Attached files
file | filename |
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EX-10.1 - EXHIBIT 10.1 - CABLEVISION SYSTEMS CORP /NY | cvc-03312015xex101.htm |
EX-31.1 - EXHIBIT 31.1 - CABLEVISION SYSTEMS CORP /NY | cvc-03312015xex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - CABLEVISION SYSTEMS CORP /NY | Financial_Report.xls |
EX-32 - EXHIBIT 32 - CABLEVISION SYSTEMS CORP /NY | cvc-03312015xex32.htm |
EX-31.2 - EXHIBIT 31.2 - CABLEVISION SYSTEMS CORP /NY | cvc-03312015xex312.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | March 31, 2015 |
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from | to |
Commission File Number | Registrant; State of Incorporation; Address and Telephone Number | IRS Employer Identification No. | ||
1-14764 | Cablevision Systems Corporation | 11-3415180 | ||
Delaware | ||||
1111 Stewart Avenue | ||||
Bethpage, New York 11714 | ||||
(516) 803-2300 | ||||
1-9046 | CSC Holdings, LLC | 27-0726696 | ||
Delaware | ||||
1111 Stewart Avenue | ||||
Bethpage, New York 11714 | ||||
(516) 803-2300 |
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) have been subject to such filing requirements for the past 90 days.
Cablevision Systems Corporation | Yes | ý | No | o |
CSC Holdings, LLC | Yes | ý | No | o |
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files). Yes ý No o
Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller Reporting Company | |||||||||||||||||||
Cablevision Systems Corporation | Yes | ý | No | o | Yes | o | No | ý | Yes | o | No | ý | Yes | o | No | ý | ||||||
CSC Holdings, LLC | Yes | o | No | ý | Yes | o | No | ý | Yes | ý | No | o | Yes | o | No | ý |
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
Cablevision Systems Corporation | Yes | o | No | ý |
CSC Holdings, LLC | Yes | o | No | ý |
Number of shares of common stock outstanding as of April 30, 2015:
Cablevision NY Group Class A Common Stock - | 221,448,607 | |
Cablevision NY Group Class B Common Stock - | 54,137,673 | |
CSC Holdings, LLC Interests of Member - | 17,631,479 |
CSC Holdings, LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format applicable to CSC Holdings, LLC.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page | |||
PART I. | FINANCIAL INFORMATION | ||
Item 1. | Financial Statements of Cablevision Systems Corporation and Subsidiaries | ||
Financial Statements of CSC Holdings, LLC and Subsidiaries | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
PART II. | OTHER INFORMATION | ||
Item 1. | |||
Item 6. | |||
PART I. | FINANCIAL INFORMATION |
This Quarterly Report on Form 10-Q for the period ended March 31, 2015 is separately filed by Cablevision Systems Corporation ("Cablevision") and CSC Holdings, LLC ("CSC Holdings" and collectively with Cablevision, the "Company", "we", "us" or "our").
This Quarterly Report contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. In this Quarterly Report there are statements concerning our future operating results and future financial performance. Words such as "expects", "anticipates", "believes", "estimates", "may", "will", "should", "could", "potential", "continue", "intends", "plans" and similar words and terms used in the discussion of future operating results, future financial performance and future events identify forward looking statements. Investors are cautioned that such forward looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward looking statements as a result of various factors. Factors that may cause such differences to occur include, but are not limited to:
• | the level of our revenues; |
• | competition for subscribers from existing competitors (such as telephone companies, direct broadcast satellite ("DBS") distributors, and Internet-based providers) and new competitors entering our franchise areas; |
• | demand for our video, high-speed data and voice services, which is impacted by competition from other services and changes in technology and consumer expectations and behavior; |
• | the level of our expenses, including the cost of programming; |
• | the level of our capital expenditures; |
• | changes in the laws or regulations under which we operate; |
• | general economic conditions in the areas in which we operate; |
• | the state of the market for debt securities and bank loans; |
• | demand for advertising in our newspapers along with subscriber and single copy outlet sales demand for our newspapers; |
• | market demand for new services; |
• | demand for advertising on our cable television systems; |
• | industry conditions; |
• | the outcome of litigation and other proceedings, including the matters described in Note 12 of the combined notes to our condensed consolidated financial statements; |
• | future acquisitions and dispositions of assets; |
• | the tax-free treatment of the MSG Distribution (whereby Cablevision distributed to its stockholders all of the outstanding common stock of The Madison Square Garden Company) and the AMC Networks Distribution (whereby Cablevision distributed to its stockholders all of the outstanding common stock of AMC Networks Inc); |
• | whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all); |
• | other risks and uncertainties inherent in the cable business, the newspaper publishing business, and our other businesses; |
• | financial community and rating agency perceptions of our business, operations, financial condition and the industries in which we operate; and |
• | the factors described in our filings with the Securities and Exchange Commission, including under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. |
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.
1
Item 1. | Financial Statements |
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) | ||||||||
March 31, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 884,422 | $ | 850,413 | ||||
Accounts receivable, trade (less allowance for doubtful accounts of $11,224 and $12,112) | 249,852 | 277,526 | ||||||
Prepaid expenses and other current assets | 159,306 | 140,094 | ||||||
Amounts due from affiliates | 1,084 | 1,732 | ||||||
Deferred tax asset | 41,628 | 37,943 | ||||||
Investment securities pledged as collateral | 452,134 | 622,958 | ||||||
Total current assets | 1,788,426 | 1,930,666 | ||||||
Property, plant and equipment, net of accumulated depreciation of $9,543,360 and $9,454,315 | 2,954,073 | 3,025,747 | ||||||
Investment securities pledged as collateral | 760,707 | 622,958 | ||||||
Derivative contracts | 25,497 | 7,317 | ||||||
Other assets | 38,675 | 44,505 | ||||||
Amortizable intangible assets, net of accumulated amortization of $61,438 and $60,018 | 41,083 | 36,781 | ||||||
Indefinite-lived cable television franchises | 731,848 | 731,848 | ||||||
Trademarks and other indefinite-lived intangible assets | 7,250 | 7,250 | ||||||
Goodwill | 264,690 | 264,690 | ||||||
Deferred financing costs, net of accumulated amortization of $63,106 and $58,651 | 88,954 | 93,409 | ||||||
$ | 6,701,203 | $ | 6,765,171 |
See accompanying combined notes to condensed consolidated financial statements.
2
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Cont'd) (In thousands, except share amounts) (Unaudited) | ||||||||
March 31, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIENCY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 419,996 | $ | 431,761 | ||||
Accrued liabilities | 534,588 | 584,446 | ||||||
Amounts due to affiliates | 31,120 | 29,651 | ||||||
Deferred revenue | 54,993 | 52,932 | ||||||
Liabilities under derivative contracts | 53,249 | 93,010 | ||||||
Credit facility debt | 259,813 | 61,849 | ||||||
Collateralized indebtedness | 353,465 | 466,335 | ||||||
Capital lease obligations | 17,407 | 17,216 | ||||||
Notes payable | 12,978 | 12,968 | ||||||
Total current liabilities | 1,737,609 | 1,750,168 | ||||||
Deferred revenue | 4,509 | 4,701 | ||||||
Liabilities under derivative contracts | 5,093 | 9,207 | ||||||
Other liabilities | 249,700 | 287,367 | ||||||
Deferred tax liability | 651,174 | 611,088 | ||||||
Credit facility debt | 2,505,617 | 2,718,800 | ||||||
Collateralized indebtedness | 679,575 | 519,848 | ||||||
Capital lease obligations | 25,500 | 29,196 | ||||||
Notes payable | 8,004 | 10,943 | ||||||
Senior notes and debentures | 5,857,019 | 5,855,867 | ||||||
Total liabilities | 11,723,800 | 11,797,185 | ||||||
Commitments and contingencies | ||||||||
Redeemable noncontrolling interests | 8,830 | 8,676 | ||||||
Stockholders' Deficiency: | ||||||||
Preferred Stock, $.01 par value, 50,000,000 shares authorized, none issued | — | — | ||||||
CNYG Class A common stock, $.01 par value, 800,000,000 shares authorized, 302,828,479 and 300,342,849 shares issued and 221,567,532 and 220,219,935 shares outstanding | 3,028 | 3,003 | ||||||
CNYG Class B common stock, $.01 par value, 320,000,000 shares authorized, 54,137,673 shares issued and outstanding | 541 | 541 | ||||||
RMG Class A common stock, $.01 par value, 600,000,000 shares authorized, none issued | — | — | ||||||
RMG Class B common stock, $.01 par value, 160,000,000 shares authorized, none issued | — | — | ||||||
Paid-in capital | 796,268 | 823,103 | ||||||
Accumulated deficit | (4,190,227 | ) | (4,234,860 | ) | ||||
(3,390,390 | ) | (3,408,213 | ) | |||||
Treasury stock, at cost (81,260,947 and 80,122,914 CNYG Class A common shares) | (1,609,124 | ) | (1,591,021 | ) | ||||
Accumulated other comprehensive loss | (32,248 | ) | (42,235 | ) | ||||
Total stockholders' deficiency | (5,031,762 | ) | (5,041,469 | ) | ||||
Noncontrolling interest | 335 | 779 | ||||||
Total deficiency | (5,031,427 | ) | (5,040,690 | ) | ||||
$ | 6,701,203 | $ | 6,765,171 |
See accompanying combined notes to condensed consolidated financial statements.
3
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2015 and 2014 (In thousands, except per share amounts) (Unaudited) | ||||||||
2015 | 2014 | |||||||
Revenues, net (including revenues, net from affiliates of $1,191, and $1,324, respectively) (See Note 14) | $ | 1,614,771 | $ | 1,575,586 | ||||
Operating expenses: | ||||||||
Technical and operating (excluding depreciation and amortization shown below and including net charges from affiliates of $44,937, and $46,068, respectively) (See Note 14) | 795,888 | 772,983 | ||||||
Selling, general and administrative (including net charges from affiliates of $1,928 and $1,302, respectively) (See Note 14) | 376,764 | 380,220 | ||||||
Restructuring expense (credits) | (532 | ) | 1,015 | |||||
Depreciation and amortization | 218,900 | 214,285 | ||||||
1,391,020 | 1,368,503 | |||||||
Operating income | 223,751 | 207,083 | ||||||
Other income (expense): | ||||||||
Interest expense, net | (145,012 | ) | (140,882 | ) | ||||
Loss on investments, net | (33,071 | ) | (41,775 | ) | ||||
Gain on equity derivative contracts, net | 46,166 | 38,649 | ||||||
Write-off of deferred financing costs, net of gain on extinguishment of debt | — | (611 | ) | |||||
Miscellaneous, net | 1,007 | 731 | ||||||
(130,910 | ) | (143,888 | ) | |||||
Income from continuing operations before income taxes | 92,841 | 63,195 | ||||||
Income tax benefit (expense) | (37,940 | ) | 26,939 | |||||
Income from continuing operations, net of income taxes | 54,901 | 90,134 | ||||||
Loss from discontinued operations, net of income taxes | (10,502 | ) | (434 | ) | ||||
Net income | 44,399 | 89,700 | ||||||
Net loss attributable to noncontrolling interests | 234 | 63 | ||||||
Net income attributable to Cablevision Systems Corporation stockholders | $ | 44,633 | $ | 89,763 | ||||
Basic income (loss) per share attributable to Cablevision Systems Corporation stockholders: | ||||||||
Income from continuing operations, net of income taxes | $ | 0.21 | $ | 0.34 | ||||
Loss from discontinued operations, net of income taxes | $ | (0.04 | ) | $ | — | |||
Net income | $ | 0.17 | $ | 0.34 | ||||
Basic weighted average common shares (in thousands) | 267,919 | 262,328 | ||||||
Diluted income (loss) per share attributable to Cablevision Systems Corporation stockholders: | ||||||||
Income from continuing operations, net of income taxes | $ | 0.20 | $ | 0.34 | ||||
Loss from discontinued operations, net of income taxes | $ | (0.04 | ) | $ | — | |||
Net income | $ | 0.16 | $ | 0.33 | ||||
Diluted weighted average common shares (in thousands) | 274,370 | 268,224 | ||||||
Amounts attributable to Cablevision Systems Corporation stockholders: | ||||||||
Income from continuing operations, net of income taxes | $ | 55,135 | $ | 90,197 | ||||
Loss from discontinued operations, net of income taxes | (10,502 | ) | (434 | ) | ||||
Net income | $ | 44,633 | $ | 89,763 | ||||
Cash dividends declared per share of common stock | $ | 0.15 | $ | 0.15 |
See accompanying combined notes to condensed consolidated financial statements.
4
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended March 31, 2015 and 2014 (In thousands) (Unaudited) | ||||||||
2015 | 2014 | |||||||
Net income | $ | 44,399 | $ | 89,700 | ||||
Other comprehensive income (loss): | ||||||||
Defined benefit pension plans and postretirement plans: | ||||||||
Unrecognized actuarial gain (loss) | 15,408 | (10,577 | ) | |||||
Applicable income taxes | (6,317 | ) | 4,333 | |||||
Unrecognized income (loss) arising during period, net of taxes | 9,091 | (6,244 | ) | |||||
Amortization of actuarial losses, net included in net periodic benefit cost | 565 | 559 | ||||||
Applicable income taxes | (232 | ) | (229 | ) | ||||
Amortization of actuarial losses, net included in net periodic benefit cost, net of taxes | 333 | 330 | ||||||
Settlement loss included in net periodic benefit cost | 954 | 1,846 | ||||||
Applicable income taxes | (391 | ) | (756 | ) | ||||
Settlement loss included in net periodic benefit cost, net of taxes | 563 | 1,090 | ||||||
Other comprehensive income (loss) | 9,987 | (4,824 | ) | |||||
Comprehensive income | 54,386 | 84,876 | ||||||
Comprehensive loss attributable to noncontrolling interests | 234 | 63 | ||||||
Comprehensive income attributable to Cablevision Systems Corporation stockholders | $ | 54,620 | $ | 84,939 |
See accompanying combined notes to condensed consolidated financial statements.
5
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2015 and 2014 (In thousands) (Unaudited) | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 44,399 | $ | 89,700 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss from discontinued operations, net of income taxes | 10,502 | 434 | ||||||
Depreciation and amortization | 218,900 | 214,285 | ||||||
Loss on investments, net | 33,071 | 41,775 | ||||||
Gain on equity derivative contracts, net | (46,166 | ) | (38,649 | ) | ||||
Write-off of deferred financing costs, net of gain on extinguishment of debt | — | 611 | ||||||
Amortization of deferred financing costs and discounts on indebtedness | 5,858 | 5,677 | ||||||
Share-based compensation expense related to equity classified awards | 11,911 | 11,906 | ||||||
Settlement loss and amortization of actuarial losses related to pension and postretirement plans | 1,519 | 2,405 | ||||||
Deferred income taxes | 36,759 | 23,227 | ||||||
Provision for doubtful accounts | 7,581 | 8,361 | ||||||
Excess tax benefit related to share-based awards | (275 | ) | (488 | ) | ||||
Changes in other assets and liabilities | (108,725 | ) | (75,562 | ) | ||||
Net cash provided by operating activities | 215,334 | 283,682 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (166,631 | ) | (186,075 | ) | ||||
Proceeds related to sale of equipment, including costs of disposal | 595 | 2,294 | ||||||
Increase in other investments | (207 | ) | (292 | ) | ||||
Additions to other intangible assets | (6,622 | ) | (588 | ) | ||||
Net cash used in investing activities | (172,865 | ) | (184,661 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of credit facility debt | (15,462 | ) | (5,875 | ) | ||||
Repayment of notes payable | — | (1,736 | ) | |||||
Repurchase of senior notes, including premiums and fees | — | (27,173 | ) | |||||
Proceeds from collateralized indebtedness | 150,084 | — | ||||||
Repayment of collateralized indebtedness and related derivative contracts | (119,116 | ) | — | |||||
Proceeds from stock option exercises | 2,552 | 12,613 | ||||||
Dividend distributions to common stockholders | (3,925 | ) | (1,548 | ) | ||||
Principal payments on capital lease obligations | (4,484 | ) | (3,236 | ) | ||||
Deemed repurchases of restricted stock | (18,101 | ) | (6,516 | ) | ||||
Distributions to noncontrolling interests, net | (258 | ) | — | |||||
Excess tax benefit related to share-based awards | 275 | 488 | ||||||
Net cash used in financing activities | (8,435 | ) | (32,983 | ) | ||||
Net increase in cash and cash equivalents from continuing operations | 34,034 | 66,038 | ||||||
Cash flows of discontinued operations: | ||||||||
Net cash provided by (used in) operating activities | 5 | (177 | ) | |||||
Net cash provided by (used in) investing activities | (30 | ) | 37 | |||||
Net decrease in cash and cash equivalents from discontinued operations | (25 | ) | (140 | ) | ||||
Cash and cash equivalents at beginning of year | 850,413 | 702,224 | ||||||
Cash and cash equivalents at end of period | $ | 884,422 | $ | 768,122 |
See accompanying combined notes to condensed consolidated financial statements.
6
CSC HOLDINGS, LLC AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) | ||||||||
March 31, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 862,910 | $ | 813,396 | ||||
Accounts receivable, trade (less allowance for doubtful accounts of $11,224 and $12,112) | 249,852 | 277,526 | ||||||
Prepaid expenses and other current assets | 153,770 | 131,891 | ||||||
Amounts due from affiliates | 1,055 | 1,694 | ||||||
Investment securities pledged as collateral | 452,134 | 622,958 | ||||||
Total current assets | 1,719,721 | 1,847,465 | ||||||
Property, plant and equipment, net of accumulated depreciation of $9,543,360 and $9,454,315 | 2,954,073 | 3,025,747 | ||||||
Investment securities pledged as collateral | 760,707 | 622,958 | ||||||
Derivative contracts | 25,497 | 7,317 | ||||||
Other assets | 38,675 | 44,505 | ||||||
Amortizable intangible assets, net of accumulated amortization of $61,438 and $60,018 | 41,083 | 36,781 | ||||||
Indefinite-lived cable television franchises | 731,848 | 731,848 | ||||||
Trademarks and other indefinite-lived intangible assets | 7,250 | 7,250 | ||||||
Goodwill | 264,690 | 264,690 | ||||||
Deferred financing costs, net of accumulated amortization of $35,718 and $32,983 | 56,735 | 59,470 | ||||||
$ | 6,600,279 | $ | 6,648,031 |
See accompanying combined notes to condensed consolidated financial statements.
7
CSC HOLDINGS, LLC AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONDENSED CONSOLIDATED BALANCE SHEETS (Cont'd) (In thousands, except membership unit amounts) | ||||||||
March 31, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
LIABILITIES AND MEMBER DEFICIENCY | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 419,996 | $ | 431,761 | ||||
Accrued liabilities | 440,705 | 525,774 | ||||||
Amounts due to affiliates | 172,051 | 135,636 | ||||||
Deferred tax liability | 78,618 | 105,285 | ||||||
Deferred revenue | 54,993 | 52,932 | ||||||
Liabilities under derivative contracts | 53,249 | 93,010 | ||||||
Credit facility debt | 259,813 | 61,849 | ||||||
Collateralized indebtedness | 353,465 | 466,335 | ||||||
Capital lease obligations | 17,407 | 17,216 | ||||||
Notes payable | 12,978 | 12,968 | ||||||
Total current liabilities | 1,863,275 | 1,902,766 | ||||||
Deferred revenue | 4,509 | 4,701 | ||||||
Liabilities under derivative contracts | 5,093 | 9,207 | ||||||
Other liabilities | 247,256 | 282,920 | ||||||
Deferred tax liability | 667,946 | 626,367 | ||||||
Credit facility debt | 2,505,617 | 2,718,800 | ||||||
Collateralized indebtedness | 679,575 | 519,848 | ||||||
Capital lease obligations | 25,500 | 29,196 | ||||||
Notes payable | 8,004 | 10,943 | ||||||
Senior notes and debentures | 3,062,844 | 3,062,126 | ||||||
Total liabilities | 9,069,619 | 9,166,874 | ||||||
Commitments and contingencies | ||||||||
Redeemable noncontrolling interests | 8,830 | 8,676 | ||||||
Member's Deficiency: | ||||||||
Accumulated deficit | (1,941,397 | ) | (2,024,065 | ) | ||||
Senior notes due from Cablevision | (611,455 | ) | (611,455 | ) | ||||
Other member's equity (17,631,479 membership units issued and outstanding) | 106,595 | 149,457 | ||||||
(2,446,257 | ) | (2,486,063 | ) | |||||
Accumulated other comprehensive loss | (32,248 | ) | (42,235 | ) | ||||
Total member's deficiency | (2,478,505 | ) | (2,528,298 | ) | ||||
Noncontrolling interest | 335 | 779 | ||||||
Total deficiency | (2,478,170 | ) | (2,527,519 | ) | ||||
$ | 6,600,279 | $ | 6,648,031 |
See accompanying combined notes to condensed consolidated financial statements.
8
CSC HOLDINGS, LLC AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Ended March 31, 2015 and 2014 (In thousands) (Unaudited) | ||||||||
2015 | 2014 | |||||||
Revenues, net (including revenues, net from affiliates of $1,191 and $1,324, respectively) (See Note 14) | $ | 1,614,771 | $ | 1,575,586 | ||||
Operating expenses: | ||||||||
Technical and operating (excluding depreciation and amortization shown below and including net charges from affiliates of $44,937 and $46,068, respectively) (See Note 14) | 795,888 | 772,983 | ||||||
Selling, general and administrative (including net charges from affiliates of $1,928 and $1,302, respectively) (See Note 14) | 376,764 | 380,220 | ||||||
Restructuring expense (credits) | (532 | ) | 1,015 | |||||
Depreciation and amortization | 218,900 | 214,285 | ||||||
1,391,020 | 1,368,503 | |||||||
Operating income | 223,751 | 207,083 | ||||||
Other income (expense): | ||||||||
Interest expense | (89,552 | ) | (85,220 | ) | ||||
Interest income | 12,177 | 12,085 | ||||||
Loss on investments, net | (33,071 | ) | (41,775 | ) | ||||
Gain on equity derivative contracts, net | 46,166 | 38,649 | ||||||
Miscellaneous, net | 1,007 | 731 | ||||||
(63,273 | ) | (75,530 | ) | |||||
Income from continuing operations before income taxes | 160,478 | 131,553 | ||||||
Income tax expense | (67,542 | ) | (1,798 | ) | ||||
Income from continuing operations, net of income taxes | 92,936 | 129,755 | ||||||
Loss from discontinued operations, net of income taxes | (10,502 | ) | (434 | ) | ||||
Net income | 82,434 | 129,321 | ||||||
Net loss attributable to noncontrolling interests | 234 | 63 | ||||||
Net income attributable to CSC Holdings, LLC's sole member | $ | 82,668 | $ | 129,384 | ||||
Amounts attributable to CSC Holdings, LLC's sole member: | ||||||||
Income from continuing operations, net of income taxes | $ | 93,170 | $ | 129,818 | ||||
Loss from discontinued operations, net of income taxes | (10,502 | ) | (434 | ) | ||||
Net income | $ | 82,668 | $ | 129,384 |
See accompanying combined notes to condensed consolidated financial statements.
9
CSC HOLDINGS, LLC AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended March 31, 2015 and 2014 (In thousands) (Unaudited) | ||||||||
2015 | 2014 | |||||||
Net income | $ | 82,434 | $ | 129,321 | ||||
Other comprehensive income (loss): | ||||||||
Defined benefit pension plans and postretirement plans: | ||||||||
Unrecognized actuarial gain (loss) | 15,408 | (10,577 | ) | |||||
Applicable income taxes | (6,317 | ) | 4,333 | |||||
Unrecognized income (loss) arising during period, net of taxes | 9,091 | (6,244 | ) | |||||
Amortization of actuarial losses, net included in net periodic benefit cost | 565 | 559 | ||||||
Applicable income taxes | (232 | ) | (229 | ) | ||||
Amortization of actuarial losses, net included in net periodic benefit cost, net of taxes | 333 | 330 | ||||||
Settlement loss included in net periodic benefit cost | 954 | 1,846 | ||||||
Applicable income taxes | (391 | ) | (756 | ) | ||||
Settlement loss included in net periodic benefit cost, net of taxes | 563 | 1,090 | ||||||
Other comprehensive income (loss) | 9,987 | (4,824 | ) | |||||
Comprehensive income | 92,421 | 124,497 | ||||||
Comprehensive loss attributable to noncontrolling interests | 234 | 63 | ||||||
Comprehensive income attributable to CSC Holdings, LLC's sole member | $ | 92,655 | $ | 124,560 |
See accompanying combined notes to condensed consolidated financial statements.
10
CSC HOLDINGS, LLC AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2015 and 2014 (In thousands) (Unaudited) | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 82,434 | $ | 129,321 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss from discontinued operations, net of income taxes | 10,502 | 434 | ||||||
Depreciation and amortization | 218,900 | 214,285 | ||||||
Loss on investments, net | 33,071 | 41,775 | ||||||
Gain on equity derivative contracts, net | (46,166 | ) | (38,649 | ) | ||||
Amortization of deferred financing costs and discounts on indebtedness | 3,704 | 3,672 | ||||||
Share-based compensation expense related to Cablevision equity classified awards | 11,911 | 11,906 | ||||||
Settlement loss and amortization of actuarial losses related to pension and postretirement plans | 1,519 | 2,405 | ||||||
Deferred income taxes | 15,270 | (4,325 | ) | |||||
Provision for doubtful accounts | 7,581 | 8,361 | ||||||
Excess tax benefit related to share-based awards | (5,641 | ) | (1,703 | ) | ||||
Changes in other assets and liabilities | (66,774 | ) | (29,467 | ) | ||||
Net cash provided by operating activities | 266,311 | 338,015 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (166,631 | ) | (186,075 | ) | ||||
Proceeds related to sale of equipment, including costs of disposal | 595 | 2,294 | ||||||
Increase in other investments | (207 | ) | (292 | ) | ||||
Additions to other intangible assets | (6,622 | ) | (588 | ) | ||||
Net cash used in investing activities | (172,865 | ) | (184,661 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of credit facility debt | (15,462 | ) | (5,875 | ) | ||||
Repayment of notes payable | — | (1,736 | ) | |||||
Proceeds from collateralized indebtedness | 150,084 | — | ||||||
Repayment of collateralized indebtedness and related derivative contracts | (119,116 | ) | — | |||||
Distributions to Cablevision | (60,312 | ) | (66,148 | ) | ||||
Principal payments on capital lease obligations | (4,484 | ) | (3,236 | ) | ||||
Distributions to noncontrolling interests, net | (258 | ) | — | |||||
Excess tax benefit related to share-based awards | 5,641 | 1,703 | ||||||
Net cash used in financing activities | (43,907 | ) | (75,292 | ) | ||||
Net increase in cash and cash equivalents from continuing operations | 49,539 | 78,062 | ||||||
Cash flows of discontinued operations: | ||||||||
Net cash provided by (used in) operating activities | 5 | (177 | ) | |||||
Net cash provided by (used in) investing activities | (30 | ) | 37 | |||||
Net decrease in cash and cash equivalents from discontinued operations | (25 | ) | (140 | ) | ||||
Cash and cash equivalents at beginning of year | 813,396 | 651,058 | ||||||
Cash and cash equivalents at end of period | $ | 862,910 | $ | 728,980 |
See accompanying combined notes to condensed consolidated financial statements.
11
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 1. | BUSINESS |
Cablevision Systems Corporation ("Cablevision"), through its wholly-owned subsidiary CSC Holdings, LLC ("CSC Holdings," and collectively with Cablevision, the "Company") owns and operates cable systems and owns companies that provide regional news, local programming and advertising sales services for the cable television industry, provide Ethernet-based data, Internet, voice and video transport and managed services to the business market, and operate a newspaper publishing business. The Company classifies its operations into three reportable segments: (1) Cable, consisting principally of its video, high-speed data, and Voice over Internet Protocol ("VoIP") operations, (2) Lightpath, which provides Ethernet-based data, Internet, voice and video transport and managed services to the business market in the New York metropolitan area; and (3) Other, consisting principally of (i) Newsday, which includes the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites, (ii) the News 12 Networks, which provide regional news programming services, (iii) Cablevision Media Sales Corporation ("Cablevision Media Sales"), a cable television advertising company, and (iv) certain other businesses and unallocated corporate costs.
NOTE 2. | BASIS OF PRESENTATION |
The accompanying unaudited condensed consolidated financial statements of Cablevision and CSC Holdings have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all the information and notes required for complete annual financial statements.
The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.
The financial statements as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 presented in this Form 10-Q are unaudited; however, in the opinion of management, such financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.
The accompanying condensed consolidated financial statements of Cablevision include the accounts of Cablevision and its majority-owned subsidiaries and the accompanying condensed consolidated financial statements of CSC Holdings include the accounts of CSC Holdings and its majority-owned subsidiaries. Cablevision has no business operations independent of its CSC Holdings subsidiary, whose operating results and financial position are consolidated into Cablevision. The condensed consolidated balance sheets and statements of income of Cablevision are essentially identical to the condensed consolidated balance sheets and statements of income of CSC Holdings, with the following significant exceptions: Cablevision has $2,794,175 of senior notes outstanding at March 31, 2015 (excluding the $611,455 aggregate principal amount of Cablevision notes held by its subsidiary Newsday Holdings LLC ("Newsday Holdings")) that were issued to third party investors, cash, deferred financing costs and accrued interest related to its senior notes, deferred taxes and accrued dividends on its balance sheet. In addition, CSC Holdings and its subsidiaries have certain intercompany receivables from and payables to Cablevision. Differences between Cablevision's results of operations and those of CSC Holdings primarily include incremental interest expense, interest income, the write-off of deferred financing costs, net of gain on extinguishment of debt, and income tax expense or benefit. CSC Holdings' results of operations include incremental interest income from the Cablevision senior notes held by Newsday Holdings, which is eliminated in Cablevision's results of operations.
The combined notes to the condensed consolidated financial statements relate to the Company, which, except as noted, are essentially identical for Cablevision and CSC Holdings. All significant intercompany transactions and balances between Cablevision and CSC Holdings and their respective consolidated subsidiaries are eliminated in both sets of condensed consolidated financial statements. Intercompany transactions between Cablevision and CSC Holdings are not eliminated in the CSC Holdings condensed consolidated financial statements, but are eliminated in the Cablevision condensed consolidated financial statements.
The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2015.
The preparation of financial statements in conformity with GAAP 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.
12
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Recently Adopted Accounting Pronouncement
In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in ASU No. 2014-08 change the criteria for reporting discontinued operations while enhancing certain disclosures. Under ASU No. 2014-08, only disposals representing a strategic shift that has (or will have) a major effect on an entity's operations and financial results should be presented as discontinued operations. In addition, ASU No. 2014-08 requires expanded disclosures about discontinued operations and disposals of individually significant components that do not qualify as discontinued operations. ASU No. 2014-08 was adopted by the Company on January 1, 2015 and did not have any impact on the Company's consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting Pronouncement
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective and allows the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. ASU No. 2014-09 would become effective for the Company on January 1, 2017. In April 2015, the FASB proposed deferring the effective date by one year so that ASU No. 2014-09 would become effective for the Company on January 1, 2018. The FASB also proposed permitting early adoption of the ASU No. 2014-09, but not before the original effective date for the Company of January 1, 2017. The Company has not yet completed the evaluation of the effect that ASU No. 2014-09 will have on its consolidated financial statements and related disclosures.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. Early adoption is permitted for financial statements that have not been previously issued. ASU 2015-03 becomes effective for the Company on January 1, 2016 and will be applied on a retrospective basis.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance becomes effective for the Company on January 1, 2016 with early adoption permitted. The Company can elect to adopt ASU 2015-05 prospectively to all arrangements entered into or materially modified after the effective date or retrospectively. The Company has not yet completed the evaluation of the effect that ASU No. 2015-05 will have on its consolidated financial statements.
NOTE 3. | DIVIDENDS |
On February 24, 2015, the Board of Directors of Cablevision declared a cash dividend of $0.15 per share payable on April 3, 2015 to stockholders of record on both its Cablevision NY Group ("CNYG") Class A common stock and CNYG Class B common stock as of March 16, 2015.
In March 2015, Cablevision paid accrued dividends on vested restricted shares of $3,925. In addition, as of March 31, 2015, up to approximately $5,596 will be paid when, and if, restricted shares and restricted stock units vest.
During the three months ended March 31, 2015, CSC Holdings made cash equity distribution payments to Cablevision aggregating $60,312. These distribution payments were funded from cash on hand. The proceeds were used to fund:
• | Cablevision's dividends; |
• | Cablevision's interest payments on its senior notes; and |
• | Cablevision's payments for the acquisition of treasury shares related to statutory minimum tax withholding obligations upon the vesting of certain restricted shares. |
NOTE 4. | INCOME PER SHARE ATTRIBUTABLE TO STOCKHOLDERS |
Cablevision
Basic income per common share attributable to Cablevision stockholders is computed by dividing net income attributable to Cablevision stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share attributable to Cablevision stockholders reflects the dilutive effects of stock options, restricted stock and restricted
13
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
stock units. For such awards that are performance based, the diluted effect is reflected upon the achievement of the performance criteria.
The following table presents a reconciliation of weighted average shares used in the calculations of the basic and diluted income per share attributable to Cablevision stockholders for the three months ended March 31, 2015 and 2014:
2015 | 2014 | |||||
(in thousands) | ||||||
Basic weighted average shares outstanding | 267,919 | 262,328 | ||||
Effect of dilution: | ||||||
Stock options | 2,703 | 3,404 | ||||
Restricted stock | 3,748 | 2,492 | ||||
Diluted weighted average shares outstanding | 274,370 | 268,224 |
For the three months ended March 31, 2015, anti-dilutive shares totaling approximately 2,678,000 shares, have been excluded from diluted weighted average shares outstanding. Approximately 630,000 restricted shares and 1,817,000 performance based restricted stock units for the three months ended March 31, 2015 have also been excluded from the diluted weighted average shares outstanding as the performance criteria on these awards had not yet been satisfied.
For the three months ended March 31, 2014, anti-dilutive shares totaling approximately 722,000 shares have been excluded from diluted weighted average shares outstanding. Approximately 1,872,000 restricted shares for the three months ended March 31, 2014 have also been excluded from the diluted weighted average shares outstanding as the performance criteria on these awards had not yet been satisfied.
CSC Holdings
Net income per membership unit for CSC Holdings is not presented since CSC Holdings is a limited liability company and a wholly-owned subsidiary of Cablevision.
NOTE 5. | GROSS VERSUS NET REVENUE RECOGNITION |
In the normal course of business, the Company is assessed non-income related taxes by governmental authorities, including franchising authorities (generally under multi-year agreements), and collects such taxes from its customers. The Company's policy is that, in instances where the tax is being assessed directly on the Company, amounts paid to the governmental authorities and amounts received from the customers are recorded on a gross basis. That is, amounts paid to the governmental authorities are recorded as technical and operating expenses and amounts received from the customer are recorded as revenues. For the three months ended March 31, 2015 and 2014, the amount of franchise fees and certain other taxes and fees included as a component of net revenue aggregated $49,570 and $42,838, respectively.
NOTE 6. | SUPPLEMENTAL CASH FLOW INFORMATION |
The Company considers the balance of its investment in funds that substantially hold securities that mature within three months or less from the date the fund purchases these securities to be cash equivalents. The carrying amount of cash and cash equivalents either approximates fair value due to the short-term maturity of these instruments or are at fair value.
14
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
During the three months ended March 31, 2015 and 2014, the Company's non-cash investing and financing activities and other supplemental data were as follows:
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Non-Cash Investing and Financing Activities of Cablevision and CSC Holdings: | ||||||||
Continuing Operations: | ||||||||
Capital lease obligations | $ | 990 | $ | 14,100 | ||||
Property and equipment accrued but unpaid | 26,785 | 41,236 | ||||||
Notes payable to vendor | — | 34,318 | ||||||
Intangible asset obligations | 302 | 54 | ||||||
Non-Cash Investing and Financing Activities of Cablevision: | ||||||||
Dividends payable on unvested restricted share awards | 1,079 | 938 | ||||||
Dividends payable on CNYG Class A and CNYG Class B shares | 40,344 | 39,502 | ||||||
Supplemental Data: | ||||||||
Continuing Operations - Cablevision: | ||||||||
Cash interest paid | 143,446 | 150,436 | ||||||
Income taxes refunded, net | (382 | ) | (719 | ) | ||||
Continuing Operations - CSC Holdings: | ||||||||
Cash interest paid | 85,564 | 91,682 | ||||||
Income taxes refunded, net | (382 | ) | (719 | ) |
NOTE 7. | DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS |
The Company has entered into various transactions to limit the exposure against equity price risk on its shares of Comcast Corporation ("Comcast") common stock. The Company has monetized all of its stock holdings in Comcast through the execution of prepaid forward contracts, collateralized by an equivalent amount of the respective underlying stock. At maturity, the contracts provide for the option to deliver cash or shares of Comcast stock with a value determined by reference to the applicable stock price at maturity. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing the Company to retain upside appreciation from the hedge price per share to the relevant cap price.
The following represents the location of the assets and liabilities associated with the Company's derivative instruments within the condensed consolidated balance sheets at March 31, 2015 and December 31, 2014:
Asset Derivatives | Liability Derivatives | |||||||||||||||||
Derivatives Not Designated as Hedging Instruments | Balance Sheet Location | Fair Value at March 31, 2015 | Fair Value at December 31, 2014 | Fair Value at March 31, 2015 | Fair Value at December 31, 2014 | |||||||||||||
Prepaid forward contracts | Current derivative contracts | $ | — | $ | — | $ | 53,249 | $ | 93,010 | |||||||||
Prepaid forward contracts | Long-term derivative contracts | 25,497 | 7,317 | 5,093 | 9,207 | |||||||||||||
Total derivative contracts | $ | 25,497 | $ | 7,317 | $ | 58,342 | $ | 102,217 |
These prepaid forward contracts are not designated as hedging instruments for accounting purposes and the related gain of $46,166 and $38,649 for the three months ended March 31, 2015 and 2014, respectively, has been reflected in gain on equity derivative contracts, net in the accompanying condensed consolidated statements of income.
15
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Settlements of Collateralized Indebtedness
The following table summarizes the settlement of the Company's collateralized indebtedness relating to Comcast shares that were settled by delivering cash equal to the collateralized loan value, net of the value of the related equity derivative contracts for the three months ended March 31, 2015. The cash was obtained from the proceeds of new monetization contracts covering an equivalent number of Comcast shares. The terms of the new contracts allow the Company to retain upside participation in Comcast shares up to each respective contract's upside appreciation limit with downside exposure limited to the respective hedge price.
Number of shares | 2,668,875 | ||
Collateralized indebtedness settled | $ | (103,227 | ) |
Derivative contracts settled | (15,889 | ) | |
(119,116 | ) | ||
Proceeds from new monetization contracts | 150,084 | ||
Net cash receipt | $ | 30,968 |
In April 2015, the Company settled collateralized indebtedness relating to 2,732,184 Comcast shares by delivering cash equal to the collateralized loan value obtained from the proceeds of a new monetization contract covering an equivalent number of Comcast shares. Accordingly, the consolidated balance sheets of Cablevision and CSC Holdings as of March 31, 2015 reflect the reclassification of $154,286 of investment securities pledged as collateral from a current asset to a long-term asset and $112,869 of collateralized indebtedness from a current liability to a long-term liability.
NOTE 8. | FAIR VALUE MEASUREMENT |
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
• | Level I - Quoted prices for identical instruments in active markets. |
• | Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
• | Level III - Instruments whose significant value drivers are unobservable. |
The following table presents for each of these hierarchy levels, the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014:
At March 31, 2015 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 783,234 | $ | — | $ | — | $ | 783,234 | ||||||||
Investment securities | 137 | — | — | 137 | ||||||||||||
Investment securities pledged as collateral | 1,212,841 | — | — | 1,212,841 | ||||||||||||
Prepaid forward contracts | — | 25,497 | — | 25,497 | ||||||||||||
Liabilities: | ||||||||||||||||
Prepaid forward contracts | — | 58,342 | — | 58,342 |
16
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
At December 31, 2014 | ||||||||||||||||
Level I | Level II | Level III | Total | |||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 736,330 | $ | — | $ | — | $ | 736,330 | ||||||||
Investment securities | 132 | — | — | 132 | ||||||||||||
Investment securities pledged as collateral | 1,245,916 | — | — | 1,245,916 | ||||||||||||
Prepaid forward contracts | — | 7,317 | — | 7,317 | ||||||||||||
Liabilities: | ||||||||||||||||
Prepaid forward contracts | — | 102,217 | — | 102,217 |
The Company's cash equivalents, investment securities and investment securities pledged as collateral are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.
The Company's prepaid forward contracts reflected as derivative contracts and liabilities under derivative contracts on the Company's balance sheets are valued using market-based inputs to valuation models. These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit risk considerations. Such adjustments are generally based on available market evidence. Since model inputs can generally be verified and do not involve significant management judgment, the Company has concluded that these instruments should be classified within Level II of the fair value hierarchy.
The Company considers the impact of credit risk when measuring the fair value of its derivative asset and/or liability positions, as applicable.
The Company's assets measured at fair value on a nonrecurring basis include long-lived assets, indefinite-lived cable television franchises, trademarks, other indefinite-lived intangible assets and goodwill. During the quarter ended March 31, 2015, the Company performed its annual impairment test of goodwill, indefinite-lived cable television franchises, trademarks and other indefinite-lived intangible assets and there were no impairment charges recorded.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate:
Credit Facility Debt, Collateralized Indebtedness, Senior Notes and Debentures and Notes Payable
The fair values of each of the Company's debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities. The fair value of notes payable is based primarily on the present value of the remaining payments discounted at the borrowing cost.
The carrying values, estimated fair values, and classification under the fair value hierarchy of the Company's financial instruments, excluding those that are carried at fair value in the accompanying condensed consolidated balance sheets, are summarized as follows:
17
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
March 31, 2015 | ||||||||||
Fair Value Hierarchy | Carrying Amount | Estimated Fair Value | ||||||||
CSC Holdings notes receivable: | ||||||||||
Cablevision senior notes held by Newsday Holdings LLC (a) | Level II | $ | 611,455 | $ | 684,705 | |||||
Debt instruments: | ||||||||||
Credit facility debt (b) | Level II | $ | 2,765,430 | $ | 2,770,513 | |||||
Collateralized indebtedness | Level II | 1,033,040 | 1,014,426 | |||||||
Senior notes and debentures | Level II | 3,062,844 | 3,385,095 | |||||||
Notes payable | Level II | 20,982 | 20,792 | |||||||
CSC Holdings total debt instruments | 6,882,296 | 7,190,826 | ||||||||
Cablevision senior notes | Level II | 2,794,175 | 3,091,103 | |||||||
Cablevision total debt instruments | $ | 9,676,471 | $ | 10,281,929 |
December 31, 2014 | ||||||||||
Fair Value Hierarchy | Carrying Amount | Estimated Fair Value | ||||||||
CSC Holdings notes receivable: | ||||||||||
Cablevision senior notes held by Newsday Holdings LLC (a) | Level II | $ | 611,455 | $ | 680,587 | |||||
Debt instruments: | ||||||||||
Credit facility debt (b) | Level II | $ | 2,780,649 | $ | 2,785,975 | |||||
Collateralized indebtedness | Level II | 986,183 | 957,803 | |||||||
Senior notes and debentures | Level II | 3,062,126 | 3,368,875 | |||||||
Notes payable | Level II | 23,911 | 23,682 | |||||||
CSC Holdings total debt instruments | 6,852,869 | 7,136,335 | ||||||||
Cablevision senior notes | Level II | 2,793,741 | 3,048,387 | |||||||
Cablevision total debt instruments | $ | 9,646,610 | $ | 10,184,722 |
(a) | These notes are eliminated at the consolidated Cablevision level. |
(b) | The principal amount of the Company's credit facility debt, which bears interest at variable rates, approximates its fair value. |
Fair value estimates related to the Company's debt instruments and senior notes receivable presented above 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 judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
NOTE 9. | DISCONTINUED OPERATIONS |
For the three months ended March 31, 2015, the Company recorded an expense of $9,400 plus statutory interest of $8,400 (an aggregate of $10,502, net of income taxes) with respect to the decision in a case relating to Rainbow Media Holdings LLC, a business whose operations were previously discontinued (see Note 12). For the three months ended March 31, 2014, the Company recorded a loss of $735 ($434, net of income taxes) related to certain businesses sold in 2013.
18
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 10. | INCOME TAXES |
The Company
In April 2015, corporate income tax changes were enacted for both New York State and the City of New York. Such changes included a provision whereby investment income will be subject to higher taxes. Accordingly, in the second quarter of 2015, the Company will record deferred tax expense of approximately $16,000 to remeasure the deferred tax liability for the investment in Comcast common stock and associated derivative securities.
Cablevision
Cablevision recorded income tax expense of $37,940 for the three months ended March 31, 2015, reflecting an effective tax rate of 41%.
Cablevision recorded income tax benefit of $26,939 for the three months ended March 31, 2014, reflecting a negative effective tax rate of 43%. In January 2014, the Internal Revenue Service informed the Company that the consolidated federal income tax returns for 2009 and 2010 were no longer under examination. Accordingly, in the first quarter of 2014, Cablevision recorded a tax benefit of $53,132 associated with the reversal of a noncurrent liability relating to an uncertain tax position. Absent this item, the effective tax rate for the three months ended March 31, 2014 would have been 41%.
Subsequent to the utilization of Cablevision's net operating loss and tax credit carry forwards, payments for income taxes are expected to increase significantly. Cablevision's federal net operating loss carry forward as of March 31, 2015 was approximately $570,000.
CSC Holdings
CSC Holdings recorded income tax expense of $67,542 for the three months ended March 31, 2015, reflecting an effective tax rate of 42%.
CSC Holdings recorded income tax expense of $1,798 for the three months ended March 31, 2014, reflecting an effective tax rate of 1%. In January 2014, the Internal Revenue Service informed the Company that the consolidated federal income tax returns for 2009 and 2010 were no longer under examination. Accordingly, in the first quarter of 2014, CSC Holdings recorded a tax benefit of $53,132 associated with the reversal of a noncurrent liability relating to an uncertain tax position. Absent this item, the effective tax rate for the three months ended March 31, 2014 would have been 42%.
NOTE 11. | EQUITY PLANS |
Cablevision's Equity Plans
Stock Option Award Activity
In March 2015, Cablevision granted options that are scheduled to vest over three years in 33 1/3% annual increments and expire 10 years from the date of grant. Cablevision calculated the fair value of the option award on the date of grant using the Black-Scholes option pricing model. Cablevision's computation of expected life was determined based on historical data for similar awards. The interest rate for periods within the contractual life of the stock options is based on interest yields for U.S. Treasury instruments in effect at the time of grant. Cablevision's computation of expected volatility is based on historical volatility of its common stock.
The following assumptions were used to calculate the fair value of the stock options award granted in the first quarter of 2015:
Risk-free interest rate | 1.82 | % | |
Expected life (in years) | 8 years | ||
Dividend yield | 3.63 | % | |
Volatility | 39.98 | % | |
Grant date fair value | $ | 5.45 |
The following table summarizes activity relating to Company employees who held Cablevision stock options for the three months ended March 31, 2015:
19
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Shares Under Option | |||||||||||||||
Time Vesting Options | Performance Based Vesting Options | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (a) | |||||||||||
Balance, December 31, 2014 | 5,097,666 | 7,633,500 | $ | 14.41 | 7.17 | $ | 79,347 | ||||||||
Granted | 2,000,000 | — | 19.17 | ||||||||||||
Exercised | (138,000 | ) | (51,500 | ) | 12.74 | ||||||||||
Balance, March 31, 2015 | 6,959,666 | 7,582,000 | $ | 15.08 | 7.38 | $ | 48,657 | ||||||||
Options exercisable at March 31, 2015 | 959,666 | 7,582,000 | $ | 13.79 | 6.29 | $ | 38,697 | ||||||||
Options expected to vest in the future | 6,000,000 | — | $ | 16.93 | 8.93 | $ | 9,960 |
(a) | The aggregate intrinsic value is calculated as the difference between (i) the exercise price of the underlying award and (ii) the quoted price of CNYG Class A common stock on March 31, 2015 or December 31, 2014, as indicated, and March 31, 2015 in the case of options exercisable and options expected to vest in the future. |
In addition, as of March 31, 2015, AMC Networks Inc. ("AMC Networks") and The Madison Square Garden Company ("Madison Square Garden") employees held a total of 135,066 Cablevision stock options. These stock options are not expensed by the Company; however, such stock options may have a dilutive effect on net income per share attributable to Cablevision stockholders.
Restricted Stock Award Activity
The following table summarizes activity relating to Company employees who held Cablevision restricted shares for the three months ended March 31, 2015:
Number of Restricted Shares | Number of Performance Based Restricted Shares | Weighted Average Fair Value Per Share at Date of Grant | |||||||
Unvested award balance, December 31, 2014 | 5,314,870 | 2,035,300 | $ | 15.46 | |||||
Granted | 1,703,130 | 584,400 | 19.17 | ||||||
Vested | (1,549,287 | ) | (739,600 | ) | 14.44 | ||||
Awards forfeited | (168,340 | ) | — | 15.86 | |||||
Unvested award balance, March 31, 2015 | 5,300,373 | 1,880,100 | 16.95 |
During the three months ended March 31, 2015, 2,288,887 Cablevision restricted shares issued to employees of the Company vested. To fulfill the employees' statutory minimum tax withholding obligations for the applicable income and other employment taxes, 969,693 of these shares, with an aggregate value of $18,101, were surrendered to the Company. These acquired shares have been classified as treasury stock.
Performance Based Restricted Stock Units
In March 2015, Cablevision granted 1,816,660 performance based restricted stock units ("PSUs") to certain employees that are scheduled to cliff vest after three years subject to achievement of specified performance criteria. The PSUs entitle the employee to shares of CNYG common stock up to 150% of the number of PSUs granted depending on the level of achievement of the specified performance criteria. If the minimum performance threshold is not met, no shares will be issued. Accrued dividends are paid to the extent that a PSU vests and the related stock is issued.
The Company recognizes compensation expense for PSUs on a straight-line basis over the vesting period based on the estimated number of shares of CNYG common stock expected to be issued.
20
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 12. | COMMITMENTS AND CONTINGENCIES |
Legal Matters
Cable Operations Litigation
Marchese, et al. v. Cablevision Systems Corporation and CSC Holdings, LLC: The Company is a defendant in a lawsuit filed in the U.S. District Court for the District of New Jersey by several present and former Cablevision subscribers, purportedly on behalf of a class of iO video subscribers in New Jersey, Connecticut and New York. After three versions of the complaint were dismissed without prejudice by the District Court, plaintiffs filed their third amended complaint on August 22, 2011, alleging that the Company violated Section 1 of the Sherman Antitrust Act by allegedly tying the sale of interactive services offered as part of iO television packages to the rental and use of set-top boxes distributed by Cablevision, and violated Section 2 of the Sherman Antitrust Act by allegedly seeking to monopolize the distribution of Cablevision compatible set-top boxes. Plaintiffs seek unspecified treble monetary damages, attorney's fees, as well as injunctive and declaratory relief. On September 23, 2011, the Company filed a motion to dismiss the third amended complaint. On January 10, 2012, the District Court issued a decision dismissing with prejudice the Section 2 monopolization claim, but allowing the Section 1 tying claim and related state common law claims to proceed. Cablevision's answer to the third amended complaint was filed on February 13, 2012. Discovery is proceeding. On January 9, 2015, plaintiffs filed a motion for class certification. The return date for the motion is August 17, 2015. The Company believes that these claims are without merit and intends to defend this lawsuit vigorously. While a loss is reasonably possible, the Company is currently unable to estimate a range of possible loss.
In re Cablevision Consumer Litigation: Following expiration of the affiliation agreements for carriage of certain Fox broadcast stations and cable networks on October 16, 2010, News Corporation terminated delivery of the programming feeds to the Company, and as a result, those stations and networks were unavailable on the Company's cable television systems. On October 30, 2010, the Company and Fox reached an agreement on new affiliation agreements for these stations and networks, and carriage was restored. Several purported class action lawsuits were subsequently filed on behalf of the Company's customers seeking recovery for the lack of Fox programming. Those lawsuits were consolidated in an action before the U. S. District Court for the Eastern District of New York, and a consolidated complaint was filed in that court on February 22, 2011. Plaintiffs asserted claims for breach of contract, unjust enrichment, and consumer fraud, seeking unspecified compensatory damages, punitive damages and attorneys' fees. On March 28, 2012, the Court ruled on the Company's motion to dismiss, denying the motion with regard to plaintiffs' breach of contract claim, but granting it with regard to the remaining claims, which were dismissed. On April 16, 2012, plaintiffs filed a second consolidated amended complaint, which asserts a claim only for breach of contract. The Company's answer was filed on May 2, 2012. On October 10, 2012, plaintiffs filed a motion for class certification and on December 13, 2012, a motion for partial summary judgment. On March 31, 2014, the Court granted plaintiffs' motion for class certification, and denied without prejudice plaintiffs' motion for summary judgment. On May 5, 2014, the Court directed that expert discovery commence. Expert discovery is proceeding. On May 30, 2014, the Court approved the form of class notice, and on October 7, 2014, approved the class notice distribution plan. The class notice distribution has been completed, and the opt-out period expired on February 27, 2015. The Company believes that this claim is without merit and intends to defend these lawsuits vigorously, but is unable to predict the outcome of these lawsuits or reasonably estimate a range of possible loss.
Patent Litigation
Cablevision is named as a defendant in certain lawsuits claiming infringement of various patents relating to various aspects of the Company's businesses. In certain of these cases other industry participants are also defendants. In certain of these cases the Company expects that any potential liability would be the responsibility of the Company's equipment vendors pursuant to applicable contractual indemnification provisions. The Company believes that the claims are without merit and intends to defend the actions vigorously, but is unable to predict the outcome of these lawsuits or reasonably estimate a range of possible loss.
21
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Other Litigation
Friedman v. Charles Dolan, et al.: On March 7, 2014, a shareholder derivative lawsuit was filed in Delaware Chancery Court purportedly on behalf of the nominal defendant Cablevision against the Chief Executive Officer ("CEO"), the Chairman of the Board, and certain other members of Cablevision's Board of Directors, including the members of the Compensation Committee. The complaint alleges that the individual defendants violated their fiduciary duties to preserve corporate assets by allegedly causing or allowing Cablevision to grant excessive compensation packages to the CEO, the Chairman of the Board, and/or other members of the Board of Directors in the time period 2010 to 2012. The complaint seeks unspecified monetary damages, disgorgement, costs, and attorneys' fees. Cablevision filed a pro forma answer on April 14, 2014, and on April 21, 2014 the individual defendants filed notices of motions to dismiss in lieu of an answer. The motions to dismiss filed by the individual defendants have been fully briefed. Oral argument took place on January 23, 2015. A decision by the Court is pending. On February 10, 2015, the Court approved a stipulation of the parties agreeing to the substitution of Julie Friedman as plaintiff in place of Livingston who sold his shares in Cablevision and therefore no longer has standing. The Company does not believe that this lawsuit will have a material adverse effect on results of operations or the financial position of the Company.
In April 2011, Thomas C. Dolan, a director and Executive Vice President, Strategy and Development, in the Office of the Chairman at Cablevision, filed a lawsuit against Cablevision and Rainbow Media Holdings LLC (which was subsequently dismissed as a party) in New York State Supreme Court. The lawsuit raises compensation-related claims related to events from 2005 to 2008. The matter is being handled under the direction of an independent committee of the Board of Directors of Cablevision. In April 2015, the Court granted summary judgment in favor of the plaintiff on liability, with damages still to be determined. The Company has recorded an expense for the amount of damages reasonably estimable at this time, which is reflected in discontinued operations in the accompanying condensed consolidated statements of income for the three months ended March 31, 2015 (see Note 9). It is possible that the amount of damages ultimately determined could exceed the amount recorded. The independent committee is considering all options, including an appeal from the summary judgment ruling.
In addition to the matters discussed above, the Company is party to various lawsuits, some involving claims for substantial damages. Although the outcome of these other matters cannot be predicted and the impact of the final resolution of these other matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these other lawsuits will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due.
NOTE 13. | SEGMENT INFORMATION |
The Company classifies its operations into three reportable segments: (1) Cable, (2) Lightpath, and (3) Other, consisting principally of (i) Newsday, (ii) the News 12 Networks, (iii) Cablevision Media Sales, and (iv) certain other businesses and unallocated corporate costs.
The Company's reportable segments are strategic business units that are managed separately. The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow ("AOCF") (defined as operating income (loss) excluding depreciation and amortization (including impairments), share-based compensation expense or benefit and restructuring expense or credits), a non-GAAP measure. The Company has presented the components that reconcile AOCF to operating income (loss), an accepted GAAP measure.
22
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Revenues, net from continuing operations | ||||||||
Cable | $ | 1,451,538 | $ | 1,417,148 | ||||
Lightpath | 91,124 | 86,754 | ||||||
Other | 81,780 | 81,482 | ||||||
Inter-segment eliminations (a) | (9,671 | ) | (9,798 | ) | ||||
$ | 1,614,771 | $ | 1,575,586 | |||||
Inter-segment revenues | ||||||||
Cable | $ | (280 | ) | $ | (525 | ) | ||
Lightpath | (4,745 | ) | (4,613 | ) | ||||
Other | (4,646 | ) | (4,660 | ) | ||||
$ | (9,671 | ) | $ | (9,798 | ) | |||
Adjusted operating cash flow (deficit) from continuing operations | ||||||||
Cable | $ | 446,555 | $ | 443,032 | ||||
Lightpath | 43,395 | 38,483 | ||||||
Other | (35,920 | ) | (47,226 | ) | ||||
$ | 454,030 | $ | 434,289 | |||||
Depreciation and amortization included in continuing operations | ||||||||
Cable (b) | $ | (186,245 | ) | $ | (185,206 | ) | ||
Lightpath (b) | (22,738 | ) | (19,604 | ) | ||||
Other | (9,917 | ) | (9,475 | ) | ||||
$ | (218,900 | ) | $ | (214,285 | ) |
Share-based compensation expense included in continuing operations | ||||||||
Cable | $ | (8,211 | ) | $ | (8,083 | ) | ||
Lightpath | (1,382 | ) | (1,419 | ) | ||||
Other | (2,318 | ) | (2,404 | ) | ||||
$ | (11,911 | ) | $ | (11,906 | ) | |||
Restructuring credits (expense) included in continuing operations | ||||||||
Cable | $ | — | $ | (122 | ) | |||
Lightpath | — | 4 | ||||||
Other | 532 | (897 | ) | |||||
$ | 532 | $ | (1,015 | ) |
Operating income (loss) from continuing operations | ||||||||
Cable | $ | 252,099 | $ | 249,621 | ||||
Lightpath | 19,275 | 17,464 | ||||||
Other | (47,623 | ) | (60,002 | ) | ||||
$ | 223,751 | $ | 207,083 |
(a) | Inter-segment eliminations relate primarily to revenues recognized from the sale of local programming and voice services to our Cable segment. |
23
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
(b) | The Cable and Lightpath segments share portions of each other's network infrastructure. Depreciation charges are recorded by the segment that acquired the respective asset. |
For the three months ended March 31, 2015 and 2014, Cable segment revenue was derived from the following sources:
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
Video (including equipment rental, DVR, franchise fees, video-on-demand and pay-per-view) | $ | 800,968 | $ | 793,446 | |||
High-speed data | 362,872 | 346,899 | |||||
Voice | 231,593 | 220,122 | |||||
Advertising | 30,777 | 31,663 | |||||
Other (including installation, advertising sales commissions, home shopping, and other products) | 25,328 | 25,018 | |||||
$ | 1,451,538 | $ | 1,417,148 |
A reconciliation of reportable segment amounts to Cablevision's and CSC Holdings' consolidated balances is as follows:
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
Operating income for reportable segments | $ | 223,751 | $ | 207,083 | |||
Items excluded from operating income: | |||||||
CSC Holdings interest expense | (89,552 | ) | (85,220 | ) | |||
CSC Holdings interest income | 164 | 72 | |||||
CSC Holdings intercompany interest income | 12,013 | 12,013 | |||||
Loss on investments, net | (33,071 | ) | (41,775 | ) | |||
Gain on equity derivative contracts, net | 46,166 | 38,649 | |||||
Miscellaneous, net | 1,007 | 731 | |||||
CSC Holdings income from continuing operations before income taxes | 160,478 | 131,553 | |||||
Cablevision interest expense | (55,629 | ) | (55,736 | ) | |||
Intercompany interest expense | (12,013 | ) | (12,013 | ) | |||
Cablevision interest income | 5 | 2 | |||||
Write-off of deferred financing costs, net of gain on extinguishment of debt | — | (611 | ) | ||||
Cablevision income from continuing operations before income taxes | $ | 92,841 | $ | 63,195 |
The following table summarizes the Company's capital expenditures by reportable segment for the three months ended March 31, 2015 and 2014:
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Capital expenditures | ||||||||
Cable | $ | 133,571 | $ | 145,325 | ||||
Lightpath | 23,732 | 26,870 | ||||||
Other | 9,328 | 13,880 | ||||||
$ | 166,631 | $ | 186,075 |
All revenues and assets of the Company's reportable segments are attributed to or located in the United States primarily concentrated in the New York metropolitan area.
24
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 14. | RELATED PARTY TRANSACTIONS |
The following table summarizes the revenue and charges (credits) related to services provided to or received from AMC Networks and Madison Square Garden reflected in continuing operations not discussed elsewhere in the accompanying combined notes to the condensed consolidated financial statements:
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Revenues, net | $ | 1,191 | $ | 1,324 | ||||
Operating expenses: | ||||||||
Technical expenses, net of credits (a) | $ | 44,937 | $ | 46,068 | ||||
Selling, general and administrative expenses, net of credits | 1,928 | 1,302 | ||||||
Operating expenses, net | 46,865 | 47,370 | ||||||
Net charges | $ | 45,674 | $ | 46,046 |
(a) | Technical expenses include primarily costs incurred by the Company for the carriage of the MSG networks and Fuse program services (2014 period only) of Madison Square Garden, as well as for AMC, WE tv, IFC, Sundance Channel and BBC America (2015 period only) of AMC Networks on the Company's cable systems. The Company also purchases certain programming signal transmission and production services from AMC Networks. |
NOTE 15. | SUBSEQUENT EVENTS |
Cablevision Dividend
On May 1, 2015, the Board of Directors of Cablevision declared a cash dividend of $0.15 per share payable on June 12, 2015 to stockholders of record on both its CNYG Class A common stock and CNYG Class B common stock as of May 22, 2015.
Repayment of Credit Facility Debt - CSC Holdings
In April 2015, CSC Holdings made a repayment of $200,000 on its outstanding Term B loan facility with cash on hand. Accordingly, the consolidated balance sheets of Cablevision and CSC Holdings as of March 31, 2015 reflect the reclassification of $200,000 of credit facility debt from long-term to short term.
25
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
All dollar amounts, except per customer and per share data, included in the following discussion under this Item 2, are presented in thousands.
Summary
Our future performance is dependent, to a large extent, on the impact of direct competition, general economic conditions (including capital and credit market conditions), our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers. See "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014.
Cable
Our Cable segment, which accounted for 90% of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2015, derives revenues principally through monthly charges to subscribers of our video, high-speed data and Voice over Internet Protocol ("VoIP") services which accounted for 52%, 23%, and 14%, respectively, of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2015. These monthly charges include fees for video programming, high-speed data and VoIP services, as well as equipment rental, digital video recorder ("DVR"), video-on-demand, pay-per-view, installation and home shopping commissions. We also derive revenues from the sale of advertising time available on the programming carried on our cable television systems.
Revenue increases are derived from rate increases, increases in the number of subscribers to our services, including additional services sold to our existing subscribers, programming package upgrades by our video customers, speed tier upgrades by our high-speed data customers, and acquisition transactions that result in the addition of new subscribers.
Our ability to increase the number of subscribers to our services is significantly related to our penetration rates (the number of subscribers to our services as a percentage of serviceable passings, which represent the estimated number of single residence homes, apartment and condominium units passed by the cable distribution network in areas serviceable without further extending the transmission lines, including commercial establishments that have connected to our cable distribution network). Due to the high penetration of our video, high-speed data and VoIP services (52.5%, 54.7%, and 43.8%, respectively, of serviceable passings at March 31, 2015), our ability to maintain or increase our existing customers and revenue in the future will continue to be negatively impacted.
We face competition from telephone companies, DBS service providers, and others, including the delivery of video content over the Internet directly to subscribers. As discussed in greater detail under “Competition” in our Annual Report on Form 10-K for the year ended December 31, 2014, we face intense competition from Verizon. Verizon has constructed a fiber to the home network plant that passes a significant number of households in our service area. Verizon does not publicly report the extent of their build-out or penetration by area. Our estimate of Verizon's build out and sales activity in our service area is difficult to assess because it is based upon visual inspections and other limited estimating techniques, and therefore serves only as an approximation. We estimate that Verizon is currently able to sell a fiber-based video service, as well as high-speed data and VoIP services, to at least half of the households in our service area. In certain other portions of our service area, Verizon has also built its fiber network where we believe it is not currently able to sell its fiber-based video service, but is able to sell its high-speed data and VoIP services. In these areas (as well as other parts of our service area) Verizon markets DBS services along with its high-speed data and VoIP services. Verizon’s fiber network also passes areas where we believe it is not currently able to sell its video, high-speed data or VoIP services. Accordingly, Verizon may increase the number of customers in our service area to whom it is able to sell video, high speed data and VoIP services in the future.
Frontier offers video service, as well as high-speed data and VoIP services, in competition with us in most of our Connecticut service area. Frontier also markets DBS services in this service area. Verizon and Frontier have made and may continue to make promotional offers at prices lower than ours. Verizon has significantly greater financial resources than we do.
This competition affects our ability to add or retain customers and creates pressure upon the pricing of our services. Competition, particularly from Verizon, has negatively impacted our revenues and caused subscriber declines in our service areas. To the extent Verizon and Frontier continue to offer competitive and promotional packages, our ability to maintain or increase our existing customers and revenue will continue to be negatively impacted.
The two major DBS services, DISH Network and DIRECTV, are available to the vast majority of our customers. These companies each offer video programming that is substantially similar to the video service that we offer, at competitive prices. Each of these competitors has significantly greater financial resources than we do.
26
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Our revenues have been negatively impacted by the prolonged weak economic conditions as customers with less disposable income may have been more willing to obtain services from our competitors or other sources. Our revenues may continue to be negatively impacted by the prolonged weak economic conditions in certain portions of our service area. In addition, new and existing customers are able to obtain video content from a wide variety of sources, including Internet-delivered content. Consumers' selection of an alternate source of service, whether due to economic constraints, technological advances or preference, negatively impacts the demand for our video service.
Historically, we have made substantial investments in our network and the development of new and innovative products and other service offerings for our customers as a way of differentiating ourselves from our competitors and may continue to do so in the future. For example, we have deployed WiFi access points throughout our footprint and in the first quarter of 2015, we launched Freewheel, a new all-WiFi phone service providing unlimited data, talk and text that works anywhere in the world where WiFi is accessible and operates only when the device is connected to a WiFi signal.
Our programming costs, which are the most significant component of our Cable segment's operating expenses, have increased and are expected to continue to increase primarily as a result of contractual rate increases and new channel launches. See "Business Segments Results - Cable" below for a further discussion of revenues and operating expenses.
Lightpath
Lightpath accounted for 5% of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2015. Lightpath derives revenues from the sale of fiber based telecommunications services to the business market. Lightpath operates in a highly competitive business telecommunications market and competes against the very largest telecommunications companies - incumbent local exchange carriers such as Verizon and AT&T, other competitive local exchange companies, and long distance companies. To the extent our competitors reduce their prices, future success of our Lightpath business may be negatively impacted.
Other
Our Other segment, which accounted for 5% of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2015, includes the operations of (i) Newsday, which includes the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites, (ii) the News 12 Networks, our regional news programming services, (iii) Cablevision Media Sales Corporation ("Cablevision Media Sales"), a cable television advertising company, and (iv) certain other businesses and unallocated corporate costs.
Newsday
Newsday's revenue is derived primarily from the sale of advertising and the sale of the Newsday daily newspaper, including home delivery, digital subscriptions, and single copy sales through local retail outlets ("circulation revenue"). For the three months ended March 31, 2015, advertising revenues accounted for 62% and circulation revenues accounted for 37% of the total revenues of Newsday.
The newspaper industry generally has experienced significant declines in circulation and readership levels due to competition from new media news formats and less reliance on newspapers by consumers. Readership and circulation levels, as well as economic conditions and the existence of other advertising outlets, impact the demand for and level of advertising. These factors will continue to negatively impact Newsday’s revenues.
Newsday's largest categories of operating expenses relate to the production and distribution of its print products. These costs are driven by volume (number of newspapers printed and number of pages printed) and the number of pages printed are impacted by the volume of advertising and editorial pages. The majority of Newsday's other costs, such as editorial content creation, rent and general and administrative expenses do not directly fluctuate with changes in advertising and circulation revenue.
News 12 Networks
Our News 12 Networks, which include seven 24-hour local news channels and five traffic and weather services dedicated to covering areas within the New York metropolitan area, derives its revenues from the sale of advertising on its networks and affiliation fees paid by cable operators, principally Cablevision.
Cablevision Media Sales
Cablevision Media Sales is a cable television advertising company that derives its revenues primarily from the sale of local and regional commercial advertising time on cable television networks in the New York metropolitan area, which offers advertisers the opportunity to target geographic and demographic audiences.
27
Non-GAAP Financial Measures
We define adjusted operating cash flow ("AOCF"), which is a non-GAAP financial measure, as operating income (loss) before depreciation and amortization (including impairments), excluding share-based compensation expense or benefit and restructuring expense or credits. Because it is based upon operating income (loss), AOCF also excludes interest expense (including cash interest expense) and other non-operating income and expense items. We believe that the exclusion of share-based compensation expense allows investors to better track the performance of the various operating units of our business without regard to expense associated with awards that are not expected to be made in cash, in the case of restricted shares, restricted stock units, and stock options.
We present AOCF as a measure of our ability to service our debt and make continuing investments, including in our capital infrastructure. We believe AOCF is an appropriate measure for evaluating the operating performance of our business segments and the Company on a consolidated basis. AOCF and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in our industry. Internally, we use net revenues and AOCF measures as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators. AOCF should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles ("GAAP"). Since AOCF is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies. Each presentation of AOCF in this Quarterly Report on Form 10-Q includes a reconciliation of AOCF to operating income (loss).
28
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Results of Operations - Cablevision Systems Corporation
The following table sets forth on a historical basis certain items related to operations as a percentage of net revenues for the periods indicated:
STATEMENT OF OPERATIONS DATA
Three Months Ended March 31, | ||||||||||||||||||
2015 | 2014 | |||||||||||||||||
Amount | % of Net Revenues | Amount | % of Net Revenues | Favorable (Unfavorable) | ||||||||||||||
Revenues, net | $ | 1,614,771 | 100 | % | $ | 1,575,586 | 100 | % | $ | 39,185 | ||||||||
Operating expenses: | ||||||||||||||||||
Technical and operating (excluding depreciation and amortization shown below) | 795,888 | 49 | 772,983 | 49 | (22,905 | ) | ||||||||||||
Selling, general and administrative | 376,764 | 23 | 380,220 | 24 | 3,456 | |||||||||||||
Restructuring expense (credits) | (532 | ) | — | 1,015 | — | 1,547 | ||||||||||||
Depreciation and amortization | 218,900 | 14 | 214,285 | 14 | (4,615 | ) | ||||||||||||
Operating income | 223,751 | 14 | 207,083 | 13 | 16,668 | |||||||||||||
Other income (expense): | ||||||||||||||||||
Interest expense, net | (145,012 | ) | (9 | ) | (140,882 | ) | (9 | ) | (4,130 | ) | ||||||||
Loss on investments, net | (33,071 | ) | (2 | ) | (41,775 | ) | (3 | ) | 8,704 | |||||||||
Gain on equity derivative contracts, net | 46,166 | 3 | 38,649 | 2 | 7,517 | |||||||||||||
Write-off of deferred financing costs, net of gain on extinguishment of debt | — | — | (611 | ) | — | 611 | ||||||||||||
Miscellaneous, net | 1,007 | — | 731 | — | 276 | |||||||||||||
Income from continuing operations before income taxes | 92,841 | 6 | 63,195 | 4 | 29,646 | |||||||||||||
Income tax benefit (expense) | (37,940 | ) | (2 | ) | 26,939 | 2 | (64,879 | ) | ||||||||||
Income from continuing operations, net of income taxes | 54,901 | 3 | 90,134 | 6 | (35,233 | ) | ||||||||||||
Loss from discontinued operations, net of income taxes | (10,502 | ) | (1 | ) | (434 | ) | — | (10,068 | ) | |||||||||
Net income | 44,399 | 3 | 89,700 | 6 | (45,301 | ) | ||||||||||||
Net loss attributable to noncontrolling interests | 234 | — | 63 | — | 171 | |||||||||||||
Net income attributable to Cablevision Systems Corporation stockholders | $ | 44,633 | 3 | % | $ | 89,763 | 6 | % | $ | (45,130 | ) |
29
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
The following is a reconciliation of operating income to AOCF:
Three Months Ended March 31, | Favorable (Unfavorable) | |||||||||||
2015 | 2014 | |||||||||||
Operating income | $ | 223,751 | $ | 207,083 | $ | 16,668 | ||||||
Share-based compensation | 11,911 | 11,906 | 5 | |||||||||
Restructuring expense (credits) | (532 | ) | 1,015 | (1,547 | ) | |||||||
Depreciation and amortization | 218,900 | 214,285 | 4,615 | |||||||||
AOCF | $ | 454,030 | $ | 434,289 | $ | 19,741 |
Comparison of Three Months Ended March 31, 2015 Versus Three Months Ended March 31, 2014
Consolidated Results - Cablevision Systems Corporation
We classify our operations into three reportable segments:
• | Cable, consisting principally of our video, high-speed data, and VoIP services; |
• | Lightpath, which provides Ethernet-based data, Internet, voice and video transport and managed services to the business market in the New York metropolitan area; and |
• | Other, consisting principally of (i) Newsday, (ii) the News 12 Networks, (iii) Cablevision Media Sales, and (iv) certain other businesses and unallocated corporate costs. |
We allocate certain amounts of our corporate overhead to each segment based upon their proportionate estimated usage of services.
The segment financial information set forth below, including the discussion related to individual line items, does not reflect inter-segment eliminations unless specifically indicated.
See "Business Segments Results" for a discussion relating to the operating results of our segments. In those sections, we provide detailed analysis of the reasons for increases or decreases in the various line items at the segment level.
Revenues, net for the three months ended March 31, 2015 increased $39,185 (2%) as compared to revenues, net for the same period in 2014. The net increase is attributable to the following:
Increase in revenues of the Cable segment | $ | 34,390 | |
Increase in revenues of the Lightpath segment | 4,370 | ||
Increase in revenues of the Other segment | 298 | ||
Inter-segment eliminations | 127 | ||
$ | 39,185 |
Technical and operating expenses (excluding depreciation and amortization) include primarily:
• | cable programming costs which are costs paid to programmers (net of amortization of any incentives received from programmers for carriage) for cable content and are generally paid on a per-subscriber basis; |
• | network management and field service costs, which represent costs associated with the maintenance of our broadband network, including costs of certain customer connections; |
• | interconnection, call completion, circuit and transport fees paid to other telecommunication companies for the transport and termination of voice and data services; and |
• | content, production and distribution costs of our Newsday business. |
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Technical and operating expenses (excluding depreciation and amortization ) increased $22,905 (3%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net increase is attributable to the following:
Increase in expenses of the Cable segment | $ | 24,481 | |
Increase in expenses of the Lightpath segment | 447 | ||
Decrease in expenses of the Other segment | (2,067 | ) | |
Inter-segment eliminations | 44 | ||
$ | 22,905 |
Selling, general and administrative expenses include primarily sales, marketing and advertising expenses, administrative costs, and costs of customer call centers. Selling, general and administrative expenses decreased $3,456 (1%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net decrease is attributable to the following:
Increase in expenses of the Cable segment | $ | 6,514 | |
Decrease in expenses of the Lightpath segment | (1,026 | ) | |
Decrease in expenses of the Other segment | (9,027 | ) | |
Inter-segment eliminations | 83 | ||
$ | (3,456 | ) |
Depreciation and amortization increased $4,615 (2%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net increase is attributable to the following:
Increase in expenses of the Cable segment | $ | 1,039 | |
Increase in expenses of the Lightpath segment | 3,134 | ||
Increase in expenses of the Other segment | 442 | ||
$ | 4,615 |
Adjusted operating cash flow increased $19,741 (5%) for the three months ended March 31, 2015 as compared to the same period in 2014. The increase is attributable to the following:
Increase in AOCF of the Cable segment | $ | 3,523 | |
Increase in AOCF of the Lightpath segment | 4,912 | ||
Increase in AOCF of the Other segment | 11,306 | ||
$ | 19,741 |
Interest expense, net increased $4,130 (3%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net increase is attributable to the following:
Increase due to change in average interest rates on our indebtedness | $ | 4,699 | |
Decrease due to change in average debt balances | (747 | ) | |
Higher interest income | (95 | ) | |
Other net increases, primarily interest expense related to capital leases | 273 | ||
$ | 4,130 |
See "Liquidity and Capital Resources" discussion below for a detail of our borrower groups.
Loss on investments, net of $33,071 and $41,775 for the three months ended March 31, 2015 and 2014, respectively, consists primarily of the decrease in the fair value of Comcast Corporation ("Comcast") common stock owned by the Company. The effects of these losses are partially offset by the gains on the related equity derivative contracts, net described below.
Gain on equity derivative contracts, net of $46,166 and $38,649 for the three months ended March 31, 2015 and 2014, respectively, consists of unrealized and realized gains due to the change in fair value of the Company's equity derivative contracts relating to the
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Comcast common stock owned by the Company. The effects of these gains are partially offset by the losses on investment securities pledged as collateral, which are included in loss on investments, net discussed above.
Write-off of deferred financing costs, net of gain on extinguishment of debt amounted to $611 for the three months ended March 31, 2014 and includes the write-off of unamortized deferred financing costs of $1,269 and a net gain of $658, net of fees recognized in connection with the repurchase of Cablevision's outstanding 5.875% senior notes due September 2022.
Income tax expense amounted to $37,940 for the three months ended March 31, 2015, reflecting an effective tax rate of 41%.
Cablevision recorded income tax benefit of $26,939 for three months ended March 31, 2014, reflecting a negative effective tax rate of 43%. In January 2014, the Internal Revenue Service informed the Company that the consolidated federal income tax returns for 2009 and 2010 were no longer under examination. Accordingly, in the first quarter of 2014, Cablevision recorded a tax benefit of $53,132 associated with the reversal of a noncurrent liability relating to an uncertain tax position. Absent this item, the effective tax rate for the three months ended March 31, 2014 would have been 41%.
Subsequent to the utilization of Cablevision’s net operating loss and tax credit carry forwards, payments for income taxes are expected to increase significantly. Cablevision’s federal net operating loss carry forward as of March 31, 2015 was approximately $570,000.
In April 2015, corporate income tax changes were enacted for both New York State and the City of New York. Such changes included a provision whereby investment income will be subject to higher taxes. Accordingly, in the second quarter of 2015, the Company will record deferred tax expense of approximately $16,000 to remeasure the deferred tax liability for the investment in Comcast common stock and associated derivative securities.
Business Segments Results
Cable
The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues, net for our Cable segment.
Three Months Ended March 31, | ||||||||||||||||||
2015 | 2014 | |||||||||||||||||
Amount | % of Net Revenues | Amount | % of Net Revenues | Favorable (Unfavorable) | ||||||||||||||
Revenues, net | $ | 1,451,538 | 100 | % | $ | 1,417,148 | 100 | % | $ | 34,390 | ||||||||
Technical and operating expenses (excluding depreciation and amortization shown below) | 720,143 | 50 | 695,662 | 49 | (24,481 | ) | ||||||||||||
Selling, general and administrative expenses | 293,051 | 20 | 286,537 | 20 | (6,514 | ) | ||||||||||||
Restructuring expense | — | — | 122 | — | 122 | |||||||||||||
Depreciation and amortization | 186,245 | 13 | 185,206 | 13 | (1,039 | ) | ||||||||||||
Operating income | $ | 252,099 | 17 | % | $ | 249,621 | 18 | % | $ | 2,478 |
The following is a reconciliation of operating income to AOCF: | |||||||||||
Three Months Ended March 31, | |||||||||||
2015 | 2014 | Favorable (Unfavorable) | |||||||||
Amount | Amount | ||||||||||
Operating income | $ | 252,099 | $ | 249,621 | $ | 2,478 | |||||
Share-based compensation | 8,211 | 8,083 | 128 | ||||||||
Restructuring expense | — | 122 | (122 | ) | |||||||
Depreciation and amortization | 186,245 | 185,206 | 1,039 | ||||||||
AOCF | $ | 446,555 | $ | 443,032 | $ | 3,523 |
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Revenues, net for the three months ended March 31, 2015 increased $34,390 (2%), as compared to revenues, net for the same period in 2014. The net increase is attributable to the following:
Three Months Ended March 31, | Increase | Percent Increase | ||||||||||||
2015 | 2014 | (Decrease) | (Decrease) | |||||||||||
Video (including equipment rental, DVR, franchise fees, video-on-demand and pay-per-view) | $ | 800,968 | $ | 793,446 | $ | 7,522 | 1 | % | ||||||
High-speed data | 362,872 | 346,899 | 15,973 | 5 | ||||||||||
Voice | 231,593 | 220,122 | 11,471 | 5 | ||||||||||
Advertising | 30,777 | 31,663 | (886 | ) | (3 | ) | ||||||||
Other (including installation, advertising sales commissions, home shopping, and other products) | 25,328 | 25,018 | 310 | 1 | ||||||||||
Total Cable | $ | 1,451,538 | $ | 1,417,148 | $ | 34,390 | 2 | % |
The net revenue increase for the three months ended March 31, 2015 as compared to the same period in the prior year was due primarily to rate increases: (i) for certain video and voice services implemented in the second quarter of 2014 and (ii) for certain video services implemented during the first quarter of 2015, and lower promotional activity as a result of continued disciplined pricing policies. Partially offsetting these increases was a decrease in revenue due to a decline in customers for the three months ended March 31, 2015.
The following table presents certain statistical information as of the dates indicated:
March 31, 2015 | December 31, 2014 | March 31, 2014 | |||||||||
(in thousands) | |||||||||||
Total customers | 3,112 | 3,118 | 3,186 | ||||||||
Video customers | 2,653 | 2,681 | 2,799 | ||||||||
High-speed data customers | 2,767 | 2,760 | 2,788 | ||||||||
Voice customers | 2,215 | 2,229 | 2,280 | ||||||||
Serviceable passings | 5,055 | 5,046 | 5,048 | ||||||||
Average monthly revenue per customer ("RPC") (a) | $ | 155.34 | $ | 155.20 | $ | 148.22 |
(a) | RPC is calculated by dividing the average monthly GAAP revenues for the Cable segment for the respective quarter presented by the average number of total customers served by our cable systems for the respective period. |
The following table reflects our net customer increase (decrease) for the three months ended March 31, 2015 and 2014:
Three Months Ended March 31, | |||||
2015 | 2014 | ||||
(in thousands) | |||||
Total customers | (5.6 | ) | (2.7 | ) | |
Video customers | (28.6 | ) | (14.0 | ) | |
High-speed data customers | 7.2 | 8.4 | |||
Voice customers | (14.0 | ) | 7.6 |
We believe our overall customer declines noted in the table above are largely attributable to intense competition, particularly from Verizon, the result of disciplined pricing and credit policies and prolonged weak economic conditions in certain portions of our service area. These factors are expected to continue to impact our ability to maintain or increase our existing customers and revenue in the future.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Technical and operating expenses (excluding depreciation and amortization shown below) for the three months ended March 31, 2015 increased $24,481 (4%), as compared to the same period in 2014. The net increase is attributable to the following:
Increase in programming costs due primarily to contractual rate increases, partially offset by lower subscribers | $ | 24,794 | |
Increase in franchise and other fees due primarily to increases in rates in certain areas | 1,722 | ||
Decrease in contractor costs due primarily to lower truck rolls | (5,620 | ) | |
Other net increases (includes insurance recovery related to Superstorm Sandy of $1,706 in 2014) | 3,585 | ||
$ | 24,481 |
Technical and operating expenses consist primarily of (i) programming costs (including costs of video-on-demand and pay-per-view) which typically rise due to increases in contractual rates and new channel launches and are also impacted by changes in the number of customers receiving certain programming services, (ii) interconnection, call completion, circuit and transport fees paid to other telecommunication companies for the transport and termination of voice and data services, which typically vary based on rate changes and the level of usage by our customers, (iii) the cost of sale of equipment, and (iv) other direct costs associated with providing and maintaining services to our customers which are impacted by general cost increases for employees, contractors, insurance and other various expenses.
Our programming costs increased 6% for the three months ended March 31, 2015 as compared to the same period in 2014 due primarily to an increase in contractual programming rates, partially offset by a decrease in video customers. Our programming costs in 2015 will continue to be impacted by changes in programming rates, which we expect to increase by high single digits, and by changes in the number of video customers.
Technical and operating expenses also include franchise fees, which are payable to the state governments and local municipalities where we operate and are primarily based on a percentage of certain categories of revenue derived from the provision of cable television service over our cable systems, which vary by state and municipality. These costs change in relation to changes in such categories of revenues or rate changes.
Costs of field operations, which consist primarily of employee related, customer installation and repair and maintenance costs, may fluctuate as a result of changes in level of activities and the utilization of contractors as compared to employees. Also, employee related and customer installation costs increase as the portion of our expenses that we are able to capitalize decrease due to lower new customer installations and lower new service upgrades. Network related costs, which consist primarily of employee related, repair and maintenance and utility costs, also fluctuate as capitalizable network upgrade and enhancement activity changes.
We expect that our technical and operating expenses will continue to increase in the future.
Selling, general and administrative expenses increased $6,514 (2%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net increase is attributable to the following:
Increase in product development costs and other professional fees | $ | 4,858 | |
Increase in advertising and marketing media placement costs, which includes a new product launch | 3,964 | ||
Increase in legal and other administrative costs | 2,946 | ||
Decrease in expenses related to long-term incentive plan awards primarily due to additional expense recorded in 2014 as a result of a change in the estimated payout for certain awards and the elimination of the cash portion of the 2015 awards | (5,820 | ) | |
Decrease in employee related costs related to the elimination of certain positions and lower commissions, partially offset by merit and net benefit increases | (4,740 | ) | |
Other net increases which include certain costs related to billing transaction fees and insurance recovery related to Superstorm Sandy of $1,252 in 2014 | 5,306 | ||
$ | 6,514 |
Selling, general and administrative expenses include customer related costs, principally from the operation and maintenance of our call center facilities that handle customer inquiries and billing and collection activities. These costs rise as a result of general cost increases for employees and various other expenses. Sales and marketing costs primarily consist of employee costs and advertising production and placement costs associated with acquiring and retaining customers. These costs vary period to period and may increase with intense competition.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Depreciation and amortization increased $1,039 (1%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net increase is primarily due to the depreciation of new asset purchases, partially offset by certain assets being retired or becoming fully depreciated.
Adjusted operating cash flow increased $3,523 (1%) for the three months ended March 31, 2015 as compared to the same period in 2014. This increase was due primarily to an increase in revenue, partially offset by an increase in operating expenses (excluding depreciation and amortization, restructuring expense and share-based compensation), as discussed above.
Lightpath
The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues, net for our Lightpath segment:
Three Months Ended March 31, | |||||||||||||||||
2015 | 2014 | ||||||||||||||||
Amount | % of Net Revenues | Amount | % of Net Revenues | Favorable (Unfavorable) | |||||||||||||
Revenues, net | $ | 91,124 | 100 | % | $ | 86,754 | 100 | % | $ | 4,370 | |||||||
Technical and operating expenses (excluding depreciation and amortization shown below) | 28,635 | 31 | 28,188 | 32 | (447 | ) | |||||||||||
Selling, general and administrative expenses | 20,476 | 22 | 21,502 | 25 | 1,026 | ||||||||||||
Restructuring credits | — | — | (4 | ) | — | (4 | ) | ||||||||||
Depreciation and amortization | 22,738 | 25 | 19,604 | 23 | (3,134 | ) | |||||||||||
Operating income | $ | 19,275 | 21 | % | $ | 17,464 | 20 | % | $ | 1,811 |
The following is a reconciliation of operating income to AOCF:
Three Months Ended March 31, | |||||||||||
2015 | 2014 | Favorable (Unfavorable) | |||||||||
Amount | Amount | ||||||||||
Operating income | $ | 19,275 | $ | 17,464 | $ | 1,811 | |||||
Share-based compensation | 1,382 | 1,419 | (37 | ) | |||||||
Restructuring credits | — | (4 | ) | 4 | |||||||
Depreciation and amortization | 22,738 | 19,604 | 3,134 | ||||||||
AOCF | $ | 43,395 | $ | 38,483 | $ | 4,912 |
Revenues, net for the three months ended March 31, 2015 increased $4,370 (5%) as compared to revenues, net for the same period in 2014. The net revenue increase was derived primarily from an increase in Ethernet revenue due to an increase in services installed, partially offset by reduced traditional voice and data services.
Technical and operating expenses (excluding depreciation and amortization shown below) for the three months ended March 31, 2015 increased $447 (2%) as compared to the same period in 2014. The net increase is attributable primarily to increases in repairs and maintenance expenses and employee costs, partially offset by decreases in temporary help. Technical and operating expenses consist primarily of the direct costs associated with providing and maintaining services.
Selling, general and administrative expenses decreased $1,026 (5%) for the three months ended March 31, 2015, as compared to the same period in 2014. The net decrease is attributable primarily to a decrease in employee costs, including expenses related to long-term incentive plan awards, and other expenses. Selling, general and administrative expenses include sales and marketing costs which consist primarily of employee costs and advertising production and placement costs associated with acquiring and retaining customers.
Depreciation and amortization increased $3,134 (16%) for the three months ended March 31, 2015 as compared to the same period in 2014.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Adjusted operating cash flow increased $4,912 (13%) for the three months ended March 31, 2015 as compared to the same period in 2014. The increase is due primarily to an increase in revenue, net, and a decrease in operating expenses (excluding depreciation and amortization, restructuring credits and share-based compensation), as discussed above.
Other
The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues, net for our Other segment.
Three Months Ended March 31, | |||||||||||||||||
2015 | 2014 | ||||||||||||||||
Amount | % of Net Revenues | Amount | % of Net Revenues | Favorable (Unfavorable) | |||||||||||||
Revenues, net | $ | 81,780 | 100 | % | $ | 81,482 | 100 | % | $ | 298 | |||||||
Technical and operating expenses (excluding depreciation and amortization shown below) | 55,158 | 67 | 57,225 | 70 | 2,067 | ||||||||||||
Selling, general and administrative expenses | 64,860 | 79 | 73,887 | 91 | 9,027 | ||||||||||||
Restructuring expense (credits) | (532 | ) | (1 | ) | 897 | 1 | 1,429 | ||||||||||
Depreciation and amortization | 9,917 | 12 | 9,475 | 12 | (442 | ) | |||||||||||
Operating loss | $ | (47,623 | ) | (58 | )% | $ | (60,002 | ) | (74 | )% | $ | 12,379 |
The following is a reconciliation of operating loss to AOCF deficit: | |||||||||||
Three Months Ended March 31, | |||||||||||
2015 | 2014 | ||||||||||
Amount | Amount | Favorable (Unfavorable) | |||||||||
Operating loss | $ | (47,623 | ) | $ | (60,002 | ) | $ | 12,379 | |||
Share-based compensation | 2,318 | 2,404 | (86 | ) | |||||||
Restructuring expense (credits) | (532 | ) | 897 | (1,429 | ) | ||||||
Depreciation and amortization | 9,917 | 9,475 | 442 | ||||||||
AOCF deficit | $ | (35,920 | ) | $ | (47,226 | ) | $ | 11,306 |
Revenues, net increased $298 for the three months ended March 31, 2015 as compared to revenues, net for the same period in 2014. The net increase is attributable to the following:
Increase in revenues, primarily advertising revenues at News 12 Networks | $ | 1,329 | |
Decrease in revenues at Newsday (from $57,305 to $56,285) due primarily to decreases in advertising revenues driven primarily by competition from other media, partially offset by an increase in circulation revenues | (1,020 | ) | |
Intra-segment eliminations | (11 | ) | |
$ | 298 |
Technical and operating expenses (excluding depreciation and amortization shown below) for the three months ended March 31, 2015 decreased $2,067 (4%) as compared to the same period in 2014. The net decrease is attributable to the following:
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Decrease in costs at Newsday (from $42,801 to $40,786) due primarily to lower newsprint and ink expenses, as well as lower distribution and employee related costs | $ | (2,015 | ) |
Decrease in expenses due to reduced activities at certain businesses | (262 | ) | |
Other net increases | 210 | ||
$ | (2,067 | ) |
Selling, general, and administrative expenses decreased $9,027 (12%) for the three months ended March 31, 2015 as compared to the same period in 2014. The net decrease is attributable to the following:
Decrease in expenses at Newsday (from $26,505 to $22,154) due primarily to the termination and settlement of a distribution agreement, as well as lower employee related costs (including long-term incentive plan expenses) and lower marketing costs | $ | (4,351 | ) |
Decrease in corporate costs, primarily employee related costs, net of allocations to business units | (3,191 | ) | |
Decrease in expenses at certain other businesses | (1,471 | ) | |
Intra-segment eliminations | (14 | ) | |
$ | (9,027 | ) |
Adjusted operating cash flow deficit decreased $11,306 (24%) for the three months ended March 31, 2015 as compared to the same period in 2014 (including Newsday's AOCF deficit of $5,497 for the three months ended March 31, 2015 compared to AOCF deficit of $10,738 for the three months ended March 31, 2014). The decrease in AOCF deficit was due primarily to a decrease in operating expenses (excluding depreciation and amortization, restructuring expense (credits) and share-based compensation), as discussed above.
CSC HOLDINGS, LLC
The condensed consolidated statements of income of CSC Holdings are essentially identical to the condensed consolidated statements of income of Cablevision, except for the following:
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
Net income attributable to Cablevision Systems Corporation stockholders | $ | 44,633 | $ | 89,763 | |||
Interest expense relating to Cablevision senior notes included in Cablevision's condensed consolidated statements of income | 55,629 | 55,736 | |||||
Interest income related to cash held at Cablevision | (5 | ) | (2 | ) | |||
Interest income included in CSC Holdings' consolidated statements of income related to interest on Cablevision's senior notes held by Newsday Holdings (this interest income is eliminated in the condensed consolidated statements of income of Cablevision) | 12,013 | 12,013 | |||||
Write-off of deferred financing costs, net of gain on extinguishment of debt relating to Cablevision senior notes | — | 611 | |||||
Income tax benefit included in Cablevision's consolidated statements of income related to the items listed above | (29,602 | ) | (28,737 | ) | |||
Net income attributable to CSC Holdings, LLC's sole member | $ | 82,668 | $ | 129,384 |
Refer to Cablevision's "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein.
CASH FLOW DISCUSSION
Continuing Operations - Cablevision Systems Corporation
Operating Activities
Net cash provided by operating activities amounted to $215,334 for the three months ended March 31, 2015 compared to $283,682 for the three months ended March 31, 2014. The 2015 cash provided by operating activities resulted from $273,801 of income before depreciation and amortization from continuing operations, $50,258 of non-cash items and $6,798 from a decrease in current and other assets. Partially offsetting these increases was a decrease in cash of $115,523 as a result of a decrease in accounts payable and other liabilities.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
The 2014 cash provided by operating activities resulted from $304,419 of income before depreciation and amortization, $54,825 of non-cash items and a $34,386 decrease in current and other assets. These increases were partially offset by a decrease in cash of $109,948 as a result of a decrease in accounts payable and other liabilities.
The decrease in cash provided by operating activities of $68,348 for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014 resulted from a decrease in income from continuing operations before depreciation and amortization and other non-cash items of $35,185, and a decrease of $33,163 resulting from changes in working capital, including the timing of payments and collections of accounts receivable, among other items.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2015 was $172,865 compared to $184,661 for the three months ended March 31, 2014. The 2015 investing activities consisted primarily of $166,631 of capital expenditures ($133,571 of which relates to our Cable segment), additions to other intangible assets of $6,622, partially offset by other net cash receipts of $388.
The 2014 investing activities consisted primarily of $186,075 of capital expenditures ($145,325 of which relates to our Cable segment), partially offset by other net cash receipts of $1,414.
Financing Activities
Net cash used in financing activities amounted to $8,435 for the three months ended March 31, 2015 compared to $32,983 for the three months ended March 31, 2014. In 2015, the Company's financing activities consisted primarily of payments of $18,101 related to the net share settlement of restricted stock awards, repayments of credit facility debt of $15,462, principal payments on capital lease obligations of $4,484, dividend distributions to common stockholders of $3,925, and distributions to non-controlling interests of $258, partially offset by net proceeds from collateralized indebtedness of $30,968, proceeds from stock option exercises of $2,552 and an excess tax benefit related to share-based awards of $275.
In 2014, the Company's financing activities consisted primarily of payments to repurchase senior notes, including fees, of $27,173, payments of $6,516 related to the net share settlement of restricted stock awards, repayments of credit facility debt of $5,875, principal payments on capital lease obligations of $3,236, repayments of notes payable of $1,736 and dividend distributions to common stockholders of $1,548, partially offset by proceeds from stock option exercises of $12,613 and an excess tax benefit related to share-based awards of $488.
Continuing Operations - CSC Holdings, LLC
Operating Activities
Net cash provided by operating activities amounted to $266,311 for the three months ended March 31, 2015 compared to $338,015 for the three months ended March 31, 2014. The 2015 cash provided by operating activities resulted from $311,836 of income before depreciation and amortization from continuing operations, non-cash items of $21,249 and a $12,229 increase in current and other assets. These increases were partially offset by a decrease in cash of $79,003 as a result of a decrease in accounts payable and other liabilities.
The 2014 cash provided by operating activities resulted from $344,040 of income before depreciation and amortization, $23,442 of non-cash items, and a $76,561 decrease in current and other assets. These increases were partially offset by a decrease in cash of $106,028 as a result of a decrease in accounts payable and other liabilities.
The decrease in cash provided by operating activities of $71,704 for the three months ended March 31, 2015 as compared to the three months ended March 31, 2014, resulted from a decrease in income before depreciation and amortization from continuing operations and other non-cash items of $34,397 and a decrease of $37,307 resulting from changes in working capital, including the timing of payments and collections of accounts receivable, among other items.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2015 was $172,865 compared to $184,661 for the three months ended March 31, 2014. The 2015 investing activities consisted primarily of $166,631 of capital expenditures ($133,571 of which relates to our Cable segment), additions to other intangible assets of $6,622, partially offset by other net cash receipts of $388.
The 2014 investing activities consisted primarily of $186,075 of capital expenditures ($145,325 of which relates to our Cable segment), partially offset by other net cash receipts of $1,414.
Financing Activities
Net cash used in financing activities amounted to $43,907 for the three months ended March 31, 2015 compared to $75,292 for the three months ended March 31, 2014. In 2015, the Company's financing activities consisted primarily of distributions to Cablevision
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of $60,312, repayments of credit facility debt of $15,462, principal payments on capital lease obligations of $4,484, and distributions to non-controlling interests of $258, partially offset by net proceeds from collateralized indebtedness of $30,968, and an excess tax benefit related to share-based awards of $5,641.
In 2014, the Company's financing activities consisted primarily of distributions to Cablevision of $66,148, repayments of credit facility debt of $5,875, principal payments on capital lease obligations of $3,236, repayments of notes payable of $1,736, partially offset by an excess tax benefit related to share-based awards of $1,703.
LIQUIDITY AND CAPITAL RESOURCES
Cablevision
Cablevision has no operations independent of its subsidiaries. Cablevision's outstanding securities consist of Cablevision NY Group ("CNYG") Class A common stock, CNYG Class B common stock and approximately $3,410,000 of debt securities, including approximately $2,799,000 face value of debt securities held by third party investors and approximately $611,000 held by Newsday Holdings. The $611,000 of senior notes are eliminated in Cablevision's consolidated financial statements and are shown as senior notes due from Cablevision in the consolidated equity of CSC Holdings.
Funding for Our Debt Service Requirements
Funding for the debt service requirements of our debt securities is provided by our subsidiaries' operations, principally CSC Holdings, as permitted by the covenants governing CSC Holdings' credit agreements and indentures. Funding for our subsidiaries is generally provided by cash flow from operations, cash on hand, and borrowings under the Restricted Group (as later defined) revolving credit facility, and the proceeds from the issuance of securities in the capital markets. Our decision as to the use of cash generated from operating activities, cash on hand and borrowings under the Restricted Group revolving credit facility will be based upon an ongoing review of the funding needs of the business, the optimal allocation of cash resources, the timing of cash flow generation and the cost of borrowing under the revolving credit facility. Moreover, we will monitor the credit markets and may seek opportunities to issue debt, the proceeds of which could be used to meet our future cash funding requirements. We have accessed the debt markets for significant amounts of capital in the past and expect to do so in the future.
We have assessed our ability to repay our scheduled debt maturities over the next 12 months and we currently believe that a combination of cash on hand, cash generated from operating activities and availability under the Restricted Group revolving credit facility, should provide us with sufficient liquidity to repay such scheduled current debt maturities in the next 12 months totaling $290,198 (including a $200,000 repayment made on our Term B loan facility in April 2015) under our credit facilities, capital leases, and notes payable as of March 31, 2015. However, competition, market disruptions or a deterioration in economic conditions could lead to lower demand for our products, as well as lower levels of television and newspaper advertising, and increased incidence of customers' inability to pay for the services we provide. These events would adversely impact our results of operations, cash flows and financial position. Although we currently believe that amounts available under the Restricted Group revolving credit facility will be available when, and if needed, we can provide no assurance that access to such funds will not be impacted by adverse conditions in the financial markets or other conditions. The obligations of the financial institutions under the Restricted Group revolving credit facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.
In the longer term, we do not expect to be able to generate sufficient cash from operations to fund anticipated capital expenditures, meet all existing future contractual payment obligations and repay our debt at maturity. As a result, we will be dependent upon our ability to access the capital and credit markets. We will need to raise significant amounts of funding over the next several years to fund capital expenditures, repay existing obligations and meet other obligations, and the failure to do so successfully could adversely affect our business. If we are unable to do so, we will need to take other actions including deferring capital expenditures, selling assets, seeking strategic investments from third parties or reducing or eliminating dividend payments and stock repurchases or other discretionary uses of cash.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Debt Outstanding
The following table summarizes our outstanding debt (excluding accrued interest), including capital lease obligations, as well as interest expense and capital expenditures as of and for the three months ended March 31, 2015:
Restricted Group | Newsday LLC (a) | Other Entities | Total CSC Holdings | Cablevision | Eliminations (b) | Total Cablevision | |||||||||||||||||||||
Credit facility debt | $ | 2,285,430 | $ | 480,000 | $ | — | $ | 2,765,430 | $ | — | $ | — | $ | 2,765,430 | |||||||||||||
Senior notes and debentures | 3,062,844 | — | — | 3,062,844 | 3,405,630 | (611,455 | ) | 5,857,019 | |||||||||||||||||||
Collateralized indebtedness relating to stock monetizations | — | — | 1,033,040 | 1,033,040 | — | — | 1,033,040 | ||||||||||||||||||||
Capital lease obligations | 42,537 | 370 | — | 42,907 | — | — | 42,907 | ||||||||||||||||||||
Notes payable | 20,982 | — | — | 20,982 | — | — | 20,982 | ||||||||||||||||||||
Total debt | $ | 5,411,793 | $ | 480,370 | $ | 1,033,040 | $ | 6,925,203 | $ | 3,405,630 | $ | (611,455 | ) | $ | 9,719,378 | ||||||||||||
Interest expense | $ | 72,400 | $ | 4,747 | $ | 12,405 | $ | 89,552 | $ | 67,642 | $ | (12,013 | ) | $ | 145,181 | ||||||||||||
Capital expenditures | $ | 162,551 | $ | 1,214 | $ | 2,866 | $ | 166,631 | $ | — | $ | — | $ | 166,631 |
(a) | CSC Holdings has guaranteed Newsday LLC's obligation under its credit facility, which amounted to $480,000 at March 31, 2015. For purposes of the Restricted Group credit facility and indentures, guarantees are treated as indebtedness. The total debt for the Restricted Group reflected in the table above does not include the $480,000 guarantee. |
(b) | Represents the elimination of the senior notes issued by Cablevision and held by Newsday Holdings. |
The following table provides details of our outstanding credit facility debt as of March 31, 2015 and December 31, 2014:
Interest Rate at | Amounts Payable on or prior to | Carrying Value at | |||||||||||||||
Maturity Date | March 31, 2015 | March 31, 2016 | March 31, 2015 | December 31, 2014 | |||||||||||||
Restricted Group: | |||||||||||||||||
Revolving loan facility | April 17, 2018 | — | $ | — | $ | — | $ | — | |||||||||
Term A loan facility | April 17, 2018 | 1.93 | % | 47,925 | 922,566 | 934,547 | |||||||||||
Term B loan facility(a) (b) | April 17, 2020 | 2.68 | % | 211,888 | 1,362,864 | 1,366,102 | |||||||||||
Restricted Group credit facility debt | 259,813 | 2,285,430 | 2,300,649 | ||||||||||||||
Newsday: | |||||||||||||||||
Floating rate term loan facility | October 12, 2016 | 3.68 | % | — | 480,000 | 480,000 | |||||||||||
Total credit facility debt | $ | 259,813 | $ | 2,765,430 | $ | 2,780,649 |
(a) | The unamortized discount related to the Term B loan facility amounted to $5,083 and $5,326 at March 31, 2015 and December 31, 2014, respectively. |
(b) | In April 2015, CSC Holdings made a repayment of $200,000 on its outstanding Term B loan facility with cash on hand. |
Restricted Group
CSC Holdings and those of its subsidiaries which conduct our video, high-speed data, and our VoIP services operations, as well as Lightpath, which provides Ethernet-based data, Internet, voice and video transport and managed services to the business market, comprise the "Restricted Group" as they are subject to the covenants and restrictions of the credit facility and indentures governing the notes and debentures issued by CSC Holdings. In addition, the Restricted Group is also subject to the covenants of the debt issued by Cablevision.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Sources of cash for the Restricted Group include primarily cash flow from the operations of the businesses in the Restricted Group, borrowings under its credit facility and issuance of securities in the capital markets and, from time to time, distributions or loans from its subsidiaries. The Restricted Group's principal uses of cash include: capital spending, in particular, the capital requirements associated with the upgrade of its digital video, high-speed data and voice services (including enhancements to its service offerings such as a broadband wireless network (WiFi)); debt service, including distributions made to Cablevision to service interest expense and principal repayments on its debt securities; distributions to Cablevision to fund dividends paid to stockholders of CNYG Class A and CNYG Class B common stock; distributions to Cablevision to fund share repurchases and senior note repurchases; other corporate expenses and changes in working capital; and investments that it may fund from time to time. We currently expect that the net funding and investment requirements of the Restricted Group for the next 12 months will be met with one or more of the following: cash on hand, cash generated by operating activities and available borrowings under the Restricted Group's revolving credit facility.
The Restricted Group has a credit agreement which provides for (1) a revolving credit facility, (2) a Term A facility, and (3) a Term B facility. At March 31, 2015, $71,581 of the revolving loan facility was restricted for certain letters of credit issued on behalf of CSC Holdings and $1,428,419 of the revolving loan facility was undrawn and available, subject to covenant limitations, to be drawn to meet the net funding and investment requirements of the Restricted Group.
Our Annual Report on Form 10-K for the year ended December 31, 2014 contains a further description of the Restricted Group credit facility, including the principal financial covenants.
The Restricted Group was in compliance with all of its financial covenants under the Credit Agreement as of March 31, 2015.
Newsday LLC
We currently expect that net funding and investment requirements for Newsday for the next 12 months will be met with one or more of the following: cash on hand, cash generated by operating activities, interest income from the Cablevision senior notes held by Newsday Holdings, capital contributions and intercompany advances.
Our Annual Report on Form 10-K for the year ended December 31, 2014 contains a further description of the Newsday LLC credit facility, including the principal financial covenants.
Capital Expenditures
The following table provides details of the Company's capital expenditures for the three months ended March 31, 2015 and 2014:
Three Months Ended March 31, | |||||||
2015 | 2014 | ||||||
Capital Expenditures | |||||||
Consumer premise equipment | $ | 42,593 | $ | 56,804 | |||
Scalable infrastructure | 39,983 | 46,829 | |||||
Line extensions | 6,481 | 1,236 | |||||
Upgrade/rebuild | 12,141 | 7,619 | |||||
Support | 32,373 | 32,837 | |||||
Total Cable | 133,571 | 145,325 | |||||
Lightpath | 23,732 | 26,870 | |||||
Other | 9,328 | 13,880 | |||||
Total Cablevision | $ | 166,631 | $ | 186,075 |
Capital expenditures for the three months ended March 31, 2015 decreased $19,444 (10%) as compared to 2014. For the three months ended March 31, 2015 these decreases were primarily related to lower spending on customer premise equipment, various network projects and other equipment, partially offset by increased spending on cable infrastructure upgrades including WiFi.
Monetization Contract Maturities
During the next 12 months, monetization contracts covering 10,738,809 shares (including 2,732,184 shares settled in April 2015) of Comcast common stock held by us will mature. We intend to settle such transactions by either delivering shares of the Comcast common stock and the related equity derivative contracts or by delivering cash from the net proceeds of new monetization transactions.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Other Events
Common Stock Repurchases
Cablevision's Board of Directors has authorized the repurchase of up to a total of $1,500,000 CNYG Class A common stock. During the three months ended March 31, 2015, Cablevision did not repurchase any shares. Since inception through March 31, 2015, Cablevision repurchased an aggregate of 45,282,687 shares for a total cost of $1,044,678, including commissions of $453. These acquired shares have been classified as treasury stock in Cablevision's consolidated balance sheets. As of March 31, 2015, Cablevision had $455,322 of availability remaining under its stock repurchase authorizations.
Dividends
On February 24, 2015, the Board of Directors of Cablevision declared a cash dividend of $0.15 per share payable on April 3, 2015 to stockholders of record on both its CNYG Class A common stock and CNYG Class B common stock as of March 16, 2015. On April 3, 2015, Cablevision paid dividends aggregating $40,344, primarily from the proceeds of equity distribution payments from CSC Holdings. In March 2015, Cablevision paid accrued dividends on vested restricted shares of $3,925. In addition, as of March 31, 2015, up to approximately $5,596 will be paid when, and if, restricted shares and restricted stock units vest.
During the three months ended March 31, 2015, CSC Holdings made cash equity distribution payments to Cablevision aggregating $60,312. These distribution payments were funded from cash on hand. The proceeds were used to fund:
• | Cablevision's dividends; |
• | Cablevision's interest payments on its senior notes; and |
• | Cablevision's payments for the acquisition of treasury shares related to statutory minimum tax withholding obligations upon the vesting of certain restricted shares; |
Cablevision's and CSC Holdings' indentures and the CSC Holdings credit agreement restrict the amount of dividends and distributions in respect of any equity interest that can be made.
On May 1, 2015, the Board of Directors of Cablevision declared a cash dividend of $0.15 per share payable on June 12, 2015 to stockholders of record on both its CNYG Class A common stock and CNYG Class B common stock as of May 22, 2015.
Commitments and Contingencies
As of March 31, 2015, the Company's commitments and contingencies for continuing operations not reflected on the Company's condensed consolidated balance sheet decreased to approximately $6,708,000 as compared to approximately $7,264,000 at December 31, 2014. This decrease relates primarily to payments made pursuant to programming commitments during the three months ended March 31, 2015.
Managing our Interest Rate and Equity Price Risk
Interest Rate Risk
Interest rate risk is primarily a result of exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest rates and credit spreads. Our exposure to interest rate risk results from changes in short-term interest rates. Interest rate risk exists primarily with respect to our credit facility debt, which bears interest at variable rates. The carrying value of our outstanding credit facility debt at March 31, 2015 amounted to $2,765,430. To manage interest rate risk, we have from time to time entered into various interest rate swap contracts to adjust the proportion of total debt that is subject to variable interest rates. Such contracts effectively fixed the borrowing rates on our floating rate debt to limit the exposure against the risk of rising rates. We did not have any interest swap contracts in place at March 31, 2015. We do not enter into interest rate swap contracts for speculative or trading purposes. See discussion above for further details of our credit facility debt and Item 3. "Quantitative and Qualitative Disclosures About Market Risk" below for a discussion regarding the fair value of our debt.
We have entered into derivative contracts to hedge our equity price risk and monetize the value of our shares of common stock of Comcast. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing us to retain upside appreciation from the hedge price per share to the relevant cap price. If any one of these contracts is terminated prior to its scheduled maturity date due to the occurrence of an event specified in the contract, we would be obligated to repay the fair value of the collateralized indebtedness less the sum of the fair values of the underlying stock and equity collar, calculated at the termination date. As of March 31, 2015, we did not have an early termination shortfall relating to any of these contracts. The underlying stock and the equity collars are carried at fair value on our condensed consolidated balance sheets and the collateralized indebtedness is carried at its principal value. See "Quantitative and Qualitative Disclosures About Market Risk" for information on how we participate in changes in the market price of the stocks underlying these derivative contracts.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
All of our monetization transactions are obligations of our wholly-owned subsidiaries that are not part of the Restricted Group; however, CSC Holdings provides guarantees of the subsidiaries' ongoing contract payment expense obligations and potential payments that could be due as a result of an early termination event (as defined in the agreements). The guarantee exposure approximates the net sum of the fair value of the collateralized indebtedness less the sum of the fair values of the underlying stock and the equity collar. All of our equity derivative contracts are carried at their current fair value on our condensed consolidated balance sheets with changes in value reflected in our condensed consolidated statements of income, and all of the counterparties to such transactions currently carry investment grade credit ratings.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. ASU No. 2014-12 becomes effective for us on January 1, 2016 with early adoption permitted. We do not expect that ASU No. 2014-12 will have any impact on our consolidated financial statements upon adoption.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
All dollar amounts, except per share data, included in the following discussion under this Item 3 are presented in thousands.
Equity Price Risk
We are exposed to market risks from changes in certain equity security prices. Our exposure to changes in equity security prices stems primarily from the shares of Comcast common stock we hold. We have entered into equity derivative contracts consisting of a collateralized loan and an equity collar to hedge our equity price risk and to monetize the value of these securities. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing us to retain upside appreciation from the hedge price per share to the relevant cap price. The contracts' actual hedge prices per share vary depending on average stock prices in effect at the time the contracts were executed. The contracts' actual cap prices vary depending on the maturity and terms of each contract, among other factors. If any one of these contracts is terminated prior to its scheduled maturity date due to the occurrence of an event specified in the contract, we would be obligated to repay the fair value of the collateralized indebtedness less the sum of the fair values of the underlying stock and equity collar, calculated at the termination date. As of March 31, 2015, we did not have an early termination shortfall relating to any of these contracts.
The underlying stock and the equity collars are carried at fair value on our condensed consolidated balance sheets and the collateralized indebtedness is carried at its principal value. The carrying value of our collateralized indebtedness amounted to $1,033,040 at March 31, 2015. At maturity, the contracts provide for the option to deliver cash or shares of Comcast common stock, with a value determined by reference to the applicable stock price at maturity.
As of March 31, 2015, the fair value and the carrying value of our holdings of Comcast common stock aggregated $1,212,841. Assuming a 10% change in price, the potential change in the fair value of these investments would be approximately $121,284. As of March 31, 2015, the net fair value and the carrying value of the equity collar component of the equity derivative contracts entered into to partially hedge the equity price risk of our holdings of Comcast common stock aggregated $32,845, a net liability position. For the three months ended March 31, 2015, we recorded a net gain of $46,166 related to our outstanding equity derivative contracts and recorded an unrealized loss of $33,076 related to the Comcast common stock that we held during the period.
Fair Value of Equity Derivative Contracts | |||
Fair value as of December 31, 2014, net liability position | $ | (94,900 | ) |
Change in fair value, net | 46,166 | ||
Settlement of contracts | 15,889 | ||
Fair value as of March 31, 2015, net liability position | $ | (32,845 | ) |
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
The maturity, number of shares deliverable at the relevant maturity, hedge price per share, and the lowest and highest cap prices received for the Comcast common stock monetized via an equity derivative prepaid forward contract are summarized in the following table:
# of Shares | Hedge Price | Cap Price (b) | |||||||||||
Deliverable | Maturity | per Share (a) | Low | High | |||||||||
10,738,809 | (c) | 2015 | $41.31 - $49.01 | $ | 49.57 | $ | 58.81 | ||||||
8,069,934 | 2016 | $48.93 - $53.62 | $ | 58.72 | $ | 69.70 | |||||||
2,668,875 | 2017 | $56.24 | $ | 73.11 | $ | 73.11 |
(a) | Represents the price below which we are provided with downside protection and above which we retain upside appreciation. Also represents the price used in determining the cash proceeds payable to us at inception of the contracts. |
(b) | Represents the price up to which we receive the benefit of stock price appreciation. |
(c) | Includes an equity derivative contract relating to 2,732,184 shares that matured and was settled on April 23, 2015 from the proceeds of a new monetization contract covering an equivalent number of shares. |
Fair Value of Debt: Based on the level of interest rates prevailing at March 31, 2015, the fair value of our fixed rate debt of $7,511,416 exceeded its carrying value of $6,911,041 by $600,375. The fair value of these financial instruments is estimated based on reference to quoted market prices for these or comparable securities. Our floating rate borrowings bear interest in reference to current LIBOR-based market rates and thus their principal values approximate fair value. The effect of a hypothetical 100 basis point decrease in interest rates prevailing at March 31, 2015 would increase the estimated fair value of our fixed rate debt by $290,040 to $7,801,456. This estimate is based on the assumption of an immediate and parallel shift in interest rates across all maturities.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of Cablevision's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined under SEC rules). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of March 31, 2015.
Changes in Internal Control
During the three months ended March 31, 2015, there were no changes in the Company's internal control over financial reporting that materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
PART II. | OTHER INFORMATION |
Item 1. | Legal Proceedings |
Refer to Note 12 to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of our legal proceedings.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
During the three months ended March 31, 2015, 2,288,887 Cablevision restricted shares issued to employees of the Company vested. To fulfill the employees' statutory minimum tax withholding obligations for the applicable income and other employment taxes, 969,693 of these shares, with a price per share of $18.67, were surrendered to the Company. These acquired shares have been classified as treasury stock.
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Item 6. | Exhibits |
(a) | Index to Exhibits. |
10.1 | Form of Performance Restricted Stock Units Agreement. |
31.1 | Section 302 Certification of the CEO. |
31.2 | Section 302 Certification of the CFO. |
32 | Section 906 Certifications of the CEO and CFO. |
101 | The following financial statements from Cablevision Systems Corporation's and CSC Holdings, LLC's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, filed with the Securities and Exchange Commission on May 4, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Combined Notes to Condensed Consolidated Financial Statements. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
CABLEVISION SYSTEMS CORPORATION | ||||
CSC HOLDINGS, LLC | ||||
Date: | May 4, 2015 | /s/ Brian G. Sweeney | ||
By: | Brian G. Sweeney as President and Chief Financial Officer of Cablevision Systems Corporation and CSC Holdings, LLC |
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