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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, 1998
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
(formerly CSC Parent Corporation)
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
1-9046 CSC Holdings, Inc. (formerly 11-2776686
Cablevision Systems Corporation)
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
Securities registered pursuant to
Section 12(b) of the Act: Name of each Exchange
Title of each class: on which Registered:
Cablevision Systems Corporation American Stock Exchange
- - -------------------------------
Class A Common Stock
CSC Holdings, Inc. American Stock Exchange
- - ------------------
8-1/2% Series I Cumulative
Convertible Exchangeable Preferred 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 American Stock Exchange on March 19, 1999: $7,673,577,320.
Number of shares of common stock outstanding as of March 19, 1999:
Cablevision Systems Corporation Class A Common Stock - 108,547,404
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. 26
3. Legal Proceedings. 27
4. Submission of Matters to a Vote of
Security Holders. 27
Part II
5. Market for the Registrants' Common Equity
and Related Stockholder Matters. 28
6. Selected Financial Data. 30
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 34
8. Consolidated Financial Statements. 69
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 146
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. 146
* 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 CSC Holdings,
Inc. ("CSC Holdings") and Cablevision Systems Corporation ("Cablevision Parent"
or the "Company").
Cablevision Parent
Cablevision Parent is a Delaware corporation which was organized in 1997.
Cablevision Parent's only assets are all of the common stock of CSC Holdings,
all of the ownership interests in the entities that own certain cable television
systems acquired from Tele-Communications, Inc. in 1998 (the "TCI Systems") and
which served 843,000 subscribers at December 31, 1998, and a minority interest
in Cablevision Cinemas, LLC, which owns the Company's motion picture theater
assets. 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 6 states with approximately 2,569,000
subscribers at December 31, 1998. Through Rainbow Media Holdings, Inc. ("Rainbow
Media"), a company owned 75% by CSC Holdings and 25% by 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 40 retail locations in the New York Metropolitan
area and a majority interest in Cablevision Cinemas, LLC which owns motion
picture theaters containing a total of 283 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
(1)
and the Class A Common Stock of Cablevision Parent became listed on the ASE and
trades under the symbol "CVC". Cablevision Parent owns all of the common stock
of CSC Holdings.
CSC Holdings' outstanding preferred stock was unaffected by the Reorganization
except that CSC Holdings' 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock is now convertible into Cablevision Parent's Class A Common
Stock rather than CSC Holdings' Class A Common Stock. The Series I Preferred
Stock continues to be listed on the ASE and to trade under the symbol "CVCp".
The outstanding debt of CSC Holdings was not affected by the Reorganization.
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 shares of
Cablevision Parent Class A Common Stock representing approximately 32.3% of the
outstanding common stock of Cablevision Parent 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 to be 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 and radio signals are received over-the-air or via satellite delivery
by antennas, microwave relay stations and satellite earth stations and are
modulated, amplified and distributed over a network of coaxial and fiber optic
cable to the subscribers' television sets. Cable television systems typically
are constructed and operated pursuant to non-exclusive franchises awarded by
local governmental authorities for specified periods of time.
(2)
The Company's cable television systems offer varying levels of service which may
include, among other programming, local broadcast network affiliates and
independent television stations, satellite-delivered "superstations", certain
other news, information and entertainment channels such as CNN, CNBC, ESPN, and
MTV, and certain premium services such as HBO, Showtime, The Movie Channel,
Starz and Cinemax.
The Company's cable television revenues are derived principally from monthly
fees paid by subscribers. In addition to recurring subscriber revenues, the
Company derives revenues from installation charges, from the sales of
pay-per-view movies and events, and from the sale of advertising time on
advertiser supported programming. Certain services and equipment provided by
substantially all of the Company's cable television systems are subject to
regulation.
As of December 31, 1998, the Company's consolidated cable television systems
served approximately 3,412,000 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,
-----------------------------------------------
1998 1997 1996
-----------------------------------------------
Homes passed by cable (1) ...................... 5,115,000 4,398,000 3,858,000
Basic service subscribers ...................... 3,412,000 2,844,000 2,445,000
Basic service subscribers as a percentage of
homes passed ............................... 66.7% 64.7% 63.4%
Number of premium television units ............. 5,137,000 4,183,000 3,862,000
Average number of premium units per basic
subscriber at period end ................... 1.5 1.5 1.6
Average monthly revenue per basic subscriber (2) $ 42.56 $ 38.53 $ 36.71
- - ----------
(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."
The Company's consolidated cable television systems are concentrated in the New
York City greater metropolitan area (79% of the Company's total subscribers as
of December 31, 1998), the Boston and suburban Massachusetts areas (10% of total
subscribers as of December 31, 1998) and the greater Cleveland metropolitan area
(9% of total subscribers as of December 31, 1998). The Company believes that its
cable systems on Long Island comprise the largest group of contiguous cable
television systems under common ownership in the United States (measured by
number of subscribers).
Cable Television System Sales
Since early 1997, the Company has aggressively pursued a plan to dispose of
certain nonstrategic cable television systems. The Company has completed the
sale or transfer of cable television
(3)
systems in Alabama, Florida, Illinois, Kentucky, Maine, Missouri, New York,
North Carolina, Ohio and neighboring states, representing approximately 440,000
subscribers for an aggregate sales price of $514.7 million in cash.
In addition, in October 1998, the Company transferred its cable television
system in Rensselaer, New York (which served approximately 29,600 subscribers at
September 30, 1998), plus approximately $16 million in cash to Time Warner
Entertainment Company, L.P. in exchange for Time Warner's Litchfield,
Connecticut system (which served approximately 28,400 subscribers at date of
transfer).
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 (the "TCI Transferors") an aggregate of
48,942,172 shares (adjusted for the two-for-one stock splits) 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 (the "Bridge Credit
Agreement") entered into by wholly-owned subsidiaries of Cablevision Parent
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 are wholly-owned (directly or indirectly) by Cablevision Parent.
CSC Holdings has no ownership interest in the Contributed Business Subsidiaries
and has not guaranteed any of their debt or other obligations. See "Management
Discussion and Analysis - Liquidity and Capital Resources."
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") 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 transaction,
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.
On January 27, 1998, CSC Holdings, Cablevision Parent and a subsidiary of TCI
entered into a non-binding letter of intent for Cablevision Parent to acquire
TCI's cable television systems (the "TCI Connecticut Systems") in and around
Hartford, Vernon, Branford and Lakeville, Connecticut serving approximately
244,000 subscribers at December 31, 1998, based on information supplied by TCI.
In consideration for the TCI Connecticut Systems, which have been valued by the
parties at $380 million, Cablevision Parent would:
(4)
(i) transfer to TCI cable television systems serving Kalamazoo, Michigan
(which served approximately 49,000 subscribers as of December 31, 1998 and
which have been valued by the parties at $75 million),
(ii) transfer to TCI other cable television systems to be identified by TCI and
purchased with approximately $25 million of funds provided by Cablevision
Parent,
(iii) issue shares of Cablevision Parent Class A Common Stock (based on a $28.90
per share valuation), and
(vi) assume certain indebtedness relating to the TCI Connecticut Systems, which
is anticipated to total approximately $110 million.
No definitive documentation has been executed with respect to these transactions
and there can be no assurance that such documentation will be executed or that
these transactions will be consummated on the above terms or at all.
The agreement effecting the TCI Transactions (the "Contribution Agreement")
permits Cablevision Parent to combine the cable operations of CSC Holdings and
the Contributed Business Subsidiaries. Following such a combination, Cablevision
Parent would be permitted to establish Rainbow Media as a separate subsidiary of
Cablevision Parent. The Company anticipates that the Contributed Business
Subsidiaries will be contributed to CSC Holdings by April 4, 1999. No final
decision has been made as to whether such combination of the Contributed
Business Subsidiaries and CSC Holdings' cable television systems and the Rainbow
Media separation would be effected without a favorable tax ruling from the
Internal Revenue Service, and there can be no assurances that such a ruling will
be obtained. If the Company effects these transactions, Rainbow Media and its
subsidiaries would be subsidiaries of Cablevision Parent and would no longer be
subsidiaries of CSC Holdings. Combination of the Contributed Business
Subsidiaries and CSC Holdings' cable television systems and any full or partial
separation of Rainbow Media from CSC Holdings is also dependent upon compliance
with the Company's debt covenants and upon the receipt of regulatory and other
approvals.
In connection with the TCI Transactions, Cablevision Parent, TCI and certain
holders of Cablevision Parent Class B Common Stock (the "Class B Stockholders')
entered into a Stockholders Agreement (the "Stockholders Agreement") providing,
among other things, for:
(i) limits on TCI's ability to buy more than an additional 10% of the
Cablevision Parent Class A Common Stock beyond that issued to TCI in the
TCI Transactions,
(ii) limitations on TCI's ability to transfer Cablevision Parent Class A Common
Stock to any person who after such transfer would beneficially own 10% or
more of the outstanding Cablevision Parent Class A Common Stock or 5% or
more of all outstanding Cablevision Parent Common Stock, except for
transfers of all of TCI's Cablevision Parent Class A Common Stock to a
single purchaser who agrees to become a party to the Stockholders
Agreement, transfers to certain TCI subsidiaries and transfers in
connection with a bona fide pledge to secure a borrowing,
(iii) consultation rights among Cablevision Parent, TCI and the Class B
Stockholders regarding sales of Cablevision Parent as a whole or
significant Cablevision Parent assets, sales of Cablevision Parent Class A
Common Stock owned by TCI and sales of Cablevision Parent Class B Common
Stock owned by the Class B Stockholders,
(5)
(iv) certain tag-along and drag-along rights between TCI and the Class B
Stockholders,
(v) preemptive rights for TCI on new issuances of Cablevision Parent Common
Stock so that TCI may maintain ownership of 33% of the outstanding
Cablevision Parent Common Stock, with certain limited exceptions,
(vi) TCI's right to designate two Class B directors to Cablevision Parent's
Board of Directors,
(vii) the right of TCI director designees to membership on a Cablevision Parent
board committee to approve certain transactions with Class B Stockholders
and their family members that will give such designees a veto over such
transactions,
(viii)TCI's agreement to vote in proportion with the public Cablevision Parent
Class A Common Stockholders for the election of the 25% of Cablevision
Parent directors which the Cablevision Parent Class A Common Stock is
entitled to elect,
(ix) Cablevision Parent's agreement not to effect acquisition transactions that
would cause the debt to cash flow ratio of Cablevision Parent (calculated
as described in the Stockholders Agreement) to exceed a specified ratio
(initially 8.0 to 1, and declining to 7.5 to 1 after December 31, 1999),
and
(x) registration rights under the Securities Act for shares of Cablevision
Parent Class A Common Stock owned by TCI.
On March 9, 1999, TCI merged with a subsidiary of AT&T Corp. and became a
wholly-owned subsidiary of AT&T Corp.
The following charts summarize the corporate organization structure of
Cablevision Parent and CSC Holdings immediately following the TCI Transactions
and after giving effect to the combination of the Contributed Business
Subsidiaries with CSC Holdings and the Rainbow Media separation. No final
decision has been made as to whether a combination of the Contributed Business
subsidiaries and CSC Holdings' cable television systems and the Rainbow Media
separation will be effected.
(6)
MANUAL INSERT
Chart depicting:
Company Structure Immediately following Completion of the TCI Transactions and
Prior to Other Possible Related Transactions
Chart depicting:
Company Structure Following Completion of Other Possible
Related Transactions
(7)
Subscriber Rates and Services; Marketing and Sales.
The Company's cable television systems offer a package of services, generally
marketed as "Family Cable", which includes, among other programming, broadcast
network local affiliates and independent television stations,
satellite-delivered "superstations" and certain other news, information and
entertainment channels such as CNN, CNBC, ESPN and MTV. 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.
In certain areas with sufficient system capacity, the Company has a branded
product offering called "OptimumTV". OptimumTV, which includes a minimum of 77
analog channels, offers the basic and Family packages noted above, as well as
premium services, and a group of three packages containing premium networks and
ad-supported news, information and entertainment channels. Depending upon the
market, OptimumTV offers customers anywhere from 20 to 30 additional cable
channels, including 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 sells its cable television services
through door-to-door selling, as well as telemarketing, direct mail advertising,
promotional campaigns and local media and newspaper advertising.
Certain services and equipment (converters which are leased 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 and 95% of its homes
passed are currently served by systems having a capacity of at least 62
channels. Currently 87% of its homes are served by at least 77 channels. As a
result of ongoing upgrades, the Company expects
(8)
that by December 1999 approximately 94% 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 TCI. 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.
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 recently renewals have often been for five to ten
year terms. Some of the franchises grant the cable television system an option
to renew. Except for the franchise for the Town of Brookhaven, which has been
passed by the town and is pending state approval, the expiration dates for the
Company's ten largest franchises range from 2001 to 2007. In situations where
the Company's franchises have expired, the Company is operating under temporary
operating authority or short term extensions while negotiating renewal terms
with the franchising authorities. Franchises usually require the consent of the
franchising authority prior to the sale, assignment, transfer or change in
ownership or operating control of the franchisee.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") provide significant procedural protections for cable operators seeking
renewal of their franchises. See "Business - Cable Television Operations -
Regulation". In connection with a renewal, a franchising authority may impose
different and more stringent terms. The Company has never lost a franchise as a
result of a failure to obtain a renewal.
(9)
Programming and Entertainment Operations
General.
The Company conducts its programming activities through Rainbow Media, a company
75% owned by CSC Holdings and 25% by NBC Cable.
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/Liberty Networks, LLC ("Fox/Liberty").
Rainbow Media owns a 60% interest in, and manages, Regional Programming
Partners, a partnership with Fox/Liberty. Regional Programming Partners owns an
approximate 96.3% interest in 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 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 New York which provide regional sports
programming to the New York City Metropolitan area, as well as MSG 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/Liberty.
(10)
The following table sets forth ownership information and estimated subscriber
information as of December 31, 1998 for each of the programming businesses whose
ownership interest is held directly or indirectly by Rainbow Media. Rainbow
Media is a 75% owned subsidiary of CSC Holdings. NBC owns the remaining 25%
interest. Regional Programming Partners ("RPP") is a 60% owned subsidiary of
Rainbow Media, with the remaining 40% interest owned by Fox/Liberty.
Affiliated
Programming Viewing Basic
Businesses Subscribers Subscribers (1) Ownership (2)
- - ---------- ----------- --------------- -------------
(In Millions)
National Entertainment:
American Movie Classics 63.7 68.6 Rainbow Media - 100%
Romance Classics 12.4 19.9 Rainbow Media - 100%
Bravo 31.5 38.8 Rainbow Media - 100%
Bravo Latin America 4.2 5.2 Rainbow Media - 100%
The Independent Film Channel 7.8 21.0 Rainbow Media - 100%
MuchMusic 9.6 17.1 Rainbow Media and Chum, Ltd. - 50% each
Sports:
Madison Square Garden Network/FSNY 11.4 14.5 RPP - 96.3%; ITT - 3.7% (3)
Fox Sports Pacific 2.8 3.1 RPP and Fox/Liberty - 50% each
Fox Sports Chicago 3.1 3.2 RPP and Fox/Liberty - 50% each
Fox Sports New England 2.9 3.7 RPP and Media One - 50% each (4)
Fox Sports Ohio 2.1 2.3 RPP - 100%
Fox Sports Cincinnati 2.4 2.6 RPP - 100%
SportsChannel Florida 3.0 3.1 RPP - 30%; Front Row - 70%
News Services:
News12 Long Island .7 .8 Rainbow Media - 100%
News12 Connecticut .2 .2 Rainbow Media - 100%
News12 New Jersey 1.6 1.7 Rainbow Media and Newark Star Ledger - 50% each
News12 Westchester .2 .2 Rainbow Media - 100%
News12 Bronx .2 .2 Rainbow Media - 100%
Neighborhood News L.I. .1 .1 Rainbow Media - 100%
Other:
MSG Metro Guide 2.4 2.6 RPP - 100%
MSG Metro Traffic and Weather 2.4 2.6 RPP - 100%
MSG Metro Learning 2.4 2.6 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) See "Madison Square Garden" for a discussion of certain puts and calls
with respect to Madison Square Garden.
(4) In January 1998, Media One, Inc. purchased a 50% interest in Fox Sports
New England for approximately $19 million.
(11)
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 may be increased by up to an additional 2% under
certain circumstances without additional payment) in Class C Common Stock of
Rainbow Media. CSC Holdings owns the remaining 75% equity interest in Rainbow
Media. 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/Liberty Transactions
On December 18, 1997, Rainbow Media organized three partnerships with Fox
Sports, a subsidiary of Fox/Liberty: Regional Programming Partners (the
partnership that owns the interest in Madison Square Garden and 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/Liberty) (the "Fox/Liberty 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/Liberty 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/Liberty 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 Sports
and interests in Prime SportsChannel and Fox Watch Productions Inc. A subsidiary
of Fox Sports 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/Liberty contributed, in consideration for the
issuance of a 50% general partnership interest, certain assets relating to the
national advertising of the regional sports programming services in which Fox
Sports had an
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interest. A subsidiary of Fox Sports is the managing general partner of National
Advertising Partners.
Madison Square Garden
In March 1995, a partnership formed by Rainbow Media and ITT Corporation ("ITT")
acquired the business and assets of Madison Square Garden. Madison Square Garden
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 New York and Radio City Entertainment (which operates Radio
City Music Hall in New York City). The purchase price was $1,009.1 million.
On June 17, 1997, Madison Square Garden redeemed a portion of 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/Liberty 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 MSG redeemed a portion of ITT's interest following ITT's exercise of
its first put right. In March 1999, ITT and the Company entered into an
agreement under which ITT exercised its second put for the remainder of its
interest in MSG and settled certain matters between the parties for a net
payment of $87 million. Consummation of this transaction is subject to league
and regulatory approvals and is expected to occur in the second quarter of 1999.
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 MSG, including certain transfers of ownership
interests.
On December 5, 1997, Madison Square Garden purchased Radio City Entertainment,
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.
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
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long distance levels on its own facilities and network. As of December 31, 1998,
Lightpath serviced over 1,200 industrial, commercial and institutional accounts
on Long Island. In addition, the Company has begun providing 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,
1998, the Company served approximately 11,200 modem subscribers.
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 $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, Cablevision Parent 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 $157.7 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, CSC Holdings acquired a total of 16
movie theaters from Loews Cineplex Entertainment Corporation ("Loews"), for an
aggregate purchase price of approximately $89 million. These theaters are
located in the New York Metropolitan area. In connection with this acquisition,
Loews has granted CSC Holdings a right of first offer on an additional 21 movie
theaters in the greater New York Metropolitan area until December 1999.
At Home Corporation
The Company owns warrants to acquire approximately 10.2 million shares of common
stock of At Home Corporation, which warrants are exercisable at $.50 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.
These warrants were issued to the Company in exchange for certain agreements of
the Company with respect to the distribution of the At Home internet access
service to cable subscribers.
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Other Investments
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 $38.0 million as of
December 31, 1998 to NorthCoast (either directly or through a loan to NorthCoast
Operating Co., Inc. ("NorthCoast Operating"), the other member in NorthCoast).
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 $14.9
million through December 31, 1998 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 direct 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 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
and Westchester County, New York. 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.
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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 areas of smaller population.
Four DBS systems are now operational in the United States, some with investment
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 has been introduced in Congress to
change the federal copyright laws to permit DBS systems to retransmit local
broadcast television signals to DBS customers. If enacted, such legislation
could enhance the competitive position of DBS systems.
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.
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 bidding for LMDS frequencies in their own service areas.
The 1984 Cable Act specifically legalized, under certain circumstances,
reception by private home earth stations of satellite-delivered cable
programming services. Direct broadcast satellite ("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.
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The full extent to which developing media will compete with cable television
systems may not be known for several years. There can be no assurance that
existing, proposed or as yet undeveloped technologies will not become dominant
in the future and render cable television systems less profitable or even
obsolete.
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.
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 Rainbow Media's marketing efforts.
Numerous businesses compete with Madison Square Garden and Radio City
Entertainment for the entertainment expenditures of consumers.
(17)
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 also 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 and Connecticut, 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 and an agreement with Ameritech
for Ohio, approval for which is pending.
Lightpath also faces competition from one or more competitive access providers
("CAPs") and other new entrants in the local telecommunications marketplace,
such as Teleport Communications Group, Inc. ("Teleport"), now part of AT&T and
MFS Communications Company, Inc. ("MFS"), now part of MCI/Worldcom. In addition
to the ILECs and competitive service providers, other potential competitors
capable of offering private line and special access services include electric
utilities, long distance carriers, microwave carriers, wireless telephone system
operators (such as cellular, PCS, and specialized mobile radio), and private
networks built by large end users. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to Lightpath.
Many ILECs and certain of Lightpath's other potential competitors have
financial, personnel and other resources significantly greater than those of
Lightpath. Some of these competitors have existing networks or conduits that
could be adapted to provide local exchange services. There can be no assurance
that Lightpath will be able to compete effectively against these competitors.
Lightpath may also face competition from new technologies and services
introduced in the future.
Retail Electronics
The consumer retail electronics industry has experienced consolidation and slow
growth in recent years due to difficult conditions, including flat demand for
consumer electronics and, until recently, a lack of new product introductions.
The consumer retail electronics business however, remains highly competitive.
The Wiz competes with national and regional retail electronics chains which
continue to increase their expansion in the New York Metropolitan area,
computer, office product and entertainment superstores, general merchandise
retailers, discount stores, local independent retailers and mail order and "e"
commerce services. Some of these competitors have significantly
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greater financial resources than Cablevision Electronics. Competition is
primarily based on price, service and selection of merchandise. The Wiz competes
on the basis of these factors and also plans to differentiate itself from its
competitors by continued implementation of new marketing and merchandising
strategies. These new strategies (including a new store prototype, incorporating
technological innovations such as interactive kiosks demonstrating cable modem
service) are designed to emphasize the variety of other products and services of
the Company which are expected to be available to customers of The Wiz.
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 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
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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 may, in response to complaints by a franchising authority, reduce the
rates for service packages other than the basic service package if it finds that
such rates are unreasonable. The FCC will in response to complaints also
regulate, on the basis of actual cost, the rates for equipment used only to
receive these higher packages. Services offered on a per channel or per program
basis are not 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 or any other regulated package of service may not
exceed an inflation indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and increased
programming costs that exceed the inflation index. 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 operators
benchmark rate.
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 are now subject 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
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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 asked for comments on whether the limit should be
increased beyond 30%, or whether it should revise its rules to consider the
presence in the national market of all multichannel video programming providers
rather than cable operators alone in applying any national percentage limit. The
FCC also issued a parallel notice asking for a review of its cable ownership
arbitration rules, to determine whether it should increase its voting stock
benchmark, not attribute cable subscribers if an operator certifies that the
interest held is a passive minority investor interest, and recognize partial,
scaled cable MSO interests in subscribers served by certain joint ventures and
other cross-MSO investments. The outcome of these FCC proceedings could affect
the Company because of TCI's investment in the Company.
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
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following their expiration. The Company has had to drop a few local stations
because of failure to reach retransmission consent agreements.
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 recently
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 deregulates the rates for non-basic tiers
of service provided by all cable operators after March 31, 1999. It permits
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. It
also eliminates the right of individual subscribers to file rate complaints with
the FCC concerning certain non-basic cable programming service tiers, and
requires 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 competition" in these markets based on telephone company
competition.
The 1996 Telecom Act also eliminates 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
allows non-uniform bulk discount rates to be offered to multiple dwelling units.
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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 modifies 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 new regulations to govern the charges for pole
attachments used by companies providing telecommunications services, including
cable operators. These regulations are likely to significantly increase 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 five years after enactment of the 1996 Telecom Act in 2001, and
any 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.
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.
(23)
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 repeals 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
leaves 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 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. 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 are
required to conduct numerous rulemaking proceedings to implement these
provisions.
(24)
Programming and Entertainment
Cable television program distributors such as Rainbow Media are not regulated by
the FCC under the Communications Act of 1934. To the extent that regulations and
laws, either presently in force or proposed, hinder or stimulate the growth of
the cable television and satellite industries, the business of Rainbow Media
will be directly affected. As discussed above under "Business - Cable Television
Operations - Regulation", the 1992 Cable Act limits in certain ways the
Company's ability to freely manage the Rainbow 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.
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 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,
(25)
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, 1998, the Company had 12,140 full-time, 3,684 part-time and
4,420 temporary employees of which 514, 975 and 2,467, respectively, were
covered under collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
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. As of December 1998, the Company occupies a leased
headquarters building located in Bethpage, New York with approximately 536,000
square feet of space. Other significant leasehold properties include 106,000
square feet housing Madison Square Garden's office operations and 569,000 square
feet comprising Radio City Music Hall. Cablevision Electronics leases 40 retail
store locations, a warehouse and a corporate office aggregating approximately
1,537,000 square feet. The Company believes its properties are adequate for its
use.
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 1,016,000 square feet.
(26)
Cablevision Cinemas, LLC leases 48 theater locations with approximately 45,000
seats and owns an additional 12 theaters with approximately 8,600 seats.
The Company generally leases its service and other vehicles.
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.
(27)
PART II
Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters
Cablevision Systems Corporation's Class A Common Stock is 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 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 for the periods
indicated.
1998 1997
---------------------- ---------------------
Quarter High Low High Low
------- ---- --- ---- ---
First 33-1/2 21-25/32 8-7/8 7-7/16
Second 42 26-9/16 13-53/64 6-25/32
Third 45-15/16 32 15-11/16 12-9/32
Fourth 50-1/4 36-1/2 23-15/16 15-7/8
As of March 19, 1999, there were 904 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
19, 1999, there were 23 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
(28)
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 $29.3 million of cash dividends on the Series I Preferred
Stock and $132.5 million of dividends in additional shares of Series H and M
Preferred Stock in 1998. 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."
(29)
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. The selected financial data presented below should be read in
conjunction with the financial statements of Cablevision Systems Corporation and
CSC Holdings, Inc. and notes thereto included in Item 8 of this Report.
Cablevision Systems Corporation
-----------------------------------------------------------------------
December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Operating Data:
Revenues .............................................. $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060 $ 837,169
Operating expenses
Technical and operating (including cost of sales of
$390,751 in 1998) ................................ 1,659,537 853,800 538,272 412,479 302,885
Selling, general and administrative ............... 882,816 514,574 313,476 266,209 195,942
Restructuring charge .............................. -- -- -- -- 4,306
Depreciation and amortization ..................... 734,107 499,809 388,982 319,929 271,343
----------- ----------- ----------- ----------- -----------
Operating profit (loss) ............................... (11,317) 81,175 74,412 79,443 62,693
Other income (expense):
Interest expense, net ............................. (402,374) (363,208) (265,015) (311,887) (261,781)
Share of affiliates' net loss ..................... (37,368) (27,165) (82,028) (93,024) (82,864)
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 (23,482) (24,547) (37,784) (5,517) (9,884)
Loss on redemption of debentures .................. -- -- -- -- (7,088)
Provision for preferential payment to related party (980) (10,083) (5,600) (5,600) (5,600)
Minority interests ................................ (124,677) (209,461) (137,197) (28,886) (9,814)
Miscellaneous, net ................................ (19,218) (12,606) (6,647) (8,225) (7,198)
----------- ----------- ----------- ----------- -----------
Net loss .............................................. $ (448,504) $ (12,104) $ (459,859) $ (337,707) $ (321,536)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common share ........... $ (3.16) $ (.12) $ (4.63) $ (3.54) $ (3.43)
=========== =========== =========== =========== ===========
Average number of common shares outstanding
(in thousands) ....................................... $ 142,016 $ 99,608 $ 99,308 $ 95,304 $ 93,776
=========== =========== =========== =========== ===========
Cash dividends declared per common share .............. $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
(30)
Cablevision Systems Corporation
---------------------------------------------------------------------------
December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................... $ 7,061,062 $ 5,614,788 $ 3,034,725 $ 2,502,305 $ 2,176,413
Total debt ..................................... 5,357,608 4,694,062 3,334,701 3,157,107 3,169,236
Minority interests ............................. 719,007 821,782 -- -- --
Deficit investment in affiliates ............... -- -- 512,800 453,935 393,637
Preferred stock of CSC Holdings, Inc. .......... 1,579,670 1,456,549 1,338,006 590,492 9,410
Stockholders' deficiency ....................... (2,611,685) (2,711,514) (2,707,026) (2,224,417) (1,827,945)
Statistical Data:
Homes passed by cable .......................... 5,115,000 4,398,000 3,858,000 3,328,000 2,899,000
Basic service subscribers ...................... 3,412,000 2,844,000 2,445,000 2,061,000 1,768,000
Basic service subscribers as a percentage of
homes passed ............................... 66.7% 64.7% 63.4% 61.9% 61.0%
Number of premium television units ............. 5,137,000 4,183,000 3,862,000 3,990,000 3,208,000
Average number of premium units per basic
subscriber at period end ................... 1.5 1.5 1.6 1.9 1.8
Average monthly revenue per basic subscriber (1) $ 42.56 $ 38.53 $ 36.71 $ 37.07 $ 36.33
- - ----------
(1) Based on recurring service revenues divided by average subscribers for the
month of December.
(31)
CSC Holdings, Inc.
-----------------------------------------------------------------------
December 31,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Operating Data:
Revenues .............................................. $ 2,912,419 $ 1,949,358 $ 1,315,142 $ 1,078,060 $ 837,169
Operating expenses
Technical and operating (including cost of
sales of $390,751 in 1998) ....................... 1,524,555 853,800 538,272 412,479 302,885
Selling, general and administrative ............... 820,015 514,574 313,476 266,209 195,942
Restructuring charge .............................. -- -- -- -- 4,306
Depreciation and amortization ..................... 577,635 499,809 388,982 319,929 271,343
----------- ----------- ----------- ----------- -----------
Operating profit (loss) ............................... (9,786) 81,175 74,412 79,443 62,693
Other income (expense):
Interest expense, net ............................. (369,072) (363,208) (265,015) (311,887) (261,781)
Share of affiliates' net loss ..................... (37,368) (27,165) (82,028) (93,024) (82,864)
Gain on sale of programming interests and cable
assets, net ...................................... 171,127 372,053 -- 35,989 --
Gain on redemption of subsidiary preferred stock .. -- 181,738 -- -- --
Write off of deferred interest and financing costs (23,482) (24,547) (37,784) (5,517) (9,884)
Loss on redemption of debentures .................. -- -- -- -- (7,088)
Provision for preferential payment to related party (980) (10,083) (5,600) (5,600) (5,600)
Minority interests ................................ 48,378 (60,694) (9,417) (8,637) (3,429)
Miscellaneous, net ................................ (18,350) (12,606) (6,647) (8,225) (7,198)
----------- ----------- ----------- ----------- -----------
Net income (loss) ..................................... (239,533) 136,663 (332,079) (317,458) (315,151)
Preferred dividend requirements ....................... (161,872) (148,767) (127,780) (20,249) (6,385)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common shareholder ............. $ (401,405) $ (12,104) $ (459,859) $ (337,707) $ (321,536)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common share* .......... $ -- $ (.12) $ (4.63) $ (3.54) $ (3.43)
=========== =========== =========== =========== ===========
Average number of common shares outstanding (in
thousands)* ........................................... $ -- 99,608 99,308 95,304 93,776
=========== =========== =========== =========== ===========
Cash dividends declared per common share* ............. $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
* Per share information for the year ended December 31, 1998 is not presented
since CSC Holdings, Inc. became a wholly-owned subsidiary of Cablevision Parent
in 1998.
(32)
CSC Holdings, Inc.
---------------------------------------------------------------------------
December 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................... $ 5,935,860 $ 5,614,788 $ 3,034,725 $ 2,502,305 $ 2,176,413
Total debt ..................................... 4,834,608 4,694,062 3,334,701 3,157,107 3,169,236
Minority interests ............................. 785,545 821,782 -- -- --
Deficit investment in affiliates ............... -- -- 512,800 453,935 393,637
Redeemable preferred stock ..................... 1,256,339 1,123,808 1,005,265 257,751 --
Stockholders' deficiency ....................... (2,824,353) (2,378,773) (2,374,285) (1,891,676) (1,818,535)
Statistical Data:
Homes passed by cable .......................... 3,949,000 4,398,000 3,858,000 3,328,000 2,899,000
Basic service subscribers ...................... 2,569,000 2,844,000 2,445,000 2,061,000 1,768,000
Basic service subscribers as a percentage of
homes passed ............................... 65.0% 64.7% 63.4% 61.9% 61.0%
Number of premium television units ............. 4,234,000 4,183,000 3,862,000 3,990,000 3,208,000
Average number of premium units per basic
subscriber at period end ................... 1.7 1.5 1.6 1.9 1.8
Average monthly revenue per basic subscriber (1) $ 42.74 $ 38.53 $ 36.71 $ 37.07 $ 36.33
- - ----------
(1) Based on recurring service revenues divided by average subscribers for the
month of December.
(33)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report, including the section entitled "1999 Outlook," 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 recently filed 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. More specifically, the
Company's forecasts may prove to be wrong for the following reasons, among
other:
(i) the Company's forecasts are dependent upon the representations of third
parties which may be inaccurate or mistaken;
(ii) the nature of the Y2K issue is such that detection of all issues is
difficult and cannot be assured and, as a result, problems may exist which
have not been, and are not, identified in a timely manner;
(iii) because of the lack of experience with problems of this nature and
magnitude, it is difficult to estimate remediation costs with accuracy;
(iv) remediation requires the efforts of third parties whose performance is
beyond the control of the Company; and
(v) because the Y2K issues are so widespread and because the number of third
parties who can provide meaningful remediation services is limited, the
Company may have difficulty obtaining the timely assistance of such third
parties, particularly as such services are needed closer to January 1,
2000.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
(34)
Recent Transactions - Cablevision Systems Corporation
1998 Acquisitions. In March 1998, the Company acquired certain cable television
systems in New York and New Jersey from TCI. See also "Recent Transactions - CSC
Holdings, Inc." below.
Recent Transactions - CSC Holdings, Inc.
1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of
Clearview Cinema Group, Inc. ("Clearview") and certain assets from Loews
Cineplex Entertainment Corporation ("Loews"). In February 1998, Cablevision
Electronics acquired substantially all of the assets associated with 40 The Wiz
consumer electronics store locations. In addition, in June 1998, CSC Holdings
purchased 50% of ITT's remaining minority interest in Madison Square Garden.
1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. ("U.S. Cable") 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 in exchange for Time Warner's Litchfield,
Connecticut system. In addition, Rainbow Media completed the sale of an interest
in a regional sports programming business.
1997 Acquisitions and Transactions. 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. 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 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 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
December 1997, Rainbow Media completed certain transactions with Fox/Liberty
Networks, LLC ("Fox/Liberty"). Also in December 1997, Madison Square Garden
acquired all of the membership interests in Radio City Entertainment.
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 1997 and 1998 are collectively referred to
as the "Net Acquisitions."
(35)
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
Cablevision Systems Corporation
-----------------------------------------------------------
Years Ended December 31,
-----------------------------------------------------------
1998 1997
---------------------------- ---------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues .............................................. $ 3,265,143 100% $ 1,949,358 100% $ 1,315,785
Operating expenses:
Technical and operating (including cost of sales
of $390,751 in 1998) .......................... 1,659,537 51 853,800 44 (805,737)
Selling, general & administrative .................. 882,816 27 514,574 26 (368,242)
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)
Share of affiliates' net loss ...................... (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)
=========== =========== ===========
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1) ............................... $ 722,790 $ 580,984
Net cash provided by operating activities (2) ......... 400,072 241,463
Net cash used in investing activities (2) ............. (468,423) (248,616)
Net cash provided by (used in) financing activities (2) (167,964) 405,682
- - ----------
(1) 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 and cash flows as
indicators of financial performance and liquidity as reported in
accordance with generally accepted accounting principles.
(2) See Item 8. - "Consolidated Statements of Cash Flows."
(36)
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 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 (including cost of sales) for 1998 increased
$805.7 million (94%) over the 1997 amount. Approximately $708.4 million (83%)
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 increased 7% during 1998 as compared to 1997.
Selling, general and administrative expenses increased $368.2 million (72%) for
1998 as compared to the 1997 level. Approximately $212.8 million (41%) 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 1% in 1998 compared to 1997. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
decreased 1%.
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.
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
(37)
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.
Share of affiliates' net losses 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/Liberty 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.
Minority interests for the year ended December 31, 1998 include CSC Holdings'
preferred stock dividend requirements, Fox Liberty's 40% share of the net income
of Regional Programming
(38)
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
Liberty'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 $1,888,855 100% $1,366,668 100%
Operating expenses 769,842 41 552,355 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 $522.2 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 $56.3 million (4%) was
attributable to revenues from the Company's developing telephone business and
revenue
(39)
recognized in connection with the At Home transaction. The remaining increase of
approximately $11.5 million (1%) resulted from other revenue sources.
Operating expenses for 1998 increased $217.5 million (39%) over the 1997 amount.
Approximately $137.2 million (25%) was attributable to the Net Acquisitions,
with the remaining $80.3 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 $ 1,007,639 100% $ 637,648 100%
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.
(40)
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 $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 Revenue
------ ------------
(dollars in thousands)
----------------------
Revenues $ 464,388 100%
Cost of sales 390,751 84
Selling, general and administrative
expenses 93,803 20
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.
(41)
Cost of sales for 1998 amounted to approximately $390.8 million (84% 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.
Selling, general and administrative expenses amounted to approximately $93.8
million (20% of revenues) from the date of acquisition through December 31,
1998. Selling, general and administrative expenses consist of all retail store
expenses, including the salaries and commissions of sales personnel, the costs
of advertising, operating the distribution center and corporate support
functions.
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.
(42)
STATEMENT OF OPERATIONS DATA
Cablevision Systems Corporation
----------------------------------------------------------
Years Ended December 31,
----------------------------------------------------------
1997 1996
--------------------------- --------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues ............................................... $ 1,949,358 100% $ 1,315,142 100% $ 634,216
Operating expenses:
Technical and operating ............................. 853,800 44 538,272 41 (315,528)
Selling, general & administrative ................... 514,574 26 313,476 24 (201,098)
Depreciation and amortization ....................... 499,809 26 388,982 29 (110,827)
----------- ----------- -----------
Operating profit ....................................... 81,175 4 74,412 6 6,763
Other income (expense):
Interest expense, net ............................... (363,208) (19) (265,015) (20) (98,193)
Share of affiliates' net loss ....................... (27,165) (1) (82,028) (6) 54,863
Gain on sale of programming interests and cable
assets, net .................................... 372,053 19 -- -- 372,053
Gain on redemption of subsidiary preferred stock .... 181,738 9 -- -- 181,738
Write off of deferred interest and financing costs .. (24,547) (1) (37,784) (3) 13,237
Provision for preferential payment to related party . (10,083) -- (5,600) -- (4,483)
Minority interests .................................. (209,461) (11) (137,197) (11) (72,264)
Miscellaneous, net .................................. (12,606) (1) (6,647) (1) (5,959)
----------- ----------- -----------
Net income (loss) ...................................... $ (12,104) (1)% $ (459,859) (35)% $ 447,755
=========== =========== ===========
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1) ................................ $ 580,984 $ 463,394
Net cash provided by operating activities (2) .......... 241,463 170,114
Net cash used in investing activities (2) .............. (248,616) (741,748)
Net cash provided by financing activities (2) .......... 405,682 567,914
- - ----------
(1) 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 and cash flows as
indicators of financial performance and liquidity as reported in
accordance with generally accepted accounting principles.
(2) See Item 8. - "Consolidated Statements of Cash Flows."
(43)
Comparison of Year Ended December 31, 1997 Versus Year Ended December 31, 1996.
Cablevision Systems Corporation
Revenues for the year ended December 31, 1997 increased $634.2 million (48%) as
compared to revenues for the prior year. Approximately $490.4 million (37%) of
the increase was attributable to the Net Acquisitions; approximately $60.1
million (5%) resulted from higher revenue per subscriber; and approximately
$50.9 million (4%) was from increases in other revenue sources such as Rainbow
Media's programming services, advertising on the Company's cable television
systems and revenue derived from the developing commercial telephony business.
The remaining increase of $32.7 million (2%) was attributable to internal growth
of 72,600 in the average number of subscribers during the year.
Technical and operating expenses for 1997 increased $315.5 million (59%) over
the 1996 amount. Approximately 48% was attributable to the Net Acquisitions,
with the remaining 11% attributable to increased costs directly associated with
the growth in subscribers and revenues discussed above, as well as to increases
in programming rates for certain cable television services. As a percentage of
revenues, technical expenses increased 3% during 1997 as compared to 1996.
Selling, general and administrative expenses increased $201.1 million (64%) for
1997 as compared to the 1996 level. Approximately 34% was directly attributable
to the Net Acquisitions and 21% was due to charges related to an incentive stock
plan. The remaining 9% 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 1997 compared to
1996. Excluding the effects of the incentive stock plan, as a percentage of
revenues such costs decreased 1%.
Operating profit before depreciation and amortization increased $117.6 million
(25%) to $581.0 million for 1997 from $463.4 million for 1996. Approximately
$126.3 million (27%) of the increase was attributable to the Net Acquisitions.
The remaining decrease of $8.7 million (2%) resulted 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, 1996 and
excluding the incentive stock plan charges referred to above, operating profit
before depreciation and amortization would have increased 14% in 1997. 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 and cash flows as indicators of financial performance
and liquidity as reported in accordance with generally accepted accounting
principles.
Depreciation and amortization expense increased $110.8 million (28%) during 1997
as compared to 1996. Approximately 23% of the increase was directly attributable
to the Net Acquisitions. The remaining 5% increase resulted primarily from
depreciation on new plant assets, offset by a decrease in depreciation and
amortization for certain assets held for sale and a decrease in amortization
expense resulting from certain intangible assets becoming fully amortized during
1997.
(44)
Net interest expense increased $98.2 million (37%) during 1997 compared to 1996.
Approximately 35% of the increase is attributable to the Net Acquisitions. The
remaining increase of 2% is due to higher debt balances, partly offset by lower
interest rates on bank debt.
Share of affiliates' net losses of $27.2 million for 1997 and $82.0 million for
1996 consist primarily of the Company's share of net losses in certain cable
affiliates for the period prior to consolidation ($37.9 million in 1997 and
$74.0 million in 1996) and the Company's net share of the profits and losses in
certain programming businesses in which the Company has varying ownership
interests, which share of net income (losses) amounted to $10.7 million in 1997
and $(8.0) million in 1996.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1997 consists primarily of a gain of approximately $305.0 million
resulting from the Fox/Liberty 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 $24.5 million in 1997
consist 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. Write off of deferred interest and
financing costs of $37.8 million for 1996 consist principally of $24 million
related to a refinancing of the Company's subsidiary, V Cable, Inc. and
approximately $10.7 million related to the replacement of the Company's former
$1.5 billion Restricted Group credit facility with a new $1.7 billion 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.
Minority interest for the year ended December 31, 1997 represents CSC Holdings'
preferred stock dividend requirements, Fox Liberty'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. For 1996, the minority interest represented CSC Holdings' preferred
stock dividend requirements and NBC's 25% share of the net income of American
Movie Classics.
(45)
Results of Operations - CSC Holdings, Inc.
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
CSC Holdings, Inc.
-----------------------------------------------------------
Years Ended December 31,
-----------------------------------------------------------
1998 1997
---------------------------- ---------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues ............................................... $ 2,912,419 100% $ 1,949,358 100% $ 963,061
Operating expenses:
Technical and operating (including cost of sales
of $390,751 in 1998 ............................ 1,524,555 52 853,800 44 (670,755)
Selling, general & administrative ................... 820,015 28 514,574 26 (305,441)
Depreciation and amortization ....................... 577,635 20 499,809 26 (77,826)
----------- ----------- -----------
Operating profit (loss) ................................ (9,786) -- 81,175 4 (90,961)
Other income (expense):
Interest expense, net ............................... (369,072) (13) (363,208) (19) (5,864)
Share of affiliates' net loss ....................... (37,368) (1) (27,165) (1) (10,203)
Gain on sale of programming interests and cable
assets, net .................................... 171,127 6 372,053 19 (200,926)
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 .................................. 48,378 2 (60,694) (3) 109,072
Miscellaneous, net .................................. (18,350) (1) (12,606) (1) (5,744)
----------- ----------- -----------
Net income (loss) ...................................... $ (239,533) (8)% $ 136,663 7% $ (376,196)
=========== =========== ===========
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1) ................................ $ 567,849 $ 580,984
Net cash provided by operating activities (2) .......... 249,496 271,687
Net cash used in investing activities (2) .............. (387,618) (248,616)
Net cash provided by (used in) financing activities (2) (98,320) 375,458
- - ----------
(1) Operating profit before depreciation and amortization is presented here to
provide additional information about CSC Holdings' 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 and cash flows as
indicators of financial performance and liquidity as reported in
accordance with generally accepted accounting principles.
(2) See Item 8. - "Consolidated Statements of Cash Flows."
(46)
Comparison of Year Ended December 31, 1998 Versus Year Ended December 31, 1997.
Consolidated Results - CSC Holdings, Inc.
Revenues for the year ended December 31, 1998 increased $963.1 million (49%) as
compared to revenues for the prior year. Approximately $741.0 million (38%) 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 CSC Holdings' cable television
systems, revenue derived from the developing commercial telephone business and
revenue recognized in connection with 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 (including cost of sales) for 1998 increased
$670.8 million (79%) over the 1997 amount. Approximately $573.5 million (67%)
was attributable to the Net Acquisitions, with the remaining $97.3 million (12%)
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 increased 8% during 1998 as compared to 1997.
Selling, general and administrative expenses increased $305.4 million (59%) for
1998 as compared to the 1997 level. Approximately $150.0 million (28%) was
directly attributable to the Net Acquisitions and $74.7 million (15%) was due to
increased 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.
Operating profit before depreciation and amortization decreased $13.1 million
(2%) to $567.9 million for 1998 from $581.0 million for 1997. Approximately
$30.6 million of the decrease resulted from the combined effect of the revenue
and expense changes discussed above, partially offset by an increase of $17.5
million attributable to the Net Acquisitions. 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 11.5% in 1998.
Operating profit before depreciation and amortization is presented here to
provide additional information about CSC Holdings' ability to meet future debt
service, capital expenditures and working capital requirements. Operating profit
before depreciation and amortization should be considered in addition to and not
as a substitute for net income (loss) and cash flows as indicators of financial
performance and liquidity as reported in accordance with generally accepted
accounting principles.
Depreciation and amortization expense increased $77.8 million (16%) during 1998
as compared to 1997. Approximately $56.1 million (12%) of the increase was
directly attributable to the Net Acquisitions. The remaining $21.7 million (4%)
increase resulted primarily from depreciation on
(47)
new plant assets, offset by a decrease in amortization expense resulting from
certain intangible assets becoming fully amortized during 1998.
Net interest expense increased $5.9 million (2%) 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.
Share of affiliates' net losses increased to $37.4 million for 1998 from $27.2
million in 1997. For the year ended December 31, 1998, such amount consisted of
CSC Holdings' share of the net profits and losses of certain programming
businesses in which CSC Holdings has varying minority ownership interests. For
the year ended December 31, 1997, such amount consisted primarily of CSC
Holdings' share of net losses in certain cable affiliates for the period prior
to consolidation ($37.9 million) and CSC Holdings' share of the net profits in
certain programming businesses in which CSC Holdings 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 $153.4 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/Liberty 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 CSC Holdings wrote off deferred
financing costs of $4.7 million in connection with amendments to CSC Holdings'
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 CSC Holdings' 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, CSC Holdings 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.
Minority interests for the year ended December 31, 1998 include Fox Liberty's
40% share of the net income of Regional Programming Partners, ITT's share of the
net loss of Madison Square
(48)
Garden and NBC's share of the net loss of Rainbow Media. Minority interests for
the year ended December 31, 1997 include Fox Liberty'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 $18.4 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 $3.8 million reflects a reduction in
various other miscellaneous items.
Business Segments Results - CSC Holdings, Inc.
CSC Holdings 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.
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
CSC Holdings' telecommunication services segment.
Years Ended December 31,
--------------------------------------------
1998 1997
---------------------- --------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
----------------------
Revenues $ 1,513,393 100% $ 1,366,668 100%
Operating expenses 612,122 41 552,355 41
Selling, general and administrative expenses 369,634 24 301,762 22
Depreciation and amortization 391,157 26 399,056 29
----------- -----------
Operating profit $ 140,480 9% $ 113,495 8%
=========== ===========
Revenues for the year ended December 31, 1998 increased $146.7 million (11%) as
compared to revenues for the prior year. Approximately $88.8 million (7%) of the
increase 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 $56.3 million (4%) was
attributable to CSC Holdings' developing telephone business and revenue
recognized in connection with the At Home transaction. The remaining increase of
approximately $11.5 million
(49)
(1%) resulted from other revenue sources. These increases were offset by a
decrease of approximately $42.1 million (3%) as a result of the Net
Acquisitions.
Operating expenses for 1998 increased $59.8 million (11%) over the 1997 amount.
An approximate $80.3 million (15%) increase was attributable to increased costs
directly associated with the growth in subscribers and revenues discussed above,
as well as to increases in programming costs for cable television services. This
increase was partially offset by a decrease of $20.5 million (4%) as a result of
the Net Acquisitions. As a percentage of revenues, operating expenses remained
relatively constant during 1998 as compared to 1997.
Selling, general and administrative expenses increased $67.9 million (22%) for
1998 as compared to the 1997 level. Approximately $36.1 million (12%) was due to
charges related to an incentive stock plan and approximately $45.8 million (15%)
resulted from higher customer service, administrative and sales and marketing
costs. These increases were partially offset by a decrease of approximately
$14.0 million (5%) as a result of the Net Acquisitions. 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.
Depreciation and amortization expense decreased $7.9 million (2%) during 1998 as
compared to 1997. The net decrease was comprised primarily of a $20.8 million
(5%) decrease directly attributable to the Net Acquisitions and a $12.9 million
(3%) increase resulting 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 $ 1,007,639 100% $ 637,648 100%
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
(50)
television advertising sales. The remaining increase of $5.3 million (1%) was
primarily attributable to the launch of new programming networks.
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 $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
CSC Holdings' 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 Revenue
------ ------------
(dollars in thousands)
----------------------
Revenues $ 464,388 100%
Cost of sales 390,751 84
Selling, general and administrative
expenses 93,803 20
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.
(51)
Cost of sales for 1998 amounted to approximately $390.8 million (84% 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.
Selling, general and administrative expenses amounted to approximately $93.8
million (20% of revenues) from the date of acquisition through December 31,
1998. Selling, general and administrative expenses consist of all retail store
expenses, including the salaries and commissions of sales personnel, the costs
of advertising, operating the distribution center and corporate support
functions.
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.
(52)
STATEMENT OF OPERATIONS DATA
CSC Holdings, Inc.
-----------------------------------------------------------
Years Ended December 31,
-----------------------------------------------------------
1997 1996
----------------------------------------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues ............................................... $ 1,949,358 100% $ 1,315,142 100% $ 634,216
Operating expenses:
Technical and operating ............................. 853,800 44 538,272 41 (315,528)
Selling, general & administrative ................... 514,574 26 313,476 24 (201,098)
Depreciation and amortization ....................... 499,809 26 388,982 29 (110,827)
----------- ----------- -----------
Operating profit ....................................... 81,175 4 74,412 6 6,763
Other income (expense):
Interest expense, net ............................... (363,208) (19) (265,015) (20) (98,193)
Share of affiliates' net loss ....................... (27,165) (1) (82,028) (6) 54,863
Gain on sale of programming interests and cable
assets, net .................................... 372,053 19 -- -- 372,053
Gain on redemption of subsidiary preferred stock .... 181,738 9 -- -- 181,738
Write off of deferred interest and financing costs .. (24,547) (1) (37,784) (3) 13,237
Provision for preferential payment to related party . (10,083) -- (5,600) -- (4,483)
Minority interests .................................. (60,694) (3) (9,417) (1) (51,277)
Miscellaneous, net .................................. (12,606) (1) (6,647) (1) (5,959)
----------- ----------- -----------
Net income (loss) ...................................... $ 136,663 7% $ (332,079) (25)% $ 468,742
=========== =========== ===========
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1) ................................ $ 580,984 $ 463,394
Net cash provided by operating activities (2) .......... 271,687 200,380
Net cash used in investing activities (2) .............. (248,616) (741,748)
Net cash provided by financing activities (2) .......... 375,458 537,648
- - ----------
(1) Operating profit before depreciation and amortization is presented here to
provide additional information about CSC Holdings' 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 and cash flows as
indicators of financial performance and liquidity as reported in
accordance with generally accepted accounting principles.
(2) See Item 8. - "Consolidated Statements of Cash Flows."
(53)
Comparison of Year Ended December 31, 1997 Versus Year Ended December 31, 1996.
CSC Holdings, Inc.
Revenues for the year ended December 31, 1997 increased $634.2 million (48%) as
compared to revenues for the prior year. Approximately $490.4 million (37%) of
the increase was attributable to the Net Acquisitions; approximately $60.1
million (5%) resulted from higher revenue per subscriber; and approximately
$50.9 million (4%) was from increases in other revenue sources such as Rainbow
Media's programming services, advertising on CSC Holdings' cable television
systems and revenue derived from the developing commercial telephony business.
The remaining increase of $32.7 million (2%) was attributable to internal growth
of 72,600 in the average number of subscribers during the year.
Technical and operating expenses for 1997 increased $315.5 million (59%) over
the 1996 amount. Approximately 48% was attributable to the Net Acquisitions,
with the remaining 11% attributable to increased costs directly associated with
the growth in subscribers and revenues discussed above, as well as to increases
in programming rates for certain cable television services. As a percentage of
revenues, technical expenses increased 3% during 1997 as compared to 1996.
Selling, general and administrative expenses increased $201.1 million (64%) for
1997 as compared to the 1996 level. Approximately 34% was directly attributable
to the Net Acquisitions and 21% was due to charges related to an incentive stock
plan. The remaining 9% 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 1997 compared to
1996. Excluding the effects of the incentive stock plan, as a percentage of
revenues such costs decreased 1%.
Operating profit before depreciation and amortization increased $117.6 million
(25%) to $581.0 million for 1997 from $463.4 million for 1996. Approximately
$126.3 million (27%) of the increase was attributable to the Net Acquisitions.
The remaining decrease of $8.7 million (2%) resulted 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, 1996 and
excluding the incentive stock plan charges referred to above, operating profit
before depreciation and amortization would have increased 14% in 1997. Operating
profit before depreciation and amortization is presented here to provide
additional information about CSC Holdings' 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 and cash flows as indicators of financial performance
and liquidity as reported in accordance with generally accepted accounting
principles.
Depreciation and amortization expense increased $110.8 million (28%) during 1997
as compared to 1996. Approximately 23% of the increase was directly attributable
to the Net Acquisitions. The remaining 5% increase resulted primarily from
depreciation on new plant assets, offset by a decrease in depreciation and
amortization for certain assets held for sale and a decrease in amortization
expense resulting from certain intangible assets becoming fully amortized during
1997.
(54)
Net interest expense increased $98.2 million (37%) during 1997 compared to 1996.
Approximately 35% of the increase is attributable to the Net Acquisitions. The
remaining increase of 2% is due to higher debt balances, partly offset by lower
interest rates on bank debt.
Share of affiliates' net losses of $27.2 million for 1997 and $82.0 million for
1996 consist primarily of CSC Holdings' share of net losses in certain cable
affiliates for the period prior to consolidation ($37.9 million in 1997 and
$74.0 million in 1996) and CSC Holdings' net share of the profits and losses in
certain programming businesses in which CSC Holdings has varying ownership
interests, which share of net income (losses) amounted to $10.7 million in 1997
and $(8.0) million in 1996.
Gain on sale of programming interests and cable assets for the year ended
December 31, 1997 consists primarily of a gain of approximately $305.0 million
resulting from the Fox/Liberty 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 $24.5 million in 1997
consist principally of the payment of a premium of $8.4 million to redeem CSC
Holdings' 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, CSC Holdings 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. Write off of deferred interest and
financing costs of $37.8 million for 1996 consists principally of $24 million
related to a refinancing of CSC Holdings' subsidiary, V Cable, Inc. and
approximately $10.7 million related to the replacement of CSC Holdings' former
$1.5 billion Restricted Group credit facility with a new $1.7 billion 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.
Minority interest for the year ended December 31, 1997 represents Fox Liberty'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. For 1996, the minority interest represented
NBC's 25% share of the net income of American Movie Classics.
(55)
Other Items
Dividend requirements applicable to preferred stocks amounted to $148.8 million
for 1997, representing an increase of $21.0 million for the year primarily due
to CSC Holdings' issuances of preferred stock during the first quarter of 1996.
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 and in and around the Boston, Massachusetts
Metropolitan area and the commercial telephone operations of the Company's
subsidiary, Cablevision Lightpath, Inc. on Long Island, New York. At December
31, 1998, the Restricted Group encompassed approximately 2,569,000 cable
television subscribers, including approximately 49,000 subscribers in systems
held for sale (see Note 3 - "Net Assets Held for Sale").
The Unrestricted Group principally includes the Company's cable television
operations other than those included in the Restricted Group. At December 31,
1998, the Unrestricted Group encompassed approximately 843,000 cable television
subscribers of the TCI Systems ("Unrestricted Cable"). Other Unrestricted Group
subsidiaries ("Unrestricted Other") include Rainbow Media, including Madison
Square Garden, and other companies engaged in certain development activities
("New Media"). Cablevision Electronics which acquired substantially all of the
assets associated with 40 The Wiz consumer electronics store locations on
February 9, 1998 and Cablevision Cinemas which owns the Company's motion picture
theater assets are also included in the Unrestricted Group.
1999 Outlook
The Company forecasts capital investment of between $800 million and $900
million in its New York, Massachusetts and Ohio cable properties and Long Island
commercial telephone business in 1999. The Company estimates that it will make
approximately 75% of such investment in the New York area businesses. This
investment includes startup capital for digital video services as well as the
rebuild of approximately 40% more plant miles to 750 MHz in 1999 than that which
was rebuilt in 1998. Additionally, the Company forecasts capital investments
aggregating between $250 million and $300 million for its New Media businesses,
Madison Square Garden, Rainbow Media, retail electronics and theaters in 1999.
Among other things, this $250-$300
(56)
million of capital includes investments for the Radio City Music Hall
restoration, as well as investments to expand residential telephone service on
Long Island and Connecticut, roll out the non-Long Island based commercial
telephone business and nearly double the number of homes marketed for cable
modems. In addition, the Company may from time to time complete acquisitions
that may be material and that may involve the incurrence of indebtedness.
Over the past two years, the Company has reduced its leverage and has
experienced improved debt ratings. The Company will seek to finance its 1999
capital expenditures in a manner that does not adversely affect its debt
ratings. This may involve raising funds through the issuance of trust preferred
securities and/or through asset sales.
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, 1998.
Operating
Profit
(Loss)
Before
Depreciation
and Interest Capital
Revenues Amortization Expense Expenditures
-------- ------------ ------- ------------
(dollars in thousands)
Restricted Group.................. $1,452,526 $ 556,411 $ 326,107 $ 422,079
Other Unrestricted Cable.......... 20,910 5,974 2,034 3,370
TCI Systems....................... 375,462 154,941 33,394 30,858
New Media......................... 39,957 (30,748) 42 48,849
Rainbow Media (including MSG and
AMC).............................. 1,007,639 65,761 58,088 45,394
Retail Electronics................ 464,388 (20,166) 5,800 2,332
Other............................. (95,739) (9,383) 937 8,760
---------- ---------- ---------- ----------
Total.......................... $3,265,143 $ 722,790 $ 426,402 $ 561,642
========== ========== ========== ==========
Restricted Unrestricted
Group Group Total
----- ----- -----
(dollars in thousands)
----------------------
Debt and Redeemable Preferred Stock
Senior debt ............................... $ 899,388 $ 523,000 $1,422,388
Senior notes and debentures ............... 2,194,443 -- 2,194,443
Subordinated debentures ................... 1,048,375 -- 1,048,375
---------- ---------- ----------
4,142,206 523,000 4,665,206
---------- ---------- ----------
Redeemable preferred stock of CSC Holdings 1,256,339 -- 1,256,339
Rainbow Media
RMHI senior debt ....................... -- 95,548 95,548
AMC senior debt ........................ -- 205,157 205,157
MSG senior debt ........................ -- 330,000 330,000
---------- ---------- ----------
Total Rainbow Media debt .......... -- 630,705 630,705
---------- ---------- ----------
Retail Electronics debt ................... -- 44,542 44,542
Other debt ................................ -- 17,155 17,155
---------- ---------- ----------
Total debt and redeemable preferred
stock .......................... $5,398,545 $1,215,402 $6,613,947
========== ========== ==========
(57)
Restricted Group
The Company believes that, for the Restricted Group, internally generated funds,
together with funds available under the Restricted Group's Credit Agreement,
will be sufficient through 1999 to meet projected funding requirements.
Acceleration of the Company's plant upgrade, combined with additional amounts in
respect of the start up and operation of new businesses, such as high speed
internet access and digital video services, to expand residential telephone
services and to roll out the non-Long Island based commercial telephone
business, as well as additional capital investments or acquisitions may require
raising additional capital. The Company may obtain the requisite funds through
the incurrence of additional indebtedness, the issuance of trust preferred
securities and/or asset sales. The Company will seek to finance its 1999 capital
expenditures in a manner that does not adversely affect its debt ratings.
In February 1998, CSC Holdings issued $300 million face amount of 7-7/8% Senior
Debentures due 2018. The net proceeds of $291.7 million were used to repay
outstanding borrowings under the CSC Holdings Credit facility.
In June 1998, promissory notes totaling $151 million were redeemed with bank
borrowings under the CSC Holdings and MFR credit facilities.
In July 1998, CSC Holdings issued $500 million face amount of 7-1/4% Senior
Notes due 2008 and $500 million face amount of 7-5/8% Senior Debentures due
2018. The net proceeds of $985 million were used to repay outstanding borrowings
under the CSC Holdings credit facility.
In May 1998, CSC Holdings and certain other subsidiaries of the Company
completed a new $2.8 billion credit facility. The $2.8 billion reducing
revolving credit facility, maturing in March 2007, consists of a $1.4 billion
CSC Holdings credit facility, a $1.4 billion MFR credit facility (for its New
Jersey cable operations) of which $600 million is available, and an $800 million
credit facility for the TCI Systems. While the $800 million TCI Systems credit
facility is in place, only $600 million of the $1.4 billion MFR facility may be
utilized. In July 1998, the Company reduced the CSC Holdings credit facility by
$400 million to $1.0 billion, and the MFR credit facility by $200 million to
$1.2 billion, which includes a reduction of the TCI credit facility by $100
million to $700 million.
On March 3, 1999, taking into account the commitment reduction, the Restricted
Group had total usage under its existing Credit Agreement (including the MFR
credit facility) of $1,021.0 million and letters of credit of $34.4 million
issued on behalf of CSC Holdings. Unrestricted and undrawn funds available to
the Restricted Group amounted to approximately $444.6 million as of March 3,
1999. Upon the transfer of the TCI Systems to CSC Holdings, which is expected to
occur by April 4, 1999, the full amount of the MFR facility may be utilized. On
a pro forma basis, the unrestricted and undrawn funds available to the
Restricted Group as of March 3, 1999 would be $654.1 million (see table below).
(58)
--------------------------------------------------------------
As of March 3, 1999
(in thousands)
--------------------------------------------------------------
CSC Holdings MFR TCI Total
------------ --- --- -----
Total facility $ 1,000,000 $ 500,000(1) $700,000 $ 2,200,000
Outstanding debt 575,000 446,000 490,500 1,511,500
Outstanding letters of credit 34,400 -- -- 34,400
----------- ---------- -------- -----------
Availability $ 390,600 $ 54,000 $209,500 $ 654,100
=========== ========== ======== ===========
- - ----------
(1) Represents the MFR credit facility of $1.2 billion, net of $700 million
restricted for the TCI Systems.
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, 1999, CSC Holdings had entered into interest exchange (swap)
agreements with several of its banks on a notional amount of $225 million, on
which CSC Holdings pays a fixed rate of interest and receives a variable rate of
interest for specified periods, with an average maturity of 11 months. The
average effective annual interest rate on all Restricted Group bank debt
outstanding as of March 3, 1999 was approximately 6.4%.
While the TCI credit facility is outstanding, the terms of the instruments
governing the TCI Systems' indebtedness prohibit transfer of funds (except for
certain payments related to overhead allocations and expense reimbursement) from
the TCI Systems to the Restricted Group and are expected to prohibit such
transfer of funds for the foreseeable future. The Company believes that for the
Restricted Group such limitations on transfer of funds or payments will not have
an adverse effect on the ability of the Company to meet its obligations.
TCI Systems
In May 1998, the TCI Systems entered into an $800 million credit facility which
was reduced by $100 million in July 1998. On March 3, 1999, taking into account
the commitment reduction, usage under the $700 million credit facility was
$490.5 million with undrawn funds of $209.5 million.
The TCI credit facility matures on the earlier of April 4, 1999 or the tenth day
after an IRS tax ruling is received. The Company has not received such ruling.
The Company expects to transfer the TCI Systems to CSC Holdings by April 4,
1999.
(59)
Rainbow Media
RMHI/AMC
Rainbow Media has a $300 million non-amortizing revolving credit facility
maturing on December 31, 2000 of which $20 million is restricted for specific
purposes. Of the $280 million balance of the facility, a further $180 million is
restricted to provide for repayment of a like amount of inter-company borrowings
from Regional Programming Partners ("RPP") as described below. Direct borrowings
as of March 3, 1999, amounted to $92.7 million leaving a balance of $7.3 million
available to Rainbow Media under the credit facility as of that date.
American Movie Classics, a wholly owned subsidiary of Rainbow Media, has a $100
million reducing revolving credit facility and a $128 million amortizing term
loan, both of which mature on March 31, 2004. The amount of the available
commitment under the revolver will not begin to be reduced until 2002. As of
March 3, 1999, American Movie Classics had outstanding borrowings of $189.3
million, leaving unrestricted funds available of $38.7 million.
In June 1998, American Movie Classics made a $16.4 million distribution to
Rainbow Media by drawing under its revolving credit. Rainbow Media used the
funds to partly repay its bank debt.
Both 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.
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 agreement or increases in such
credit facilities will be sufficient through 1999 to meet its projected funding
requirements. There can be no assurance that increases in such credit facilities
will be obtained 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/Liberty, made an inter-company loan to Rainbow Media of $180
million, which Rainbow Media used to repay bank debt. RPP funded this loan from
cash on hand. The inter-company 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.
In June 1998, RPP utilized $94 million of its cash on hand to redeem 50% of
ITT's remaining interest in Madison Square Garden, L.P. ("MSG").
As of March 3, 1999, RPP had cash on hand of $132.2 million. Rainbow Media has
reached an agreement with ITT to purchase its remaining interest in MSG and
settle certain matters between the parties for a payment of $87 million and
expects to fund the payment from RPP's cash on hand.
(60)
MSG
MSG has a $500 million revolving credit facility maturing on December 31, 2004
(the "MSG Credit Facility"). As of March 3, 1999, outstanding debt under the MSG
Credit Facility was $330 million. In addition, MSG had outstanding letters of
credit of $10 million resulting in unrestricted and undrawn funds available
amounting to $160 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 debt service requirements and to fund capital
expenditures through 1999.
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.
Retail Electronics
On February 9, 1998, Cablevision Electronics completed the acquisition of
certain assets of TWI. The purchase price and related expenses were funded
through a $50 million equity contribution (not including $8 million in
pre-acquisition funding) from CSC Holdings and approximately $45 million in
borrowings under a $130 million Cablevision Electronics 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, 1999, usage under the
credit facility was $62.2 million with $8.2 million available thereunder, based
on the level of inventory as of that date. CSC Holdings' investment in
Cablevision Electronics was approximately $87 million at December 31, 1998.
Cablevision Electronics has received other financial support of approximately
$47.2 million, through March 3, 1999, in the form of letters of credit,
guarantees and intercompany loans, in respect of Cablevision Electronics'
inventory purchases. The Company believes that Cablevision Electronics will
require additional financial support from CSC Holdings in respect of planned
increases in inventory purchases and other requirements through 1999 and that
funds available under Cablevision Electronics' credit agreement, together with
this additional financial support, will be sufficient to meet its projected
funding requirements through 1999.
Cablevision Cinemas, LLC
On December 2, 1998, the Company acquired all of the outstanding shares of stock
of Clearview Cinema Group, Inc. ("Clearview") for $24.25 per share. The purchase
price amounted to $157.7 million (including assumed debt of $80 million), which
was funded with $33.4 million in Cablevision Parent Class A Common Stock and
$44.3 million in cash. Additionally, in December 1998, Clearview successfully
redeemed all of its 10-7/8% Senior Notes at a cost of $94.8 million in cash,
funded by CSC Holdings.
(61)
Cablevision Cinemas, LLC currently has a $15 million revolving credit bank
facility maturing on June 30, 2003. As of March 3, 1999, there were no
outstanding borrowings under this bank facility.
From December 1998 through February 1999, Cablevision Cinemas, LLC acquired
motion picture theaters from Loews for an aggregate purchase price of
approximately $89 million which was funded by equity contributions from CSC
Holdings.
The Company believes that for Cablevision Cinemas, LLC, internally generated
funds, together with funds available under the existing credit agreement will be
sufficient to meet its debt service requirements and to fund capital
expenditures through 1999.
Cablevision Systems Corporation
Operating Activities
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
depreciation and amortization of $734.1 million, minority interests of $95.3
million, other non-cash items of $68.8 million and a net increase in cash
resulting from changes in assets and liabilities of $121.3 million, offset
primarily by a net loss of $448.5 million and by the net gain on the sale of
programming interests and cable assets of $170.9 million.
Cash provided by operating activities amounted to $241.5 million for the year
ended December 31, 1997 compared to $170.1 million for the year ended December
31, 1996. The 1997 cash provided by operating activities consisted primarily of
depreciation and amortization of $499.8 million, minority interests of $179.2
million, other non-cash items of $64.8 million and a net increase in cash
resulting from changes in assets and liabilities of $63.6 million, offset
primarily by a net loss of $12.1 million, the net gain on the sale of
programming interests and cable assets of $372.1 million and the gain of $181.7
million on the redemption of A-R Cable's Series A Preferred Stock.
Cash provided by operating activities amounted to $170.1 million for the year
ended December 31, 1996. The 1996 cash provided by operating activities
consisted primarily of depreciation and amortization of $389.0 million, minority
interests of $106.9 million and other non-cash items of $143.6 million,
partially offset by a net loss of $459.9 million and a net decrease in cash
resulting from changes in assets and liabilities of $9.5 million.
Investing Activities
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
(62)
and other items of $35.5 million, 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 compared to $741.7 million for the year ended December 31, 1996.
The 1997 investing activities consisted of $457.6 million of capital
expenditures, $747.1 million of payments for acquisitions, offset by net
proceeds of $945.5 million from the sale of programming interests and cable
assets and other items of $10.6 million.
Net cash used in investing activities for the year ended December 31, 1996 was
$741.7 million. The 1996 investing activities consisted of $449.2 million of
capital expenditures, $113.1 million of payments for acquisitions, $179.5
million in increases in investment in affiliates, offset by net proceeds from
other items of $.1 million.
Financing Activities
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 compared to $567.9 million for the year ended December
31, 1996. 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, 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.
Cash provided by financing activities amounted to $567.9 million for the year
ended December 31, 1996. In 1996 the Company's financing activities consisted of
$624.0 million from the issuance of redeemable exchangeable convertible
preferred stock, $399.4 million from the issuance of subordinated debentures,
and net proceeds from bank debt of $477.0 million, partially offset by the net
repayment of senior debt of $905.6 million and other net cash payments
aggregating $26.9 million.
CSC Holdings, Inc.
Operating Activities
Cash provided by operating activities amounted to $249.5 million for the year
ended December 31, 1998 compared to $271.7 million for the year ended December
31, 1997. The
(63)
1998 cash provided by operating activities consisted primarily of depreciation
and amortization of $577.6 million, other non-cash items of $20.0 million and a
net increase in cash resulting from changes in assets and liabilities of $62.5
million, offset primarily by a net loss of $239.5 million and by the net gain on
the sale of programming interests and cable assets of $171.1 million.
Cash provided by operating activities amounted to $271.7 million for the year
ended December 31, 1997 compared to $200.4 million for the year ended December
31, 1996. The 1997 cash provided by operating activities consisted primarily of
net income of $136.7 million, depreciation and amortization of $499.8 million,
other non-cash items of $125.4 million and a net increase in cash resulting from
changes in assets and liabilities of $63.6 million, offset primarily by the net
gain on the sale of programming interests and cable assets of $372.1 million and
the gain of $181.7 million on the redemption of A-R Cable's Series A Preferred
Stock.
Cash provided by operating activities amounted to $200.4 million for the year
ended December 31, 1996. The 1996 cash provided by operating activities
consisted primarily of depreciation and amortization of $389.0 million and other
non-cash items of $153.0 million, partially offset by a net loss of $332.1
million and a net decrease in cash resulting from changes in assets and
liabilities of $9.5 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 1998 was
$387.6 million compared to $248.6 million for the year ended December 31, 1997.
The 1998 investing activities consisted of $530.8 million of capital
expenditures, $264.5 million of payments for acquisitions and other net cash
payments of $34.7 million, offset by net proceeds of $442.4 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 compared to $741.7 million for the year ended December 31, 1996.
The 1997 investing activities consisted of $457.6 million of capital
expenditures, $747.1 million of payments for acquisitions, offset by net
proceeds of $945.5 million from the sale of programming interests and cable
assets and other items of $10.6 million.
Net cash used in investing activities for the year ended December 31, 1996 was
$741.7 million. The 1996 investing activities consisted of $449.2 million of
capital expenditures, $113.1 million of payments for acquisitions, $179.5
million in increases in investment in affiliates, offset by net proceeds from
other items of $.1 million.
Financing Activities
Cash used in financing activities amounted to $98.3 million for the year ended
December 31, 1998 compared to net cash provided by financing activities of
$375.5 million for the year ended December 31, 1997. In 1998 financing
activities consisted primarily of the net repayment of bank debt, subordinated
notes payable, senior notes payable and senior debt of $1,073.8 million, the
repayment of an obligation to a related party of $197.2 million, the payment of
a dividend to shareholder of $42.0 million in connection with the acquisition of
Clearview, the payment of
(64)
dividends applicable to preferred stock of $29.3 million, and other net cash
payments aggregating $52.1 million, partially offset by $1,296.1 million derived
from the issuance of senior notes and debentures.
Cash provided by financing activities amounted to $375.5 million for the year
ended December 31, 1997 compared to $537.6 million for the year ended December
31, 1996. In 1997 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, 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, payments of preferred stock
dividends of $30.2 million and other net cash payments aggregating $49.2
million.
Cash provided by financing activities amounted to $537.6 million for the year
ended December 31, 1996. In 1996 financing activities consisted of $624.0
million from the issuance of redeemable exchangeable convertible preferred
stock, $399.4 million from the issuance of subordinated debentures, and net
proceeds from bank debt of $477.0 million, partially offset by the repayment of
senior debt of $905.6 million, payments of preferred stock dividends of $30.3
million and other net cash payments aggregating $26.9 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. As a result of these issues, the potential exists for
computer system failure or miscalculations by computer programs, which could
cause disruption of the Company's operations.
The Company recognizes the need to ensure that any disruption of its operations
resulting from the Y2K issue is minimized. Accordingly, the Company developed a
plan to identify and address Y2K issues. The Company retained an independent
consulting firm to assist in the development and implementation of this plan.
Pursuant to the Y2K plan, each of the Company's business units has designated a
team (including a Y2K coordinator assisted by a member of the consulting firm)
which is responsible for the Y2K compliance of the systems used by that business
unit. The efforts of each of these business unit teams is coordinated through,
and directed by, a Central Program Management Office (the "CPMO"), consisting of
representatives of the Company's information systems, internal audit,
controllers, legal and finance departments. The CPMO operates under the
direction of the Company's Chief Information Officer, Mr. Thomas Dolan. Y2K
issues that cross business unit lines and cannot be resolved between the CPMO
and the business unit teams, are referred to an Operations Steering Committee
(the "Steering Committee") consisting of the most senior officers of each of the
Company's principal business units. The Steering Committee meets periodically to
review the progress of the Company's Y2K compliance efforts. The Board of
Directors has designated a committee of the Board, consisting of Messrs. James
Dolan, Thomas Dolan, Leo Hindery and Richard Hochman, to monitor the Company's
progress and report to the full Board.
(65)
Y2K Program - Phases
The Company has developed a six phase program to assess and address the Y2K
issue. These phases consist of the following:
Phase One - Awareness - The Company maintains an ongoing program of
communications with its management and employee base to ensure that all
employees are aware of the Y2K issue and the importance of the Company's efforts
to address the issue. This is accomplished, among other means, through the
distribution of memoranda, the establishment and maintenance of an intranet web
site, and meetings and seminars.
Phase Two - Inventory and Assessment - This phase consisted of the Company's
efforts to identify all of the information technology ("IT") and non-IT systems
used in each area of its businesses. Each identified system has been assessed
for its criticality to the Company's businesses and assigned a criticality
rating on a five point scale consisting of (1) "Critical" (required for
continued operation); (2) "High" (major business impact); (3) "Medium"
(significant business impact); (4) "Low" (minor business impact); and (5)
"Minimal" (insignificant or no business impact). Additionally, during this phase
the Company contacted the vendors of each of its systems to determine which
systems are Y2K compliant or non-compliant. Based upon its Phase Two review,
which was substantially completed during the third fiscal quarter of 1998, the
Company believes that approximately 35% of its IT and non-IT systems may be
non-compliant and that approximately 65% of these non-compliant systems are of a
criticality rating of (3) "Medium" (significant business impact) or above.
Phase Three - Strategy and Planning - During this phase, the Company developed a
testing plan for all compliant systems and developed a strategy for remediating
and testing non-compliant systems. Remediation strategies may range from
software upgrades to replacement, discontinuance or bypass of non-compliant
systems. The Company has substantially completed the strategy and planning stage
for all of its systems.
Phase Four - Portfolio Transformation/Remediation - During this phase, the
Company will execute the remediation strategies for non-compliant systems as
identified during Phase Three. The Company's efforts toward the remediation of
its most critical non-compliant systems is underway.
Phase Five - Testing - During this phase, which is running concurrently with the
remediation phase, the Company is testing all of its compliant systems (of Level
4 or above), and, in conjunction with its Phase Four remediation efforts, its
non-compliant systems. The testing of certain of the Company's most critical
compliant systems is ongoing, with the most significant effort planned over the
next several months.
Phase Six - Implementation - During this phase, all of the Company's remediated
and tested systems will be redeployed.
The completion of phases across the Company's businesses is not expected to
occur sequentially. As the Company will focus initially on its most critical
systems, it is likely that a number of
(66)
critical systems will be in Phases Four and Five, while less critical systems
are in Phase Three. It is the Company's goal that all IT and non-IT systems with
a criticality rating of 1, 2, 3 and 4 will be tested and implemented by the end
of the third fiscal quarter of 1999. There can be no assurance that the Company
will be successful in achieving this goal.
Costs of Compliance - Because the Company is still in the process of analyzing
remediation methods for non-compliant systems, and has not completed testing of
compliant or non-compliant systems, it is not possible to predict with certainty
the costs that will be incurred in connection with the Y2K program. Further, in
many cases, the Company planned to replace or upgrade certain non-compliant
systems irrespective of Y2K compliance issues. In such cases the portion of such
expenditure attributable to Y2K issues is often not reasonably determinable.
Based on its review to date, the Company believes that the costs associated with
its Y2K program, including costs of replacing or upgrading non-compliant systems
that were not already scheduled to be replaced or upgraded, accelerating
programs that were already contemplated specifically for the purpose of
addressing Y2K issues, and including both internal and external resources, may
range between $40 to $60 million for its existing businesses. This estimate
includes amounts for the Company's telecommunications systems, including cable,
modem and telephone, for Rainbow Media's programming operations, for Madison
Square Garden including the arena, its professional sports teams, its cable
television networks, and for Radio City Entertainment, for the Wiz and for
corporate and company-wide needs. In 1998, the Company incurred approximately
$7.6 million of costs relating to Y2K remediation. There can be no assurance
that actual expenditures will not deviate from these estimates and that the
amount of such deviation will not be material. Such expenditures are expected to
be funded from cash flow from operations and borrowings.
Risks of the Company's Y2K Issues - Many of the IT and non-IT systems that are
necessary for the continued operation of the Company's businesses are dependent
upon components that may not be Y2K compliant. While the Company's Y2K
compliance program is designed to identify and remediate these systems in order
to avoid interruption of its operations, there can be no assurance that it will
be able to identify all noncompliant systems or successfully remediate all those
that are identified. Failure of IT or non-IT systems that are necessary for the
operation of the Company's businesses, including, without limitation, its
billing systems, addressable controller and converter systems, purchasing,
finance and inventory systems, marketing databases and point of sale systems,
could have a material adverse effect on the Company.
The Company is dependent upon third-party products and services, such as utility
services and programming uplinks, for the operation of its businesses. While, as
part of the Inventory and Assessment phase of its Y2K program, the Company has
contacted third party product and service providers to ascertain whether Y2K
compliance issues may exist, it has in many cases not received assurances from
such suppliers. Moreover, in most cases the Company does not have the ability to
verify any assurances it does receive from third party suppliers. If critical IT
or non-IT systems used by such third party suppliers fail as a result of a Y2K
compliance issue, and as a result of such failure the ability of such supplier
to continue to provide such product or service to the Company is interrupted,
the Company's ability to continue to provide services to its customers may be
interrupted. Such an interruption could have a material adverse effect on the
Company. The Company has begun a program to develop contingency plans to address
those
(67)
risks, with major risk areas identified. There can be no assurance that any such
plan would resolve such problems in a satisfactory manner. In addition to the
risks associated with failure of IT Systems due to Y2K problems, the failure of
non-IT systems would pose significant risks to the Company. For example, the
Company and its subsidiaries operate facilities for both employees and the
public. Failure of the non-IT systems at such facilities could result in health
and safety risks that could lead to the closure or unavailability of such
facilities. This could result in lost revenues to the Company and the risk of
actions against the Company if the businesses of others are disrupted. Also, the
failure of such non-IT systems could result in injury to individuals which could
expose the Company to actions on, by, or on behalf of such individuals.
(68)
Item 8. Consolidated Financial Statements.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Independent Auditors' Report........................................ 70
Consolidated Balance Sheets - December 31, 1998 and 1997............ 71
Consolidated Statements of Operations - years
ended December 31, 1998, 1997 and 1996.......................... 73
Consolidated Statements of Stockholders' Deficiency - years
ended December 31, 1998, 1997 and 1996.......................... 74
Consolidated Statements of Cash Flows - years ended
December 31, 1998, 1997 and 1996................................ 75
Notes to Consolidated Financial Statements.......................... 77
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Independent Auditors' Report........................................ 109
Consolidated Balance Sheets - December 31, 1998 and 1997............ 110
Consolidated Statements of Operations - years
ended December 31, 1998, 1997 and 1996.......................... 112
Consolidated Statements of Stockholder's Deficiency - years
ended December 31, 1998, 1997 and 1996.......................... 113
Consolidated Statements of Cash Flows - years ended
December 31, 1998, 1997 and 1996................................ 114
Notes to Consolidated Financial Statements.......................... 116
(69)
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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, 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 12, 1999
(70)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands)
ASSETS 1998 1997
---- ----
Cash and cash equivalents ............................. $ 173,826 $ 410,141
Accounts receivable trade (less allowance for
doubtful accounts of $34,377 and $29,584) .......... 197,726 214,721
Notes and other receivables ........................... 188,455 98,756
Inventory, prepaid expenses and other assets .......... 206,073 55,324
Property, plant and equipment, net .................... 2,506,834 1,831,167
Investments in affiliates ............................. 276,231 207,776
Advances to affiliates ................................ 36,964 19,823
Feature film inventory ................................ 293,310 180,576
Net assets held for sale .............................. 11,006 252,610
Franchises, net of accumulated amortization of
$640,735 and $481,895 .............................. 850,653 383,369
Affiliation and other agreements, net of accumulated
amortization of $181,928 and $129,087 .............. 206,456 253,734
Excess costs over fair value of net assets acquired and
other intangible assets, net of accumulated
amortization of $775,557 and $684,141 .............. 2,003,128 1,615,786
Deferred financing, acquisition and other costs, net of
accumulated amortization of $41,882 and $40,061 .... 110,400 91,005
---------- ----------
$7,061,062 $5,614,788
========== ==========
See accompanying notes to
consolidated financial statements.
(71)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable........................................................ $ 423,039 $ 278,630
Accrued liabilities:
Interest ........................................................... 88,798 54,107
Employee related costs ............................................. 330,700 196,138
Other .............................................................. 465,990 254,621
Feature film and contract obligations .................................. 373,722 292,720
Deferred revenue ....................................................... 334,213 277,693
Bank debt .............................................................. 2,051,549 2,240,358
Senior debt ............................................................ -- 112,500
Senior notes and debentures ............................................ 2,194,443 898,024
Subordinated notes and debentures ...................................... 1,048,375 1,048,245
Subordinated notes payable ............................................. -- 151,000
Obligation to related party ............................................ -- 197,183
Capital lease obligations and other debt ............................... 63,241 46,752
----------- -----------
Total liabilities .................................................. 7,374,070 6,047,971
----------- -----------
Minority interests ..................................................... 719,007 821,782
----------- -----------
Preferred Stock of CSC Holdings ........................................ 1,579,670 1,456,549
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares authorized,
none issued ..................................................... -- --
Class A Common Stock, $.01 par value, 200,000,000 shares authorized,
108,267,606 and 55,897,984 shares issued ........................ 1,083 560
Class B Common Stock, $.01 par value, 80,000,000 shares authorized,
43,226,836 and 44,386,836 shares issued ......................... 432 444
Paid-in capital .................................................... 386,495 (161,327)
Accumulated deficit ................................................ (2,999,695) (2,551,191)
----------- -----------
Total stockholders' deficiency ..................................... (2,611,685) (2,711,514)
----------- -----------
$ 7,061,062 $ 5,614,788
=========== ===========
See accompanying notes to
consolidated financial statements.
(72)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands, except per share amounts)
1998 1997 1996
---- ---- ----
Revenues (including affiliate amounts of $8,009, $9,424 and $9,487) $ 3,265,143 $ 1,949,358 $ 1,315,142
----------- ----------- -----------
Operating expenses:
Technical and operating (including affiliate amounts of $2,942,
$16,581 and $37,610 and cost of sales of $390,751 in 1998) .... 1,659,537 853,800 538,272
Selling, general and administrative ............................. 882,816 514,574 313,476
Depreciation and amortization ................................... 734,107 499,809 388,982
----------- ----------- -----------
3,276,460 1,868,183 1,240,730
----------- ----------- -----------
Operating profit (loss) ........................................... (11,317) 81,175 74,412
----------- ----------- -----------
Other income (expense):
Interest expense ................................................ (426,402) (368,700) (268,177)
Interest income (including affiliate amounts
of $6,041, $1,600 and $568) ................................... 24,028 5,492 3,162
Share of affiliates' net loss ................................... (37,368) (27,165) (82,028)
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 .............. (23,482) (24,547) (37,784)
Provision for preferential payment to related party ............. (980) (10,083) (5,600)
Minority interests .............................................. (124,677) (209,461) (137,197)
Miscellaneous, net .............................................. (19,218) (12,606) (6,647)
----------- ----------- -----------
(437,187) (93,279) (534,271)
----------- ----------- -----------
Net loss .......................................................... $ (448,504) $ (12,104) $ (459,859)
=========== =========== ===========
Basic and diluted net loss per common share........................ $ (3.16) $ (.12) $ (4.63)
=========== =========== ===========
Average number of common shares outstanding (in thousands) ........ 142,016 99,608 99,308
=========== =========== ===========
See accompanying notes to
consolidated financial statements.
(73)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years Ended December 31,
1998, 1997 and 1996
(Dollars in thousands)
Class A Class B
Common Common Paid-in Accumulated Treasury
Stock Stock Capital Deficit Stock Total
----- ----- ------- ------- ----- -----
Balance December 31, 1995 ......... $ 568 $ 464 $ (85,829) $(2,079,228) $ (60,392) $(2,224,417)
Net loss ....................... -- -- -- (459,859) -- (459,859)
Issuances of preferred stock ... -- -- (25,979) -- -- (25,979)
Employee stock transactions .... 4 -- 3,225 -- -- 3,229
Conversion of Class B to Class A 12 (12) -- -- -- --
Retirement of treasury stock ... (40) -- (60,352) -- 60,392 --
----------- ----------- ----------- ----------- ----------- -----------
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)
=========== =========== =========== =========== =========== ===========
See accompanying notes to
consolidated financial statements.
(74)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Net loss ..................................................................... $(448,504) $ (12,104) $(459,859)
--------- --------- ---------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ............................................ 734,107 499,809 388,982
Share of affiliates' net loss ............................................ 37,368 27,165 82,028
Minority interests ....................................................... 95,336 179,237 106,931
Gain on sale of programming interests and cable assets, net .............. (170,912) (372,053) --
Write off of deferred interest and financing costs ....................... 23,482 24,547 37,784
Gain on redemption of subsidiary preferred stock ......................... -- (181,738) --
(Gain) loss on sale of equipment, net .................................... (604) 5,325 4,733
Amortization of deferred financing and debenture discount ................ 8,532 7,707 12,191
Accretion of interest on debt ............................................ -- -- 6,828
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade ............................................ 19,007 (34,268) (2,709)
Notes and other receivables .......................................... (94,164) (67,683) (1,810)
Inventory, prepaid expenses and other assets ......................... (51,425) 1,232 (12,428)
Advances to affiliates ............................................... (21,701) (528) (2,168)
Feature film inventory ............................................... (112,734) (8,269) 9,658
Other deferred costs ................................................. 11,689 -- --
Accounts payable ..................................................... 133,891 50,667 17,134
Accrued liabilities .................................................. 174,557 91,497 (4,618)
Feature film and contract obligations ................................ 81,376 (258) (12,563)
Deferred revenue ..................................................... (18,268) 37,664 --
Minority interests ................................................... (961) (6,486) --
--------- --------- ---------
Net cash provided by operating activities .................................. 400,072 241,463 170,114
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ......................................................... (561,642) (457,590) (449,165)
Payments for acquisitions, net of cash acquired .............................. (317,594) (747,134) (113,095)
Net proceeds from sale of programming interests and cable assets ............. 446,284 945,534 --
Proceeds from sale of equipment .............................................. 8,817 1,930 814
(Increase) decrease in investments in affiliates, net ........................ (31,035) 9,267 (179,536)
Additions to other intangible assets ......................................... (13,253) (623) (766)
--------- --------- ---------
Net cash used in investing activities............................. $(468,423) $(248,616) $(741,748)
--------- --------- ---------
See accompanying notes to
consolidated financial statements.
(75)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(Dollars in thousands)
(continued)
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
Proceeds from bank debt ............................. $ 5,442,101 $ 3,385,703 $ 2,053,566
Repayment of bank debt .............................. (6,304,757) (3,147,165) (1,576,585)
Proceeds from senior debt ........................... -- 147,750 12,500
Repayment of senior debt ............................ (112,500) (433,617) (918,131)
Repayment of subordinated notes payable ............. (151,000) -- --
Redemption of senior notes payable .................. (94,848) -- --
Issuance of subordinated debentures ................. -- -- 399,385
Redemption of senior subordinated debt .............. -- (283,445) --
Issuance of senior notes and debentures ............. 1,296,076 897,983 --
Redemption of subsidiary preferred stock ............ (9,409) (112,301) --
Issuances of redeemable exchangeable
convertible preferred stock of CSC Holdings, Inc. . -- -- 624,021
Issuance of common stock ............................ 12,082 7,616 3,229
Obligation to related party ......................... (197,183) 4,364 (126)
Payments on capital lease obligations and other debt (12,306) (7,501) (3,321)
Additions to deferred financing and other costs ..... (36,220) (53,705) (26,624)
----------- ----------- -----------
Net cash provided by (used in) financing activities (167,964) 405,682 567,914
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents .. (236,315) 398,529 (3,720)
Cash and cash equivalents at beginning of year ........ 410,141 11,612 15,332
----------- ----------- -----------
Cash and cash equivalents at end of year .............. $ 173,826 $ 410,141 $ 11,612
=========== =========== ===========
See accompanying notes to
consolidated financial statements.
(76)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent 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 a majority interest in
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 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 its retail electronics stores.
Two-for-One Stock Splits
On March 4, 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 dividend was paid on March 30,
1998 to stockholders of record on March 19, 1998.
(77)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
On July 22, 1998, the Company's Board of Directors declared a two-for-one stock
split to be 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 information has been adjusted to reflect the above
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 and programming revenues as services are
provided to subscribers. Advertising revenues are recognized when commercials
are telecast. Revenues derived from other sources are recognized when services
are provided, events occur or products are delivered.
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 (7 to 11 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 6 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (2 to
10 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 5 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
(78)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 the straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 1998 related to feature film telecast rights are $44,438 in 1999, $38,394 in
2000, $27,332 in 2001, $22,375 in 2002 and $19,751 in 2003.
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 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'). 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
(79)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
SFAS 131 does not have a material effect on the Company's primary financial
statements, but does affect the disclosure of segment information contained
elsewhere herein (see Note 15).
Reclassifications
Certain reclassifications have been made in the 1997 and 1996 financial
statements to conform to the 1998 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 $383,179, $352,660, and $252,120 during 1998, 1997 and 1996,
respectively.
During 1998, 1997, and 1996, the Company's noncash investing and financing
activities were as follows:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Capital lease obligations .................. $ 28,795 $ 24,820 $ 2,571
Issuance of common stock in connection
with acquisitions and redemption
of partnership interests .............. 536,250 -- --
Receipt of warrants from At Home
Corporation ........................... 74,788 173,346 --
Capital contribution of equipment by
minority partner ...................... -- 38,000 --
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.
(80)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
Acquisitions
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:
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
==========
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
(81)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 $739,272 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 161,484
---------
$ 739,272
=========
Madison Square Garden
On June 17, 1998, the Company purchased 50% of ITT's remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option increasing RPP's
interest in MSG to 96.3% (see discussion below). In March 1999, ITT and the
Company entered into an agreement under which ITT exercised its second put for
the remainder of its interest in MSG and will settle certain matters between the
parties for a payment of $87,000.
Clearview
In December 1998, the Company acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $157,700 (including
assumed debt of $80,000) of which approximately $33,400 was paid in shares of
the Company's Class A Common Stock. The remaining purchase price was funded
primarily by a dividend received from CSC Holdings of approximately $42,000.
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 excess of the purchase price over the net book value of
assets acquired approximates $122,300 and will be allocated to the specific
assets acquired when independent appraisals are obtained.
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.
(82)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase was allocated to the specific assets acquired
based upon independent appraisals as follows:
Property and equipment $ 12,600
Other assets 4,100
Excess cost over fair
value of net assets acquired 50,600
--------
$ 67,300
========
In the first quarter of 1999, the Company purchased one additional theater and
Loews has granted the Company a right of first offer on an additional 21 movie
theaters until December 1999.
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 may be increased by up to an additional 2% under
certain circumstances without additional payment) in Class C Common Stock of
Rainbow Media. The Company owns the remaining 75% 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 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 Corporation ("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 ("MSG Agreement") 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,
(83)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
increased Rainbow Media's interest in MSG to 89.8% and reduced ITT's interest to
10.2%. In connection with the Fox/Liberty 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. The remaining 7.8% interest held by ITT is subject to
certain puts and calls as specified in the MSG Agreement (see "1998
Acquisitions" above). 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
==========
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.
(84)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Radio City
On December 5, 1997, MSG purchased all of the membership interests in Radio City
Entertainment ("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.
In February 1997, the Company announced that it was pursuing a plan to dispose
of certain nonstrategic cable television systems. 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/Liberty Networks, LLC ("Fox") organized
Regional Programming Partners (a partnership that owns the interest in MSG and
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
(85)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
gain of approximately $305,000. See discussion above under "Acquisitions - 1998
Acquisitions - Madison Square Garden" 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 share of affiliates' net loss in the accompanying consolidated
statements of operations for the period ended July 1, 1997 and for the year
ended December 31, 1996 is $35,835 and $68,492, respectively, 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 years ended December 31, 1998 and 1997 as if the acquisitions of the TCI
Systems, MSG, Nashoba, CFHI, the NBC transaction, the A-R Cable consolidation
and the sale of assets of certain cable systems had occurred on January 1, 1998
and 1997, respectively.
(86)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Years Ended December 31,
------------------------
1998 1997
---- ----
Net revenues $3,329,627 $2,554,019
========== ==========
Net loss $ (520,968) $ (21,047)
========== ==========
Net loss per common share $ (3.47) $ (.14)
========== ==========
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
Pursuant to the Company's decision to dispose of certain nonstrategic cable
television systems (see Note 2), the Company had entered into definitive
agreements covering the sale of certain cable television systems as of December
31, 1998 and 1997.
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 TCI's cable television
systems (the "TCI Connecticut Systems") in and around Hartford, Vernon, Branford
and Lakeville, Connecticut (the "Proposed TCI CT Transactions"). Under the
non-binding letter of intent, in consideration for the TCI Connecticut Systems,
the Company would (i) transfer to TCI the cable television systems serving
Kalamazoo, Michigan, (ii) transfer to TCI other cable television systems to be
identified by TCI and purchased with approximately $25,000 of funds provided by
the Company, (iii) issue shares of the Company's Class A Common Stock, and (iv)
assume certain indebtedness relating to the TCI Connecticut Systems, which is
anticipated to total approximately $110,000.
A binding definitive agreement has not yet been completed. There can be no
assurance that the Proposed TCI CT Transactions will be consummated in a timely
fashion, or at all.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 1998 and 1997
have been classified in the consolidated balance sheet as net assets held for
sale and consist of the following:.
(87)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
December, 31
------------
1998 1997
---- ----
Property, plant and equipment, net $ 14,548 $122,577
Intangible assets, net 215 154,352
Other assets (including trade receivables,
prepaid expenses, etc.) 603 2,815
-------- --------
Total assets 15,366 279,744
Total liabilities 4,360 27,134
-------- --------
Net assets $ 11,006 $252,610
======== ========
The accompanying consolidated statement of operations for the year ended
December 31, 1998 and 1997 includes net revenues aggregating approximately
$18,937 and $102,971, respectively, and net income (loss) aggregating
approximately $9,095 and $(11,275), 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 items, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31, Estimated
1998 1997 Useful Lives
---- ---- ------------
Communication transmission
and distribution systems:
Customer equipment..................... $ 615,867 $ 508,959 4 to 5 years
Headends............................... 125,013 100,551 7 to 10 years
Multimedia............................. 9,075 - 10 years
Central office equipment............... 87,208 60,672 10 years
Infrastructure......................... 2,189,625 1,651,236 10 to 15 years
Program, service and test
equipment............................. 380,350 282,635 2 to 10 years
Microwave equipment.................... 16,947 16,641 2 to 10 years
Construction in progress (including
materials and supplies)............... 133,848 140,455 -
Furniture and fixtures..................... 195,660 128,442 1 to 12 years
Transportation equipment................... 131,476 107,159 4 to 15 years
Building and building improvements......... 171,567 156,254 23 to 40 years
Leasehold improvements..................... 140,766 70,991 Term of lease
Land and land improvements................. 45,573 34,070 -
----------- -----------
4,242,975 3,258,065
Less accumulated depreciation and
amortization............................. 1,736,141 1,426,898
----------- -----------
$ 2,506,834 $ 1,831,167
=========== ===========
(88)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
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, 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,
consists of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR
credit facility of which $600,000 is available, and an $800,000 credit facility
for the TCI Systems. While the $800,000 TCI Systems credit facility is in place,
only $600,000 of the $1.4 billion MFR facility may 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 includes a reduction of the TCI Systems credit facility by $100,000 to
$700,000.
The TCI Systems credit facility matures on April 4, 1999 and concurrent with the
transfer of the TCI Systems to CSC Holdings, which is expected to occur by April
4, 1999, the restriction on the MFR credit facility will be eliminated and the
borrowings under the MFR facility will increase 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 at December
31, 1998 and 1997 was $1,410,226 and $1,328,098, respectively. As of December
31, 1998, approximately $57,313 was restricted for certain letters of credit
issued on behalf of CSC Holdings.
Unrestricted and undrawn funds available to the Restricted Group and the TCI
Systems under the Credit Agreement amounted to approximately $749,687 at
December 31, 1998. The Credit Agreement contains certain financial covenants
that may limit the Restricted Group's and the TCI Systems' 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, 1998.
Interest on outstanding amounts may be paid, at the option of the Company, based
on the prime rate or Eurodollar rate. CSC Holdings has entered into interest
rate swap agreements with several banks on a notional amount of $225,000 as of
December 31, 1998 whereby CSC Holdings pays a fixed rate of interest ranging
from 5.94% to 8.00% and receives a variable rate ranging from 5.38% to 5.72%.
CSC Holdings enters into interest rate swap agreements to hedge against interest
rate risk, as required by its Credit Agreement, and therefore accounts for these
agreements as hedges of
(89)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
floating rate debt, whereby interest expense is recorded using the revised rate,
with any fees or other payments amortized as yield adjustments. As of December
31, 1998, the interest rate swap agreements expire at various times through the
year 2000 and have a weighted average life of approximately 11 months. 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 6.48% and 7.60% on December 31, 1998 and 1997,
respectively. The Company is also obligated to pay fees from .1875% to .25% per
annum on the unused loan commitment and from .4% to 1.375% per annum on letters
of credit issued under the Credit Agreement.
Unrestricted Group
U.S. Cable
U.S. Cable Television Group, L.P. ("U.S. Cable"), a subsidiary of the Company,
had a three year $175,000 revolving credit facility maturing on August 13, 1999.
As of December 31, 1997, U.S. Cable had outstanding borrowings under its
revolving credit facility of approximately $155,000. Amounts outstanding under
the facility bore interest at varying rates based upon the banks' base rate or
LIBOR rate, as defined in the loan agreement. The weighted average interest rate
was 7.1% on December 31, 1997. In January 1998, all remaining indebtedness of
U.S. Cable amounting to approximately $156,000 was repaid and its credit
agreement was terminated. The proceeds for such repayment came from the sale of
substantially all the assets of U.S. Cable.
Rainbow Media
In April 1997, Rainbow Media executed a new $300,000, three year credit facility
with Canadian Imperial Bank of Commerce and Toronto-Dominion as co-agents, and a
group of banks. Upon closing, approximately $172,000 was drawn to refinance, in
part, its previous $202,000 credit facility. The balance of the funds utilized
to fully repay the $202,000 facility and to repay $169,000 to the Restricted
Group came from a distribution by American Movie Classics Company. The Rainbow
Media revolving credit facility was amended in December 1997 which, among other
things, extended the maturity date to 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.
(90)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
At December 31, 1998 and 1997, Rainbow Media had outstanding borrowings of
$67,200 and $176,500, respectively, under its credit facility. Undrawn funds
available to Rainbow Media under the credit facility amounted to approximately
$12,800 at December 31, 1998.
The weighted average interest rate on Rainbow Media's bank debt was 7.7% and
7.8% on December 31, 1998 and 1997, respectively. The credit agreement contains
various restrictive covenants with which Rainbow Media was in compliance at
December 31, 1998.
American Movie Classics Company
In April 1997, American Movie Classics Company ("AMCC") put into place a new
$250,000 credit facility. The facility was comprised of a $200,000 term loan and
a $50,000 revolving loan. The facility was used to make a $205,000 cash
distribution to Rainbow Media, refinance existing indebtedness and for general
corporate purposes. In December 1997, the loan was amended, decreasing the term
loan to $146,000 and increasing the revolving loan to $100,000 ("AMCC Loan
Agreement"). Both loans will mature on March 31, 2004. Borrowings under the AMCC
Loan Agreement bear 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 AMCC Loan Agreement. At December 31, 1998 and 1997, the weighted
average interest rate on bank indebtedness was 6.1% and 6.8%, respectively. The
term loan began amortizing September 30, 1997 and requires quarterly
amortization payments. The revolving loan does not start to reduce until June
30, 2002. On December 31, 1998 and 1997, $128,000 and $143,000, respectively,
was outstanding under the term loan and $64,250 and $56,500, respectively, was
outstanding under the revolving loan. Substantially all of the assets of AMCC,
amounting to approximately $274,600 at December 31, 1998, have been pledged to
secure the borrowings under the AMCC Loan Agreement. The AMCC Loan Agreement
contains various restrictive covenants with which AMCC was in compliance at
December 31, 1998.
Madison Square Garden
In June 1997, MSG entered into an $850,000 credit agreement (the "MSG Credit
Facility") with a group of banks led by Chase Manhattan Bank, as agent. The MSG
Credit Facility expires on December 31, 2004. MSG initially borrowed $650,000
and $149,000 under the term loan and revolver portions, respectively, of the MSG
Credit Facility. In December 1997, the facility was amended to increase the
revolver to $500,000 from $200,000. Also in December 1997, MSG repaid the term
loan of $650,000 with $450,000 contributed by RPP as described in Note 2 and
$200,000 of additional borrowings under the revolver. 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, 1998 and 1997, loans outstanding
amounted to $310,000 and $360,000, respectively, and bore interest at 6.038% and
6.785%, respectively. The MSG Credit Facility contains certain financial
covenants with which MSG was in compliance at December 31, 1998. The MSG Credit
(91)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 (7.22% and 7.85% at December 31, 1998 and 1997, respectively) and mature
in July 2002.
Cablevision Electronics
In February 1998, Cablevision Electronics entered into a three year $130,000
revolving 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. The total
amount outstanding under the credit agreement at December 31, 1998 was
approximately $44,542 and bore interest at 7.2%. As of December 31, 1998,
$30,197 was restricted for certain letters of credit issued on behalf of
Cablevision Electronics. Unrestricted and undrawn funds available amounted to
$54,403 on December 31, 1998 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, 1998.
Cablevision Cinemas
Cablevision Cinemas, LLC has a $15,000 revolving credit bank facility maturing
on June 30, 2003. As of December 31, 1998, there were no outstanding borrowings
under this bank facility.
Senior Debt
On December 30, 1997, CSC Holdings repaid $222,000 of A-R Cable's debt with
borrowings under CSC Holdings' Credit Facility in connection with the transfer
of certain cable systems from A-R Cable to the Restricted Group. A-R Cable had
outstanding borrowings of $112,500 at December 31, 1997, which was repaid in
1998.
Senior Notes and Debentures
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 ($499,516
amortized amount at December 31,
(92)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
1998) 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 ($296,721
amortized amount at December 31, 1998) 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 ($499,532 and
$499,475 amortized amount at December 31, 1998 and 1997, respectively) of 7-7/8%
Senior Notes due 2007 (the "2007 Notes"). The notes were issued at a discount of
$525. The 2007 Notes are not redeemable by CSC Holdings prior to maturity. The
net proceeds were used to reduce bank borrowings.
In August 1997, CSC Holdings issued $400,000 principal amount ($398,674 and
$398,549 amortized amount at December 31, 1998 and 1997, 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 net proceeds were used to reduce bank borrowings.
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, 1998.
Subordinated Debentures
In May 1996, CSC Holdings issued $150,000 principal amount ($149,545 and
$149,485 amortized amount at December 31, 1998 and 1997, 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
(93)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 ($199,117 and
$199,056 amortized amounts at December 31, 1998 and 1997, 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 ($149,713 and $149,704
amortized amounts at December 31, 1998 and 1997, 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, 1998.
Subordinated Notes Payable
In connection with certain acquisitions made in 1994, a subsidiary of the
Company issued promissory notes totaling $141,268 and the Company assumed $9,732
of promissory notes, both of which were repaid in June 1998.
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, 1998 are as follows:
1999 $54,401
2000 98,354
2001 76,020
2002 56,265
2003 229,451
(94)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 6. PREFERRED STOCK OF CSC HOLDINGS, INC.
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") with a liquidation preference of $650,000, which
were subsequently exchanged for Series M Redeemable Exchangeable Preferred Stock
(the "Series M Preferred Stock") on August 2, 1996 with terms identical to the
Series L Preferred Stock. Net proceeds were approximately $626,000. 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. CSC Holdings satisfied its dividend requirements
by issuing 9,263, 8,300 and 6,576 additional shares of Series M Preferred Stock
in 1998, 1997 and 1996, respectively.
In November 1995, CSC Holdings issued 13,800,000 depositary shares representing
1,380,000 shares of 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock (the "Series I Preferred Stock") with an aggregate liquidation
preference of $345,000. The depositary shares are convertible into shares of the
Company's Class A Common Stock, at any time after January 8, 1996 at the option
of the holder, at an initial conversion price of $16.86 per share (adjusted for
the two-for-one stock splits - see Note 1) of Class A Common Stock subject to
adjustment under certain conditions. The Series I Preferred Stock is
exchangeable into 8-1/2% Convertible Subordinated Debentures due 2007, at the
option of CSC Holdings, in whole but not in part, on or after January 1, 1998 at
a rate of $25.00 principal amount of exchange debentures for each depositary
share. The Series I Preferred Stock is redeemable at the option of CSC Holdings,
in whole or in part, on November 1, 1999, November 1, 2000, and November 1, 2001
and thereafter at 102.8%, 101.4% and 100.0%, respectively, of the principal
amount plus accrued and unpaid dividends thereon. CSC Holdings paid a cash
dividend of approximately $29,325 in each of 1998, 1997 and 1996.
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
(95)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
terms of the Series H Preferred Stock permit CSC Holdings, at its option, to
exchange the Series H Preferred Stock for CSC Holdings' 11-3/4% Senior
Subordinated Debentures due 2007 in an aggregate principal amount equal to the
aggregate liquidation preference of the shares of Series H Preferred Stock. CSC
Holdings satisfied its dividend requirements by issuing 399,050, 355,415 and
317,549 additional shares of Series H Preferred Stock in 1998, 1997 and 1996,
respectively.
In January 1998, CSC Holdings redeemed all of its outstanding 8% Series C
Cumulative Preferred Stock ("Series C Preferred Stock") for cash of
approximately $9,400 in the aggregate for all outstanding shares, including
accrued dividends.
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, 1998, the Company had consolidated net
operating loss carry forwards of approximately $880,000 and Rainbow Media had
consolidated federal net operating loss carry forwards of approximately
$539,000. 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 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, 1998 and 1997 are as follows:
1998 1997
---- ----
Deferred Asset (Liability)
Depreciation and amortization $(182,226) $ 67,234
Receivables from affiliates 23,406 18,681
Benefit plans 108,495 29,841
Allowance for doubtful accounts 7,016 5,538
Deferred gain (130,650) (131,460)
Benefits of tax loss carry forwards 596,175 601,983
Other (50) (58)
--------- ---------
Net deferred tax assets 422,166 591,759
Valuation allowance (422,166) (591,759)
--------- ---------
$ -- $ --
========= =========
(96)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Company has provided a valuation allowance for the total amount of net
deferred tax assets since realization of these assets is not assured due
principally to the Company's history of operating losses.
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater and retail
store facilities under terms of leases expiring at various dates through 2023.
The leases generally provide for fixed annual rentals plus certain real estate
taxes and other costs. Rent expense for the years ended December 31, 1998, 1997
and 1996 amounted to $83,003, $26,773 and $22,195, 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, 1998, 1997 and 1996 amounted to approximately $12,490, $10,737 and
$8,585, respectively. The minimum future annual rentals for all operating leases
during the next five years, including pole rentals from January 1, 1999 through
December 31, 2003, and thereafter, at rates now in force are approximately:
1999, $96,200; 2000, $87,800; 2001, $83,565; 2002, $80,852; 2003, 78,488;
thereafter, $661,758.
NOTE 9. AFFILIATE TRANSACTIONS
The Company has affiliation agreements with certain cable television programming
companies, in which Rainbow Media directly or indirectly held varying ownership
interests during the three years ended December 31, 1998. Accordingly, the
Company recorded income (losses) of approximately $(31,851), $10,672 and
$(8,018) in 1998, 1997 and 1996, respectively, representing its percentage
interests in the results of operations of these programming companies. At
December 31, 1998, the Company's net deficit investment in these programming
companies amounted to approximately $338. At December 31, 1997, the Company's
investment in these programming companies amounted to approximately $29,644.
Costs incurred by the Company for programming services provided by these
non-consolidated affiliates and included in operating expense for the years
ended December 31, 1998, 1997 and 1996 amounted to approximately $2,942, $16,581
and $37,610, respectively. At December 31, 1998 and 1997 amounts due to certain
of these affiliates, primarily for programming services provided to the Company,
aggregated $3,644 and $7,978, respectively, and are included in accounts
payable. At December 31, 1998 and 1997, amounts due from certain of these
programming affiliates aggregated $13,075 and $2,335, 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.
(97)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
During 1998, 1997 and 1996, the Company made advances to or incurred costs on
behalf of other affiliates engaged in providing cable television, cable
television programming, and related services. Amounts due from these affiliates
amounted to $310 and $2,599 at December 31, 1998 and 1997, respectively and are
included in advances to affiliates.
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 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 7,875,784 shares of @Home's Series A
Common Stock at an exercise price of $.50 per share. Additionally, in 1998 a
warrant to purchase 2,355,514 shares of @Home's Series A Common Stock at $.50
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 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 1998, the
Company recorded $35,821 of revenue relating to this transaction.
Prior to their acquisition by the Company, the operations of several cable
systems were managed by the Company for a fee equal to 3-1/2% of gross receipts,
as defined, plus reimbursement of certain costs and an allocation of certain
selling, general and administrative expenses. In certain cases, interest was
charged on unpaid amounts. For 1997 and 1996, such management fees, expenses and
interest amounted to approximately $5,973 and $12,436, respectively, of which
$7,724 was reserved by the Company in 1996.
The Company managed the properties of U.S. Cable until its acquisition in August
1996, under management agreements that provided for cost reimbursement,
including an allocation of overhead charges. For 1996, such cost reimbursement
amounted to $2,396.
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 $38,000 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 $5,517 in 1998, representing
its share of the losses of the LLC.
(98)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a
nephew of Mr. Dolan and a cousin of James 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's investment
amounted to $14,913, $12,867 and $5,756 at December 31, 1998, 1997 and 1996,
respectively. Rainbow Media also contributed to the joint venture its interest
in certain agreements with the licensee of such frequencies.
NOTE 10. BENEFIT PLANS
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, 1998, 1997 and 1996 was negligible. At December 31, 1998 and 1997, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $2,688 and $2,135 respectively.
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. Under the Retirement Plan, the Company will credit a certain
percentage of eligible base pay into an account established for each employee
which will earn a market based rate of return annually.
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 Retirement Plan, the money purchase pension plan
and the 401(k) savings plan was approximately $10,047, $7,445 and $5,565 for the
years ended December 31, 1998, 1997 and 1996, 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, 1998 and 1997, the
accrued pension liability amounted to $8,883 and $7,796, respectively, and for
the years ended December 31, 1998 and 1997, net periodic pension cost amounted
to $2,254 and $1,613, respectively.
(99)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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, 1998 and 1997,
the periodic postretirement benefit cost amounted to $84 and $133, respectively,
and the accrued postretirement benefit obligation amounted to $6,087 and $6,036,
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.
The Company granted under the Stock Plan incentive stock options, nonqualified
stock options, restricted stock, conjunctive 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. Conjunctive stock appreciation rights permit the employee to
elect to receive payment in cash, either in lieu of the right to exercise such
option or in addition to the stock received upon the exercise of such option, 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.
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 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 conjunctive 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 conjunctive 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.
(100)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
During 1996, the Company granted options under the 1996 Plan to purchase
2,194,220 shares of Class A Common Stock, stock appreciation rights related to
2,194,220 shares under option and 368,400 bonus award shares. The options and
related conjunctive stock appreciation rights are exercisable at various prices
ranging from $11.97 to $12.38 per share and vest in either 25% or 33 1/3% annual
increments beginning one year from the date of the grant. The bonus awards vest
primarily over a four year period.
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 (income)/expense of approximately $146,179, $64,361 and
$(8,558) in 1998, 1997 and 1996, 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 1998, the Company's net loss would have increased by
$16,151, $7,323 and $4,191 in 1998, 1997 and 1996, respectively. Pro forma net
loss per share would have been $(3.27), $(.20) and $(4.67) for the years ended
December 31, 1998, 1997 and 1996, respectively.
The per share weighted average value of stock options issued by the Company
during 1998, 1997 and 1996, as determined by the Black-Scholes option pricing
model, was $14.25, $3.32 and $4.97, respectively, on the date of grant. In 1998,
1997 and 1996, the assumptions of no dividends and an expected life of five
years were used by the Company in determining the value of stock options granted
by the Company. In addition, the calculations assumed a risk free interest rate
of approximately 5.0%, 5.9% and 6.7% and expected volatility of 52.8%, 43.5% and
34% in 1998, 1997 and 1996, respectively.
Pro forma net loss reflects only options granted since December 31, 1994.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS 123 is not reflected in the pro forma net loss amounts discussed
above because compensation cost is calculated over the options' vesting periods
and compensation costs for options granted prior to January 1, 1995 are not
considered.
(101)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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, 1995 4,262,728 4,510,748 599,200 -- $3.63-$14.13
1996 Stock Plan -- -- -- 6,000,000
Granted 2,194,220 2,194,220 368,400 (2,562,620) $11.97-$12.38
Exercised/issued (748,564) (954,564) (589,776) -- $3.63-$10.50
Cancelled-Stock Plan (176,568) (87,188) (24,824) -- $6.13-$13.03
Cancelled-1996 Plan (39,200) (39,200) (1,200) 40,400 $12.38
---------- ---------- ---------- ----------
Balance, December 31, 1996 5,492,616 5,624,016 351,800 3,477,780 $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 5,340,944 275,152 1,593,020 $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 14,400 6,704,944 $6.13-$43.50
========== ========== ========== ==========
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1998:
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 - 9.00 2,582,248 7.7 $7.15 1,683,556 $ 7.12
10.50 - 13.19 1,321,112 6.6 11.72 819,016 11.31
27.63 - 43.50 2,254,500 9.5 29.06 85,667 30.16
At December 31, 1998, options for approximately 6,157,860 shares were
outstanding with a weighted average exercise price of $16.15 and a weighted
average remaining life of 8 years. At December 31, 1998, options for
approximately 2,588,200 shares were exercisable with a weighted average exercise
price of $9.20 and a weighted average remaining life of 7 years.
(102)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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, 1998 are as follows:
1999 $ 229,933
2000 217,752
2001 153,717
2002 113,925
2003 98,150
Thereafter 1,093,373
----------
Total $1,906,850
==========
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 $12,890 in
1999 and for the years 2000 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, Accrued Liabilities, Accounts Payable to Affiliates, Feature Film and
Contract Obligations, and Obligation to Related Party.
The carrying amount approximates fair value due to the short maturity of these
instruments.
(103)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
At Home Warrants
The fair value of the At Home warrants has been determined by an independent
investment advisor.
Bank Debt, Senior Debt, Senior Notes and Debentures, Subordinated Notes and
Debentures and Subordinated Notes Payable.
The fair values of each of the Company's long-term debt instruments are based on
quoted market prices for the same or similar issues or on the current rates
offered to the Company for instruments of the same remaining maturities.
Interest Rate Swap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
The fair value of the Company's financial instruments are summarized as follows:
December 31, 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
========== ==========
(104)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
December 31, 1997
---------------------------
Carrying Estimated
Amount Fair Value
------ ----------
Long term debt instruments:
Bank debt $2,240,358 $2,240,358
Senior debt 112,500 112,500
Senior notes and debentures 898,024 919,125
Subordinated notes and debentures 1,048,245 1,158,750
Subordinated notes payable 151,000 148,300
Redeemable exchangeable preferred
stock of CSC Holdings 1,123,808 1,307,750
---------- ----------
$5,573,935 $5,886,783
========== ==========
Interest rate swap agreements:
In a net payable position $ -- $ 3,141
========== ==========
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 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'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 and incentive stock plan expense). 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.
(105)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Years Ended December 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
Revenues
Telecommunication Services ..... $ 1,888,855 $ 1,366,668 $ 1,096,634
Rainbow Media .................. 1,007,639 637,648 241,911
Retail Electronics ............. 464,388 -- --
All Other ...................... 6,614 1,707 3,473
Intersegment Elimination ....... (102,353) (56,665) (26,876)
----------- ----------- -----------
Total .................. $ 3,265,143 $ 1,949,358 $ 1,315,142
=========== =========== ===========
Years Ended December 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
Adjusted Operating Cash Flow
Telecommunication Services ..... $ 762,823 $ 545,927 $ 434,904
Rainbow Media .................. 135,259 101,122 21,294
Retail Electronics ............. (19,737) -- --
All Other ...................... (9,376) (1,704) (1,362)
----------- ----------- -----------
Total .................. $ 868,969 $ 645,345 $ 454,836
=========== =========== ===========
Years Ended December 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
Assets
Telecommunication Services ..... $ 4,163,060 $ 2,927,640 $ 2,719,091
Rainbow Media .................. 2,720,127 2,838,987 738,851
Retail Electronics ............. 199,194 -- --
Other .......................... 253,564 10,270 8,802
Corporate and intersegment
eliminations ................. (274,883) (162,109) (432,019)
----------- ----------- -----------
Total .................. $ 7,061,062 $ 5,614,788 $ 3,034,725
=========== =========== ===========
(106)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent 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,
-----------------------------------------
1998 1997 1996
---- ---- ----
Revenue
Total revenue for reportable segments ................ $ 3,360,882 $ 2,004,316 $ 1,338,545
Other revenue and intersegment eliminations .......... (95,739) (54,958) (23,403)
----------- ----------- -----------
Total consolidated revenue ...................... $ 3,265,143 $ 1,949,358 $ 1,315,142
=========== =========== ===========
Adjusted Operating Cash Flow to Net Loss
Total adjusted operating cash flow for
reportable segments ............................. 878,345 647,049 456,198
Other adjusted operating cash flow deficit ........... (9,376) (1,704) (1,362)
Items excluded from adjusted operating cash flow
Depreciation and amortization ................... (734,107) (499,809) (388,982)
Incentive stock plan (expense) income ........... (146,179) (64,361) 8,558
Interest expense ................................ (426,402) (368,700) (268,177)
Interest income ................................. 24,028 5,492 3,162
Share of affiliates' net loss ................... (37,368) (27,165) (82,028)
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 ...................................... (23,482) (24,547) (37,784)
Provision for preferential payment to related
party ...................................... (980) (10,083) (5,600)
Minority interests .............................. (124,677) (209,461) (137,197)
Miscellaneous, net .............................. (19,218) (12,606) (6,647)
----------- ----------- -----------
Net loss .............................. $ (448,504) $ (12,104) $ (459,859)
=========== =========== ===========
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.
(107)
CABLEVISION SYSTEMS CORPORATION
(formerly CSC Parent 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, 1998 and 1997.
MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
Revenues .................... $ 675,728 $ 358,549 $ 805,190 $ 438,516 $ 806,871 $ 517,930
Operating expenses .......... 686,888 344,271 785,935 433,359 790,822 501,057
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) ..... $ (11,160) $ 14,278 $ 19,255 $ 5,157 $ 16,049 $ 16,873
=========== =========== =========== =========== =========== ===========
Net income (loss) ........... $ (27,204) $ (111,921) $ (122,951) $ (128,776) $ (113,614) $ 46,454
=========== =========== =========== =========== =========== ===========
Basic net income (loss) per
common share .............. $ (.23) $ (1.13) $ (.82) $ (1.30) $ (.75) $ .47
=========== =========== =========== =========== =========== ===========
Diluted net income (loss) per
common share .............. $ (.23) $ (1.13) $ (.82) $ (1.30) $ (.75) $ .44
=========== =========== =========== =========== =========== ===========
DECEMBER 31, TOTAL
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues .................... $ 977,354 $ 634,363 $ 3,265,143 $ 1,949,358
Operating expenses .......... 1,012,815 589,496 3,276,460 1,868,183
----------- ----------- ----------- -----------
Operating profit (loss) ..... $ (35,461) $ 44,867 $ (11,317) $ 81,175
=========== =========== =========== ===========
Net income (loss) ........... $ (184,735) $ 182,139 $ (448,504) $ (12,104)
=========== =========== =========== ===========
Basic net income (loss) per
common share .............. $ (1.22) $ 1.82 $ (3.16) $ (.12)
=========== =========== =========== ===========
Diluted net income (loss) per
common share .............. $ (1.22) $ 1.53 $ (3.16) $ (.12)
=========== =========== =========== ===========
(108)
INDEPENDENT AUDITORS' REPORT
The Stockholder
CSC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of CSC Holdings,
Inc. (formerly Cablevision Systems Corporation) and subsidiaries as of December
31, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, 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 12, 1999
(109)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands)
ASSETS 1998 1997
---- ----
Cash and cash equivalents ................................... $ 173,699 $ 410,141
Accounts receivable trade (less allowance for doubtful
accounts of $31,910 and $29,584) ......................... 191,954 214,721
Notes and other receivables ................................. 143,666 98,756
Inventory, prepaid expenses and other assets ................ 202,512 55,324
Property, plant and equipment, net .......................... 2,110,839 1,831,167
Investments in affiliates ................................... 276,231 207,776
Advances to affiliates ...................................... 37,001 19,823
Feature film inventory ...................................... 293,310 180,576
Net assets held for sale .................................... 11,006 252,610
Franchises, net of accumulated amortization of
$570,319 and $481,895 .................................... 327,293 383,369
Affiliation and other agreements, net of accumulated
amortization of $181,928 and $129,087 .................... 206,456 253,734
Excess costs over fair value of net assets acquired and other
intangible assets, net of accumulated amortization of
$762,589 and $684,141 .................................... 1,854,605 1,615,786
Deferred financing, acquisition and other costs, net of
accumulated amortization of $41,566 and $40,061 .......... 107,288 91,005
---------- ----------
$5,935,860 $5,614,788
========== ==========
See accompanying notes
to consolidated financial statements.
(110)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Dollars in thousands, except per share amounts)
1998 1997
---- ----
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Accounts payable.................................................... $ 382,877 $ 278,630
Accrued liabilities:
Interest ........................................................ 85,960 54,107
Employee related costs .......................................... 315,645 196,138
Other ........................................................... 391,304 254,621
Feature film and contract obligations ............................... 373,722 292,720
Deferred revenue .................................................... 334,213 277,693
Bank debt ........................................................... 1,528,549 2,240,358
Senior debt ......................................................... -- 112,500
Senior notes and debentures ......................................... 2,194,443 898,024
Subordinated notes and debentures ................................... 1,048,375 1,048,245
Subordinated notes payable .......................................... -- 151,000
Obligation to related party ......................................... -- 197,183
Capital lease obligations and other debt ............................ 63,241 46,752
----------- -----------
Total liabilities ............................................... 6,718,329 6,047,971
----------- -----------
Minority interests .................................................. 785,545 821,782
----------- -----------
Series H Redeemable Exchangeable Preferred Stock .................... 364,953 325,048
----------- -----------
Series M Redeemable Exchangeable Preferred Stock .................... 891,386 798,760
----------- -----------
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 C Cumulative Preferred Stock, $.01 par value,
112,500 shares authorized, 110,622 shares issued
($100 per share liquidation preference) ...................... -- 1
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 and issued ($250 per share liquidation preference) 14 14
Common Stock, $1.00 par value, 1,000 shares authorized,
1,000 and -0- shares issued .................................. 1 --
Class A Common Stock, $.01 par value,
-0- and 55,897,984 shares issued ............................. -- 560
Class B Common Stock, $.01 par value,
-0- and 44,386,836 shares issued ............................. -- 444
Paid-in capital ................................................. 170,287 171,399
Accumulated deficit ............................................. (2,994,655) (2,551,191)
----------- -----------
Total stockholder's deficiency .................................. (2,824,353) (2,378,773)
----------- -----------
$ 5,935,860 $ 5,614,788
=========== ===========
See accompanying notes
to consolidated financial statements.
(111)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Dollars in thousands, except per share amounts)
1998 1997 1996
---- ---- ----
Revenues (including affiliate amounts of $8,009, $9,424 and $9,487) ...... $ 2,912,419 $ 1,949,358 $ 1,315,142
----------- ----------- -----------
Operating expenses:
Technical and operating (including affiliate amounts of $2,298,
$16,581 and $37,610 and cost of sales of $390,751 in 1998) ........... 1,524,555 853,800 538,272
Selling, general and administrative .................................... 820,015 514,574 313,476
Depreciation and amortization .......................................... 577,635 499,809 388,982
----------- ----------- -----------
2,922,205 1,868,183 1,240,730
----------- ----------- -----------
Operating profit (loss) .................................................. (9,786) 81,175 74,412
----------- ----------- -----------
Other income (expense):
Interest expense ....................................................... (393,008) (368,700) (268,177)
Interest income (including affiliate amounts of $6,041, $1,600 and $568) 23,936 5,492 3,162
Share of affiliates' net loss .......................................... (37,368) (27,165) (82,028)
Gain on sale of programming interests and cable assets, net ............ 171,127 372,053 --
Gain on redemption of subsidiary preferred stock ....................... -- 181,738 --
Write off of deferred interest and financing costs ..................... (23,482) (24,547) (37,784)
Provision for preferential payment to related party .................... (980) (10,083) (5,600)
Minority interests ..................................................... 48,378 (60,694) (9,417)
Miscellaneous, net ..................................................... (18,350) (12,606) (6,647)
----------- ----------- -----------
(229,747) 55,488 (406,491)
----------- ----------- -----------
Net income (loss) ........................................................ (239,533) 136,663 (332,079)
Dividend requirements applicable to preferred stock ...................... (161,872) (148,767) (127,780)
----------- ----------- -----------
Net loss applicable to common shareholder ................................ $ (401,405) $ (12,104) $ (459,859)
=========== =========== ===========
Basic and diluted net loss per common share .............................. $ -- $ (.12) $ (4.63)
=========== =========== ===========
Average number of common shares outstanding (in thousands) ............... -- 99,608 99,308
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(112)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' DEFICIENCY Years
Ended December 31, 1998, 1997 and 1996
(Dollars in thousands)
Series C Series I Class A Class B
Preferred Preferred Common Common Common
Stock Stock Stock Stock Stock Paid-in Capital
----- ----- ----- ----- ----- ---------------
Balance December 31, 1995 ........... $ 1 $ 14 $ -- $ 568 $ 464 $ 246,897
Net loss ....................... -- -- -- -- -- --
Issuances of preferred stock ... -- -- -- -- -- (25,979)
Employee stock transactions .... -- -- -- 4 -- 3,225
Conversion of Class B to Class A -- -- -- 12 (12) --
Retirement of treasury stock ... -- -- -- (40) -- (60,352)
Preferred dividend requirements -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
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 ....................... -- -- -- -- -- --
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 $ -- $ -- $ 170,287
=========== =========== =========== =========== =========== ===========
Accumulated Treasury
Deficit Stock Total
------- ----- -----
Balance December 31, 1995 ........... $(2,079,228) $ (60,392) $(1,891,676)
Net loss ....................... (332,079) -- (332,079)
Issuances of preferred stock ... -- -- (25,979)
Employee stock transactions .... -- -- 3,229
Conversion of Class B to Class A -- -- --
Retirement of treasury stock ... -- 60,392 --
Preferred dividend requirements (127,780) -- (127,780)
----------- ----------- -----------
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 ....................... (239,533) -- (239,533)
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 ........... $(2,994,655) $ -- $(2,824,353)
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(113)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(Dollars in thousands)
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income (loss) .......................................................... $(239,533) $ 136,663 $(332,079)
--------- --------- ---------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization .......................................... 577,635 499,809 388,982
Share of affiliates' net loss .......................................... 37,368 27,165 82,028
Minority interests ..................................................... (48,378) 60,694 9,417
Gain on sale of programming interests and cable assets, net ............ (171,127) (372,053) --
Write off of deferred interest and financing costs ..................... 23,482 24,547 37,784
Gain on redemption of subsidiary preferred stock ....................... -- (181,738) --
(Gain) loss on sale of equipment, net .................................. (642) 5,325 4,733
Amortization of deferred financing and debenture discount .............. 8,216 7,707 12,191
Accretion of interest on debt .......................................... -- -- 6,828
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade .......................................... 20,625 (34,268) (2,709)
Notes and other receivables ........................................ (49,375) (67,683) (1,810)
Inventory, prepaid expenses and other assets ....................... (90,277) 1,232 (12,428)
Advances to affiliates ............................................. (21,738) (528) (2,168)
Feature film inventory ............................................. (112,734) (8,269) 9,658
Other deferred costs ............................................... 11,689 -- --
Accounts payable ................................................... 93,729 50,667 17,134
Accrued liabilities ................................................ 148,409 91,497 (4,618)
Feature film and contract obligations .............................. 81,376 (258) (12,563)
Deferred revenue ................................................... (18,268) 37,664 --
Minority interests ................................................. (961) (6,486) --
--------- --------- ---------
Net cash provided by operating activities ................................ 249,496 271,687 200,380
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ....................................................... (530,784) (457,590) (449,165)
Payments for acquisitions, net of cash acquired ............................ (264,510) (747,134) (113,095)
Net proceeds from sale of programming interests and cable assets ........... 442,425 945,534 --
Proceeds from sale of equipment ............................................ 8,945 1,930 814
(Increase) decrease in investments in affiliates, net ...................... (31,035) 9,267 (179,536)
Additions to other intangible assets ....................................... (12,659) (623) (766)
--------- --------- ---------
Net cash used in investing activities .................................... $(387,618) $(248,616) $(741,748)
--------- --------- ---------
See accompanying notes
to consolidated financial statements.
(114)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(Dollars in thousands)
(continued)
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
Proceeds from bank debt ............................. $ 4,804,101 $ 3,385,703 $ 2,053,566
Repayment of bank debt .............................. (5,519,507) (3,147,165) (1,576,585)
Proceeds from senior debt ........................... -- 147,750 12,500
Repayment of senior debt ............................ (112,500) (433,617) (918,131)
Repayment of subordinated notes payable ............. (151,000) -- --
Redemption of senior notes payable .................. (94,848) -- --
Issuance of subordinated debentures ................. -- -- 399,385
Redemption of senior subordinated debt .............. -- (283,445) --
Issuance of senior notes and debentures ............. 1,296,076 897,983 --
Redemption of subsidiary preferred stock ............ -- (112,301) --
Redemption of preferred stock ....................... (9,409) -- --
Issuances of redeemable exchangeable
convertible preferred stock ....................... -- -- 624,021
Dividends applicable to preferred stock ............. (29,341) (30,224) (30,266)
Payment of dividend to shareholder .................. (42,059) -- --
Issuance of common stock ............................ 2,444 7,616 3,229
Obligation to related party ......................... (197,183) 4,364 (126)
Payments on capital lease obligations and other debt (12,306) (7,501) (3,321)
Additions to deferred financing and other costs ..... (32,788) (53,705) (26,624)
----------- ----------- -----------
Net cash provided by (used in) financing activities (98,320) 375,458 537,648
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents .. (236,442) 398,529 (3,720)
Cash and cash equivalents at beginning of year ........ 410,141 11,612 15,332
----------- ----------- -----------
Cash and cash equivalents at end of year .............. $ 173,699 $ 410,141 $ 11,612
=========== =========== ===========
See accompanying notes
to consolidated financial statements.
(115)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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.
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 a
majority interest in 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 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 its retail electronics stores.
Two-for-One Stock Splits
On March 4, 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
(116)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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
dividend was paid on March 30, 1998 to stockholders of record on March 19, 1998.
On July 22, 1998, Parent's Board of Directors declared a two-for-one stock split
to be 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.
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 and programming revenues as services are
provided to subscribers. Advertising revenues are recognized when commercials
are telecast. Revenues derived from other sources are recognized when services
are provided, events occur or products are delivered.
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 (7 to 11 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 6 to 10 years. Other intangible
assets are amortized on the straight-line basis over the periods benefited (2 to
10 years), except that excess costs over fair value of net assets acquired are
being amortized on the straight-line basis over periods ranging from 5 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
(117)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly 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 the straight-line basis over the respective
contract periods. Amounts payable during the five years subsequent to December
31, 1998 related to feature film telecast rights are $44,438 in 1999, $38,394 in
2000, $27,332 in 2001, $22,375 in 2002 and $19,751 in 2003.
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 for the years ended December 31,
1997 and 1996 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 year ended December 31, 1998 is not presented since the Company is a
wholly-owned subsidiary of Parent. Loss per share amounts have been adjusted,
for all years presented, to reflect the two-for-one stock splits discussed
above.
(118)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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
does not have a material effect on the Company's financial statements, but does
affect the disclosure of segment information contained elsewhere herein (see
Note 15).
Reclassifications
Certain reclassifications have been made in the 1997 and 1996 financial
statements to conform to the 1998 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 $352,929, $352,660, and $252,120 during 1998, 1997 and 1996,
respectively.
During 1998, 1997, and 1996, the Company's noncash investing and financing
activities were as follows:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
Capital lease obligations ..................... 28,795 24,820 2,571
Preferred stock dividends ..................... 132,531 118,542 97,514
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 --
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.
(119)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
Acquisitions
1998 Acquisitions
The Wiz
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of the Company, acquired substantially
all of the assets associated with 40 The Wiz consumer electronics store
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $101,300 for the assets
(including transaction costs and pre-closing operating costs).
The acquisition was accounted for as a purchase with the operations of 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
==========
Madison Square Garden
On June 17, 1998, the Company purchased 50% of ITT's remaining interest in MSG
for $94,000 pursuant to ITT's exercise of its first put option increasing RPP's
interest in MSG to 96.3% (see discussion below). In March 1999, ITT and the
Company entered into an agreement under which ITT exercised its second put for
the remainder of its interest in MSG and will settle certain matters between the
parties for a payment of $87,000.
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.
(120)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The acquisition was accounted for as a purchase with the operations of the
acquired assets being consolidated with those of the Company as of the
acquisition date. The purchase price was allocated to the specific assets
acquired based upon independent appraisals as follows:
Property and equipment $12,600
Other assets 4,100
Excess cost over fair value
of net assets acquired 50,600
-------
$67,300
=======
In the first quarter of 1999, the Company acquired one additional theater and
Loews has granted the Company a right of first offer on an additional 21 movie
theaters until December 1999.
Clearview
In December 1998, Parent acquired all of the outstanding shares of stock of
Clearview Cinema Group, Inc. ("Clearview") for approximately $157,700 (including
assumed debt of $80,000) of which approximately $33,400 was paid in shares of
Parent's Class A Common Stock. The remaining purchase price was funded primarily
by a dividend paid by the Company to Parent of approximately $42,000. Concurrent
with the acquisition of Clearview, Parent contributed its entire interest in
Clearview to the subsidiary formed to purchase the Loews theaters in exchange
for a minority interest in that subsidiary. As a result, the operations of
Clearview have been consolidated with those of the Company since the date of the
acquisition and the Company has recorded a minority interest representing
Parent's share of the results of operations of the newly formed subsidiary which
owns the Loews theatres and Clearview.
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 excess of the purchase price over the net book value of
assets acquired approximates $122,300 and will be allocated to the specific
assets acquired when independent appraisals are obtained.
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 may be increased by up to an additional 2% under
certain circumstances without additional payment) in Class C Common Stock of
Rainbow Media. The Company owns the remaining 75% 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
(121)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Media for NBC's interests 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 Corporation ("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 ("MSG Agreement") 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/Liberty 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. The remaining 7.8%
interest held by ITT is subject to certain puts and calls as specified in the
MSG Agreement (see "1998 Acquisitions" above). 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
========
(122)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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
Entertainment ("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
=========
(123)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 February 1997, the Company announced that it was pursuing a plan to dispose
of certain nonstrategic cable television systems. 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/Liberty Networks, LLC ("Fox") organized
Regional Programming Partners (a partnership that owns the interest in MSG and
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 discussion above under "Acquisitions - 1998
Acquisitions - Madison Square Garden 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
(124)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 share of affiliates' net loss in the accompanying consolidated
statements of operations for the period ended July 1, 1997 and for the year
ended December 31, 1996 is $35,835 and $68,492, respectively, 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 years ended December 31, 1998 and 1997 as if the acquisitions of MSG,
Nashoba, CFHI, the NBC transaction, the A-R Cable consolidation and the sale of
assets of certain cable systems had occurred on January 1, 1998 and 1997,
respectively.
Years Ended December 31,
------------------------
1998 1997
---- ----
Net revenues $2,907,145 $2,160,778
========== ==========
Net income (loss) $ (472,567) $ 1,000
========== ==========
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
Pursuant to the Company's decision to dispose of certain nonstrategic cable
television systems (see Note 2), the Company had entered into definitive
agreements covering the sale of certain cable television systems as of December
31, 1998 and 1997.
In January 1998, the Company, Parent and a subsidiary of TCI entered into a
non-binding letter of intent for Parent to acquire TCI's cable television
systems (the "TCI Connecticut Systems") in and around Hartford, Vernon, Branford
and Lakeville, Connecticut (the "Proposed TCI CT Transactions"). Under the
non-binding letter of intent, in consideration for the TCI Connecticut Systems,
Parent would (i) transfer to TCI the cable television systems serving Kalamazoo,
(125)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Michigan, (ii) transfer to TCI other cable television systems to be identified
by TCI and purchased with approximately $25,000 of funds provided by Parent,
(iii) issue shares of Parent's Class A Common Stock, and (iv) assume certain
indebtedness relating to the TCI Connecticut Systems, which is anticipated to
total approximately $110,000.
A binding definitive agreement has not yet been completed. There can be no
assurance that the Proposed TCI CT Transactions will be consummated in a timely
fashion, or at all.
For financial reporting purposes, the assets and liabilities attributable to
cable systems whose sale or transfer was pending at December 31, 1998 and 1997
have been classified in the consolidated balance sheet as net assets held for
sale and consist of the following:
December, 31
------------
1998 1997
---- ----
Property, plant and equipment, net $ 14,548 $122,577
Intangible assets, net 215 154,352
Other assets (including trade receivables,
prepaid expenses, etc.) 603 2,815
-------- --------
Total assets 15,366 279,744
Total liabilities 4,360 27,134
-------- --------
Net assets $ 11,006 $252,610
======== ========
The accompanying consolidated statement of operations for the year ended
December 31, 1998 and 1997 includes net revenues aggregating approximately
$18,937 and $102,971, respectively, and net income (loss) aggregating
approximately $9,095 and $(11,275), respectively, relating to the cable systems
held for sale or transfer.
(126)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly 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 items, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
------------------ Estimated
1998 1997 Useful Lives
---- ---- ------------
Communication transmission
and distribution systems:
Customer equipment ................. $ 537,066 $ 508,959 4 to 5 years
Headends ........................... 109,080 100,551 7 to 10 years
Multimedia ......................... 9,075 -- 10 years
Central office equipment ........... 87,203 60,672 10 years
Infrastructure ..................... 1,864,294 1,651,236 10 to 15 years
Program, service and test
equipment ......................... 372,644 282,635 2 to 10 years
Microwave equipment ................ 16,070 16,641 2 to 10 years
Construction in progress (including
materials and supplies) ........... 131,314 140,455 --
Furniture and fixtures ................. 191,607 128,442 1 to 12 years
Transportation equipment ............... 123,797 107,159 4 to 15 years
Building and building improvements ..... 159,166 156,254 23 to 40 years
Leasehold improvements ................. 131,492 70,991 Term of lease
Land and land improvements ............. 41,136 34,070 --
---------- ----------
3,773,944 3,258,065
Less accumulated depreciation and
amortization ......................... 1,663,105 1,426,898
---------- ----------
$2,110,839 $1,831,167
========== ==========
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,
consists of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR
credit facility of which $600,000 is
(127)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
available, and an $800,000 credit facility for certain unrestricted subsidiaries
of Parent acquired from TCI on March 4, 1998 ("TCI Systems"). While the $800,000
TCI Systems credit facility is in place, only $600,000 of the $1.4 billion MFR
facility may 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 includes a reduction of the TCI Systems credit facility by $100,000 to
$700,000.
The TCI Systems credit facility matures on April 4, 1999 and concurrent with the
transfer of the TCI Systems to CSC Holdings, which is expected to occur by April
4, 1999, the restriction on the MFR credit facility will be eliminated and the
borrowings under the MFR facility will increase by an amount equal to the
borrowings outstanding under the TCI Systems credit facility.
The total amount of bank debt outstanding under the Restricted Group Credit
Agreement at December 31, 1998 and 1997 was $887,226 and $1,328,098,
respectively. As of December 31, 1998, approximately $57,313 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 $572,687 at December 31, 1998. 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, 1998.
Interest on outstanding amounts may be paid, at the option of the Company, based
on the prime rate or Eurodollar rate. The Company has entered into interest rate
swap agreements with several banks on a notional amount of $225,000 as of
December 31, 1998 whereby the Company pays a fixed rate of interest ranging from
5.94% to 8.00% and receives a variable rate ranging from 5.38% to 5.72%. The
Company enters into interest rate swap agreements to hedge against interest rate
risk, as required by its Credit Agreement, and therefore accounts for these
agreements as hedges of floating rate debt, whereby interest expense is recorded
using the revised rate, with any fees or other payments amortized as yield
adjustments. As of December 31, 1998, the interest rate swap agreements expire
at various times through the year 2000 and have a weighted average life of
approximately 11 months. 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 6.53% and 7.60%
on December 31, 1998 and 1997, respectively. The Company is also obligated to
pay fees from .1875% to .25% per annum on the unused loan commitment and from
.4% to 1.375% per annum on letters of credit issued under the Credit Agreement.
(128)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Unrestricted Group
U.S. Cable
U.S. Cable Television Group, L.P. ("U.S. Cable"), a subsidiary of the Company,
had a three year $175,000 revolving credit facility maturing on August 13, 1999.
As of December 31, 1997, U.S. Cable had outstanding borrowings under its
revolving credit facility of approximately $155,000. Amounts outstanding under
the facility bore interest at varying rates based upon the banks' base rate or
LIBOR rate, as defined in the loan agreement. The weighted average interest rate
was 7.1% on December 31, 1997. In January 1998, all remaining indebtedness of
U.S. Cable amounting to approximately $156,000 was repaid and its credit
agreement was terminated. The proceeds for such repayment came from the sale of
substantially all the assets of U.S. Cable.
Rainbow Media
In April 1997, Rainbow Media executed a new $300,000, three year credit facility
with Canadian Imperial Bank of Commerce and Toronto-Dominion as co-agents, and a
group of banks. Upon closing, approximately $172,000 was drawn to refinance, in
part, its previous $202,000 credit facility. The balance of the funds utilized
to fully repay the $202,000 facility and to repay $169,000 to the Restricted
Group came from a distribution by American Movie Classics Company. The Rainbow
Media revolving credit facility was amended in December 1997 which, among other
things, extended the maturity date to 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, 1998 and 1997, Rainbow Media had outstanding borrowings of
$67,200 and $176,500, respectively, under its credit facility. Undrawn funds
available to Rainbow Media under the credit facility amounted to approximately
$12,800 at December 31, 1998.
The weighted average interest rate on Rainbow Media's bank debt was 7.7% and
7.8% on December 31, 1998 and 1997, respectively. The credit agreement contains
various restrictive covenants with which Rainbow Media was in compliance at
December 31, 1998.
American Movie Classics Company
In April 1997, American Movie Classics Company ("AMCC") put into place a new
$250,000 credit facility. The facility was comprised of a $200,000 term loan and
a $50,000 revolving loan.
(129)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The facility was used to make a $205,000 cash distribution to Rainbow Media,
refinance existing indebtedness and for general corporate purposes. In December
1997, the loan was amended, decreasing the term loan to $146,000 and increasing
the revolving loan to $100,000 ("AMCC Loan Agreement"). Both loans will mature
on March 31, 2004. Borrowings under the AMCC Loan Agreement bear 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 AMCC Loan
Agreement. At December 31, 1998 and 1997, the weighted average interest rate on
bank indebtedness was 6.1% and 6.8%, respectively. The term loan began
amortizing September 30, 1997 and requires quarterly amortization payments. The
revolving loan does not start to reduce until June 30, 2002. On December 31,
1998 and 1997, $128,000 and $143,000, respectively, was outstanding under the
term loan and $64,250 and $56,500, respectively, was outstanding under the
revolving loan. Substantially all of the assets of AMCC, amounting to
approximately $274,600 at December 31, 1998, have been pledged to secure the
borrowings under the AMCC Loan Agreement. The AMCC Loan Agreement contains
various restrictive covenants with which AMCC was in compliance at December 31,
1998.
Madison Square Garden
In June 1997, MSG entered into an $850,000 credit agreement (the "MSG Credit
Facility") with a group of banks led by Chase Manhattan Bank, as agent. The MSG
Credit Facility expires on December 31, 2004. MSG initially borrowed $650,000
and $149,000 under the term loan and revolver portions, respectively, of the MSG
Credit Facility. In December 1997, the facility was amended to increase the
revolver to $500,000 from $200,000. Also in December 1997, MSG repaid the term
loan of $650,000 with $450,000 contributed by RPP as described in Note 2 and
$200,000 of additional borrowings under the revolver. 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, 1998 and 1997, loans outstanding
amounted to $310,000 and $360,000, respectively, and bore interest at 6.038% and
6.785%, respectively. The MSG Credit Facility contains certain financial
covenants with which MSG was in compliance at December 31, 1998. 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 (7.22% and 7.85% at December 31, 1998 and 1997, respectively) and mature
in July 2002.
Cablevision Electronics
In February 1998, Cablevision Electronics entered into a three year $130,000
revolving 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. The total
amount outstanding under the credit agreement at December 31, 1998 was
(130)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
approximately $44,542 and bore interest at 7.2%. As of December 31, 1998,
$30,197 was restricted for certain letters of credit issued on behalf of
Cablevision Electronics. Unrestricted and undrawn funds available amounted to
$54,403 on December 31, 1998 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, 1998.
Cablevision Cinemas
Cablevision Cinemas, LLC has a $15,000 revolving credit bank facility maturing
on June 30, 2003. As of December 31, 1998, there were no outstanding borrowings
under this bank facility.
Senior Debt
On December 30, 1997, the Company repaid $222,000 of A-R Cable's debt with
borrowings under CSC Holdings' Credit Facility in connection with the transfer
of certain cable systems from A-R Cable to the Restricted Group. A-R Cable had
outstanding borrowings of $112,500 at December 31, 1997, which was repaid in
1998.
Senior Notes and Debentures
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 ($499,516
amortized amount at December 31, 1998) 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 ($296,721
amortized amount at December 31, 1998) 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 the Company prior to maturity.
In December 1997, the Company issued $500,000 principal amount ($499,532 and
$499,475 amortized amount at December 31, 1998 and 1997, respectively) of 7-7/8%
Senior Notes due 2007 (the "2007 Notes"). The notes were issued at a discount of
$525. The 2007 Notes are not
(131)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
redeemable by the Company prior to maturity. The net proceeds were used to
reduce bank borrowings.
In August 1997, the Company issued $400,000 principal amount ($398,674 and
$398,549 amortized amount at December 31, 1998 and 1997, 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 net proceeds were used to reduce bank borrowings.
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, 1998.
Subordinated Debentures
In May 1996, the Company issued $150,000 principal amount ($149,545 and $149,485
amortized amount at December 31, 1998 and 1997, 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 ($199,117 and $199,056
amortized amounts at December 31, 1998 and 1997, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013
Debentures are redeemable, at the Company's option, on February 15, 2003,
February 15, 2004, February 15, 2005 and February 15, 2006 at the redemption
price of 104.80%, 103.60%, 102.40% and 101.20%, respectively, of the principal
amount and thereafter at the redemption price of 100% of the principal amount,
in each case together with accrued interest to the redemption date.
(132)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Also in 1993, the Company issued $150,000 face amount ($149,713 and $149,704
amortized amounts at December 31, 1998 and 1997, 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, 1998.
Subordinated Notes Payable
In connection with certain acquisitions made in 1994, a subsidiary of the
Company issued promissory notes totaling $141,268 and the Company assumed $9,732
of promissory notes, both of which were repaid in June 1998.
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, 1998 are as follows:
1999 $54,401
2000 98,354
2001 76,020
2002 56,265
2003 229,451
NOTE 6. PREFERRED STOCK
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") with a liquidation preference of $650,000, which
were subsequently exchanged for Series M Redeemable Exchangeable Preferred Stock
(the "Series M Preferred Stock") on August 2, 1996 with terms identical to the
Series L Preferred Stock. Net proceeds were approximately $626,000. 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
(133)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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. The Company satisfied its dividend requirements by issuing 9,263, 8,300
and 6,576 additional shares of Series M Preferred Stock in 1998, 1997 and 1996,
respectively.
In November 1995, the Company issued 13,800,000 depositary shares representing
1,380,000 shares of 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock (the "Series I Preferred Stock") with an aggregate liquidation
preference of $345,000. The depositary shares are convertible into shares of
Parent's Class A Common Stock, at any time after January 8, 1996 at the option
of the holder, at an initial conversion price of $16.86 per share (adjusted for
the two-for-one stock splits - see Note 1) of Parent's Class A Common Stock
subject to adjustment under certain conditions. Following the Holding Company
Reorganization referred to in Note 1, the depositary shares are convertible into
a comparable number of shares of Class A Common Stock of Parent. The Series I
Preferred Stock is exchangeable into 8-1/2% Convertible Subordinated Debentures
due 2007, at the option of the Company, in whole but not in part, on or after
January 1, 1998 at a rate of $25.00 principal amount of exchange debentures for
each depositary share. The Series I Preferred Stock is redeemable at the option
of the Company, in whole or in part, on November 1, 1999, November 1, 2000, and
November 1, 2001 and thereafter at 102.8%, 101.4% and 100.0%, respectively, of
the principal amount plus accrued and unpaid dividends thereon. The Company paid
a cash dividend of approximately $29,325 in each of 1998, 1997 and 1996.
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. The Company satisfied its
dividend requirements by issuing 399,050, 355,415 and 317,549 additional shares
of Series H Preferred Stock in 1998, 1997 and 1996, respectively.
In January 1998, the Company redeemed all of its outstanding 8% Series C
Cumulative Preferred Stock ("Series C Preferred Stock") for cash of
approximately $9,400 in the aggregate for all outstanding shares, including
accrued dividends.
(134)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
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,
1998, the Company had consolidated net operating loss carry forwards of
approximately $880,000 and Rainbow Media had consolidated federal net operating
loss carry forwards of approximately $539,000. 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 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, 1998 and 1997 are as follows:
1998 1997
---- ----
Deferred Asset (Liability)
Depreciation and amortization $ 28,918 $ 67,234
Receivables from affiliates 23,406 18,681
Benefit plans 105,439 29,841
Allowance for doubtful accounts 5,980 5,538
Deferred gain (130,650) (131,460)
Benefits of tax loss carry forwards 596,175 601,983
Other (50) (58)
--------- ---------
Net deferred tax assets 629,218 591,759
Valuation allowance (629,218) (591,759)
--------- ---------
$ -- $ --
========= =========
The Company has provided a valuation allowance for the total amount of net
deferred tax assets since realization of these assets is not assured due
principally to the Company's history of operating losses.
NOTE 8. OPERATING LEASES
The Company leases certain office, production, transmission, theater and retail
store facilities under terms of leases expiring at various dates through 2023.
The leases generally provide for fixed annual rentals plus certain real estate
taxes and other costs. Rent expense for the years ended December 31, 1998, 1997
and 1996 amounted to $79,822, $26,773 and $22,195, respectively.
(135)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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, 1998, 1997 and 1996 amounted to approximately $9,855, $10,737 and
$8,585, respectively. The minimum future annual rentals for all operating leases
during the next five years, including pole rentals from January 1, 1999 through
December 31, 2003, and thereafter, at rates now in force are approximately:
1999, $91,822; 2000, $83,557; 2001, $79,538; 2002, $77,256; 2003, 74,905;
thereafter, $656,303.
NOTE 9. AFFILIATE TRANSACTIONS
The Company has affiliation agreements with certain cable television programming
companies, in which Rainbow Media directly or indirectly held varying ownership
interests during the three years ended December 31, 1998. Accordingly, the
Company recorded income (losses) of approximately $(31,851), $10,672 and
$(8,018) in 1998, 1997 and 1996, respectively, representing its percentage
interests in the results of operations of these programming companies. At
December 31, 1998, the Company's net deficit investment in these programming
companies amounted to approximately $338. At December 31, 1997, the Company's
investment in these programming companies amounted to approximately $29,644.
Costs incurred by the Company for programming services provided by these
non-consolidated affiliates and included in operating expense for the years
ended December 31, 1998, 1997 and 1996 amounted to approximately $2,298, $16,581
and $37,610, respectively. At December 31, 1998 and 1997 amounts due to certain
of these affiliates, primarily for programming services provided to the Company,
aggregated $3,644 and $7,978, respectively, and are included in accounts
payable. At December 31, 1998 and 1997, amounts due from certain of these
programming affiliates aggregated $13,112 and $2,335, 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.
During 1998, 1997 and 1996, the Company made advances to or incurred costs on
behalf of other affiliates engaged in providing cable television, cable
television programming, and related services. Amounts due from these affiliates
amounted to $310 and $2,599 at December 31, 1998 and 1997, respectively and are
included in advances to affiliates.
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 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 7,875,784 shares of @Home's
(136)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Series A Common Stock at an exercise price of $.50 per share. Additionally, in
1998 a warrant to purchase 2,355,514 shares of @Home's Series A Common Stock at
$.50 per share was received in connection with Parent's acquisition of certain
cable television systems from TCI. 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 1998, the
Company recorded $35,821 of revenue relating to this transaction.
Prior to their acquisition by the Company, the operations of several cable
systems were managed by the Company for a fee equal to 3-1/2% of gross receipts,
as defined, plus reimbursement of certain costs and an allocation of certain
selling, general and administrative expenses. In certain cases, interest was
charged on unpaid amounts. For 1997 and 1996, such management fees, expenses and
interest amounted to approximately $5,973 and $12,436, respectively, of which
$7,724 was reserved by the Company in 1996.
The Company managed the properties of U.S. Cable until its acquisition in August
1996, under management agreements that provided for cost reimbursement,
including an allocation of overhead charges. For 1996, such cost reimbursement
amounted to $2,396.
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 $38,000 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 $5,517 in 1998, representing
its share of the losses of the LLC. NorthCoast is a Delaware corporation
controlled by John Dolan. John Dolan is a nephew of Mr. Dolan and a cousin of
James 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's investment
amounted to $14,913, $12,867 and $5,756 at December 31, 1998, 1997 and 1996,
respectively. Rainbow Media also contributed to the joint venture its interest
in certain agreements with the licensee of such frequencies.
(137)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 10. BENEFIT PLANS
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, 1998, 1997 and 1996 was negligible. At December 31, 1998 and 1997, the fair
value of Supplemental Plan assets exceeded the projected benefit obligation by
approximately $2,688 and $2,135 respectively.
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. Under the Retirement Plan, the Company will credit a certain
percentage of eligible base pay into an account established for each employee
which will earn a market based rate of return annually.
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 Retirement Plan, the money purchase pension plan
and the 401(k) savings plan was approximately $9,272, $7,445 and $5,565 for the
years ended December 31, 1998, 1997 and 1996, 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, 1998 and 1997, the
accrued pension liability amounted to $8,883 and $7,796, respectively, and for
the years ended December 31, 1998 and 1997, net periodic pension cost amounted
to $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, 1998 and 1997,
the periodic postretirement benefit cost amounted to $84 and $133, respectively,
and the accrued postretirement benefit obligation amounted to $6,087 and $6,036,
respectively.
(138)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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,
conjunctive 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. Conjunctive
stock appreciation rights permit the employee to elect to receive payment in
cash, either in lieu of the right to exercise such option or in addition to the
stock received upon the exercise of such option, 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 made for certain
executive stock options. As a result the Company recorded (income)/expense of
approximately $137,554, $64,361 and $(8,558) in 1998, 1997 and 1996,
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, 1998 are as follows:
1999 $ 229,933
2000 217,752
2001 153,717
2002 113,925
2003 98,150
Thereafter 1,093,373
----------
Total $1,906,850
==========
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 its
proportionate share of the base rate annual payments, based on subscriber usage,
of approximately $12,890 in 1999 and for the years 2000 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.
(139)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 13. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that the resolution of these lawsuits will have a
material adverse impact on the financial position of the Company.
NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts
Payable, Accrued Liabilities, Accounts Payable to Affiliates, Feature Film and
Contract Obligations, and Obligation to Related Party.
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 has been determined by an independent
investment advisor.
Bank Debt, Senior Debt, Senior Notes and Debentures, Subordinated Notes and
Debentures, Subordinated Notes Payable 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.
(140)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly 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, 1998
-----------------
Carrying Estimated
Amount Fair Value
------ ----------
At Home warrants $ 248,134 $ 755,479
========== ==========
Long term debt instruments:
Bank debt $1,528,549 $1,528,549
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
---------- ----------
$6,027,706 $6,385,505
========== ==========
Interest rate swap agreements:
In a net payable position $ -- $ 4,116
========== ==========
December 31, 1997
-----------------
Carrying Estimated
Amount Fair Value
------ ----------
Long term debt instruments:
Bank debt $2,240,358 $2,240,358
Senior debt 112,500 112,500
Senior notes and debentures 898,024 919,125
Subordinated notes and debentures 1,048,245 1,158,750
Subordinated notes payable 151,000 148,300
Redeemable exchangeable preferred stock 1,123,808 1,307,750
---------- ----------
$5,573,935 $5,886,783
========== ==========
Interest rate swap agreements:
In a net payable position $ -- $ 3,141
========== ==========
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 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
(141)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 and incentive stock plan expense). 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,
-------------------------------------------
1998 1997 1996
---- ---- ----
Revenues
Telecommunication Services ...... $ 1,513,393 $ 1,366,668 $ 1,096,634
Rainbow Media ................... 1,007,639 637,648 241,911
Retail Electronics .............. 464,388 -- --
All Other ....................... 6,614 1,707 3,473
Intersegment Elimination ........ (79,615) (56,665) (26,876)
----------- ----------- -----------
Total ................... $ 2,912,419 $ 1,949,358 $ 1,315,142
=========== =========== ===========
Years Ended December 31,
-------------------------------------------
1998 1997 1996
---- ---- ----
Adjusted Operating Cash Flow
Telecommunication Services ...... $ 599,257 $ 545,927 $ 434,904
Rainbow Media ................... 135,259 101,122 21,294
Retail Electronics .............. (19,737) -- --
All Other ....................... (9,376) (1,704) (1,362)
--------- --------- ---------
Total ................... $ 705,403 $ 645,345 $ 454,836
========= ========= =========
(142)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Years Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
Assets
Telecommunication Services ............ $ 3,035,212 $ 2,927,640 $ 2,719,091
Rainbow Media ......................... 2,720,127 2,838,987 738,851
Retail Electronics .................... 199,194 -- --
Other ................................. 253,564 10,270 8,802
Corporate and intersegment eliminations (272,237) (162,109) (432,019)
----------- ----------- -----------
Total ......................... $ 5,935,860 $ 5,614,788 $ 3,034,725
=========== =========== ===========
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
Years Ended December 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
Revenue
Total revenue for reportable segments ................ $ 2,985,420 $ 2,004,316 $ 1,338,545
Other revenue and intersegment eliminations .......... (73,001) (54,958) (23,403)
----------- ----------- -----------
Total consolidated revenue ...................... $ 2,912,419 $ 1,949,358 $ 1,315,142
=========== =========== ===========
Adjusted Operating Cash Flow to Net Loss
Total adjusted operating cash flow for
reportable segments ............................. 714,779 647,049 456,198
Other adjusted operating cash flow deficit ........... (9,376) (1,704) (1,362)
Items excluded from adjusted operating cash flow
Depreciation and amortization ................... (577,635) (499,809) (388,982)
Incentive stock plan (expense) income ........... (137,554) (64,361) 8,558
Interest expense ................................ (393,008) (368,700) (268,177)
Interest income ................................. 23,936 5,492 3,162
Share of affiliates' net loss ................... (37,368) (27,165) (82,028)
Gain on sale of programming interests and
cable assets, net .......................... 171,127 372,053 --
Gain on redemption of subsidiary preferred stock -- 181,738 --
Write off of deferred interest and financing
costs ...................................... (23,482) (24,547) (37,784)
Provision for preferential payment to related
party ...................................... (980) (10,083) (5,600)
Minority interests .............................. 48,378 (60,694) (9,417)
Miscellaneous, net .............................. (18,350) (12,606) (6,647)
----------- ----------- -----------
Net income (loss) ..................... $ (239,533) $ 136,663 $ (332,079)
=========== =========== ===========
(143)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
(144)
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly 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, 1998 and 1997.
MARCH 31, JUNE 30, SEPTEMBER 30,
-------------------------- -------------------------- --------------------------
1998 1997 1998 1997 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
Revenues...................... $ 645,382 $ 358,549 $ 700,352 $ 438,516 $ 697,866 $ 517,930
Operating expenses ........... 656,249 344,271 687,465 433,359 692,571 501,057
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) ...... $ (10,867) $ 14,278 $ 12,887 $ 5,157 $ 5,295 $ 16,873
=========== =========== =========== =========== =========== ===========
Net income (loss)
applicable to common
shareholder ................ $ (23,461) $ (111,921) $ (116,774) $ (128,776) $ (113,083) $ 46,454
=========== =========== =========== =========== =========== ===========
Basic net income (loss) per
common share ............... -- $ (1.13) -- $ (1.30) -- $ .47
=========== =========== =========== =========== =========== ===========
Diluted net income (loss) per
common share ............... -- $ (1.13) -- $ (1.30) -- $ .44
=========== =========== =========== =========== =========== ===========
DECEMBER 31, TOTAL
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues...................... $ 868,819 $ 634,363 $ 2,912,419 $ 1,949,358
Operating expenses ........... 885,920 589,496 2,922,205 1,868,183
----------- ----------- ----------- -----------
Operating profit (loss) ...... $ (17,101) $ 44,867 $ (9,786) $ 81,175
=========== =========== =========== ===========
Net income (loss)
applicable to common
shareholder ................ $ (148,087) $ 182,139 $ (401,405) $ (12,104)
=========== =========== =========== ===========
Basic net income (loss) per
common share ............... -- $ 1.82 -- $ (.12)
=========== =========== =========== ===========
Diluted net income (loss) per
common share ............... -- $ 1.53 -- $ (.12)
=========== =========== =========== ===========
(145)
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
1999 or if such definitive proxy statement is not filed with the Commission
prior to April 30, 1999, 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, 1998, 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
69.
2. Financial Statement schedule:
Page
No.
---
Schedule supporting consolidated financial statements:
Schedule II - Valuation and Qualifying Accounts.............. 147
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 150.
(b) Reports on Form 8-K:
Cablevision Systems Corporation has not filed any current reports on Form 8-K
with the Commission during the last quarter of the fiscal period covered by this
report.
CSC Holdings, Inc. has not filed any current reports on Form 8-K with the
Commission during the last quarter of the fiscal period covered by this report.
(146)
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, 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
======= ======= ========== ========= =======
Year Ended December 31, 1996
Allowance for doubtful
accounts................ $12,678 $18,489 $ - $(18,212) $12,955
======= ======= ========== ======== =======
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, 1998
Allowance for doubtful
accounts................ $29,584 $28,897 $ - $(26,571) $31,910
======= ======= =========== ======== =======
Year Ended December 31, 1997
Allowance for doubtful
accounts................ $12,955 $26,283 $ - $ (9,654) $29,584
======= ======= ========== ========= =======
Year Ended December 31, 1996
Allowance for doubtful
accounts................ $12,678 $18,489 $ - $(18,212) $12,955
======= ======= ========== ======== =======
(147)
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, 1999.
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 Marc A. Lustgarten and Robert S. Lemle, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign this report, and file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons in the capacities and
on the dates indicated on behalf of each of the Registrants.
Name Title Date
---- ----- ----
/s/ James L. Dolan Chief Executive Officer and Director March 30, 1999
- - ------------------------- (Principal Executive Officer)
James L. Dolan
/s/ William J. Bell Vice Chairman and Director March 30, 1999
- - ------------------------- (Principal Financial Officer)
William J. Bell
/s/ Andrew B. Rosengard Executive Vice President March 30, 1999
- - ------------------------- Financial Planning and Controller
Andrew B. Rosengard (Principal Accounting Officer)
(148)
SIGNATURES
(continued)
/s/ Charles F. Dolan Chairman of the Board of Directors March 30, 1999
- - -------------------------
Charles F. Dolan
/s/ Marc A. Lustgarten Vice Chairman and Director March 30, 1999
- - -------------------------
Marc A. Lustgarten
/s/ Robert S. Lemle Executive Vice President, General March 30, 1999
- - ------------------------- Counsel, Secretary and Director
Robert S. Lemle
/s/ Sheila A. Mahony Senior Vice President and Director March 30, 1999
- - -------------------------
Sheila A. Mahony
/s/ Thomas C. Dolan Senior Vice President and March 30, 1999
- - ------------------------- Chief Information Officer
Thomas C. Dolan and Director
/s/ John Tatta Director and Chairman of the March 30, 1999
- - ------------------------- Executive Committee
John Tatta
/s/ Patrick F. Dolan Director March 30, 1999
- - -------------------------
Patrick F. Dolan
/s/ Charles D. Ferris Director March 30, 1999
- - -------------------------
Charles D. Ferris
Director March 30, 1999
- - -------------------------
Richard H. Hochman
/s/ Victor Oristano Director March 30, 1999
- - -------------------------
Victor Oristano
Director March 30, 1999
- - -------------------------
Vincent Tese
/s/ John C. Malone Director March 30, 1999
- - -------------------------
John C. Malone
/s/ Leo J. Hindery, Jr. Director March 30, 1999
- - -------------------------
Leo J. Hindery, Jr.
(149)
INDEX TO EXHIBITS
(continued)
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).
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 I Cumulative
Convertible Exchangeable Preferred Stock (incorporated by reference
to Exhibit 99.3 to CSC Holdings' Current Report on Form 8-K (File
No. 1-9046) filed November 7, 1995).
4.3 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).
4.4 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).
4.5 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).
4.6 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).
4.7 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).
(150)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
4.8 Indenture dated August 15, 1997 relating to CSC Holdings'
$400,000,000 8 1/8% Senior Debentures due 2009 (incorporated herein
by reference to CSC Holdings' Registration Statement on Form S-4,
Registration No. 333-38013).
4.9 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).
4.10 Senior Indenture (incorporated by reference to Exhibit 4.1 to CSC
Holdings' Registration Statement on Form S-3, Registration No.
333-57407).
4.11 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).
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).
(151)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
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).
10.15 Employment Agreement, dated as of November 30, 1994, between CSC
Holdings and Marc A. Lustgarten (incorporated herein by reference to
Exhibit 10.70 to the 1994 10-K).
10.16 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).
10.17 Cablevision Parent Employee Stock Plan (incorporated herein by
reference to Exhibit 10.40 to the S-4).
10.18 Cablevision Parent Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.41 to the S-4).
(152)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.19 Cablevision Systems Corporation 1996 Non-Employee Directors Stock
Option Plan (incorporated by reference to CSC Holdings' 1996
Definitive Proxy Statement).
10.20 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).
10.21 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).
10.22 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).
10.23 Letter, dated November 25, 1997, from CSC Holdings to Charles F.
Dolan (incorporated herein by reference to Exhibit 10.49 to the
S-4).
10.24 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).
10.25 Partnership Interest Transfer Agreement, among ITT Corporation, ITT
Eden Corporation, ITT MSG, Inc., CSC Holdings, Rainbow Media
Holdings, Inc., Rainbow Garden Corp., Garden L.P. Holding Corp., MSG
Eden Corporation and Madison Square Garden, L.P., dated as of April
15, 1997. (incorporated by reference to Exhibit 2(a) of CSC
Holdings' Current Report on Form 8-K (File No. 1-9046) dated April
18, 1997 (the "April 1997 8-K")).
10.26 Amendment No. 1 to Partnership Interest Transfer Agreement, dated as
of March 16, 1999.
10.27 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).
10.28 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).
(153)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.29 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).
10.30 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).
10.31 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).
10.32 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")).
10.33 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).
10.34 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).
10.35 Warrant Purchase Agreement, dated October 10, 1997, between At Home
and CSC Holdings (incorporated by reference to Exhibit 10.02 of the
At Home October 8-K).
10.36 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")).
10.37 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).
10.38 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).
(154)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.39 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).
10.40 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).
10.41 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).
10.42 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).
10.43 Cablevision Parent Stock Option Plan for Non-Employee Directors
(incorporated herein by reference to Exhibit 10.68 to the S-4).
10.44 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.
10.45 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).
10.46 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).
(155)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.47 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.
10.48 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.
10.49 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.
10.50 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).
(156)
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.51 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).
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.