Back to GetFilings.com
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, 1997
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
One Media Crossways
Woodbury, NY 11797
1-9046 CSC Holdings, Inc. (formerly
Cablevision Systems Corporation) 11-2776686
Delaware One
Media Crossways
Woodbury, NY 11797
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each Exchange 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 24, 1998: $3,163,373,864.
Number of shares of common stock outstanding as of March 24, 1998:
Cablevision Systems Corporation Class A Common Stock--26,336,098
Cablevision Systems Corporation Class B Common Stock--11,096,709
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, 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................................. 26
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..................................... 32
8. Consolidated Financial Statements................. 49
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................................ 93
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............................ 93
* 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
- - ----------------
THE HOLDING COMPANY REORGANIZATION AND TCI TRANSACTIONS
This combined Annual Report on Form 10-K is separately filed by CSC Holdings,
Inc. (the "Company) and Cablevision Systems Corporation. Until March 4, 1998,
the Company was known as Cablevision Systems Corporation. On that date, the
Company completed a reorganization whereby it formed a holding company (now
named Cablevision Systems Corporation) and the Company became a subsidiary of
Cablevision Systems Corporation ("Cablevision Parent"). This transaction is
referred to herein as the "Reorganization".
Prior to the Reorganization, the Company 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
the Company were converted into identical securities of Cablevision Parent and
the Class A Common Stock of Cablevision Parent became listed on the ASE and
trades under the symbol "CVC". Cablevision Parent now owns all of the common
stock of the Company.
The Company's outstanding preferred stock was unaffected by the
Reorganization except that the Company's 8-1/2% Series I Cumulative
Convertible Exchangeable Preferred Stock is now convertible into Cablevision
Parent's Class A Common Stock rather than the Company's 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 the Company was not affected
by the Reorganization.
In connection with the Reorganization, Tele-Communication, Inc. ("TCI")
caused to be contributed to Cablevision Parent, and 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 ("TCI Systems"). Those cable television systems served
approximately 829,000 cable subscribers as of December 31, 1997. In
consideration for those cable television systems, Cablevision Parent issued
to certain TCI entities shares of Cablevision Parent Class A Common Stock
representing approximately 33% 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 SPLIT
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 is payable on March 30, 1998 to stockholders of record on March 19,
1998. All share amounts of Cablevision Parent and the Company in this Form
10-K have been restated to reflect the stock split.
1
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 the Company
and all of the ownership interests in the entities that own the TCI Systems.
References herein to the "Systems" refer to the cable television systems
owned by the Company, and, from and after March 4, 1998, the TCI Systems.
THE COMPANY
The Company is a Delaware corporation which was organized in 1985 and
owns and operates cable television systems in 18 states with approximately
2,844,000 subscribers at December 31, 1997. Through Rainbow Media Holdings,
Inc. ("Rainbow Media"), a company owned 75% by the Company and 25% by NBC
Cable Holding, Inc. ("NBC Cable"), a subsidiary of National Broadcasting
Company, Inc. ("NBC"), the Company 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.
The Company, through Cablevision Lightpath, Inc. ("Lightpath"), a
wholly-owned subsidiary of the Company, provides switched telephone service.
As of February 9, 1998, the Company also owns Cablevision Electronics
Investment, Inc., doing business as Nobody Beats The Wiz, an
electronics retailer operating approximately 40 retail locations in the New
York City metropolitan area.
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.
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,
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.
2
As of December 31, 1997, the Company's consolidated cable television systems
served approximately 2,844,000 subscribers in 18 states, primarily in the
metropolitan areas of New York, Ohio, Massachusetts, Connecticut, New Jersey,
and Michigan. As of December 31, 1997 the TCI Systems served approximately
829,000 subscribers in New York and New Jersey.
The following table sets forth certain statistical data regarding the
Company's cable television operations.
AS OF DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
Homes passed by cable (1).................................. 4,398,414 3,858,000 3,328,000
Basic service subscribers.................................. 2,844,408 2,445,000 2,061,000
Basic service subscribers as a percentage of
homes passed........................................... 64.7% 63.4% 61.9%
Number of premium television units......................... 4,183,130 3,862,000 3,990,000
Average number of premium units per basic subscriber
at period end.......................................... 1.5 1.6 1.9
Average monthly revenue per basic subscriber (2)........... $ 38.53 $ 36.71 $ 37.07
- - ------------------------
(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 (64% of the Company's total
subscribers as of December 31, 1997), the Boston and suburban Massachusetts
areas (12% of total subscribers as of December 31, 1997) and the greater
Cleveland metropolitan area (11% of total subscribers as of December 31,
1997). 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). In
addition, all of the TCI Systems are in the New York City greater
metropolitan area.
Cable Television System Sales
- - -----------------------------
Since early 1997, the Company has aggressively pursued a plan to dispose of
certain nonstrategic cable television systems. As described below, the
Company has completed the sale of cable television systems in Alabama,
Florida, Illinois, Kentucky, Maine, Missouri, North Carolina, Ohio and
neighboring states, representing approximately 382,000 subscribers for an
aggregate gross purchase price of $496.7 million. The Company has also
entered into definitive agreements covering the sale of individual cable
television systems in Wellsville/Penn Yan, New York; Windsor, New York; and
New Milford, Pennsylvania, representing approximately 15,600 subscribers for
an aggregate consideration of $16.3 million. The Company is actively pursuing
the sale of other nonstrategic systems. There can be no assurance that the
Company will enter into agreements covering other asset sales or that any
pending asset sale transactions will be consummated.
3
On January 23, 1998, the Company completed the sale of substantially all of
the assets of U.S. Cable Television Group, L.P. ("U.S. Cable"), including
cable television systems in Alabama, Florida, Kentucky, Missouri,
North Carolina and neighboring states (which served approximately
256,000 subscribers as of December 31, 1997) to Mediacom LLC for $311 million
in cash.
On January 22, 1998, the Company consummated the sale of cable television
systems in Rockford, Illinois owned by A-R Cable Services, Inc. ("A-R Cable"),
a wholly-owned subsidiary of the Company (which served approximately 66,000
subscribers as of December 31, 1997) to Insight Communications Company, Inc.
for $97 million in cash.
In December 1997, A-R Cable entered into an agreement with Adelphia
Communications Corporation ("Adelphia") to sell to Adelphia the cable
television systems in Wellsville/Penn Yan, New York owned by A-R Cable (which
served approximately 11,600 subscribers as of December 31, 1997) for
approximately $11.5 million in cash. The transaction is subject to the
receipt of regulatory and other customary approvals. The transaction is
currently expected to be consummated in the first half of 1998. There can be
no assurance that the transaction will be consummated in a timely fashion, or
at all.
On December 23, 1997, the Company completed the sale of the cable television
system in Allen and Gibsonberg Townships, Ohio owned by Cablevision of the
Midwest, Inc. (which served approximately 7,000 subscribers as of November
30, 1997) to TWFanch-one Co. for $10.7 million in cash.
In November 1997, A-R Cable entered into an agreement with Adams CATV, Inc.
("Adams") to sell to Adams the cable television systems in Windsor, New York
and New Milford, Pennsylvania owned by A-R Cable (which served approximately
4,000 subscribers as of December 31, 1997) for approximately $4.8 million in
cash. The transaction is subject to the receipt of regulatory and other
customary approvals. The transaction is currently expected to be consummated
in the first half of 1998. There can be no assurance that the transaction
will be consummated in a timely fashion, or at all.
On October 31, 1997, the Company completed the closing of the sale of cable
television systems in Maine (which served approximately 53,000 subscribers at
October 31, 1997) owned by a subsidiary of A-R Cable for approximately
$78 million in cash pursuant to a sale agreement executed on May 8, 1997.
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
24,471,086 shares (adjusted for the two-for-one stock split) of Cablevision
Parent 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
4
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 facility has a final maturity of March 4, 2000. The
Contributed Business Subsidiaries are wholly-owned (directly or indirectly)
by Cablevision Parent. The Company 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" for a discussion of the Bridge Credit Agreement.
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. Based on information delivered to the Company by TCI, the system
assets to be divested served approximately 5,300 subscribers as of December
31, 1997.
On January 27, 1998, the Company, 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, servicing approximately
248,000 subscribers at December 31, 1997, 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 will (i) transfer to TCI cable
television systems serving Kalamazoo, Michigan (which served approximately
49,000 subscribers as of December 31, 1997 and which has 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 $57.80 per share (post stock split)
valuation), and (iv) assume certain indebtedness relating to the TCI
Connecticut Systems, which is anticipated to total approximately $110
million. There can be no assurance that these transactions will be
consummated on the above terms or at all.
The agreement effecting the TCI Transactions ("Contribution Agreement")
permits Cablevision Parent to combine the cable operations of the Company and
the Contributed Business Subsidiaries on March 4, 1999 or prior thereto if
the Company receives a favorable tax ruling. Following such a combination,
Cablevision Parent would be permitted under the Contribution Agreement to
establish Rainbow Media as a separate subsidiary of Cablevision Parent. No
decision has been made as to whether such combination of the Contributed
Business Subsidiaries and the Company's cable television systems and the
Rainbow Media separation would be effected without such a favorable ruling,
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
the Company. Combination of the Contributed Business Subsidiaries and the
Company's cable television systems and any full or partial separation of
Rainbow Media from the Company 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
5
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, (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.
The following charts summarize the corporate organization structure of
Cablevision Parent and the Company immediately following the TCI Transactions
and after giving effect to the combination of the Contributed Business
Subsidiaries with the Company and the Rainbow Media separation, which are
permitted under the Contribution Agreement. No decision has been made as to
whether a combination of the Contributed Business subsidiaries and the
Company's cable television systems and the Rainbow Media separation will be
effected.
Chart depicting:
CABLEVISION PARENT STRUCTURE IMMEDIATELY FOLLOWING COMPLETION OF THE TCI
-----------------------------------------------------------------
TRANSACTIONS AND PRIOR TO OTHER POSSIBLE RELATED TRANSACTIONS
-------------------------------------------------------------
Chart depicting:
CABLEVISION PARENT STRUCTURE FOLLOWING COMPLETION OF OTHER POSSIBLE
------------------------------------------------------------
RELATED TRANSACTIONS
--------------------
6
Contemporaneous with the Reorganization, the Company 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. Mr. Dolan is the Chairman of the Board of the Company
and of Cablevision Parent and is a principal stockholder of Cablevision
Parent. He is the father of James L. Dolan, Chief Executive Officer of the
Company and of Cablevision Parent, Thomas C. Dolan, Senior Vice President of
the Company and of Cablevision Parent, and Patrick F. Dolan, a director of
the Company and of Cablevision Parent. Each of James, Thomas, and Patrick
Dolan is a member of the Board of Directors of the Company and of Cablevision
Parent. Also on March 4, 1998, Cablevision Parent acquired certain minority
interests in an entity owned by Rainbow Media in exchange for 104,000 shares
(after adjusting for the two-for-one stock split) of Cablevision Parent
Common Stock.
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 new packages
containing premium networks and ad-supported news, information and
entertainment channels. Depending upon the market, OptimumTV offers customers
anywhere from 20 to 30 new 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
7
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 82% (77% with the TCI Systems) of its homes are served by
at least 77 channels. As a result of ongoing upgrades, the Company expects
that by December 1998 approximately 90% (83% with the TCI Systems) 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 franchises for the Town of Brookhaven,
New York which expired in 1991, the Town of Oyster Bay which expired
in 1997, and the Town of Hempstead which expired in 1997, the expiration
dates for the Company's ten largest franchises range from 1998 to 2007.
In certain cases, including two franchises in the
8
Town of Brookhaven, the franchise for the Town of Oyster Bay and the
franchise for the Town of Hempstead, the Company is operating under temporary
licenses while negotiating renewal terms with the franchising authorities.
Franchises usually require the consent of the franchising authority prior to
the sale, assignment, transfer or change in ownership or operating control of
the franchisee.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") provide significant procedural protections for cable operators
seeking renewal of their franchises. See "Business--Cable Television
Operations--Regulation". In connection with a renewal, a franchising
authority may impose different and more stringent terms. The Company has
never lost a franchise as a result of a failure to obtain a renewal.
PROGRAMMING AND ENTERTAINMENT OPERATIONS
General.
- - -------
The Company conducts its programming activities through Rainbow Media
(formerly Rainbow Programming Holdings, Inc.), a company 75% owned by the
Company and 25% by NBC Cable.
Rainbow Media's businesses include leading national and regional programming
networks and the Madison Square Garden sports and entertainment business.
Rainbow Media also owns 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, L.L.C. ("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 92.2% 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 York City Hawks professional arena football team,
the Madison Square Garden Network, Fox Sports New York and Radio City
Productions (which operates Radio City Music Hall in New York City). Regional
Programming Partners also owns interests in regional sports networks that
provide regional sports programming to the New England, Chicago, Cincinnati,
Cleveland, San Francisco
9
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.
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.
The following table sets forth ownership information and estimated subscriber
information as of December 31, 1997 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 the Company. NBC owns the
remaining 25% interest. Rainbow 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........... 59.9 63.4 Rainbow Media--100%
Romance Classics.................. 6.6 9.9 Rainbow Media--100%
Bravo............................. 26.8 31.9 Rainbow Media--100%
Bravo Latin America............... 3.2 4.2 Rainbow Media--100%
The Independent Film Channel...... 5.2 11.3 Rainbow Media--100%
MuchMusic......................... 7.6 10.3 Rainbow Media and Chum, Ltd.-- 50% each
Sports:
- - ------
Madison Square Garden Network..... 6.6 7.9 RPP--92.2%; ITT--7.8% (3)
Fox Sports New York............... 3.6 6.1 RPP--92.2%; ITT--7.8%
Fox Sports Pacific................ 2.7 3.1 RPP and Fox/Liberty--50% each
Fox Sports Chicago................ 3.0 3.0 RPP and Fox/Liberty--50% each
Fox Sports New England............ 2.6 3.5 RPP--100% (4)
Fox Sports Ohio................... 1.9 2.1 RPP--100%
Fox Sports Cincinnati............. 2.2 2.3 RPP--100%
SportsChannel Florida............. 2.7 2.7 RPP--30%; Front Row--70%
News Services:
- - -------------
News12 Long Island................ .7 .7 Rainbow Media--100%
News12 Connecticut................ .2 .2 Rainbow Media--100%
News12 New Jersey................. 1.0 1.0 Rainbow Media and Newark Star Ledger--50% each
News12 Westchester................ .2 .2 Rainbow Media--100%
Neighborhood News L.I............. .1 .1 Rainbow Media--100%
Other:
- - -----
Extra Help........................ 1.4 1.5 Rainbow Media--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) On January 14, 1998, Media One, Inc. exercised an option to acquire 50% of
SportsChannel New England
10
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 the Company. In addition, NBC Cable received a 25%
equity interest (which interest may be increased up to 27% under certain
circumstances) in non-voting 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 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 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. Regional Programming Partners used
approximately $450 million of such proceeds to make an investment in Madison
Square Garden, which in turn used such amount to repay indebtedness (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources"). 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, 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
11
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 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 the Madison Square Garden Arena and the adjoining Theater
at Madison Square Garden, the New York Rangers professional hockey team, the
New York Knickerbockers professional basketball team and the Madison Square
Garden Network. 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. The remaining 7.8% interest held
by ITT is subject to certain puts and calls. On March 9, 1998, ITT notified
the Company of its election to exercise the first put with respect to 50% of
such interest for $94 million. The second put for the remaining 50% of such
interest will become exercisable in 1999.
The Company 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 approval of the NHL and the NBA are required for
certain transactions involving Cablevision Parent, the Company, Rainbow Media
and Regional Programming Partners, including certain transfers of ownership
interests.
On December 5, 1997, Madison Square Garden purchased Radio City Productions
LLC, the production company that operates Radio City Music Hall in New York
City and produces The Radio City Christmas Spectacular and shows featuring the
Radio City Rockettes, and simultaneously entered into a 25-year lease for
Radio City Music Hall.
TELEPHONE AND MODEM SERVICES
The Company, through Lightpath, a Competitive Local Exchange Carrier,
provides advanced local telecommunications services to the business market.
Lightpath provides a full range of local dial tone, switched services,
private line and advanced networking features on the local and long distance
levels on its own facilities and network. As of December 31, 1997, Lightpath
serviced over 850 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.
12
AT HOME CORPORATION
- - -------------------
The Company owns warrants to acquire approximately 11 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.
NOBODY BEATS 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 approximately 40 Nobody Beats
The Wiz consumer electronics store locations from The Wiz, Inc. and certain
of its subsidiaries and affiliates (collectively, the "Wiz"). The Wiz had
filed for bankruptcy protection on December 16, 1997. Cablevision Electronics
paid approximately $92 million for the assets, primary inventory, of which
$10 million was put into escrow pending resolution of the final calculation
of the purchase price. In addition, prior to closing, Cablevision Electronics
provided approximately $8 million for the Wiz to meet certain operating costs.
PCS INVESTMENTS
- - ---------------
The Company 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. The Company has contributed an aggregate of approximately $29.7
million to NorthCoast (either directly or through a loan to NorthCoast
Operating Co., Inc. ("NorthCoast Operating"), the other member in
NorthCoast). NorthCoast Operating is a Delaware Corporation controlled by
John Dolan. John Dolan is a nephew of Charles F. Dolan (the Chairman of the
Board of the Company and of Cablevision Parent and a principal stockholder of
Cablevision Parent) and a cousin of James L. Dolan (the Chief Executive
Officer and director of the Company and of Cablevision Parent), Thomas C. Dolan
(a Senior Vice President and director of the Company and of Cablevision Parent)
and Patrick F. Dolan (a director of the Company and of Cablevision Parent).
DBS INVESTMENT
- - --------------
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. The Company has contributed an aggregate of approximately
$12.9 million to R/L DBS or its predecessor businesses.
13
Radio Station Disposition
- - -------------------------
In December 1997, Rainbow Media completed the sale of substantially all of
the assets of a subsidiary, CV Radio Associates, L.P., which operated an AM
radio station (WKNR) in Cleveland, Ohio, for approximately $8.4 million.
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" that is certified by the
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 "open video systems" and provide video competition to cable systems
without obtaining a franchise. 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 "open video systems" 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 open video
systems in Boston and New York City and has received authorization to operate
open video systems in a number of communities in Massachusetts in which the
Company operates cable systems.
The 1996 Telecom Act also prohibits a telephone company or a cable system
operator in the same market from acquiring each other, except in limited
circumstances, such as areas of smaller population.
Cable television also competes with the home video industry. Owners of
videocassette recorders are able to rent many of the same movies, special events
and music videos that are available on certain premium services. The
availability of videocassettes has affected the degree to which the Systems are
able to sell premium service units and pay-per-view offerings to some of its
subscribers.
14
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 FCC has
streamlined its MDS regulations and opened substantially more microwave channels
to MDS and SMATV operators, which could increase the strength of their
competition with cable television systems. 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. Cellularvision, the originator of
this service, currently holds an experimental license and has constructed a
video transmission service using the 28 Ghz band in a portion of the New York
City service area. The FCC has 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. By law, dish owners have the right to receive broadcast
superstations and network affiliate transmissions in return for a compulsory
copyright fee. Cable programmers have developed new marketing efforts to reach
these viewers. 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. 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
15
signals to DBS customers. If enacted, such legislation could enhance the
competitive position of DBS systems.
Other technologies supply services that may compete with certain services
provided by cable television. These technologies include translator stations
(which rebroadcast signals at different frequencies at lower power to improve
reception) and low-power television stations (which operate on a single channel
at power levels substantially below those of most conventional broadcasters and,
therefore, reach a smaller service area).
The full extent to which developing media will compete with cable television
systems may not be known for several years. There can be no assurance that
existing, proposed or as yet undeveloped technologies will not become dominant
in the future and render cable television systems less profitable or even
obsolete.
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.
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
- - -----------------------------
There are numerous programming services with which Rainbow Media competes
for cable television system distribution and for subscribers, including network
television, other national and regional cable services, independent broadcast
television stations, television superstations, the home videocassette industry,
and developing pay-per-view services. Rainbow Media and the other programming
services are competing for limited channel capacity and for inclusion in the
basic service tier of the systems offering their programming services. Many of
these program distributors are large, publicly-held companies which have greater
financial resources than Rainbow 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, the programming services offered by Rainbow Media 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.
16
There are numerous businesses that compete with Madison Square Garden and
Radio City Productions for the entertainment expenditures of consumers.
TELEPHONE AND MODEM SERVICES
- - ----------------------------
Lightpath faces substantial competition from incumbent local exchange
carriers ("ILECs"), such as Bell Atlantic, which are the dominant providers of
local telephone services in their respective service areas. ILECs have
significant advantages over Lightpath, including greater capital resources,
an existing fully operational local network, and longstanding 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, which have been approved by the New York Public Service
Commission. In addition, it has reached an agreement with Southern New England
Telephone ("SNET") covering SNET's service area in Connecticut, which agreement
is pending signature.
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") and MFS
Communications Company, Inc. ("MFS"). 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.
17
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 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 as of September 30, 1992 exceeded an FCC
established benchmark was required to reduce its per channel rates for the basic
service package by up to 10% unless it could justify higher rates on the basis
of its costs. In 1994, after reconsideration, the FCC ordered a further
reduction of 7% in rates for the basic service tier in effect on September 30,
1992, for an overall reduction of 17% from those rates. Franchise authorities
(local municipalities or state cable television regulators) are also
18
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. Such justification
would be based upon (i) the operator's costs in operating a cable television
system (including certain operating expenses, depreciation and taxes) and (ii) a
return on the investment the operator has made to provide regulated cable
television services in such system (such investment being referred to as its
"ratebase", which includes working capital and certain costs associated with the
construction of such system). The guidelines (1) create a rebuttable presumption
that excludes from a cable television operator's ratebase any "excess
acquisition costs" (equal to the excess of the purchase price for a cable
television system over the original construction cost of such system, or its
book value at the time of acquisition), (2) include in the rate base the costs
associated with certain intangibles such as franchise rights and customer lists,
and (3) set a uniform rate of return for regulated cable television service of
11.25% after taxes. In addition, the FCC has adopted guidelines for cost of
service showings 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. In light of the
uncertainty created by the various criteria that the FCC previously applied to a
la carte packages, the FCC, in those cases in which it was not clear how the
FCC's previous criteria
19
should have been applied to the package at issue, and where only a "small
number" of channels were moved from a previously regulated tier to the
package, allowed cable operators to treat existing packages as new product
tiers ("NPT") as discussed below.
The FCC, in addition to revising its rules governing a la carte channels,
also revised its regulations governing the manner in which cable operators may
charge subscribers for new cable programming services. The FCC instituted a
three-year flat fee mark-up plan for charges relating to new channels of cable
programming services in addition to the present formula for calculating the
permissible rate for new services. Commencing on January 1, 1995, operators
could charge for new channels of cable programming services added after May 14,
1994 at a markup of up to 20 cents per channel over actual programming costs,
but may not make adjustments to monthly rates for these new services totaling
more than $1.20, plus an additional 30 cents solely for programming license
fees, per subscriber over the first two years of the three-year period. Cable
operators could increase rates for actual programming costs for channels added
in that year, plus, in the event channels are added, an additional 20 cents
(aggregate) in the third year, 1997. Cable operators electing to use the 20 cent
per channel adjustment could not take a 7.5% mark-up on programming cost
increases, which was permitted under the FCC's prior rate regulations.
Additionally, the FCC permitted cable operators to offer NPTs at rates that
they elect so long as, among other conditions, other service tiers that are
subject to rate regulation are priced in conformity with applicable FCC
regulations and cable operators do not remove programming services from existing
service tiers and offer them on the NPT.
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. Substantially all
of the Company's systems are currently capable of implementing the technology
mandated by the 1992 Cable Act.
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 proceeding paragraph
concerning limitations on affiliated programming, the FCC has established a 40%
limit on the number of channels of a cable
20
television system that can be occupied by programming services in which the
system operator has an attributable interest and a national limit of 30% on
the number of households that any cable company can serve. In connection with
clause (iv) above concerning retransmission of a local broadcaster's signals,
a substantial number of local broadcast stations are currently carried by the
Systems and have elected to negotiate for Retransmission Consent. The Systems
have Retransmission Consent agreements with most broadcast stations they
currently carry, but a number of these agreements are temporary in nature and
the potential remains for discontinuation of carriage if an agreement is not
renewed following their expiration. The Company has had to drop a few local
stations because of failure to reach retransmission consent agreements. In
connection with clause (i) of the immediate proceeding paragraph, 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 sought comment on whether it can
and should extend these program-access rules to cover some
terrestrial-delivered programming by programmers such as Rainbow Media. In
addition, proposals have been made to Congress in support of such extensions.
It is not possible to predict whether such an extension will be adopted by
the FCC or considered by 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 and immediately deregulates the upper tier rates of entities that
operate small cable systems as defined under the statute. It permits
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level.
The 1996 Telecom Act eliminates the right of individual subscribers to file
rate complaints with the FCC concerning certain nonbasic cable programming
service tiers, and requires such complaints to be filed by franchising
authorities following receipt of at least two subscriber complaints.
Legislation was introduced in 1998 to postpone indefinitely the effective
date of the 1996 Telecom Act's deregulation of rates for non-basic service.
The Company cannot predict the outcome of such legislation.
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
21
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.
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 to 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.
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 unit 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.
22
The FCC's technical guidelines for signal leakage became substantially more
stringent in 1990, requiring upgrading expenditures by the Systems. Two-way
radio stations, microwave-relay stations and satellite earth stations used by
the Systems are licensed by the FCC.
FEDERAL COPYRIGHT REGULATION. There are no restrictions on the number of
distant broadcast television signals that cable television systems can import,
but cable systems are required to pay copyright royalty fees to receive a
compulsory license to carry them. The United States Copyright Office has
increased the royalty fee from time to time. The FCC and the Copyright offices
have, at different times, recommended to Congress changes in the compulsory
licenses for cable television carriage of broadcast signals. This could
adversely affect the ability of the Systems to obtain such programming and could
increase the cost of such programming. No prediction can be made as to whether
Congress will enact any such changes to the copyright laws.
CABLE TELEVISION CROSS-MEDIA OWNERSHIP LIMITATIONS. In addition to the
prohibition on telephone company-cable cross-ownership, now removed by the 1996
Telecom Act, the 1984 Cable Act prohibited any person or entity from owning
broadcast television and cable properties in the same market. The 1992 Cable Act
imposed limits on new acquisitions of SMATV or MMDS systems by cable operators
in their franchise areas. The 1996 Telecom Act 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. The 1996
Telecom Act leaves in place, however, 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 1996
Telecom Act also directed the FCC to revise its existing regulations concerning
broadcast network-cable cross-ownership to permit common control of both a
television network and a cable system, which the FCC has done. 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 local exchange carriers by preempting state and local laws that restrict
competition and by requiring incumbent local exchange
23
telephone companies to provide nondiscriminatory access and interconnection
to potential competitors, such as cable operators and long distance
companies. At the same time, the new law eliminates the Modified Final
Judgment and permits the BOCs to enter the market for long distance service
(through a separate subsidiary) after they satisfy a "competitive checklist."
The 1996 Telecom Act also permits interstate utility companies to enter the
telecommunications market for the first time. 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.
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 prohibits localities from requiring carriage of specific
programming services, providing a more open market for Rainbow Media and other
cable program distributors. The 1984 Cable Act limits the number of commercial
leased access channels that a cable television operator must make available for
potentially competitive services but the 1992 Cable Act empowers the FCC to set
the rates and conditions for such leased access channels. The reimposition of
the FCC's rules requiring blackout of syndicated programming on distant
broadcast signals for which a local broadcasting station has an exclusive
contract opened new channels for Rainbow Media's services.
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.
24
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.
TELEPHONE AND MODEM SERVICES
- - ----------------------------
As a telecommunications carrier, Lightpath is subject to regulation by the
FCC and by the state public service commission in each state in which it
provides service. In order to provide service, moreover, Lightpath must seek
approval from each such state commission. Lightpath has obtained this approval
from the state commissions in New York, Connecticut, Massachusetts, New Jersey,
and Ohio.
Lightpath's regulatory obligations vary from state-to-state and include
some or all of the following requirements: filing tariffs (rates, terms and
conditions); filing operational, financial, and customer service reports;
seeking approval to transfer the assets or capital stock of the telephone
company; seeking approval to issue stocks, bonds, and other forms of
indebtedness of the telephone company; and filing all contracts or other
documentation involving transactions between the telephone company and its
affiliates. States may also impose requirements on competitive carriers to
contribute to the funding of discounted "universal" telecommunications
services for educational institutions, low income persons, and persons in
rural areas.
As Lightpath offers interstate long distance services, it is required to
file relevant tariffs with the FCC and comply with relevant FCC reporting
requirements, including the payment of regulatory fees, Telecommunication Relay
Services funding, and the contributions to the maintenance of "universal
service" as required by the Telecommunications Act of 1996 ("1996 Act"). Also
under the 1996 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, 1997, the Company had 7,969 full-time, 1,849 part-time
and 5,210 temporary employees of which 341, 921 and 3,260, respectively, were
covered under collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
25
ITEM 2. PROPERTIES
The Company generally leases the real estate where its business offices,
microwave receiving antennae, earth stations, transponders, microwave towers,
warehouses, headend equipment, hub sites, program production studios and access
studios are located. Significant leasehold properties include seventeen business
offices, comprising the Company's headquarters located in Woodbury, New York
with approximately 387,000 square feet of space, 106,000 square feet housing
Madison Square Garden's office operations and 569,000 square feet comprising
Radio City Music Hall. In December 1997, the Company entered into a lease for
a building located in Bethpage, New York with approximately 536,000 square feet
of space. The Company expects to relocate most of its existing business offices
in Woodbury, New York to Bethpage, New York by the end of 1998. 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. The Company generally leases its service and other vehicles.
Cablevision Electronics leases approximately 40 retail store locations and
two warehouses aggregating approximately 1,669,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various lawsuits, some involving substantial
amounts. Management does not believe that such lawsuits will have a material
adverse impact on the financial position of the Company.
26
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of the Stockholders of the Company was held on February
18, 1998. The following matters were voted upon at the Special Meeting,
indicating the number of votes cast for and against, as well as the number of
abstentions (there were no votes withheld or broker non-votes on any matter):
1. Proposal to adopt and approve a Contribution and Merger Agreement,
dated as of June 6, 1997, as amended by an Amended and Restated Contribution
and Merger Agreement, dated as of June 6, 1997 by and among TCI
Communications, Inc., the Company, Cablevision Parent and CSC Merger
Corporation, relating to the TCI Transactions:
Class A Common Stock:
For: 9,497,563
Against: 14,634
Abstain: 10,498
Class B Common Stock:
For: 110,867,090
Against: 0
Abstain: 0
2. Proposal to adopt and approve the Cablevision Parent Employee Stock Plan
described in the Proxy Statement/Prospectus delivered to Stockholders in
connection with the Special Meeting:
Class A Common Stock:
For: 8,697,856
Against: 797,660
Abstain: 27,179
Class B Common Stock:
For: 110,867,090
Against: 0
Abstain: 0
3. Proposal to adopt and approve the Cablevision Parent Long-Term Incentive
Plan described in the Proxy Statement/Prospectus delivered to Stockholders in
connection with the Special Meeting:
Class A Common Stock:
For: 8,984,980
Against: 512,129
Abstain: 25,586
Class B Common Stock:
For: 110,867,090
Against: 0
Abstain: 0
27
PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to the consummation of the Holding Company Reorganization on March
4, 1998, the Company's Class A Common Stock 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 split) for the last two
years of Class A Common Stock as reported by the American Stock Exchange for
the periods indicated.
1997 1996
--------------------- ---------------------
QUARTER HIGH LOW HIGH LOW
---------- --------- ---------- ---------
First 17-3/4 14-7/8 30-3/16 26-3/8
Second 27-21/32 13-9/16 29 22
Third 31-3/8 24-9/16 23-1/8 19-7/16
Fourth 47-7/8 31-3/4 21-11/16 12-1/2
As of March 24, 1998, there were 715 holders of record of Cablevision
Parent Class A Common Stock.
There is no public trading market for the Cablevision Parent Class B Common
Stock, par value $.01 per share ("Class B Common Stock"). As of March 24, 1997,
there were 23 holders of record of Class B Common Stock.
All outstanding shares of common stock of the Company are held by
Cablevision Parent.
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 the Company (prior to the Reorganization) nor
Cablevision Parent (after the Reorganization) have paid any dividends on shares
of Class A or Class B Common Stock. Cablevision Parent does not anticipate
paying any cash dividends on shares of Cablevision Parent Class A or Class B
Common Stock in the foreseeable future.
Cablevision Parent and the Company 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 case of any stock dividend,
holders of Cablevision Parent Class A Common Stock are
28
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).
The Company paid $29.3 million of cash dividends on the Series I Preferred
Stock and $118.5 million of dividends in additional shares of Series H and M
Preferred Stock. The Company 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, the Company's
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 the
Company have been paid or provided for. Further, dividends may not be paid in
respect of shares of the Company's common stock under the Company's senior
credit agreement. 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
the Company. Acquisitions made by the Company were accounted for under the
purchase method of accounting and, accordingly, the acquisition costs were
allocated to the net assets acquired based on their fair value, except for
assets 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 the Company and notes thereto included in Item 8 of this Report.
THE COMPANY
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating Data:
Revenues..................................... $ 1,949,358 $ 1,315,142 $ 1,078,060 $ 837,169 $ 666,724
Operating expenses
Technical and operating...................... 853,800 538,272 412,479 302,885 241,877
Selling, general and administrative.......... 514,574 313,476 266,209 195,942 172,687
Restructuring charge......................... -- -- -- 4,306 --
Depreciation and amortization................ 499,809 388,982 319,929 271,343 194,904
------------ ------------ ------------ ----------- -----------
Operating profit............................. 81,175 74,412 79,443 62,693 57,256
Other income (expense):
Interest expense, net........................ (363,208) (265,015) (311,887) (261,781) (230,327)
Share of affiliates' net loss................ (27,165) (82,028) (93,024) (82,864) (61,017)
Gain (loss) on sale of programming and
affiliate interest, net.................... 372,053 -- 35,989 -- (330)
Gain on redemption of subsidiary preferred
stock...................................... 181,738 -- -- -- --
Write off of deferred interest and financing
costs...................................... (24,547) (37,784) (5,517) (9,884) (1,044)
Loss on redemption of debentures............. -- -- -- (7,088) --
Provision for preferential payment to related
party...................................... (10,083) (5,600) (5,600) (5,600) (5,600)
Minority interest............................ (60,694) (9,417) (8,637) (3,429) 3,000
Miscellaneous, net........................... (12,606) (6,647) (8,225) (7,198) (8,720)
------------ ------------ ------------ ----------- -----------
Net income (loss)............................ 136,663 (332,079) (317,458) (315,151) (246,782)
Preferred dividend requirement............... (148,767) (127,780) (20,249) (6,385) (885)
------------ ------------ ------------ ----------- -----------
Net loss applicable to common shareholders... $ (12,104) $ (459,859) $ (337,707) $ (321,536) $ (247,667)
------------ ------------ ------------ ----------- -----------
Net loss per common share.................... $ (.24) $ (9.26) $ (7.09) $ (6.86) $ (5.42)
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Average number of common shares outstanding
(in thousands)............................. 49,804 49,654 47,652 46,888 45,718
------------ ------------ ------------ ----------- -----------
------------ ------------ ------------ ----------- -----------
Cash dividends declared per common share..... $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ===========
30
THE COMPANY
DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ --------------------- ----------
(DOLLARS IN THOUSANDS)
Balance Sheet Data:
Total assets.............................. 5,625,091 3,034,725 $ 2,502,305 $ 2,176,413 $1,327,418
Total debt................................ 4,694,062 3,334,701 3,157,107 3,169,236 2,235,499
Minority interest......................... 821,782 -- -- -- --
Deficit investment in affiliates.......... 10,303 512,800 453,935 393,637 325,732
Redeemable preferred stock................ 1,123,808 1,005,265 257,751 -- --
Stockholders' deficiency.................. (2,378,773) (2,374,285) (1,891,676) (1,818,535) (1,503,244)
Statistical Data:
Homes passed by cable..................... 4,398,414 3,858,000 3,328,000 2,899,000 2,240,000
Basic service subscribers................. 2,844,408 2,445,000 2,061,000 1,768,000 1,379,000
Basic service subscribers as a percentage
of homes passed......................... 64.7% 63.4% 61.9% 61.0% 61.6
Number of premium television units........ 4,183,130 3,862,000 3,990,000 3,208,000 3,003,000
Average number of premium units per basic
subscriber at period end................ 1.5 1.6 1.9 1.8 2.2
Average monthly revenue per basic
subscriber (1).......................... $ 38.53 $ 36.71 $ 37.07 $ 36.33 $ 36.59
- - ------------------------
(1) Based on recurring service revenues divided by average subscribers for the
month of December.
31
[cad 228]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RECENT TRANSACTIONS
As described under Item 1--"Business--The Holding Company Reorganization and
TCI Transactions," on March 4, 1998, the Company completed a significant
transaction whereby the Company became a subsidiary of Cablevision Parent and
TCI contributed to Cablevision Parent cable television systems located in New
Jersey, on Long Island and in New York's Rockland and Westchester counties,
which served approximately 829,000 cable television subscribers as of
December 31, 1997. In this transaction, TCI acquired Class A Common Stock of
Cablevision Parent representing about 33% of the outstanding common stock of
Cablevision Parent. These transactions have not been reflected in the
Company's financial statements as of and for the year ended December 31, 1997
and, except as expressly noted herein, these transactions are not covered
by this Item 7.-"Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The Company's high levels of interest expense and depreciation and
amortization, largely associated with acquisitions made by the Company in the
past, have had and will continue to have a negative impact on the reported
results of the Company. Consequently, the Company expects to report substantial
net losses for at least the next several years.
1997 ACQUISITIONS AND TRANSACTIONS. In April 1997, the Company exchanged
25% of its interest in Rainbow Media for NBC's interest in certain programming
entities. In June 1997, the Company 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, the Company acquired from Warburg Pincus
the equity interest that Warburg Pincus had in certain cable television systems
in Massachusetts giving the Company full ownership. Also in July 1997, the
Company acquired from Warburg Pincus the Series A Preferred Stock of 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 the Fox/Liberty
Transactions discussed in Item 1. -"Business - Programming and Entertainment
Operations." Also in December 1997 Madison Square Garden acquired all of the
membership interests in Radio City Productions.
1997 DISPOSITIONS. In 1997, the Company completed the sale of the
cable television systems in Allen and Gibsonberg Townships, Ohio owned by
Cablevision of the Midwest, Inc. and the sale of cable television systems
owned by A-R Cable in Maine. In addition, in 1997, Rainbow Media completed the
sale of the assets of a subsidiary, CV Radio Associates, L.P.
1996 ACQUISITIONS. In September 1996, the Company acquired from Warburg
Pincus the equity interests that Warburg Pincus owned in Cablevision of
Newark, giving the Company full ownership of Cablevision of Newark. In August
1996, the Company acquired the partnership interests in U.S. Cable that it did
not already own.
32
1995 ACQUISITIONS. In July 1995, the Company, through Rainbow Media,
purchased NBC's interests in SportsChannel New York and Rainbow News 12 Company,
giving Rainbow Media a 100% interest in these companies. In December 1995,
the Company acquired the interests in Cablevision of Boston that it did not
previously own.
All the above transactions completed during the 1995-1997 period are
collectively referred to as the "Net Acquisitions".
For a description of the Company's recent transactions, see Item
1.- "Business - Cable Television Operations and Programming and Entertainment
Operations."
33
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related
to operations as a percentage of net revenues for the periods indicated.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996
--------------------------- --------------------------- (INCREASE)
% OF NET % OF NET DECREASE
AMOUNT REVENUES AMOUNT REVENUES IN NET LOSS
------------ ------------- ------------ ------------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA
- - ----------------------------
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 and affiliate
interests, 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 interest................................ (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
Currently payable interest expense, net............ 360,993 255,986
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 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."
34
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996.
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 non-cash adjustments
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 adjustments 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.
35
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 and affiliate interests 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 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 consists 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 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.
36
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 due to
the Company's issuances of preferred stock during the first quarter of 1996.
37
RESULTS OF OPERATIONS
The following table sets forth on a historical basis certain items related
to operations as a percentage of net revenues for the periods indicated.
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1996 1995
--------------------------- --------------------------- (INCREASE)
% OF NET % OF NET DECREASE
AMOUNT REVENUES AMOUNT REVENUES IN NET LOSS
------------ ------------- ------------ ------------- -----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA
- - ----------------------------
Revenues........................................... $ 1,315,142 100% $ 1,078,060 100% $ 237,082
Operating expenses:
Technical........................................ 538,272 41 412,479 38 (125,793)
Selling, general & administrative................ 313,476 24 266,209 25 (47,267)
Depreciation and amortization.................... 388,982 29 319,929 30 (69,053)
------------ ------------- ------------ ------------- -----------
Operating profit................................... 74,412 6 79,443 7 (5,031)
Other income (expense):
Interest expense, net............................ (265,015) (20) (311,887) (29) 46,872
Share of affiliates' net loss.................... (82,028) (6) (93,024) (9) 10,996
Gain on sale of affiliate interests, net......... -- -- 35,989 3 (35,989)
Write off of deferred interest and financing
costs.......................................... (37,784) (3) (5,517) -- (32,267)
Provision for preferential payment to related
party.......................................... (5,600) -- (5,600) -- --
Minority interest................................ (9,417) (1) (8,637) (1) (780)
Miscellaneous.................................... (6,647) (1) (8,225) (1) 1,578
------------ ------------ -----------
Net loss........................................... $ (332,079) (25)% $ (317,458) (29)% $ (14,621)
------------ ------------ -----------
------------ ------------ -----------
OTHER OPERATING DATA:
- - ---------------------
Operating profit before depreciation and
amortization (1)................................. $ 463,394 $ 399,372
Currently payable interest expense, net............ 255,986 254,930
Net cash provided by operating activities (2)...... 200,380 154,715
Net cash used in investing activities (2).......... 741,748 551,234
Net cash provided by financing activities (2)...... 537,648 400,501
- - ------------------------
(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."
38
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995.
Revenues for the year ended December 31, 1996 increased $237.1 million (22%)
as compared to revenues for the prior year. Approximately $136.8 million (13%)
of the increase was attributable to the Net Acquisitions; approximately $52.4
million (4.9%) to internal growth of over 118,500 in the average number of
subscribers during the year; approximately $19.1 million (2%) resulted from
higher revenue per subscriber as a result of rate increases and new product
launches; and approximately $28.8 million to increases in other revenue sources
such as programming, advertising, pay per view and developing businesses.
Technical expenses for 1996 increased $125.8 million (30%) over the 1995
amount. Approximately 18% was attributable to the Net Acquisitions with the
remaining 12% 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 of the Company's cable television services. As a
percentage of revenues, technical expenses increased 3% during 1996 as compared
to 1995.
Selling, general and administrative expenses increased $47.3 million (18%)
for 1996 as compared to the 1995 level. Approximately 13% was directly
attributable to the Net Acquisitions. During 1996 adjustments were made related
to an incentive stock plan which resulted in a decrease of (6%). The remaining
11% increase resulted from higher customer service, administrative and sales and
marketing costs. As a percentage of revenues, selling, general and
administrative expenses decreased 1% in 1996 compared to 1995.
Operating profit before depreciation and amortization increased $64.0
million (16%) to $463.4 million for 1996 from $399.4 million for 1995.
Approximately $28.0 million (7%) of the increase was attributable to the Net
Acquisitions. The remaining $36.0 million (9%) 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, 1995 and
the exclusion of incentive stock plan adjustments, referred to above, operating
profit before depreciation and amortization would have increased 6% in 1996.
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 $69.1 million (22%) during
1996 as compared to 1995. The entire increase was directly attributable to the
Net Acquisitions. Depreciation charges of $12.5 million on capital expenditures
made during 1996 and 1995 were substantially offset by decreased amortization
expense resulting from certain intangible assets becoming fully amortized during
the periods.
Net interest expense decreased $46.9 million (15%) during 1996 compared to
1995. A $80.1 million decrease that was due to the retirement of debt from the
issuance of preferred stock in 1995
39
and 1996, and $4.7 million due to lower average bank debt borrowing rates, was
offset by interest on additional borrowings of $26.7 million for the Net
Acquisitions and additional interest of $11.2 million due to higher average bank
debt and the May 1996 debt restructurings.
Share of affiliates' net losses of $82.0 million for 1996 and $93.0 million
for 1995 consist primarily of the Company's share of net losses in certain cable
affiliates ($74.0 million in 1996 and $83.1 million in 1995) 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 losses amounted
to $8.0 million in 1996 and $9.9 million in 1995.
Write off of deferred interest and financing costs consists of the write off
of deferred interest and financing costs of $24 million related to a refinancing
of the Company's subsidiary, V Cable, Inc. Also, during the third and fourth
quarters of 1996, approximately $10.7 million of deferred financing costs
incurred in connection with the Company's former $1.5 billion Restricted Group
credit facility were written off when the old facility was replaced with a new
$1.7 billion credit facility. In addition, during the fourth quarter of 1996,
$3.1 million of deferred financing costs associated with the 1993 acquisitions
of the Company's MFR subsidiary were written off in connection with a new
reorganization and refinancing involving certain of the Company's subsidiaries.
In 1995, deferred financing costs written off were associated with Rainbow
Media's replacement of its original $105 million credit facility in January
1995 with a new $202 million facility.
Provision for preferential payment to related party consists of the
expensing of the proportionate amount due with respect to an annual payment
($5.6 million) made to Charles F. Dolan in connection with the acquisition of
Cablevision of New York City in 1992.
Minority interest represents NBC's share of the net income of American Movie
Classics.
OTHER ITEMS
Dividend requirements applicable to preferred stocks amounted to $127.8
million for 1996, representing an increase of $107.5 million for the year due to
the Company's issuances of preferred stock during the fourth quarter of 1995 and
first quarter of 1996.
40
LIQUIDITY AND CAPITAL RESOURCES
CABLEVISION PARENT
Cablevision Parent does not have any operations independent of the Company
and the Contributed Business Subsidiaries. In addition, it 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 Parent does not
have cash needs independent of the needs of its subsidiaries.
THE COMPANY
For financing purposes, the Company is structured as a restricted group and
an unrestricted group of subsidiaries.
The Restricted Group includes all of the Company's cable operations in and
around the greater New York City metropolitan area, including Long Island, in
and around the greater Cleveland, Ohio metropolitan area and in and around
Boston, Massachusetts and the commercial telephony operations of the Company's
subsidiary, Lightpath, on Long Island, New York. At December
31, 1997, the Restricted Group encompassed approximately 2,469,000 cable
television subscribers.
The Unrestricted Group principally includes the Company's cable television
operations other than those included in the Restricted Group. At December 31,
1997, the Unrestricted Group encompassed approximately 375,000 cable television
subscribers ("Unrestricted Cable"). Other Unrestricted Group subsidiaries
("Unrestricted Other") include Rainbow Media and CSC Technology, Inc. (the
Company's subsidiary engaged in research and development of new technology).
Cablevision Electronics Investments, which acquired Nobody Beats The Wiz on
February 9, 1998, is also included in the Unrestricted Group.
The Restricted Group and certain members of the Unrestricted Group are
individually and separately financed. The indebtedness of each entity in the
Unrestricted Group is non-recourse to the Company, except that, in certain
cases, such indebtedness has been guaranteed by the Company with recourse on
such guarantee limited to the capital stock of such entities owned by the
Company, except that the Company will guarantee certain trade credit debt of
Cablevision Electronics in connection with financing the inventory of Nobody
Beats The Wiz. Rainbow Media's cash requirements have been financed to date
by the Restricted Group, by sales of equity interests in the programming
businesses and through separate external debt financing of Rainbow Media,
American Movie Classics and Madison Square Garden.
41
The following table presents selected unaudited historical results of
operations and other financial and statistical information related to the
captioned groups or entities as of and for the year ended December 31, 1997.
Unrestricted Cable consists of U.S. Cable and certain cable systems of A-R
Cable. Rainbow Media and CSC Technology, Inc. are included in "Other
Unrestricted Subsidiaries." Adjustments have been made between the Restricted
Group and Unrestricted Cable to reflect the transfer of certain cable
television systems among the groups. The TCI Systems and Cablevision
Electronics are not included in the table as the relevant transactions
occurred after December 31, 1997.
OTHER
RESTRICTED UNRESTRICTED UNRESTRICTED TOTAL
GROUP CABLE SUBSIDIARIES COMPANY
------------ ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
Revenues.................................................. $ 1,249,838 $ 116,450 $ 583,070 $ 1,949,358
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Operating profit before depreciation and amortization..... $ 499,517 $ 37,536 $ 43,931 $ 580,984
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Currently payable interest expense........................ $ 265,292 $ 29,384 $ 66,317 $ 360,993
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Total interest expense.................................... $ 269,785 $ 30,330 $ 68,585 $ 368,700
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Bank and other senior debt................................ $ 1,337,185 $ 267,460 $ 794,965 $ 2,399,610
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Senior notes and debentures............................... $ 898,024 $ -- $ -- $ 898,024
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Subordinated debt......................................... $ 1,199,245 $ -- $ -- $ 1,199,245
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Obligation to related party............................... $ 197,183(1) $ -- $ -- $ 197,183
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Deficit investment in affiliates.......................... $ -- $ -- $ 10,303 $ 10,303
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Redeemable exchangeable preferred stock................... $ 1,123,808 $ -- $ -- $ 1,123,808
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Capital expenditures...................................... $ 388,465 $ 20,440 $ 48,685 $ 457,590(2)
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
Ending cable subscribers.................................. 2,469,455 374,953 -- 2,844,408
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
- - ------------------------
(1) Obligation of NYC LP Corp., a wholly-owned Restricted Group subsidiary,
relating to the CNYC Acquisition.
(2) Reflects intercompany elimination of $820.
42
The Company's principal funding requirements are for operating expenses,
interest expense, capital expenditures, acquisitions, repayment of indebtedness
and dividends on preferred stock. The Company has met its funding requirements
through internally generated funds, bank borrowings, issuances of senior
debentures and notes, issuances of senior subordinated debentures, issuances of
preferred stock and asset sales.
RESTRICTED GROUP
The Company believes that, for the Restricted Group, internally generated
funds, together with funds available under the Company's Credit Agreement or
the Credit Commitments (each as defined below) will be sufficient through
1999 to meet all funding requirements. The liquidity positions of the
significant entities in the Unrestricted Group are discussed below.
As of March 9, 1998, the Company received commitments from a group of
banks led by Toronto Dominion for a $2.8 billion credit facility ("Credit
Commitments") for the Restricted Group which includes separate credit
agreements for the Company's New Jersey systems as well as for the TCI
Systems. Closing of the new credit facility, which is subject to regulatory
approval, is expected to occur by June 30, 1998, however, there can be no
assurance that the closing of the new credit facility will take place on the
terms contemplated by the Credit Commitments or at all.
On February 3, 1998 the Company 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 Restricted Group credit facility.
On March 13, 1998, the Restricted Group had total usage under its existing
$1.7 billion Credit Agreement (including the credit facility for the Company's
New Jersey Systems, collectively the "Credit Agreement") of $1,262 million and
letters of credit of $31 million issued on behalf of the Company. Unrestricted
and undrawn funds available to the Restricted Group amounted to approximately
$407 million as of March 13, 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, including covenants requiring the
Restricted Group to maintain certain financial ratios and restricting the
permitted uses of borrowed funds. As of March 13, 1998, the Company had entered
into interest exchange (swap and interest rate cap) agreements with several of
its banks on a notional amount of $250 million, on which the Company pays a
fixed rate of interest and receives a variable rate of interest for specified
periods, with an average maturity of two years. The average effective annual
interest rate on all Restricted Group bank debt outstanding as of January 31,
1998 was approximately 7.6%.
Proforma for the Restricted Group composition as of December 31, 1997, the
Restricted Group made capital expenditures of approximately $422.7 million in
1997 and $451.6 million in 1996, primarily in connection with system rebuilds
and upgrades, the expansion of existing cable plant to pass additional homes and
other general capital needs. The Company anticipates additional significant
capital expenditures in 1998 for system rebuilds, upgrades and expansion.
43
The senior secured indebtedness incurred by A-R Cable is guaranteed by
the Restricted Group, but recourse against the Restricted Group is limited
solely to the common stock of A-R Cable pledged to A-R Cable's senior secured
lenders. In addition, the promissory notes of certain of the Company's
subsidiaries are guaranteed by the Company and the obligations under the
guarantees rank PARI PASSU with the Company's public subordinated debt. The
promissory notes are payable in cash or, at the Company's option through the
first anniversary of the notes, in shares of the Company's Class A Common
Stock.
The terms of the instruments governing A-R Cable's, the TCI System's and
U.S. Cable's indebtedness prohibit transfer of funds (except for certain
payments, related to corporate overhead allocations, by A-R Cable, TCI Systems
and U.S. Cable) from A-R Cable, TCI Systems and U.S. Cable to the Restricted
Group and are expected to prohibit such transfer of funds for the foreseeable
future. The Restricted Group does not expect that such limitations on transfer
of funds or payments will have an adverse effect on the ability of the Company
to meet its obligations.
TCI SYSTEMS
On March 4, 1998, Cablevision Parent completed the acquisition of the TCI
Systems for 24.4 million shares, adjusted for the two-for-one stock split, of
the Cablevision Parent Class A Common Stock and for the assumption of $669
million of debt. The Contributed Business Subsidiaries borrowed $670 million
under a new $800 million bridge revolving credit facility and used the
proceeds to repay the amounts outstanding under the existing TCI Systems
credit facilities and certain intercompany debt owed to TCI. On March 13,
1998, usage under the $800 million bridge credit facility was $665 million
with undrawn funds of $135 million. Cablevision Parent believes that, for the
TCI Systems, internally generated funds together with funds available under
its $800 million credit facility will be sufficient through 1999 to meet
their debt service requirements and to fund their planned capital
expenditures.
CABLEVISION OF OHIO
In December 1997, all remaining indebtedness of the Company's subsidiaries,
Telerama, Inc. Cablevision of the Midwest, Inc. and Cablevision of Cleveland, LP
(collectively "Cablevision of Ohio") amounting to $304 million was repaid by the
Restricted Group simultaneously with Cablevision of Ohio becoming part of the
Restricted Group. Upon payment and satisfaction of all outstanding indebtedness,
its credit agreement was terminated.
U.S. CABLE
In January 1998 all remaining indebtedness of U.S. Cable amounting to $156
million was repaid. The proceeds for such repayment came from the sale of U.S.
Cable for approximately $311 million. The balance of the sale proceeds were
distributed to the Restricted Group which used such funds to partly repay its
bank debt. Upon payment and satisfaction of all outstanding indebtedness, U.S.
Cable's credit agreement was terminated.
44
RAINBOW MEDIA
In April 1997, Rainbow Media entered into a new $300 million, three year
revolving credit facility with Canadian Imperial Bank of Commerce and
Toronto-Dominion (Texas), Inc., as Co-agents and a group of banks. Upon
closing the new facility, Rainbow Media drew $172 million which was used to
repay, in part, the previous $202 million credit facility. Concurrently with
entering into the new Rainbow Media credit facility, American Movie Classics'
entered into a new $250 million credit facility. American Movie Classics drew
$225 million under its new facility, applied $20 million to repay its
existing debt and fees and distributed $205 million to Rainbow Media. Rainbow
Media used $30 million of the proceeds from the American Movie Classics'
distribution to fully repay the balance of its existing $202 million
facility, distributed $169 million to the Restricted Group and used the
balance of the distribution for interest and fees. The American Movie
Classics $250 million bank loan is a seven year revolving credit and term
loan facility maturing 2004.
Rainbow Media's credit facility was amended in December 1997, which
amendment, among other things, extended the maturity date to December 31,
2000. American Movie Classics' credit facility was also amended in December
1997 to provide for a $146 million term loan and a $100 million revolving
credit. As of March 13, 1998, American Movie Classics had outstanding
borrowings of $200 million, leaving unrestricted funds available of $43
million.
The Rainbow Media credit facility contains certain financial covenants that
may limit its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring Rainbow Media to maintain certain financial
ratios.
As of March 13, 1998, Rainbow Media had outstanding borrowings of $205
million, leaving unrestricted and undrawn funds available of $55 million for
1998. The amount available under the Rainbow Media revolving credit increases
by $20 million on January 1, 1999 and by another $20 million on January 1,
2000. The Company believes that for Rainbow Media, internally generated funds
together with funds available under its credit agreement will be sufficient
to meet its debt service requirements and to fund its capital expenditures
through 1999.
MADISON SQUARE GARDEN
In June 1997, Madison Square Garden, L.P. ("MSG") entered into an $850
million credit agreement (the "MSG Credit Facility"), with a group of banks led
by Chase Manhattan Bank, as agent. In December 1997, the MSG Credit Facility was
amended to a $500 million revolving credit facility expiring on December 31,
2004. At the time the facility was amended, MSG's outstanding bank debt was
reduced by $450 million, from $806 million to $356 million. The proceeds for the
repayment came from a capital contribution from Regional Programming
Partners, the newly formed partnership which is 60% owned by Rainbow Media and
40% owned by Fox/Liberty. Regional Programming Partners had received $850
million from Fox/Liberty in connection with the formation of the partnership.
45
In July 1997, a new unrestricted subsidiary of MSG, Garden Programming, LLC
made a $40 million 14 year loan to a non-related entity. The proceeds for such
loan came from a $20 million drawdown by MSG under the MSG Credit Facility,
which then loaned it to Garden Programming LLC, and a $20 million five year term
loan entered into directly by Garden Programming LLC with a group of banks. As
of March 13, 1998 outstanding debt under the Garden Programming, LLC term loan
was $20 million.
As of March 13, 1998, outstanding debt under the MSG Credit Facility was
$370 million. In addition, MSG had outstanding letters of credit of $4 million
resulting in unrestricted and undrawn funds available amounting to $126 million.
The funds available will be used for general corporate purposes. 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 under its credit agreement and to fund capital expenditures through
1999.
NOBODY BEATS THE WIZ
On February 9, 1998, Cablevision Electronics completed the acquisition of
certain assets of the Wiz. The purchase price and expenses were funded
through a $50 million equity contribution from the Company and approximately
$45 million in borrowings under the new $110 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 13, 1998, usage under the $110 million credit facility was $48 million
with no availability thereunder based on the level of inventory as of that
date. Cablevision Electronics is expected to require additional equity
contributions from the Company, as well as other financial support of
approximately $50 million (currently expected to be in the form of letters of
credit and guarantees), in respect of Cablevision Electronics' inventory
purchases.
OPERATING ACTIVITIES
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 and affiliate interests 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 compared to $154.7 million for the year ended
December 31, 1995. 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
46
$332.1 million and a net decrease in cash resulting from changes in assets and
liabilities of $9.5 million.
Cash provided by operating activities amounted to $154.7 million for the
year ended December 31, 1995. The 1995 cash provided by operating activities
consisted of depreciation and amortization of $319.9 million, other non-cash
items of $134.2 million and a net increase in assets and liabilities of $18.1
million, partially offset by a net loss of $317.5 million.
INVESTING ACTIVITIES
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,
cable assets, and affiliate interests and other items of $10.6 million.
Net cash used in investing activities for the year ended December 31, 1996
was $741.7 million compared to $551.2 million for the year ended December 31,
1995. The 1996 investing activities consisted of $449.2 million of capital
expenditures, $113.1 million of payments for acquisitions, primarily U.S Cable
and Cablevision of Newark, $179.5 million in increases in investment in
affiliates, offset by net proceeds from other items of $.1 million.
For the year ended December 31, 1995 the Company used $551.2 million in cash
for investing activities, consisting of $287.1 million of capital expenditures,
$293.9 million of payments for acquisitions, primarily Cablevision of Boston,
Sports Channel New York and Rainbow News 12 Company, $3.9 million in increases
in investment in affiliates, offset by net proceeds from the sale of programming
and affiliate interests of $32.9 million and other items of $.8 million.
FINANCING ACTIVITIES
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 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,
payments of preferred stock dividends of $30.2 million and other items
aggregating $49.2 million.
Cash provided by financing activities amounted to $537.6 million for the
year ended December 31, 1996 compared to $400.5 million for the year ended
December 31, 1995. 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
repayment
47
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.
In 1995, the Company's financing activities consisted of $573.3 million from
the issuance of redeemable exchangeable convertible preferred stock, $300.0
million from the issuance of subordinated debentures, partially offset by net
repayments of bank debt of $343.0 million, redemption of preferred stock of
$103.0 million, payments of stock dividends of $12.5 million and other net cash
payments aggregating $14.3 million.
YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk.
In 1997, the Company installed a new financial applications system which is
Year 2000 compliant. However, the Company is still in the process of identifying
and evaluating the risks associated with operational systems. The Company is
also in the process of obtaining information from outside data processing
suppliers and others as to the status of their exposure to Year 2000 problems.
The total cost of compliance and its effect on the Company's future results of
operations has not yet been determined, but could be significant.
48
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Independent Auditors' Report............................................................................... 50
Consolidated Balance Sheets--December 31, 1997 and 1996.................................................... 51
Consolidated Statements of Operations--years ended December 31, 1997, 1996 and 1995........................ 53
Consolidated Statements of Stockholders' Deficiency--years ended December 31, 1997, 1996 and 1995.......... 54
Consolidated Statements of Cash Flows--years ended December 31, 1997, 1996 and 1995........................ 55
Notes to Consolidated Financial Statements................................................................. 57
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARY
(formerly CSC Parent Corporation)
Independent Auditors' Report............................................................................... 89
Consolidated Balance Sheet--December 31, 1997.............................................................. 90
Notes to Consolidated Financial Statement.................................................................. 91
49
INDEPENDENT AUDITORS' REPORT
The Board of Directors
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, 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.
Jericho, New York
March 20, 1998
50
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
ASSETS 1997 1996
- - -------------------------------------------------------------------------------------- ------------ ------------
Cash and cash equivalents............................................................. $ 410,141 $ 11,612
Accounts receivable trade (less allowance for doubtful accounts of $29,584 and
$12,955)............................................................................ 214,721 105,406
Notes and other receivables........................................................... 98,756 19,368
Prepaid expenses and other assets..................................................... 55,324 23,053
Property, plant and equipment, net.................................................... 1,831,167 1,390,971
Investments in affiliates............................................................. 218,079 311,865
Advances to affiliates................................................................ 19,823 7,855
Feature film inventory................................................................ 180,576 134,258
Net assets held for sale.............................................................. 252,610 --
Franchises, net of accumulated amortization of $481,895 and $389,791.................. 383,369 379,466
Affiliation and other agreements, net of accumulated amortization of $129,087 and
$44,385............................................................................. 253,734 162,388
Excess costs over fair value of net assets acquired and other intangible assets, net
of accumulated amortization of $684,141 and $549,256................................ 1,615,786 436,606
Deferred financing, acquisition and other costs, net of accumulated amortization of
$40,061 and $29,755................................................................. 91,005 51,877
------------ ------------
$ 5,625,091 $ 3,034,725
------------ ------------
------------ ------------
See accompanying notes to consolidated financial statements.
51
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
1997 1996
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable.................................................................... $ 270,652 $ 186,409
Accrued liabilities:
Interest.......................................................................... 54,107 45,774
Payroll and related benefits...................................................... 123,834 63,987
Other............................................................................. 326,925 130,625
Accounts payable to affiliates...................................................... 7,978 14,012
Feature film and contract obligations............................................... 292,720 115,437
Deferred revenue.................................................................... 277,693 --
Bank debt........................................................................... 2,240,358 1,670,245
Senior debt......................................................................... 112,500 --
Senior notes and debentures......................................................... 898,024 --
Subordinated debentures............................................................. 1,048,245 1,323,105
Subordinated notes payable.......................................................... 151,000 141,268
Obligation to related party......................................................... 197,183 192,819
Capital lease obligations and other debt............................................ 46,752 7,264
------------- -------------
Total liabilities................................................................. 6,047,971 3,890,945
------------- -------------
Minority interests.................................................................. 821,782 --
------------- -------------
Deficit investment in affiliates.................................................... 10,303 512,800
------------- -------------
Series H Redeemable Exchangeable Preferred Stock.................................... 325,048 289,506
------------- -------------
Series M Redeemable Exchangeable Preferred Stock.................................... 798,760 715,759
------------- -------------
Commitments and contingencies
Stockholders' deficiency:
8% Series C Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized,
110,622 shares issued ($100 per share liquidation preference)................... 1 1
8% Series D Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized,
none issued ($100 per share liquidation preference)............................. -- --
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
Class A Common Stock, $.01 par value, 27,948,992 and 27,167,352 shares issued..... 280 272
Class B Common Stock, $.01 par value, 22,193,418 and 22,509,418 shares issued..... 222 226
Paid-in capital................................................................... 171,901 164,289
Accumulated deficit............................................................... (2,551,191) (2,539,087)
------------- -------------
Total stockholders' deficiency.................................................... (2,378,773) (2,374,285)
------------- -------------
$ 5,625,091 $ 3,034,725
------------- -------------
------------- -------------
See accompanying notes to consolidated financial statements.
52
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997 1996 1995
------------ ------------ ------------
Revenues (including affiliate amounts of $9,424, $9,487 and $7,087)..... $ 1,949,358 $ 1,315,142 $ 1,078,060
------------ ------------ ------------
Operating expenses:
Technical and operating (including affiliate amounts of $16,581,
$37,610 and $37,756)................................................ 853,800 538,272 412,479
Selling, general and administrative................................... 514,574 313,476 266,209
Depreciation and amortization......................................... 499,809 388,982 319,929
------------ ------------ ------------
1,868,183 1,240,730 998,617
------------ ------------ ------------
Operating profit........................................................ 81,175 74,412 79,443
------------ ------------ ------------
Other income (expense):
Interest expense...................................................... (368,700) (268,177) (313,850)
Interest income (including affiliate amounts of $1,600, $568 and
$468)............................................................... 5,492 3,162 1,963
Share of affiliates' net loss......................................... (27,165) (82,028) (93,024)
Gain on sale of programming and affiliate interests, net.............. 372,053 -- 35,989
Gain on redemption of subsidiary preferred stock...................... 181,738 -- --
Write off of deferred interest and financing costs.................... (24,547) (37,784) (5,517)
Provision for preferential payment to related party................... (10,083) (5,600) (5,600)
Minority interest..................................................... (60,694) (9,417) (8,637)
Miscellaneous, net.................................................... (12,606) (6,647) (8,225)
------------ ------------ ------------
55,488 (406,491) (396,901)
------------ ------------ ------------
Net income (loss)....................................................... 136,663 (332,079) (317,458)
Dividend requirements applicable to preferred stock..................... (148,767) (127,780) (20,249)
------------ ------------ ------------
Net loss applicable to common shareholders.............................. $ (12,104) $ (459,859) $ (337,707)
------------ ------------ ------------
------------ ------------ ------------
Basic net loss per common share......................................... $ (.24) $ (9.26) $ (7.09)
------------ ------------ ------------
------------ ------------ ------------
Average number of common shares outstanding(in thousands)............... 49,804 49,654 47,652
------------ ------------ ------------
------------ ------------ ------------
See accompanying notes to consolidated financial statements.
53
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
SERIES C SERIES E SERIES I CLASS A CLASS B
PREFERRED PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED TREASURY
STOCK STOCK STOCK STOCK STOCK CAPITAL DEFICIT STOCK TOTAL
-------- --------- --------- --------- ------- --------- ----------- -------- ------------
Balance December 31,
1994................ $ 1 $ 1 -- $ 238 $ 236 $ (74,253) (1,741,521) $(3,237) $ (1,818,535)
Net loss............ -- -- -- -- -- -- (317,458) -- (317,458)
Issuances of
preferred stock... -- -- 14 -- -- 323,317 -- -- 323,331
Redemption of Series
E preferred
stock............. -- (1) -- -- -- (103,002) -- -- (103,003)
Employee stock
transactions...... -- -- -- 10 -- 7,710 -- -- 7,720
Payment for
acquisition,
net............... -- -- -- 32 -- 93,641 -- (57,155) 36,518
Conversion of Class
B to Class A...... -- -- -- 4 (4) -- -- -- --
Preferred dividend
requirements...... -- -- -- -- -- -- (20,249) -- (20,249)
------- ------ ------ ------ ------ ------- ---------- ------- ------------
Balance December 31,
1995................ 1 -- 14 284 232 247,413 (2,079,228) (60,392) (1,891,676)
Net loss............ -- -- -- -- -- -- (332,079) -- (332,079)
Issuances of
preferred stock... -- -- -- -- -- (25,979) -- -- (25,979)
Employee stock
transactions...... -- -- -- 2 -- 3,227 -- -- 3,229
Conversion of Class
B to Class A...... -- -- -- 6 (6) -- -- -- --
Retirement of
treasury stock.... -- -- -- (20) -- (60,372) -- 60,392 --
Preferred dividend
requirements...... -- -- -- -- -- -- (127,780) -- (127,780)
------- ------ ------ ------ ------ ---------- ----------- ------- ------------
Balance December 31,
1996................ 1 -- 14 272 226 164,289 (2,539,087) -- (2,374,285)
Net income.......... -- -- -- -- -- -- 136,663 -- 136,663
Employee stock
transactions...... -- -- -- 4 -- 7,612 -- -- 7,616
Conversion of Class
B to Class A...... -- -- -- 4 (4) -- -- -- --
Preferred dividend
requirements...... -- -- -- -- -- -- (148,767) -- (148,767)
------- ------ ------ ------ ------ ----------- ---------- ------- -------------
Balance December 31,
1997................ $ 1 $-- $ 14 $ 280 $ 222 $ 171,901 $(2,551,191) $ -- $(2,378,773)
------- ------ ------ ------ ------ ----------- ----------- ------- -------------
------- ------ ------ ------ ------ ----------- ----------- ------- -------------
See accompanying notes to consolidated financial statements.
54
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1997 1996 1995
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss)..................................................... $ 136,663 $ (332,079) $ (317,458)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization....................................... 499,809 388,982 319,929
Share of affiliates' net loss....................................... 27,165 82,028 93,024
Minority interest................................................... 60,694 9,417 8,637
Gain on sale of programming and affiliate interests, net............ (372,053) -- (35,989)
Write off of deferred interest and financing costs.................. 24,547 37,784 5,517
Gain on redemption of subsidiary preferred stock.................... (181,738) -- --
Loss on sale of equipment, net...................................... 5,325 4,733 4,077
Amortization of deferred financing, interest and debenture
discount.......................................................... 7,707 12,191 19,441
Accretion of interest on debt....................................... -- 6,828 39,479
Change in assets and liabilities, net of effects of acquisitions and
dispositions:
Accounts receivable trade......................................... (34,268) (2,709) (17,200)
Notes and other receivables....................................... (67,683) (1,810) (2,064)
Prepaid expenses and other assets................................. 1,232 (12,428) (3,189)
Advances to affiliates............................................ (528) (2,168) 3,994
Feature film inventory............................................ (8,269) 9,658 (14,420)
Accounts payable.................................................. 62,822 15,830 24,685
Accrued liabilities............................................... 91,497 (4,618) 22,412
Accounts payable to affiliates.................................... (12,155) 1,304 (2,746)
Feature film and contract obligations............................. (258) (12,563) 6,586
Deferred revenue.................................................. 37,664 -- --
Minority interests................................................ (6,486) -- --
------------ ------------ ------------
Total adjustments................................................... 135,024 532,459 472,173
------------- ------------- -------------
Net cash provided by operating activities............................... 271,687 200,380 154,715
Cash flows from investing activities:
Capital expenditures.................................................. (457,590) (449,165) (287,138)
Payments for acquisitions, net of cash acquired....................... (747,134) (113,095) (293,902)
Net proceeds from sale of programming and affiliate interests......... 945,534 -- 32,850
Proceeds from sale of equipment....................................... 1,930 814 1,873
(Increase) decrease in investments in affiliates, net................. 9,267 (179,536) (3,901)
Additions to intangible assets, net................................... (623) (766) (1,016)
------------- ------------- -------------
Net cash used in investing activities............................... $ (248,616) $ (741,748) $ (551,234)
See accompanying notes to consolidated financial statements.
55
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1997 1996 1995
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from bank debt............................................ $ 3,385,703 $ 2,053,566 $ 719,818
Repayment of bank debt............................................. (3,147,165) (1,576,585) (1,062,768)
Proceeds from senior debt.......................................... 147,750 12,500 10,000
Repayment of senior debt........................................... (433,617) (918,131) (13,116)
Issuance of subordinated debentures................................ -- 399,385 300,000
Redemption of subordinated debentures.............................. (283,445) -- --
Issuance of senior notes and debentures............................ 897,983 -- --
Redemption of subsidiary preferred stock........................... (112,301) -- --
Issuances of redeemable exchangeable convertible preferred stock... -- 624,021 573,331
Redemption of redeemable exchangeable convertible preferred
stock............................................................ -- -- (103,003)
Preferred stock dividends.......................................... (30,224) (30,266) (12,498)
Issuance of common stock........................................... 7,616 3,229 7,720
Obligation to related party........................................ 4,364 (126) (134)
Payments on capital lease obligations and other debt............... (7,501) (3,321) (6,583)
Additions to deferred financing and other.......................... (53,705) (26,624) (12,266)
------------- ------------- -------------
Net cash provided by financing activities............................ 375,458 537,648 400,501
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents................. 398,529 (3,720) 3,982
Cash and cash equivalents at beginning of year....................... 11,612 15,332 11,350
------------- ------------- -------------
Cash and cash equivalents at end of year............................. $ 410,141 $ 11,612 $ 15,332
------------- ------------- -------------
------------- ------------- -------------
See accompanying notes to consolidated financial statements.
56
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY AND RELATED MATTERS
CSC Holdings, Inc. (formerly Cablevision Systems Corporation, see Note 15)
and its majority-owned subsidiaries (the "Company") own and operate cable
television systems. The Company also 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"), a sports and entertainment company, and has ownership interests
in companies that provide advertising sales services for the cable television
industry. The Company's revenues are derived principally from the provision of
cable television and programming services. For financing purposes, CSC Holdings,
Inc. and certain of its subsidiaries are structured as a restricted group and an
unrestricted group (see Note 5).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CSC Holdings,
Inc. 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 or events occur.
LONG-LIVED ASSETS
Property, plant and equipment, including construction materials, are
carried at cost, which includes all direct costs and certain indirect costs
associated with the construction of cable television transmission and
distribution systems, and the costs of new subscriber installations.
Franchises are amortized on the straight-line basis over the average
remaining terms (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
57
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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, 1997 related to feature film telecast rights are $31,751 in
1998, $28,438 in 1999, $25,941 in 2000, $17,785 in 2001 and $12,806 in 2002.
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
Net loss per common share 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. The Company implemented the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" in 1997. Among other provisions, SFAS No. 128 simplifies the standards
for computing earnings per share. The adoption of SFAS No. 128 had no material
impact on the per share determinations.
58
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH FLOWS
For purposes of the consolidated statements of cash flows, the Company
considers short-term investments with a maturity at date of purchase of three
months or less to be cash equivalents. The Company paid cash interest expense of
approximately $352,660, $252,120 and $252,344 during 1997, 1996 and 1995,
respectively. During 1997, 1996 and 1995, the Company's noncash investing and
financing activities included capital lease obligations of $24,820, $2,571 and
$1,086, respectively, incurred when the Company entered into leases for new
equipment; Series H preferred stock dividend requirements of $35,542, $31,755
and $7,751 in 1997, 1996 and 1995, respectively, and Series M preferred stock
dividend requirements of $83,000 and $65,759 in 1997 and 1996 (see Note 6); the
capital contribution in 1997 of $38,000 of transportation equipment by the
minority partner in MSG; the acquisition of warrants from At Home Corporation
valued at $173,346 (see Note 9) in 1997; and the issuance in 1995 of 1,375,246
shares of the Company's Class A Common Stock (fair value of $37,733) for the
acquisition of Cablevision of Boston (see Note 2).
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.
Year 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000 date
are a known risk.
In 1997, the Company installed a new financial applications system which is
Year 2000 compliant. However, the Company is still in the process of identifying
and evaluating the risks associated with its operational systems. The Company is
also in the process of obtaining information from outside data processing
suppliers and others as to the status of their exposure to Year 2000 problems.
The total cost of compliance and its effect on the Company's future results of
operations has not yet been determined, but could be significant.
59
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS
1997 Acquisitions:
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 up to 27% under certain
circumstances) in non-voting 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
Rainbow Media's 25% interest and the partnership interests received recorded as
goodwill of $54,108 which is being amortized over a 10 year period.
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 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. 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. Assets and liabilities of MSG at
June 17, 1997 consisted of the following: current and other assets $94,141;
property, plant and equipment $176,709; intangibles $956,156; current and
other liabilities $210,048; and long-term debt $278,000. Previously the
Company's investment in MSG was accounted for using the equity
60
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (CONTINUED)
method of accounting. The excess of the purchase price over the net book
value of assets acquired of approximately $397,093 was allocated to the
specific assets acquired based upon independent appraisals as follows:
Property, plant and equipment....................................... $ 19,687
Affiliation and other agreements.................................... 34,168
Franchises.......................................................... 46,125
Excess cost over fair value of net assets acquired.................. 297,113
----------
$ 397,093
----------
----------
In 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 $67,058 and $29,957 for the acquisition of
Nashoba and CFHI, respectively, and have 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 principally representing the reversal of accrued preferred dividends
in excess of amounts paid.
On December 5, 1997, MSG purchased all of the membership interests in Radio
City Productions LLC ("Radio City"), the production company that operates Radio
City Music Hall in New York City for approximately $70,000 in cash.
Simultaneously, Radio City entered into a 25-year lease for Radio City Music
Hall. The assets and liabilities and results of operations of Radio City have
been consolidated with those of the Company as of the date of acquisition. The
excess of the purchase price over the net book value of assets acquired of
approximately $75,609 will be allocated to the specific assets acquired when
independent appraisals are obtained.
61
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (CONTINUED)
1996 ACQUISITIONS:
In August 1996, the Company acquired the remaining approximate 80%
partnership interest in U.S. Cable Televsion Group, L.P. ("U.S. Cable")
that it did not already own for approximately $4,010 and repaid the debt owed
by U.S. Cable to General Electric Capital Corporation ("GECC") of approximately
$154,000 with proceeds from a new $175,000 credit facility (see Note 5).
See Note 9--"Affiliate Transactions" for a discussion of the Company's
investment in NorthCoast Operating Co., Inc.
In September 1996, the Company acquired the 75% equity interest that
Warburg owned in Cablevision of Newark for approximately $37,000, giving the
Company full ownership of Cablevision of Newark.
The acquisitions of U.S. Cable and Cablevision of Newark were accounted for
as purchases with the operations of these companies being consolidated with
those of the Company as of the acquisition dates. See discussion of the
Company's disposition of its interest in U.S. Cable below. The excess of the
purchase price over the net book value of assets acquired of $63,268 for
Cablevision of Newark was allocated to specific assets acquired based upon an
independent appraisal as follows:
Property, plant and equipment...................................... $ 307
Franchises......................................................... 40,315
Excess cost over fair value of net assets acquired................. 22,646
---------
$ 63,268
---------
---------
In October 1996, Rainbow Media made a payment of $81,250 to ITT, increasing
its partnership interest in MSG from approximately 15.2% to approximately 26.6%.
1995 ACQUISITIONS:
In March 1995, subsidiaries of Rainbow Media and subsidiaries of ITT
acquired the business and assets of MSG for $1,009,100. The purchase price was
funded through (i) borrowings of $289,100 under a $450,000 credit agreement,
(ii) an equity contribution from Rainbow Media of $110,000, and (iii) an equity
contribution from ITT of $610,000.
In July 1995, Rainbow Media consummated the purchase from NBC of the
approximate 50% interests in each of SportsChannel Associates and Rainbow News
12 Company ("Rainbow News 12") that NBC owned for approximately $95,500, giving
Rainbow Media a 100% interest in SportsChannel Associates and Rainbow News
12.
62
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (CONTINUED)
In December 1995, the Company acquired the interests in Cablevision of
Boston Limited Partnership ("Cablevision of Boston") that it did not previously
own pursuant to an agreement entered into by the Company and Cablevision of
Boston. In connection with the acquisition, the limited partners (other than the
Company) of Cablevision of Boston received approximately 1,360,532 shares of the
Company's Class A Common Stock valued at $37,329 and the Company paid
approximately $83,456 for the repayment of bank debt, fees and expenses and to
fund payments to Charles F. Dolan ("Mr. Dolan"), as described below, primarily
with funds borrowed under the Company's Credit Agreement. Mr. Dolan, a former
general partner of Cablevision of Boston and the Chairman of the Board of the
Company, received 14,714 shares of the Company's Class A Common Stock valued at
$404 and approximately $20,782 in cash to repay a portion of Cablevision of
Boston's indebtedness to him. As part of the acquisition of Cablevision of
Boston, the Company acquired 99.5% of the partnership interests in Cablevision
of Brookline Limited Partnership ("Cablevision of Brookline"), a partnership
affiliated with Cablevision of Boston, and entered into an agreement with Mr.
Dolan with respect to his remaining 0.5% general partnership interest in
Cablevision of Brookline, whereby the Company has a right of first refusal to
acquire such interest through January 1, 2002.
The acquisition of Cablevision of Boston and the purchase of interests in
SportsChannel Associates and Rainbow News 12 were accounted for as purchases
with the operations of these companies being consolidated with those of the
Company as of the acquisition dates. The excess of the purchase price over the
net book value of assets acquired approximated $210,426 ($115,759 for the
acquisition of Cablevision of Boston and $94,667 for the acquisition of
SportsChannel Associates and Rainbow News 12).
These excess costs have been allocated based upon independent appraisals as
follows:
Plant and equipment............................................... $ 23,181
Affiliation and other agreements.................................. 61,327
Franchises........................................................ 93,889
Excess cost over fair value of assets acquired.................... 32,029
---------
$ 210,426
---------
---------
63
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (CONTINUED)
PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma condensed results of operations are
presented for the years ended December 31, 1997 and 1996 as if the acquisitions
of MSG, Nashoba, CFHI, U.S. Cable, Cablevision of Newark, the NBC transaction
and the A-R Cable consolidation had occurred on January 1, 1997 and 1996,
respectively. Results of operations of the businesses sold described below are
not material to the operations of the Company.
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
Net revenues...................................................... $ 2,249,106 $ 2,045,951
------------ ------------
------------ ------------
Net loss.......................................................... $ (13,970) $ (510,710)
------------ ------------
------------ ------------
Net loss per common share......................................... $ (.28) $ (10.29)
------------ ------------
------------ ------------
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.
DISPOSITIONS
In February 1997, the Company announced that it was pursuing a plan to
dispose of certain nonstrategic cable television systems. In 1997, the Company
completed the sale of cable television systems for an aggregate purchase price
of approximately $88,700 and recognized an aggregate gain of approximately
$59,000. The Company has also entered into definitive agreements covering the
sale of individual cable television systems for aggregate consideration of
$424,300. (see Note 3.)
In 1997, the Company completed the sale of the cable television system in
Allen and Gibsonberg Townships, Ohio owned by Cablevision of the Midwest,
Inc. for approximately $10,700 in cash. Also in 1997, the Company completed
the sale of cable television systems owned by A-R Cable in Maine for
approximately $78,000 in cash.
In December 1997, Rainbow Media completed the sale of substantially all of
the assets of a subsidiary, CV Radio Associates, L.P., for approximately $8,400
and recognized a gain of approximately $7,400.
64
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (CONTINUED)
On December 18, 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). In connection with the formation of Regional Programming Partners
("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 its
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.
In July 1995, Rainbow Media sold a minority general partnership interest in
Courtroom Television Network to NBC for cash totalling $5,000. The Company
recognized a net gain of $20,662 on the sale.
In August 1995, Cablevision of Chicago ("Cablevision of Chicago"), an
affiliate of the Company, sold its cable television systems to Continental
Cablevision, Inc. The Company did not have a material ownership interest in
Cablevision of Chicago but had loans and advances outstanding to Cablevision of
Chicago in the amount of $12,346 (plus accrued interest which the Company had
fully reserved). The Company recognized a net gain of approximately $15,327 on
the sale, representing the accrued interest which the Company had reserved.
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 years
ended December 31, 1996 and 1995 is $35,835, $68,492 and $72,257, 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
65
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (CONTINUED)
on July 2, 1997, the operations of A-R Cable have been consolidated with
those of the Company. Included in deficit investment in affiliates is
$504,496 and $442,940 at December 31, 1996 and 1995, respectively,
representing A-R Cable's losses and external dividend requirements recorded
by the Company in excess of amounts invested by the Company therein. At
December 31, 1996 and 1995 and for the years then ended, A-R Cable's total
assets, liabilities (including preferred stock) and net revenues amounted to
$204,072 and $222,831; $792,564 and $738,581; $120,355 and $113,292,
respectively.
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 has entered into definitive agree-
ments covering the sale of certain cable television systems as of
December 31, 1997.
In January 1998, the Company completed the sale of substantially all the
assets of U.S. Cable for approximately $311,000 and the cable television
systems in Rockford, Illinois owned by A-R Cable for approximately $97,000 in
cash. The Company expects to record gains on the sale of these systems in the
first quarter of 1998.
In 1997, A-R Cable entered into an agreement to sell its cable
television systems in Wellsville/ Penn Yan, New York for approximately $11,500
and cable television systems in Windsor, New York and New Milford, Pennsylvania
for approximately $4,800 in cash.
The pending transactions are subject to the receipt of regulatory and other
customary approvals and are currently expected to be consummated in the first
half of 1998. The Company expects to record gains upon the consummation of the
transactions. There can be no assurance that the pending transactions will be
consummated in a timely fashion, or at all.
For financial reporting purposes, the assets and liabilities attributable to
the above transactions have been classified in the consolidated balance sheet as
net assets held for sale and consist of the following at December 31, 1997.
Property, plant and equipment, net................................ $ 122,577
Intangible assets, net............................................ 154,352
Other assets (including trade receivables, prepaid expenses,
etc.)........................................................... 2,815
---------
Total assets...................................................... 279,744
Total liabilities................................................. 27,134
---------
Net assets........................................................ $ 252,610
---------
---------
66
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3. NET ASSETS HELD FOR SALE (CONTINUED)
The accompanying consolidated statement of operations for the year ended
December 31, 1997 includes net revenues aggregating approximately $102,971 and
net losses aggregating approximately $11,275 relating to the cable systems held
for sale.
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
1997 1996 USEFUL LIVES
------------ ------------ ----------------
Communication transmission and distribution systems:
Customer equipment................................................ $ 508,959 $ 430,028 5 years
Headends.......................................................... 100,551 83,805 7 to 10 years
Central office equipment.......................................... 60,672 40,573 10 years
Infrastructure.................................................... 1,651,236 1,416,468 10 to 15 years
Program, service and test equipment............................... 282,635 150,433 2 to 9 years
Microwave equipment............................................... 16,641 6,082 2 to 9 years
Construction in progress (including materials and supplies)....... 140,455 124,993 --
Furniture and fixtures.............................................. 128,442 34,556 1 to 10 years
Transportation equipment............................................ 107,159 53,854 5 to 15years
Building and building improvements.................................. 156,254 34,076 23 to 25 years
Leasehold improvements.............................................. 70,991 48,671 Term of lease
Land and land improvements.......................................... 34,070 10,458 --
------------ ------------
3,258,065 2,433,997
Less accumulated depreciation and amortization.................... 1,426,898 1,043,026
------------ ------------
$ 1,831,167 $ 1,390,971
------------ ------------
------------ ------------
67
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT
BANK DEBT
RESTRICTED GROUP
For financing purposes, CSC Holdings, Inc. and certain of its subsidiaries
are collectively referred to as the "Restricted Group". On September 5, 1996,
the Restricted Group entered into a new $1.7 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 $1.5 billion facility that was also with a group of
banks led by Toronto-Dominion.
The Credit Agreement consists of a $1.3 billion facility and a $400,000
facility available to the Restricted Group's New Jersey systems. Both facilities
start reducing on September 30, 1999, with a final maturity of September 30,
2005. The total amount of bank debt outstanding under the Credit Agreement at
December 31, 1997 and 1996 was $1,328,098 and $977,566, respectively. As of
December 31, 1997, approximately $16,900 was restricted for certain letters of
credit issued for the Company.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $355,000 at December 31, 1997. 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. The Company is restricted
from paying any dividends on its common stock. The Company was in compliance
with the covenants of its Credit Agreement at December 31, 1997.
Interest on outstanding amounts may be paid, at the option of the Company,
based on various formulas which relate to the prime rate, rates for certificates
of deposit or other prescribed rates. The Company has entered into interest rate
swap agreements with several banks on a notional amount of $250,000 as of
December 31, 1997 whereby the Company pays a fixed rate of interest ranging from
5.9% to 8% and receives a variable rate ranging from 5.6% to 5.9%. 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, 1997, the interest rate swap agreements expire at various times
through the year 2000 and have a weighted average life of approximately 2 years.
The Company is exposed to credit loss in the event of nonperformance by the
other parties to the
68
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT (CONTINUED)
interest rate swap agreements; however, the Company does not anticipate
nonperformance by the counterparties. The weighted average interest rate on
all bank indebtedness was 7.6% and 7.2% on December 31, 1997 and 1996,
respectively. The Company is also obligated to pay fees of 3/8 of 1% per
annum on the unused loan commitment and from 1-3/8% to 1-5/8% per annum on
letters of credit issued under the Credit Agreement.
Substantially all of the assets of the Restricted Group, amounting to
approximately $3,052,108 at December 31, 1997, support borrowings under the
Credit Agreement.
UNRESTRICTED GROUP
CABLEVISION OF OHIO
The Company's subsidiaries Telerama, Inc., Cablevision of the Midwest, Inc.
and Cablevision of Cleveland L.P., (collectively "Cablevision of Ohio") were
party to a credit facility entered into during 1996 with a group of banks led by
NationsBank of Texas, N.A., as agent, which consisted of a nine year $425,000
reducing revolving credit facility which was scheduled to mature on June 30,
2005 and a nine and one half year $75,000 term loan facility which was scheduled
to mature on December 31, 2005. On December 30, 1997, the outstanding balance of
approximately $304,000 under the Cablevision of Ohio credit facility was repaid
from funds borrowed under the Restricted Group facility and the Cablevision of
Ohio credit facility was terminated.
U.S. CABLE
In August 1996, the Company repaid the balance of the debt owed to GECC
of approximately $154,000. The repayment of the GECC debt was financed under
a new $175,000 U.S. Cable credit facility. The new credit facility was with a
group of banks led by the Bank of New York and Bank of Montreal as co-agents,
and consisted of a three year $175,000 revolving credit facility maturing on
August 13, 1999. As of December 31, 1997 and 1996, U.S. Cable had outstanding
borrowings under its revolving credit facility of approximately $155,000 and
$159,500, respectively. 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% and 7.6% on
December 31, 1997 and 1996, respectively.
Substantially all of the partnership interests held by the Company in U.S.
Cable were pledged to secure borrowings under the credit facility.
The U.S. Cable facility contained certain financial covenants that
limited its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring U.S. Cable to maintain
69
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT (CONTINUED)
certain financial ratios. U.S. Cable was in compliance with all restrictive
covenants of the credit facility at 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 for approximately $311,000.
RAINBOW MEDIA
In April 1997, Rainbow Media executed a new $300 million, three year credit
facility with Canadian Imperial Bank of Commerce and Toronto-Dominion (Texas),
Inc. 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, 1997, Rainbow Media had outstanding borrowings of $176,500
under its credit facility with remaining undrawn funds of $123,500.
The weighted average interest rate on Rainbow Media's bank debt was 7.8% and
8.9% on December 31, 1997 and 1996, respectively. The credit agreement contains
various restrictive covenants with which Rainbow Media was in compliance at
December 31, 1997.
AMERICAN MOVIE CLASSICS COMPANY
On April 2, 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. On December 15, 1997, the loan was amended. The term loan
decreased to $146,000 and the revolving loan increased 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
70
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT (CONTINUED)
rate depending on the ratio of debt to cash flow, as defined in the AMCC Loan
Agreement. At December 31, 1997 the weighted average interest rate on bank
indebtedness was 6.8%. 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, 1997, $143,000 was outstanding
under the term loan and $56,500 was outstanding under the revolving loan.
Substantially all of the assets of AMCC, amounting to approximately $168,157
at December 31, 1997, 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, 1997.
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, 1997, loans outstanding amounted to $360,000 and bore interest at 6.785%.
The MSG Credit Facility contains certain financial covenants with which MSG
was in compliance at December 31, 1997.
Additionally 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 (7.85% at December 31, 1997) and mature in July 2002.
SENIOR DEBT
On December 30, 1997, the Company repaid $222,000 of A-R Cable's debt
with borrowings under its Credit Facility, in connection with the transfer of
certain cable systems from A-R Cable to the Restricted Group. A-R Cable also
entered into a new $115,000 Amended and Restated Loan Agreement, dated
December 30, 1997, with GECC, which matures on December 31, 1998. A-R Cable
had outstanding borrowings of $112,500 with undrawn funds available of
approximately $2,500 at December 31, 1997. Amounts outstanding under the
facility bear interest at varying rates based upon GECC's base rate or libor
rate, as defined in the loan agreement. The weighted average interest rate
was 9% on December 31, 1997.
71
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT (CONTINUED)
SENIOR NOTES AND DEBENTURES
In December 1997, the Company issued $500,000 principal amount ($499,475
amortized amount at December 31, 1997) of 7 7/8% Senior Notes due 2007 (the
"2007 Notes"). The notes were issued at a discount of $525. The 2007 Notes
can not be redeemed by the Company prior to maturity. The indenture under
which the 2007 Notes were issued contain various convenants, 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, 1997.
The net proceeds were used to reduce bank borrowings.
In August 1997, the Company issued $400,000 principal amount ($398,549
amortized amount at December 31, 1997) 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 can not be redeemed by the Company prior to maturity. The indenture under
which the 2009 Notes were issued contains various convenants, 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, 1997. The
net proceeds were used to reduce bank borrowings.
SUBORDINATED DEBENTURES
On July 25, 1997, the Company paid $283,445 plus accrued interest of $9,361
to redeem its $275,000 10-3/4% Senior Subordinated Debentures due 2004. The
payment included a redemption premium of $8,445. In addition, the Company
wrote-off deferred financing costs of approximately $5,265 related to the
debentures.
On May 16, 1996, the Company issued $150,000 principal amount ($149,485
and $149,422 amortized amount at December 31, 1997 and 1996, 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. The
indentures under which the 2006 Notes and 2016 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
72
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT (CONTINUED)
December 31, 1997. The net proceeds of approximately $389,000 were used to
repay bank borrowings.
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. The indenture under which the 2005 Notes were issued contains
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, 1997. The net proceeds of approximately $292,500 were used to
reduce bank borrowings.
In February 1993, the Company issued $200,000 face amount ($199,056 and
$198,993 amortized amounts at December 31, 1997 and 1996, 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. The indenture under which the 2013 Debentures were issued
contains various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement and with which the Company was in
compliance at December 31, 1997.
Also in 1993, the Company issued $150,000 face amount ($149,704 and
$149,690 amortized amounts at December 31, 1997 and 1996, 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 indenture under which the 2023
Debentures were issued contains various covenants, which are generally less
restrictive than those contained in the Company's Credit Agreement and with
which the Company was in compliance at December 31, 1997.
SUBORDINATED NOTES PAYABLE
In connection with certain acquisitions made in 1994, a subsidiary of the
Company issued promissory notes totalling $141,268, due in August 1998, which
bear interest at 8%. Principal and interest on the notes is payable, at the
Company's election, in cash or in shares of the Company's Class A Common Stock.
The promissory notes are guaranteed by the Company and the obligations under the
guarantee rank PARI PASSU with the Company's subordinated debentures. In certain
73
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5. DEBT (CONTINUED)
circumstances, the maturity date of the promissory notes may be extended
until 2003 for certain additional consideration.
In connection with the Company's acquisition of CFHI, the Company assumed
$9,732 of promissory notes due in August 1998 which bear interest at 8.25%. In
certain circumstances, the maturity date of the promissory notes may be extended
until 2003 for additional consideration.
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, 1997 are as follows:
1998...................................... $ 287,430
1999...................................... 178,597
2000...................................... 203,363
2001...................................... 251,765
2002...................................... 308,083
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. 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 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 8,300 and 6,576 additional shares of Series M Preferred Stock in 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
74
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 6. PREFERRED STOCK (CONTINUED)
Preferred Stock") with an aggregate liquidation preference of $345,000. The
depositary shares are convertible into shares of Class A Common Stock, at any
time after January 8, 1996 at the option of the holder, at an initial
conversion price of $33.72 per share (adjusted for the two-for-one stock
split--see Note 15) of Class A Common Stock subject to adjustment under
certain conditions. Following the Holding Company Reorganization referred to
in Note 15, the depositary shares are convertible into a comparable number of
shares of Class A Common Stock of CSC Parent Corporation. 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,
$29,325 and $4,399 in 1997, 1996 and 1995, respectively.
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 355,415, 317,549 and 77,510
additional shares of Series H Preferred Stock in 1997, 1996 and 1995,
respectively.
On December 3, 1997, the Company issued a notice of redemption for all of
the outstanding 8% Series C Cumulative Preferred Stock ("Series C Preferred
Stock") at a price calculated to be approximately $85.06 per share (including
accrued dividends) in cash (approximately $9,400 in the aggregate for all
outstanding shares). Such redemption was consummated on January 2, 1998.
NOTE 7. INCOME TAXES
The Company and its subsidiaries filed consolidated federal income tax
returns until March 31, 1997. Effective April 1, 1997, as a result of the
transaction described in Note 2, Rainbow Media will no longer be included in
the Company's consolidated federal income tax returns, but rather will
75
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7. INCOME TAXES (CONTINUED)
file separate consolidated federal income tax returns with its subsidiaries.
At December 31, 1997, the Company had consolidated net operating loss carry
forwards of approximately $991,000 and Rainbow Media had consolidated federal
net operating loss carry forwards of approximately $414,000. As a result of
the Holding Company Reorganization, described in Note 15 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, 1997 and 1996 are as follows:
1997 1996
----------- -----------
DEFERRED ASSET (LIABILITY)
Depreciation and amortization............................. $ 67,234 $ (3,154)
Receivables from affiliates............................... 18,681 (8,221)
Benefit plans............................................. 29,841 11,951
Allowance for doubtful accounts........................... 5,538 5,228
Deficit investment in affiliate........................... -- 251,639
Deferred gain............................................. (131,460) --
Benefits of tax loss carry forwards....................... 601,983 513,608
Other..................................................... (58) 2,462
----------- -----------
Net deferred tax assets................................. 591,759 773,513
Valuation allowance....................................... (591,759) (773,513)
----------- -----------
$ -- $ --
----------- -----------
----------- -----------
The Company has provided a valuation allowance for the total amount of net
deferred tax assets since realization of these assets was not assured due
principally to the Company's history of operating losses.
NOTE 8. OPERATING LEASES
The Company leases certain office, production and transmission 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, 1997, 1996 and 1995
amounted to $26,773, $22,195 and $16,823, respectively.
76
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8. OPERATING LEASES (CONTINUTED)
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, 1997, 1996 and 1995 amounted to approximately $10,737, $8,585
and $7,790, respectively. The minimum future annual rentals for all operating
leases during the next five years, including pole rentals from January 1,
1998 through December 31, 2002, and thereafter, at rates now in force are
approximately: 1998, $40,384; 1999, $52,415; 2000, $48,671; 2001, $43,972;
2002, $42,833; thereafter, $395,439.
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, 1997.
Rainbow Media's investment in these programming companies is accounted for on
the equity method of accounting. As a result of the exchange by NBC of its
interests in several programming companies for an interest in Rainbow Media
described in Note 2, certain of these companies are now consolidated with the
Company effective April 1, 1997. Accordingly, the Company recorded income
(losses) of approximately $10,672; $(8,018) and $(9,930) in 1997, 1996 and
1995, respectively, representing its percentage interests in the results of
operations of these programming companies. At December 31, 1997 and 1996, the
Company's investment in these programming companies amounted to approximately
$29,644 and $277,241, respectively. Costs incurred by the Company for
programming services provided by these non-consolidated affiliates and
included in technical and operating expense for the years ended December 31,
1997, 1996 and 1995 amounted to approximately $16,581, $37,610 and $37,756,
respectively. At December 31, 1997 and 1996, amounts due from certain of
these programming affiliates aggregated $2,335 and $63, respectively, and are
included in advances to affiliates. Also, at December 31, 1997 and 1996
amounts due to certain of these affiliates, primarily for programming
services provided to the Company, aggregated $7,978 and $14,012,
respectively, and are included in accounts payable 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 is entitled to certain
preferential payments. The total amount owed to Mr. Dolan at December 31, 1997
and 1996 amounted to approximately $197,183 and $192,819, respectively. In 1998,
the Company paid all amounts due Mr. Dolan.
During 1997, 1996 and 1995, 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 $2,599 and $7,792 at December 31, 1997 and 1996,
respectively and are included in advances to affiliates.
77
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9. AFFILIATE TRANSACTIONS (CONTINUED)
On October 2, 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, and, in addition, a warrant to purchase up to 3,071,152 shares of
@Home's Series A common stock at $.50 per share under certain conditions (the
"Contingent Warrant"). The Contingent Warrant is not immediately exercisable
and will become exercisable as and to the extent certain cable systems,
including the systems to be acquired pursuant to the TCI transaction, are
transferred from TCI (see Note 15). 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 fair market value of 7,875,784 warrants of $173,346, as determined by an
independent appraisal, has been recorded in investments in affiliates in the
accompanying balance sheet. The difference between the value of the warrants and
the price paid has been recorded as deferred revenue and will be amortized to
income, beginning in 1998, over the period which the Company will provide the
necessary services to @Home.
Prior to their acquisition by the Company, the operations of A-R Cable,
Nashoba, CFHI and Cablevision of Newark 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, 1996 and
1995, such management fees, expenses and interest amounted to approximately
$5,973, $12,436 and $11,531, respectively, of which $7,724 and $6,918 were
reserved by the Company in 1996 and 1995, respectively.
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 and 1995, such cost
reimbursement amounted to $2,396 and $3,538, respectively, which included an
allocation of overhead charges of $1,829 and $2,881, respectively.
On August 23, 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 $29,700 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.
78
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 9. AFFILIATE TRANSACTIONS (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 $12,867 and $5,756 at December 31, 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 "Benefit
Plan") for the benefit of certain officers and employees of the Company. As part
of the Benefit Plan, the Company established a nonqualified defined benefit
pension plan, which provides that, upon attaining normal retirement age, a
participant will receive a benefit equal to a specified percentage of the
participant's average compensation, as defined. All participants are 100% vested
in the Benefit Plan. Net periodic pension cost for the years ended December 31,
1997, 1996 and 1995 was negligible. At December 31, 1997 and 1996, the fair
value of Benefit Plan assets exceeded the projected benefit obligation by
approximately $2,135 and $2,537, respectively.
The Company also maintains a pension plan and a 401(k) savings plan
(collectively, the "Plan"), pursuant to which the Company contributes 1-1/2% of
eligible employees' annual compensation, as defined, to the defined contribution
pension portion of the Plan and an equivalent amount to the Section 401(k)
portion of the Plan. The Company also makes matching contributions for employee
voluntary contributions to the 401(k) portion of the Plan. The cost associated
with the Plan was approximately $7,445, $5,565 and $4,287 for the years ended
December 31, 1997, 1996 and 1995, 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 consist primarily of shares in a
balanced fund that invests primarily in common stocks, bonds, United States
government securities and cash. At December 31, 1997, the accrued pension
liability amounted to $7,796 and for the year ended December 31, 1997 net
periodic pension cost amounted to $1,613.
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 contributory and contains cost-sharing
features such as deductibles and co-insurance payments. MSG funds these benefits
as
79
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10. BENEFIT PLANS (CONTINUED)
claims are paid. For the year ended December 31, 1997, the periodic
postretirement benefit cost amounted to $133 and the accrued postretirement
benefit obligation amounted to $6,036.
NOTE 11. STOCK BENEFIT PLANS
On June 19, 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 3,000,000 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 Company's Employee Stock Plan
(described below) 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 1997, the Company granted options under the 1996 Plan to purchase
1,115,444 shares of Class A Common Stock and stock appreciation rights related
to 1,105,144 shares under option. The options and related conjunctive stock
appreciation rights are exercisable at prices of $14.25 and $15.75 per share and
vest in either 25% or 33 1/3% annual increments beginning from the date of the
grant or the beginning of 1997.
During 1996, the Company granted options under the 1996 Plan to purchase
1,097,110 shares of Class A Common Stock, stock appreciation rights related to
1,097,110 shares under option and 184,200 bonus award shares. The options and
related conjunctive stock appreciation rights are exercisable at various prices
ranging from $23.94 to $24.75 per share and vest in either 25% or 33 1/3% annual
increments beginning from the date of the grant. The bonus awards vest primarily
over a four year period.
Previously, the Company maintained an Employee Stock Plan (the "Stock Plan")
under which the Company was authorized to issue a maximum of 7,000,000 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, equal to the difference between the fair market value
of the stock as of the date the right is exercised, and the exercise price.
80
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11. STOCK BENEFIT PLANS (CONTINUED)
Under the Stock Plan, during 1995 the Company granted options to purchase
113,900 shares of Class A common stock, stock appreciation rights related to
113,900 shares under option and stock awards of 22,700 common shares. The
options and related conjunctive stock appreciation rights are exercisable at
prices ranging from $25.00 to $28.25 per share and vest in 25% and 33-1/3%
annual increments beginning from the date of grant. The stock awards vest 100%
in May 1999.
In August 1997, three employees exercised stock appreciation rights on
202,500 shares. The difference between the closing price and the average
exercise price resulted in a total cash payment of approximately $2,813.
In January 1996, three employees exercised stock appreciation rights on
427,500 shares. The difference between the closing market price on December 29,
1995 and the exercise price resulted in a total cash payment of approximately
$8,042. Two-thirds was paid at the time of exercise and the balance in October
1996.
At December 31, 1997, options for approximately 1,199,294 shares were
exercisable. 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 $64,361,
$(8,558) and $7,757 in 1997, 1996 and 1995, 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
various stock option plans. Had compensation cost been recognized consistent
with Statement of Financial Accounting Standards No. 123, for options granted in
1997, 1996 and 1995, the Company's net loss would have increased by $7,323 in
1997, $4,191 in 1996 and by an insignificant amount in 1995. Pro forma net loss
per share would have been $(.39) and $(9.35) for the year ended December 31,
1997 and 1996, respectively.
The per share weighted average value of stock options issued by the Company
during 1997, 1996 and 1995, as determined by the Black-Scholes option pricing
model, was $6.64, $9.71 and $10.78, respectively, on the date of grant. In 1997,
1996 and 1995, 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 5.9%, 6.7% and 6.7% and expected volatility of 43.5%, 34%, and
34% in 1997, 1996 and 1995, 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
81
CSC HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY CABLEVISION SYSTEMS CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 11. STOCK BENEFIT PLANS (CONTINUED)
options' vesting periods and compensation costs for options granted prior to
January 1, 1995 are not considered.
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, 1994.................. 2,934,354 2,317,054 472,758 202,348 $ 7.25-$28.25
Granted................................... 113,900 113,900 22,700 (136,600) $ 25.00-$28.25
Exercised/issued.......................... (836,204) (111,528) 34,604 -- $ 7.25-$21.00
Cancelled................................. (80,686) (64,052) (230,462) 311,148 $ 8.32-$21.00
Balance, December 31, 1995.................. 2,131,364 2,255,374 299,600 -- $ 7.25-$28.25
1996 Stock Plan........................... 3,000,000
Granted................................... 1,097,110 1,097,110 184,200 (1,281,310) $ 23.94-$24.75
Exercised/issued.......................... (374,282) (477,282) (294,888) -- $ 7.25-$21.00
Cancelled-Stock Plan...................... (88,284) (43,594) (12,412) -- $ 12.25-$26.06
Cancelled-1996 Plan....................... (19,600) (19,600) (600) 20,200 $ 24.75
---------- ------------ ---------- -----------
Balance, December 31, 1996.................. 2,746,308 2,812,008 175,900 1,738,890 $ 7.25-$26.07
Granted................................... 1,115,444 1,105,144 -- (1,115,444) $ 14.25-$15.75
Exercised/issued.......................... (475,462) (622,580) -- -- $ 10.63-$26.06
Cancelled-Stock Plan...................... (482,178) (474,012) (15,598) -- $ 10.63-$26.06
Cancelled-1996 Plan....................... (150,338) (150,088) (22,726) 173,064 $ 14.25-$24.75
---------- ------------ ---------- -----------
Balance, December 31, 1997.................. 2,753,774 2,670,472 137,576 796,510 $ 10.63-$26.06
---------- ------------ ---------- -----------
---------- ------------ ---------- -----------
The following table summarizes significant ranges of outstanding and
exercisable options at December 31, 1997:
OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGES OF REMAINING EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE IN YEARS PRICE SHARES PRICE
- - ---------------- ---------- ----------------- ----------- --------- -----------
$ 10.63 - 14.94 1,654,406 8.3 $ 14.08 744,498 $ 13.86
15.75 - 21.00 572,448 6.7 19.71 337,594 20.37
23.94 - 26.06 526,920 8.4 24.83 117,202 24.93
82
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems 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 with
professional sports teams and others relating to cable television programming
including rights agreements. 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, 1997 are as follows:
1998............... $ 213,131
1999............... 193,414
2000............... 163,735
2001............... 108,007
2002............... 80,842
Thereafter......... 1,029,489
----------
Total.............. $1,788,618
----------
----------
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 Base Rate Annual Payments, based on subscriber usage,
of approximately $12,699 in 1998; $13,142 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, Trade Accounts Receivable, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Accounts Payable, Accrued
Liabilities, Accounts Payable to Affiliates, Feature Film and Contract
Obligations, Deferred Revenue, and Obligation to Related Party.
The carrying amount approximates fair value due to the short maturity of
these instruments.
83
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Bank Debt, Senior Debt, Senior Notes and Debentures, Subordinated 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.
The fair value of the Company's financial instruments are summarized as
follows:
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 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
------------ ------------
------------ ------------
DECEMBER 31, 1996
--------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ ------------
Long term debt instruments:
Bank debt................................................... $ 1,670,245 $ 1,670,245
Subordinated debentures..................................... 1,323,105 1,330,438
Subordinated notes payable.................................. 141,268 136,000
Redeemable exchangeable preferred stock..................... 1,005,265 1,195,981
------------ ------------
$ 4,139,883 $ 4,332,664
------------ ------------
------------ ------------
Interest rate swap agreements:
In a net payable position.................................... $ -- $ 4,238
------------ ------------
------------ ------------
84
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
NOTE 15. SUBSEQUENT EVENTS
HOLDING COMPANY REORGANIZATION
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 Parent Corporation
("Parent"), CSC Merger Corporation, ("Merger Sub"), 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. Parent is authorized to issue 200,000,000 shares of Class A Common
Stock, 80,000,000 shares of Class B Common Stock and 10,000,000 shares of
Preferred Stock. The Company is authorized to issue 50,000,000 shares of
Class A Common Stock and 20,000,000 shares of Class B Common Stock.
As a result of the Holding Company Reorganization, Parent has become the
holding company of the Company. In connection with the Holding Company
Reorganization, the Company's name, which formerly was Cablevision Systems
Corporation, has been changed to CSC Holdings, Inc. and Parent's name has
been 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 Class A Common Stock instead of being convertible into the Company's
Class A Common Stock.
Concurrent with the Holding Company Reorganization, TCI caused to be
contributed to Parent, and Parent acquired, 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, Parent issued to certain
TCI entities an aggregate of 24,471,086 shares (after adjusting for the
two-for-one stock split discussed below) of Parent Class A Common Stock,
valued at $498,000, and assumed certain liabilities related to such systems
(including an aggregate amount of indebtedness
85
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
for borrowed money equal to $669,000).
For purposes of the accompanying consolidated financial statements of the
Company, all share and per share information has been retroactively restated
to reflect the number of Parent company shares which were issued to the
Company's shareholders on March 4, 1998 in the exchange discussed above. All
share and per share information has also been adjusted for the two-for-one
split discussed below.
On January 27, 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"). In consideration for the TCI Connecticut Systems Parent will
(i) transfer to TCI its 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 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.
The closing of the Proposed TCI CT Transactions will be conditioned, among
other things, upon regulatory and other customary approvals. The Proposed TCI
CT Transactions are currently expected to be consummated during 1998.
However, there can be no assurance that the Proposed TCI CT Transactions will
be consummated in a timely fashion, or at all.
Nobody Beats 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 approximately 40 Nobody Beats
The Wiz consumer electronics store locations from The Wiz, Inc. and certain
of its subsidiaries and affiliates (collectively, the "Wiz"). The Wiz had
filed for bankruptcy protection on December 16, 1997. Cablevision Electronics
paid approximately $92,000 for the assets, of which $10,000 was put into
escrow pending resolution of the final calculation of the purchase price. In
addition, prior to closing, Cablevision Electronics provided approximately
$8,000 for the Wiz to meet certain operating costs.
Senior Debentures
In February 1998, the Company issued $300,000 principal amount 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 can not be redeemed by
the Company prior to maturity.
86
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Two-For-One Stock Split
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 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 is payable on March
30, 1998 to stockholders of record on March 19, 1998.
Other
On March 9, 1998, ITT notified the Company of its election to exercise the
first put with respect to 50% of ITT's interest in MSG for $94,000 (see Note
2).
87
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, 1997 and 1996.
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
------------------- -------------------- -------------------- --------------------- ----------
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
-------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Revenues...... $358,549 $ 304,165 $ 438,516 $ 320,331 $517,930 $ 331,122 $ 634,363 $ 359,524 $1,949,358 $1,315,142
Operating
expenses.... 344,271 286,272 433,359 292,915 501,057 302,570 589,496 358,973 1,868,183 1,240,730
-------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Operating
profit...... $ 14,278 $ 17,893 $ 5,157 $ 27,416 $ 16,873 $ 28,552 $ 44,867 $ 551 81,175 74,412
-------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
-------- --------- --------- --------- --------- --------- --------- ---------- ---------- ----------
Net income (loss)
applicable to common
shareholders.... $(111,921) $(100,680)$(128,776) $(117,969) $ 46,454 $(106,931) $ 182,139 $(134,279) $ (12,104) $ (459,859)
-------- ---------- --------- --------- --------- ---------- --------- --------- ----------- ----------
-------- ---------- --------- --------- --------- ---------- --------- --------- ----------- ----------
Basic income
(loss) per
common
share..... $ (2.26) $ (2.03) $ (2.59) $ (2.38) $ .94 $ (2.16) $ 3.64 $ (2.70) $ (.24) $ (9.26)
-------- --------- --------- --------- --------- --------- --------- --------- ----------- ----------
-------- --------- --------- --------- --------- --------- --------- --------- ----------- ----------
Diluted income
(loss) per common
share..... $ (2.26) $ (2.03) $ (2.59) $ (2.38) $ .88 $ (2.16) $ 3.06 $ (2.70) $ (.24) $ (9.26)
-------- --------- --------- --------- --------- --------- --------- --------- ----------- ----------
-------- --------- --------- --------- --------- --------- --------- --------- ----------- ----------
88
INDEPENDENT AUDITORS' REPORT
The Stockholders
Cablevision Systems Corporation
We have audited the accompanying consolidated balance sheet of
Cablevision Systems Corporation (formerly CSC Parent Corporation) and
subsidiary as of December 31, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit 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 statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the consolidated financial position of
Cablevision Systems Corporation and subsidiary at December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Jericho, New York
March 20, 1998
89
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARY
(formerly CSC Parent Corporation)
Consolidated Balance Sheet
December 31, 1997
ASSETS
Total assets......................................... $ --
-----------
-----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Deficit investment in subsidiaries.............................. 2,378,773
-----------
Total liabilities............................................ 2,378,773
-----------
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, 27,948,992 shares issued................. 280
Class B Common Stock, $.01 par value, 50,000,000
shares authorized, 22,193,418 shares issued................. 222
Paid-in capital............................................... 171,916
Accumulated deficit........................................... (2,551,191)
-----------
Total stockholders' deficiency................................... (2,378,773)
-----------
Total liabilities and stockholders' deficiency................... $ --
-----------
-----------
See accompanying notes to consolidated balance sheet.
90
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARY
(FORMERLY CSC PARENT CORPORATION)
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
NOTE 1. THE COMPANY AND NATURE OF OPERATIONS
CSC Parent Corporation (the "Company") was formed on November 21, 1997 as a
wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision") and
in turn, owns 100% of CSC Merger Corporation ("Merger Sub"). The Company has not
conducted any business activities through December 31, 1997, other than those
incident to its formation and the execution of certain documents in connection
with contributions to the Company of certain partnership interests and assets of
TCI Communications, Inc. (the "Contributed Businesses") (see Note 2). The
Company was formed as a holding company to conduct the business of Cablevision
and its subsidiaries and entities owning the Contributed Businesses.
In connection with the Contribution and Merger Agreement described in Note
2, Merger Sub was merged with and into Cablevision and Cablevision became a
wholly-owned subsidiary of the Company (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 the Company's Class A Common Stock
and the Company's Class B Common Stock, respectively. Subsequent to the Merger,
Cablevision changed its name to CSC Holdings, Inc. and the Company changed its
name to Cablevision Systems Corporation. The accompanying consolidated balance
sheet reflects the Company's deficit investment in CSC Holdings, Inc. on the
equity basis and the issuance of the Company's Class A and Class B Common Stock
in exchange for the outstanding Class A and Class B Common Stock of CSC
Holdings, Inc. adjusted for the two-for-one stock split discussed in Note 2.
NOTE 2. SUBSEQUENT EVENTS
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 (the "Contribution and Merger Agreement") with
a subsidiary of Tele-Communications, Inc. ("TCI"). Pursuant to the Contribution
and Merger Agreement, TCI contributed to the Company or its designees
certain cable television systems located in New Jersey, on Long Island and in
New York's Rockland and Westchester Counties (the "Contributed Businesses") and
the Company or its designees assumed $669 million in outstanding
indebtedness for borrowed money (the "Assumed Debt") of the Contributed
Businesses and also assumed (or cause its designees to assume) certain other
obligations associated with the assets of
91
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARY
(FORMERLY CSC PARENT CORPORATION)
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
the Contributed Businesses. In consideration for the contribution, the
Company assumed the Assumed Debt and certain other liabilities and
issued to TCI an aggregate of 24,471,086 shares of the Company's Class A
Common Stock (adjusted for the two-for-one stock split), subject to
adjustment in certain events, valued at $498 million.
The Assumed Debt was refinanced with borrowings under a new $800 million
bridge revolving credit facility entered into by certain subsidiaries of
the Company with a group of banks led by Toronto Dominion (Texas), Inc. as
administrative arranging agent. The facility has a final maturity of March 4,
2000.
On January 27, 1998, the Company, CSC Holdings, Inc. 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"). In consideration for the TCI Connecticut Systems in the
Proposed TCI CT Transactions the Company will (i) transfer to TCI its cable
television systems serving Kalamazoo, Michigan, (ii) transfer to TCI other
cable television systems to be identified by TCI and purchased with
approximately $25 million 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 million.
The closing of the Proposed TCI CT Transactions will be conditioned, among
other things, upon regulatory and other customary approvals. The Proposed TCI
CT Transactions are currently expected to be consummated during 1998.
However, there can be no assurance that the Proposed TCI CT Transactions will
be consummated in a timely fashion, or at all.
TWO-FOR-ONE STOCK SPLIT
- - -----------------------
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 is payable on March 30,
1998 to stockholders of record on March 19, 1998. All shares outstanding have
been retroactively restated to reflect the stock split.
92
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
1998 or if such definitive proxy statement is not filed with the Commission
prior to April 30, 1998, 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,
1996, was a director, officer or beneficial owner of more than ten percent of
the Company's Class A Common Stock that failed to file on a timely basis
any such reports. Based on such review, the Company is aware of no such
failure other than reports on Form 4 filed by each of Sheila A. Mahony,
Andrew B. Rosengard and Margaret Albergo in November 1997 with respect to
the grant of certain employee stock awards under the Company's Employee Stock
Plan, in May 1997.
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 is set forth on
page 49.
2. Financial Statement schedule:
PAGE
NO.
-----
Schedule supporting consolidated financial statements:
Schedule II--Valuation and Qualifying Accounts......................... 95
93
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 98.
(b) Reports on Form 8-K:
The Company filed current reports on Form 8-K with the Commission on September
9, 1997 and December 8, 1997 during the last quarter of the fiscal period
covered by this report.
94
CSC HOLDINGS, INC.
(formerly Cablevision Systems Corporation)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
BALANCE AT
BEGINNING CHARGED TO COSTS CHARGED TO DEDUCTIONS- BALANCE AT
OF PERIOD AND EXPENSES OTHER ACCOUNTS WRITE-OFFS END OF PERIOD
----------- ---------------- ----------------- ----------- -------------
Year Ended December 31, 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
----------- ------- --------- ----------- -------------
----------- ------- --------- ----------- -------------
Year Ended December 31, 1995
- - ----------------------------
Allowance for doubtful
accounts........................... $ 10,087 $ 14,551 $ -- $ (11,960) $ 12,678
----------- ------- --------- ----------- -------------
----------- ------- --------- ----------- -------------
95
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 31 day of
March, 1998.
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 31, 1998
- - ---------------------------- (Principal Executive Officer)
James L. Dolan
/s/ WILLIAM J. BELL Vice Chairman and Director
- - ---------------------------- (Principal Financial Officer) March 31, 1998
William J. Bell
/s/ ANDREW B. ROSENGARD Executive Vice President March 31, 1998
- - ---------------------------- Financial Planning and Controller
Andrew B. Rosengard (Principal Accounting Officer)
96
/s/ CHARLES F. DOLAN Chairman of the Board of Directors March 31, 1998
- - ----------------------------
Charles F. Dolan
/s/ MARC A. LUSTGARTEN Vice Chairman and Director March 31, 1998
- - ----------------------------
Marc A. Lustgarten
/s/ ROBERT S. LEMLE Executive Vice President, General March 31, 1998
- - ---------------------------- Counsel, Secretary and Director
Robert S. Lemle
/s/ SHEILA A. MAHONY Senior Vice President and Director March 31, 1998
- - ----------------------------
Sheila A. Mahony
/s/ THOMAS C. DOLAN Senior Vice President and Chief March 31, 1998
- - ---------------------------- Information Officer and Director
Thomas C. Dolan
/s/ JOHN TATTA Director and Chairman of the March 31, 1998
- - ---------------------------- Executive Committee
John Tatta
/s/ PATRICK F. DOLAN Director March 31, 1998
- - ----------------------------
Patrick F. Dolan
/s/ CHARLES D. FERRIS Director March 31, 1998
- - ----------------------------
Charles D. Ferris
/s/ RICHARD H. HOCHMAN Director March 31, 1998
- - ----------------------------
Richard H. Hochman
/s/ VICTOR ORISTANO Director March 31, 1998
- - ----------------------------
Victor Oristano
/s/ VINCENT TESE Director March 31, 1998
- - -------------------------
Vincent Tese
/s/ JOHN C. MALONE Director March 31, 1998
- - ----------------------------
John C. Malone
/s/ LEO J. HINDERY, JR. Director March 31, 1998
- - ----------------------------
Leo J. Hindery, Jr.
97
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of Cablevision Parent (incorporated herein by
reference to Exhibit 3.1 to Cablevision Parent's Registration Statement on Form S-4, dated January 20,
1998, File No. 333-44547 the "S-4").
3.2 Bylaws of Cablevision Parent (incorporated herein by reference to Exhibit 3.2 to the S-4).
3.3 Certificate of Incorporation of CSC Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to
the Company's Registration Statement on Form S-1 dated January 17, 1986, File No. 33-1936 (the "S-1")).
3.3A Amendment to Certificate of Incorporation and complete copy of amended and restated Certificate of
Incorporation of CSC Holdings, Inc. (incorporated herein by reference to Exhibits 3.1A(i) and 3.1A(ii)
to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (the "1989
10-K")).
3.4 By-laws of CSC Holdings, Inc. (incorporated hereby by reference to Exhibit 3.2 to the S-1).
3.4A Amendment to By-laws and complete copy of amended and restated By-laws of CSC Holdings, Inc.
(incorporated herein by reference to Exhibit 3.2 to the 1989 10-K).
3.4B Amendment to By-laws and complete copy of amended and restated By-laws of CSC Holdings, Inc.
(incorporated herein by reference to Exhibit 3.2B to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992 (the "1992 10-K").
3.4C Amendment to By-laws and complete copy of amended and restated By-laws of CSC Holdings, Inc.
(incorporated herein by reference to Exhibit 3.2C to the Company's Annual Report on Form 10-K405 for
the fiscal year ended December 31, 1994).
3.4D Amendment to By-laws of the Registrant and complete copy of amended and restated By-laws of CSC
Holdings, Inc. (incorporated herein by reference to Exhibit 3.2D to the Company's Registration
Statement on Form S-4, File No. 33-62717).
4.2 Certificate of Designations for the Company's Series L Redeemable Exchangeable Preferred Stock
(incorporated herein by reference to Exhibit 3.1G to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
98
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
4.3 Certificate of Designations for the Company's Series M Redeemable Exchangeable Preferred Stock
(incorporated by reference to Exhibit 4.1(f) to the Company's Registration Statement on Form S-4,
Registration No. 333-00527).
4.4 Indenture dated as of December 1, 1997 relating to the Company's $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 the Company's $200,000,000 9 7/8% Senior
Subordinated Debentures due February 15, 2013 (incorporated herein by reference to Exhibit 4.3 to the
1992 10-K).
4.6 Indenture dated as of April 1, 1993 relating to the Company's $150,000,000 9 7/8% Senior Subordinated
Debentures due 2023 (incorporated by reference to the Company's Registration Statement on Form S-4,
Registration No. 33-61814).
4.7 Supplemental Indenture dated as of November 1, 1995 between the Company and the Bank of New York,
Trustee to the Indenture dated November 1, 1995 (incorporated by reference
to Exhibit 99.6 to the Company's Current Report on Form 8-K (File No. 1-9046), filed November 1, 1995).
4.8 Indenture dated August 15, 1997 relating to the Company's $400,000,000 8 1/8% Senior Debentures due 2009
(incorporated herein by reference to the Company's Registration Statement on Form S-4, Registration No.
333-38013).
4.9 Indenture dated as of November 1, 1995 relating to the Company's $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 the
Company's Current Report on Form 8-K filed November 1, 1995).
4.10 Certificate of Designations for the Company's Series E Redeemable Exchangeable Convertible Preferred
Stock (incorporated herein by reference to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1993, filed on April 13, 1994).
4.11 Certificate of Designations for the Company's Series F Redeemable Preferred Stock (incorporated herein
by reference to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1993, filed
on April 13, 1994).
99
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
4.12 Certificate of Designations for the Company's Series G Redeemable Exchangeable Preferred Stock
(incorporated herein by reference to Exhibit 3.1D to the Company's Registration Statement on Form S-4,
Registration No. 33-62717).
4.13 Certificate of Designations for the Company's Series H Redeemable Exchangeable Preferred Stock
(incorporated by reference to Exhibit 4.1E to the Company's Registration Statement on Form S-4,
Registration No. 33-63691).
4.14 Certificate of Designations for the Company's Series I Cumulative Convertible Exchangeable Preferred
Stock (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K (File No.
1-9046) dated November 7, 1995).
10.1 Registration Rights Agreement between CSC Systems Company and the Company (incorporated herein by
reference to Exhibit 10.1 of the Company's Registration Statement on Form S-1, Registration No.
033-01936 (the "Company Form S-1")).
10.2 Registration Rights Agreement between CSC Holdings Company and the Company (incorporated herein by
reference to Exhibit 10.2 to the Company's Form S-1).
10.3 Form of Right of First Refusal Agreement between Dolan and the Company (incorporated herein by
reference to Exhibit 10.4 to the Company's Form S-1).
10.4 Supplemental Benefit Plan of the Company (incorporated herein by reference to Exhibit 10.7 to the
Company 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 the Company's 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 Dolan and the Company dated January 27, 1986 (incorporated herein by
reference to Exhibit 10.9 to the Company's Form S-1).
10.8 Amended and Restated Agreement dated as of June 1, 1983 between SportsChannel Associates and
Cablevision Systems Holdings Company (incorporated herein by reference to Exhibit 10.11 to the
Company's Form S-1).
100
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.9 Lease Agreement dated as of October 9, 1978 between Cablevision Systems Development Company and
Industrial and Research Associates Co. and amendment dated June 21, 1985 between Industrial and
Research Associates Co. and Cablevision Company (incorporated herein by reference to Exhibit 10.18 to
the Company's Form S-1).
10.10 Lease Agreement dated May 1, 1982 between Industrial and Research Associates Co. and Cablevision
Systems Development Company (incorporated herein by reference to Exhibit 10.19 to the Company's Form
S-1).
10.11 Agreement of Sublease dated as of July 9, 1982 between Cablevision Systems Development Company and
Ontel Corporation (incorporated herein by reference to Exhibit 10.20 to the Company's Form S-1).
10.12 Agreement of Sublease dated as of June 21, 1985 between Grumman Data Systems Corporation and
Cablevision Company (incorporated herein by reference to Exhibit 10.21 to the Company's Form S-1).
10.13 Purchase and Reorganization Agreement dated as of December 20, 1991 between the Company and Charles F.
Dolan (incorporated herein by reference to Exhibit 2(c) to the Company's Current Report on Form 8-K
(File No. 1-9046) dated January 1, 1992).
10.14 Amendment No. 1 dated as of March 28, 1992 to Purchase and Reorganization Agreement dated as of
December 20, 1991 between the Company and Charles F. Dolan (incorporated herein by reference to Exhibit
2(g) to the Company's Current Report on Form 8-K (File No. 1-9046) dated March 31, 1992).
10.15 Cablevision Amended and Restated Employee Stock Plan (incorporated herein by reference to Exhibit 10.46
to the 1992 10-K).
10.16 Cablevision 401(K) Savings Plan (incorporated herein by reference to Exhibit 10.47 to the 1992 10-K).
10.17 Master Agreement, dated as of October 26, 1993, between CSC MFR, Inc., Monmouth Cablevision Associates,
Framingham Cablevision Associates and Riverview Cablevision Associates, L.P. (incorporated herein by
reference to Exhibit 10.51 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1993 (the "September 1993 10-Q")).
101
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.18 Asset Purchase Agreement, dated as of October 26, 1993, between Monmouth Cablevision Associates and
Cablevision MFR, Inc. (incorporated herein by reference to Exhibit 10.52 to the September 1993 10-Q).
10.19 Asset Purchase Agreement, dated as of October 26, 1993, between Framingham Cablevision Associates,
Limited Partnership and Cablevision MFR, Inc. (incorporated herein by reference to Exhibit 10.53 to the
September 1993 10-Q).
10.20 Asset Purchase Agreement, dated as of October 26, 1993 between Riverview Cablevision Associates, L.P.
and Cablevision MFR, Inc. (incorporated herein by reference to Exhibit 10.54 to the September 1993
10-Q).
10.21 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, the Company, 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).
10.22 Credit Agreement, dated as of June 15, 1994, among Cablevision of Framingham, Inc., the several lenders
parties thereto, The Chase Manhattan Bank, N.A., as Agent and CIBC Inc., as Co-Agent (incorporated
herein by reference to Exhibit 10.60 to the June 1994 10-Q).
10.23 Amendment No. 1, dated as of August 8, 1994, to the Credit Agreement, dated as of June 15, 1994, among
Cablevision of Framingham, Inc., the several lenders parties thereto, the Chase Manhattan Bank, N.A.,
as Agent and CIBC, Inc., as Co-Agent (incorporated herein by reference to Exhibit 10.61 to the June
1994 10-Q).
10.24 Asset Purchase Agreement, dated as of October 26, 1993, between Monmouth Cablevision Associates and
Cablevision MFR, Inc. as amended by Amendment No. 1 thereto, dated as of April 6, 1994 and Amendment
No. 2 thereto, dated as of June 3, 1994 (restated) (incorporated herein by reference to Exhibit 10.62
to the June 1994 10-Q).
10.25 Asset Purchase Agreement, dated as of October 26, 1993, between Riverview Cablevision Associates,
Limited Partnership, and Cablevision MFR, Inc., as amended by Amendment No. 1 thereto, dated as of
April 6, 1994 and Amendment No. 2 thereto, dated as of June 3, 1994 (restated) (incorporated herein by
reference to Exhibit 10.63 to the June 1994 10-Q).
102
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.26 Asset Purchase Agreement, dated as of October 26, 1993, between Framingham Cablevision Associates,
Limited Partnership, and Cablevision MFR, Inc., as amended and assigned to Cablevision Framingham
Holdings, Inc. by Amendment No. 1 thereto, dated as of April 6, 1994, and as further amended by
Amendment No. 2 thereto, dated as of June 3, 1994 (restated) (incorporated herein by reference to
Exhibit 10.64 to the June 1994 10-Q).
10.27 Agreement and undertaking, dated as of March 10, 1995 from MSG Holdings, LP, MSG Eden Corporation, the
Company, 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).
10.28 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 the Company (incorporated
herein by reference to Exhibit 10.67 to the 1994 10-K).
10.29 Amendment to consulting agreement dated as of November 28, 1994 between the Company and John Tatta
(incorporated herein by reference to Exhibit 10.68 to the 1994 10-K).
10.30 Employment Agreement, dated as of November 30, 1994, between the Company and William J. Bell
(incorporated herein by reference to Exhibit 10.69 to the 1994 10-K).
10.31 Employment Agreement, dated as of November 30, 1994, between the Company and Marc A. Lustgarten
(incorporated herein by reference to Exhibit 10.70 to the 1994 10-K).
10.32 Employment Agreement, dated as of November 30, 1994, between the Company and Robert S. Lemle
(incorporated herein by reference to Exhibit 10.71 to the 1994 10-K).
10.33 Cablevision Parent Employee Stock Plan (incorporated herein by reference to Exhibit 10.40 to the S-4).
10.34 Cablevision Parent Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.41 to the
S-4).
103
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.35 Cablevision Systems Corporation 1996 Non-Employee Directors Stock Option Plan (incorporated by
reference to the Company's 1996 Definitive Proxy Statement).
10.36 Credit Agreement, dated as of April 17, 1996, among Cablevision of Cleveland, L.P., Telerama, Inc.,
Cablevision of the Midwest, Inc., the lenders from time to time party thereto, NationsBank of Texas,
N.A., as Administrative Agent, Canadian Imperial Bank of Commerce as Documentation Agent, The Toronto
Dominion Bank as Syndicate Agent, and The First National Bank of Boston, The Bank of Nova Scotia,
CoreStates Bank, N.A., Credit Lyonnais Cayman Island Branch, PNC Bank, National Association and Royal
Bank of Canada, as Co-Agents (incorporated herein by reference to Exhibit 10.71 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996).
10.37 Fifth Amended and Restated Credit Agreement, dated as of September 5, 1996, among the Company, the
Restricted Subsidiaries (as defined herein), the banks party thereto, and Toronto Dominion (Texas),
Inc., as Arranging Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of
Commerce, NationsBank of Texas, N.A., and The Chase Manhattan Bank, as Agents, Bank of Montreal,
Chicago Branch, Fleet Bank, N.A., Mellon Bank, N.A., and Regal Bank of Canada, as Co-Agents, The Bank
of Nova Scotia and The Canadian Imperial Bank of Commerce, as Co-Syndication Agents, and The Bank of
New York, as Documentation Agent (incorporated herein by reference to Exhibit 10.72 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 (the "September 1996
10-Q")).
10.38 Credit Agreement, dated as of September 5, 1996, among Cablevision MFR, Inc., the Company, the
Guarantors (as defined therein), the banks party thereto, and Toronto Dominion (Texas), Inc. as
Arranging Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce,
NationsBank of Texas, N.A., and The Chase Manhattan Bank, as Agents, Bank of Montreal, Chicago Branch,
Fleet Bank, N.A., Mellon Bank, N.A., and Regal Bank of Canada, as Co-Agents, The Bank of Nova Scotia
and The Canadian Imperial Bank of Commerce, as Co-Syndication Agents, and The Bank of New York, as
Documentation Agent (incorporated herein by reference to Exhibit 10.73 to the September 1996 10-Q).
10.39 Agreement, dated February 4, 1996, among the Company, Rainbow Programming Holdings, Inc. and ITT
Corporation (incorporated herein by reference to Exhibit 10.74 to the September 1996 10-Q).
104
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.40 Master Stock Purchase Agreement, dated as of May 10, 1996, between Warburg Pincus Investors, L.P., a
Delaware limited partnership, and the Company (incorporated by reference to Exhibit 99 to the Company's
Current Report on Form 8-K (File No. 1-9046) dated May 10, 1996).
10.41 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 the Company's Current Report on Form 8-K
(File No. 1-9046) dated March 6, 1997).
10.42 Letter, dated November 25, 1997, from the Company to Dolan (incorporated herein by reference to Exhibit
10.49 to the S-4).
10.43 Form of Guarantee and Indemnification Agreement among Dolan, the Registrant and officers and directors
of the Registrant (incorporated herein by reference to Exhibit 28 to the Company's Form S-1).
10.44 Partnership Interest Transfer Agreement, among ITT Corporation, ITT Eden Corporation, ITT MSG, Inc.,
the Company, 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 the Company's Current Report on Form 8-K (File No. 1-9046) dated April 18, 1997 (the
"April 1997 8-K")).
10.45 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).
10.46 SportsChannel Contribution Agreement, among Rainbow Media Holdings, Inc., Garden L.P. Holding Corp.,
Rainbow Garden Corp., SportsChannel New York Holding Partnership, SportsChannel Associates Holding
Corporation, MSG Eden Corporation, ITT MSG Inc., ITT Eden Corporation, and Madison Square Garden, L.P.,
dated as of April 15, 1997. (incorporated by reference to Exhibit 2(c) of the April 1997 8-K).
10.47 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).
105
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.48 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).
10.49 Lease Agreement between Nassau Cable Business Trust, as Landlord and the Company, as Tenant, dated as
of November 1, 1997 (incorporated herein by reference to Exhibit 10.56 to the S-4).
10.50 Letter Agreement and Term Sheet, dated October 2, 1997 among the Company, 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")).
10.51 Warrant to purchase shares of Series A Common Stock of At Home issued to the Company (incorporated by
reference to Exhibit 10.03 of the At Home October 8-K).
10.52 Contingent Warrant to purchase shares of Series A Common Stock of At Home issued to the Company
(incorporated by reference to Exhibit 10.04 of the At Home October 8-K).
10.53 Warrant Purchase Agreement, dated October 10, 1997, between At Home and the Company (incorporated by
reference to Exhibit 10.02 of the At Home October 8-K).
10.54 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")).
10.55 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).
10.56 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).
106
INDEX TO EXHIBITS
(continued)
EXHIBIT
NO. DESCRIPTION
- - ----------- -------------------------------------------------------------------------------------------------------
10.57 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., the Company and Mediacom LLC (incorporated
herein by reference to Exhibit 10.64 to the S-4).
10.58 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 the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997).
10.59 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).
10.60 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).
10.61 Cablevision Parent Stock Option Plan for Non-Employee Directors (incorporated herein by reference to
Exhibit 10.68 to the S-4).
10.62 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 the Company report on Form 8-K (file
no. 1-9046) dated February 5, 1998.
10.63 Amended and Restated Contribution and Merger Agreement, dated as of June 6, 1997, among Cablevision Parent, the
Company, CSC Merger Corporation and TCI Communications, Inc. (incorporated herein by reference to Exhibit 2.1
to the S-4).
10.64 Stockholders Agreement, dated as of March 4, 1998, by and among the Company, 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 the Company's Current Report on Form 8-K
(File No. 1-9046) dated March 4, 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 Subsidiary.
107