on the financial position of the Company.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable and Accrued Liabilities.
The carrying amount approximates fair value due to the short maturity of these
instruments.
At Home Warrants
The fair value of the At Home warrants is based upon the quoted market price of
the underlying securities.
Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and
Redeemable Exchangeable Preferred Stock
The fair values of each of the Company's long-term debt instruments and
redeemable preferred stock are based on quoted market prices for the same or
similar issues or on the current rates offered to the Company for instruments of
the same remaining maturities.
Interest Rate Swap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
(126)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The fair value of the Company's financial instruments are summarized as follows:
December 31, 1999
-------------------------
Carrying Estimated
Amount Fair Value
---------- ----------
At Home warrants ................................. $ 248,134 $ 867,103
========== ==========
Long term debt instruments:
Bank debt ...................................... $2,254,487 $2,254,487
Senior notes and debentures .................... 2,692,602 2,608,845
Subordinated notes and debentures .............. 1,048,513 1,102,500
Redeemable exchangeable preferred stock ........ 1,404,511 1,539,173
---------- ----------
$7,400,113 $7,505,005
========== ==========
Interest rate swap agreements:
In a net payable position ...................... $ -- $ 3,265
========== ==========
December 31, 1998
-------------------------
Carrying Estimated
Amount Fair Value
---------- ----------
At Home warrants ................................. $ 248,134 $ 755,479
========== ==========
Long term debt instruments:
Bank debt ...................................... $2,051,549 $2,051,549
Senior notes and debentures .................... 2,194,443 2,271,340
Subordinated notes and debentures .............. 1,048,375 1,168,375
Redeemable exchangeable preferred stock ........ 1,256,339 1,417,241
---------- ----------
$6,550,706 $6,908,505
========== ==========
Interest rate swap agreements:
In a net payable position ...................... $ -- $ 4,116
========== ==========
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 15. SEGMENT INFORMATION
The Company classifies its business interests into three segments:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media, consisting principally
of interests in cable television programming networks and MSG, which owns and
operates professional sports teams, regional cable television networks, live
(127)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
productions and entertainment venues; and Retail Electronics, which represents
the operations of Cablevision Electronics' retail electronics stores.
The Company's reportable segments are strategic business units that are managed
separately . The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization, incentive stock plan expense and the costs of year 2000
remediation). The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. Intersegment sales
are accounted for at fair value as if the sales were to third parties.
Information as to the operations of the Company's business segments is set forth
below.
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues
Telecommunication Services ..... $ 2,151,308 $ 1,886,190 $ 1,364,264
Rainbow Media .................. 1,234,113 1,007,639 637,648
Retail Electronics ............. 603,294 464,388 --
All Other ...................... 85,529 6,614 1,707
Intersegment eliminations ...... (131,259) (99,688) (54,261)
----------- ----------- -----------
Total ............... $ 3,942,985 $ 3,265,143 $ 1,949,358
=========== =========== ===========
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Adjusted Operating Cash Flow (unaudited)
Telecommunication Services ............. $ 916,233 $ 762,823 $ 545,927
Rainbow Media .......................... 190,646 135,259 101,122
Retail Electronics ..................... (37,934) (19,737) --
All Other .............................. (51,996) (1,783) (1,704)
----------- ----------- -----------
Total ....................... $ 1,016,949 $ 876,562 $ 645,345
=========== =========== ===========
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Assets
Telecommunication Services ............ $ 4,490,364 $ 4,411,194 $ 2,927,640
Rainbow Media ......................... 2,682,235 2,720,127 2,838,987
Retail Electronics .................... 220,898 199,194 --
Other ................................. 274,003 253,564 10,270
Corporate and intersegment eliminations (537,192) (523,054) (162,109)
----------- ----------- -----------
Total ...................... $ 7,130,308 $ 7,061,025 $ 5,614,788
=========== =========== ===========
(128)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
Years Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues
Total revenue for reportable segments .................... $ 3,988,715 $ 3,358,217 $ 2,001,912
Other revenue and intersegment eliminations .............. (45,730) (93,074) (52,554)
----------- ----------- -----------
Total consolidated revenue ........................ $ 3,942,985 $ 3,265,143 $ 1,949,358
=========== =========== ===========
Adjusted Operating Cash Flow to Net Loss
Total adjusted operating cash flow for reportable
segments (unaudited) .............................. $ 1,068,945 $ 878,345 $ 647,049
Other adjusted operating cash flow deficit (unaudited) ... (51,996) (1,783) (1,704)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (893,797) (734,107) (499,809)
Incentive stock plan expense ...................... (255,789) (146,179) (64,361)
Year 2000 remediation ............................. (41,477) (7,593) --
Interest expense .................................. (470,549) (426,402) (368,700)
Interest income ................................... 4,809 24,028 5,492
Equity in net loss of affiliates .................. (19,234) (37,368) (27,165)
Gain on sale of programming interests and
cable assets, net ............................ -- 170,912 372,053
Gain on redemption of subsidiary preferred stock .. -- -- 181,738
Write off of deferred interest and financing costs (4,425) (23,482) (24,547)
Provision for preferential payment to related party -- (980) (10,083)
Minority interests ................................ 49,563 37,195 (60,694)
Miscellaneous, net ................................ (16,570) (19,218) (12,606)
----------- ----------- -----------
Net income (loss) ....................... $ (630,520) $ (286,632) $ 136,663
=========== =========== ===========
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
(129)
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 16. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the years
ended December 31, 1999 and 1998.
MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------- -------------------------- --------------------------
1999 1998 1999 1998 1999 1998
----------- ----------- ----------- ----------- ----------- -----------
Revenues .............. $ 933,708 $ 675,728 $ 946,309 $ 805,190 $ 902,310 $ 806,871
Operating expenses .... 1,040,755 686,888 954,580 785,935 922,674 790,822
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) $ (107,047) $ (11,160) $ (8,271) $ 19,255 $ (20,364) $ 16,049
=========== =========== =========== =========== =========== ===========
Net loss
applicable to common
shareholder ........ $ (238,647) $ (27,204) $ (167,847) $ (122,951) $ (178,063) $ (113,614)
=========== =========== =========== =========== =========== ===========
DECEMBER 31, TOTAL
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Revenues .............. $ 1,160,658 $ 977,354 $ 3,942,985 $ 3,265,143
Operating expenses .... 1,199,090 1,012,815 4,117,099 3,276,460
----------- ----------- ----------- -----------
Operating profit (loss) $ (38,432) $ (35,461) $ (174,114) $ (11,317)
=========== =========== =========== ===========
Net loss
applicable to common
shareholder ........ $ (216,050) $ (184,735) $ (800,607) $ (448,504)
=========== =========== =========== ===========
(130)
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
The information called for by Item 401 of Regulation S-K under Item 10,
Directors and Executive Officers of the Registrant, Item 11, Executive
Compensation, Item 12, Security Ownership of Certain Beneficial Owners and
Management and Item 13, Certain Relationships and Related Transactions, is
hereby incorporated by reference to Cablevision Parent's definitive proxy
statement for its Annual Meeting of Shareholders anticipated to be held in June
2000 or if such definitive proxy statement is not filed with the Commission
prior to April 30, 2000, to an amendment to this report on Form 10-K filed under
cover of Form 10-K/A.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Pursuant to regulations promulgated by the Securities and Exchange Commission,
the Company is required to identify, based solely on a review of reports filed
under Section 16(a) of the Securities Exchange Act of 1934, each person who, at
any time during its fiscal year ended December 31, 1999, was a director, officer
or beneficial owner of more than ten percent of the Company's Class A Common
Stock that failed to file on a timely basis any such reports. Based on such
review, the Company is aware of no such failure.
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and
Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements as indicated in the index set forth on page
55.
2. Financial Statement schedule:
Page
No.
----
Schedule supporting consolidated financial statements:
Schedule II - Valuation and Qualifying Accounts.............. 132
Schedules other than that listed above have been omitted, since they are either
not applicable, not required or the information is included elsewhere herein.
3. The Index to Exhibits is on page 135.
(b) Reports on Form 8-K:
Cablevision Systems Corporation filed a current report on Form 8-K with the
Commission on December 17, 1999 during the last quarter of the fiscal period
covered by this report.
CSC Holdings, Inc. filed a current report on Form 8-K with the Commission on
December 17, 1999 during the last quarter of the fiscal period covered by this
report.
(131)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
Cablevision Systems Corporation
Balance at
Beginning Charged to Costs Charged to Deductions Balance at
of Period and Expenses Other Accounts Write-Offs End of Period
---------- ---------------- -------------- ---------- -------------
Year Ended December 31, 1999
Allowance for doubtful
accounts ........... $ 34,377 $ 29,775 $ 2,429 $(31,224) $ 35,357
======== ======== =========== ======== ========
Year Ended December 31, 1998
Allowance for doubtful
accounts ........... $ 29,584 $ 32,110 $ -- $(27,317) $ 34,377
======== ======== =========== ======== ========
Year Ended December 31, 1997
Allowance for doubtful
accounts ........... $ 12,955 $ 26,283 $ -- $ (9,654) $ 29,584
======== ======== =========== ======== ========
CSC Holdings, Inc.
Balance at
Beginning Charged to Costs Charged to Deductions Balance at
of Period and Expenses Other Accounts Write-Offs End of Period
---------- ---------------- -------------- ---------- -------------
Year Ended December 31, 1999
Allowance for doubtful
accounts ........... $ 34,377 $ 29,775 $ 2,429 $(31,224) $ 35,357
======== ======== =========== ======== ========
Year Ended December 31, 1998
Allowance for doubtful
accounts ........... $ 29,584 $ 32,110 $ -- $(27,317) $ 34,377
======== ======== =========== ======== ========
Year Ended December 31, 1997
Allowance for doubtful
accounts ........... $ 12,955 $ 26,283 $ -- $ (9,654) $ 29,584
======== ======== =========== ======== ========
(132)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 30th day of
March, 2000.
Cablevision Systems Corporation
CSC Holdings, Inc.
By: /s/ William J. Bell
-------------------------
Name: William J. Bell
Title: Vice Chairman
(Cablevision Systems
Corporation and CSC
Holdings, Inc.)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints William J. Bell and Robert S. Lemle, and each of them,
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign this report, and file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons in the capacities and
on the dates indicated on behalf of each of the Registrants.
Name Title Date
---- ----- ----
/s/ James L. Dolan Chief Executive Officer and Director March 30, 2000
- - ------------------------- (Principal Executive Officer)
James L. Dolan
/s/ William J. Bell Vice Chairman and Director March 30, 2000
- - ------------------------- (Principal Financial Officer)
William J. Bell
/s/ Andrew B. Rosengard Executive Vice President March 30, 2000
- - ------------------------- Financial Planning and Controller
Andrew B. Rosengard (Principal Accounting Officer)
(133)
SIGNATURES
(continued)
/s/ Charles F. Dolan Chairman of the Board of Directors March 30, 2000
- - -------------------------
Charles F. Dolan
/s/ Robert S. Lemle Executive Vice President, General March 30, 2000
- - ------------------------- Counsel, Secretary and Director
Robert S. Lemle
/s/ Sheila A. Mahony Executive Vice President and Director March 30, 2000
- - -------------------------
Sheila A. Mahony
/s/ Thomas C. Dolan Senior Vice President and March 30, 2000
- - ------------------------- Chief Information Officer and
Thomas C. Dolan Director
/s/ John Tatta Director and Chairman of the March 30, 2000
- - ------------------------- Executive Committee
John Tatta
/s/ Patrick F. Dolan Director March 30, 2000
- - -------------------------
Patrick F. Dolan
/s/ Charles D. Ferris Director March 30, 2000
- - -------------------------
Charles D. Ferris
/s/ Richard H. Hochman Director March 30, 2000
- - -------------------------
Richard H. Hochman
/s/ Victor Oristano Director March 30, 2000
- - -------------------------
Victor Oristano
/s/ Vincent Tese Director March 30, 2000
- - -------------------------
Vincent Tese
/s/ William R. Fitzgerald Director March 30, 2000
- - -------------------------
William R. Fitzgerald
/s/ Daniel Somers Director March 30, 2000
- - -------------------------
Daniel Somers
(134)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
3.1 Amended and Restated Certificate of Incorporation of Cablevision
Parent (incorporated herein by reference to Exhibit 3.1 to
Cablevision Parent's Registration Statement on Form S-4, dated
January 20, 1998, File No. 333-44547 (the "S-4")).
3.2 Bylaws of Cablevision Parent (incorporated herein by reference to
Exhibit 3.2 to the S-4).
3.3 Certificate of Incorporation of CSC Holdings, Inc. (incorporated
herein by reference to Exhibits 3.1A(i) and 3.1A(ii) to CSC
Holdings' Annual Report on Form 10-K for the fiscal year ended
December 31, 1989 (the "1989 10-K")).
3.4 Amendment to By-laws and complete copy of amended and restated
By-laws of CSC Holdings, Inc. (incorporated herein by reference to
Exhibit 3.2D to CSC Holdings' Registration Statement on Form S-4,
File No. 33-62717).
3.5 Certificate of Amendment of the Amended and Restated Certificate of
Incorporation of Cablevision Systems Corporation (incorporated
herein by reference to Exhibit 3.5 to Cablevision Systems
Corporation's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1999).
3.6 Certificate of Amendment of Certificate of Incorporation of CSC
Holdings, Inc., dated April 1, 1999 (incorporated herein by
reference to Exhibit 3.1 of CSC Holdings' Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1999.
3.7 Certificate of Amendment of Certificate of Incorporation of CSC
Holdings, Inc., dated April 1, 1999 (incorporated herein by
reference to Exhibit 3.2 of CSC Holdings' Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1999.
4.1 Certificate of Designations for CSC Holdings' Series H Redeemable
Exchangeable Preferred Stock (incorporated by reference to Exhibit
4.1E to CSC Holdings' Registration Statement on Form S-4,
Registration No. 33-63691).
4.2 Certificate of Designations for CSC Holdings' Series M Redeemable
Exchangeable Preferred Stock (incorporated by reference to Exhibit
4.1(f) to CSC Holdings' Registration Statement on Form S-4,
Registration No. 333-00527).
4.3 Indenture dated as of December 1, 1997 relating to CSC Holdings'
$500,000,000 7 7/8% Senior Notes due 2007 (incorporated herein by
reference to Exhibit 4.4 to the S-4).
4.4 Indenture dated as of February 15, 1993 relating to CSC Holdings'
$200,000,000 9 7/8% Senior Subordinated Debentures due February 15,
2013 (incorporated herein by reference to Exhibit 4.3 to the 1992
10-K).
(135)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
4.5 Indenture dated as of April 1, 1993 relating to CSC Holdings'
$150,000,000 9 7/8% Senior Subordinated Debentures due 2023
(incorporated by reference to CSC Holdings' Registration Statement
on Form S-4, Registration No. 33-61814).
4.6 Supplemental Indenture dated as of November 1, 1995 between CSC
Holdings and the Bank of New York, Trustee to the Indenture dated
November 1, 1995 (incorporated by reference to Exhibit 99.6 to CSC
Holdings' Current Report on Form 8-K (File No. 1-9046), filed
November 1, 1995).
4.7 Indenture dated August 15, 1997 relating to CSC Holdings'
$400,000,000 81/8% Senior Debentures due 2009 (incorporated herein
by reference to CSC Holdings' Registration Statement on Form S-4,
Registration No. 333-38013).
4.8 Indenture dated as of November 1, 1995 relating to CSC Holdings'
$150,000,000 9 7/8% Senior Subordinated Notes due 2006, $300,000,000
9 1/4% Senior Subordinated Notes due 2005 and $250,000,000 10 1/2%
Senior Subordinated Debentures due 2016 (incorporated by reference
to Exhibit 99.6 to CSC Holdings' Current Report on Form 8-K filed
November 1, 1995).
4.9 Senior Indenture (incorporated by reference to Exhibit 4.1 to CSC
Holdings' Registration Statement on Form S-3, Registration No.
333-57407).
4.10 Subordinated Indenture (incorporated by reference to Exhibit 4.2 to
CSC Holdings' Registration Statement on Form S-3, Registration No.
333-57407).
10.1 Registration Rights Agreement between CSC Systems Company and CSC
Holdings (incorporated herein by reference to Exhibit 10.1 of CSC
Holdings' Registration Statement on Form S-1, Registration No.
033-01936 ("CSC Holdings' Form S-1")).
10.2 Registration Rights Agreement between Cablevision Company and CSC
Holdings (incorporated herein by reference to Exhibit 10.2 to CSC
Holdings' Form S-1).
10.3 Form of Right of First Refusal Agreement between Dolan and CSC
Holdings (incorporated herein by reference to Exhibit 10.4 to CSC
Holdings' Form S-1).
10.4 Supplemental Benefit Plan of CSC Holdings (incorporated herein by
reference to Exhibit 10.7 to CSC Holdings' Form S-1).
(136)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
10.5 Cablevision Money Purchase Pension Plan, and Trust Agreement dated
as of December 1, 1983 between Cablevision Systems Development
Company and Dolan and Tatta, as Trustees (incorporated herein by
reference to Exhibit 10.8 to CSC Holdings' Form S-1).
10.6 Amendment to the Cablevision Money Purchase Pension Plan adopted
November 6, 1992 (incorporated herein by reference to Exhibit 10.6A
to the 1992 10-K).
10.7 Employment Agreement between Charles F. Dolan and CSC Holdings dated
January 27, 1986 (incorporated herein by reference to Exhibit 10.9
to CSC Holdings' Form S-1).
10.8 Cablevision Amended and Restated Employee Stock Plan (incorporated
herein by reference to Exhibit 10.46 to the 1992 10-K).
10.9 Cablevision 401(k) Savings Plan (incorporated herein by reference to
Exhibit 10.47 to the 1992 10-K).
10.10 Acquisition Agreement and Plan of Merger and Reorganization, dated
as of June 14, 1994, among Cablevision of Boston Limited
Partnership, Cablevision of Boston, Inc., Charles F. Dolan,
Cablevision Systems Boston Corporation, CSC Holdings, COB, Inc.,
Cablevision Systems Services Corporation and Cablevision Finance
Limited Partnership (incorporated herein by reference to Exhibit
10.59 to the June 1994 10-Q).
10.11 Agreement and undertaking, dated as of March 10, 1995 from MSG
Holdings, LP, MSG Eden Corporation, CSC Holdings, Rainbow
Programming Holdings, Inc., Rainbow Garden Corporation, Garden L.P.
Holdings Corp., ITT Corporation, ITT Eden Corp. in favor of the
National Basketball Association (the "NBA"), the member terms of the
NBA, NBA Properties, Inc., the NBA Market Extension Partnership and
Planet Insurance, Ltd. (incorporated herein by reference to Exhibit
10.66 to the 1994 10-K).
10.12 Consent Agreement, dated as of March 10, 1995 by and among the
National Hockey League, MSG Holdings, L.P., MSG Eden Corporation,
ITT Eden Corporation, ITT MSG Inc., ITT Corporation, Garden L.P.
Holdings Corp., Rainbow Garden Corporation, Rainbow Programming
Holdings Inc. and CSC Holdings (incorporated herein by reference to
Exhibit 10.67 to the 1994 10-K).
10.13 Amendment to consulting agreement dated as of November 28, 1994
between CSC Holdings and John Tatta (incorporated herein by
reference to Exhibit 10.68 to the 1994 10-K).
10.14 Employment Agreement, dated as of November 30, 1994, between CSC
Holdings and William J. Bell (incorporated herein by reference to
Exhibit 10.69 to the 1994 10-K).
(137)
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
10.15 Employment Agreement, dated as of November 30, 1994, between CSC
Holdings and Robert S. Lemle (incorporated herein by reference to
Exhibit 10.71 to the 1994 10-K).
10.16 Cablevision Parent Employee Stock Plan (incorporated herein by
reference to Exhibit 10.40 to the S-4).
10.17 Cablevision Parent Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.41 to the S-4).
10.18 Cablevision Systems Corporation 1996 Non-Employee Directors Stock
Option Plan (incorporated by reference to CSC Holdings' 1996
Definitive Proxy Statement).
10.19 Agreement, dated February 4, 1996, among CSC Holdings, Rainbow
Programming Holdings, Inc. and ITT Corporation (incorporated herein
by reference to Exhibit 10.74 to the September 1996 10-Q).
10.20 Master Stock Purchase Agreement, dated as of May 10, 1996, between
Warburg Pincus Investors, L.P., a Delaware limited partnership, and
CSC Holdings (incorporated by reference to Exhibit 99 to CSC
Holdings' Current Report on Form 8-K (File No. 1-9046) dated May 10,
1996).
10.21 Letter, dated March 6, 1997, among ITT MSG Inc., ITT Eden Corp.,
Rainbow Garden Corp. and Garden L.P. Holding Corp. (incorporated by
reference to Exhibit 99.2 of CSC Holdings' Current Report on Form
8-K (File No. 1-9046) dated March 6, 1997).
10.22 Letter, dated November 25, 1997, from CSC Holdings to Charles F.
Dolan (incorporated herein by reference to Exhibit 10.49 to the
S-4).
10.23 Form of Guarantee and Indemnification Agreement among Charles F.
Dolan, the Registrant and officers and directors of the Registrant
(incorporated herein by reference to Exhibit 28 to CSC Holdings'
Form S-1).
10.24 Partnership Interest Transfer Agreement, among ITT Corporation, ITT
Eden Corporation, ITT MSG, Inc., CSC Holdings, Rainbow Media
Holdings, Inc., Rainbow Garden Corp., Garden L.P. Holding Corp., MSG
Eden Corporation and Madison Square Garden, L.P., dated as of April
15, 1997. (incorporated by reference to Exhibit 2(a) of CSC
Holdings' Current Report on Form 8-K (File No. 1-9046) dated April
18, 1997 (the "April 1997 8-K")).
(138)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
------- -----------
10.25 Amendment No. 1 to Partnership Interest Transfer Agreement, dated as
of March 16, 1999.
10.26 Amended and Restated Agreement of Limited Partnership of Madison
Square Garden, L.P., among MSG Eden Corporation, ITT MSG Inc. and
Garden L.P. Holding Corp., dated as of April 15, 1997. (incorporated
by reference to Exhibit 2(b) of the April 1997 8-K).
10.27 SportsChannel Contribution Agreement, among Rainbow Media Holdings,
Inc., Garden L.P. Holding Corp., Rainbow Garden Corp., SportsChannel
New York Holding Partnership, SportsChannel Associates Holding
Corporation, MSG Eden Corporation, ITT MSG Inc., ITT Eden
Corporation, and Madison Square Garden, L.P., dated as of April 15,
1997. (incorporated by reference to Exhibit 2(c) of the April 1997
8-K).
10.28 Aircraft Contribution Agreement, among Garden L.P. Holding Corp.,
MSG Eden Corporation, ITT MSG Inc., ITT Flight Operations, Inc., and
Madison Square Garden, L.P., dated as of April 15, 1997.
(incorporated by reference to Exhibit 2(d) of the April 1997 8-K).
10.29 Formation Agreement, dated as of June 22, 1997, among Rainbow Media
Sports Holdings, Inc. and Fox Sports Net, LLC, attaching Partners)
and Annex B (Partnership Agreement of National Sports Partners).
(incorporated by reference to Exhibit 99.1 of the April 1997 8-K).
10.30 Lease Agreement between Nassau Cable Business Trust, as Landlord and
CSC Holdings, as Tenant, dated as of November 1, 1997 (incorporated
herein by reference to Exhibit 10.56 to the S-4).
10.31 Letter Agreement and Term Sheet, dated October 2, 1997 among CSC
Holdings, At Home Corporation ("At Home"), Comcast Corporation, Cox
Enterprises, Inc., Kleiner, Perkins, Caufield & Byers and
Tele-Communications, Inc., as amended October 10, 1997 (incorporated
by reference to Exhibit 10.01 of the Current Report on Form 8-K
filed by At Home (File No. 000-22697) on October 22, 1997 (the "At
Home October 8-K")).
10.32 Warrant to purchase shares of Series A Common Stock of At Home
issued to CSC Holdings (incorporated by reference to Exhibit 10.03
of the At Home October 8-K).
10.33 Contingent Warrant to purchase shares of Series A Common Stock of At
Home issued to CSC Holdings (incorporated by reference to Exhibit
10.04 of the At Home October 8-K).
10.34 Warrant Purchase Agreement, dated October 10, 1997, between At Home
and CSC Holdings (incorporated by reference to Exhibit 10.02 of the
At Home October 8-K).
(139)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
------- -----------
10.35 Amended and Restated Stockholders Agreement, dated August 1, 1996,
as amended in May, 1997 (incorporated by reference to Exhibit 4.04
of the Registration Statement on Form S-1 of At Home (File No.
333-27323) (the "At Home S-1")).
10.36 Letter Agreement dated May 15, 1997 among At Home and the parties
thereto, including as exhibits the Master Distribution Agreement
Term Sheet and the Term Sheet for Form of LCO Agreement
(incorporated by reference to Exhibit 10.20 of the At Home S-1).
10.37 Credit Agreement, dated as of June 6, 1997, among Madison Square
Garden, L.P., the several lenders from time to time parties thereto,
the Chase Manhattan Bank, as Administrative Agent, Toronto Dominion
(New York), Inc., as Documentation Agent, and The Bank of Nova
Scotia, as Syndication Agent (incorporated herein by reference to
Exhibit 10.63 to the S-4).
10.38 Asset Purchase Agreement, dated as of August 29, 1997, by and among
U.S. Cable Television Group, L.P., ECC Holding Corporation, Missouri
Cable Partners, L.P., CSC Holdings and Mediacom LLC (incorporated
herein by reference to Exhibit 10.64 to the S-4).
10.39 Loan Agreement, dated as of April 2, 1997, among Rainbow Media
Holdings, Inc., the Guarantors, Canadian Imperial Bank of Commerce,
and Toronto Dominion (Texas), Inc. as Arranging Agents and
Documentation Agents, Canadian Imperial Bank of Commerce, as
Syndication Agent, Toronto Dominion (Texas), Inc., as Administrative
Agent and the other Credit Parties thereto (incorporated by
reference to Exhibit 10.77 of CSC Holdings' Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997).
10.40 First Amendment, dated November 5, 1997 to the Credit Agreement,
dated as of June 6, 1997, among Madison Square Garden, L.P., the
several lenders from time to time parties thereto, the Chase
Manhattan Bank, as Administrative Agent, Toronto Dominion (New
York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as
Syndication Agent (incorporated herein by reference to Exhibit 10.66
to the S-4).
10.41 Second Amendment, dated December 10, 1997, to the Credit Agreement,
dated as of June 6, 1997, among Madison Square Garden, L.P., the
several lenders from time to time parties thereto, the Chase
Manhattan Bank, as Administrative Agent, Toronto Dominion (New
York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as
Syndication Agent (incorporated herein by reference to Exhibit 10.67
to the S-4).
10.42 Cablevision Parent Stock Option Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 10.68 to the S-4).
(140)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
------- -----------
10.43 Asset Purchase Agreement, dated as of January 29, 1998, between The
Wiz, Inc. and each of its subsidiaries and affiliates listed on the
signature pages thereto and Cablevision Electronics Investments,
Inc. (incorporated by reference to Exhibit 99.1 of CSC Holdings'
report on Form 8-K (file no. 1-9046) dated February 5, 1998.
10.44 Amended and Restated Contribution and Merger Agreement, dated as of
June 6, 1997, among Cablevision Parent, CSC Holdings, CSC Merger
Corporation and TCI Communications, Inc. (incorporated herein by
reference to Exhibit 2.1 to the S-4).
10.45 Stockholders Agreement, dated as of March 4, 1998, by and among CSC
Holdings, Tele-Communications, Inc., a Delaware corporation, the
Class B Entities (as defined in the Stockholders Agreement) and the
Investors (as defined in the Stockholders Agreement) (incorporated
herein by reference to Exhibit 4.1 to CSC Holdings' Current Report
on Form 8-K (File No. 1-9046) dated March 4, 1998).
10.46 Sixth Amended and Restated Credit Agreement, dated as of May 28,
1998, among CSC Holdings, Inc., the Restricted Subsidiaries which
are parties thereto, the lenders which are parties thereto (the
"Banks"). Toronto Dominion (Texas), Inc., as Arranging Agent and as
Administrative Agent, The Bank of New York, The Bank of Nova Scotia,
The Canadian Imperial Bank of Commerce, NationsBank, N.A., and The
Chase Manhattan Bank, as Managing Agents, Bank of Montreal, Chicago
Branch, Barclays Bank, PLC, Fleet Bank, N.A., and Royal Bank of
Canada, as agents, Banque Paribas, Credit Lyonnais, BankBoston,
N.A., The First National Bank of Chicago, Mellon Bank, N.A. and
Societe Generale, New York Branch, as Co-Agents, and The Canadian
Imperial Bank of Commerce, The Chase Manhattan Bank and NationsBank,
N.A., as Co-Syndication Agents.
10.47 First Amended and Restated Credit Agreement, dated as of May 28,
1998, among Cablevision MFR, Inc. ("MFR"), CSC Holdings, Inc., the
Guarantors which are parties thereto, the lenders which are parties
thereto (the "Banks"), Toronto Dominion (Texas), Inc., as Arranging
Agent and as Administrative Agent, The Bank of New York, The Bank of
Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank,
N.A., and The Chase Manhattan Bank, as Managing Agents, Bank of
Montreal, Chicago Branch, Barclays Bank, PLC, Fleet Bank, N.A., and
Royal Bank of Canada, as Agents, Banque Paribas, Credit Lyonnais,
BankBoston, N.A., The First National Bank of Chicago, Mellon Bank,
N.A. and Societe Generale, New York Branch, as Co-Agents, and The
Bank of New York and The Bank of Nova Scotia as Co Syndication
Agents.
(141)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
------- -----------
10.48 First Amended and Restated Credit Agreement, dated as of May 28,
1998 among CSC TKR, Inc. Cablevision of Brookhaven, Inc.,
Cablevision of Oakland, Inc. Cablevision of Paterson, Inc. CSC TKR
I, Inc. and UA-Columbia Cablevision of Westchester, Inc., the
lenders which are parties thereto, Toronto Dominion (Texas), Inc.,
as Arranging Agent and as Administrative Agent, The Bank of New
York, The Bank of Nova Scotia, The Canadian Imperial Bank of
Commerce, NationsBank, N.A. and The Chase Manhattan Bank, as
Managing Agents, the Bank of Montreal, Chicago Branch, Barclays Bank
PLC, Fleet Bank, N.A. and the Royal Bank of Canada, as Agents, and
Banque Paribas, Credit Lyonnais, BankBoston, N.A., The First
National Bank of Chicago, Mellon Bank, N.A. and Societe Generale,
New York Branch, as Co-Agents.
10.49 Agreement and Plan of Merger, dated as of August 12, 1998 among
Cablevision Parent, CCG Holdings, Inc. and Clearview Cinema Group,
Inc. (incorporated herein by reference to Exhibit 10.1 of
Cablevision Parent's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998).
10.50 Stockholders Agreement, dated as of August 12, 1998 between
Cablevision Parent and the stockholders of Clearview Cinema Group,
Inc. party thereto (incorporated herein by reference to Exhibit 10.1
of Cablevision Parent's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998).
10.51 Asset Purchase Agreement, dated as of December 8, 1999, by and among
Telerama, Inc., Cablevision of Cleveland, L.P., and Adelphia
Communications Corporation (incorporated herein by reference to
Exhibit 99.1 of Cablevision Parent's Current Report on Form 8-K
filed on December 17, 1999 (the "December 1999 8-K")).
10.52 Agreement and Plan of Reorganization, dated as of December 8, 1999,
by and among Cablevision of the Midwest, Inc., Cablevision of the
Midwest Holding Co., Inc., Adelphia General Holdings II, Inc. and
Adelphia Communications Corporation (incorporated herein by
reference to Exhibit 99.2 of the December 1999 8-K).
21 Subsidiaries of the Registrants.
23.1 Consent of Independent Auditors.
23.2 Consent of Independent Auditors.
27 Financial Data Schedule - CSC Holdings, Inc. and Subsidiaries.
27.1 Financial Data Schedule - Cablevision Systems Corporation and
Subsidiaries.
(142)