-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LlGQnniTwYV2gC5EfoAMYh8lOWNW/oTpdw0NH2EoG5DdrCjBkLHmjqeXG9u0/JX5 zDBYO8TjW5WWXlgr1WPWWw== 0001005477-00-002727.txt : 20001129 0001005477-00-002727.hdr.sgml : 20001129 ACCESSION NUMBER: 0001005477-00-002727 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLEVISION SYSTEMS CORP /NY CENTRAL INDEX KEY: 0001053112 STANDARD INDUSTRIAL CLASSIFICATION: 4841 IRS NUMBER: 112776686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14764 FILM NUMBER: 588894 BUSINESS ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAGE STATE: NY ZIP: 11714 BUSINESS PHONE: 5163806230 MAIL ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAGE STATE: NY ZIP: 11714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSC HOLDINGS INC CENTRAL INDEX KEY: 0000784681 STANDARD INDUSTRIAL CLASSIFICATION: 4841 IRS NUMBER: 112776686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09046 FILM NUMBER: 588895 BUSINESS ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAGE STATE: NY ZIP: 11714 BUSINESS PHONE: 5138032300 MAIL ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAHE STATE: NY ZIP: 11714 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Registrant; State of Incorporation; IRS Employer Number Address and Telephone Number Identification No. - - ------ ---------------------------- ------------------ 1-14764 Cablevision Systems Corporation 11-3415180 Delaware 1111 Stewart Avenue Bethpage, NY 11714 (516) 803-2300 1-9046 CSC Holdings, Inc. 11-2776686 Delaware 1111 Stewart Avenue Bethpage, NY 11714 (516) 803-2300 Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each Exchange on which Registered: Cablevision Systems Corporation New York Stock Exchange - - ------------------------------- Class A Common Stock Securities registered pursuant to Section 12(g) of the Act: Cablevision Systems Corporation None CSC Holdings, Inc. None Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Cablevision Systems Corporation Yes |X| No |_| CSC Holdings, Inc. Yes |X| No |_| Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Aggregate market value of voting stock held by nonaffiliates of Cablevision Systems Corporation based on the closing price at which such stock was sold on the New York Stock Exchange on March 17, 2000: $8,020,730,025. Number of shares of common stock outstanding as of March 17, 2000: Cablevision Systems Corporation Class A Common Stock - 130,258,082 Cablevision Systems Corporation Class B Common Stock - 43,126,836 CSC Holdings, Inc. Common Stock - 1,000 Documents incorporated by reference - The Registrants intend to file with the Securities and Exchange Commission, not later than 120 days after the close of their fiscal year, a definitive proxy statement or an amendment to this report containing the information required to be disclosed under Part III of Form 10-K under cover of Form 10-K/A. TABLE OF CONTENTS Page ---- Part I Item 1. Business. 1 2. Properties. 25 3. Legal Proceedings. 25 4. Submission of Matters to a Vote of Security Holders. 25 Part II 5. Market for the Registrants' Common Equity and Related Stockholder Matters. 26 6. Selected Financial Data. 28 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 32 7A. Quantitative and Qualitative Disclosures About Market Risk. 54 8. Consolidated Financial Statements. 55 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 131 Part III* 10. Directors and Executive Officers of the Registrant. * 11. Executive Compensation. * 12. Security Ownership of Certain Beneficial Owners and Management. * 13. Certain Relationships and Related Transactions. * Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 131 * These items are omitted because the registrant intends to file with the Securities and Exchange Commission, not later than 120 days after the close of its fiscal year, a definitive proxy statement or an amendment to this report containing the information required to be disclosed under Part III of Form 10-K under cover of Form 10-K/A. PART I Item 1. Business This combined Annual Report on Form 10-K is separately filed by Cablevision Systems Corporation ("Cablevision Parent" or the "Company") and CSC Holdings, Inc. ("CSC Holdings"). Cablevision Parent Cablevision Parent is a Delaware corporation which was organized in 1997. Cablevision Parent's only asset is all of the common stock of CSC Holdings. All of the ownership interests Cablevision Parent held in the entities that own certain cable television systems acquired from Tele-Communications, Inc. in 1998 (the "TCI Systems") and the interest it held in CCG Holdings, Inc., which owns the Company's motion picture theater assets were contributed to CSC Holdings in 1999. References herein to the "Systems" refer to the cable television systems owned by CSC Holdings, and, from and after March 4, 1998, such systems and the TCI Systems. CSC Holdings CSC Holdings is a Delaware corporation which was organized in 1985 and owns and operates cable television systems in 7 states with approximately 3,492,000 subscribers at December 31, 1999. Through Rainbow Media Holdings, Inc. ("Rainbow Media"), a company owned 74% by CSC Holdings and 26% by a subsidiary of NBC Cable Holding, Inc. ("NBC Cable"), a subsidiary of National Broadcasting Company, Inc. ("NBC"), CSC Holdings owns interests in and manages numerous national and regional programming networks, the Madison Square Garden sports and entertainment business and cable television advertising sales companies. CSC Holdings, through Cablevision Lightpath, Inc. ("Lightpath"), a wholly-owned subsidiary of CSC Holdings, provides switched telephone service. CSC Holdings also owns Cablevision Electronics Investments, Inc., doing business as The WIZ, an electronics retailer operating 41 retail locations in the New York metropolitan area and CCG Holdings, Inc. which owns 64 motion picture theaters containing a total of 293 screens in the New York metropolitan area. The Holding Company Reorganization and TCI Transactions Until March 4, 1998, CSC Holdings was known as Cablevision Systems Corporation. On that date, CSC Holdings completed a reorganization whereby it formed a holding company (now named Cablevision Systems Corporation) and CSC Holdings became a subsidiary of Cablevision Systems Corporation. This transaction is referred to herein as the "Reorganization". Prior to the Reorganization, CSC Holdings had two outstanding classes of common stock. Its Class A Common Stock was publicly traded on the American Stock Exchange (the "ASE") and its Class B Common Stock was privately held. In the Reorganization, the Class A Common Stock and Class B Common Stock of CSC Holdings were converted into identical securities of Cablevision Parent and the Class A Common Stock of Cablevision Parent became listed on the ASE and traded under (1) the symbol "CVC". On December 7, 1999, the Company's Class A Common Stock began trading on the New York Stock Exchange. Cablevision Parent owns all of the common stock of CSC Holdings. CSC Holdings' outstanding preferred stock and debt was unaffected by the Reorganization except that CSC Holdings' 8-1/2% Series I Cumulative Convertible Exchangeable Preferred Stock was convertible into Cablevision Parent's Class A Common Stock rather than CSC Holdings' Class A Common Stock. As of December 31, 1999, all shares of the Series I Preferred Stock had been converted into Cablevision Parent's Class A Common Stock or redeemed for cash. In connection with the Reorganization, Tele-Communications, Inc. ("TCI") caused to be contributed to Cablevision Parent, and Cablevision Parent acquired, the TCI Systems. These systems, which are located in New Jersey, on Long Island and in New York's Rockland and Westchester counties, served approximately 833,000 cable subscribers as of the contribution date. In consideration for those cable television systems, Cablevision Parent issued to certain TCI entities 48,942,172 shares of Cablevision Parent Class A Common Stock and assumed certain liabilities related to such systems. See "Cable Television Operations - TCI Transactions" below for a discussion of these transactions. Stock Splits On March 4, 1998, Cablevision Parent's Board of Directors declared a two-for-one stock split in the form of a stock dividend on the outstanding Class A Common Stock and Class B Common Stock of Cablevision Parent. The dividend was paid on March 30, 1998 to stockholders of record on March 19, 1998. Additionally, on July 22, 1998, Cablevision Parent's Board of Directors declared a two-for-one stock split that was effected as a special stock distribution of one share of Class A Common Stock for each share of Class A Common Stock issued and outstanding as of August 10, 1998 and one share of Class B Common Stock for each share of Class B Common Stock issued and outstanding as of August 10, 1998. The stock dividend was paid on August 21, 1998 to stockholders of record on August 10, 1998. All share and per share amounts of Cablevision Parent and CSC Holdings in this Form 10-K have been restated to reflect the stock splits. Cable Television Operations General Cable television is a service that delivers multiple channels of television programming to subscribers who pay a monthly fee for the services they receive. Television signals are received over-the-air or via satellite delivery by antennas, microwave relay stations and satellite earth stations and are modulated, amplified and distributed over a network of coaxial and fiber optic cable to the subscribers' television sets. Cable television systems typically are constructed and operated pursuant to non-exclusive franchises awarded by local governmental authorities for specified periods of time. The Company's cable television systems offer varying levels of service which may include, among other programming, local broadcast network affiliates and independent television stations, certain (2) other news, information and entertainment channels such as CNN, CNBC, ESPN, and MTV, and certain premium services such as HBO, Showtime, The Movie Channel, Starz and Cinemax. The Company's cable television revenues are derived principally from monthly fees paid by subscribers. In addition to recurring subscriber revenues, the Company derives revenues from the sales of pay-per-view movies and events, from the sale of advertising time on advertiser supported programming and from installation charges. Certain services and equipment provided by substantially all of the Company's cable television systems are subject to regulation. As of December 31, 1999, the Company's cable television systems served approximately 3,492,000 subscribers, primarily in the greater New York, Boston and Cleveland metropolitan areas. The following table sets forth certain statistical data regarding the Company's cable television operations.
As of December 31, -------------------------------------------- 1999 1998 1997 --------------------------------------------- Homes passed by cable (1)..................................... 5,200,000 5,115,000 4,398,000 Basic service subscribers..................................... 3,492,000 3,412,000 2,844,000 Basic service subscribers as a percentage of homes passed............................................. 67.2% 66.7% 64.7% Number of premium television units (3)........................ 7,715,000 6,754,000 4,471,000 Average number of premium units per basic subscriber at period end (3)............................. 2.2 2.0 1.6 Average monthly revenue per basic subscriber (2).............. $44.38 $42.56 $38.53
- - ---------- (1) Homes passed is based upon homes actually marketed and does not include multiple dwelling units passed by the cable plant that are not connected to it. (2) Based on recurring service revenues for the last month of the period, excluding installation charges and certain other non-recurring revenues such as pay-per-view, advertising and home shopping revenues. See "Subscriber Rates and Services; Marketing and Sales." (3) Restated for 1998 and 1997 to conform to 1999's definition and reflects in 1997 the operations of certain cable television systems which had relatively lower premium unit penetration and were sold by December 1998. The Company's cable television systems are concentrated in the New York City greater metropolitan area (80% of the Company's total subscribers as of December 31, 1999), the Boston and suburban Massachusetts areas (10% of total subscribers as of December 31, 1999) and the greater Cleveland metropolitan area (9% of total subscribers as of December 31, 1999). The Company believes that its cable systems in the New York City greater metropolitan area comprise the largest metropolitan cluster of cable television systems under common ownership in the United States (measured by number of subscribers). Cable Television System Sales In 1997 and 1998, the Company completed the sale or transfer of cable television systems in Alabama, Florida, Illinois, Kentucky, Maine, Missouri, upstate New York, North Carolina, Toledo, Ohio and neighboring states, representing approximately 440,000 subscribers for an aggregate sales price of $514.7 million in cash. (3) In addition, in October 1998, the Company transferred its cable television system in Rensselaer, New York (which served approximately 29,600 subscribers at September 30, 1998), plus approximately $16 million in cash to Time Warner Entertainment Company, L.P. in exchange for Time Warner's Litchfield, Connecticut system (which served approximately 28,400 subscribers at date of transfer). In December 1999, the Company entered into definitive agreements with Adelphia Communications Corporation ("Adelphia") under which the Company will sell its cable television systems in the greater Cleveland metropolitan area to Adelphia for total consideration of $1.53 billion ($990 million in cash and $540 million in Adelphia class A common stock), subject to certain adjustments. In March 2000, the Company entered into a definitive agreement to sell its Kalamazoo, Michigan system to Charter Communications, Inc. in exchange for $172.5 million in Charter Communications, Inc. common stock. TCI Transactions On March 4, 1998, Cablevision Parent completed transactions with TCI ("TCI Transactions") pursuant to which Cablevision Parent acquired certain cable television systems owned and operated by TCI and located in New Jersey, on Long Island and in New York's Rockland and Westchester counties. Cablevision Parent issued to certain TCI entities an aggregate of 48,942,172 shares of Cablevision Parent's Class A Common Stock (See "The Holding Company Reorganization and TCI Transactions"). In addition, Cablevision Parent assumed certain related liabilities, including an aggregate amount of indebtedness for borrowed money equal to $669 million (the "Assumed Debt"). The Assumed Debt was refinanced immediately following the closing of the transactions with borrowings under a new $800 million bridge revolving credit facility entered into by wholly-owned subsidiaries of Cablevision Parent that were acquired from TCI or that hold assets contributed by TCI (the "Contributed Business Subsidiaries"), with a group of banks led by Toronto-Dominion (Texas), Inc., as administrative and arranging agent. The Contributed Business Subsidiaries were wholly-owned (directly or indirectly) by Cablevision Parent until April 1999 when Cablevision Parent contributed these entities to CSC Holdings. Contemporaneous with the Reorganization, CSC Holdings acquired the remaining 1% interest in Cablevision of New York City, L.P. of Mr. Charles F. Dolan ("Mr. Dolan"), the Company's Chairman of the Board of Directors, and satisfied certain payment obligations for a cash payment of approximately $194 million. This transaction was effected pursuant to the provisions of agreements entered into in 1992, as amended in 1997 to delay the exercise date to coincide with the consummation of the Reorganization and related transactions. In connection with securing certain regulatory approvals for the TCI Transactions, the Company agreed to divest certain cable television system assets of the Contributed Business Subsidiaries that are located in Paramus and Hillsdale, New Jersey. These systems (which served approximately 5,300 subscribers at November 30, 1998) were sold in December 1998. (4) The agreement effecting the TCI Transactions (the "Contribution Agreement") permitted Cablevision Parent to combine the cable operations of CSC Holdings and the Contributed Business Subsidiaries. Cablevision Parent contributed the Contributed Business Subsidiaries to CSC Holdings in April 1999. In November 1999, Cablevision Parent received a private letter ruling from the Internal Revenue Service that would permit CSC Holdings to distribute the stock of its subsidiary, Rainbow Media, to Cablevision Parent. If such a distribution were made, Rainbow Media would become a direct subsidiary of Cablevision Parent. The Company has made no decision regarding such a distribution. Such a distribution is dependent upon compliance with the Company's covenants under its indentures and bank credit facilities and upon the receipt of certain other approvals. In connection with the TCI Transactions, Cablevision Parent, TCI and certain holders of Cablevision Parent Class B Common Stock entered into a Stockholders Agreement providing, among other things, for TCI's right to designate two Class B directors to Cablevision Parent's Board of Directors, limits on TCI's ability to buy more than an additional 10% of Cablevision Parent Class A Common Stock and limitations on TCI's ability to transfer Cablevision Parent Class A Common Stock. On March 9, 1999, TCI merged with a subsidiary of AT&T Corp. and became a wholly-owned subsidiary of AT&T Corp. In April 1999, Cablevision Parent contributed the Contributed Business Subsidiaries to CSC Holdings in a transaction accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of the Contributed Business Subsidiaries were recorded at historical book value. The Contributed Business Subsidiaries served an aggregate of approximately 847,000 subscribers as of March 31, 1999. The total assets and liabilities of the Contributed Business Subsidiaries at March 31, 1999 amounted to $1.1 billion and $635 million, respectively. Subscriber Rates and Services; Marketing and Sales. The Company's cable television systems offer a package of services, generally marketed as "Family Cable", which includes, among other programming, broadcast network local affiliates and independent television stations and certain other news, information and entertainment channels such as CNN, CNBC, ESPN and MTV. For additional charges, the Company's cable television systems provide certain premium services such as HBO, Showtime, The Movie Channel, Starz and Cinemax, which may be purchased either individually (in conjunction with Family Cable) or in combinations or in tiers. In addition, the Company's cable television systems offer a basic package which includes broadcast network local affiliates and public, educational or governmental channels and certain leased access channels. The Company has a branded product offering called "OptimumTV", which packages all of the premium networks available on its cable systems at discounted prices. Optimum TV includes the Family and basic services noted above, as well as all of the premium a la carte programming (5) available on the cable system, grouped into three premium packages. Optimum TV also includes additional pay-per-view channels that offer movies and sporting events on a transactional basis. In other areas, the Company offers premium services on an individual basis and as components of different "tiers". Successive tiers include additional premium services for additional charges that reflect discounts from the charges for such services if purchased individually. For example, in most of the Company's cable systems, subscribers may elect to purchase Family Cable plus one, two or three premium services with declining incremental costs for each successive tier. In addition, many systems offer a "Rainbow" package consisting of between five and seven premium services, and a "Rainbow Gold" package consisting of between eight and ten premium services. Since its existing cable television systems are substantially fully built, the Company's sales efforts are primarily directed toward increasing penetration and revenues in its franchise areas. The Company markets its cable television services through in person selling, as well as telemarketing, direct mail advertising, promotional campaigns and local media and newspaper advertising. Certain services and equipment (converters supplied to subscribers) provided by substantially all of the Company's cable television systems are subject to regulation. See "Cable Television Operations - Regulation - 1992 Cable Act." System Capacity. The Company is engaged in an ongoing effort to upgrade the technical capabilities of its cable plant and to increase channel capacity for the delivery of additional programming and new services. The Company's cable television systems have a minimum capacity of 42 channels. Currently 87% of its homes are served by at least 77 channels. As a result of ongoing upgrades, the Company expects that by December 2000 approximately 96% of its subscribers will be served by systems having a capacity of at least 77 channels. All of the system upgrades either completed or underway will utilize fiber optic cable. Programming. Adequate programming is available to the Systems from a variety of sources including that available from Rainbow Media and affiliates of AT&T, Fox Entertainment Group, Inc. and NBC. Program suppliers' compensation is typically a fixed, per subscriber monthly fee based, in most cases, either on the total number of subscribers of the cable systems and certain of its affiliates, or on the number of subscribers subscribing to the particular service. The programming contracts are generally for a fixed period of time and are subject to negotiated renewal. Cable programming costs have increased in recent years and are expected to continue to increase due to additional programming being provided to most subscribers, increased costs to produce or purchase cable programming and other factors. Management believes that the Systems will continue to have access to programming services at reasonable price levels. (6) Franchises. The Systems are operated primarily under nonexclusive franchise agreements with local governmental franchising authorities, in some cases with the approval of state cable television authorities. Franchising authorities generally charge a fee of up to 5% based on a percentage of certain revenues of the franchisee. The franchise agreements are generally for a term of ten to fifteen years from the date of grant, although some recent renewals have been for five to ten year terms. Some of the franchises grant the cable television system an option to renew. The expiration dates for the Company's ten largest franchises range from 2001 to 2009. In situations where the Company's franchises have expired or not been renewed, the Company is operating under temporary operating authority or without a license while negotiating renewal terms with the franchising authorities. Franchises usually require the consent of the franchising authority prior to the sale, assignment, transfer or change in ownership or operating control of the franchisee. The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") provide significant procedural protections for cable operators seeking renewal of their franchises. See "Business - Regulation - Cable Television". In connection with a renewal, a franchising authority may impose different and more stringent terms. The Company has never lost a franchise as a result of a failure to obtain a renewal. Programming and Entertainment Operations General. The Company conducts its programming activities through Rainbow Media, a company currently 74% owned by CSC Holdings and 26% by NBC Cable (which may be increased by up to an additional 1% under certain circumstances without additional cash payment). Rainbow Media's businesses include national and regional programming networks and the Madison Square Garden sports and entertainment business. Rainbow Media also owns interests in cable television advertising businesses. Rainbow Media's national entertainment networks include American Movie Classics (which features American theatrically released classic films and original programming), Bravo (which features films and performing arts programs, including jazz, dance, classical music and theatrical and original programming), Romance Classics (which features theatrically released films, mini-series, made for television movies and original programming having a romantic theme), MuchMusic (which features a diverse mix of new and established musical artists) and The Independent Film Channel (which features independent films made outside the traditional Hollywood system). National Sports Partners is a national sports network featuring Fox Sports Net, which provides national sports programming to regional sports networks. National Sports Partners is 50% owned by Rainbow Media and is managed and 50% owned by Fox Sports Networks, LLC ("Fox"). (7) Rainbow Media owns a 60% interest in, and manages, Regional Programming Partners, a partnership with Fox. Regional Programming Partners owns Madison Square Garden, a sports and entertainment company that owns and operates the Madison Square Garden Arena and the adjoining Theater at Madison Square Garden, the New York Knickerbockers professional basketball team, the New York Rangers professional hockey team, the New York Liberty professional women's basketball team, the New England Seawolves professional arena football team, the Hartford Wolf Pack professional hockey team, the Madison Square Garden Network, Fox Sports Net New York and Radio City Entertainment (which operates Radio City Music Hall in New York City). Additionally, Madison Square Garden manages and operates the Hartford Civic Center. Regional Programming Partners also owns interests in regional sports networks that provide regional sports programming to the New England, Chicago, Cincinnati, Cleveland, San Francisco and Florida areas, in addition to Madison Square Garden Network and Fox Sports Net New York which provide regional sports programming to the New York City metropolitan area, as well as MetroChannels which provide regional and local sports, news and educational programming to the New York metropolitan area. Rainbow Media owns Rainbow News 12 which operates regional news networks servicing suburban areas surrounding New York City. Rainbow Media also owns and operates Rainbow Advertising Sales Corporation, a cable television advertising company and owns a 50% interest in National Advertising Partners, which sells national advertising for regional sports networks and is managed and 50% owned by Fox. (8) The following table sets forth ownership information and estimated subscriber information as of December 31, 1999 for each of the programming businesses whose ownership interest is held directly or indirectly by Rainbow Media and which Rainbow Media manages. Rainbow Media is currently a 74% owned subsidiary of CSC Holdings. NBC owns the remaining 26% interest. Regional Programming Partners ("RPP") is a 60% owned subsidiary of Rainbow Media, with the remaining 40% interest owned by Fox.
Affiliated Programming Viewing Basic Businesses Subscribers Subscribers (1) Ownership (2) - - ---------- ----------- --------------- ------------- (In Millions) National Entertainment: American Movie Classics 66.4 71.6 Rainbow Media - 100% Romance Classics 19.2 31.0 Rainbow Media - 100% Bravo 38.1 52.1 Rainbow Media - 100% Bravo Latin America 5.8 7.0 Rainbow Media - 100% The Independent Film Channel 11.2 34.4 Rainbow Media - 100% MuchMusic 10.5 14.9 Rainbow Media and Chum, Ltd. - 50% each Sports: Madison Square Garden Network/FSNNY 12.2 15.5 RPP - 100% Fox Sports Net Bay Area 3.0 3.3 RPP and Fox - 50% each Fox Sports Net Chicago 3.3 3.5 RPP and Fox - 50% each Fox Sports Net New England 3.4 3.9 RPP and Media One - 50% each Fox Sports Net Ohio 2.2 2.4 RPP - 100% Fox Sports Net Cincinnati 2.5 2.7 RPP - 100% SportsChannel Florida 3.2 3.3 RPP - 30%; Front Row - 70% (3) News Services: News12 Long Island .8 .8 Rainbow Media - 100% News12 Connecticut .2 .2 Rainbow Media - 100% News12 New Jersey 1.7 1.7 Rainbow Media - 88.6%; Newark Star Ledger - 11.4% News12 Westchester .2 .3 Rainbow Media - 100% News12 Bronx .3 .3 Rainbow Media - 100% Neighborhood News L.I. .2 .2 Rainbow Media - 100% Other: Metro Guide 3.8 4.1 RPP - 100% Metro Traffic and Weather 2.5 2.7 RPP - 100% Metro Learning 2.5 2.7 RPP - 100%
- - ---------- (1) Represents the total number of basic subscribers available in systems that carry the service. (2) Various of these programming businesses, other than those which are wholly-owned by Rainbow Media, are subject to puts, calls, rights of first refusal and restrictions on transfer. (3) In January 2000, RPP acquired Front Row Communications' controlling 70% interest in SportsChannel Florida. (9) Rainbow Media's existing structure reflects three significant transactions that were consummated in 1997. NBC Transaction On April 1, 1997, Rainbow Media consummated a transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of CSC Holdings. In addition, NBC Cable received a 25% equity interest (which interest has been increased to 26% and may be further increased by up to an additional 1% under certain circumstances without additional cash payment) in common stock of Rainbow Media. CSC Holdings owned the remaining 75% equity interest in Rainbow Media (which interest is currently 74%). The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC Cable are now owned by subsidiaries of Rainbow Media. Fox Transactions On December 18, 1997, Rainbow Media organized three partnerships with Fox: Regional Programming Partners (the partnership that owns Madison Square Garden and interests in the regional sports programming businesses previously owned by Rainbow Media), National Sports Partners (the partnership that owns and operates Fox Sports Net) and National Advertising Partners (the partnership that manages and sells national advertising for certain of the regional sports networks in which Regional Programming Partners owns interests and certain regional sports networks owned by Fox) (the "Fox Transactions"). In connection with the formation of Regional Programming Partners, affiliates of Rainbow Media, through various indirect transfers, contributed to Regional Programming Partners, in consideration for the issuance of a 60% general partnership interest, their interests in Madison Square Garden, SportsChannel Chicago, SportsChannel Pacific, SportsChannel New England, SportsChannel Ohio, SportsChannel Cincinnati, SportsChannel Florida and Metro Channel LLC. Fox contributed $850 million in cash to Regional Programming Partners in exchange for a 40% general partnership interest. A subsidiary of Rainbow Media is the managing general partner of Regional Programming Partners. In connection with the formation of National Sports Partners, Rainbow Media contributed to National Sports Partners, in consideration for the issuance of a 50% general partnership interest, its interests in American Sports Classics LLC, Prime SportsChannel and SportsChannel Ventures, Inc. Fox contributed, in consideration for the issuance of a 50% general partnership interest, certain assets, including the assets pertaining to or used in the business of Fox and interests in Prime SportsChannel and Fox Watch Productions Inc. A subsidiary of Fox is the managing partner of National Sports Partners. In connection with the formation of National Advertising Partners, Rainbow Media contributed to National Advertising Partners, in consideration for the issuance of a 50% general partnership interest, certain assets relating to the national advertising of certain of the regional sports programming services in which Rainbow Media had an interest. Fox contributed, in consideration for the issuance of a 50% general partnership interest, certain assets relating to the national (10) advertising of the regional sports programming services in which Fox had an interest. A subsidiary of Fox is the managing general partner of National Advertising Partners. Madison Square Garden On June 17, 1997, Madison Square Garden redeemed a portion of ITT Corporation's ("ITT's") interest in Madison Square Garden for $500 million and Rainbow Media contributed its SportsChannel Associates programming company to Madison Square Garden, which, together with the redemption, increased Rainbow Media's interest in Madison Square Garden to 89.8% and reduced ITT's interest to 10.2%. In connection with the Fox Transactions discussed above, Rainbow Media's interest in Madison Square Garden was contributed to Regional Programming Partners. ITT's interest in Madison Square Garden was further reduced to 7.8% as a result of the $450 million capital contribution by Regional Programming Partners to Madison Square Garden as of December 18, 1997, which was used by Madison Square Garden to pay down outstanding debt. ITT's interest was further reduced to 3.7% in June 1998, when Madison Square Garden redeemed, for $94 million, a portion of ITT's interest following ITT's exercise of its first put right. In April 1999, ITT exercised its second put for the remainder of its interest in Madison Square Garden and settled certain matters between the parties for a net payment of $87 million. CSC Holdings and Rainbow Media entered into agreements with the National Hockey League (the "NHL") and the National Basketball Association ("NBA"), agreeing, among other things, to conduct themselves in accordance with the relevant rules of each league. The approvals of the NHL and the NBA are required for certain transactions involving Cablevision Parent, CSC Holdings, Rainbow Media, Regional Programming Partners and Madison Square Garden, including certain transfers of ownership interests. In December 1997, Madison Square Garden purchased Radio City Productions, LLC, the production company that operates Radio City Music Hall in New York City and produces The Radio City Christmas Spectacular and shows featuring the Radio City Rockettes and simultaneously entered into a 25-year lease for Radio City Music Hall. Tracking Stock In December 1999, the Company announced that its Board of Directors had authorized the creation of a new tracking stock related to its programming and entertainment assets, principally residing in its Rainbow Media subsidiary. No determination has been made of the specific programming and entertainment assets to be included in the tracking stock or the method of distribution to shareholders. The tracking stock proposal must be approved by each class of the Company's shareholders. SportsChannel Florida In January 2000, Regional Programming Partners acquired the 70% interest in SportsChannel Florida held by Front Row Communications for $130.1 million (including the repayment of $20 million in debt) increasing its ownership to 100%. (11) Telephone and Modem Services The Company, through Lightpath, a Competitive Local Exchange Carrier, provides basic and advanced local telecommunications services to the business market. Lightpath provides a full range of local dial tone, switched services, private line and advanced networking features on the local and long distance levels on its own facilities and network. As of December 31, 1999, Lightpath serviced over 1,500 industrial, commercial and institutional accounts on Long Island. In addition, the Company provides residential telephone and cable modem internet access service in portions of the greater New York City metropolitan area and parts of southern Connecticut. At December 31, 1999, the Company served approximately 52,100 modem subscribers. The WIZ In February 1998, Cablevision Electronics Investments, Inc. ("Cablevision Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially all of the assets associated with 40 The WIZ consumer electronics store locations from The Wiz, Inc. and certain of its subsidiaries and affiliates (collectively, "TWI"). TWI had filed for bankruptcy protection on December 16, 1997. Cablevision Electronics paid approximately $93 million, including transaction costs, for the assets. In addition, prior to closing, Cablevision Electronics provided approximately $8 million for TWI to meet certain operating costs. The WIZ is an electronics retailer selling primarily video and audio equipment, home office equipment, compact disks and other pre-recorded music, digital video disks, and VHS video and other pre-recorded movies. Theaters In December 1998, a subsidiary of the Company acquired all of the outstanding shares of stock of Clearview Cinema Group, Inc. ("Clearview") pursuant to an Agreement and Plan of Merger entered into in August 1998. The total purchase price amounted to approximately $158.7 million (including assumed debt of $80 million) of which approximately $33.4 million was paid in shares of Cablevision Parent's Class A Common Stock. From December 1998 through February 1999, a subsidiary of the Company acquired a total of 16 movie theaters from Loews Cineplex Entertainment Corporation ("Loews"), for an aggregate purchase price of approximately $89.8 million. These theaters are located in the New York metropolitan area. Additionally, in 1999, a subsidiary of the Company acquired a total of 7 movie theaters in New York and New Jersey for an aggregate purchase price of $7.2 million. At Home Corporation The Company owns warrants to acquire approximately 20.4 million shares of common stock of At Home Corporation, which warrants are exercisable at $.25 per share. At Home Corporation distributes high-speed interactive services to residences and businesses using its own network architecture and a variety of transport options, including the cable industry's hybrid fiber coaxial infrastructure and offers media services through the Excite Network. These warrants were issued to (12) the Company in exchange for certain agreements of the Company with respect to the distribution of the At Home internet access service to cable subscribers. In certain areas, the Company also agreed to distribute the At Home service exclusively. There have been a number of performance issues associated with the At Home service. The Company is continuing to use its Optimum Online service for new internet installations in order to take full advantage of the current market opportunity while these performance issues are addressed by At Home Corporation. The Company is making payments to At Home Corporation consistent with what would have applied if the Company had continued to use the At Home service. PCS CSC Holdings holds a 49.9% interest, and certain preferential distribution rights, in NorthCoast Communications, LLC ("NorthCoast"). NorthCoast holds certain licenses to conduct a personal communications service ("PCS") business. CSC Holdings has contributed an aggregate of approximately $50.1 million as of December 31, 1999 to NorthCoast (either directly or through a loan to NorthCoast Operating Co., Inc., the other member in NorthCoast). Other Investments Rainbow Media holds a 50% interest in R/L DBS Company LLC, a joint venture with Loral Space and Communications, Ltd. ("R/L DBS"). R/L DBS holds certain frequencies granted by the FCC for the operation of a direct broadcast satellite business. CSC Holdings has contributed an aggregate of approximately $15.5 million through December 31, 1999 to R/L DBS or its predecessor businesses. Competition Cable Television The Systems generally compete with the direct reception of broadcast television signals by antenna and with other methods of delivering television signals to the home for a fee. The extent of such competition depends upon the number and quality of the signals available by broadcast antenna reception as compared to the number and quality of signals distributed by the cable system. The Systems also compete to varying degrees with other communications and entertainment media, including movies, theater and other entertainment activities. The primary current competitor to cable television systems is from direct broadcast satellite ("DBS"). The 1984 Cable Act specifically legalized, under certain circumstances, reception by private home earth stations of satellite-delivered cable programming services. DBS systems permit satellite transmissions from the low-power C-Band to be received by antennae approximately 60 to 72 inches in diameter at the viewer's home. Higher power DBS systems providing transmissions over the Ku-Band permit the use of smaller receiver antennae and thus are more appealing to customers. Two DBS systems are now operational in the United States, with investments by companies with substantial resources such as Hughes Electronics Corp. Both C-Band and Ku-Band DBS delivery of television signals are competitive alternatives to cable television. Legislation was recently enacted to change the federal copyright laws to permit DBS systems to retransmit local broadcast television signals to DBS customers. This has enhanced the competitive position of DBS systems. (13) The Telecommunications Act of 1996 ("1996 Telecom Act") repealed the 1984 Act prohibition against telco-cable cross-ownership and provides that a local exchange telephone company may provide video programming directly to subscribers through a variety of means, including (1) as a radio-based (MMDS or DBS) multichannel video programming distributor; (2) as a cable operator, fully subject to the franchising, rate regulation and other provisions of the 1984 and 1992 Cable Acts; and (3) through an "open video system" ("OVS") that is certified by the Federal Communications Commission ("FCC") to be offering nondiscriminatory access to a portion of its channel capacity for unaffiliated program distributors, subject only to selected portions of the regulations applicable to cable operators. Non-telephone companies may also become an OVS and provide video competition to cable systems without obtaining a franchise, although a recent court decision has restored certain municipal franchising powers over OVS, making OVS a less attractive alternative. A local telephone company also may provide the "transmission of video programming" on a common carrier basis. As noted below, telephone companies in several of the Company's franchise areas have applied for franchises to offer cable service fully subject to the 1984 and 1992 Cable Acts. Several companies have sought to become an OVS in areas in which the Company operates cable systems in Boston, New York City, Westchester County, New York and northern New Jersey. One, RCN Corporation ("RCN") is currently operating an OVS or franchised cable systems in Boston, New York City, and a number of Massachusetts communities in which the Company operates cable systems. Additionally, RCN has received local authorization to commence construction and operation of an OVS in two of the New Jersey communities in which the Company operates cable systems. The 1996 Telecom Act also prohibits a telephone company or a cable system operator in the same market from acquiring each other, except in limited circumstances, such as in areas of smaller population. Cable television also competes with the home video industry. Owners of videocassette recorders are able to rent many of the same movies, special events and music videos that are available on certain premium services. The availability of videocassettes has affected the degree to which the Systems are able to sell premium service units and pay-per-view offerings to some of its subscribers. Multipoint distribution services ("MDS"), which deliver premium television programming over microwave superhigh frequency channels received by subscribers with a special antenna, and multichannel multipoint distribution service ("MMDS"), which is capable of carrying four channels of television programming, also compete with certain services provided by the Systems. By acquiring several MMDS licenses or subleasing from several MMDS operators and holders of other types of microwave licenses, a single entity can increase channel capacity to a level more competitive with cable systems. MDS and MMDS systems are not required to obtain a municipal franchise, are less capital intensive, require lower up-front capital expenditures and are subject to fewer local and FCC regulatory requirements than cable systems. The ability of MDS and MMDS systems to serve homes and to appeal to consumers is affected by their less extensive channel capacity and the need for unobstructed line of sight over-the-air transmission. The Systems compete with MDS and MMDS operators generally in its metropolitan service areas. (14) Satellite master antenna systems ("SMATV") generally serve large multiple dwelling units. The FCC has preempted all state and local regulation of SMATV operations. SMATV is limited to the buildings within which the operator has received permission from the building owner to provide service. The Systems compete with SMATV operators primarily in the New York City metropolitan area. The 1996 Telecom Act amends the definition of cable system to exclude facilities that do not use public rights-of-way (e.g., SMATV operators serving multiple buildings not under common ownership or control), thus exempting such facilities from franchise and other requirements applicable to cable operators. The FCC has established a new local multipoint distribution service ("LMDS", sometimes referred to as "cellular cable") in the higher bands of the electromagnetic spectrum that could be used to offer multichannel video in competition with cable systems, as well as two-way communications services. The FCC has held auctions to select licensees. The FCC barred both telephone and cable companies from initially bidding for LMDS frequencies in their own service areas. The legal restriction on cable ownership interests in overlapping LMDS licenses will sunset in June 2000, unless extended by the FCC. The full extent to which developing media will compete with cable television systems may not be known for several years. There can be no assurance that existing, proposed or as yet undeveloped technologies, including technologies that provide video over the internet, will not become dominant in the future and render cable television systems less profitable or even obsolete. Although substantially all the franchises of the Systems are non-exclusive, most franchising authorities have granted only one franchise in an area. Other cable television operators could receive franchises for areas in which the Systems are operated or a municipality could build a competing cable system. Southern New England Telephone ("SNET"), the dominant telephone company in Connecticut, has obtained a statewide franchise to build and operate a competing cable television system in the communities in Connecticut in which the Systems are operating pursuant to cable franchises. Ameritech has obtained franchises to offer cable service in certain of the Company's franchise areas in the Midwest. RCN has obtained or applied for cable franchises in a number of communities in Massachusetts in which the Company operates. The 1992 Cable Act described below prohibits municipalities from unreasonably refusing to grant competitive franchises and facilitates the franchising of second cable systems or municipally-owned cable systems. See "Regulation - 1992 Cable Act," below. Programming and Entertainment Rainbow Media competes with numerous programming services for cable television system distribution and for subscribers, including network television, other national and regional cable services, independent broadcast television stations, television superstations, the home videocassette industry, and developing pay-per-view services. Rainbow Media and the other programming services are competing for limited channel capacity and for inclusion in the most widely distributed service tier of the systems offering their programming services. Many of these program distributors are large, publicly-held companies which have greater financial resources than Rainbow Media. (15) Rainbow Media also competes for the availability of programming, through competition for telecast rights to films and competition for rights agreements with sports teams. The Company anticipates that such competition will increase as the number of programming distributors increases. In general, Rainbow Media's programming services compete with other forms of television-related services and entertainment media on the basis of the price of services, the variety and quality of programming offered and the effectiveness of marketing efforts. Numerous businesses compete with Madison Square Garden, Radio City Entertainment and CCG Holdings, Inc. for the entertainment expenditures of consumers. Telephone and Modem Services Lightpath faces substantial competition from incumbent local exchange carriers ("ILECs"), such as Bell Atlantic, which are the dominant providers of local telephone services in their respective service areas. ILECs have significant advantages over Lightpath, including greater capital resources, an existing fully operational local network, and long-standing relationships with customers. While Lightpath and the ILECs are competitors, Lightpath must enter into interconnection agreements with each ILEC so that Lightpath's customers can make and receive calls from customers served by the ILEC. Federal and State law and regulations require ILECs to enter into such agreements and provide such facilities and services, and establish the methodology for setting the price for these facilities and services. The specific price, terms and conditions of each agreement, however, depends on the outcome of negotiations between Lightpath and an ILEC. Agreements are also subject to approval by the state public service commission. Lightpath has entered into interconnection agreements with Bell Atlantic for New York, New Jersey, Connecticut and Massachusetts which have been approved by the respective state commissions. In addition, it has reached an agreement with SNET covering SNET's service area in Connecticut, which has been approved by the Connecticut Department of Public Utility Control. Lightpath also faces competition from one or more competitive access providers ("CAPs") and other new entrants in the local telecommunications marketplace, such as Teleport Communications Group, Inc. ("Teleport"), now part of AT&T and MFS Communications Company, Inc. ("MFS"), now part of MCI/Worldcom. In addition to the ILECs and competitive service providers, other potential competitors capable of offering private line and special access services include electric utilities, long distance carriers, microwave carriers, wireless telephone system operators (such as cellular, PCS, and specialized mobile radio), and private networks built by large end users. A continuing trend toward business combinations and alliances in the telecommunications industry may create significant new competitors to Lightpath. Many ILECs and certain of Lightpath's other potential competitors have financial, personnel and other resources significantly greater than those of Lightpath. Some of these competitors have existing networks or conduits that could be adapted to provide local exchange services. There can (16) be no assurance that Lightpath will be able to compete effectively against these competitors. Lightpath may also face competition from new technologies and services introduced in the future. Retail Electronics The consumer retail electronics business is highly competitive. The WIZ competes with national and regional retail electronics chains which continue to expand in the New York metropolitan area, as well as with computer, office product and entertainment superstores, general merchandise retailers, discount stores and mail order and e-commerce services. Some of these competitors operate on a significantly larger scale than Cablevision Electronics and are able to translate their scale to purchasing and pricing advantage in the New York marketplace. Competition is primarily based on price, service and selection of merchandise. The WIZ competes on the basis of these factors, with special emphasis placed on the quality of the customer experience in the stores and on selling and bundling merchandise that supports the in-home connectivity of the Company's high speed data, video and telephony services. Regulation Cable Television 1984 Cable Act. The 1984 Cable Act set uniform national guidelines for cable regulation under the Communications Act of 1934. While several of the provisions of the 1984 Cable Act have been amended or superseded by the 1992 Cable Act and/or the 1996 Telecom Act, each described below, other provisions of the 1984 Act, including the principal provisions relating to the franchising of cable television systems, remain in place. The 1984 Cable Act authorizes states or localities to franchise cable television systems but sets limits on their franchising powers. It sets a ceiling on cable franchise fees of 5% of gross revenues and prohibits localities from requiring cable operators to carry specific programming services. The 1984 Cable Act protects cable operators seeking franchise renewals by limiting the factors a locality may consider and requiring a due process hearing before denial. The 1984 Cable Act does not, however, prevent another cable operator from being authorized to build a competing system. The 1992 Cable Act prohibits franchising authorities from granting exclusive cable franchises and from unreasonably refusing to award an additional competitive franchise. The 1984 Cable Act allows localities to require free access to public, educational or governmental channels, but sets limits on the number of commercial leased access channels cable television operators must make available for potentially competitive services. The 1984 Cable Act prohibits obscene programming and requires the sale or lease of devices to block programming considered offensive. 1992 Cable Act. The 1992 Cable Act represented a significant change in the regulatory framework under which cable television systems operate. After the effective date of the 1984 Cable Act, and prior to the enactment of the 1992 Cable Act, rates for cable services were unregulated for substantially all of the Systems. The 1992 Cable Act reintroduced rate regulation for certain services and equipment provided by most cable systems in (17) the United States, including substantially all of the Company's systems. While several of the provisions of the 1992 Cable Act have been amended or superseded by the 1996 Telecom Act, other provisions remain in place. The 1992 Cable Act requires each cable system to establish a basic service package consisting, at a minimum, of all local broadcast signals and all non-satellite delivered distant broadcast signals that the cable system wishes to carry, and all public, educational and governmental access programming. The rates for the basic service package are subject to regulation by local franchising authorities. Under the FCC's 1993 rate regulation rules, a cable operator whose per channel rates exceeded an FCC established benchmark was required to reduce its per channel rates for the basic service package by up to 10% unless it could justify higher rates on the basis of its costs. In 1994, after reconsideration, the FCC ordered a further reduction of 7% in rates for the basic service tier, for an overall reduction of 17%. Franchise authorities (local municipalities or state cable television regulators) are also empowered to regulate the rates charged for the installation and lease of the equipment used by subscribers to receive the basic service package (including a converter box, a remote control unit and, if requested by a subscriber, an addressable converter box or other equipment required to access programming offered on a per channel or per program basis), including equipment that may also be used to receive other packages of programming, and the installation and monthly use of connections for additional television sets. The FCC's rules require franchise authorities to regulate rates for equipment and connections for additional television sets on the basis of an actual cost formula developed by the FCC, plus a return of 11.25%. No additional charge is permitted for the delivery of regulated services to additional sets unless the operator incurs additional programming costs in connection with the delivery of such services to multiple sets. The FCC, prior to March 31, 1999, could in response to complaints by a franchising authority, reduce the rates for service packages other than the basic service package if it found that such rates were unreasonable. The FCC would in response to complaints also regulate, on the basis of actual cost, the rates for equipment used only to receive these higher packages. Services offered on a per channel or per program basis were never subject to rate regulation by either municipalities or the FCC. The FCC's rules provide that, unless a cable operator can justify higher rates on the basis of its costs, increases in the rates charged by the operator for the basic service package may not exceed an inflation indexed amount, plus increases in certain costs beyond the cable operator's control, such as taxes, franchise fees and increased programming costs that exceed the inflation index. Increases in fees paid to broadcast stations for the retransmission of their signals above those in effect on October 6, 1994 may be passed through to subscribers. In 1994 the FCC also adopted guidelines for cost-of-service showings that establish a regulatory framework pursuant to which a cable television operator may attempt to justify rates in excess of the benchmarks. In addition, the FCC has adopted guidelines that permit rate adjustments attributed to the cost of a rebuild or substantial upgrade of a cable system to be added to the operator's benchmark rate. (18) In 1994 the FCC also reversed its prior policy regarding rate regulation of packages of a la carte services. A la carte services that are offered in a package were subjected to rate regulation by the FCC. The FCC, in addition to revising its rules governing a la carte channels, also revised its regulations governing the manner in which cable operators could charge subscribers for new cable programming services. The FCC instituted a three-year flat fee mark-up plan, now lapsed, for charges relating to new channels of cable programming services in addition to the basic formula for calculating the permissible rate for new services. Under the 1992 Cable Act, systems may not require subscribers to purchase any cable programming service tier other than the basic service package as a condition of access to video programming offered on a per channel or per program basis. Cable systems are allowed up to ten years to the extent necessary to implement the necessary technology to facilitate this access. It is expected that the Systems will be capable of implementing the technology mandated by the 1992 Cable Act by the Act's deadline. In addition, the 1992 Cable Act: (i) requires cable programmers under certain circumstances to offer their programming to present and future competitors of cable television such as MMDS, SMATV and DBS, and prohibits new exclusive contracts with program suppliers without FCC approval, (ii) directs the FCC to set standards for limiting the number of channels that a cable television system operator could program with programming services controlled by such operator, (iii) bars municipalities from unreasonably refusing to grant additional competitive franchises, (iv) requires cable television operators to carry ("Must Carry") all local broadcast stations (including home shopping broadcast stations), or, at the option of a local broadcaster, to obtain the broadcaster's prior consent for retransmission of its signal ("Retransmission Consent"), (v) requires cable television operators to obtain the consent of any non-local broadcast station prior to retransmitting its signal, and (vi) regulates the ownership by cable operators of other media such as MMDS and SMATV. In connection with clause (ii) of the immediate preceding paragraph concerning limitations on affiliated programming, the FCC has established a 40% limit on the number of channels of a cable television system that can be occupied by programming services in which the system operator has an attributable interest and a national limit of 30% on the number of households that any cable company can serve. This 30% national limit, because of court proceedings, has never been implemented. The FCC recently revised its rules to consider the presence in the national market of all multichannel video programming providers rather than cable operators alone in applying its national percentage limit. The FCC also modified its cable ownership attribution rules, maintaining its 5% voting stock benchmark, but attributing cable subscribers if held by a partnership if a limited partner is involved in the partnership's "video programming" activities. These rule modifications affect the Company because of AT&T's investment in the Company. (19) In connection with clause (iv) above concerning retransmission of a local broadcaster's signals, a substantial number of local broadcast stations are currently carried by the Systems and have elected to negotiate for Retransmission Consent. The Systems have Retransmission Consent agreements with most broadcast stations they currently carry, but a number of these agreements are temporary in nature and the potential remains for discontinuation of carriage if an agreement is not renewed following their expiration. The Company has had to drop a few local stations because of failure to reach retransmission consent agreements. The FCC is currently considering whether to adopt similar "Must Carry" rules for broadcasters' new digital TV channels. In connection with clause (i) above the 1992 Cable Act prohibits a cable programmer that is owned by or affiliated with a cable operator (such as Rainbow Media) from unreasonably discriminating among or between cable operators and other multichannel video distribution systems with respect to the price, terms and conditions of sale or distribution of the programmer's satellite-delivered services and from unreasonably refusing to sell any such service to any multichannel video programming distributor. In several instances, Rainbow Media has been ordered by the FCC to provide satellite-delivered programming to multi-channel video programmers after such multi-channel video programmers have filed complaints pursuant to these program-access rules. The FCC has declined to extend these program-access rules to cover some terrestrial-delivered programming by programmers such as Rainbow Media, but proposals have been made to Congress in support of such extensions. It is not possible to predict whether such an extension might in the future be adopted by the FCC or Congress and, if so, what effect it might have on the Company. The FCC adopted or imposed new regulations under the 1992 Cable Act in the areas of customer service, technical standards, equal employment opportunity, privacy, rates for leased access channels, obscenity and indecency, disposition of a customer's home wiring and compatibility between cable systems and other consumer electronic equipment such as "cable ready" television sets and videocassette recorders. 1996 Telecom Act. The 1996 Telecom Act deregulated the rates for non-basic tiers of service provided by all cable operators after March 31, 1999. It permitted regulated equipment rates to be computed by aggregating costs of broad categories of equipment at the franchise, system, regional or company level. It also eliminated the right of individual subscribers to file rate complaints with the FCC concerning certain non-basic cable programming service tiers, and required such complaints to be filed by franchising authorities following receipt of at least two subscriber complaints. The 1992 Cable Act provided that all rate regulation, for both the upper tiers and for basic service, is eliminated when a cable system is subject to "effective competition" from another multichannel video programming provider such as MMDS, DBS, a telephone company, or a combination of all of these. The 1996 Telecom Act expanded the definition of "effective competition" to include instances in which a local telephone company or its affiliate (or a multichannel video programming distributor using the facilities of a telephone company or its affiliates) offers comparable video programming directly to subscribers by any means (other than DBS) in the cable operator's franchise area. Since telephone companies are providing or planning to provide video services in several of the franchise areas served by the Systems, this provision will allow the Systems greater flexibility in packaging and pricing in those markets if the FCC makes a finding of "effective (20) competition" in these markets based on telephone company competition. The Company has been successful in obtaining such an FCC finding in certain markets, and has filed petitions for such findings in other markets. The 1996 Telecom Act also eliminated the uniform rate structure requirements of the 1992 Cable Act for cable operators in areas subject to effective competition or for video programming offered on a per channel or per program basis, and allowed non-uniform bulk discount rates to be offered to multiple dwelling units. The 1996 Telecom Act also directed the FCC to initiate a process through which the cable industry would develop standards such that subscribers can use set top boxes purchased or leased from any distributor. Other FCC Regulation. In addition to the rules and regulations promulgated by the FCC under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act, the FCC has promulgated other rules affecting the Company. FCC rules require that cable systems black out certain network and sports programming on imported distant broadcast signals upon request. The FCC also requires that cable systems delete syndicated programming carried on distant signals upon the request of any local station holding the exclusive right to broadcast the same program within the local television market and, in certain cases, upon the request of the copyright owner of such programs. These rules affect the diversity and cost of the programming options for the Systems. FCC regulation also includes matters regarding restrictions on origination and cablecasting by cable system operators; application of the rules governing political broadcasts; customer service; ownership and control of cable home wiring in single family residences and multiple dwelling units and limitations on advertising contained in nonbroadcast children's programming. Implementing provisions of the 1993 Budget Act, the FCC has adopted requirements for payment of annual "regulatory fees" which may be passed on to subscribers as "external cost" adjustments to basic cable service. Fees are also assessed for other licenses held by cable operators, including licenses for business radio, cable television relay systems (CARS) and earth stations, which, however, may not be collected directly from subscribers. The FCC has the authority to regulate utility company rates for cable rental of pole and conduit space. States can establish preemptive regulations in this area, and the states in which the Systems operate have done so. The 1996 Telecom Act modified the pole attachment provisions of the Communications Act by requiring that utilities provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way controlled by the utility. The FCC has adopted regulations to govern the charges for pole attachments used by companies providing telecommunications services, including cable operators. These regulations are likely to increase significantly the rates charged to cable companies providing voice and data, in addition to video services. These new pole attachment regulations do not become effective, however, until 2001, and subsequent increases in attachment rates resulting from the FCC's new regulations will be phased in equal annual increments over a subsequent period of five years, until 2006. (21) The FCC's technical guidelines for signal leakage became substantially more stringent in 1990, requiring upgrading expenditures by the Systems. Two-way radio stations, microwave-relay stations and satellite earth stations used by the Systems are licensed by the FCC. Federal Copyright Regulation. There are no restrictions on the number of distant broadcast television signals that cable television systems can import, but cable systems are required to pay copyright royalty fees to receive a compulsory license to carry them. The United States Copyright Office has increased the royalty fee from time to time. The FCC and the Copyright offices have, at different times, recommended to Congress changes in the compulsory licenses for cable television carriage of broadcast signals. This could adversely affect the ability of the Systems to obtain such programming and could increase the cost of such programming. No prediction can be made as to whether Congress will enact any such changes to the copyright laws. Cable Television Cross-Media Ownership Limitations. In addition to the prohibition on telephone company-cable cross-ownership, now removed by the 1996 Telecom Act, the 1984 Cable Act prohibited any person or entity from owning broadcast television and cable properties in the same market. The 1992 Cable Act imposed limits on new acquisitions of SMATV or MMDS systems by cable operators in their franchise areas. The 1996 Telecom Act repealed the statutory ban on cable-broadcast station cross-ownership to permit common ownership or control of a television station and a cable system with overlapping service areas, but left in place the cable system-television station cross-ownership restriction contained in the FCC's rules and does not prejudge the Commission's review of the regulation, which was initiated in 1998. The FCC has eliminated its regulations concerning broadcast network-cable cross-ownership to permit common control of both a television network and a cable system, as required by the 1996 Telecom Act. The 1996 Telecom Act removes the statutory ban on cable-MMDS cross-ownership on any cable operator in a franchise area where one cable operator is subject to effective competition. State and Municipal Regulation of Cable Television. Regulatory responsibility for essentially local aspects of the cable business such as franchisee selection, system design and construction, safety, and consumer services remains with either state or local officials and, in some jurisdictions, with both. The 1992 Cable Act expanded the factors that a franchising authority can consider in deciding whether to renew a franchise and limits the damages for certain constitutional claims against franchising authorities for their franchising activities. New York law provides for comprehensive state-wide regulation, including approval of transfers of cable franchises and consumer protection legislation. Massachusetts, New Jersey and Connecticut also have substantial cable regulatory authority at the state level. State and local franchising jurisdiction is not unlimited, however, and must be exercised consistently with the provisions of the 1984 Cable Act and the 1992 Cable Act. Among the more significant restrictions that the 1984 Cable Act imposes on the regulatory jurisdiction of local franchising authorities is a 5% ceiling on franchise fees and mandatory renegotiation of certain franchise requirements if warranted by changed circumstances. Telecommunications Regulation. The 1996 Telecom Act removes barriers to entry in the local telephone market that is now monopolized by the Bell Operating Companies ("BOCs") and other incumbent local exchange carriers by preempting state and local laws that restrict competition and by requiring incumbent local exchange telephone companies to provide nondiscriminatory access and interconnection to potential competitors, such as cable operators and long distance companies. (22) At the same time, the law eliminated the Modified Final Judgment and permits the BOCs to enter the market for long distance service (through a separate subsidiary), on a state-by-state basis, after they satisfy a "competitive checklist." The 1996 Telecom Act also facilitates the entry of utility companies into the telecommunications market. One utility company, Boston Edison, has teamed with one of the Company's competitors, RCN, to provide bundled telecommunications and video services in the Boston market. The 1996 Telecom Act also eliminates or streamlines many of the requirements applicable to local exchange carriers, and requires the FCC and states to review universal service programs and encourage access to advanced telecommunications services provided by all entities, including cable companies, by schools, libraries and other public institutions. The FCC and, in some cases, states have conducted numerous rulemaking proceedings to implement these provisions. Programming and Entertainment Cable television program distributors such as Rainbow Media are not directly regulated by the FCC under the Communications Act of 1934. To the extent that regulations and laws, either presently in force or proposed, hinder or stimulate the growth of the cable television and satellite industries, the business of Rainbow Media will be directly affected. As discussed above under "Business - Regulation - Cable Television," the 1992 Cable Act limits in certain ways the Company's ability to manage freely the Rainbow Media services or carry the Rainbow Media services on their affiliates' systems and imposes or could impose other regulations on the Rainbow Media companies. The "program access" provisions of the 1992 Cable Act require that Rainbow Media services be sold, under certain circumstances, to multichannel video programming providers that compete with the Company's local cable systems. The 1996 Telecom Act extends the program access requirements of the 1992 Cable Act to a telephone company that provides video programming by any means directly to subscribers, and to programming in which such a company holds an attributable ownership interest, thus allowing the Company's cable systems similar access to programming developed by their telephone company competitors. Under a mandate in the 1996 Telecom Act, the FCC has also imposed requirements on cable operators that, in effect, require certain Rainbow Media services to provide closed captioning for the hearing-impaired. The FCC is also considering rules that would force certain Rainbow Media services to provide video descriptions for the sight-impaired. The 1984 Cable Act limits the number of commercial leased access channels that a cable television operator must make available for potentially competitive services but the 1992 Cable Act empowered the FCC to set the rates and conditions for such leased access channels, which it has done in a manner designed to increase use of such channels. Satellite common carriers, from whom Rainbow Media and its affiliates obtain transponder channel time to distribute their programming, are directly regulated by the FCC. All common carriers must obtain from the FCC a certificate for the construction and operation of their interstate communications facilities. Satellite common carriers must also obtain FCC authorization to utilize satellite orbital slots assigned to the United States by the World Administrative Radio Conference. Such slots are finite in number, thus limiting the number of carriers that can provide satellite service (23) and the number of channels available for program producers and distributors such as Rainbow Media and its affiliates. Nevertheless, there are at present numerous competing satellite services that provide transponders for video services to the cable industry. All common carriers must offer their communications service to Rainbow Media and others on a nondiscriminatory basis (including by means of a lottery). A satellite carrier cannot unreasonably discriminate against any customer in its charges or conditions of carriage. The operations of the professional sports franchises owned by Madison Square Garden, L.P., are regulated by the leagues in which the teams participate. Both the NBA and the NHL have regulations governing, among other things, player matters and transfers of ownership interests and licensing matters. Telephone and Modem Services As a telecommunications carrier, Lightpath is subject to regulation by the FCC and by the state public service commission in each state in which it provides service. In order to provide service, moreover, Lightpath must seek approval from each such state commission. Lightpath has obtained this approval from the state commissions in New York, Connecticut, Massachusetts, New Jersey and Ohio. Lightpath's regulatory obligations vary from state to state and include some or all of the following requirements: filing tariffs (rates, terms and conditions); filing operational, financial, and customer service reports; seeking approval to transfer the assets or capital stock of the telephone company; seeking approval to issue stocks, bonds, and other forms of indebtedness of the telephone company; and filing all contracts or other documentation involving transactions between the telephone company and its affiliates. States may also impose requirements on competitive carriers to contribute to the funding of discounted "universal" telecommunications services for educational institutions, low income persons, and persons in rural areas. As Lightpath offers interstate long distance services, it is subject to various FCC requirements, including the payment of regulatory fees, Telecommunication Relay Services funding, and the contributions to the maintenance of "universal service" as required by the 1996 Telecom Act. Also under the 1996 Telecom Act, Lightpath must compensate carriers that terminate calls originating on Lightpath's network (Lightpath is entitled to compensation from carriers when it terminates calls); interconnect directly or indirectly with other carriers; make its telecommunications services available for resale; and provide number portability, dialing parity, and access-to-rights-of-way. Employees and Labor Relations As of December 31, 1999, the Company had 13,666 full-time, 4,037 part-time and 5,710 temporary employees of which 600, 994 and 3,107, respectively, were covered under collective bargaining agreements. The Company believes that its relations with its employees are satisfactory. (24) Item 2. Properties The Company generally leases the real estate where its business offices, microwave receiving antennae, earth stations, transponders, microwave towers, warehouses, headend equipment, hub sites, program production studios and access studios are located. The Company occupies a leased headquarters building located in Bethpage, New York with approximately 536,000 square feet of space and several business offices in Woodbury, New York with an aggregate of approximately 173,000 square feet of space. Other significant leasehold properties include approximately 140,000 square feet housing Madison Square Garden's office operations and approximately 569,000 square feet comprising Radio City Music Hall. Cablevision Electronics leases 41 retail store locations, a warehouse and a corporate office aggregating approximately 1,703,000 square feet. In addition, in February 2000, the Company entered into a long-term lease for business offices in Jericho, New York with approximately 311,000 square feet of space. The Company generally owns all assets (other than real property) related to its cable television operations, including its program production equipment, headend equipment (towers, antennae, electronic equipment and satellite earth stations), cable system plant (distribution equipment, amplifiers, subscriber drops and hardware), converters, test equipment, tools and maintenance equipment. The Company, through Madison Square Garden, also owns the Madison Square Garden arena and theater complex in New York City comprising approximately 1,016,000 square feet. CCG Holdings, Inc. leases 51 theaters with approximately 45,800 seats and owns an additional 13 theaters with approximately 10,900 seats. The Company generally leases its service and other vehicles. The Company believes its properties are adequate for its use. Item 3. Legal Proceedings The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that the resolution of such lawsuits will have a material adverse impact on the financial position of the Company. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. (25) PART II Item 5. Market for the Registrants' Common Equity and Related Stockholder Matters Cablevision Systems Corporation's Class A Common Stock and CSC Holdings, Inc.'s Class A Common Stock prior to the consummation of the Holding Company Reorganization on March 4, 1998, was traded on the American Stock Exchange. On December 7, 1999, Cablevision Systems Corporation's Class A Common Stock began trading on the New York Stock Exchange, under the symbol "CVC". The following table sets forth the high and low sales prices (adjusted for the two-for-one stock splits) for the last two years of Class A Common Stock as reported by the American Stock Exchange or the New York Stock Exchange, as applicable, for the periods indicated.
1999 1998 -------------------------- ---------------------------- Quarter High Low High Low ------- ---- --- ---- --- First 77-7/16 49-7/8 33-1/2 21-25/32 Second 91-7/8 60-1/2 42 26-9/16 Third 79-3/8 67-1/4 45-15/16 32 Fourth 80-1/8 58-7/8 50-1/4 36-1/2
As of March 17, 2000, there were 892 holders of record of Cablevision Systems Corporation Class A Common Stock. There is no public trading market for the Cablevision Systems Corporation Class B Common Stock, par value $.01 per share ("Class B Common Stock"). As of March 17, 2000, there were 25 holders of record of Class B Common Stock. All outstanding shares of common stock of CSC Holdings are held by Cablevision Systems Corporation. See Item 1. "Business - The Holding Company Reorganization and TCI Transactions" for a description of the changes to the Company's capitalization as a result of the Reorganization. Dividends. Neither CSC Holdings (prior to the Reorganization) nor Cablevision Systems Corporation (after the Reorganization) have paid any dividends on shares of Class A or Class B Common Stock. Cablevision Systems Corporation does not anticipate paying any cash dividends on shares of Cablevision Systems Corporation Class A or Class B Common Stock in the foreseeable future. Cablevision Systems Corporation and CSC Holdings may pay cash dividends on their capital stock only from surplus as determined under Delaware law. Holders of Cablevision Parent Class A and Cablevision Parent Class B Common Stock are entitled to receive dividends equally on a per share basis if and when such dividends are declared by the Board of Directors of Cablevision Parent from funds legally available therefore. No dividend may be declared or paid in cash or property on shares of either Cablevision Parent Class A or Cablevision Parent Class B Common Stock unless the same dividend is paid simultaneously on each share of the other class of common stock. In the (26) case of any stock dividend, holders of Cablevision Parent Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of Cablevision Parent Class A Common Stock) as the holders of Cablevision Parent Class B Common Stock receive (payable in shares of Cablevision Parent Class B Common Stock). In December 1998, CSC Holdings paid a dividend of $42.1 million to Cablevision Parent. CSC Holdings paid $21.9 million of cash dividends on the Series I Preferred Stock and $148.2 million of dividends in additional shares of Series H and M Preferred Stock in 1999. CSC Holdings is restricted from paying dividends on its preferred stock under the provisions of its senior credit agreement if a default has occurred and is continuing under such agreement. Additionally, CSC Holdings' senior credit agreement, senior debentures and senior subordinated debt instruments may restrict the payment of dividends in respect of any shares of capital stock in certain circumstances. Dividends may not be paid in respect of shares of the Company's common stock unless all dividends due and payable in respect of the preferred stock of CSC Holdings have been paid or provided for. See Item 7. - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources-Restricted Group." (27) Item 6. Selected Financial Data SELECTED FINANCIAL AND STATISTICAL DATA The operating and balance sheet data included in the following selected financial data have been derived from the consolidated financial statements of Cablevision Systems Corporation and CSC Holdings, Inc. Acquisitions made by these companies were accounted for under the purchase method of accounting and, accordingly, the acquisition costs were allocated to the net assets acquired based on their fair value, except for assets previously owned by Mr. Dolan or affiliates of Mr. Dolan which were recorded at historical cost. Acquisitions are reflected in operating, balance sheet and statistical data from the time of acquisition. CSC Holdings, Inc.'s operating, balance sheet and statistical data prior to April 5, 1999 has been restated to include the financial position, results of operations and statistical information of the TCI Systems from March 4, 1998. The selected financial data presented below should be read in conjunction with the consolidated financial statements of Cablevision Systems Corporation and CSC Holdings, Inc. and the notes thereto included in Item 8 of this Report.
Cablevision Systems Corporation ------------------------------------------------------------------ December 31, ------------------------------------------------------------------ 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) Operating Data: Revenues, net .................................................. $ 3,942,985 $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060 Operating expenses: Technical and operating ................................... 1,535,423 1,268,786 853,800 538,272 412,479 Retail electronics cost of sales .......................... 484,760 367,102 -- -- -- Selling, general and administrative ....................... 1,203,119 906,465 514,574 313,476 266,209 Depreciation and amortization ............................. 893,797 734,107 499,809 388,982 319,929 ----------- ----------- ----------- ----------- ----------- Operating profit (loss) ........................................ (174,114) (11,317) 81,175 74,412 79,443 Other income (expense): Interest expense, net ..................................... (465,740) (402,374) (363,208) (265,015) (311,887) Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) (82,028) (93,024) Gain on sale of programming interests and cable assets, net -- 170,912 372,053 -- 35,989 Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 -- -- Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) (37,784) (5,517) Provision for preferential payment to related party ....... -- (980) (10,083) (5,600) (5,600) Minority interests ........................................ (120,524) (124,677) (209,461) (137,197) (28,886) Miscellaneous, net ........................................ (16,570) (19,218) (12,606) (6,647) (8,225) ----------- ----------- ----------- ----------- ----------- Net loss ....................................................... $ (800,607) $ (448,504) $ (12,104) $ (459,859) $ (337,707) =========== =========== =========== =========== =========== Basic and diluted net loss per common share .................... $ (5.12) $ (3.16) $ (.12) $ (4.63) $ (3.54) =========== =========== =========== =========== =========== Average number of common shares outstanding (in thousands) ..... 156,503 142,016 99,608 99,308 95,304 =========== =========== =========== =========== =========== Cash dividends declared per common share ....................... $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== ===========
(28)
Cablevision Systems Corporation -------------------------------------------------------------------------------- December 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- ------------- ------------- ------------- (Dollars in thousands) Balance Sheet Data: Total assets ................................... $ 7,130,308 $ 7,061,062 $ 5,614,788 $ 3,034,725 $ 2,502,305 Total debt ..................................... 6,094,701 5,357,608 4,694,062 3,334,701 3,157,107 Minority interests ............................. 592,583 719,007 821,782 -- -- Deficit investment in affiliates ............... -- -- -- 512,800 453,935 Preferred stock of CSC Holdings, Inc. .......... 1,404,511 1,579,670 1,456,549 1,338,006 590,492 Stockholders' deficiency ....................... (3,067,083) (2,611,685) (2,711,514) (2,707,026) (2,224,417)
Cablevision Systems Corporation -------------------------------------------------------------------------------- December 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- ------------- ------------- ------------- Statistical Data: Homes passed by cable .......................... 5,200,000 5,115,000 4,398,000 3,858,000 3,328,000 Basic service subscribers ...................... 3,492,000 3,412,000 2,844,000 2,445,000 2,061,000 Basic service subscribers as a percentage of homes passed .............................. 67.2% 66.7% 64.7% 63.4% 61.9% Number of premium television units (1) ......... 7,715,000 6,754,000 4,471,000 4,221,000 3,734,000 Average number of premium units per basic subscriber at period end (1) .............. 2.2 2.0 1.6 1.7 1.8 Average monthly revenue per basic subscriber (2) $ 44.38 $ 42.56 $ 38.53 $ 36.71 $ 37.07
- - ---------- (1) Restated for 1995 through 1998 to conform to 1999's definition and reflects in 1995 through 1997 the operations of certain cable television systems which had relatively lower premium unit penetration and were sold by December 1998. (2) Based on recurring service revenues divided by average subscribers for the month of December. (29)
CSC Holdings, Inc. ------------------------------------------------------------------- December 31, ----------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- (Dollars in thousands, except per share data) Operating Data: Revenues, net .................................................. $ 3,942,985 $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060 Operating expenses: Technical and operating ................................... 1,535,423 1,268,786 853,800 538,272 412,479 Retail electronics cost of sales .......................... 484,760 367,102 -- -- -- Selling, general and administrative ....................... 1,203,119 906,465 514,574 313,476 266,209 Depreciation and amortization ............................. 893,797 734,107 499,809 388,982 319,929 ----------- ----------- ----------- ----------- ----------- Operating profit (loss) ........................................ (174,114) (11,317) 81,175 74,412 79,443 Other income (expense): Interest expense, net ..................................... (465,740) (402,374) (363,208) (265,015) (311,887) Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) (82,028) (93,024) Gain on sale of programming interests and cable assets, net -- 170,912 372,053 -- 35,989 Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 -- -- Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) (37,784) (5,517) Provision for preferential payment to related party ....... -- (980) (10,083) (5,600) (5,600) Minority interests ........................................ 49,563 37,195 (60,694) (9,417) (8,637) Miscellaneous, net ........................................ (16,570) (19,218) (12,606) (6,647) (8,225) ----------- ----------- ----------- ----------- ----------- Net income (loss) .............................................. (630,520) (286,632) 136,663 (332,079) (317,458) Dividend requirements applicable to preferred stock ............ (170,087) (161,872) (148,767) (127,780) (20,249) ----------- ----------- ----------- ----------- ----------- Net loss applicable to common shareholder ...................... $ (800,607) $ (448,504) $ (12,104) $ (459,859) $ (337,707) =========== =========== =========== =========== =========== Basic and diluted net loss per common share* ................... $ -- $ -- $ (.12) $ (4.63) $ (3.54) =========== =========== =========== =========== =========== Average number of common shares outstanding (in thousands)* .... -- -- 99,608 99,308 95,304 =========== =========== =========== =========== =========== Cash dividends declared per common share* ...................... $ -- $ -- $ -- $ -- $ -- =========== =========== =========== =========== ===========
- - ---------- * Per share information for the years ended December 31, 1999 and 1998 are not presented since CSC Holdings, Inc. became a wholly-owned subsidiary of Cablevision Parent in 1998. (30)
CSC Holding, Inc. -------------------------------------------------------------------------------- December 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- ------------- ------------- ------------- (Dollars in thousands) Balance Sheet Data: Total assets ................................... $ 7,130,308 $ 7,061,025 $ 5,614,788 $ 3,034,725 $ 2,502,305 Total debt ..................................... 6,094,701 5,357,608 4,694,062 3,334,701 3,157,107 Minority interests ............................. 592,583 719,007 821,782 -- -- Deficit investment in affiliates ............... -- -- -- 512,800 453,935 Redeemable preferred stock ..................... 1,404,511 1,256,339 1,123,808 1,005,265 257,751 Stockholder's deficiency ....................... (3,078,413) (2,286,744) (2,711,514) (2,707,026) (2,224,417)
CSC Holding, Inc. -------------------------------------------------------------------------------- December 31, -------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------- ------------- ------------- ------------- ------------- Statistical Data: Homes passed by cable .......................... 5,200,000 5,115,000 4,398,000 3,858,000 3,328,000 Basic service subscribers ...................... 3,492,000 3,412,000 2,844,000 2,445,000 2,061,000 Basic service subscribers as a percentage of homes passed .............................. 67.2% 66.7% 64.7% 63.4% 61.9% Number of premium television units (1) ......... 7,715,000 6,754,000 4,471,000 4,221,000 3,734,000 Average number of premium units per basic subscriber at period end (1) .............. 2.2 2.0 1.6 1.7 1.8 Average monthly revenue per basic subscriber (2) $ 44.38 $ 42.56 $ 38.53 $ 36.71 $ 37.07
- - ---------- (1) Restated for 1995 through 1998 to conform to 1999's definition and reflects in 1995 through 1997 the operations of certain cable television systems which had relatively lower premium unit penetration and were sold by December 1998. (2) Based on recurring service revenues divided by average subscribers for the month of December. (31) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This Annual Report contains or incorporates by reference statements that constitute forward looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward looking statements as a result of various factors. Factors that may cause such differences to occur include but are not limited to: (i) the level of growth in the Company's revenues; (ii) subscriber demand, competition, the cost of programming and industry conditions; (iii) whether expenses of the Company continue to increase or increase at a rate faster than expected; (iv) whether any unconsummated transactions are consummated on the terms and at the times set forth (if at all); (v) new competitors entering the Company's franchise areas; (vi) other risks and uncertainties inherent in the cable television business; (vii) financial community and rating agency perceptions of the Company and its business, operations, financial condition and the industry in which it operates; and (viii) the factors described in the Company's registration statement on Form S-3, including the section entitled "Risk Factors" contained therein. The information contained herein concerning Year 2000 issues ("Y2K") constitutes forward looking information. The identification and remediation of Y2K issues is a technological effort that has never been undertaken before and estimates of the outcome, time and expense of this endeavor are, for that reason, particularly hard to make with any certainty. As a result, the Company's estimates may prove to be materially inaccurate. The Company disclaims any obligation to update the forward-looking statements contained or incorporated by reference herein. (32) Recent Transactions 1999 Acquisitions. In April 1999, CSC Holdings purchased ITT's remaining minority interest in Madison Square Garden. In 1999, CSC Holdings acquired interests in the real property and assets related to certain movie theaters. 1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of Clearview and certain assets from Loews. In June 1998, CSC Holdings purchased 50% of ITT's then remaining minority interest in Madison Square Garden. In March 1998, Cablevision Parent acquired certain cable television systems in New York and New Jersey from TCI. In addition, in February 1998, Cablevision Electronics acquired substantially all of the assets associated with 40 The WIZ consumer electronics store locations (the "WIZ Transaction"). 1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all of the assets of U.S. Cable Television Group, L.P. and the sale of several smaller cable television systems. Also in 1998, CSC Holdings transferred its cable television system in Rensselaer, New York plus approximately $16 million in cash to Time Warner in exchange for Time Warner's Litchfield, Connecticut system. In addition, in January 1998, Rainbow Media completed the sale of an interest in a regional sports programming business. 1997 Acquisitions and Transactions. In December 1997, Rainbow Media completed certain transactions with Fox. Also in December 1997, Madison Square Garden acquired all of the membership interests in Radio City Productions, LLC. In July 1997, CSC Holdings acquired from Warburg Pincus the Series A Preferred Stock of A-R Cable Services, Inc. ("A-R Cable") which resulted in the consolidation of A-R Cable's operations from the date of the transaction. In June 1997, CSC Holdings acquired from Warburg Pincus the equity interest that Warburg Pincus had in certain cable television systems in Massachusetts giving the Company full ownership of these systems. In June 1997, CSC Holdings redeemed a portion of ITT's interest in Madison Square Garden which increased Rainbow Media's interest in Madison Square Garden from 50% to 89.8%. In April 1997, CSC Holdings exchanged 25% of its interest in Rainbow Media for NBC's interest in certain of Rainbow Media's programming entities. 1997 Dispositions. In 1997, CSC Holdings completed the sale of certain cable television systems and Rainbow Media completed the sale of the assets of a radio station. The above transactions completed in 1999, 1998 and 1997 are collectively referred to as the "Net Acquisitions." (33) Results of Operations - Cablevision Systems Corporation The following table sets forth on a historical basis certain items related to operations as a percentage of net revenues for the periods indicated. STATEMENT OF OPERATIONS DATA
Years Ended December 31, ----------------------------------------------------- 1999 1998 ----------------------- ------------------------ (Increase) % of Net % of Net Decrease Amount Revenues Amount Revenues in Net loss ------ -------- ------ -------- ----------- (Dollars in thousands) Revenues, net....................................... $3,942,985 100% $3,265,143 100% $677,842 Operating expenses: Technical and operating.......................... 1,535,423 39 1,268,786 39 (266,637) Retail electronics cost of sales................. 484,760 12 367,102 11 (117,658) Selling, general & administrative................ 1,203,119 31 906,465 28 (296,654) Depreciation and amortization.................... 893,797 23 734,107 22 (159,690) --------- --------- --------- Operating loss...................................... (174,114) (4) (11,317) - (162,797) Other income (expense): Interest expense, net............................ (465,740) (12) (402,374) (12) (63,366) Equity in net loss of affiliates................. (19,234) (1) (37,368) (1) 18,134 Gain on sale of programming interests and cable assets, net.................................. - - 170,912 5 (170,912) Write off of deferred interest and financing costs (4,425) - (23,482) (1) 19,057 Provision for preferential payment to related party - - (980) - 980 Minority interests............................... (120,524) (3) (124,677) (4) 4,153 Miscellaneous, net............................... (16,570) - (19,218) (1) 2,648 --------- --------- --------- Net loss............................................ $(800,607) (20)% $(448,504) (14)% $(352,103) ========= ========= =========
Years Ended December 31, ----------------------------------------------------- 1998 1997 ----------------------- ------------------------ (Increase) % of Net % of Net Decrease Amount Revenues Amount Revenues in Net loss ------ -------- ------ -------- ----------- (Dollars in thousands) Revenues, net....................................... $3,265,143 100% $1,949,358 100% $1,315,785 Operating expenses: Technical and operating.......................... 1,268,786 39 853,800 44 (414,986) Retail electronics cost of sales................. 367,102 11 - - (367,102) Selling, general & administrative................ 906,465 28 514,574 26 (391,891) Depreciation and amortization.................... 734,107 22 499,809 26 (234,298) --------- --------- --------- Operating profit (loss)............................. (11,317) - 81,175 4 (92,492) Other income (expense): Interest expense, net............................ (402,374) (12) (363,208) (19) (39,166) Equity in net loss of affiliates................. (37,368) (1) (27,165) (1) (10,203) Gain on sale of programming interests and cable assets, net.................................. 170,912 5 372,053 19 (201,141) Gain on redemption of subsidiary preferred stock. - - 181,738 9 (181,738) Write off of deferred interest and financing costs (23,482) (1) (24,547) (1) 1,065 Provision for preferential payment to related party (980) - (10,083) - 9,103 Minority interests............................... (124,677) (4) (209,461) (11) 84,784 Miscellaneous, net............................... (19,218) (1) (12,606) (1) (6,612) --------- --------- --------- Net loss............................................ $(448,504) (14)% $ (12,104) (1)% $(436,400) ========= ========= =========
(34) Comparison of Year Ended December 31, 1999 Versus Year Ended December 31, 1998. Consolidated Results - Cablevision Systems Corporation Revenues for the year ended December 31, 1999 increased $677.8 million (21%) as compared to revenues for the prior year. Approximately $306.6 million (9%) of the increase was attributable to the Net Acquisitions, approximately $279.1 million (9%) was from increases in other revenue sources such as Rainbow Media's programming and entertainment services, advertising on the Company's cable television systems, revenue derived from the developing commercial telephone business and revenue recognized in connection with the warrants received in the At Home transaction; and approximately $58.6 million (2%) resulted from higher revenue per subscriber. The remaining increase of $33.5 million (1%) was attributable to internal growth of 65,700 in the average number of subscribers during the year. Technical and operating expenses for 1999 increased $266.6 million (21%) over the 1998 amount. Approximately $177.3 million (14%) reflected increased costs directly associated with the growth in revenues and subscribers discussed above, as well as increases in programming costs for cable television services, with the remaining $89.3 million (7%) attributable to the Net Acquisitions. As a percentage of revenues, technical and operating expenses remained relatively constant during 1999 as compared to 1998. Retail electronics cost of sales amounted to approximately $484.8 million (80% of retail electronics sales) for the year ended December 31, 1999, compared to approximately $367.1 million (79% of retail electronics sales) from the date of the WIZ Transaction through December 31, 1998. Cost of sales includes the cost of merchandise sold, including freight costs incurred, as well as store occupancy and buying costs for the Company's retail electronics segment. Selling, general and administrative expenses increased $296.7 million (33%) for 1999 as compared to the 1998 level. Approximately $110.9 million (12%) was due to charges related to an incentive stock plan and approximately $97.1 million (11%) resulted from higher administrative, sales and marketing and customer service costs. Approximately $59.4 million (7%) was directly attributable to the Net Acquisitions with the remaining $29.3 million (3%) due to Year 2000 remediation costs. As a percentage of revenues, selling, general and administrative expenses increased 3% in 1999 compared to 1998. Excluding the effects of the incentive stock plan and Year 2000 remediation costs, as a percentage of revenues such costs remained relatively constant during 1999 as compared to 1998. Operating profit before depreciation and amortization decreased $3.1 million to $719.7 million for 1999 from $722.8 million for 1998. The decrease resulted from the $110.9 million (15%) increase in charges related to an incentive stock plan, partially offset by an increase of $67.4 million (9%) resulting from the combined effect of the revenue and other expense changes discussed above, with an increase of approximately $40.4 million (6%) attributable to the Net Acquisitions. On a pro forma basis, giving effect to the Net Acquisitions as if they had occurred on January 1, 1998 and excluding the incentive stock plan charges referred to above and the costs of Year 2000 remediation, operating profit before depreciation and amortization would have increased 11.7% in 1999. Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be (35) considered in addition to and not as a substitute for net income (loss) and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. Depreciation and amortization expense increased $159.7 million (22%) during 1999 as compared to 1998. Approximately $103.2 million (14%) of the increase was directly attributable to the Net Acquisitions (including approximately $35.5 million relating to the write off of goodwill relating to The WIZ). The remaining $56.5 million (8%) increase resulted primarily from depreciation on new plant assets, partially offset by a decrease in amortization expense resulting from certain intangible assets becoming fully amortized during 1999. Net interest expense increased $63.4 million (16%) during 1999 compared to 1998. The net increase is primarily attributable to debt incurred to fund acquisitions and capital expenditures, partly offset by generally lower interest rates. Equity in net loss of affiliates decreased to $19.2 million in 1999 from $37.4 million in 1998. Such amounts consist of the Company's share of the net profits and losses of certain programming and PCS businesses in which the Company has varying minority ownership interests. Gain on sale of programming interests and cable assets for the year ended December 31, 1998 consists primarily of a gain of $153.3 million from the disposition of certain cable television systems and $17.7 million from the sale of an interest in a regional sports programming business. Write off of deferred interest and financing costs of $4.4 million in 1999 consists principally of the write off of deferred financing costs in connection with amendments to the Company's credit agreements. The write off of deferred interest and financing costs of $23.5 million in 1998 consists principally of the $14.9 million premium paid to redeem Clearview's senior notes payable and the write off of deferred financing costs of $4.7 million in connection with amendments to the Company's credit agreements. Provision for preferential payment to related party consists of the expensing of the proportionate amount due with respect to an annual payment to Mr. Dolan made in connection with the acquisition of Cablevision of New York City. Effective March 4, 1998 these preferential payments were terminated upon the retirement of Mr. Dolan's preferred interest. Minority interests for the years ended December 31, 1999 and 1998 include CSC Holdings' preferred stock dividend requirements, Fox's 40% share of the net income of Regional Programming Partners, ITT's share of the net loss of Madison Square Garden through April 8, 1999 and NBC's share of the net loss of Rainbow Media. Net miscellaneous expense decreased to $16.6 million for the year ended December 31, 1999 compared to $19.2 million for the prior year. In 1999, miscellaneous expense included a charge of $15.1 million resulting from the write off of an investment held by Rainbow Media, $6.7 million relating to federal, state and local income taxes and $5.7 million relating to various other items, partially offset by a gain of $10.9 million resulting from the sale of certain investments. In 1998, miscellaneous expense included $13.5 million relating to federal, state and local income taxes and $5.7 million relating to various other items. (36) Business Segments Results - Cablevision Systems Corporation The Company classifies its business interests into three segments: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, which owns and operates professional sports teams, regional cable television networks, live productions and entertainment venues; and Retail Electronics, which represents the operations of Cablevision Electronics' retail electronics stores. The Company allocates certain costs to each segment based upon their proportionate estimated usage of services. Telecommunication Services The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenue for the Company's telecommunication services segment.
Years Ended December 31, -------------------------------------------------------------- 1999 1998 ----------------------------- ---------------------------- % of % of Amount Revenues Amount Revenues --------------- ------------ -------------- ------------ (dollars in thousands) Revenues, net...................................... $ 2,151,308 100% $ 1,886,190 100% Technical and operating expenses................... 866,739 40 767,177 41 Selling, general and administrative expenses....... 508,499 24 432,435 23 Depreciation and amortization...................... 616,795 29 547,629 29 ----------- ----------- Operating profit.............................. $ 159,275 7% $ 138,949 7% =========== ===========
Revenues for the year ended December 31, 1999 increased $265.1 million (14%) as compared to revenues for the prior year. Approximately $103.7 million (5%) of the increase was attributable to the Net Acquisitions; approximately $58.6 million (3%) resulted from higher revenue per subscriber and approximately $43.0 million (2%) was attributable to revenues from the Company's developing telephone business and revenue recognized in connection with the At Home transaction. Approximately $33.5 million (2%) of the increase was attributable to internal growth of 65,700 in the average number of subscribers during the year. The remaining increase of approximately $26.3 million (2%) resulted from increases in other revenue sources, such as advertising and pay-per-view. Technical and operating expenses for 1999 increased $99.6 million (13%) over the 1998 amount. Approximately $59.2 million (8%) was attributable to increased costs directly associated with the growth in subscribers and revenues discussed above, as well as to increases in programming costs for cable television services. Approximately $40.4 million (5%) was attributable to the Net Acquisitions. As a percentage of revenues, operating expenses decreased 1% during 1999 as compared to 1998. Selling, general and administrative expenses increased $76.1 million (18%) in 1999 as compared to the 1998 level. Approximately $59.6 million (14%) was due to charges related to an incentive stock plan. Approximately $5.9 million (1%) was attributable to Year 2000 remediation costs and approximately $6.4 million (2%) was directly attributable to the Net Acquisitions. The remaining $4.2 million (1%) increase was attributable to increases in sales and marketing, customer service and subscriber billing costs. As a percentage of revenues, selling, general and administrative (37) expenses increased 1% in 1999 compared to 1998. Excluding the effects of the incentive stock plan and Year 2000 remediation costs, as a percentage of revenues such costs decreased 2%. Depreciation and amortization expense increased $69.2 million (13%) during 1999 as compared to 1998. Approximately $42.7 million (8%) of the increase was directly attributable to the Net Acquisitions. The remaining $26.5 million (5%) increase resulted primarily from depreciation on new plant assets, partially offset by a decrease in amortization expense resulting from certain intangible assets becoming fully amortized during 1999. Rainbow Media The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenue for Rainbow Media.
Years Ended December 31, ------------------------------------------------------------- 1999 1998 ---------------------------- --------------------------- % of % of Amount Revenues Amount Revenues --------------- ----------- -------------- ----------- (dollars in thousands) Revenues, net...................................... $1,234,113 100% $1,007,639 100% Technical and operating expenses................... 728,567 59 590,151 58 Selling, general and administrative expenses....... 450,093 36 351,727 35 Depreciation and amortization...................... 161,669 13 166,661 17 ---------- ---------- Operating loss................................ $ (106,216) (9)% $ (100,900) (10)% ========== ==========
Revenues for the year ended December 31, 1999 increased $226.5 million (22%) as compared to revenues for the prior year. Approximately $104.7 million (10%) of the increase was attributable to internal growth in programming network subscribers, rate increases and new channel launches. Approximately $78.2 million (8%) of the increase was attributable to a greater number of events at Madison Square Garden including the Knicks and Rangers and other special events during the 1999 period, partially offset by a decrease resulting from fewer performances at Radio City Music Hall due to its temporary closing in 1999 for restoration. The remaining $43.6 million (4%) increase was attributable to higher advertising revenues. Technical and operating expenses increased $138.4 million (23%) for the year ended December 31, 1999 over the same 1998 period. Approximately $93.4 million (16%) of the increase was attributable to a greater number of sporting events including the Knicks and Rangers, partially offset by fewer concerts and other events due to the temporary closing of Radio City Music Hall for restoration. Increases of $20.5 million (3%) were due to new programming service launches with the remaining $24.5 million (4%) increase attributable to costs directly associated with the increases in revenues discussed above. As a percentage of revenues, operating expenses increased 1% during 1999 compared to 1998. Selling, general and administrative expenses increased $98.4 million (28%) for 1999 as compared to the 1998 level. Approximately $51.3 million (15%) of the increase was due to charges related to an incentive stock plan. Approximately $32.7 million (9%) was attributable to increases in sales and marketing initiatives, including the promotion of new channel launches and other general cost increases. The remaining $14.4 million (4%) increase was a result of Year 2000 remediation costs. As a percentage of revenues, selling, general and administrative expenses increased 1% in 1999 (38) compared to 1998. Excluding the effects of the incentive stock plan and Year 2000 remediation costs, as a percentage of revenues such costs decreased 2%. Depreciation and amortization expense decreased $5.0 million (3%) during 1999 as compared to 1998. Increased depreciation on fixed asset additions was more than offset by a reduction in amortization as certain intangible assets became fully amortized. Retail Electronics The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenue for the Company's retail electronics segment, Cablevision Electronics. The information presented is for the year ended December 31, 1999 and for the period from the date of acquisition, February 9, 1998, through December 31, 1998.
Year Ended Period Ended December 31, 1999 December 31, 1998 ----------------------------- ---------------------------- % of % of Amount Revenues Amount Revenues --------------- ------------ -------------- ------------ (dollars in thousands) Revenues, net...................................... $ 603,294 100% $ 464,388 100% Retail electronics cost of sales................... 484,760 80 367,102 79 Selling, general and administrative expenses....... 160,597 27 117,452 25 Depreciation and amortization...................... 44,940 7 4,293 1 --------- --------- Operating loss................................ $ (87,003) (14)% $ (24,459) (5)% ========= =========
Revenues for the year ended December 31, 1999 amounted to approximately $603.3 million compared to revenues of approximately $464.4 million for the period ended December 31, 1998. The revenues for the period ended December 31, 1998 include operations of Cablevision Electronics from the date of the WIZ Transaction, February 9, 1998, through December 31, 1998. Retail electronics cost of sales amounted to approximately $484.8 million (80% of revenues) for the year ended December 31, 1999 compared to $367.1 million (79% of revenues) for the period ended December 31, 1998. Cost of sales includes the cost of merchandise sold, including freight costs incurred, as well as store occupancy and buying costs. Selling, general and administrative expenses amounted to approximately $160.6 million (27% of revenues) for the year ended December 31, 1999 and approximately $117.5 million (25% of revenues) from the date of acquisition through December 31, 1998. Selling, general and administrative expenses consist of all retail store expenses (excluding store occupancy costs), the salaries and commissions of sales personnel, the costs of advertising, the costs of operating the distribution center and corporate support functions other than buying. Depreciation and amortization expense amounted to approximately $44.9 million (7% of revenues) for the year ended December 31, 1999 and includes approximately $35.5 million relating to the write off of goodwill resulting from the acquisition. For the period ended December 31, 1998, depreciation and amortization expense amounted to $4.3 million (1% of revenues). Depreciation and amortization expense includes the depreciation of all property and equipment and the amortization of intangible assets which resulted from the acquisition. (39) Comparison of Year Ended December 31, 1998 Versus Year Ended December 31, 1997. Consolidated Results - Cablevision Systems Corporation Revenues for the year ended December 31, 1998 increased $1,315.8 million (67%) as compared to revenues for the prior year. Approximately $1,093.7 million (56%) of the increase was attributable to the Net Acquisitions; approximately $88.8 million (5%) resulted from higher revenue per subscriber; and approximately $101.1 million (5%) was from increases in other revenue sources such as Rainbow Media's programming services, advertising on the Company's cable television systems, revenue derived from the developing commercial telephone business and revenue recognized in connection with the warrants received in the At Home transaction. The remaining increase of $32.2 million (1%) was attributable to internal growth of 67,300 in the average number of subscribers during the year. Technical and operating expenses for 1998 increased $415.0 million (49%) over the 1997 amount. Approximately $317.7 million (38%) was attributable to the Net Acquisitions, with the remaining $97.3 million (11%) attributable to increased costs directly associated with the growth in subscribers and revenues discussed above, as well as to increases in programming costs for cable television services. As a percentage of revenues, technical and operating expenses decreased 5% during 1998 as compared to 1997. Retail electronics cost of sales for 1998 amounted to approximately $367.1 million (79% of retail electronics sales) from the date of the WIZ Transaction through December 31, 1998. Cost of sales includes the cost of merchandise sold, including freight costs incurred, as well as store occupancy and buying costs for the Company's retail electronics segment. Selling, general and administrative expenses increased $391.9 million (76%) for 1998 as compared to the 1997 level. Approximately $236.5 million (45%) was directly attributable to the Net Acquisitions and $74.7 million (15%) was due to charges related to an incentive stock plan. The remaining $80.7 million (16%) increase resulted from higher customer service, administrative and sales and marketing costs. As a percentage of revenues, selling, general and administrative expenses increased 2% in 1998 compared to 1997. Excluding the effects of the incentive stock plan, as a percentage of revenues such costs remained relatively constant during 1998 as compared to 1997. Operating profit before depreciation and amortization increased $141.8 million (24%) to $722.8 million for 1998 from $581.0 million for 1997. The Net Acquisitions contributed approximately $172.4 million (29%) of the increase. This increase was partially offset by a decrease of $30.6 million (5%) resulting from the combined effect of the revenue and expense changes discussed above. On a pro forma basis, giving effect to the Net Acquisitions as if they had occurred on January 1, 1997 and excluding the incentive stock plan charges referred to above, operating profit before depreciation and amortization would have increased 11.2% in 1998. Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income (loss) and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. (40) Depreciation and amortization expense increased $234.3 million (47%) during 1998 as compared to 1997. Approximately $212.6 million (43%) of the increase was directly attributable to the Net Acquisitions. The remaining $21.7 million (4%) increase resulted primarily from depreciation on new plant assets, offset by a decrease in amortization expense resulting from certain intangible assets becoming fully amortized during 1998. Net interest expense increased $39.2 million (11%) during 1998 compared to 1997. The net increase is primarily attributable to debt incurred to fund acquisitions and capital expenditures, partly offset by lower interest rates. Equity in net loss of affiliates increased to $37.4 million for 1998 from $27.2 million in 1997. For the year ended December 31, 1998, such amount consisted of the Company's share of the net profits and losses of certain programming businesses in which the Company has varying minority ownership interests. For the year ended December 31, 1997, such amount consisted primarily of the Company's share of net losses in certain cable affiliates for the period prior to consolidation ($37.9 million) and the Company's share of the net profits in certain programming businesses in which the Company had varying ownership interests. Gain on sale of programming interests and cable assets for the year ended December 31, 1998 consists primarily of a gain of $153.3 million from the disposition of certain cable television systems and $17.7 million from the sale of an interest in a regional sports programming business. For the year ended December 31, 1997, the gain consists primarily of a gain of approximately $305.0 million resulting from the Fox transactions, a gain of approximately $59.0 million resulting from the sale of certain cable television systems, and a gain of approximately $7.4 million from the sale of Rainbow Media's radio station. Gain on redemption of subsidiary preferred stock for the year ended December 31, 1997 represents the gain recognized upon the redemption of A-R Cable's Series A Preferred Stock of $181.7 million. Such gain represents primarily the reversal of accrued preferred dividends in excess of amounts paid. Write off of deferred interest and financing costs of $23.5 million in 1998 consists principally of the premium of $14.9 million paid to redeem Clearview's senior notes payable. Additionally, in 1998 the Company wrote off deferred financing costs of $4.7 million in connection with amendments to the Company's credit agreements. The write off of deferred interest and financing costs of $24.5 million in 1997 consists principally of the payment of a premium of $8.4 million to redeem the Company's 10 3/4% Senior Subordinated Debentures due 2004 and the write off of $5.3 million in deferred financing costs in connection with such redemption. In addition, the Company wrote off deferred financing costs of $4.1 million in connection with the repayment of Cablevision of Ohio's bank debt and $6.5 million in connection with the amendment to and repayment of the term loans of the Madison Square Garden credit facility. Provision for preferential payment to related party consists of the expensing of the proportionate amount due with respect to an annual payment to Charles F. Dolan made in connection with the acquisition of Cablevision of New York City. Effective March 4, 1998 these preferential payments were terminated upon the retirement of Mr. Dolan's preferred interest. (41) Minority interests for the year ended December 31, 1998 include CSC Holdings' preferred stock dividend requirements, Fox's 40% share of the net income of Regional Programming Partners, ITT's share of the net loss of Madison Square Garden and NBC's share of the net loss of Rainbow Media. Minority interests for the year ended December 31, 1997 include CSC Holdings' preferred stock dividend requirements, Fox's 40% share of the net income of Regional Programming Partners since the date of the transaction, ITT's share of the net income of Madison Square Garden since the date of acquisition and NBC's 25% share of the net income of Rainbow Media since the date of the transaction. Net miscellaneous expense increased to $19.2 million for the year ended December 31, 1998 compared to $12.6 million for the prior year. Approximately $9.6 million of the increase related to federal alternative minimum taxes and state income taxes. The remaining decrease of $3.0 million reflects a reduction in various other miscellaneous items. Business Segments Results - Cablevision Systems Corporation The Company classifies its business interests into three fundamental areas: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, which owns and operates professional sports teams, regional cable television networks, live productions and entertainment venues; and Retail Electronics, which represents the operations of Cablevision Electronics' retail electronics stores. The Company allocates certain costs to each segment based upon their proportionate estimated usage of services. Telecommunication Services The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenue for the Company's telecommunication services segment.
Years Ended December 31, -------------------------------------------------------------- 1998 1997 ----------------------------- ---------------------------- % of % of Amount Revenues Amount Revenues --------------- ------------ -------------- ------------ (dollars in thousands) Revenues, net...................................... $ 1,886,190 100% $ 1,364,264 100% Technical and operating expenses................... 767,177 41 549,951 41 Selling, general and administrative expenses....... 432,435 23 301,762 22 Depreciation and amortization...................... 547,629 29 399,056 29 ----------- ----------- Operating profit.............................. $ 138,949 7% $ 113,495 8% =========== ===========
Revenues for the year ended December 31, 1998 increased $521.9 million (38%) as compared to revenues for the prior year. Approximately $333.4 million (24%) of the increase was attributable to the Net Acquisitions; approximately $88.8 million (7%) resulted from higher revenue per subscriber and approximately $32.2 million (2%) was attributable to internal growth of 67,300 in the average number of subscribers during the year. Approximately $56.0 million (4%) was attributable to revenues from the Company's developing telephone business and revenue (42) recognized in connection with the At Home transaction. The remaining increase of approximately $11.5 million (1%) resulted from other revenue sources. Technical and operating expenses for 1998 increased $217.2 million (39%) over the 1997 amount. Approximately $137.2 million (25%) was attributable to the Net Acquisitions, with the remaining $80.0 million (14%) attributable to increased costs directly associated with the growth in subscribers and revenues discussed above, as well as to increases in programming costs for cable television services. As a percentage of revenues, operating expenses remained relatively constant during 1998 as compared to 1997. Selling, general and administrative expenses increased $130.7 million (43%) for 1998 as compared to the 1997 level. Approximately $48.8 million (16%) was directly attributable to the Net Acquisitions and $36.1 million (12%) was due to charges related to an incentive stock plan. The remaining $45.8 million (15%) increase resulted from higher customer service, administrative and sales and marketing costs. As a percentage of revenues, selling, general and administrative expenses increased 1% in 1998 compared to 1997. Excluding the effects of the incentive stock plan, as a percentage of revenues such costs decreased 1%. Depreciation and amortization expense increased $148.6 million (37%) during 1998 as compared to 1997. Approximately $135.6 million (34%) of the increase was directly attributable to the Net Acquisitions. The remaining $13.0 million (3%) increase resulted primarily from depreciation on new plant assets, partially offset by a decrease in amortization expense resulting from certain intangible assets becoming fully amortized during 1998. Rainbow Media The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenue for Rainbow Media.
Years Ended December 31, -------------------------------------------------------------- 1998 1997 ----------------------------- ---------------------------- % of % of Amount Revenues Amount Revenues --------------- ------------ -------------- ------------ (dollars in thousands) Revenues, net...................................... $1,007,639 100% $ 637,648 100% Technical and operating expenses................... 590,151 58 351,578 55 Selling, general and administrative expenses....... 351,727 35 214,912 34 Depreciation and amortization...................... 166,661 17 90,634 14 ---------- --------- Operating loss................................ $ (100,900) (10)% $ (19,476) (3)% ========== =========
Revenues for the year ended December 31, 1998 increased $370.0 million (58%) as compared to revenues for the prior year. Approximately $332.5 million (52%) of the increase was attributable to the Net Acquisitions; approximately $24.8 million (4%) resulted from internal growth in programming network subscribers; and approximately $7.4 million (1%) from an increase in cable television advertising sales. The remaining increase of $5.3 million (1%) was primarily attributable to the launch of new programming networks. Technical and operating expenses for 1998 increased $238.6 million (68%) over the 1997 amount. Approximately $218.0 million (62%) was attributable to the Net Acquisitions, with the remaining (43) $20.6 million (6%) attributable to increased costs directly associated with the growth in revenues discussed above. As a percentage of revenues, operating expenses increased 3% during 1998 as compared to 1997. Selling, general and administrative expenses increased $136.8 million (64%) for 1998 as compared to the 1997 level. Approximately $70.2 million (33%) was directly attributable to the Net Acquisitions and $38.5 million (18%) was due to charges related to an incentive stock plan. The remaining $28.1 million (13%) increase was primarily attributable to sales and marketing initiatives related to the promotion of new and established programming networks and from higher administrative costs. As a percentage of revenues, selling, general and administrative expenses increased 1% in 1998 compared to 1997. Excluding the effects of the incentive stock plan, as a percentage of revenues such costs decreased 1%. Depreciation and amortization expense increased $76.0 million (84%) during 1998 as compared to 1997. Approximately $71.4 million (79%) of the increase was directly attributable to the Net Acquisitions. The remaining $4.6 million (5%) increase resulted primarily from depreciation on new fixed assets. Retail Electronics The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenue for the Company's retail electronics segment, Cablevision Electronics. The information presented is for the period from the date of acquisition, February 9, 1998, through December 31, 1998.
Period Ended December 31, 1998 ------------------------------------------ Amount % of Revenues -------------------- ------------------ (dollars in thousands) Revenues, net...................................... $ 464,388 100% Retail electronics cost of sales................... 367,102 79 Selling, general and administrative expenses....... 117,452 25 Depreciation and amortization...................... 4,293 1 --------- Operating loss................................ $ (24,459) (5)% =========
Revenues for the period ended December 31, 1998 amounted to approximately $464.4 million. Approximately $179.5 million (39%) was derived from the sale of video equipment, $112.8 million (24%) from the sale of audio equipment and $94.6 million (20%) from the sale of home office equipment. The remaining $77.5 million (17%) of the revenue was derived from the sale of compact disks and other pre-recorded music, digital video disks, VHS video and other pre-recorded movies and warranty and service contracts. Retail electronics cost of sales for 1998 amounted to approximately $367.1 million (79% of revenues) from the date of acquisition through December 31, 1998. Cost of sales includes the cost of merchandise sold, including freight costs incurred, as well as store occupancy and buying costs. (44) Selling, general and administrative expenses amounted to approximately $117.5 million (25% of revenues) from the date of acquisition through December 31, 1998. Selling, general and administrative expenses consist of all retail store expenses (excluding store occupancy costs), the salaries and commissions of sales personnel, the costs of advertising, the cost of operating the distribution center and corporate support functions other than buying. Depreciation and amortization expense amounted to approximately $4.3 million (1% of revenues) from the date of acquisition through December 31, 1998. Depreciation and amortization expense includes the depreciation of all property and equipment and the amortization of intangible assets which resulted from the acquisition. Results of Operations - CSC Holdings, Inc. In April 1999, Cablevision Parent contributed the TCI Systems to CSC Holdings. This transaction was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of the TCI Systems were recorded at historical book value. Prior period consolidated financial statements of CSC Holdings have been restated to include the financial position and results of operations of the TCI Systems from March 4, 1998. As a result, the operations of CSC Holdings are identical to the operations of Cablevision Systems Corporation, except for dividends attributable to the preferred stock of CSC Holdings which have been reported in minority interests in the consolidated financial statements of Cablevision Systems Corporation. Refer to Cablevision Systems Corporation's Management's Discussion and Analysis of Financial Condition and Results of Operations on page 32 through 53 of this Form 10-K. (45) Liquidity and Capital Resources Cablevision Systems Corporation does not have any operations independent of its subsidiaries. In addition, Cablevision Systems Corporation has no borrowings and does not have outstanding any securities other than its Class A Common Stock and Class B Common Stock, on which it does not intend to pay any dividends in the foreseeable future. Accordingly, Cablevision Systems Corporation does not have cash needs independent of the needs of its subsidiaries. Cablevision Systems Corporation is structured as a restricted group and an unrestricted group of subsidiaries. The Restricted Group includes all of CSC Holdings' cable operations in and around the greater New York City metropolitan area, in and around the greater Cleveland, Ohio metropolitan area, in and around the Boston, Massachusetts metropolitan area, and in Kalamazoo, Michigan and the commercial telephone operations of the Company's subsidiary, Cablevision Lightpath, Inc. on Long Island, New York. As of April 5, 1999, the cable television subscribers of the TCI Systems (847,432 at March 31, 1999) became part of the Restricted Group upon the transfer of the TCI Systems from Cablevision Systems Corporation to CSC Holdings, Inc. At December 31, 1999, the Restricted Group encompassed approximately 3,492,000 cable television subscribers, including approximately 357,000 subscribers in its Ohio and Kalamazoo, Michigan systems held for sale (see Note 3 - "Net Assets Held for Sale"). The Unrestricted Group includes principally Rainbow Media, including Madison Square Garden, and other companies engaged in certain developmental activities ("New Media") including high-speed cable modem service, residential telephone service, developing (non-Long Island) commercial telephone service, research and development expenses and deferred revenue amortization related to the At Home transaction. The Unrestricted Group also includes Cablevision Electronics which operates 41 The WIZ consumer electronics store locations and CCG Holdings, Inc. which owns the Company's motion picture theater assets. 2000 Outlook In the New York metropolitan area, the Company forecasts capital investment of between $800 million and $850 million in its cable, Long Island commercial telephone and New Media businesses in 2000. This capital includes investments for digital video services in anticipation of a pilot rollout of SONY digital boxes in the fourth quarter of 2000, cable modem services as the Company doubles the number of homes marketed for such service and the development of commercial telephone services outside Long Island. In addition, the Company forecasts capital investments aggregating between $225 million and $275 million for Madison Square Garden, Rainbow Media, retail electronics, theatres and corporate activities in 2000. The Company's non-New York metropolitan area systems, primarily in Massachusetts and including operations of systems held for sale in Ohio and Kalamazoo, Michigan, are anticipated to have capital requirements of between $200 million to $250 million, covering primarily plant rebuild and developmental activities. (46) The following table presents selected historical results of operations and other financial information related to the captioned groups or entities as of and for the year ended December 31, 1999.
Interest Capital Revenues AOCF* Expense Expenditures -------- ----- ------- ------------ (dollars in thousands) Restricted Group**....................... $2,080,554 $ 916,107 $404,696 $643,526 New Media***............................. 70,754 126 115 89,003 Rainbow Media (including MSG and AMC).... 1,234,113 190,646 56,556 91,268 Retail Electronics....................... 603,294 (37,934) 10,192 35,106 Other (including eliminations)........... (45,730) (51,996) (1,010) 12,263 ---------- ---------- -------- -------- Total................................ $3,942,985 $1,016,949 $470,549 $871,166 ========== ========== ======== ========
- - ---------- * Defined as operating income (loss) before depreciation and amortization and excluding incentive stock plan expense of $255,789 and the costs of Year 2000 remediation of $41,477. ** Includes the TCI Systems and systems held for sale. *** Consists of developmental operations, including those of systems held for sale.
Restricted Unrestricted Group Group Total ----- ----- ----- (dollars in thousands) Debt and Redeemable Preferred Stock Senior debt........................................... $1,486,702 $ - $1,486,702 Senior notes and debentures........................... 2,692,602 - 2,692,602 Subordinated notes and debentures..................... 1,048,513 - 1,048,513 ---------- ---------- ---------- 5,227,817 - 5,227,817 ---------- ---------- ---------- Redeemable preferred stock of CSC Holdings............ 1,404,511 - 1,404,511 Rainbow Media Rainbow Media senior debt......................... - 78,016 78,016 AMC senior debt................................... - 317,818 317,818 MSG senior debt................................... - 364,724 364,724 ---------- ---------- ---------- Total Rainbow Media debt..................... - 760,558 760,558 ---------- ---------- ---------- Retail Electronics debt............................... - 80,693 80,693 Other debt............................................ - 25,633 25,633 ---------- ---------- ---------- Total debt and redeemable preferred stock.... $6,632,328 $ 866,884 $7,499,212 ========== ========== ==========
(47) Restricted Group The Restricted Group's plant upgrade, combined with additional amounts required in respect of the start up and operation of new businesses such as high speed internet access, digital video services, the expansion of residential telephone services and the roll out of non-Long Island based commercial telephone business, as well as additional investments or acquisitions will require significant additional funding. The Company expects to obtain the requisite funds through internally generated funds, amounts available under the CSC Holdings' credit facility, proceeds from asset sales and/or additional capital market issuances. In December 1999, the Company announced the sale of its Ohio system to Adelphia Communications Corporation for $990 million in cash and $540 million in Adelphia class A common stock, subject to certain adjustments. In March 2000, the Company entered into a definitive agreement with Charter Communications, Inc. for the sale of its Kalamazoo, Michigan system in exchange for $172.5 million in Charter Communications, Inc. common stock. The Company expects to apply the cash proceeds received, which may include cash proceeds from the monetization of stock, toward the reduction of outstanding debt. The consummation of each of these transactions is subject to the receipt of franchise transfer and other required approvals. In September 1999, the Company announced the redemption of CSC Holdings' Series I Cumulative Convertible Exchangeable Preferred Stock. A total of 13,797,625 depositary shares (out of 13,800,000 outstanding) were converted to 20,458,925 shares of the Company's Class A Common Stock, with the remaining 2,375 depositary shares being redeemed for cash. In July 1999, CSC Holdings issued $500 million face amount of 8 1/8% Senior Notes due 2009. The net proceeds of $491 million were used to repay outstanding borrowings under CSC Holdings' credit facility. As of March 3, 2000, the Restricted Group had in total $2.2 billion in reducing revolving credit facilities, consisting of a $1.2 billion facility available to Cablevision MFR, Inc. and certain of the Company's New Jersey subsidiaries and a $1.0 billion facility available to CSC Holdings, Inc. and other Restricted Group subsidiaries. Both facilities mature in March 2007 and begin to reduce in June 2001. As of March 3, 2000, the Restricted Group had total drawings under these credit facilities of $1,637 million and letters of credit of $39.3 million. Unrestricted and undrawn funds available to the Restricted Group amounted to approximately $523.7 million as of March 3, 2000.
---------------------------------------------------- As of March 3, 2000 (in thousands) ---------------------------------------------------- CSC Holdings MFR Total ------------ --- ----- Total facility.................... $ 1,000,000 $ 1,200,000 $ 2,200,000 Outstanding debt.................. 741,000 896,000 1,637,000 Outstanding letters of credit..... 39,300 - 39,300 ----------- ----------- ----------- Availability................. $ 219,700 $ 304,000 $ 523,700 =========== =========== ===========
(48) The Credit Agreement contains certain financial covenants that may limit the Restricted Group's ability to utilize all of the undrawn funds available thereunder, including covenants requiring the Restricted Group to maintain certain financial ratios and restricting the permitted uses of borrowed funds. As of March 3, 2000, CSC Holdings had entered into interest exchange (swap) agreements with several of its banks covering a notional principal amount of $300 million. Swaps in the aggregate amount of $250 million require CSC Holdings to pay a floating rate of interest and mature in 2001 and 2002. The remainder of the swaps require payment of a fixed rate of interest by CSC Holdings and mature in August 2000. The weighted average effective interest rate on all Restricted Group bank debt outstanding, including the swap agreements, as of March 3, 2000, was approximately 7.0%. TCI Systems In May 1998, the TCI Systems entered into an $800 million credit facility which was reduced by $100 million in July 1998. In April 1999, the TCI Systems were transferred to CSC Holdings. The commitments under the TCI facility were terminated and the balance outstanding was repaid on April 5, 1999 with borrowings under the MFR credit facility. Rainbow Media and American Movie Classics As of March 3, 2000, Rainbow Media had a $300 million non-amortizing revolving credit facility maturing on December 31, 2000 of which $79.5 million was restricted to provide for repayment of a like amount of intercompany borrowings from Regional Programming Partners ("RPP") as described below. On January 4, 2000, Rainbow Media repaid $100.5 million of its $180 million loan from RPP with borrowings under its credit facility. Direct borrowings as of March 3, 2000, amounted to $189.5 million, leaving a balance of $31 million available to Rainbow Media under the credit facility as of that date. In May 1999, American Movie Classics, a wholly-owned subsidiary of Rainbow Media, entered into a new $425 million credit facility consisting of a $200 million reducing revolving credit facility and a $225 million amortizing term loan, both of which mature on March 31, 2006. The amount of the available commitment under the revolver will not begin to be reduced until June 2004. As of March 3, 2000, American Movie Classics had outstanding borrowings of $319 million, leaving unrestricted funds available of $106 million. In May 1999 and December 1999, American Movie Classics distributed to its parent, Rainbow Media, approximately $97 million and $28 million, respectively, which Rainbow Media used to repay outstanding borrowings plus interest and fees under its credit facility and to repay a portion of Rainbow Media's intercompany loan from RPP. Both the Rainbow Media and American Movie Classics credit facilities contain certain financial covenants that may limit the ability to utilize all of the undrawn funds available, including covenants requiring that certain financial ratios be maintained. (49) The Company believes that for Rainbow Media and its wholly-owned subsidiaries, which includes American Movie Classics, internally generated funds, together with funds available under their existing credit agreements will be sufficient for the next twelve months to meet their projected funding requirements (excluding the repayment of Rainbow Media's credit facility). Repayment of Rainbow Media's credit facility at maturity may be met by refinancing the facility or through funds provided by other sources, including, without limitation, the Company. There can be no assurance that Rainbow Media will be able to obtain refinancing or funds from other sources on acceptable terms or at all. RPP In June 1998, RPP, a partnership which is 60% owned by Rainbow Media and 40% owned by Fox, made an intercompany loan to Rainbow Media of $180 million, of which $79.5 million was outstanding as of March 3, 2000. RPP funded this loan from cash on hand. The intercompany loan is a four year demand note maturing March 31, 2002 which requires quarterly interest payments at LIBOR plus 7/8% per annum, is subordinated to Rainbow Media's bank debt and requires that Rainbow Media maintain sufficient availability under its revolving credit to permit the repayment in full to RPP if RPP requires the funds for its own operating needs. On January 4, 2000, Rainbow Media repaid $100.5 million of the $180 million intercompany loan with borrowings under its credit facility. In April 1999, RPP utilized $87 million of its cash on hand to purchase ITT's remaining interest in MSG and settle certain matters between the parties. In January 2000, RPP acquired the 70% interest in SportsChannel Florida held by Front Row Communications for $130.1 million (including the repayment of $20 million in debt) increasing its ownership to 100%. The acquisition was funded with cash on hand and the proceeds from the repayment by Rainbow Media of $100.5 million of intercompany loans. The Company believes that RPP's cash on hand of $15.2 million as of March 3, 2000, combined with the remaining intercompany loan receivable of $79.5 million will be sufficient to meet its projected funding requirements for the next twelve months. MSG MSG has a $500 million revolving credit facility maturing on December 31, 2004 (the "MSG Credit Facility"). As of March 3, 2000, outstanding debt under the MSG Credit Facility was $375 million. In addition, MSG had outstanding letters of credit of $3.3 million resulting in unrestricted and undrawn funds available amounting to $121.7 million. The MSG Credit Facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring MSG to maintain certain financial ratios. The Company believes that for MSG, internally generated funds, together with funds available under its existing credit agreement will be sufficient to meet its projected funding requirements for the next twelve months. Garden Programming, LLC, an unrestricted subsidiary of MSG, has a $20 million term loan maturing on July 11, 2002. Garden Programming, LLC has in turn made a $40 million loan to an unrelated entity, maturing on November 1, 2011. (50) Retail Electronics As of March 3, 2000, Cablevision Electronics had a $130 million stand alone credit facility. Under the terms of the credit facility, the total amount of borrowings available to Cablevision Electronics is subject to an availability calculation based on a percentage of eligible inventory. On March 3, 2000, usage under the credit facility was $65.7 million with $1.9 million available thereunder, based on the level of inventory as of that date. On December 31, 1999, the Company converted $71 million of intercompany loans to Cablevision Electronics to equity. As of March 3, 2000, CSC Holdings' total cash investment in Cablevision Electronics, including equity and intercompany loans, totaled $193.5 million. Cablevision Electronics has also received other financial support from CSC Holdings of approximately $51.0 million through March 3, 2000 in the form of letters of credit, guarantees and intercompany receivables. The Company believes that Cablevision Electronics will require additional financial support from CSC Holdings in respect of planned increases in inventory purchases, capital expenditures and other operating requirements and that funds available under Cablevision Electronics' credit agreement, together with this additional financial support, will be sufficient to meet its projected funding requirements for the next twelve months. CCG Holdings CCG Holdings, Inc., which owns the Company's motion picture theater assets, currently has a $15 million revolving credit bank facility maturing on June 30, 2003. As of March 3, 2000, $9.2 million was outstanding under this bank facility. The Company believes that for CCG Holdings, Inc., internally generated funds, together with funds available under the existing credit agreement will be sufficient to meet its projected funding requirements for the next twelve months. Financial Instruments In July 1999, the Company entered into a $100 million facility with a third party for the Company to acquire a beneficial interest in shares of its Class A Common Stock through a forward swap contract facility that is available through June 2000 with a final maturity date for all executed swaps of February 2001. The terms of the facility provide for the settlement of any obligations of the Company thereunder either in cash or the Company's Class A Common Stock. The Company's obligation is guaranteed by CSC Holdings. Currently there are no outstanding contracts under this facility. (51) Cablevision Systems Corporation Operating Activities Cash provided by operating activities amounted to $274.1 million for the year ended December 31, 1999 compared to $400.1 million for the year ended December 31, 1998. The 1999 cash provided by operating activities consisted primarily of $238.9 million of income before depreciation, amortization and other non-cash items and a net increase in cash resulting from changes in assets and liabilities of $35.2 million. Cash provided by operating activities amounted to $400.1 million for the year ended December 31, 1998 compared to $241.5 million for the year ended December 31, 1997. The 1998 cash provided by operating activities consisted primarily of $278.8 million of income before depreciation, amortization and other non-cash items and a net increase in cash resulting from changes in assets and liabilities of $121.3 million. Cash provided by operating activities amounted to $241.5 million for the year ended December 31, 1997. The 1997 cash provided by operating activities consisted primarily of $177.9 million of income before depreciation, amortization and other non-cash items and a net increase in cash resulting from changes in assets and liabilities of $63.6 million. Investing Activities Net cash used in investing activities for the year ended December 31, 1999 was $1,031.5 million compared to $468.4 million for the year ended December 31, 1998. The 1999 investing activities consisted of $871.2 million of capital expenditures, $117.7 million of payments for acquisitions and other items of $53.5 million, partially offset by net proceeds of $10.9 million from the sale of investments. Net cash used in investing activities for the year ended December 31, 1998 was $468.4 million compared to $248.6 million for the year ended December 31, 1997. The 1998 investing activities consisted of $561.6 million of capital expenditures, $317.6 million of payments for acquisitions and other items of $35.5 million, partially offset by net proceeds of $446.3 million from the sale of programming interests and cable assets. Net cash used in investing activities for the year ended December 31, 1997 was $248.6 million. The 1997 investing activities consisted of $457.6 million of capital expenditures and $747.1 million of payments for acquisitions, partially offset by net proceeds of $945.5 million from the sale of programming interests and cable assets and other items of $10.6 million. Financing Activities Cash provided by financing activities amounted to $646.2 million for the year ended December 31, 1999 compared to net cash used in financing activities of $168.0 million for the year ended December 31, 1998. In 1999 the Company's financing activities consisted primarily of $497.7 million derived from the issuance of senior notes, $202.9 million from the net proceeds from bank debt, partially offset by other net cash payments aggregating $54.4 million. (52) Cash used in financing activities amounted to $168.0 million for the year ended December 31, 1998 compared to net cash provided by financing activities of $405.7 million for the year ended December 31, 1997. In 1998 the Company's financing activities consisted primarily of the net repayment of bank debt, subordinated notes payable, senior notes payable and senior debt of $1,221.0 million, the repayment of an obligation to a related party of $197.2 million and other net cash payments aggregating $45.9 million, partially offset by $1,296.1 million derived from the issuance of senior notes and debentures. Cash provided by financing activities amounted to $405.7 million for the year ended December 31, 1997. In 1997 the Company's financing activities consisted of $898.0 million from the issuance of senior notes and debentures and $238.5 million of net proceeds from bank debt, partially offset by the redemption of subordinated debentures of $283.4 million, net repayments of senior debt of $285.9 million, the redemption of A-R Cable's Series A Preferred Stock of $112.3 million and other net cash payments aggregating $49.2 million. Year 2000 The Year 2000 issue ("Y2K") refers to the inability of certain computerized systems and technologies to recognize and/or correctly process dates beyond December 31, 1999. The Company completed all phases of its program to assess and address the Y2K issue by December 31, 1999 and has not experienced any Y2K issues that had or could reasonably be expected to have a material adverse effect on the Company. For the years ended December 31, 1999 and 1998, the Company recorded approximately $41.5 million and $7.6 million, respectively, of expenses relating to Y2K remediation. Accounting Standards Issued But Not Yet Adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), requires that all derivative financial instruments, such as interest rate swap contracts, be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or stockholders' equity (as a component of comprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows. SFAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. The Company does not expect that the adoption of SFAS 133 will have a material effect on the Company's financial condition or results of operations. (53) Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks from changes in interest rates and certain equity security prices. The Company's exposure to interest rate movements results from its use of floating and fixed rate debt to fund its working capital, capital expenditures, and other operational and investment requirements. To manage interest rate risk, the Company has from time to time entered into interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. Such contracts fix the borrowing rates on floating rate debt to hedge against the risk of rising rates and/or convert fixed rate borrowings to variable rate to hedge against the risk of higher borrowing costs in a declining interest rate environment. The Company does not enter into interest rate derivative contracts for speculative or trading purposes. The Company's exposure to changes in equity security prices stems from its investment in At Home Corporation common stock warrants. The value of these warrants fluctuates based on changes in the stock price of the underlying security. Fair Value of Debt: Based on the level of interest rates prevailing at December 31, 1999, the fair value of the Company's fixed-rate debt and redeemable preferred stock exceeded its carrying cost of $5,146 million by approximately $105 million. The fair value of these financial instruments is estimated based on reference to quoted market prices for these or comparable securities. The Company's floating rate borrowings bear interest at current market rates and thus approximate fair value. The effect of a hypothetical 100 basis point decrease in interest rates prevailing at December 31, 1999 would increase the estimated fair value of debt and redeemable preferred stock instruments by approximately $352 million. This estimate is based on the assumption of an immediate and parallel shift in interest rates across all maturities. Interest Rate Hedge Contracts: As of December 31, 1999, the Company had outstanding interest rate swap contracts to pay fixed rates of interest (generally at 8.0% through August 2000) and to receive variable rates of interest (based upon LIBOR with the latest maturity in 2002) covering a total notional principal amount of $300 million. As of December 31, 1999, the fair market liability of all interest rate hedge contracts was approximately $3.3 million. Assuming an immediate and parallel shift in interest rates across the yield curve, a 100 basis point increase in interest rates from December 31, 1999 prevailing levels would increase the fair market value liability of all hedge contracts by $4.7 million to a liability of $8.0 million. Equity Price Risk: As of December 31, 1999, the fair market value of the Company's warrants to acquire At Home Corporation's common stock was $867.1 million, which exceeded its carrying value of $248.1 million. The potential change in the fair value of this investment, assuming a 10% change in price, would be approximately $87.7 million. (54) Item 8. Consolidated Financial Statements. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Independent Auditors' Report.................................... 56 Consolidated Balance Sheets - December 31, 1999 and 1998........ 57 Consolidated Statements of Operations - years ended December 31, 1999, 1998 and 1997..................... 59 Consolidated Statements of Stockholders' Deficiency - years ended December 31, 1999, 1998 and 1997..................... 60 Consolidated Statements of Cash Flows - years ended December 31, 1999, 1998 and 1997........................... 61 Notes to Consolidated Financial Statements...................... 63 CSC HOLDINGS, INC. AND SUBSIDIARIES Independent Auditors' Report.................................... 95 Consolidated Balance Sheets - December 31, 1999 and 1998........ 96 Consolidated Statements of Operations - years ended December 31, 1999, 1998 and 1997..................... 98 Consolidated Statements of Stockholder's Deficiency - years ended December 31, 1999, 1998 and 1997..................... 99 Consolidated Statements of Cash Flows - years ended December 31, 1999, 1998 and 1997........................... 100 Notes to Consolidated Financial Statements...................... 102 (55) INDEPENDENT AUDITORS' REPORT The Board of Directors Cablevision Systems Corporation We have audited the accompanying consolidated balance sheets of Cablevision Systems Corporation and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' deficiency and cash flows for each of the years in the three-year period ended December 31, 1999. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule listed in Item 14(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cablevision Systems Corporation and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Melville, New York March 13, 2000 (56) CABLEVISION SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (Dollars in thousands)
ASSETS 1999 1998 ---- ---- Cash and cash equivalents............................................................... $ 62,665 $ 173,826 Accounts receivable trade (less allowance for doubtful accounts of $35,357 and $34,377)................................................................. 226,304 197,726 Notes and other receivables............................................................. 129,596 188,455 Inventory, prepaid expenses and other assets............................................ 219,487 206,073 Property, plant and equipment, net...................................................... 2,752,495 2,506,834 Investments in affiliates............................................................... 306,557 276,231 Advances to affiliates.................................................................. 46,685 36,964 Feature film inventory.................................................................. 335,826 293,310 Net assets held for sale................................................................ 269,349 11,006 Franchises, net of accumulated amortization of $703,237 and $640,735................................................................ 651,777 850,653 Affiliation and other agreements, net of accumulated amortization of $244,249 and $181,928................................................................ 173,250 206,456 Excess costs over fair value of net assets acquired and other intangible assets, net of accumulated amortization of $727,134 and $775,557................................................................ 1,816,030 2,003,128 Deferred financing, acquisition and other costs, net of accumulated amortization of $51,063 and $41,882...................................... 140,287 110,400 ---------- ---------- $7,130,308 $7,061,062 ========== ==========
See accompanying notes to consolidated financial statements. (57) CABLEVISION SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (Dollars in thousands, except per share amounts)
1999 1998 ---- ---- LIABILITIES AND STOCKHOLDERS' DEFICIENCY Accounts payable ....................................................... $ 411,804 $ 423,039 Accrued liabilities: Interest ........................................................... 117,854 88,798 Employee related costs ............................................. 463,925 330,700 Other .............................................................. 466,844 465,990 Feature film and contract obligations .................................. 371,126 373,722 Deferred revenue ....................................................... 274,043 334,213 Bank debt .............................................................. 2,254,487 2,051,549 Senior notes and debentures ............................................ 2,692,602 2,194,443 Subordinated notes and debentures ...................................... 1,048,513 1,048,375 Capital lease obligations and other debt ............................... 99,099 63,241 ----------- ----------- Total liabilities .................................................. 8,200,297 7,374,070 ----------- ----------- Minority interests ..................................................... 592,583 719,007 ----------- ----------- Preferred Stock of CSC Holdings, Inc. .................................. 1,404,511 1,579,670 ----------- ----------- Commitments and contingencies Stockholders' deficiency: Preferred Stock, $.01 par value, 10,000,000 shares authorized, none issued .................................................... -- -- Class A Common Stock, $.01 par value, 400,000,000 shares authorized, 130,091,237 and 108,276,606 shares issued ...................... 1,301 1,083 Class B Common Stock, $.01 par value, 160,000,000 shares authorized, 43,126,836 and 43,226,836 shares issued ........................ 431 432 Paid-in capital .................................................... 731,986 386,495 Accumulated deficit ................................................ (3,800,302) (2,999,695) ----------- ----------- (3,066,584) (2,611,685) Treasury stock, at cost (7,118 shares) ............................. (499) -- ----------- ----------- Total stockholders' deficiency ..................................... (3,067,083) (2,611,685) ----------- ----------- $ 7,130,308 $ 7,061,062 =========== ===========
See accompanying notes to consolidated financial statements. (58) CABLEVISION SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999 1998 AND 1997 (Dollars in thousands, except per share amounts)
1999 1998 1997 ----------- ----------- ----------- Revenues, net (including retail electronics sales of $603,294, $464,388 and $-0-) .............................. $ 3,942,985 $ 3,265,143 $ 1,949,358 ----------- ----------- ----------- Operating expenses: Technical and operating ................................... 1,535,423 1,268,786 853,800 Retail electronics cost of sales .......................... 484,760 367,102 -- Selling, general and administrative ....................... 1,203,119 906,465 514,574 Depreciation and amortization ............................. 893,797 734,107 499,809 ----------- ----------- ----------- 4,117,099 3,276,460 1,868,183 ----------- ----------- ----------- Operating profit (loss) ...................................... (174,114) (11,317) 81,175 ----------- ----------- ----------- Other income (expense): Interest expense .......................................... (470,549) (426,402) (368,700) Interest income ........................................... 4,809 24,028 5,492 Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) Gain on sale of programming interests and cable assets, net -- 170,912 372,053 Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) Provision for preferential payment to related party ....... -- (980) (10,083) Minority interests ........................................ (120,524) (124,677) (209,461) Miscellaneous, net ........................................ (16,570) (19,218) (12,606) ----------- ----------- ----------- (626,493) (437,187) (93,279) ----------- ----------- ----------- Net loss ..................................................... $ (800,607) $ (448,504) $ (12,104) =========== =========== =========== Basic and diluted net loss per common share .................. $ (5.12) $ (3.16) $ (.12) =========== =========== =========== Average number of common shares outstanding (in thousands) ... 156,503 142,016 99,608 =========== =========== ===========
See accompanying notes to consolidated financial statements. (59) CABLEVISION SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY Years Ended December 31, 1999, 1998 and 1997 (Dollars in thousands)
Class A Class B Common Common Paid-in Accumulated Treasury Stock Stock Capital Deficit Stock Total ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1996 ............ $ 544 $ 452 $ (168,935) $(2,539,087) $ -- $(2,707,026) Net loss .......................... -- -- -- (12,104) -- (12,104) Employee stock transactions ....... 8 -- 7,608 -- -- 7,616 Conversion of Class B to Class A .. 8 (8) -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1997 ............ 560 444 (161,327) (2,551,191) -- (2,711,514) Net loss .......................... -- -- -- (448,504) -- (448,504) Employee stock transactions ....... 12 -- 12,071 -- -- 12,083 Issuance of common stock .......... 499 -- 535,751 -- -- 536,250 Conversion of Class B to Class A .. 12 (12) -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1998 ............ 1,083 432 386,495 (2,999,695) -- (2,611,685) Net loss .......................... -- -- -- (800,607) -- (800,607) Employee stock transactions ....... 11 -- 15,159 -- -- 15,170 Conversion of Class B to Class A .. 1 (1) -- -- -- -- Issuance of common stock .......... 1 -- 7,304 -- -- 7,305 Conversion of CSC Holdings' Series I preferred to Class A 205 -- 323,028 -- -- 323,233 Purchase of treasury stock ........ -- -- -- -- (499) (499) ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1999 ............ $ 1,301 $ 431 $ 731,986 $(3,800,302) $ (499) $(3,067,083) =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. (60) CABLEVISION SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 (Dollars in thousands)
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net loss ............................................................. $ (800,607) $ (448,504) $ (12,104) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................................... 893,797 734,107 499,809 Equity in net loss of affiliates ................................ 19,234 37,368 27,165 Minority interests .............................................. 98,609 95,336 179,237 Gain on sale of programming interests and cable assets, net ..... -- (170,912) (372,053) Gain on sale of investments ..................................... (10,861) -- -- Write off of investment in affiliate ............................ 15,100 -- -- Write off of deferred interest and financing costs .............. 4,425 23,482 24,547 Gain on redemption of subsidiary preferred stock ................ -- -- (181,738) (Gain) loss on sale of equipment, net ........................... 9,811 (604) 5,325 Amortization of deferred financing and debenture discount ....... 9,407 8,532 7,707 Change in assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable trade ................................... (31,419) 19,007 (34,268) Notes and other receivables ................................. 33,961 (94,164) (67,683) Inventory, prepaid expenses and other assets ................ (23,243) (51,425) 1,232 Advances to affiliates ...................................... (10,461) (21,701) (528) Feature film inventory ...................................... (42,516) (112,734) (8,269) Other deferred costs ........................................ 955 11,689 -- Accounts payable ............................................ 3,952 133,891 50,667 Accrued liabilities ......................................... 165,645 174,557 91,497 Feature film and contract obligations ....................... (2,596) 81,376 (258) Deferred revenue ............................................ (60,170) (18,268) 37,664 Minority interests .......................................... 1,094 (961) (6,486) ----------- ----------- ----------- Net cash provided by operating activities .......................... 274,117 400,072 241,463 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures ................................................. (871,166) (561,642) (457,590) Payments for acquisitions, net of cash acquired ...................... (117,660) (317,594) (747,134) Net proceeds from sale of programming interests and cable assets ..... -- 446,284 945,534 Proceeds from sale of equipment ...................................... 1,467 8,817 1,930 Proceeds from sale of investments .................................... 10,861 -- -- (Increase) decrease in investments in affiliates, net ................ (49,938) (31,035) 9,267 Additions to other intangible assets ................................. (5,076) (13,253) (623) ----------- ----------- ----------- Net cash used in investing activities .............................. $(1,031,512) $ (468,423) $ (248,616) ----------- ----------- -----------
See accompanying notes to consolidated financial statements. (61) CABLEVISION SYSTEMS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 (Dollars in thousands) (continued)
1999 1998 1997 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from bank debt ............................. $ 3,791,073 $ 5,442,101 $ 3,385,703 Repayment of bank debt .............................. (3,588,135) (6,304,757) (3,147,165) Proceeds from senior debt ........................... -- -- 147,750 Repayment of senior debt ............................ -- (112,500) (433,617) Repayment of subordinated notes payable ............. -- (151,000) -- Redemption of senior notes payable .................. -- (94,848) -- Redemption of senior subordinated debt .............. -- -- (283,445) Issuance of senior notes and debentures ............. 497,670 1,296,076 897,983 Redemption of subsidiary preferred stock ............ (98) (9,409) (112,301) Issuance of common stock ............................ 15,170 12,082 7,616 Obligation to related party ......................... -- (197,183) 4,364 Payments on capital lease obligations and other debt (22,036) (12,306) (7,501) Additions to deferred financing and other costs ..... (46,911) (36,220) (53,705) Purchase of treasury stock .......................... (499) -- -- ----------- ----------- ----------- Net cash provided by (used in) financing activities 646,234 (167,964) 405,682 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ... (111,161) (236,315) 398,529 Cash and cash equivalents at beginning of year ......... 173,826 410,141 11,612 ----------- ----------- ----------- Cash and cash equivalents at end of year ............... $ 62,665 $ 173,826 $ 410,141 =========== =========== ===========
See accompanying notes to consolidated financial statements. (62) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company and Related Matters CSC Parent Corporation ("Parent") was formed on November 21, 1997 as a wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision"). Parent did not conduct any business activities prior to March 4, 1998, other than those incident to its formation and the execution of certain documents in connection with contributions to Parent of certain partnership interests and assets of TCI Communications, Inc. (see Note 2). In connection with the Contribution and Merger Agreement described in Note 2, a wholly-owned subsidiary of Parent was merged with and into Cablevision and Cablevision became a wholly-owned subsidiary of Parent (the "Merger"). In the Merger, each outstanding share of Cablevision Class A Common Stock and Cablevision Class B Common Stock was converted into one share of Parent Class A Common Stock and Parent Class B Common Stock, respectively. Subsequent to the Merger, Cablevision changed its name to CSC Holdings, Inc. ("CSC Holdings") and Parent changed its name to Cablevision Systems Corporation (the "Company"). The Merger was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of CSC Holdings have been recorded at historical book value. Cablevision Systems Corporation's historical financial information represents the historical financial information of CSC Holdings. References to the "Company" refer to Cablevision Systems Corporation or CSC Holdings, Inc. as the context may require. The Company owns and operates cable television systems and has ownership interests in companies that produce and distribute national and regional entertainment and sports programming services, including Madison Square Garden, L.P. ("MSG"). The Company also owns companies that provide advertising sales services for the cable television industry, provide switched telephone service, operate a retail electronics chain and operate motion picture theaters. The Company classifies its business interests into three segments: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, which owns and operates professional sports teams, regional cable television networks, live productions and entertainment venues; and Retail Electronics, which represents the operations of its retail electronics stores. Authorized Common Stock In 1999, the shareholders of the Company authorized an amendment to the Certificate of Incorporation to increase the number of authorized shares of Class A Common Stock from 200 million to 400 million and the Class B Common Stock from 80 million to 160 million. (63) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Two-for-One Stock Splits On March 4, 1998 and July 22, 1998, the Company's Board of Directors declared a two-for-one stock split to be effected in the form of a common stock dividend of one share of Class A Common Stock for each share of Class A Common Stock issued and outstanding and one share of Class B Common Stock for each share of Class B Common Stock issued and outstanding. The stock dividends were paid on March 30, 1998 and August 21, 1998 to stockholders of record on March 19, 1998 and August 10, 1998, respectively. All share and per share information has been adjusted to reflect the two-for-one stock splits described above. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. The Company's interests in less than majority-owned entities and until July 2, 1997, its 100% common stock interest in A-R Cable Services, Inc., are carried on the equity method. Subsequent to July 2, 1997, results of operations of A-R Cable Services, Inc. are consolidated with those of the Company (see Note 2). Advances to affiliates are recorded at cost, adjusted when recoverability is doubtful. All significant intercompany transactions and balances are eliminated in consolidation. Revenue Recognition The Company recognizes cable television, internet access, telephony and programming revenues as services are provided to subscribers. Advertising revenues are recognized when commercials are telecast. Revenue from retail electronic sales is recognized upon delivery, with an appropriate provision for returned merchandise based upon historical experience. Revenues derived from other sources are recognized when services are provided or events occur. Long-Lived Assets Property, plant and equipment, including construction materials, are carried at cost, which includes all direct costs and certain indirect costs associated with the construction of cable television transmission and distribution systems, and the costs of new subscriber installations. Franchises are amortized on the straight-line basis over the average remaining terms (5 to 12 years) of the franchises at the time of acquisition. Affiliation and other agreements (primarily cable television system programming agreements) are amortized on a straight-line basis over periods ranging from 8 to 10 years. Other intangible assets are amortized on the straight-line basis over the periods benefited (1 to 15 years), except that excess costs over fair value of net assets acquired are being amortized on the straight-line basis over periods ranging from 6 to 40 years. The Company reviews its long-lived assets (property, plant and equipment, and related intangible assets that arose from business combinations accounted for under the purchase method) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum (64) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. Feature Film Inventory Rights to feature film inventory acquired under license agreements along with the related obligations are recorded at the contract value. Costs are charged to technical and operating expense on a straight-line basis over the respective contract periods. Amounts payable during the five years subsequent to December 31, 1999 related to feature film telecast rights are $60,310 in 2000, $37,777 in 2001, $35,095 in 2002, $31,791 in 2003, and $26,664 in 2004. Inventory Carrying amounts of retail merchandise are determined on an average cost basis and are stated at the lower of cost or market. Deferred Financing Costs Costs incurred to obtain debt are deferred and amortized, on a straight-line basis, over the life of the related debt. Income Taxes Income taxes are provided based upon the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires the liability method of accounting for deferred income taxes and permits the recognition of deferred tax assets, subject to an ongoing assessment of realizability. Loss Per Share Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Potential dilutive common shares of approximately 7,460,000 were not included in the computation as their effect would be antidilutive. Loss per share amounts have been adjusted, for all years presented, to reflect the two-for-one stock splits of the Company's common stock effective March 30, 1998 and August 21, 1998 (see discussion above). Segment Information On December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, 'Disclosures about Segments of an Enterprise and Related Information' ('SFAS 131'). (65) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The new rules establish revised standards for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. The adoption of SFAS 131 did not have a material effect on the Company's primary financial statements, but did affect the disclosure of segment information contained elsewhere herein (see Note 15). Reclassifications Certain reclassifications have been made in the 1998 and 1997 financial statements to conform to the 1999 presentation. Cash Flows For purposes of the consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $432,086, $383,179 and $352,660 during 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997, the Company's noncash investing and financing activities were as follows:
Years Ended December 31, ------------------------ 1999 1998 1997 --------- --------- --------- Capital lease obligations......................... $ 57,919 $ 28,795 $ 24,820 Issuance of common stock in connection with the redemption of CSC Holdings' preferred stock.............................. 323,233 - - Issuance of common stock in connection with acquisitions and redemption of partnership interests..................... 7,305 536,250 - Receipt of warrants from At Home Corporation.................................. - 74,788 173,346 Capital contribution of equipment by minority partner............................. - - 38,000
Comprehensive Income The Company has not provided a separate statement of comprehensive income as items of other comprehensive income for all periods presented were not material. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets (66) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS Acquisitions 1999 Acquisitions At various times during 1999, the Company acquired interests in the real property and assets specifically related to certain movie theaters for an aggregate purchase price of approximately $29,700. The acquisitions were accounted for as purchases with the operations of the acquired theaters being consolidated with those of the Company as of the acquisition dates. The purchase price will be allocated to the specific assets acquired when an independent appraisal is obtained. In December 1999, the Company acquired cable television systems with approximately 4,500 subscribers located in the Port Jervis, New York area for approximately $7,400, $7,300 of which was paid in shares of the Company's Class A Common Stock. In April 1999, ITT Corporation ("ITT") exercised its second put for the remainder of its interest in MSG and settled certain matters between the parties for a payment of $87,000. See also "Dispositions" for a discussion of an exchange of cable television assets. 1998 Acquisitions The WIZ On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially all of the assets associated with 40 The WIZ consumer electronics store locations from The Wiz, Inc. and certain of its subsidiaries and affiliates (collectively, "TWI"). TWI had filed for bankruptcy protection on December 16, 1997. Cablevision Electronics paid approximately $101,300 for the assets (including transaction costs and pre-closing operating costs). The acquisition was accounted for as a purchase with the operations of the stores being consolidated with the operations of the Company as of the date of acquisition. The purchase price was allocated to the specific assets acquired based upon independent appraisals as follows: (67) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Inventory.................................................. $ 66,200 Property and equipment..................................... 16,800 Other assets............................................... 4,000 Liabilities................................................ (24,000) Excess cost over fair value of net assets acquired......... 38,300 -------- $101,300 ======== In 1999, the Company recorded an impairment loss of $35,490 representing the balance of unamortized goodwill recorded on the TWI acquisition. Current losses and projected future operating losses caused the Company to reassess the recoverability of the goodwill. The impairment loss resulted from the carrying amount of this asset exceeding its estimated fair value based on discounted estimated future cash flows. TCI Systems On March 4, 1998, the Company completed a holding company reorganization (the "Holding Company Reorganization") pursuant to an Amended and Restated Contribution and Merger Agreement, dated June 6, 1997 (the "Contribution and Merger Agreement"), by and among the Company, CSC Holdings and TCI Communications, Inc. ("TCI"). Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed to the Company or its designees all of the partnership interests and capital stock of certain entities owned directly or indirectly by TCI and all the assets related to the businesses of certain cable television systems owned and operated directly or indirectly by TCI ("TCI Systems"). In consideration for those cable television systems, the Company issued to certain TCI entities an aggregate of 48,942,172 shares (after adjusting for the March 1998 and August 1998 two-for-one stock splits discussed in Note 1) of the Company's Class A Common Stock, valued for accounting purposes at approximately $498,000, and assumed certain liabilities related to such systems (including an aggregate amount of indebtedness for borrowed money equal to $669,000). The acquisition was accounted for as a purchase with the operations of the acquired systems being consolidated with those of the Company as of the acquisition date. The excess of the purchase price over the net book value of assets acquired of approximately $746,769 was allocated to the specific assets acquired based upon independent appraisals as follows: Property, plant and equipment........................... $(17,133) Franchises.............................................. 594,921 Excess cost over fair value of net assets acquired...... 168,981 -------- $746,769 ======== (68) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) In April 1999, the Company contributed the TCI Systems to CSC Holdings. Madison Square Garden In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG for $94,000 pursuant to ITT's exercise of its first put option, increasing Regional Programming Partners' interest in MSG to 96.3% (see discussion below and "1999 Acquisitions" above). Clearview In December 1998, the Company acquired all of the outstanding shares of stock of Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including assumed debt of $80,000) of which approximately $33,400 was paid in shares of the Company's Class A Common Stock. The acquisition was accounted for as a purchase with the operations of the acquired business being consolidated with those of the Company as of the acquisition date. The purchase price was allocated to the specific assets acquired based upon independent appraisals as follows. Property, plant and equipment........................... $ 34,787 Other assets............................................ 21,518 Liabilities............................................. (16,433) Excess cost over fair value of net assets acquired...... 118,851 -------- $158,723 ======== In April 1999, the Company contributed its interest in the subsidiary formed to purchase Clearview to CSC Holdings. Loews In December 1998, the Company acquired interests in the real property and assets specifically related to 15 movie theaters from Loews Cineplex Entertainment Corporation ("Loews") for an aggregate purchase price of approximately $67,300. The acquisition was accounted for as a purchase with the operations of the acquired assets being consolidated with those of the Company as of the acquisition date. The purchase price was allocated to the specific assets acquired based upon independent appraisals as follows: Property and equipment................................ $ 9,700 Other assets.......................................... 2,200 Excess cost over fair value of net assets acquired.... 55,400 ------- $67,300 ======= (69) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) 1997 Acquisitions: NBC Transaction On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC Cable, Inc. (a subsidiary of National Broadcasting Company ("NBC")) received a 25% equity interest (which interest was increased to 26% in February 2000 and may be further increased by up to an additional 1% under certain circumstances without additional cash payment) in common stock of Rainbow Media. The Company owns the remaining 74% equity interest in Rainbow Media. The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC are now owned by subsidiaries of Rainbow Media. The exchange of 25% of the Company's interest in Rainbow Media for NBC's interests, in April 1997, in certain entities was accounted for at historical cost with the difference between the cost basis of a 25% interest in Rainbow Media and the partnership interests received in exchange recorded as goodwill of $54,385, which is being amortized over a 10 year period. Madison Square Garden In February 1997, Rainbow Media made a payment to ITT of $168,750 plus interest, fully equalizing its interest in MSG, a partnership among subsidiaries of Rainbow Media and subsidiaries of ITT, and bringing Rainbow Media's total payments at that time to $360,000, plus interest payments aggregating $47,700. In April 1997, the Company and certain of its affiliates and ITT and certain of its affiliates entered into definitive agreements relating to the acquisition by subsidiaries of the Company of ITT's 50 percent interest in MSG. The transaction closed on June 17, 1997 when MSG borrowed $799,000 under its credit facility which was used to redeem a portion of ITT's interest in MSG for $500,000 and to repay its existing indebtedness. Rainbow Media contributed its SportsChannel Associates programming company to MSG, which, together with the redemption, increased Rainbow Media's interest in MSG to 89.8% and reduced ITT's interest to 10.2%. In connection with the Fox transaction discussed below, Rainbow Media's interest in MSG was contributed to Regional Programming Partners. ITT's interest in MSG was further reduced to 7.8% as a result of the $450,000 capital contribution by Regional Programming Partners to MSG which was used by MSG to pay down outstanding debt. See "1998 Acquisitions" and "1999 Acquisitions" above for a discussion of the Company's purchase of the remaining interest in MSG. The acquisition was accounted for using the purchase method of accounting. The assets and liabilities and results of operations of MSG have been consolidated with those of the Company as of June 17, 1997. Previously, the Company's investment in MSG was accounted for using the equity method of accounting. The excess of the purchase price over the net book value of assets acquired of (70) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) approximately $397,093 was allocated to the specific assets acquired based upon independent appraisals as follows: Property, plant and equipment............................ $ 19,687 Affiliation and other agreements......................... 34,168 Franchises............................................... 46,125 Excess cost over fair value of net assets acquired....... 297,113 -------- $397,093 ======== In connection with the Company and ITT's acquisition of MSG in 1995, certain liabilities relating to a long-term sports rights contract were recorded. In 1999, 1998 and 1997, approximately $23,000, $21,900 and $21,700, respectively, of this liability was amortized to reduce operating expenses in respect of those rights. Warburg Transactions In June 1997, the Company acquired from Warburg Pincus Investors, L.P. ("Warburg") the interests that the Company did not already own in A-R Cable Partners ("Nashoba") and Cablevision of Framingham Holdings, Inc. ("CFHI") for a purchase price of approximately $33,348 and $7,865, respectively. The acquisitions of Nashoba and CFHI were accounted for as purchases with the operations of these companies being consolidated with those of the Company as of the acquisition date. The excess of the purchase price over the net book value of assets acquired approximates $97,015 and has been allocated based upon independent appraisals as follows: Property, plant and equipment........................... $ 4,060 Franchises.............................................. 59,923 Excess cost over fair value of net assets acquired...... 33,032 ------- $97,015 ======= On July 2, 1997, the Company redeemed from Warburg the Series A Preferred Stock of A-R Cable Services, Inc. ("A-R Cable") for an aggregate amount of approximately $112,301. The assets and liabilities of A-R Cable have been consolidated with those of the Company as of July 2, 1997. Previously, the Company's investment in A-R Cable was accounted for using the equity method of accounting. In connection with this transaction, the Company recognized a gain of $181,738 representing principally the reversal of accrued preferred dividends in excess of amounts paid. Radio City On December 5, 1997, MSG purchased all of the membership interests in Radio City Productions, LLC ("Radio City"), the production company that operates Radio City Music Hall in New York City, for approximately $70,000 in cash. Simultaneously, Radio City entered into a 25-year lease for Radio City Music Hall. The assets and liabilities and results of operations of Radio City have been consolidated with those of the Company as of the date of acquisition. The excess of the (71) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) purchase price over the net book value of assets acquired of approximately $76,200 was allocated to the specific assets acquired based upon independent appraisals as follows: Property, plant and equipment............................ $ 1,500 Capital lease obligation................................. (80,000) Other liabilities........................................ (13,400) Excess cost over fair value of net assets acquired....... 168,100 --------- $ 76,200 ========= Dispositions Cable Systems In October 1998, A-R Cable transferred its cable television system in Rensselaer, New York plus approximately $16,000 in cash to Time Warner Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's Litchfield, Connecticut system. The Company recognized a gain of approximately $15,500 in connection with this transaction. In 1998 and 1997, the Company completed the sale of cable television systems for aggregate sales prices of approximately $426,500 and $88,200, respectively, and recognized aggregate gains of approximately $137,700 and $59,000, respectively. Regional Programming Partners In December 1997, Rainbow Media and Fox Sports Networks, LLC ("Fox") organized Regional Programming Partners (a partnership that owns MSG and interests in regional sports programming businesses previously owned by Rainbow Media) ("RPP"). In connection with the formation of RPP, affiliates of Rainbow Media indirectly contributed to RPP in consideration for the issuance of a 60% general partnership interest in RPP their ownership interests in several regional sports networks, including their interest in MSG. In consideration for the issuance of a 40% general partnership interest in RPP, Fox contributed $850,000 in cash to RPP. Thereafter, RPP made a capital contribution of approximately $450,000 to MSG which was used by MSG to repay a portion of MSG's debt. As a result of RPP's investment in MSG, RPP's interest in MSG increased from 89.8% to 92.2%. In connection with this transaction, Rainbow Media recognized a gain of approximately $305,000. See discussions above under "1998 Acquisitions" and "1999 Acquisitions" for further increases in RPP's interest in MSG. Other In 1998 and 1997, RPP and Rainbow Media completed the sale of an interest in a sports programming business and substantially all of the assets of a radio station. In connection with these sales, RPP and Rainbow Media recognized gains of $17,700 and $7,400, respectively. (72) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) A-R Cable Restructuring In 1992, the Company and A-R Cable consummated a restructuring and refinancing transaction (the "A-R Cable Restructuring"). Among other things, this transaction involved an additional $45,000 investment in A-R Cable by the Company to purchase a new Series B Preferred Stock and the purchase of a new Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of the A-R Cable Restructuring, the Company no longer had financial or voting control over A-R Cable's operations. Prior to the redemption of A-R Cable's Series A Preferred Stock on July 2, 1997 (see discussion above), the Company accounted for its investment in A-R Cable using the equity method of accounting whereby the Company recorded 100% of the net losses of A-R Cable since it continued to own 100% of A-R Cable's outstanding common stock. Included in equity in net loss of affiliates in the accompanying consolidated statements of operations for the period ended July 1, 1997 is $35,835, representing A-R Cable's net loss plus dividend requirements for the Series A Preferred Stock of A-R Cable, which was not owned by the Company. Beginning on July 2, 1997, the operations of A-R Cable have been consolidated with those of the Company. Pro Forma Results of Operations The following unaudited pro forma condensed results of operations are presented for the year ended December 31, 1998 as if the acquisition of the TCI Systems and the sale of assets of certain cable systems had occurred on January 1, 1998. Results of operations for acquisitions made in 1999 are not material. Year Ended December 31, 1998 ----------------- Net revenues............................ $3,329,627 ========== Net loss................................ $ (520,968) ========== Net loss per common share............... $ (3.47) ========== The pro forma information presented above gives effect to certain adjustments, including the amortization of acquired intangible assets and increased interest expense on acquisition debt. The pro forma information has been prepared for comparative purposes only and does not purport to indicate the results of operations which would actually have occurred had the transactions been made at the beginning of the periods indicated or which may occur in the future. (73) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 3. NET ASSETS HELD FOR SALE The Company had entered into definitive agreements covering the sale of certain cable television systems as of December 31, 1999 and 1998. In December 1999, the Company entered into definitive agreements with Adelphia Communications Corporation ("Adelphia") under which the Company will sell its cable television systems in the Greater Cleveland metropolitan area to Adelphia for total cash and stock consideration of $1,530,000, subject to certain adjustments. In January 1998, the Company, CSC Holdings and a subsidiary of TCI entered into a non-binding letter of intent for the Company to acquire certain of TCI's cable television systems in exchange for cash, stock and certain cable systems including those serving Kalamazoo, Michigan. This non-binding letter of intent is no longer in effect. In March 2000, the Company entered into an agreement to sell its cable system serving Kalamazoo, Michigan to Charter Communications, Inc. for total consideration of $172,500 in Charter Communications, Inc. common stock. For financial reporting purposes, the assets and liabilities attributable to cable systems whose sale or transfer was pending at December 31, 1999 and 1998 have been classified in the consolidated balance sheet as net assets held for sale and are included in the telecommunications segment (see Note 15). Such net assets consist of the following: December, 31 -------------------- 1999 1998 -------- --------- Property, plant and equipment, net.............. $222,695 $ 14,548 Intangible assets, net.......................... 73,055 215 Other assets (including trade receivables, prepaid expenses, etc.)....... 9,796 603 -------- --------- Total assets.................................... 305,546 15,366 Total liabilities............................... (36,197) (4,360) -------- --------- Net assets...................................... $269,349 $ 11,006 ======== ========= The accompanying consolidated statement of operations for the years ended December 31, 1999 and 1998 includes net revenues aggregating approximately $177,904 and $18,937, respectively, and net income (loss) aggregating approximately $(4,109) and $9,095, respectively, relating to the cable systems held for sale or transfer. (74) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following assets, which are depreciated or amortized primarily on a straight-line basis over the estimated useful lives shown below:
December 31, ----------------------------- Estimated 1999 1998 Useful Lives ----------- ----------- ------------ Communication transmission and distribution systems: Customer equipment............................... $ 600,271 $ 615,867 3 to 8 years Headends......................................... 118,311 125,013 7 to 15 years Multimedia....................................... 18,732 9,075 4 years Central office equipment......................... 132,191 87,208 10 years Infrastructure................................... 2,189,863 2,189,625 5 to 12 years Program, service and data processing equipment... 571,773 380,350 2 to 9 years Microwave equipment.............................. 21,881 16,947 2 to 9 years Construction in progress (including materials and supplies)........................ 227,991 133,848 - Furniture and fixtures............................... 230,742 195,660 1 to 8 years Transportation equipment............................. 143,511 131,476 4 to 15 years Building and building improvements................... 185,118 171,567 20 to 40 years Leasehold improvements............................... 276,015 140,766 Term of lease Land and land improvements........................... 47,914 45,573 - ---------- ---------- 4,764,313 4,242,975 Less accumulated depreciation and amortization....... 2,011,818 1,736,141 ---------- ---------- $2,752,495 $2,506,834 ========== ==========
NOTE 5. DEBT Bank Debt Restricted Group/TCI Systems For financing purposes, CSC Holdings, Inc. and certain of its subsidiaries are collectively referred to as the "Restricted Group". In May 1998, CSC Holdings and certain other subsidiaries of the Company entered into a new $2.8 billion reducing revolving credit facility (the "Credit Agreement") with a group of banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as administrative and arranging agent. This Credit Agreement replaced a $1.7 billion facility that was also with a group of banks led by Toronto-Dominion. The $2.8 billion reducing revolving credit facility, maturing in March 2007, consisted of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR credit facility of which $600,000 was available, and an $800,000 credit facility for the TCI Systems. While the $800,000 TCI Systems credit facility was in place, only $600,000 of the $1.4 billion MFR facility could be utilized. (75) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) In July 1998, CSC Holdings' credit facility was reduced by $400,000 to $1.0 billion, and the MFR credit facility was reduced by $200,000 to $1.2 billion, which included a reduction of the TCI Systems credit facility by $100,000 to $700,000. The TCI Systems credit facility matured on April 4, 1999 and concurrent with the transfer of the TCI Systems to CSC Holdings, which occurred on April 5, 1999, the restriction on the MFR credit facility was eliminated and the borrowings under the MFR facility increased by an amount equal to the borrowings outstanding under the TCI Systems credit facility. The total amount of bank debt outstanding under the Credit Agreement, including amounts outstanding under a separate overdraft facility at December 31, 1999 and 1998 was $1,454,206 and $1,410,226, respectively. At December 31, 1999, $613,000 and $828,500 was outstanding under the CSC Holdings facility and the MFR credit facility, respectively. As of December 31, 1999, approximately $39,274 was restricted for certain letters of credit issued on behalf of CSC Holdings. Unrestricted and undrawn funds available to the Restricted Group under the Credit Agreement amounted to approximately $719,226 at December 31, 1999. The Credit Agreement contains certain financial covenants that may limit the Restricted Group's ability to utilize all of the undrawn funds available thereunder. The Credit Agreement contains various restrictive covenants, among which are the maintenance of various financial ratios and tests, and limitations on various payments, including preferred dividends and dividends on its common stock. The Company was in compliance with the covenants of its Credit Agreement at December 31, 1999. Interest on outstanding amounts may be paid, at the option of the Company, based on the prime rate or Eurodollar rate. As of December 31, 1999, CSC Holdings had outstanding interest exchange (swap) agreements with several of its banks with a total notional value of $300,000. Swaps with an aggregate notional amount of $250,000 require CSC Holdings to pay a floating rate of interest based on LIBOR in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a maturity of 18 to 31 months. The remainder of the swaps require payment of a fixed rate of interest by CSC Holdings in exchange for floating rate payments and have a maturity of 6 months. CSC Holdings enters into interest rate swap agreements to hedge against interest rate risk and accounts for these agreements as hedges whereby interest expense is recorded using the revised rate with any fees or other payments amortized as yield adjustments. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements; however, the Company does not anticipate nonperformance by the counterparties. The weighted average interest rate on all bank indebtedness was 7.11% and 6.48% on December 31, 1999 and 1998, respectively. The Company is also obligated to pay fees from .1875% to .25% per annum on the unused loan commitment and from .4% to 2.0% per annum on letters of credit issued under the Credit Agreement. (76) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Unrestricted Group Rainbow Media Rainbow Media has a $300,000, three year credit facility with Canadian Imperial Bank of Commerce and Toronto-Dominion as co-agents and a group of banks which matures on December 31, 2000. The credit facility contains certain financial covenants that may limit Rainbow Media's ability to utilize all the undrawn funds available thereunder, including covenants requiring it to maintain certain financial ratios. The facility bears interest at varying rates above the lead bank's base or Eurodollar rate depending on the ratio of debt to borrower value, as defined in the credit agreement. The loan is secured by a pledge of the Company's stock in Rainbow Media, a pledge of all of the stock of all wholly-owned subsidiaries of Rainbow Media and is guaranteed by the subsidiaries of Rainbow Media, as permitted. At December 31, 1999 and 1998, Rainbow Media had outstanding borrowings under its credit facility including amounts outstanding under a separate overdraft facility of $52,317 and $71,241, respectively. Undrawn funds available to Rainbow Media under the credit facility amounted to approximately $51,000 at December 31, 1999. The weighted average interest rate on Rainbow Media's bank debt was 8.9% and 7.7% on December 31, 1999 and 1998, respectively. The credit agreement contains various restrictive covenants with which Rainbow Media was in compliance at December 31, 1999. American Movie Classics Company On May 12, 1999, American Movie Classics Company ("AMC"), a wholly-owned subsidiary of Rainbow Media, entered into a new $425,000 credit facility consisting of a $200,000 reducing revolving credit facility and a $225,000 amortizing term loan, both of which mature on March 31, 2006 ("AMC Credit Facility"). The amount of the available commitment under the revolver will not begin to be reduced until June 2004. Borrowings under the AMC Credit Facility bear interest at varying rates at or above the lead bank's base lending rate or above the Eurodollar rate depending on the ratio of debt to cash flow, as defined in the AMC Credit Facility. At December 31, 1999, the weighted average interest rate on bank indebtedness was 7.6%. On May 12, 1999, AMC distributed to Rainbow Media, approximately $97,000, which Rainbow Media used to repay outstanding borrowings plus interest and fees under its credit facility. As of December 31, 1999, AMC had outstanding borrowings of $309,456 (including amounts outstanding under a separate overdraft facility), leaving unrestricted funds available of $117,000. Prior to May 12, 1999, AMC's credit facility was comprised of a $146,000 term loan and a $100,000 revolving loan ("AMC Loan Agreement"). Borrowings under the AMC Loan Agreement bore interest at varying rates above or at the lead bank's base or above the Eurodollar rate depending on the ratio of debt to cash flow, as defined in the AMC Loan Agreement. At (77) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) December 31, 1998, the weighted average interest rate on bank indebtedness was 6.1%. On December 31, 1998, $128,000 was outstanding under the term loan, $64,250 was outstanding under the revolving loan and $3,290 was outstanding under a separate overdraft facility. Substantially all of the assets of AMC, amounting to approximately $320,192 at December 31, 1999, have been pledged to secure the borrowings under the AMC Credit Facility. The AMC Credit Facility contains various restrictive covenants with which AMC was in compliance at December 31, 1999. Madison Square Garden MSG has a $500,000 credit facility (the "MSG Credit Facility") with a group of banks led by Chase Manhattan Bank, as agent, which expires on December 31, 2004. Loans under the MSG Credit Facility bear interest at current market rates plus a margin based upon MSG's consolidated leverage ratio. At December 31, 1999 and 1998, loans outstanding amounted to $335,000 and $310,000, respectively, and bore interest at a weighted average rate of 7.0% and 6.038%, respectively. The MSG Credit Facility contains certain financial covenants with which MSG was in compliance at December 31, 1999. The MSG Credit Facility also contains certain financial covenants that may limit MSG's ability to utilize all of the undrawn funds available thereunder. In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory notes with various lending institutions which bear interest at LIBOR plus a margin (8.19% and 7.22% at December 31, 1999 and 1998, respectively) and mature in July 2002. Cablevision Electronics In February 1998, Cablevision Electronics entered into a three year $130,000 revolving credit facility maturing on February 9, 2001. Under the terms of the credit facility, the total amount of borrowings available to Cablevision Electronics is subject to an availability calculation based on a percentage of eligible inventory. The total amount outstanding under the credit agreement at December 31, 1999 and 1998 was approximately $73,817 and $44,542, respectively, and bore interest at 7.8% and 7.2%, respectively. As of December 31, 1999, $26,874 was restricted for certain letters of credit issued on behalf of Cablevision Electronics. Unrestricted and undrawn funds available amounted to $29,309 on December 31, 1999 based on the level of inventory as of that date. Borrowings under the credit agreement are secured by Cablevision Electronics' assets. The credit agreement contains various restrictive covenants with which Cablevision Electronics was in compliance at December 31, 1999. (78) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) CCG Holdings, Inc. CCG Holdings, Inc. has a $15,000 revolving credit bank facility maturing on June 30, 2003. As of December 31, 1999, there was $9,691 outstanding under this bank facility, leaving undrawn funds available of $5,309. There were no outstanding borrowings under this bank facility as of December 31, 1998. Senior Notes and Debentures In July 1999, CSC Holdings issued $500,000 face amount ($497,786 amortized amount at December 31, 1999) of 8-1/8% Senior Notes due 2009. The net proceeds were used to reduce bank borrowings. The notes are not redeemable by CSC Holdings prior to maturity. In December 1998, the Company redeemed Clearview's 10-7/8% Senior Notes for approximately $94,800 in cash. This payment included a premium of $11,200, a consent fee of $3,600 and accrued interest of $48. In July 1998, CSC Holdings issued $500,000 principal amount of 7-1/4% Senior Notes due 2008 (the "2008 Notes") and $500,000 principal amount ($499,541 and $499,516 amortized amount at December 31, 1999 and 1998, respectively) of 7-5/8% Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a discount of $495. The 2008 Notes and Debentures are not redeemable by CSC Holdings prior to maturity. In February 1998, CSC Holdings issued $300,000 principal amount ($296,893 and $296,721 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8% Senior Debentures due 2018 (the "2018 Debentures"). The 2018 Debentures were issued at a discount of $3,429. The 2018 Debentures are not redeemable by CSC Holdings prior to maturity. In December 1997, CSC Holdings issued $500,000 principal amount ($499,584 and $499,532 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8% Senior Notes due 2007 (the "2007 Notes"). The 2007 Notes were issued at a discount of $525. The 2007 Notes are not redeemable by CSC Holdings prior to maturity. In August 1997, CSC Holdings issued $400,000 principal amount ($398,798 and $398,674 amortized amount at December 31, 1999 and 1998, respectively) of 8-1/8% Senior Debentures due 2009 (the "2009 Notes"). The 2009 Notes were issued at a discount of $1,492. The 2009 Notes are not redeemable by CSC Holdings prior to maturity. The indentures under which the senior notes and debentures were issued contain various convenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1999. (79) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Subordinated Notes and Debentures In May 1996, CSC Holdings issued $150,000 principal amount ($149,558 and $149,545 amortized amount at December 31, 1999 and 1998, respectively) of 9-7/8% Senior Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal amount of 10-1/2% Senior Subordinated Debentures due 2016 (the "2016 Debentures"). The 2006 Notes are redeemable at CSC Holdings' option, in whole or in part, on May 15, 2001, May 15, 2002 and May 15, 2003 at the redemption price of 104.938%, 103.292% and 101.646%, respectively, of the principal amount and thereafter at 100% of the aggregate principal amount, in each case together with accrued interest to the redemption date. The 2016 Debentures are redeemable at CSC Holdings' option, in whole or in part, on May 15, 2006, May 15, 2007, May 15, 2008, and May 15, 2009, at the redemption price of 105.25%, 103.938%, 102.625%, and 101.313%, respectively, of the principal amount and thereafter at 100% of the aggregate principal amount, in each case together with accrued interest to the redemption date. In November 1995, CSC Holdings issued $300,000 principal amount of 9-1/4% Senior Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at CSC Holdings' option, in whole or in part, on November 1, 2000, November 1, 2001 and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%, respectively, of the principal amount and thereafter at 100% of the principal amount, in each case together with accrued interest to the redemption date. In February 1993, CSC Holdings issued $200,000 face amount ($199,180 and $199,117 amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8% Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013 Debentures are redeemable, at CSC Holdings' option, on February 15, 2003, February 15, 2004, February 15, 2005, and February 15, 2006 at the redemption price of 104.80%, 103.60%, 102.40%, and 101.20%, respectively, of the principal amount and thereafter at the redemption price of 100% of the principal amount, in each case together with accrued interest to the redemption date. Also in 1993, CSC Holdings issued $150,000 face amount ($149,775 and $149,713 amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8% Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023 Debentures are redeemable, at CSC Holdings' option, on and after April 1, 2003 at the redemption price of 104.938% reducing ratably to 100% of the principal amount on and after April 1, 2010, in each case together with accrued interest to the redemption date. The indentures under which the subordinated notes and debentures were issued contain various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement and with which the Company was in compliance at December 31, 1999. (80) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Summary of Five Year Debt Maturities Total amounts payable by the Company and its subsidiaries under its various debt obligations, including capital leases, during the five years subsequent to December 31, 1999 are as follows: 2000 $91,000 2001 124,000 2002 61,000 2003 54,000 2004 632,000 NOTE 6. PREFERRED STOCK OF CSC HOLDINGS, INC. The following summarizes the changes in each series of CSC Holdings' preferred stock:
Series I Preferred Series M Preferred Series H Preferred Total Shares Balance Shares Balance Shares Balance Balance ----------- ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1996 ............. 13,800,000 $ 323,331 7,157,585 $ 715,759 2,895,063 $ 289,506 $ 1,328,596 Dividends paid in additional shares ........ -- -- 830,018 83,001 355,415 35,542 118,543 ----------- ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1997 ............. 13,800,000 323,331 7,987,603 798,760 3,250,478 325,048 1,447,139 Dividends paid in additional shares ........ -- -- 926,260 92,626 399,050 39,905 132,531 ----------- ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1998 ............. 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953 1,579,670 Dividend paid in additional shares ........ -- -- 1,033,678 103,368 448,042 44,804 148,172 Redemption .................... (13,800,000) (323,331) -- -- -- -- (323,331) ----------- ----------- ----------- ----------- ----------- ----------- ----------- December 31, 1999 ............. -- $ -- 9,947,541 $ 994,754 4,097,570 $ 409,757 $ 1,404,511 =========== =========== =========== =========== =========== =========== ===========
In September 1999, CSC Holdings exercised its right to redeem all of its outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable Preferred Stock ("Series I Preferred"). The redemption occurred on November 2, 1999, at a price equal to 102.8% of the liquidation preference, plus accrued dividends. Investors held the Series I Preferred through interests in depositary shares (each of which represented a 1/10th interest in a share of the Series I Preferred) which were redeemable simultaneously. Each depositary share was convertible into approximately 1.4828 shares of the Company's Class A Common Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000 depositary shares outstanding had been converted into 20,458,925 shares of the Company's Class A Common Stock, with the remaining 2,375 depositary shares being redeemed for cash. CSC Holdings paid a cash dividend on the Series I Preferred of approximately $21,898 in 1999 and $29,325 in each of 1998 and 1997. In February 1996, CSC Holdings issued 6,500,000 depositary shares, representing 65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the "Series L Preferred Stock"), which were subsequently exchanged for Series M Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in August 1996 with terms identical to the Series L Preferred Stock. (81) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The depositary shares are exchangeable, in whole but not in part, at the option of CSC Holdings, for CSC Holdings' 11-1/8% Senior Subordinated Debentures due 2008. CSC Holdings is required to redeem the Series M Preferred Stock on April 1, 2008 at a redemption price equal to the liquidation preference of $10,000 per share plus accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at various redemption prices beginning at 105.563% at any time on or after April 1, 2003, at the option of CSC Holdings, with accumulated and unpaid dividends thereon to the date of redemption. Before April 1, 2001, dividends may, at the option of CSC Holdings, be paid in cash or by issuing fully paid and nonassessable shares of Series M Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On and after April 1, 2001, dividends must be paid in cash. In September 1995, CSC Holdings issued 2,500,000 shares of its $.01 par value 11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H Preferred Stock") with an aggregate liquidation preference of $100 per share. CSC Holdings is required to redeem the Series H Preferred Stock on October 1, 2007 at a redemption price per share equal to the liquidation preference of $100 per share, plus accrued and unpaid dividends thereon. Before October 1, 2000, dividends may, at the option of CSC Holdings, be paid in cash or by issuing fully paid and nonassessable shares of Series H Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On and after October 1, 2000, dividends must be paid in cash. The terms of the Series H Preferred Stock permit CSC Holdings, at its option, to exchange the Series H Preferred Stock for CSC Holdings' 11-3/4% Senior Subordinated Debentures due 2007 in an aggregate principal amount equal to the aggregate liquidation preference of the shares of Series H Preferred Stock. Preferred stock dividend requirements of CSC Holdings are included in minority interests in the accompanying consolidated statements of operations. NOTE 7. INCOME TAXES The Company and certain of its subsidiaries file consolidated income tax returns. Effective April 1, 1997, as a result of the transaction described in Note 2, Rainbow Media files a separate consolidated federal income tax return with its subsidiaries. At December 31, 1999, the Company had consolidated net operating loss carry forwards of approximately $1,250,000 and Rainbow Media had consolidated federal net operating loss carry forwards of approximately $570,000 expiring on various dates through 2019. As a result of a Holding Company Reorganization and the 1997 change in Rainbow Media's ownership described in Note 2, Rainbow Media's loss carry forwards may be subject to annual limitations on deductions. The Company's net operating loss carry forwards reflect approximately $50,000 in stock expense which would result in an adjustment to paid-in capital upon realization of such net operating loss carry forward. (82) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The tax effects of temporary differences which give rise to significant portions of deferred tax assets or liabilities and the corresponding valuation allowance at December 31, 1999 and 1998 are as follows: 1999 1998 -------- ------ Deferred Asset (Liability) Depreciation and amortization............ $ (54,085) $(182,226) Receivables from affiliates.............. 27,476 23,406 Benefit plans............................ 120,847 108,495 Allowance for doubtful accounts.......... 10,526 7,016 Deferred gain............................ (185,287) (130,650) Benefits of tax loss carry forwards...... 764,625 596,175 Other.................................... - (50) ---------- --------- Net deferred tax assets.............. 684,102 422,166 Valuation allowance...................... (684,102) (422,166) ---------- --------- $ - $ - ========== ========= In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences or net operating loss carry forwards become deductible. Management considers scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies which can be implemented by the Company in making this assessment. NOTE 8. OPERATING LEASES The Company leases certain office, production, transmission, theater, event, and retail store facilities under terms of leases expiring at various dates through 2027. The leases generally provide for fixed annual rentals plus certain real estate taxes and other costs. Rent expense for the years ended December 31, 1999, 1998 and 1997 amounted to $97,300, $83,003 and $26,773, respectively. In addition, the Company rents space on utility poles for its operations. The Company's pole rental agreements are for varying terms, and management anticipates renewals as they expire. Pole rental expense for the years ended December 31, 1999, 1998 and 1997 amounted to approximately $13,081, $12,490 and $10,737, respectively. The minimum future annual rentals for all operating leases during the next five years, including pole rentals from January 1, 2000 through December 31, 2004, and thereafter, at rates now in force (83) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) are approximately: 2000, $99,835; 2001, $95,902; 2002, $93,872; 2003, $91,645; 2004, $89,105; thereafter, $664,104. NOTE 9. AFFILIATE TRANSACTIONS The Company purchases services from certain cable television programming and advertising companies, in which Rainbow Media directly or indirectly held varying ownership interests during the three years ended December 31, 1999. Costs incurred by the Company for programming and advertising services provided by these non-consolidated affiliates and included in operating expense for the years ended December 31, 1999, 1998 and 1997 amounted to approximately $4,691, $2,942 and $16,581, respectively. At December 31, 1999 and 1998 amounts due to certain of these affiliates, primarily for programming services provided to the Company, aggregated $1,391 and $3,644, respectively, and are included in accounts payable. At December 31, 1999 and 1998, amounts due from certain of these programming and advertising affiliates aggregated $801 and $13,075, respectively, and are included in advances to affiliates. The Company's equity in the net income (losses) of these affiliates was approximately $(11,318), $(31,851) and $10,672 in 1999, 1998 and 1997, respectively. At December 31, 1999, the Company's investment in these programming and advertising companies amounted to approximately $46,420. At December 31, 1998, the Company's net deficit investment in these programming and advertising companies amounted to approximately $338. During 1999, 1998 and 1997, the Company provided programming services to or incurred costs on behalf of other affiliates engaged in providing cable television, cable television programming, and related services. Amounts due from these affiliates amounted to $16,518 and $310 at December 31, 1999 and 1998, respectively and are included in advances to affiliates. In 1992, the Company acquired from Mr. Dolan substantially all of the interests in Cablevision of New York City ("CNYC") that it did not previously own. Mr. Dolan remained a 1% partner in CNYC and was entitled to certain preferential payments. The total amount owed to Mr. Dolan at December 31, 1997 amounted to approximately $197,183. In 1998, the Company paid all amounts due Mr. Dolan. In October 1997, the Company entered into an agreement with At Home Corporation ("@Home") and certain of its shareholders, pursuant to which the Company agreed to enter into agreements for the distribution of the @Home service over certain of the Company's cable television systems on the same terms and conditions as @Home's founding partners, TCI, Comcast Corporation and Cox Communications, Inc. The Company received a warrant to purchase 15,751,568 shares of @Home's Series A Common Stock at an exercise price of $.25 per share. Additionally, in 1998 a warrant to purchase 4,711,028 shares of @Home's Series A Common Stock at $.25 per share was received in connection with the acquisition of the TCI Systems (see Note 2). The @Home network distributes high-speed interactive services to residences and businesses using its own network (84) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) architecture and a variety of transport options, including the cable industry's hybrid fiber coaxial infrastructure. The aggregate fair market value of the warrants received of $248,134, as determined by independent appraisals, has been recorded in investments in affiliates in the accompanying consolidated balance sheets. The difference between the appraised value of the warrants and the price paid has been recorded as deferred revenue and is being amortized to income over the period which the Company is obligated to provide the necessary services to @Home. In 1999 and 1998, the Company recorded $50,136 and $35,821, respectively, of revenue relating to this transaction. In August 1996, the Company entered into an agreement with NorthCoast Operating Co., Inc. ("NorthCoast") and certain of its affiliates, to form a limited liability company (the "LLC") to participate in the auctions conducted by the Federal Communications Commission ("FCC") for certain licenses to conduct a personal communications service ("PCS") business. The Company has contributed an aggregate of approximately $50,100 to the LLC (either directly or through a loan to NorthCoast) and holds a 49.9% interest in the LLC and certain preferential distribution rights. The Company recorded a loss of $7,916 and $5,517 in 1999 and 1998, respectively, representing its share of the losses of the LLC. NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a nephew of Charles F. Dolan and a cousin of James L. Dolan. In 1996, Rainbow Media invested in a joint venture formed with a subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting certain direct broadcast satellite ("DBS") frequencies. Rainbow Media also contributed to the joint venture its interest in certain agreements with the licensee of such frequencies. Rainbow Media's investment amounted to $386 and $14,913 at December 31, 1999 and 1998, respectively. In 1999, based upon its then current business plans, the Company determined that it could no longer recover its investment in the joint venture and wrote down its investment by $15,100. NOTE 10. BENEFIT PLANS Effective January 1, 1998, the Company established a Cash Balance Retirement Plan (the "Retirement Plan"), which replaced the Company's former money purchase pension plan for the benefit of employees other than those of MSG, The WIZ and CCG Holdings, Inc. Under the Retirement Plan, the Company will credit a certain percentage of eligible base pay into an account established for each participant which will earn a market based rate of return annually. Net periodic pension cost for the years ended December 31, 1999 and 1998 amounted to $6,218 and $5,555, respectively. At December 31, 1999 and 1998, the accumulated benefit obligation amounted to $11,309 and $5,312, respectively. The Company also maintains a 401(k) savings plan, pursuant to which an employee can contribute a percentage of eligible annual compensation, as defined. The Company also makes matching contributions for a portion of employee contributions to the 401(k) savings plan. (85) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The cost associated with the money purchase pension plan and the 401(k) savings plan was approximately $6,102, $4,492 and $7,445 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental Plan") for the benefit of certain officers and employees of the Company. As part of the Supplemental Plan, the Company established a nonqualified defined benefit pension plan, which provides that, upon attaining normal retirement age, a participant will receive a benefit equal to a specified percentage of the participant's average compensation, as defined. All participants are 100% vested in the Supplemental Plan. Net periodic pension cost for the years ended December 31, 1999, 1998 and 1997 was negligible. At December 31, 1999 and 1998, the fair value of Supplemental Plan assets exceeded the projected benefit obligation by approximately $3,071 and $2,688, respectively. MSG sponsors several non-contributory pension plans covering MSG's employees. Benefits payable to retirees under these plans are based upon years of service and participant's compensation and are funded through trusts established under the plans. Plan assets are invested primarily in common stocks, bonds, United States government securities and cash. At December 31, 1999 and 1998, the accrued benefit cost amounted to $10,796 and $8,883, respectively, and for the years ended December 31, 1999, 1998 and 1997, net periodic pension cost amounted to $2,611, $2,254 and $1,613, respectively. MSG also sponsors a welfare plan which provides certain postretirement health care and life insurance benefits to certain employees and their dependents who are eligible for early or normal retirement under MSG's retirement plan. The welfare plan is insured through a managed care provider and MSG funds these benefits with premium payments. For the years ended December 31, 1999, 1998 and 1997, the periodic postretirement benefit cost amounted to $204, $84 and $133, respectively, and the accrued benefit cost amounted to $6,154 and $6,087, respectively. NOTE 11. STOCK BENEFIT PLANS The Company has an Employee Stock Plan (the "Stock Plan") under which the Company is authorized to issue a maximum of 14,000,000 shares. Pursuant to its terms, no awards could be granted under the Stock Plan after December 5, 1995. Under the Stock Plan, the Company granted incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, stock grants and stock bonus awards. The exercise price of stock options could not be less than the fair market value per share of Class A Common Stock on the date the option was granted and the options could expire no longer than ten years from date of grant. Stock appreciation rights permit the employee to elect to receive payment in cash, either in lieu of the right to exercise such option or in addition to the stock received upon the exercise of such option, in an amount equal to the difference between the fair market value of the stock as of the date the right is exercised, and the exercise price. (86) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) In June 1996, the Company's shareholders approved the First Amended and Restated 1996 Employee Stock Plan, as amended, (the "1996 Plan"), under which the Company is authorized to issue a maximum of 13,000,000 shares. Under the 1996 Plan, the Company is able to grant incentive stock options, nonqualified stock options, restricted stock, conjunctive and alternative stock appreciation rights, stock grants and stock bonus awards. The other terms of the 1996 Plan are substantially identical to those of the Stock Plan except that under the 1996 Plan the Compensation Committee has the authority, in its discretion, to add performance criteria as a condition to any employee's exercise of an award granted under the 1996 Plan. During 1999, the Company granted options under the 1996 Plan to purchase 3,108,561 shares of Class A Common Stock and stock appreciation rights related to 1,512,449 shares under option. The options and related stock appreciation rights are exercisable at various prices ranging from $67.50 to $76.31 per share and vest in 33 1/3% annual increments beginning one year from the date of grant. During 1998, the Company granted options under the 1996 Plan to purchase 2,265,500 shares of Class A Common Stock and stock appreciation rights related to 2,265,500 shares under option. The options and related stock appreciation rights are exercisable at various prices ranging from $27.63 to $43.50 per share and vest in 33 1/3% annual increments beginning one year from the date of grant. During 1997, the Company granted options under the 1996 Plan to purchase 2,230,888 shares of Class A Common Stock and stock appreciation rights related to 2,210,288 shares under option. The options and related stock appreciation rights are exercisable at prices of $7.13 and $7.88 per share and vest in either 25% or 33 1/3% annual increments beginning one year from the date of the grant or the beginning of 1997. As a result of stock awards, bonus awards, stock appreciation rights and the expensing of the cash payment made for certain executive stock options, the Company recorded expense of approximately $255,789, $146,179 and $64,361 in 1999, 1998 and 1997, respectively. These amounts reflect vesting schedules for applicable grants as well as fluctuations in the market price of the Company's Class A Common Stock. The Company applies APB 25 and related interpretations in accounting for its stock option plans. Had compensation cost been recognized consistent with Statement of Financial Accounting Standards No. 123 ("SFAS 123"), for options granted in 1995 through 1999, the Company's net loss would have increased by $45,607, $16,151 and $7,323 in 1999, 1998 and 1997, respectively. Pro forma net loss per share would have been $(5.41), $(3.27) and $(.20) for the years ended December 31, 1999, 1998 and 1997, respectively. (87) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The per share weighted average value of stock options issued by the Company during 1999, 1998 and 1997, as determined by the Black-Scholes option pricing model, was $35.27, $14.25 and $3.32, respectively, on the date of grant. In these years, the Company assumed no declaration of dividends and an expected life of five years in determining the value of stock options granted. In addition, the calculations assumed a risk free interest rate of approximately 6.3%, 5.0% and 5.9% and expected volatility of 49.7%, 52.8% and 43.5% in 1999, 1998 and 1997, respectively. Stock transactions under the Stock Plan and the 1996 Plan are as follows:
Shares Stock Under Appreciation Stock Available Option Option Rights Awards For Grant Price Range ------ ------ ------ --------- ----------- Balance, December 31, 1996 5,492,616 5,624,016 615,650 3,477,770 $3.63-$13.04 Granted 2,230,888 2,210,288 - (2,230,888) $7.13-$7.88 Exercised/issued (950,924) (1,245,160) - - $5.32-$13.03 Cancelled-Stock Plan (964,356) (948,024) (31,196) - $5.32-$13.03 Cancelled-1996 Plan (300,676) (300,176) (45,452) 346,128 $7.13-$12.38 ----------- ----------- ---------- ----------- Balance, December 31, 1997 5,507,548 5,340,944 539,002 1,593,010 $5.32-$13.03 1996 Plan amendment - - - 7,000,000 Granted 2,265,500 2,265,500 - (2,265,500) $27.63-$43.50 Exercised/issued (1,263,220) (1,164,932) (221,852) - $6.13-$30.16 Cancelled-Stock Plan (6,604) (6,604) (6,840) - $6.91-$13.03 Cancelled-1996 Plan (345,364) (345,360) (32,060) 377,424 $7.13-$12.38 ----------- ----------- ---------- ----------- Balance, December 31, 1998 6,157,860 6,089,548 278,250 6,704,934 $6.13-$43.50 Granted 3,108,561 1,512,449 9,180 (3,117,741) $67.50-$76.31 Exercised/issued (1,174,609) (1,740,534) - - $6.13-$42.88 Cancelled-Stock Plan (22,852) (28,400) - - $6.13-$42.88 Cancelled-1996 Plan (609,301) (812,535) (28,538) 637,839 $7.13-$12.38 ----------- ----------- ---------- ----------- Balance, December 31, 1999 7,459,659 5,020,528 258,892 4,225,032 $6.13-$76.31 =========== =========== ========== ===========
(88) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The following table summarizes significant ranges of outstanding and exercisable options at December 31, 1999:
Options Outstanding Options Exercisable ------------------------------------------------- ----------------------------- Weighted Weighted Weighted Average Average Average Ranges of Remaining Exercise Exercise Exercise Prices Shares Life in Years Price Shares Price - - ----------------------------------------------------------------------------------------------------------------- $ 6.13 - 7.63 1,576,058 6.9 $ 7.10 1,576,058 $ 7.10 7.64 - 15.26 910,538 5.7 11.42 685,013 11.37 15.27 - 22.89 4,667 8.1 22.47 2,833 22.47 22.90 - 30.53 1,983,562 8.3 27.49 693,968 27.41 30.54 - 38.16 40,000 8.2 33.73 40,000 33.73 38.17 - 45.79 116,001 8.1 41.54 34,674 41.56 61.05 - 68.68 2,266,000 8.9 67.47 208,333 67.40 68.69 - 76.31 562,833 5.9 75.44 261,500 76.31
At December 31, 1999, options for 7,459,659 shares were outstanding with a weighted average exercise price of $37.23 and a weighted average remaining life of 7.6 years. At December 31, 1999, options for 3,502,379 shares were exercisable with a weighted average exercise price of $21.37. NOTE 12. COMMITMENTS AND CONTINGENCIES The Company, through Rainbow Media, has entered into several contracts, including rights agreements, with professional sports teams and others relating to cable television programming. In addition, Rainbow Media, through MSG, has employment agreements with both players and coaches of its professional sports teams. Certain of these contracts, which provide for payments that are guaranteed regardless of employee injury or termination, are covered by disability insurance if certain conditions are met. Future cash payments required under these contracts as of December 31, 1999 are as follows: 2000 $271,398 2001 217,300 2002 172,800 2003 136,164 2004 109,968 Thereafter 1,020,554 ---------- Total $1,928,184 ========== The Company and its cable television affiliates have an affiliation agreement with a program supplier whereby the Company is obligated to make base rate annual payments, as defined and subject to certain adjustments pursuant to the agreement, through 2004. The Company would be contingently liable for the base rate annual payments, based on subscriber usage, of approximately (89) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) $13,335 in 2000 and for the years 2001 through 2004 such payments would increase by percentage increases in the Consumer Price Index, or five percent, whichever is less, over the prior year's base rate annual payment. NOTE 13. OTHER MATTERS The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that the resolution of these lawsuits will have a material adverse impact on the financial position of the Company. NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts Payable and Accrued Liabilities. The carrying amount approximates fair value due to the short maturity of these instruments. At Home Warrants The fair value of the At Home warrants is based upon the quoted market price of the underlying securities. Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and Redeemable Exchangeable Preferred Stock of CSC Holdings The fair values of each of the Company's long-term debt instruments and redeemable preferred stock of CSC Holdings are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities. Interest Rate Swap Agreements The fair values of interest rate swap and cap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate agreements, taking into consideration current interest rates and the current creditworthiness of the counterparties. (90) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The fair value of the Company's financial instruments are summarized as follows: December 31, 1999 --------------------------- Carrying Estimated Amount Fair Value At Home warrants ............................. $ 248,134 $ 867,103 ========== ========== Long term debt instruments: Bank debt .................................. $2,254,487 $2,254,487 Senior notes and debentures ................ 2,692,602 2,608,845 Subordinated notes and debentures .......... 1,048,513 1,102,500 Redeemable exchangeable preferred stock of CSC Holdings ................... 1,404,511 1,539,173 ---------- ---------- $7,400,113 $7,505,005 ========== ========== Interest rate swap agreements: In a net payable position .................. $ -- $ 3,265 ========== ========== December 31, 1998 --------------------------- Carrying Estimated Amount Fair Value At Home warrants ............................. $ 248,134 $ 755,479 ========== ========== Long term debt instruments: Bank debt .................................. $2,051,549 $2,051,549 Senior notes and debentures ................ 2,194,443 2,271,340 Subordinated notes and debentures .......... 1,048,375 1,168,375 Redeemable exchangeable preferred stock of CSC Holdings ................... 1,256,339 1,417,241 ---------- ---------- $6,550,706 $6,908,505 ========== ========== Interest rate swap agreements: In a net payable position .................. $ -- $ 4,116 ========== ========== Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. NOTE 15. SEGMENT INFORMATION The Company classifies its business interests into three segments: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, (91) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) which owns and operates professional sports teams, regional cable television networks, live productions and entertainment venues; and Retail Electronics, which represents the operations of Cablevision Electronics' retail electronics stores. The Company's reportable segments are strategic business units that are managed separately. The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization, incentive stock plan expense and the costs of year 2000 remediation). The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment sales are accounted for at fair value as if the sales were to third parties. Information as to the operations of the Company's business segments is set forth below. Years Ended December 31, ------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Revenues Telecommunication Services ..... $ 2,151,308 $ 1,886,190 $ 1,364,264 Rainbow Media .................. 1,234,113 1,007,639 637,648 Retail Electronics ............. 603,294 464,388 -- All Other ...................... 85,529 6,614 1,707 Intersegment eliminations ...... (131,259) (99,688) (54,261) ----------- ----------- ----------- Total ............... $ 3,942,985 $ 3,265,143 $ 1,949,358 =========== =========== ===========
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Adjusted Operating Cash Flow (unaudited) Telecommunication Services ............. $ 916,233 $ 762,823 $ 545,927 Rainbow Media .......................... 190,646 135,259 101,122 Retail Electronics ..................... (37,934) (19,737) -- All Other .............................. (51,996) (1,783) (1,704) ----------- ----------- ----------- Total ....................... $ 1,016,949 $ 876,562 $ 645,345 =========== =========== =========== Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Assets Telecommunication Services ............ $ 4,490,364 $ 4,411,194 $ 2,927,640 Rainbow Media ......................... 2,682,235 2,720,127 2,838,987 Retail Electronics .................... 220,898 199,194 -- Other ................................. 274,003 253,564 10,270 Corporate and intersegment eliminations (537,192) (523,017) (162,109) ----------- ----------- ----------- Total ...................... $ 7,130,308 $ 7,061,062 $ 5,614,788 =========== =========== ===========
(92) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) A reconciliation of reportable segment amounts to the Company's consolidated balances is as follows:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Revenues Total revenue for reportable segments .................... $ 3,988,715 $ 3,358,217 $ 2,001,912 Other revenue and intersegment eliminations .............. (45,730) (93,074) (52,554) ----------- ----------- ----------- Total consolidated revenue ........................ $ 3,942,985 $ 3,265,143 $ 1,949,358 =========== =========== =========== Adjusted Operating Cash Flow to Net Loss Total adjusted operating cash flow for reportable segments (unaudited) .............................. 1,068,945 878,345 647,049 Other adjusted operating cash flow deficit (unaudited) ... (51,996) (1,783) (1,704) Items excluded from adjusted operating cash flow Depreciation and amortization ..................... (893,797) (734,107) (499,809) Incentive stock plan expense ...................... (255,789) (146,179) (64,361) Year 2000 remediation ............................. (41,477) (7,593) -- Interest expense .................................. (470,549) (426,402) (368,700) Interest income ................................... 4,809 24,028 5,492 Equity in net loss of affiliates .................. (19,234) (37,368) (27,165) Gain on sale of programming interests and cable assets, net .................................. -- 170,912 372,053 Gain on redemption of subsidiary preferred stock .. -- -- 181,738 Write off of deferred interest and financing costs (4,425) (23,482) (24,547) Provision for preferential payment to related party -- (980) (10,083) Minority interests ................................ (120,524) (124,677) (209,461) Miscellaneous, net ................................ (16,570) (19,218) (12,606) ----------- ----------- ----------- Net loss ................................ $ (800,607) $ (448,504) $ (12,104) =========== =========== ===========
Substantially all revenues and assets of the Company's reportable segments are attributed to or located in the United States. The Company does not have a single external customer which represents 10 percent or more of its consolidated revenues. (93) CABLEVISION SYSTEMS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 16. INTERIM FINANCIAL INFORMATION (Unaudited) The following is a summary of selected quarterly financial data for the years ended December 31, 1999 and 1998.
MARCH 31, JUNE 30, SEPTEMBER 30, -------------------------- -------------------------- -------------------------- 1999 1998 1999 1998 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- Revenues ..................... $ 933,708 $ 675,728 $ 946,309 $ 805,190 $ 902,310 $ 806,871 Operating expenses ........... 1,040,755 686,888 954,580 785,935 922,674 790,822 ----------- ----------- ----------- ----------- ----------- ----------- Operating profit (loss) ...... $ (107,047) $ (11,160) $ (8,271) $ 19,255 $ (20,364) $ 16,049 =========== =========== =========== =========== =========== =========== Net loss ..................... $ (238,647) $ (27,204) $ (167,847) $ (122,951) $ (178,063) $ (113,614) =========== =========== =========== =========== =========== =========== Basic and diluted net loss per common share.............. $ (1.57) $ (.23) $ (1.10) $ (.82) $ (1.17) $ (.75) =========== =========== =========== =========== =========== =========== DECEMBER 31, TOTAL -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues ..................... $ 1,160,658 $ 977,354 $ 3,942,985 $ 3,265,143 Operating expenses ........... 1,199,090 1,012,815 4,117,099 3,276,460 ----------- ----------- ----------- ----------- Operating profit (loss) ...... $ (38,432) $ (35,461) $ (174,114) $ (11,317) =========== =========== =========== =========== Net loss ..................... $ (216,050) $ (184,735) $ (800,607) $ (448,504) =========== =========== =========== =========== Basic and diluted net loss per common share............... $ (1.27) $ (1.22) $ (5.12) $ (3.16) =========== =========== =========== ===========
(94) INDEPENDENT AUDITORS' REPORT The Stockholder CSC Holdings, Inc. We have audited the accompanying consolidated balance sheets of CSC Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholder's deficiency and cash flows for each of the years in the three-year period ended December 31, 1999. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule listed in Item 14(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CSC Holdings, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Melville, New York March 13, 2000 (95) CSC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (Dollars in thousands)
ASSETS 1999 1998 ---------- ---------- Cash and cash equivalents ............................. $ 62,665 $ 173,826 Accounts receivable trade (less allowance for doubtful accounts of $35,357 and $34,377) .......... 226,304 197,726 Notes and other receivables ........................... 129,596 188,455 Inventory, prepaid expenses and other assets .......... 219,487 206,073 Property, plant and equipment, net .................... 2,752,495 2,506,834 Investments in affiliates ............................. 306,557 276,231 Advances to affiliates ................................ 46,685 36,927 Feature film inventory ................................ 335,826 293,310 Net assets held for sale .............................. 269,349 11,006 Franchises, net of accumulated amortization of $703,237 and $640,735 .............................. 651,777 850,653 Affiliation and other agreements, net of accumulated amortization of $244,249 and $181,928 .............. 173,250 206,456 Excess costs over fair value of net assets acquired and other intangible assets, net of accumulated amortization of $727,134 and $775,557 .............. 1,816,030 2,003,128 Deferred financing, acquisition and other costs, net of accumulated amortization of $51,063 and $41,882 .... 140,287 110,400 ---------- ---------- $7,130,308 $7,061,025 ========== ==========
See accompanying notes to consolidated financial statements. (96) CSC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998 (Dollars in thousands, except per share amounts)
1999 1998 ----------- ----------- LIABILITIES AND STOCKHOLDER'S DEFICIENCY Accounts payable ............................................................. $ 423,158 $ 423,039 Accrued liabilities: Interest ................................................................ 117,854 88,798 Employee related costs .................................................. 463,925 330,700 Other ................................................................... 466,820 464,343 Feature film and contract obligations ........................................ 371,126 373,722 Deferred revenue ............................................................. 274,043 334,213 Bank debt .................................................................... 2,254,487 2,051,549 Senior notes and debentures .................................................. 2,692,602 2,194,443 Subordinated notes and debentures ............................................ 1,048,513 1,048,375 Capital lease obligations and other debt ..................................... 99,099 63,241 ----------- ----------- Total liabilities ....................................................... 8,211,627 7,372,423 ----------- ----------- Minority interests ........................................................... 592,583 719,007 ----------- ----------- Series H Redeemable Exchangeable Preferred Stock ............................. 409,757 364,953 ----------- ----------- Series M Redeemable Exchangeable Preferred Stock ............................. 994,754 891,386 ----------- ----------- Commitments and contingencies Stockholder's deficiency: Series A Cumulative Convertible Preferred Stock, 200,000 shares authorized, none issued ............................. -- -- Series B Cumulative Convertible Preferred Stock, 200,000 shares authorized, none issued ............................. -- -- 8% Series D Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized, none issued ($100 per share liquidation preference) ...................................... -- -- 8-1/2% Series I Cumulative Convertible Exchangeable Preferred Stock, $.01 par value, 1,380,000 shares authorized, 0 and 1,380,000 shares issued ($250 per share liquidation preference) .............. -- 14 Common Stock, $.01 par value, 10,000,000 shares authorized, 1,000 shares issued ................................................ 1 1 Paid-in capital ......................................................... 763,947 754,995 Accumulated deficit ..................................................... (3,842,361) (3,041,754) ----------- ----------- Total stockholder's deficiency .......................................... (3,078,413) (2,286,744) ----------- ----------- $ 7,130,308 $ 7,061,025 =========== ===========
See accompanying notes to consolidated financial statements. (97) CSC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars in thousands, except per share amounts)
1999 1998 1997 ----------- ----------- ----------- Revenues, net (including retail electronics sales of $603,294, $464,388 and $-0-) ....................................... $ 3,942,985 $ 3,265,143 $ 1,949,358 ----------- ----------- ----------- Operating expenses: Technical and operating ............................................ 1,535,423 1,268,786 853,800 Retail electronics cost of sales ................................... 484,760 367,102 -- Selling, general and administrative ................................ 1,203,119 906,465 514,574 Depreciation and amortization ...................................... 893,797 734,107 499,809 ----------- ----------- ----------- 4,117,099 3,276,460 1,868,183 ----------- ----------- ----------- Operating profit (loss) ............................................... (174,114) (11,317) 81,175 ----------- ----------- ----------- Other income (expense): Interest expense ................................................... (470,549) (426,402) (368,700) Interest income .................................................... 4,809 24,028 5,492 Equity in net loss of affiliates ................................... (19,234) (37,368) (27,165) Gain on sale of programming interests and cable assets, net ........ -- 170,912 372,053 Gain on redemption of subsidiary preferred stock ................... -- -- 181,738 Write off of deferred interest and financing costs ................. (4,425) (23,482) (24,547) Provision for preferential payment to related party ................ -- (980) (10,083) Minority interests ................................................. 49,563 37,195 (60,694) Miscellaneous, net ................................................. (16,570) (19,218) (12,606) ----------- ----------- ----------- (456,406) (275,315) 55,488 ----------- ----------- ----------- Net income (loss) ..................................................... (630,520) (286,632) 136,663 Dividend requirements applicable to preferred stock ................... (170,087) (161,872) (148,767) ----------- ----------- ----------- Net loss applicable to common shareholder ............................. $ (800,607) $ (448,504) $ (12,104) =========== =========== =========== Basic and diluted net loss per common share........................... $ -- $ -- $ (.12) =========== =========== =========== Average number of common shares outstanding (in thousands) ............ -- -- 99,608 =========== =========== ===========
See accompanying notes to consolidated financial statements. (98) CSC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY Years Ended December 31, 1999, 1998 and 1997 (Dollars in thousands)
Series C Series I Class A Class B Preferred Preferred Common Common Common Paid-in Stock Stock Stock Stock Stock Capital ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1996 ........ $ 1 $ 14 $ -- $ 544 $ 452 $ 163,791 Net income ..................... -- -- -- -- -- -- Employee stock transactions .... -- -- -- 8 -- 7,608 Conversion of Class B to Class A -- -- -- 8 (8) -- Preferred dividend requirements -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1997 ........ 1 14 -- 560 444 171,399 Net loss ....................... -- -- -- -- -- -- Contribution of assets by Parent -- -- -- -- -- 584,708 Employee stock transactions .... -- -- -- -- -- 2,444 Redemption of preferred stock .. (1) -- -- -- -- (9,408) Dividend payment to Parent ..... -- -- -- -- -- -- Issuance of stock .............. -- -- -- -- -- 4,849 Common stock conversion ........ -- -- 1 (560) (444) 1,003 Preferred dividend requirements -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1998 ........ -- 14 1 -- -- 754,995 Net loss ....................... -- -- -- -- -- -- Conversion of Series I Preferred Stock to Parent Class A .... -- (14) -- -- -- 14 Contribution of assets by Parent -- -- -- -- -- 8,938 Preferred dividend requirements -- -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31, 1999 ........ $ -- $ -- $ 1 $ -- $ -- $ 763,947 =========== =========== =========== =========== =========== =========== Accumulated Deficit Total ----------- ----------- Balance December 31, 1996 ........ $(2,539,087) $(2,374,285) Net income ..................... 136,663 136,663 Employee stock transactions .... -- 7,616 Conversion of Class B to Class A -- -- Preferred dividend requirements (148,767) (148,767) ----------- ----------- Balance December 31, 1997 ........ (2,551,191) (2,378,773) Net loss ....................... (286,632) (286,632) Contribution of assets by Parent -- 584,708 Employee stock transactions .... -- 2,444 Redemption of preferred stock .. -- (9,409) Dividend payment to Parent ..... (42,059) (42,059) Issuance of stock .............. -- 4,849 Common stock conversion ........ -- -- Preferred dividend requirements (161,872) (161,872) ----------- ----------- Balance December 31, 1998 ........ $(3,041,754) $(2,286,744) Net loss ....................... (630,520) (630,520) Conversion of Series I Preferred Stock to Parent Class A .... -- -- Contribution of assets by Parent -- 8,938 Preferred dividend requirements (170,087) (170,087) ----------- ----------- Balance December 31, 1999 ........ $(3,842,361) $(3,078,413) =========== ===========
See accompanying notes to consolidated financial statements. (99) CSC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 (Dollars in thousands)
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss) .......................................................... $ (630,520) $ (286,632) $ 136,663 ----------- ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ........................................ 893,797 734,107 499,809 Equity in net loss of affiliates ..................................... 19,234 37,368 27,165 Minority interests ................................................... (49,563) (37,195) 60,694 Gain on sale of programming interests and cable assets, net .......... -- (170,912) (372,053) Gain on sale of investments .......................................... (10,861) -- -- Write off of investment in affiliate ................................. 15,100 -- -- Write off of deferred interest and financing costs ................... 4,425 23,482 24,547 Gain on redemption of subsidiary preferred stock ..................... -- -- (181,738) (Gain) loss on sale of equipment, net ................................ 9,811 (604) 5,325 Amortization of deferred financing and debenture discount ............ 9,407 8,532 7,707 Change in assets and liabilities, net of effects of acquisitions and dispositions: Accounts receivable trade ...................................... (31,419) 19,007 (34,268) Notes and other receivables .................................... 33,961 (94,164) (67,683) Inventory, prepaid expenses and other assets ................... (23,243) (51,425) 1,232 Advances to affiliates ......................................... (10,400) (21,664) (528) Feature film inventory ......................................... (42,516) (112,734) (8,269) Other deferred costs ........................................... 955 11,689 -- Accounts payable ............................................... 15,306 133,891 50,667 Accrued liabilities ............................................ 167,268 172,910 91,497 Feature film and contract obligations .......................... (2,596) 81,376 (258) Deferred revenue ............................................... (60,170) (18,268) 37,664 Minority interests ............................................. 1,094 (961) (6,486) ----------- ----------- ----------- Net cash provided by operating activities ................................ 309,070 427,803 271,687 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures ....................................................... (871,166) (561,642) (457,590) Payments for acquisitions, net of cash acquired ............................ (117,660) (264,287) (747,134) Net proceeds from sale of programming interests and cable assets ........... -- 446,284 945,534 Proceeds from sale of equipment ............................................ 1,467 8,817 1,930 Proceeds from sale of investments .......................................... 10,861 -- -- (Increase) decrease in investments in affiliates, net ...................... (49,938) (31,035) 9,267 Additions to other intangible assets ....................................... (3,443) (13,253) (623) ----------- ----------- ----------- Net cash used in investing activities .................................... $(1,029,879) $ (415,116) $ (248,616) ----------- ----------- -----------
See accompanying notes to consolidated financial statements. (100) CSC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 and 1997 (Dollars in thousands) (continued)
1999 1998 1997 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from bank debt ............................. $ 3,791,073 $ 5,442,101 $ 3,385,703 Repayment of bank debt .............................. (3,588,135) (6,304,757) (3,147,165) Proceeds from senior debt ........................... -- -- 147,750 Repayment of senior debt ............................ -- (112,500) (433,617) Repayment of subordinated notes payable ............. -- (151,000) -- Redemption of senior notes payable .................. -- (94,848) -- Redemption of senior subordinated debt .............. -- -- (283,445) Issuance of senior notes and debentures ............. 497,670 1,296,076 897,983 Redemption of subsidiary preferred stock ............ -- -- (112,301) Redemption of preferred stock ....................... (98) (9,409) -- Dividends applicable to preferred stock ............. (21,915) (29,341) (30,224) Payment of dividend to shareholder .................. -- (42,059) -- Issuance of common stock ............................ -- 2,444 7,616 Obligation to related party ......................... -- (197,183) 4,364 Payments on capital lease obligations and other debt (22,036) (12,306) (7,501) Additions to deferred financing and other costs ..... (46,911) (36,220) (53,705) ----------- ----------- ----------- Net cash provided by (used in) financing activities 609,648 (249,002) 375,458 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ... (111,161) (236,315) 398,529 Cash and cash equivalents at beginning of year ......... 173,826 410,141 11,612 ----------- ----------- ----------- Cash and cash equivalents at end of year ............... $ 62,665 $ 173,826 $ 410,141 =========== =========== ===========
See accompanying notes to consolidated financial statements. (101) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company and Related Matters On March 4, 1998, CSC Holdings, Inc. (the "Company") completed a holding company reorganization (the "Holding Company Reorganization") pursuant to an Amended and Restated Contribution and Merger Agreement (the "Contribution and Merger Agreement"), by and among the Company, CSC Parent Corporation ("Parent"), CSC Merger Corporation, and TCI Communications, Inc., ("TCI"). Pursuant to the Contribution and Merger Agreement, each outstanding share of the Company's Class A Common Stock and each outstanding share of the Company's Class B Common Stock were automatically converted on a share for share basis for Class A Common Stock and Class B Common Stock of Parent. As a result of the Holding Company Reorganization, Parent became the holding company of the Company. In connection with the Holding Company Reorganization, the Company's name, which formerly was Cablevision Systems Corporation, was changed to CSC Holdings, Inc. and Parent's name was changed to Cablevision Systems Corporation. The preferred stock and debt of the Company remain unchanged as securities of CSC Holdings, Inc., except that the Company's 8-1/2% Cumulative Convertible Exchangeable Preferred Stock, par value $0.01 per share (the "Series I Preferred Stock"), in accordance with its terms, became exchangeable for Parent's Class A Common Stock instead of being convertible into the Company's Class A Common Stock. In April 1999, Parent contributed certain cable television systems acquired from TCI (the "TCI Systems") on March 4, 1998 to the Company. This transaction was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of the TCI Systems were recorded at historical book value (net assets of $509,574). Prior period consolidated financial statements of the Company have been restated to include the financial position and results of operations of the TCI Systems from March 4, 1998. The Company and its majority-owned subsidiaries own and operate cable television systems and have ownership interests in companies that produce and distribute national and regional entertainment and sports programming services, including Madison Square Garden, L.P. ("MSG"). The Company also owns companies that provide advertising sales services for the cable television industry, provide switched telephone service, operate a retail electronics chain and operate motion picture theaters. Parent allocates certain costs to the Company based upon its proportionate estimated usage of services. The Company classifies its business interests into three segments: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, which owns and operates professional sports teams, regional cable television networks, live productions and (102) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) entertainment venues; and Retail Electronics, which represents the operations of its retail electronics stores. Authorized Capital Stock In 1999, the Company's Board of Directors approved an amendment to the Company's Certificate of Incorporation increasing the authorized capital stock from 10 million to 20 million shares (10 million shares of Common Stock and 10 million shares of Preferred Stock). Two-for-One Stock Splits On March 4, 1998 and July 22, 1998, Parent's Board of Directors declared a two-for-one stock split to be effected in the form of a common stock dividend of one share of Class A Common Stock for each share of Class A Common Stock issued and outstanding and one share of Class B Common Stock for each share of Class B Common Stock issued and outstanding. The stock dividends were paid on March 30, 1998 and August 21, 1998 to stockholders of record on March 19, 1998 and August 10, 1998, respectively. For purposes of the accompanying consolidated financial statements of the Company, all share and per share information has been adjusted for the two-for-one splits discussed above. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. The Company's interests in less than majority-owned entities and until July 2, 1997, its 100% common stock interest in A-R Cable Services, Inc., are carried on the equity method. Subsequent to July 2, 1997, results of operations of A-R Cable Services, Inc. are consolidated with those of the Company (see Note 2). Advances to affiliates are recorded at cost, adjusted when recoverability is doubtful. All significant intercompany transactions and balances are eliminated in consolidation. Revenue Recognition The Company recognizes cable television, internet access, telephony and programming revenues as services are provided to subscribers. Advertising revenues are recognized when commercials are telecast. Revenue from retail electronic sales is recognized upon delivery, with an appropriate provision for returned merchandise based upon historical experience. Revenues derived from other sources are recognized when services are provided or events occur. (103) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Long-Lived Assets Property, plant and equipment, including construction materials, are carried at cost, which includes all direct costs and certain indirect costs associated with the construction of cable television transmission and distribution systems, and the costs of new subscriber installations. Franchises are amortized on the straight-line basis over the average remaining terms (5 to 12 years) of the franchises at the time of acquisition. Affiliation and other agreements (primarily cable television system programming agreements) are amortized on a straight-line basis over periods ranging from 8 to 10 years. Other intangible assets are amortized on the straight-line basis over the periods benefited (1 to 15 years), except that excess costs over fair value of net assets acquired are being amortized on the straight-line basis over periods ranging from 6 to 40 years. The Company reviews its long-lived assets (property, plant and equipment, and related intangible assets that arose from business combinations accounted for under the purchase method) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. Feature Film Inventory Rights to feature film inventory acquired under license agreements along with the related obligations are recorded at the contract value. Costs are charged to technical and operating expense on a straight-line basis over the respective contract periods. Amounts payable during the five years subsequent to December 31, 1999 related to feature film telecast rights are $60,310 in 2000, $37,777 in 2001, $35,095 in 2002, $31,791 in 2003, and $26,664 in 2004. Inventory Carrying amounts of retail merchandise are determined on an average cost basis and are stated at the lower of cost or market. Deferred Financing Costs Costs incurred to obtain debt are deferred and amortized, on a straight-line basis, over the life of the related debt. Income Taxes Income taxes are provided based upon the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires the liability method of accounting for deferred income taxes and permits the recognition of deferred tax assets, subject to an ongoing assessment of realizability. (104) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Loss Per Share Basic and diluted net loss per common share for the year ended December 31, 1997 is computed by dividing net loss after deduction of preferred stock dividends by the weighted average number of common shares outstanding. Potential dilutive common shares were not included in the computation as their effect would be antidilutive. Basic and diluted net loss per common share for the years ended December 31, 1999 and 1998 are not presented since the Company is a wholly-owned subsidiary of Parent. The loss per share amount has been adjusted to reflect the two-for-one stock splits discussed above. Segment Information On December 31, 1998, the Company adopted Statement of Financial Accounting Standards No. 131, `Disclosures about Segments of an Enterprise and Related Information' (`SFAS 131'). The new rules establish revised standards for public companies relating to the reporting of financial and descriptive information about their operating segments in financial statements. The adoption of SFAS 131 did not have a material effect on the Company's financial statements, but did affect the disclosure of segment information contained elsewhere herein (see Note 15). Reclassifications Certain reclassifications have been made in the 1998 and 1997 financial statements to conform to the 1999 presentation. Cash Flows For purposes of the consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $432,086, $383,179 and $352,660 during 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997, the Company's noncash investing and financing activities were as follows: Years Ended December 31, ------------------------ 1999 1998 1997 -------- -------- -------- Capital lease obligations ..................... $ 57,919 $ 28,795 $ 24,820 Preferred stock dividends ..................... 148,172 132,531 118,542 Issuance of common stock to redeem certain limited partnership interests .... -- 4,849 -- Receipt of warrants from At Home Corporation .. -- 74,788 173,346 Capital contribution of equipment by minority partner ......................... -- -- 38,000 Contribution of assets by Parent .............. 8,938 584,708 -- Redemption of preferred stock with Parent's common stock ............................. 323,233 -- -- (105) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Comprehensive Income The Company has not provided a separate statement of comprehensive income as items of other comprehensive income for all periods presented were not material. Use of Estimates in Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS Acquisitions 1999 Acquisitions At various times during 1999, the Company acquired interests in the real property and assets specifically related to certain movie theaters for an aggregate purchase price of approximately $29,700. The acquisitions were accounted for as purchases with the operations of the acquired theaters being consolidated with those of the Company as of the acquisition dates. The purchase price will be allocated to the specific assets acquired when an independent appraisal is obtained. In December 1999, Parent acquired cable television systems with approximately 4,500 subscribers located in the Port Jervis, New York area for approximately $7,400, $7,300 of which was paid in shares of Parent's Class A Common Stock. Concurrent with the acquisition, the acquired assets were contributed to the Company. In April 1999, ITT Corporation ("ITT") exercised its second put for the remainder of its interest in MSG and settled certain matters between the parties for a payment of $87,000. See also "Dispositions" for a discussion of an exchange of cable television assets. 1998 Acquisitions The WIZ On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision Electronics"), a wholly-owned subsidiary of the Company, acquired substantially all of the assets associated with (106) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) 40 The WIZ consumer electronics store locations from The Wiz, Inc. and certain of its subsidiaries and affiliates (collectively, "TWI"). TWI had filed for bankruptcy protection on December 16, 1997. Cablevision Electronics paid approximately $101,300 for the assets (including transaction costs and pre-closing operating costs). The acquisition was accounted for as a purchase with the operations of the stores being consolidated with the operations of the Company as of the date of acquisition. The purchase price was allocated to the specific assets acquired based upon independent appraisals as follows: Inventory ........................................ $ 66,200 Property and equipment ........................... 16,800 Other assets ..................................... 4,000 Liabilities ...................................... (24,000) Excess cost over fair value of net assets acquired 38,300 --------- $ 101,300 ========= In 1999, the Company recorded an impairment loss of $35,490 representing the balance of unamortized goodwill recorded on the TWI acquisition. Current losses and projected future operating losses caused the Company to reassess the recoverability of the goodwill. The impairment loss resulted from the carrying amount of this asset exceeding its estimated fair value based on discounted future cash flows. Madison Square Garden In June 1998, the Company purchased 50% of ITT's then remaining interest in MSG for $94,000 pursuant to ITT's exercise of its first put option, increasing Regional Programming Partners' interest in MSG to 96.3% (see discussion below and "1999 Acquisitions" above). Clearview In December 1998, Parent acquired all of the outstanding shares of stock of Clearview Cinema Group, Inc. ("Clearview") for approximately $158,700 (including assumed debt of $80,000) of which approximately $33,400 was paid in shares of Parent's Class A Common Stock. In April 1999, Parent contributed its interest in the subsidiary formed to purchase Clearview, CCG Holdings, Inc., to the Company. This transaction was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of CCG Holdings, Inc. were recorded at historical book value. The operations of Clearview have been consolidated with those of the Company since the date of the acquisition. The acquisition of Clearview was accounted for as a purchase with the operations of the acquired business being consolidated with those of the Company as of the acquisition date. The purchase price was allocated to the specific assets acquired based upon independent appraisals as follows: (107) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Property and equipment ........................... $ 34,787 Other assets ..................................... 21,518 Liabilities ...................................... (16,433) Excess cost over fair value of net assets acquired 118,851 --------- $ 158,723 ========= Loews In December 1998, a subsidiary of the Company acquired interests in the real property and assets specifically related to 15 movie theaters from Loews Cineplex Entertainment Corporation ("Loews") for an aggregate purchase price of approximately $67,300. The acquisition was accounted for as a purchase with the operations of the acquired assets being consolidated with those of the Company as of the acquisition date. The purchase price was allocated to the specific assets acquired based upon independent appraisals as follows: Property and equipment ........................... $ 9,700 Other assets ..................................... 2,200 Excess cost over fair value of net assets acquired 55,400 ------- $67,300 ======= 1997 Acquisitions: NBC Transaction On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC Cable, Inc. (a subsidiary of National Broadcasting Company ("NBC")) received a 25% equity interest (which interest increased to 26% in February 2000 and may be further increased by up to an additional 1% under certain circumstances without additional cash payment) in common stock of Rainbow Media. The Company owns the remaining 74% equity interest in Rainbow Media. The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC are now owned by subsidiaries of Rainbow Media. The exchange of 25% of the Company's interest in Rainbow Media for NBC's interests, in April 1997, in certain entities was accounted for at historical cost with the difference between the cost basis of a 25% interest in Rainbow Media and the partnership interests received in exchange recorded as goodwill of $54,385, which is being amortized over a 10 year period. (108) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Madison Square Garden In February 1997, Rainbow Media made a payment to ITT of $168,750 plus interest, fully equalizing its interest in MSG, a partnership among subsidiaries of Rainbow Media and subsidiaries of ITT, and bringing Rainbow Media's total payments at that time to $360,000, plus interest payments aggregating $47,700. In April 1997, the Company and certain of its affiliates and ITT and certain of its affiliates entered into definitive agreements relating to the acquisition by subsidiaries of the Company of ITT's 50 percent interest in MSG. The transaction closed on June 17, 1997 when MSG borrowed $799,000 under its credit facility which was used to redeem a portion of ITT's interest in MSG for $500,000 and to repay its existing indebtedness. Rainbow Media contributed its SportsChannel Associates programming company to MSG, which, together with the redemption, increased Rainbow Media's interest in MSG to 89.8% and reduced ITT's interest to 10.2%. In connection with the Fox transaction discussed below, Rainbow Media's interest in MSG was contributed to Regional Programming Partners. ITT's interest in MSG was further reduced to 7.8% as a result of the $450,000 capital contribution by Regional Programming Partners to MSG which was used by MSG to pay down outstanding debt. See "1998 Acquisitions" and "1999 Acquisitions" above for a discussion of the Company's purchase of the remaining interest in MSG. The acquisition was accounted for using the purchase method of accounting. The assets and liabilities and results of operations of MSG have been consolidated with those of the Company as of June 17, 1997. Previously, the Company's investment in MSG was accounted for using the equity method of accounting. The excess of the purchase price over the net book value of assets acquired of approximately $397,093 was allocated to the specific assets acquired based upon independent appraisals as follows: Property, plant and equipment .................... $ 19,687 Affiliation and other agreements ................. 34,168 Franchises ....................................... 46,125 Excess cost over fair value of net assets acquired 297,113 -------- $397,093 ======== In connection with the Company and ITT's acquisition of MSG in 1995, certain liabilities relating to a long-term sports rights contract were recorded. In 1999, 1998 and 1997, approximately $23,000, $21,900 and $21,700, respectively, of this liability was amortized to reduce operating expenses in respect of those rights. Warburg Transactions In June 1997, the Company acquired from Warburg Pincus Investors, L.P. ("Warburg") the interests that the Company did not already own in A-R Cable Partners ("Nashoba") and Cablevision of Framingham Holdings, Inc. ("CFHI") for a purchase price of approximately (109) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) $33,348 and $7,865, respectively. The acquisitions of Nashoba and CFHI were accounted for as purchases with the operations of these companies being consolidated with those of the Company as of the acquisition date. The excess of the purchase price over the net book value of assets acquired approximates $97,015 and has been allocated based upon independent appraisals as follows: Property, plant and equipment .................... $ 4,060 Franchises ....................................... 59,923 Excess cost over fair value of net assets acquired 33,032 ------- $97,015 ======= On July 2, 1997, the Company redeemed from Warburg the Series A Preferred Stock of A-R Cable Services, Inc. ("A-R Cable") for an aggregate amount of approximately $112,301. The assets and liabilities of A-R Cable have been consolidated with those of the Company as of July 2, 1997. Previously, the Company's investment in A-R Cable was accounted for using the equity method of accounting. In connection with this transaction, the Company recognized a gain of $181,738 representing principally the reversal of accrued preferred dividends in excess of amounts paid. Radio City On December 5, 1997, MSG purchased all of the membership interests in Radio City Productions, LLC ("Radio City"), the production company that operates Radio City Music Hall in New York City, for approximately $70,000 in cash. Simultaneously, Radio City entered into a 25-year lease for Radio City Music Hall. The assets and liabilities and results of operations of Radio City have been consolidated with those of the Company as of the date of acquisition. The excess of the purchase price over the net book value of assets acquired of approximately $76,200 was allocated to the specific assets acquired based upon independent appraisals as follows: Property, plant and equipment .................... $ 1,500 Capital lease obligation ......................... (80,000) Other liabilities ................................ (13,400) Excess cost over fair value of net assets acquired 168,100 --------- $ 76,200 ========= Dispositions Cable Systems In October 1998, A-R Cable transferred its cable television system in Rensselaer, New York plus approximately $16,000 in cash to Time Warner Entertainment Company, L.P. ("Time Warner") in exchange for Time Warner's Litchfield, Connecticut system. The Company recognized a gain of approximately $15,500 in connection with this transaction. (110) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) In 1998 and 1997, the Company completed the sale of cable television systems for aggregate sales prices of approximately $426,500 and $88,200, respectively, and recognized aggregate gains of approximately $137,900 and $59,000, respectively. Regional Programming Partners In December 1997, Rainbow Media and Fox Sports Networks, LLC ("Fox") organized Regional Programming Partners (a partnership that owns MSG and interests in regional sports programming businesses previously owned by Rainbow Media) ("RPP"). In connection with the formation of RPP, affiliates of Rainbow Media indirectly contributed to RPP in consideration for the issuance of a 60% general partnership interest in RPP their ownership interests in several regional sports networks, including their interest in MSG. In consideration for the issuance of a 40% general partnership interest in RPP, Fox contributed $850,000 in cash to RPP. Thereafter, RPP made a capital contribution of approximately $450,000 to MSG which was used by MSG to repay a portion of MSG's debt. As a result of RPP's investment in MSG, RPP's interest in MSG increased from 89.8% to 92.2%. In connection with this transaction, Rainbow Media recognized a gain of approximately $305,000. See discussions above under "1998 Acquisitions" and "1999 Acquisitions" for further increases in RPP's interest in MSG. Other In 1998 and 1997, RPP and Rainbow Media completed the sale of an interest in a sports programming business and substantially all of the assets of a radio station. In connection with these sales, RPP and Rainbow Media recognized gains of $17,700 and $7,400, respectively. A-R Cable Restructuring In 1992, the Company and A-R Cable consummated a restructuring and refinancing transaction (the "A-R Cable Restructuring"). Among other things, this transaction involved an additional $45,000 investment in A-R Cable by the Company to purchase a new Series B Preferred Stock and the purchase of a new Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of the A-R Cable Restructuring, the Company no longer had financial or voting control over A-R Cable's operations. Prior to the redemption of A-R Cable's Series A Preferred Stock on July 2, 1997 (see discussion above), the Company accounted for its investment in A-R Cable using the equity method of accounting whereby the Company recorded 100% of the net losses of A-R Cable since it continued to own 100% of A-R Cable's outstanding common stock. Included in equity in net loss of affiliates in the accompanying consolidated statements of operations for the period ended July 1, 1997 is $35,835, representing A-R Cable's net loss plus dividend requirements for the Series A Preferred Stock of A-R Cable, which was not owned by the (111) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Company. Beginning on July 2, 1997, the operations of A-R Cable have been consolidated with those of the Company. Pro Forma Results of Operations The following unaudited pro forma condensed results of operations are presented for the year ended December 31, 1998 as if the acquisition of the TCI Systems and the sale of assets of certain cable systems had occurred on January 1, 1998. Results of operations for acquisitions made in 1999 are not material. Year Ended December 31, 1998 ----------------- Net revenues.............................. $ 3,329,627 =========== Net loss.................................. $ (520,968) =========== The pro forma information presented above gives effect to certain adjustments, including the amortization of acquired intangible assets and increased interest expense on acquisition debt. The pro forma information has been prepared for comparative purposes only and does not purport to indicate the results of operations which would actually have occurred had the transactions been made at the beginning of the periods indicated or which may occur in the future. NOTE 3. NET ASSETS HELD FOR SALE The Company had entered into definitive agreements covering the sale of certain cable television systems as of December 31, 1999 and 1998. In December 1999, the Company entered into definitive agreements with Adelphia Communications Corporation ("Adelphia") under which the Company will sell its cable television systems in the Greater Cleveland metropolitan area to Adelphia for total cash and stock consideration of $1,530,000, subject to certain adjustments. In January 1998, the Company, Parent and a subsidiary of TCI entered into a non-binding letter of intent for Parent to acquire certain of TCI's cable television systems in exchange for cash, stock and certain cable systems including those serving Kalamazoo, Michigan. This non-binding letter of intent is no longer in effect. In March 2000, the Company entered into an agreement to sell its cable system serving Kalamazoo, Michigan to Charter Communications, Inc. for total consideration of $172,500 in Charter Communications, Inc. common stock. (112) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) For financial reporting purposes, the assets and liabilities attributable to cable systems whose sale or transfer was pending at December 31, 1999 and 1998 have been classified in the consolidated balance sheet as net assets held for sale and are included in the telecommunications segment (see Note 15). Such net assets consist of the following: December, 31 ------------ 1999 1998 ---- ---- Property, plant and equipment, net ....... $ 222,695 $ 14,548 Intangible assets, net ................... 73,055 215 Other assets (including trade receivables, prepaid expenses, etc.) ............. 9,796 603 --------- --------- Total assets ............................. 305,546 15,366 Total liabilities ........................ (36,197) (4,360) --------- --------- Net assets ............................... $ 269,349 $ 11,006 ========= ========= The accompanying consolidated statement of operations for the years ended December 31, 1999 and 1998 includes net revenues aggregating approximately $177,904 and $18,937, respectively, and net income (loss) aggregating approximately $(4,109) and $9,095, respectively, relating to the cable systems held for sale or transfer. NOTE 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following assets, which are depreciated or amortized primarily on a straight-line basis over the estimated useful lives shown below:
December 31, ------------------------------ Estimated 1999 1998 Useful Lives ----------- ----------- ------------ Communication transmission and distribution systems: Customer equipment................................. $ 600,271 $ 615,867 3 to 8 years Headends........................................... 118,311 125,013 7 to 15 years Multimedia......................................... 18,732 9,075 4 years Central office equipment........................... 132,191 87,208 10 years Infrastructure..................................... 2,189,863 2,189,625 5 to 12 years Program, service and data processing equipment..... 571,773 380,350 2 to 9 years Microwave equipment................................ 21,881 16,947 2 to 9 years Construction in progress (including materials and supplies).......................... 227,991 133,848 - Furniture and fixtures.................................. 230,742 195,660 1 to 8 years Transportation equipment................................ 143,511 131,476 4 to 15 years Building and building improvements...................... 185,118 171,567 20 to 40 years Leasehold improvements.................................. 276,015 140,766 Term of lease Land and land improvements.............................. 47,914 45,573 - ----------- ----------- 4,764,313 4,242,975 Less accumulated depreciation and amortization.......... 2,011,818 1,736,141 ----------- ----------- $ 2,752,495 $ 2,506,834 =========== ===========
(113) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 5. DEBT Bank Debt Restricted Group/TCI Systems For financing purposes, the Company and certain of its subsidiaries are collectively referred to as the "Restricted Group". In May 1998, the Company and certain other subsidiaries of Parent entered into a new $2.8 billion reducing revolving credit facility (the "Credit Agreement") with a group of banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as administrative and arranging agent. This Credit Agreement replaced a $1.7 billion facility that was also with a group of banks led by Toronto-Dominion. The $2.8 billion reducing revolving credit facility, maturing in March 2007, consisted of a $1.4 billion CSC Holdings credit facility, a $1.4 billion MFR credit facility of which $600,000 was available, and an $800,000 credit facility for the TCI Systems. While the $800,000 TCI Systems credit facility was in place, only $600,000 of the $1.4 billion MFR facility could be utilized. In July 1998, CSC Holdings' credit facility was reduced by $400,000 to $1.0 billion, and the MFR credit facility was reduced by $200,000 to $1.2 billion, which included a reduction of the TCI Systems credit facility by $100,000 to $700,000. The TCI Systems credit facility matured on April 4, 1999 and concurrent with the transfer of the TCI Systems to the Company, which occurred on April 5, 1999, the restriction on the MFR credit facility was eliminated and the borrowings under the MFR facility increased by an amount equal to the borrowings outstanding under the TCI Systems credit facility. The total amount of bank debt outstanding under the Credit Agreement, including amounts outstanding under a separate overdraft facility at December 31, 1999 and 1998 was $1,454,206 and $1,410,226, respectively. At December 31, 1999, $613,000 and $828,500 was outstanding under the CSC Holdings and the MFR credit facility, respectively. As of December 31, 1999, approximately $39,274 was restricted for certain letters of credit issued on behalf of the Company. Unrestricted and undrawn funds available to the Restricted Group under the Credit Agreement amounted to approximately $719,226 at December 31, 1999. The Credit Agreement contains certain financial covenants that may limit the Restricted Group's ability to utilize all of the undrawn funds available thereunder. The Credit Agreement contains various restrictive covenants, among which are the maintenance of various financial ratios and tests, and limitations on various payments, including preferred dividends and dividends on its common stock. The Company was in compliance with the covenants of its Credit Agreement at December 31, 1999. (114) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Interest on outstanding amounts may be paid, at the option of the Company, based on the prime rate or Eurodollar rate. As of December 31, 1999, the Company had outstanding interest exchange (swap) agreements with several of its banks with a total notional value of $300,000. Swaps with an aggregate notional amount of $250,000 require the Company to pay a floating rate of interest based on LIBOR in exchange for fixed rate payments ranging from 6.125% to 6.76% and have a maturity of 18 to 31 months. The remainder of the swaps require payment of a fixed rate of interest by the Company in exchange for floating rate payments and have a maturity of 6 months. The Company enters into interest rate swap agreements to hedge against interest rate risk and accounts for these agreements as hedges whereby interest expense is recorded using the revised rate with any fees or other payments amortized as yield adjustments. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements; however, the Company does not anticipate nonperformance by the counterparties. The weighted average interest rate on all bank indebtedness was 7.11% and 6.48% on December 31, 1999 and 1998, respectively. The Company is also obligated to pay fees from .1875% to .25% per annum on the unused loan commitment and from .4% to 2.0% per annum on letters of credit issued under the Credit Agreement. Unrestricted Group Rainbow Media Rainbow Media has a $300,000, three year credit facility with Canadian Imperial Bank of Commerce and Toronto-Dominion as co-agents and a group of banks which matures on December 31, 2000. The credit facility contains certain financial covenants that may limit Rainbow Media's ability to utilize all the undrawn funds available thereunder, including covenants requiring it to maintain certain financial ratios. The facility bears interest at varying rates above the lead bank's base or Eurodollar rate depending on the ratio of debt to borrower value, as defined in the credit agreement. The loan is secured by a pledge of the Company's stock in Rainbow Media, a pledge of all of the stock of all wholly-owned subsidiaries of Rainbow Media and is guaranteed by the subsidiaries of Rainbow Media, as permitted. At December 31, 1999 and 1998, Rainbow Media had outstanding borrowings under its credit facility including amounts outstanding under a separate overdraft facility of $52,317 and $71,241, respectively. Undrawn funds available to Rainbow Media under the credit facility amounted to approximately $51,000 at December 31, 1999. The weighted average interest rate on Rainbow Media's bank debt was 8.9% and 7.7% on December 31, 1999 and 1998, respectively. The credit agreement contains various restrictive covenants with which Rainbow Media was in compliance at December 31, 1999. (115) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) American Movie Classics Company On May 12, 1999, American Movie Classics Company ("AMC"), a wholly-owned subsidiary of Rainbow Media, entered into a new $425,000 credit facility consisting of a $200,000 reducing revolving credit facility and a $225,000 amortizing term loan, both of which mature on March 31, 2006 ("AMC Credit Facility"). The amount of the available commitment under the revolver will not begin to be reduced until June 2004. Borrowings under the AMC Credit Facility bear interest at varying rates at or above the lead bank's base lending rate or above the Eurodollar rate depending on the ratio of debt to cash flow, as defined in the AMC Credit Facility. At December 31, 1999, the weighted average interest rate on bank indebtedness was 7.6%. On May 12, 1999, AMC distributed to Rainbow Media approximately $97,000, which Rainbow Media used to repay outstanding borrowings plus interest and fees under its credit facility. As of December 31, 1999, AMC had outstanding borrowings of $309,456 (including amounts outstanding under a separate overdraft facility), leaving unrestricted funds available of $117,000. Prior to May 12, 1999, AMC's Credit Facility was comprised of a $146,000 term loan and a $100,000 revolving loan (the "AMC Loan Agreement"). Borrowings under the AMC Loan Agreement bore interest at varying rates above or at the lead bank's base or above the Eurodollar rate depending on the ratio of debt to cash flow, as defined in the AMC Loan Agreement. At December 31, 1998, the weighted average interest rate on bank indebtedness was 6.1%. On December 31, 1998, $128,000 was outstanding under the term loan, $64,250 was outstanding under the revolving loan and $3,290 was outstanding under a separate overdraft facility. Substantially all of the assets of AMC, amounting to approximately $320,192 at December 31, 1999, have been pledged to secure the borrowings under the AMC Credit Facility. The AMC Credit Facility contains various restrictive covenants with which AMC was in compliance at December 31, 1999. Madison Square Garden MSG has a $500,000 credit facility (the "MSG Credit Facility") with a group of banks led by Chase Manhattan Bank, as agent, which expires on December 31, 2004. Loans under the MSG Credit Facility bear interest at current market rates plus a margin based upon MSG's consolidated leverage ratio. At December 31, 1999 and 1998, loans outstanding amounted to $335,000 and $310,000, respectively, and bore interest at a weighted average rate of 7.0% and 6.038%, respectively. The MSG Credit Facility contains certain financial covenants with which MSG was in compliance at December 31, 1999. The MSG Credit Facility also contains certain convenants that may limit MSG's ability to utilize all of the undrawn funds available thereunder. In July 1997, a wholly-owned subsidiary of MSG borrowed $20,000 under promissory notes with various lending institutions which bear interest at LIBOR plus a margin (8.19% and 7.22% at December 31, 1999 and 1998, respectively) and mature in July 2002. (116) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Cablevision Electronics In February 1998, Cablevision Electronics entered into a three year $130,000 revolving credit facility maturing on February 9, 2001. Under the terms of the credit facility, the total amount of borrowings available to Cablevision Electronics is subject to an availability calculation based on a percentage of eligible inventory. The total amount outstanding under the credit agreement at December 31, 1999 and 1998 was approximately $73,817 and $44,542, respectively and bore interest at 7.8% and 7.2%, respectively. As of December 31, 1999, $26,874 was restricted for certain letters of credit issued on behalf of Cablevision Electronics. Unrestricted and undrawn funds available amounted to $29,309 on December 31, 1999 based on the level of inventory as of that date. Borrowings under the credit agreement are secured by Cablevision Electronics' assets. The credit agreement contains various restrictive covenants with which Cablevision Electronics was in compliance at December 31, 1999. CCG Holdings, Inc. CCG Holdings, Inc. has a $15,000 revolving credit bank facility maturing on June 30, 2003. As of December 31, 1999, there was $9,691 outstanding under this bank facility, leaving undrawn funds available of $5,309. There were no outstanding borrowings under this facility at December 31, 1998. Senior Notes and Debentures In July 1999, the Company issued $500,000 face amount ($497,786 amortized amount at December 31, 1999) of 8-1/8% Senior Notes due 2009. The net proceeds were used to reduce bank borrowings. The notes are not redeemable by the Company prior to maturity. In December 1998, the Company redeemed Clearview's 10-7/8% Senior Notes for approximately $94,800 in cash. This payment included a premium of $11,200, a consent fee of $3,600 and accrued interest of $48. In July 1998, the Company issued $500,000 principal amount of 7-1/4% Senior Notes due 2008 (the "2008 Notes") and $500,000 principal amount ($499,541 and $499,516 amortized amount at December 31, 1999 and 1998, respectively) of 7-5/8% Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a discount of $495. The 2008 Notes and Debentures are not redeemable by the Company prior to maturity. In February 1998, the Company issued $300,000 principal amount of ($296,893 and $296,721 amortized amount at December 31, 1999 and 1998, respectively) 7-7/8% Senior Debentures due (117) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) 2018 (the "2018 Debentures"). The 2018 Debentures were issued at a discount of $3,429. The 2018 Debentures are not redeemable by the Company prior to maturity. In December 1997, the Company issued $500,000 principal amount ($499,584 and $499,532 amortized amount at December 31, 1999 and 1998, respectively) of 7-7/8% Senior Notes due 2007 (the "2007 Notes"). The 2007 Notes were issued at a discount of $525. The 2007 Notes are not redeemable by the Company prior to maturity. In August 1997, the Company issued $400,000 principal amount ($398,798 and $398,674 amortized amount at December 31, 1999 and 1998, respectively) of 8-1/8% Senior Debentures due 2009 (the "2009 Notes"). The 2009 Notes were issued at a discount of $1,492. The 2009 Notes are not redeemable by the Company prior to maturity. The indentures under which the senior notes and debentures were issued contain various convenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1999. Subordinated Notes and Debentures In May 1996, the Company issued $150,000 principal amount ($149,558 and $149,545 amortized amount at December 31, 1999 and 1998, respectively) of 9-7/8% Senior Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal amount of 10-1/2% Senior Subordinated Debentures due 2016 (the "2016 Debentures"). The 2006 Notes are redeemable at the Company's option, in whole or in part, on May 15, 2001, May 15, 2002 and May 15, 2003 at the redemption price of 104.938%, 103.292% and 101.646%, respectively, of the principal amount and thereafter at 100% of the aggregate principal amount, in each case together with accrued interest to the redemption date. The 2016 Debentures are redeemable at the Company's option, in whole or in part, on May 15, 2006, May 15, 2007, May 15, 2008, and May 15, 2009, at the redemption price of 105.25%, 103.938%, 102.625%, and 101.313%, respectively, of the principal amount and thereafter at 100% of the aggregate principal amount, in each case together with accrued interest to the redemption date. In November 1995, the Company issued $300,000 principal amount of 9-1/4% Senior Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at the Company's option, in whole or in part, on November 1, 2000, November 1, 2001 and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%, respectively, of the principal amount and thereafter at 100% of the principal amount, in each case together with accrued interest to the redemption date. In February 1993, the Company issued $200,000 face amount ($199,180 and $199,117 amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8% Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013 Debentures are redeemable, at the (118) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) Company's option, on February 15, 2003, February 15, 2004, February 15, 2005, and February 15, 2006 at the redemption price of 104.80%, 103.60%, 102.40%, and 101.20%, respectively, of the principal amount and thereafter at the redemption price of 100% of the principal amount, in each case together with accrued interest to the redemption date. Also in 1993, the Company issued $150,000 face amount ($149,775 and $149,713 amortized amount at December 31, 1999 and 1998, respectively) of its 9-7/8% Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023 Debentures are redeemable, at the Company's option, on and after April 1, 2003 at the redemption price of 104.938% reducing ratably to 100% of the principal amount on and after April 1, 2010, in each case together with accrued interest to the redemption date. The indentures under which the subordinated notes and debentures were issued contain various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement and with which the Company was in compliance at December 31, 1999. Summary of Five Year Debt Maturities Total amounts payable by the Company and its subsidiaries under its various debt obligations, including capital leases, during the five years subsequent to December 31, 1999 are as follows: 2000 $91,000 2001 124,000 2002 61,000 2003 54,000 2004 632,000 NOTE 6. PREFERRED STOCK The following summarizes the changes in each series of the Company's preferred stock:
Series I Preferred Series M Preferred Series H Preferred Shares Balance Shares Balance Shares Balance ------------ ----------- ----------- ----------- ----------- ----------- December 31, 1996 .... 13,800,000 $ 323,331 7,157,585 $ 715,759 2,895,063 $ 289,506 Dividends paid in additional shares -- -- 830,018 83,001 355,415 35,542 ------------ ----------- ----------- ----------- ----------- ----------- December 31, 1997 .... 13,800,000 323,331 7,987,603 798,760 3,250,478 325,048 Dividends paid in additional shares -- -- 926,260 92,626 399,050 39,905 ------------ ----------- ----------- ----------- ----------- ----------- December 31, 1998 .... 13,800,000 323,331 8,913,863 891,386 3,649,528 364,953 Dividend paid in additional shares -- -- 1,033,678 103,368 448,042 44,804 Redemption ........... (13,800,000) (323,331) -- -- -- -- ------------ ----------- ----------- ----------- ----------- ----------- December 31, 1999 .... -- $ -- 9,947,541 $ 994,754 4,097,570 $ 409,757 ============ =========== =========== =========== =========== ===========
(119) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) In September 1999, the Company exercised its right to redeem all of its outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable Preferred Stock ("Series I Preferred"). The redemption occurred on November 2, 1999, at a price equal to 102.8% of the liquidation preference, plus accrued dividends. Investors held the Series I Preferred through interests in depositary shares (each of which represented a 1/10th interest in a share of the Series I Preferred) which were redeemable simultaneously. Each depositary share was convertible into approximately 1.4828 shares of Parent's Class A Common Stock. As of December 31, 1999, 13,797,625 depositary shares out of 13,800,000 depositary shares outstanding had been converted into 20,458,925 shares of Parent's Class A Common Stock, with the remaining 2,375 depositary shares being redeemed for cash. The Company paid a cash dividend on the Series I Preferred of approximately $21,898 in 1999 and $29,325 in each of 1998 and 1997. In February 1996, the Company issued 6,500,000 depositary shares, representing 65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the "Series L Preferred Stock"), which were subsequently exchanged for Series M Redeemable Exchangeable Preferred Stock (the "Series M Preferred Stock") in August 1996 with terms identical to the Series L Preferred Stock. The depositary shares are exchangeable, in whole but not in part, at the option of the Company, for the Company's 11-1/8% Senior Subordinated Debentures due 2008. The Company is required to redeem the Series M Preferred Stock on April 1, 2008 at a redemption price equal to the liquidation preference of $10,000 per share plus accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at various redemption prices beginning at 105.563% at any time on or after April 1, 2003, at the option of the Company, with accumulated and unpaid dividends thereon to the date of redemption. Before April 1, 2001, dividends may, at the option of the Company, be paid in cash or by issuing fully paid and nonassessable shares of Series M Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On and after April 1, 2001, dividends must be paid in cash. In September 1995, the Company issued 2,500,000 shares of its $.01 par value 11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H Preferred Stock") with an aggregate liquidation preference of $100 per share. The Company is required to redeem the Series H Preferred Stock on October 1, 2007 at a redemption price per share equal to the liquidation preference of $100 per share, plus accrued and unpaid dividends thereon. Before October 1, 2000, dividends may, at the option of the Company, be paid in cash or by issuing fully paid and nonassessable shares of Series H Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On and after October 1, 2000, dividends must be paid in cash. The terms of the Series H Preferred Stock permit the Company, at its option, to exchange the Series H Preferred Stock for the Company's 11-3/4% Senior Subordinated Debentures due 2007 in an aggregate principal amount equal to the aggregate liquidation preference of the shares of Series H Preferred Stock. (120) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 7. INCOME TAXES The Company, Parent and certain of its subsidiaries file consolidated federal income tax returns. Effective April 1, 1997, as a result of the transaction described in Note 2, Rainbow Media is no longer included in Parent's consolidated federal income tax returns, but rather files a separate consolidated federal income tax return with its subsidiaries. At December 31, 1999, Parent had consolidated net operating loss carry forwards of approximately $1,250,000 and Rainbow Media had consolidated federal net operating loss carry forwards of approximately $570,000 expiring on various dates through 2019. As a result of the Holding Company Reorganization, described in Note 1 and the 1997 change in Rainbow Media's ownership described in Note 2, Rainbow Media's loss carry forwards may be subject to annual limitations on deductions. The Company's net operating loss carry forwards reflect approximately $50,000 in stock expense which would result in an adjustment to paid-in capital upon realization of such net operating loss carry forward. The tax effects of temporary differences which give rise to significant portions of deferred tax assets or liabilities and the corresponding valuation allowance at December 31, 1999 and 1998 are as follows: 1999 1998 ---- ---- Deferred Asset (Liability) Depreciation and amortization ............... $ (54,085) $(182,226) Receivables from affiliates ................. 27,476 23,406 Benefit plans ............................... 120,847 108,495 Allowance for doubtful accounts ............. 10,526 7,016 Deferred gain ............................... (185,287) (130,650) Benefits of tax loss carry forwards ......... 764,625 596,175 Other ....................................... -- (50) --------- --------- Net deferred tax assets ................ 684,102 422,166 Valuation allowance ......................... (684,102) (422,166) --------- --------- $ -- $ -- ========= ========= In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which temporary differences or net operating loss carry forwards become deductible. Management considers scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies which can be implemented by the Company in making this assessment. (121) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 8. OPERATING LEASES The Company leases certain office, production, transmission, theater, event, and retail store facilities under terms of leases expiring at various dates through 2027. The leases generally provide for fixed annual rentals plus certain real estate taxes and other costs. Rent expense for the years ended December 31, 1999, 1998 and 1997 amounted to $97,300, $83,003 and $26,773, respectively. In addition, the Company rents space on utility poles for its operations. The Company's pole rental agreements are for varying terms, and management anticipates renewals as they expire. Pole rental expense for the years ended December 31, 1999, 1998 and 1997 amounted to approximately $13,081, $12,490 and $10,737, respectively. The minimum future annual rentals for all operating leases during the next five years, including pole rentals from January 1, 2000 through December 31, 2004, and thereafter, at rates now in force are approximately: 2000, $99,835; 2001, $95,902; 2002, $93,872; 2003, 91,645; 2004, $89,105; thereafter, $664,104. NOTE 9. AFFILIATE TRANSACTIONS The Company purchases services from certain cable television programming and advertising companies, in which Rainbow Media directly or indirectly held varying ownership interests during the three years ended December 31, 1999. Costs incurred by the Company for programming and advertising services provided by these non-consolidated affiliates and included in operating expense for the years ended December 31, 1999, 1998 and 1997 amounted to approximately $4,691, $2,942, and $16,581, respectively. At December 31, 1999 and 1998 amounts due to certain of these affiliates, primarily for programming services provided to the Company, aggregated $1,391 and $3,644, respectively, and are included in accounts payable. At December 31, 1999 and 1998, amounts due from certain of these programming and advertising affiliates aggregated $801 and $13,075, respectively, and are included in advances to affiliates. The Company's equity in the net income (losses) of these affiliates was approximately $(11,318), $(31,851) and $10,672 in 1999, 1998 and 1997, respectively. At December 31, 1999, the Company's investment in these programming and advertising companies amounted to approximately $46,420. At December 31, 1998, the Company's net deficit investment in these programming and advertising companies amounted to approximately $338. During 1999, 1998 and 1997, the Company provided programming services to or incurred costs on behalf of other affiliates engaged in providing cable television, cable television programming, and related services. Amounts due from these affiliates amounted to $16,518 and $310 at December 31, 1999 and 1998, respectively and are included in advances to affiliates. (122) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) In 1992, the Company acquired from Mr. Dolan substantially all of the interests in Cablevision of New York City ("CNYC") that it did not previously own. Mr. Dolan remained a 1% partner in CNYC and was entitled to certain preferential payments. The total amount owed to Mr. Dolan at December 31, 1997 amounted to approximately $197,183. In 1998, the Company paid all amounts due Mr. Dolan. In October 1997, the Company entered into an agreement with At Home Corporation ("@Home") and certain of its shareholders, pursuant to which the Company agreed to enter into agreements for the distribution of the @Home service over certain the Company's cable television systems on the same terms and conditions as @Home's founding partners, TCI, Comcast Corporation and Cox Communications, Inc. The Company received a warrant to purchase 15,751,568 shares of @Home's Series A Common Stock at an exercise price of $.25 per share. Additionally, in 1998 a warrant to purchase 4,711,028 shares of @Home's Series A Common Stock at $.25 per share was received in connection with Parent's acquisition of the TCI Systems. The @Home network distributes high-speed interactive services to residences and businesses using its own network architecture and a variety of transport options, including the cable industry's hybrid fiber coaxial infrastructure. The aggregate fair market value of the warrants received of $248,134, as determined by independent appraisals, has been recorded in investments in affiliates in the accompanying consolidated balance sheets. The difference between the appraised value of the warrants and the price paid has been recorded as deferred revenue and is being amortized to income over the period which the Company is obligated to provide the necessary services to @Home. In 1999 and 1998, the Company recorded $50,136 and $35,821, respectively, of revenue relating to this transaction. In August 1996, the Company entered into an agreement with NorthCoast Operating Co., Inc. ("NorthCoast") and certain of its affiliates, to form a limited liability company (the "LLC") to participate in the auctions conducted by the Federal Communications Commission ("FCC") for certain licenses to conduct a personal communications service ("PCS") business. The Company has contributed an aggregate of approximately $50,100 to the LLC (either directly or through a loan to NorthCoast) and holds a 49.9% interest in the LLC and certain preferential distribution rights. The Company recorded a loss of $7,916 and $5,517 in 1999 and 1998, respectively, representing its share of the losses of the LLC. NorthCoast is a Delaware corporation controlled by John Dolan. John Dolan is a nephew of Charles F. Dolan and a cousin of James L. Dolan. In 1996, Rainbow Media invested in a joint venture formed with a subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting certain direct broadcast satellite ("DBS") frequencies. Rainbow Media also contributed to the joint venture its interest in certain agreements with the licensee of such frequencies. Rainbow Media's investment amounted to $386 and $14,913 at December 31, 1999 and 1998, respectively. In 1999, based upon its then current business plans, the Company determined that it could no longer recover its investment in the joint venture and wrote down the investment by $15,100. (123) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 10. BENEFIT PLANS Effective January 1, 1998, the Company established a Cash Balance Retirement Plan (the "Retirement Plan"), which replaced the Company's former money purchase pension plan for the benefit of employees other than those of MSG, The WIZ and CCG Holdings, Inc. Under the Retirement Plan, the Company will credit a certain percentage of eligible base pay into an account established for each participant which will earn a market based rate of return annually. Net periodic pension cost for the years ended December 31, 1999 and 1998 amounted to $6,218 and $5,555, respectively. At December 31, 1999 and 1998, the accumulated benefit obligation amounted to $11,309 and $5,312, respectively. The Company also maintains a 401(k) savings plan, pursuant to which an employee can contribute a percentage of eligible annual compensation, as defined. The Company also makes matching contributions for a portion of employee contributions to the 401(k) savings plan. The cost associated with the money purchase pension plan and the 401(k) savings plan was approximately $6,102, $4,492 and $7,445 for the years ended December 31, 1999, 1998 and 1997, respectively. The Company maintains the CSSC Supplemental Benefit Plan (the "Supplemental Plan") for the benefit of certain officers and employees of the Company. As part of the Supplemental Plan, the Company established a nonqualified defined benefit pension plan, which provides that, upon attaining normal retirement age, a participant will receive a benefit equal to a specified percentage of the participant's average compensation, as defined. All participants are 100% vested in the Supplemental Plan. Net periodic pension cost for the years ended December 31, 1999, 1998 and 1997 was negligible. At December 31, 1999 and 1998, the fair value of Supplemental Plan assets exceeded the projected benefit obligation by approximately $3,071 and $2,688, respectively. MSG sponsors several non-contributory pension plans covering MSG's employees. Benefits payable to retirees under these plans are based upon years of service and participant's compensation and are funded through trusts established under the plans. Plan assets are invested primarily in common stocks, bonds, United States government securities and cash. At December 31, 1999 and 1998, the accrued benefit cost amounted to $10,796 and $8,883, respectively, and for the years ended December 31, 1999, 1998 and 1997, net periodic pension cost amounted to $2,611, $2,254 and $1,613, respectively. MSG also sponsors a welfare plan which provides certain postretirement health care and life insurance benefits to certain employees and their dependents who are eligible for early or normal retirement under MSG's retirement plan. The welfare plan is insured through a managed care provider and MSG funds these benefits with premium payments. For the years ended (124) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) December 31, 1999, 1998 and 1997, the periodic postretirement benefit cost amounted to $204, $84 and $133, respectively, and the accrued benefit cost amounted to $6,154 and $6,087, respectively. NOTE 11. STOCK BENEFIT PLANS Parent has Employee Stock Plans (the "Stock Plans") under which it is authorized to issue incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, stock grants and stock bonus awards. The exercise price of stock options can not be less than the fair market value per share of Parent's Class A Common Stock on the date the option was granted and the options expire no longer than ten years from date of grant. Stock appreciation rights permit the employee to elect to receive payment in cash, either in lieu of the right to exercise such option or in addition to the stock received upon the exercise of such option, in an amount equal to the difference between the fair market value of the stock as of the date the right is exercised, and the exercise price. Under the Stock Plans, employees of the Company have received stock awards, bonus awards, stock appreciation rights and cash payments for certain executive stock options. As a result, the Company recorded expense of approximately $255,789, $146,179 and $64,361 in 1999, 1998 and 1997, respectively. These amounts reflect vesting schedules for applicable grants as well as fluctuations in the market price of Parent's Class A Common Stock. NOTE 12. COMMITMENTS AND CONTINGENCIES The Company, through Rainbow Media, has entered into several contracts, including rights agreements, with professional sports teams and others relating to cable television programming. In addition, Rainbow Media, through MSG, has employment agreements with both players and coaches of its professional sports teams. Certain of these contracts, which provide for payments that are guaranteed regardless of employee injury or termination, are covered by disability insurance if certain conditions are met. Future cash payments required under these contracts as of December 31, 1999 are as follows: 2000 $271,398 2001 217,300 2002 172,800 2003 136,164 2004 109,968 Thereafter 1,020,554 ---------- Total $1,928,184 ========== The Company and its cable television affiliates have an affiliation agreement with a program supplier whereby the Company is obligated to make base rate annual payments, as defined and subject to certain adjustments pursuant to the agreement, through 2004. The Company would be (125) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) contingently liable for its proportionate share of the base rate annual payments, based on subscriber usage, of approximately $13,335 in 2000 and for the years 2001 through 2004 such payments would increase by percentage increases in the Consumer Price Index, or five percent, whichever is less, over the prior year's base rate annual payment. NOTE 13. OTHER MATTERS The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that the resolution of these lawsuits will have a material adverse impact on the financial position of the Company. NOTE 14. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and Cash Equivalents, Accounts Receivable Trade, Notes and Other Receivables, Prepaid Expenses and Other Assets, Advances to Affiliates, Accounts Payable and Accrued Liabilities. The carrying amount approximates fair value due to the short maturity of these instruments. At Home Warrants The fair value of the At Home warrants is based upon the quoted market price of the underlying securities. Bank Debt, Senior Notes and Debentures, Subordinated Notes and Debentures and Redeemable Exchangeable Preferred Stock The fair values of each of the Company's long-term debt instruments and redeemable preferred stock are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities. Interest Rate Swap Agreements The fair values of interest rate swap and cap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate agreements, taking into consideration current interest rates and the current creditworthiness of the counterparties. (126) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) The fair value of the Company's financial instruments are summarized as follows: December 31, 1999 ------------------------- Carrying Estimated Amount Fair Value ---------- ---------- At Home warrants ................................. $ 248,134 $ 867,103 ========== ========== Long term debt instruments: Bank debt ...................................... $2,254,487 $2,254,487 Senior notes and debentures .................... 2,692,602 2,608,845 Subordinated notes and debentures .............. 1,048,513 1,102,500 Redeemable exchangeable preferred stock ........ 1,404,511 1,539,173 ---------- ---------- $7,400,113 $7,505,005 ========== ========== Interest rate swap agreements: In a net payable position ...................... $ -- $ 3,265 ========== ========== December 31, 1998 ------------------------- Carrying Estimated Amount Fair Value ---------- ---------- At Home warrants ................................. $ 248,134 $ 755,479 ========== ========== Long term debt instruments: Bank debt ...................................... $2,051,549 $2,051,549 Senior notes and debentures .................... 2,194,443 2,271,340 Subordinated notes and debentures .............. 1,048,375 1,168,375 Redeemable exchangeable preferred stock ........ 1,256,339 1,417,241 ---------- ---------- $6,550,706 $6,908,505 ========== ========== Interest rate swap agreements: In a net payable position ...................... $ -- $ 4,116 ========== ========== Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. NOTE 15. SEGMENT INFORMATION The Company classifies its business interests into three segments: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, which owns and operates professional sports teams, regional cable television networks, live (127) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) productions and entertainment venues; and Retail Electronics, which represents the operations of Cablevision Electronics' retail electronics stores. The Company's reportable segments are strategic business units that are managed separately . The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization, incentive stock plan expense and the costs of year 2000 remediation). The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intersegment sales are accounted for at fair value as if the sales were to third parties. Information as to the operations of the Company's business segments is set forth below. Years Ended December 31, ------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Revenues Telecommunication Services ..... $ 2,151,308 $ 1,886,190 $ 1,364,264 Rainbow Media .................. 1,234,113 1,007,639 637,648 Retail Electronics ............. 603,294 464,388 -- All Other ...................... 85,529 6,614 1,707 Intersegment eliminations ...... (131,259) (99,688) (54,261) ----------- ----------- ----------- Total ............... $ 3,942,985 $ 3,265,143 $ 1,949,358 =========== =========== ===========
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Adjusted Operating Cash Flow (unaudited) Telecommunication Services ............. $ 916,233 $ 762,823 $ 545,927 Rainbow Media .......................... 190,646 135,259 101,122 Retail Electronics ..................... (37,934) (19,737) -- All Other .............................. (51,996) (1,783) (1,704) ----------- ----------- ----------- Total ....................... $ 1,016,949 $ 876,562 $ 645,345 =========== =========== =========== Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Assets Telecommunication Services ............ $ 4,490,364 $ 4,411,194 $ 2,927,640 Rainbow Media ......................... 2,682,235 2,720,127 2,838,987 Retail Electronics .................... 220,898 199,194 -- Other ................................. 274,003 253,564 10,270 Corporate and intersegment eliminations (537,192) (523,054) (162,109) ----------- ----------- ----------- Total ...................... $ 7,130,308 $ 7,061,025 $ 5,614,788 =========== =========== ===========
(128) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) A reconciliation of reportable segment amounts to the Company's consolidated balances is as follows:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Revenues Total revenue for reportable segments .................... $ 3,988,715 $ 3,358,217 $ 2,001,912 Other revenue and intersegment eliminations .............. (45,730) (93,074) (52,554) ----------- ----------- ----------- Total consolidated revenue ........................ $ 3,942,985 $ 3,265,143 $ 1,949,358 =========== =========== =========== Adjusted Operating Cash Flow to Net Loss Total adjusted operating cash flow for reportable segments (unaudited) .............................. $ 1,068,945 $ 878,345 $ 647,049 Other adjusted operating cash flow deficit (unaudited) ... (51,996) (1,783) (1,704) Items excluded from adjusted operating cash flow Depreciation and amortization ..................... (893,797) (734,107) (499,809) Incentive stock plan expense ...................... (255,789) (146,179) (64,361) Year 2000 remediation ............................. (41,477) (7,593) -- Interest expense .................................. (470,549) (426,402) (368,700) Interest income ................................... 4,809 24,028 5,492 Equity in net loss of affiliates .................. (19,234) (37,368) (27,165) Gain on sale of programming interests and cable assets, net ............................ -- 170,912 372,053 Gain on redemption of subsidiary preferred stock .. -- -- 181,738 Write off of deferred interest and financing costs (4,425) (23,482) (24,547) Provision for preferential payment to related party -- (980) (10,083) Minority interests ................................ 49,563 37,195 (60,694) Miscellaneous, net ................................ (16,570) (19,218) (12,606) ----------- ----------- ----------- Net income (loss) ....................... $ (630,520) $ (286,632) $ 136,663 =========== =========== ===========
Substantially all revenues and assets of the Company's reportable segments are attributed to or located in the United States. The Company does not have a single external customer which represents 10 percent or more of its consolidated revenues. (129) CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued) NOTE 16. INTERIM FINANCIAL INFORMATION (Unaudited) The following is a summary of selected quarterly financial data for the years ended December 31, 1999 and 1998.
MARCH 31, JUNE 30, SEPTEMBER 30, -------------------------- -------------------------- -------------------------- 1999 1998 1999 1998 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- Revenues .............. $ 933,708 $ 675,728 $ 946,309 $ 805,190 $ 902,310 $ 806,871 Operating expenses .... 1,040,755 686,888 954,580 785,935 922,674 790,822 ----------- ----------- ----------- ----------- ----------- ----------- Operating profit (loss) $ (107,047) $ (11,160) $ (8,271) $ 19,255 $ (20,364) $ 16,049 =========== =========== =========== =========== =========== =========== Net loss applicable to common shareholder ........ $ (238,647) $ (27,204) $ (167,847) $ (122,951) $ (178,063) $ (113,614) =========== =========== =========== =========== =========== =========== DECEMBER 31, TOTAL -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues .............. $ 1,160,658 $ 977,354 $ 3,942,985 $ 3,265,143 Operating expenses .... 1,199,090 1,012,815 4,117,099 3,276,460 ----------- ----------- ----------- ----------- Operating profit (loss) $ (38,432) $ (35,461) $ (174,114) $ (11,317) =========== =========== =========== =========== Net loss applicable to common shareholder ........ $ (216,050) $ (184,735) $ (800,607) $ (448,504) =========== =========== =========== ===========
(130) Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III The information called for by Item 401 of Regulation S-K under Item 10, Directors and Executive Officers of the Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of Certain Beneficial Owners and Management and Item 13, Certain Relationships and Related Transactions, is hereby incorporated by reference to Cablevision Parent's definitive proxy statement for its Annual Meeting of Shareholders anticipated to be held in June 2000 or if such definitive proxy statement is not filed with the Commission prior to April 30, 2000, to an amendment to this report on Form 10-K filed under cover of Form 10-K/A. Compliance with Section 16(a) of the Securities Exchange Act of 1934. Pursuant to regulations promulgated by the Securities and Exchange Commission, the Company is required to identify, based solely on a review of reports filed under Section 16(a) of the Securities Exchange Act of 1934, each person who, at any time during its fiscal year ended December 31, 1999, was a director, officer or beneficial owner of more than ten percent of the Company's Class A Common Stock that failed to file on a timely basis any such reports. Based on such review, the Company is aware of no such failure. PART IV Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and Reports on Form 8-K. (a) The following documents are filed as part of this report: 1. The financial statements as indicated in the index set forth on page 55. 2. Financial Statement schedule: Page No. ---- Schedule supporting consolidated financial statements: Schedule II - Valuation and Qualifying Accounts.............. 132 Schedules other than that listed above have been omitted, since they are either not applicable, not required or the information is included elsewhere herein. 3. The Index to Exhibits is on page 135. (b) Reports on Form 8-K: Cablevision Systems Corporation filed a current report on Form 8-K with the Commission on December 17, 1999 during the last quarter of the fiscal period covered by this report. CSC Holdings, Inc. filed a current report on Form 8-K with the Commission on December 17, 1999 during the last quarter of the fiscal period covered by this report. (131) SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands) Cablevision Systems Corporation
Balance at Beginning Charged to Costs Charged to Deductions Balance at of Period and Expenses Other Accounts Write-Offs End of Period ---------- ---------------- -------------- ---------- ------------- Year Ended December 31, 1999 Allowance for doubtful accounts ........... $ 34,377 $ 29,775 $ 2,429 $(31,224) $ 35,357 ======== ======== =========== ======== ======== Year Ended December 31, 1998 Allowance for doubtful accounts ........... $ 29,584 $ 32,110 $ -- $(27,317) $ 34,377 ======== ======== =========== ======== ======== Year Ended December 31, 1997 Allowance for doubtful accounts ........... $ 12,955 $ 26,283 $ -- $ (9,654) $ 29,584 ======== ======== =========== ======== ========
CSC Holdings, Inc.
Balance at Beginning Charged to Costs Charged to Deductions Balance at of Period and Expenses Other Accounts Write-Offs End of Period ---------- ---------------- -------------- ---------- ------------- Year Ended December 31, 1999 Allowance for doubtful accounts ........... $ 34,377 $ 29,775 $ 2,429 $(31,224) $ 35,357 ======== ======== =========== ======== ======== Year Ended December 31, 1998 Allowance for doubtful accounts ........... $ 29,584 $ 32,110 $ -- $(27,317) $ 34,377 ======== ======== =========== ======== ======== Year Ended December 31, 1997 Allowance for doubtful accounts ........... $ 12,955 $ 26,283 $ -- $ (9,654) $ 29,584 ======== ======== =========== ======== ========
(132) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of March, 2000. Cablevision Systems Corporation CSC Holdings, Inc. By: /s/ William J. Bell ------------------------- Name: William J. Bell Title: Vice Chairman (Cablevision Systems Corporation and CSC Holdings, Inc.) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints William J. Bell and Robert S. Lemle, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him in his name, place and stead, in any and all capacities, to sign this report, and file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated on behalf of each of the Registrants. Name Title Date ---- ----- ---- /s/ James L. Dolan Chief Executive Officer and Director March 30, 2000 - - ------------------------- (Principal Executive Officer) James L. Dolan /s/ William J. Bell Vice Chairman and Director March 30, 2000 - - ------------------------- (Principal Financial Officer) William J. Bell /s/ Andrew B. Rosengard Executive Vice President March 30, 2000 - - ------------------------- Financial Planning and Controller Andrew B. Rosengard (Principal Accounting Officer) (133) SIGNATURES (continued) /s/ Charles F. Dolan Chairman of the Board of Directors March 30, 2000 - - ------------------------- Charles F. Dolan /s/ Robert S. Lemle Executive Vice President, General March 30, 2000 - - ------------------------- Counsel, Secretary and Director Robert S. Lemle /s/ Sheila A. Mahony Executive Vice President and Director March 30, 2000 - - ------------------------- Sheila A. Mahony /s/ Thomas C. Dolan Senior Vice President and March 30, 2000 - - ------------------------- Chief Information Officer and Thomas C. Dolan Director /s/ John Tatta Director and Chairman of the March 30, 2000 - - ------------------------- Executive Committee John Tatta /s/ Patrick F. Dolan Director March 30, 2000 - - ------------------------- Patrick F. Dolan /s/ Charles D. Ferris Director March 30, 2000 - - ------------------------- Charles D. Ferris /s/ Richard H. Hochman Director March 30, 2000 - - ------------------------- Richard H. Hochman /s/ Victor Oristano Director March 30, 2000 - - ------------------------- Victor Oristano /s/ Vincent Tese Director March 30, 2000 - - ------------------------- Vincent Tese /s/ William R. Fitzgerald Director March 30, 2000 - - ------------------------- William R. Fitzgerald /s/ Daniel Somers Director March 30, 2000 - - ------------------------- Daniel Somers (134) INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ------- ----------- 3.1 Amended and Restated Certificate of Incorporation of Cablevision Parent (incorporated herein by reference to Exhibit 3.1 to Cablevision Parent's Registration Statement on Form S-4, dated January 20, 1998, File No. 333-44547 (the "S-4")). 3.2 Bylaws of Cablevision Parent (incorporated herein by reference to Exhibit 3.2 to the S-4). 3.3 Certificate of Incorporation of CSC Holdings, Inc. (incorporated herein by reference to Exhibits 3.1A(i) and 3.1A(ii) to CSC Holdings' Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (the "1989 10-K")). 3.4 Amendment to By-laws and complete copy of amended and restated By-laws of CSC Holdings, Inc. (incorporated herein by reference to Exhibit 3.2D to CSC Holdings' Registration Statement on Form S-4, File No. 33-62717). 3.5 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Cablevision Systems Corporation (incorporated herein by reference to Exhibit 3.5 to Cablevision Systems Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1999). 3.6 Certificate of Amendment of Certificate of Incorporation of CSC Holdings, Inc., dated April 1, 1999 (incorporated herein by reference to Exhibit 3.1 of CSC Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999. 3.7 Certificate of Amendment of Certificate of Incorporation of CSC Holdings, Inc., dated April 1, 1999 (incorporated herein by reference to Exhibit 3.2 of CSC Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1999. 4.1 Certificate of Designations for CSC Holdings' Series H Redeemable Exchangeable Preferred Stock (incorporated by reference to Exhibit 4.1E to CSC Holdings' Registration Statement on Form S-4, Registration No. 33-63691). 4.2 Certificate of Designations for CSC Holdings' Series M Redeemable Exchangeable Preferred Stock (incorporated by reference to Exhibit 4.1(f) to CSC Holdings' Registration Statement on Form S-4, Registration No. 333-00527). 4.3 Indenture dated as of December 1, 1997 relating to CSC Holdings' $500,000,000 7 7/8% Senior Notes due 2007 (incorporated herein by reference to Exhibit 4.4 to the S-4). 4.4 Indenture dated as of February 15, 1993 relating to CSC Holdings' $200,000,000 9 7/8% Senior Subordinated Debentures due February 15, 2013 (incorporated herein by reference to Exhibit 4.3 to the 1992 10-K). (135) INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ------- ----------- 4.5 Indenture dated as of April 1, 1993 relating to CSC Holdings' $150,000,000 9 7/8% Senior Subordinated Debentures due 2023 (incorporated by reference to CSC Holdings' Registration Statement on Form S-4, Registration No. 33-61814). 4.6 Supplemental Indenture dated as of November 1, 1995 between CSC Holdings and the Bank of New York, Trustee to the Indenture dated November 1, 1995 (incorporated by reference to Exhibit 99.6 to CSC Holdings' Current Report on Form 8-K (File No. 1-9046), filed November 1, 1995). 4.7 Indenture dated August 15, 1997 relating to CSC Holdings' $400,000,000 81/8% Senior Debentures due 2009 (incorporated herein by reference to CSC Holdings' Registration Statement on Form S-4, Registration No. 333-38013). 4.8 Indenture dated as of November 1, 1995 relating to CSC Holdings' $150,000,000 9 7/8% Senior Subordinated Notes due 2006, $300,000,000 9 1/4% Senior Subordinated Notes due 2005 and $250,000,000 10 1/2% Senior Subordinated Debentures due 2016 (incorporated by reference to Exhibit 99.6 to CSC Holdings' Current Report on Form 8-K filed November 1, 1995). 4.9 Senior Indenture (incorporated by reference to Exhibit 4.1 to CSC Holdings' Registration Statement on Form S-3, Registration No. 333-57407). 4.10 Subordinated Indenture (incorporated by reference to Exhibit 4.2 to CSC Holdings' Registration Statement on Form S-3, Registration No. 333-57407). 10.1 Registration Rights Agreement between CSC Systems Company and CSC Holdings (incorporated herein by reference to Exhibit 10.1 of CSC Holdings' Registration Statement on Form S-1, Registration No. 033-01936 ("CSC Holdings' Form S-1")). 10.2 Registration Rights Agreement between Cablevision Company and CSC Holdings (incorporated herein by reference to Exhibit 10.2 to CSC Holdings' Form S-1). 10.3 Form of Right of First Refusal Agreement between Dolan and CSC Holdings (incorporated herein by reference to Exhibit 10.4 to CSC Holdings' Form S-1). 10.4 Supplemental Benefit Plan of CSC Holdings (incorporated herein by reference to Exhibit 10.7 to CSC Holdings' Form S-1). (136) INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ------- ----------- 10.5 Cablevision Money Purchase Pension Plan, and Trust Agreement dated as of December 1, 1983 between Cablevision Systems Development Company and Dolan and Tatta, as Trustees (incorporated herein by reference to Exhibit 10.8 to CSC Holdings' Form S-1). 10.6 Amendment to the Cablevision Money Purchase Pension Plan adopted November 6, 1992 (incorporated herein by reference to Exhibit 10.6A to the 1992 10-K). 10.7 Employment Agreement between Charles F. Dolan and CSC Holdings dated January 27, 1986 (incorporated herein by reference to Exhibit 10.9 to CSC Holdings' Form S-1). 10.8 Cablevision Amended and Restated Employee Stock Plan (incorporated herein by reference to Exhibit 10.46 to the 1992 10-K). 10.9 Cablevision 401(k) Savings Plan (incorporated herein by reference to Exhibit 10.47 to the 1992 10-K). 10.10 Acquisition Agreement and Plan of Merger and Reorganization, dated as of June 14, 1994, among Cablevision of Boston Limited Partnership, Cablevision of Boston, Inc., Charles F. Dolan, Cablevision Systems Boston Corporation, CSC Holdings, COB, Inc., Cablevision Systems Services Corporation and Cablevision Finance Limited Partnership (incorporated herein by reference to Exhibit 10.59 to the June 1994 10-Q). 10.11 Agreement and undertaking, dated as of March 10, 1995 from MSG Holdings, LP, MSG Eden Corporation, CSC Holdings, Rainbow Programming Holdings, Inc., Rainbow Garden Corporation, Garden L.P. Holdings Corp., ITT Corporation, ITT Eden Corp. in favor of the National Basketball Association (the "NBA"), the member terms of the NBA, NBA Properties, Inc., the NBA Market Extension Partnership and Planet Insurance, Ltd. (incorporated herein by reference to Exhibit 10.66 to the 1994 10-K). 10.12 Consent Agreement, dated as of March 10, 1995 by and among the National Hockey League, MSG Holdings, L.P., MSG Eden Corporation, ITT Eden Corporation, ITT MSG Inc., ITT Corporation, Garden L.P. Holdings Corp., Rainbow Garden Corporation, Rainbow Programming Holdings Inc. and CSC Holdings (incorporated herein by reference to Exhibit 10.67 to the 1994 10-K). 10.13 Amendment to consulting agreement dated as of November 28, 1994 between CSC Holdings and John Tatta (incorporated herein by reference to Exhibit 10.68 to the 1994 10-K). 10.14 Employment Agreement, dated as of November 30, 1994, between CSC Holdings and William J. Bell (incorporated herein by reference to Exhibit 10.69 to the 1994 10-K). (137) INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION ------- ----------- 10.15 Employment Agreement, dated as of November 30, 1994, between CSC Holdings and Robert S. Lemle (incorporated herein by reference to Exhibit 10.71 to the 1994 10-K). 10.16 Cablevision Parent Employee Stock Plan (incorporated herein by reference to Exhibit 10.40 to the S-4). 10.17 Cablevision Parent Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.41 to the S-4). 10.18 Cablevision Systems Corporation 1996 Non-Employee Directors Stock Option Plan (incorporated by reference to CSC Holdings' 1996 Definitive Proxy Statement). 10.19 Agreement, dated February 4, 1996, among CSC Holdings, Rainbow Programming Holdings, Inc. and ITT Corporation (incorporated herein by reference to Exhibit 10.74 to the September 1996 10-Q). 10.20 Master Stock Purchase Agreement, dated as of May 10, 1996, between Warburg Pincus Investors, L.P., a Delaware limited partnership, and CSC Holdings (incorporated by reference to Exhibit 99 to CSC Holdings' Current Report on Form 8-K (File No. 1-9046) dated May 10, 1996). 10.21 Letter, dated March 6, 1997, among ITT MSG Inc., ITT Eden Corp., Rainbow Garden Corp. and Garden L.P. Holding Corp. (incorporated by reference to Exhibit 99.2 of CSC Holdings' Current Report on Form 8-K (File No. 1-9046) dated March 6, 1997). 10.22 Letter, dated November 25, 1997, from CSC Holdings to Charles F. Dolan (incorporated herein by reference to Exhibit 10.49 to the S-4). 10.23 Form of Guarantee and Indemnification Agreement among Charles F. Dolan, the Registrant and officers and directors of the Registrant (incorporated herein by reference to Exhibit 28 to CSC Holdings' Form S-1). 10.24 Partnership Interest Transfer Agreement, among ITT Corporation, ITT Eden Corporation, ITT MSG, Inc., CSC Holdings, Rainbow Media Holdings, Inc., Rainbow Garden Corp., Garden L.P. Holding Corp., MSG Eden Corporation and Madison Square Garden, L.P., dated as of April 15, 1997. (incorporated by reference to Exhibit 2(a) of CSC Holdings' Current Report on Form 8-K (File No. 1-9046) dated April 18, 1997 (the "April 1997 8-K")). (138) INDEX TO EXHIBITS (continued) EXHIBIT NO. DESCRIPTION ------- ----------- 10.25 Amendment No. 1 to Partnership Interest Transfer Agreement, dated as of March 16, 1999. 10.26 Amended and Restated Agreement of Limited Partnership of Madison Square Garden, L.P., among MSG Eden Corporation, ITT MSG Inc. and Garden L.P. Holding Corp., dated as of April 15, 1997. (incorporated by reference to Exhibit 2(b) of the April 1997 8-K). 10.27 SportsChannel Contribution Agreement, among Rainbow Media Holdings, Inc., Garden L.P. Holding Corp., Rainbow Garden Corp., SportsChannel New York Holding Partnership, SportsChannel Associates Holding Corporation, MSG Eden Corporation, ITT MSG Inc., ITT Eden Corporation, and Madison Square Garden, L.P., dated as of April 15, 1997. (incorporated by reference to Exhibit 2(c) of the April 1997 8-K). 10.28 Aircraft Contribution Agreement, among Garden L.P. Holding Corp., MSG Eden Corporation, ITT MSG Inc., ITT Flight Operations, Inc., and Madison Square Garden, L.P., dated as of April 15, 1997. (incorporated by reference to Exhibit 2(d) of the April 1997 8-K). 10.29 Formation Agreement, dated as of June 22, 1997, among Rainbow Media Sports Holdings, Inc. and Fox Sports Net, LLC, attaching Partners) and Annex B (Partnership Agreement of National Sports Partners). (incorporated by reference to Exhibit 99.1 of the April 1997 8-K). 10.30 Lease Agreement between Nassau Cable Business Trust, as Landlord and CSC Holdings, as Tenant, dated as of November 1, 1997 (incorporated herein by reference to Exhibit 10.56 to the S-4). 10.31 Letter Agreement and Term Sheet, dated October 2, 1997 among CSC Holdings, At Home Corporation ("At Home"), Comcast Corporation, Cox Enterprises, Inc., Kleiner, Perkins, Caufield & Byers and Tele-Communications, Inc., as amended October 10, 1997 (incorporated by reference to Exhibit 10.01 of the Current Report on Form 8-K filed by At Home (File No. 000-22697) on October 22, 1997 (the "At Home October 8-K")). 10.32 Warrant to purchase shares of Series A Common Stock of At Home issued to CSC Holdings (incorporated by reference to Exhibit 10.03 of the At Home October 8-K). 10.33 Contingent Warrant to purchase shares of Series A Common Stock of At Home issued to CSC Holdings (incorporated by reference to Exhibit 10.04 of the At Home October 8-K). 10.34 Warrant Purchase Agreement, dated October 10, 1997, between At Home and CSC Holdings (incorporated by reference to Exhibit 10.02 of the At Home October 8-K). (139) INDEX TO EXHIBITS (continued) EXHIBIT NO. DESCRIPTION ------- ----------- 10.35 Amended and Restated Stockholders Agreement, dated August 1, 1996, as amended in May, 1997 (incorporated by reference to Exhibit 4.04 of the Registration Statement on Form S-1 of At Home (File No. 333-27323) (the "At Home S-1")). 10.36 Letter Agreement dated May 15, 1997 among At Home and the parties thereto, including as exhibits the Master Distribution Agreement Term Sheet and the Term Sheet for Form of LCO Agreement (incorporated by reference to Exhibit 10.20 of the At Home S-1). 10.37 Credit Agreement, dated as of June 6, 1997, among Madison Square Garden, L.P., the several lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, Toronto Dominion (New York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as Syndication Agent (incorporated herein by reference to Exhibit 10.63 to the S-4). 10.38 Asset Purchase Agreement, dated as of August 29, 1997, by and among U.S. Cable Television Group, L.P., ECC Holding Corporation, Missouri Cable Partners, L.P., CSC Holdings and Mediacom LLC (incorporated herein by reference to Exhibit 10.64 to the S-4). 10.39 Loan Agreement, dated as of April 2, 1997, among Rainbow Media Holdings, Inc., the Guarantors, Canadian Imperial Bank of Commerce, and Toronto Dominion (Texas), Inc. as Arranging Agents and Documentation Agents, Canadian Imperial Bank of Commerce, as Syndication Agent, Toronto Dominion (Texas), Inc., as Administrative Agent and the other Credit Parties thereto (incorporated by reference to Exhibit 10.77 of CSC Holdings' Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1997). 10.40 First Amendment, dated November 5, 1997 to the Credit Agreement, dated as of June 6, 1997, among Madison Square Garden, L.P., the several lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, Toronto Dominion (New York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as Syndication Agent (incorporated herein by reference to Exhibit 10.66 to the S-4). 10.41 Second Amendment, dated December 10, 1997, to the Credit Agreement, dated as of June 6, 1997, among Madison Square Garden, L.P., the several lenders from time to time parties thereto, the Chase Manhattan Bank, as Administrative Agent, Toronto Dominion (New York), Inc., as Documentation Agent, and The Bank of Nova Scotia, as Syndication Agent (incorporated herein by reference to Exhibit 10.67 to the S-4). 10.42 Cablevision Parent Stock Option Plan for Non-Employee Directors (incorporated herein by reference to Exhibit 10.68 to the S-4). (140) INDEX TO EXHIBITS (continued) EXHIBIT NO. DESCRIPTION ------- ----------- 10.43 Asset Purchase Agreement, dated as of January 29, 1998, between The Wiz, Inc. and each of its subsidiaries and affiliates listed on the signature pages thereto and Cablevision Electronics Investments, Inc. (incorporated by reference to Exhibit 99.1 of CSC Holdings' report on Form 8-K (file no. 1-9046) dated February 5, 1998. 10.44 Amended and Restated Contribution and Merger Agreement, dated as of June 6, 1997, among Cablevision Parent, CSC Holdings, CSC Merger Corporation and TCI Communications, Inc. (incorporated herein by reference to Exhibit 2.1 to the S-4). 10.45 Stockholders Agreement, dated as of March 4, 1998, by and among CSC Holdings, Tele-Communications, Inc., a Delaware corporation, the Class B Entities (as defined in the Stockholders Agreement) and the Investors (as defined in the Stockholders Agreement) (incorporated herein by reference to Exhibit 4.1 to CSC Holdings' Current Report on Form 8-K (File No. 1-9046) dated March 4, 1998). 10.46 Sixth Amended and Restated Credit Agreement, dated as of May 28, 1998, among CSC Holdings, Inc., the Restricted Subsidiaries which are parties thereto, the lenders which are parties thereto (the "Banks"). Toronto Dominion (Texas), Inc., as Arranging Agent and as Administrative Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank, N.A., and The Chase Manhattan Bank, as Managing Agents, Bank of Montreal, Chicago Branch, Barclays Bank, PLC, Fleet Bank, N.A., and Royal Bank of Canada, as agents, Banque Paribas, Credit Lyonnais, BankBoston, N.A., The First National Bank of Chicago, Mellon Bank, N.A. and Societe Generale, New York Branch, as Co-Agents, and The Canadian Imperial Bank of Commerce, The Chase Manhattan Bank and NationsBank, N.A., as Co-Syndication Agents. 10.47 First Amended and Restated Credit Agreement, dated as of May 28, 1998, among Cablevision MFR, Inc. ("MFR"), CSC Holdings, Inc., the Guarantors which are parties thereto, the lenders which are parties thereto (the "Banks"), Toronto Dominion (Texas), Inc., as Arranging Agent and as Administrative Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank, N.A., and The Chase Manhattan Bank, as Managing Agents, Bank of Montreal, Chicago Branch, Barclays Bank, PLC, Fleet Bank, N.A., and Royal Bank of Canada, as Agents, Banque Paribas, Credit Lyonnais, BankBoston, N.A., The First National Bank of Chicago, Mellon Bank, N.A. and Societe Generale, New York Branch, as Co-Agents, and The Bank of New York and The Bank of Nova Scotia as Co Syndication Agents. (141) INDEX TO EXHIBITS (continued) EXHIBIT NO. DESCRIPTION ------- ----------- 10.48 First Amended and Restated Credit Agreement, dated as of May 28, 1998 among CSC TKR, Inc. Cablevision of Brookhaven, Inc., Cablevision of Oakland, Inc. Cablevision of Paterson, Inc. CSC TKR I, Inc. and UA-Columbia Cablevision of Westchester, Inc., the lenders which are parties thereto, Toronto Dominion (Texas), Inc., as Arranging Agent and as Administrative Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank, N.A. and The Chase Manhattan Bank, as Managing Agents, the Bank of Montreal, Chicago Branch, Barclays Bank PLC, Fleet Bank, N.A. and the Royal Bank of Canada, as Agents, and Banque Paribas, Credit Lyonnais, BankBoston, N.A., The First National Bank of Chicago, Mellon Bank, N.A. and Societe Generale, New York Branch, as Co-Agents. 10.49 Agreement and Plan of Merger, dated as of August 12, 1998 among Cablevision Parent, CCG Holdings, Inc. and Clearview Cinema Group, Inc. (incorporated herein by reference to Exhibit 10.1 of Cablevision Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998). 10.50 Stockholders Agreement, dated as of August 12, 1998 between Cablevision Parent and the stockholders of Clearview Cinema Group, Inc. party thereto (incorporated herein by reference to Exhibit 10.1 of Cablevision Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998). 10.51 Asset Purchase Agreement, dated as of December 8, 1999, by and among Telerama, Inc., Cablevision of Cleveland, L.P., and Adelphia Communications Corporation (incorporated herein by reference to Exhibit 99.1 of Cablevision Parent's Current Report on Form 8-K filed on December 17, 1999 (the "December 1999 8-K")). 10.52 Agreement and Plan of Reorganization, dated as of December 8, 1999, by and among Cablevision of the Midwest, Inc., Cablevision of the Midwest Holding Co., Inc., Adelphia General Holdings II, Inc. and Adelphia Communications Corporation (incorporated herein by reference to Exhibit 99.2 of the December 1999 8-K). 21 Subsidiaries of the Registrants. 23.1 Consent of Independent Auditors. 23.2 Consent of Independent Auditors. 27 Financial Data Schedule - CSC Holdings, Inc. and Subsidiaries. 27.1 Financial Data Schedule - Cablevision Systems Corporation and Subsidiaries. (142) EX-21 2 SUBSIDIARIES OF THE REGISTRANTS Exhibit 21 SUBSIDIARIES OF CABLEVISION SYSTEMS CORPORATION State of Name Organization - - ---- ------------ CSC Holdings, Inc. Delaware Rainbow Media Holdings, Inc. Delaware Regional Programming Partners New York Regional MSG Holdings, LLC Delaware Madison Square Garden, L.P. Delaware Cablevision Electronics Investments, Inc. Delaware d/b/a The Wiz SUBSIDIARIES OF CSC HOLDINGS, INC. Rainbow Media Holdings, Inc. Delaware Regional Programming Partners New York Regional MSG Holdings, LLC Delaware Madison Square Garden, L.P. Delaware Cablevision Electronics Investments, Inc. Delaware d/b/a The Wiz EX-23.1 3 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements (numbers 333-86789 and 333-71965) filed on Forms S-3 and in the registration statements (numbers 33-05987, 33-19409, 33-54346, 33-36282, 333-41349 and 333-79485) filed on Forms S-8 of Cablevision Systems Corporation of our report dated March 13, 2000, relating to the consolidated balance sheets of Cablevision Systems Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' deficiency and cash flows and related schedule for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of Cablevision Systems Corporation. Melville, New York March 28, 2000 EX-23.2 4 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements (numbers 33-05987, 33-19409, 33-54346, 33-36282, 333-41349 and 333-79485) filed on Forms S-8 and in the registration statement (number 333-71965) filed on Form S-3 of CSC Holdings, Inc. of our report dated March 13, 2000, relating to the consolidated balance sheets of CSC Holdings, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, stockholder's deficiency and cash flows and related schedule for each of the years in the three-year period ended December 31, 1999, which report appears in the December 31, 1999 annual report on Form 10-K of CSC Holdings, Inc. Melville, New York March 28, 2000 EX-27 5 FDS
5 0000784681 CSC Holdings, Inc. and Subsidiaries 1,000 12-MOS DEC-31-1999 DEC-31-1999 62,665 0 261,661 (35,357) 335,826 0 4,764,313 (2,011,818) 7,130,308 0 6,094,701 1,404,511 1 0 (3,078,414) 7,130,308 0 3,972,760 484,760 1,535,423 893,797 (29,775) 470,549 (630,520) 0 (630,520) 0 0 0 (630,520) 0 0 Not presented as the resultant computation would be a decrease in net loss per share and therefore not meaningful.
EX-27.1 6 FDS
5 0001053112 Cablevision Systems Corporation and Subsidiaries 1,000 12-MOS DEC-31-1999 DEC-31-1999 62,665 0 261,661 (35,357) 335,826 0 4,764,313 (2,011,818) 7,130,308 0 6,094,701 0 1,732 0 (3,068,815) 7,130,308 0 3,972,760 484,760 1,535,423 893,797 (29,775) 470,549 (800,607) 0 (800,607) 0 0 0 (800,607) (5.12) 0 Not presented as the resultant computation would be a decrease in net loss per share and therefore not meaningful.
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