<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
March 4, 1998
---------------------------------
Date of Report (Date of earliest event reported)
CABLEVISION SYSTEMS CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-14764 11-3415180
- - --------------------------------------------------------------------------------
State or other (Commission File (IRS Employer
jurisdication of incorporation Number) Identification No.)
One MEDIA CROSSWAYS
WOODBURY, NEW YORK 11797
---------------------------------
(Address of principal executive offices) (Zip Code)
(516) 364-8450
---------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a)-(b) Financial Statements and Pro Forma Financial Information
Reference is made to the Current Report on Form 8-K filed by Cablevision
Systems Corporation ("Cablevision") with the Securities and Exchange
Commission on March 19, 1998 in connection with the consummation of a holding
company restructuring by Cablevision and the contribution by TCI
Communications, Inc. ("TCI") to Cablevision of certain cable television
systems owned and operated by TCI. Attached hereto as Exhibit 99.1 and
Exhibit 99.2 are the required financial statements and pro forma financial
information, respectively.
(c) See the Exhibit Index
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CABLEVISION SYSTEMS CORPORATION
(formerly named CSC Parent Corporation)
By: /s/ Andrew B. Rosengard
----------------------------
Name: Andrew B. Rosengard
Title: Executive Vice President,
Financial Planning and Controller
DATE: May 18, 1998
<PAGE>
EXHIBIT INDEX
Exhibit 23.1 Consent of Independent Auditors
Exhibit 23.2 Consent of Independent Auditors
Exhibit 23.3 Consent of Independent Auditors
Exhibit 23.4 Consent of Independent Auditors
Exhibit 99.1 Audited Financial Statement for the years ended
December 31, 1997, 1996 and 1995 of TCI New Jersey and
New York Systems and of TCR New Jersey/New York Systems
Exhibit 99.2 Cablevision Systems Corporation and Subsidiaries
Condensed Pro Forma Financial Statements for the
year ended December 31, 1997
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Partners
TKR Cable Company:
We consent to the incorporation by reference in the registration
statements (Nos. 33-05987, 33-08768, 33-19409, 33-20583, 33-54346 and
333-41349) on Form S-8 and registration statement (No. 333-44547) on Form S-4
of Cablevision Systems Corporation of our report dated April 23, 1998,
relating to the combined balance sheets of the TKR New Jersey/New York
Systems (a combination of certain assets as defined in note 1) as of
December 31, 1997 and 1996, and the related combined statements of operations,
changes in combined equity (deficit), and cash flows for each of the years in
the three-year period ended December 31, 1997, which report appears in the
Form 8-K/A of Cablevision Systems Corporation dated May 18, 1998.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
May 15, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Partners
TKR Cable Company:
We consent to the incorporation by reference in the registration
statements (Nos. 33-29192, 33-33596 and 333-35263) on Form S-3 of CSC
Holdings, Inc. of our report dated April 23, 1998, relating to the combined
balance sheets of the TRK New Jersey/New York Systems (a combination of
certain assets as defined in note 1) as of December 31, 1997 and 1996, and the
related combined statements of operations, changes in combined equity
(deficit), and cash flows for each of the years in the three-year period ended
December 31, 1997, which report appears in the Form 8-K/A of Cablevision
Systems Corporation dated May 18, 1998.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
May 15, 1998
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TCI Communications, Inc.:
We consent to the incorporation by reference in the registration
statements (Nos. 33-05987, 33-08768, 33-19409, 33-20583, 33-54346 and
333-41349) on Form S-8 and registration statement (No. 333-44547) on Form
S-4 of Cablevision Systems Corporation of our report dated April 23, 1998,
relating to the combined balance sheets of the TCI New Jersey and New York
Systems (as defined in Note 1 to the combined financial statements) as of
December 31, 1997 and 1996, and the related combined statements of operations
and parent's investment and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the Form 8-K/A of
Cablevision Systems Corporation dated May 18, 1998.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
May 15, 1998
<PAGE>
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
TCI Communications, Inc.:
We consent to the incorporation by reference in the registration
statements (Nos. 33-29192, 33-33596 and 333-35263) on Form S-3 of CSC
Holdings, Inc. of our report dated April 23 1998 relating to the combined
balance sheets of the TCI New Jersey and New York Systems (as defined in
Note 1 to the combined financial statements) as of December 31, 1997 and 1996,
and the related combined statements of operations and parent's investment and
cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the Form 8-K/A of Cablevision Systems
Corporation dated May 18, 1998.
/s/ KPMG Peat Marwick LLP
Denver, Colorado
May 15, 1998
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(A Combination of Certain Assets, as Defined in Note 1 to the
Combined Financial Statements)
Annual Report for the Years Ended
December 31, 1997, 1996 and 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors:
TCI Communications, Inc.:
We have audited the accompanying combined balance sheets of the TCI New Jersey
and New York Systems (as defined in Note 1 to the combined financial statements)
as of December 31, 1997 and 1996, and the related combined statements of
operations and parent's investment and cash flows for each of the years in the
three-year period ended December 31, 1997. These combined financial statements
are the responsibility of the TCI New Jersey and New York Systems' management.
Our responsibility is to express an opinion on these combined financial
statements 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the TCI New Jersey
and New York Systems as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
April 23, 1998
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Combined Balance Sheets
December 31, 1997 and 1996
1997 1996
-------- --------
Assets amounts in thousands
Cash and cash equivalents $ 738 1,604
Trade and other receivables, net 8,719 8,789
Property and equipment, at cost:
Land 186 186
Distribution systems 270,467 265,509
Support equipment and buildings 38,079 36,292
-------- --------
308,732 301,987
Less accumulated depreciation 157,486 135,160
-------- --------
151,246 166,827
-------- --------
Franchise costs 560,432 542,855
Less accumulated amortization 112,898 99,110
-------- --------
447,534 443,745
-------- --------
Other assets, at cost, net of amortization 1,985 1,837
-------- --------
$610,222 622,802
======== ========
Liabilities and Parent's Investment
Accounts payable $ 631 800
Accrued franchise fees 4,582 3,664
Other accrued expenses 3,701 3,664
Debt (note 3) -- 17,815
Deferred income taxes (note 4) 179,469 189,284
-------- --------
Total liabilities 188,383 215,227
Minority interest in equity of consolidated
subsidiary (note 1) -- 4,060
Parent's investment (note 5) 421,839 403,515
-------- --------
Commitments and contingencies (note 7)
$610,222 622,802
======== ========
See accompanying notes to combined financial statements.
2
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Combined Statements of Operations and Parent's Investment
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
--------- --------- ---------
amounts in thousands
Revenue $ 213,206 199,798 180,601
Operating costs and expenses:
Operating (note 6) 78,735 72,830 60,469
Selling, general and administrative 30,576 33,792 29,965
Administrative fees (note 6) 6,579 7,248 5,101
Depreciation 26,715 26,888 26,296
Amortization 13,795 13,157 13,165
--------- --------- ---------
156,400 153,915 134,996
--------- --------- ---------
Operating income 56,806 45,883 45,605
Other income (expense):
Interest expense (105) (1,406) (1,466)
Interest income 100 66 274
Minority interest in earnings of
consolidated subsidiary (125) (964) (863)
Other, net (319) (327) (51)
--------- --------- ---------
(449) (2,631) (2,106)
--------- --------- ---------
Earnings before income taxes 56,357 43,252 43,499
Income tax expense (note 4) (19,017) (15,086) (15,183)
--------- --------- ---------
Net earnings 37,340 28,166 28,316
Parent's investment:
Beginning of year 403,515 415,612 429,279
Change in due to TCI Communications,
Inc. ("TCIC") (19,016) (40,263) (41,983)
--------- --------- ---------
End of year $ 421,839 403,515 415,612
========= ========= =========
See accompanying notes to combined financial statements.
3
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
amounts in thousands
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 37,340 28,166 28,316
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 40,510 40,045 39,461
Minority interest in earnings of consolidated
subsidiary 125 964 863
Deferred income tax benefit (9,815) (6,565) (5,060)
Other noncash charges -- 597 --
Changes in operating assets and liabilities:
Change in receivables 70 (814) (3,686)
Change in other assets (148) (251) (130)
Change in accounts payable and accrued
expenses 786 187 (1,321)
-------- -------- --------
Net cash provided by operating activities 68,868 62,329 58,443
-------- -------- --------
Cash flows from investing activities:
Capital expended for property and equipment (11,352) (19,472) (17,577)
Cash paid to purchase minority interest (20,909) -- --
Cash proceeds from disposition of assets -- -- 1,218
Other investing activities (642) 427 (460)
-------- -------- --------
Net cash used in investing activities (32,903) (19,045) (16,819)
-------- -------- --------
Cash flows from financing activities:
Repayments of debt (17,815) (775) (2,446)
Change in due to TCIC (19,016) (40,263) (41,983)
Change in cash overdraft -- (642) 642
-------- -------- --------
Net cash used in financing activities (36,831) (41,680) (43,787)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (866) 1,604 (2,163)
Cash and cash equivalents:
Beginning of year 1,604 -- 2,163
-------- -------- --------
End of year $ 738 1,604 --
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 278 1,525 1,467
======== ======== ========
Cash paid during the year for income taxes $ 28 329 31
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
4
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
December 31, 1997, 1996 and 1995
(1) Summary of Significant Accounting Policies
Organization and Presentation
The combined financial statements include the accounts of TCIC's cable
television systems serving Oakland and Paterson/Allamuchy, New Jersey and
Westchester and Brookhaven, New York (collectively, the "TCI New Jersey
and New York Systems"). The cable television systems serving Oakland, New
Jersey and Westchester and Brookhaven, New York (the "NNJ Systems") are
wholly-owned by TCI of Northern New Jersey, Inc. (NNJ"), an indirect
wholly-owned subsidiary of TCIC. TCIC owned a 50.1% ownership interest in
the Paterson/Allamuchy, New Jersey cable television system until January
31, 1997, when it acquired the remaining 49.9% interest in this system for
a purchase price of $20,909,000. TCIC is a subsidiary of
Tele-Communications, Inc. ("TCI"). All significant inter-entity accounts
and transactions have been eliminated in combination.
These combined financial statements include an allocation of certain
purchase accounting adjustments, including the related deferred tax
effects, from TCIC's original acquisition of NNJ. This allocation and the
related franchise cost amortization is based on the number of subscribers
in the NNJ Systems to the total number of subscribers in all of NNJ's
cable television systems. In addition, certain operating costs of TCI are
charged to the TCI New Jersey and New York Systems based on their number
of subscribers (see note 7). Although such allocations are not necessarily
indicative of the costs that would have been incurred by the TCI New
Jersey and New York Systems on a stand alone basis, management believes
that the resulting allocated amounts are reasonable.
Cash Equivalents
The TCI New Jersey and New York Systems consider all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1997 and 1996 was not material.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1997, 1996 and 1995, interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for
support equipment and buildings.
5
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or
other dispositions of property, the original cost and cost of removal of
such property are charged to accumulated depreciation, and salvage, if
any, is credited thereto. Gains or losses are only recognized in
connection with the sales of systems in their entirety.
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts assigned to their tangible assets. Such
amounts are generally amortized on a straight-line basis over 40 years.
Costs incurred by the TCI New Jersey and New York Systems in negotiating
and renewing franchise agreements are amortized on a straight-line basis
over the life of the franchise, generally 10 to 20 years.
Impairment of Long-Lived Assets
The TCI New Jersey and New York Systems periodically review the carrying
amounts of property, plant and equipment and its identifiable intangible
assets to determine whether current events or circumstances warrant
adjustments to such carrying amounts. If an impairment adjustment is
deemed necessary, such loss is measured by the amount that the carrying
value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly,
actual results could vary significantly from such estimates. Assets to be
disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized in
the period that services are delivered. Installation revenue is recognized
in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over
the estimated average period that customers are expected to remain
connected to the cable television system.
Combined Statements of Cash Flows
Transactions effected through the intercompany account with TCIC have been
considered constructive cash receipts and payments for purposes of the
combined statements of cash flows.
Estimates
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 at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
(continued)
6
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
(2) Merger Transaction
On March 4, 1998, TCI's ten New York metropolitan area cable television
systems (the "Systems"), including the TCI New Jersey and New York
Systems, were contributed to Cablevision Systems Corporation ("CSC") in
exchange for approximately 24.5 million newly issued shares of CSC Class A
common stock (as adjusted for a stock dividend). Such shares represent an
approximate 33% equity interest in CSC's total outstanding common shares.
CSC also assumed $669 million of the Systems' debt, including a portion of
the intercompany amounts owed by the Systems to TCIC and its affiliates.
(3) Debt
As of December 31, 1996, the TCI New Jersey and New York Systems had
outstanding borrowings pursuant to certain term loan agreements with
varying interest rates. The term loans were secured and collateralized by
certain assets of the TCI New Jersey and New York Systems, including
franchise rights, and the assignment of various leases and contracts of
the TCI New Jersey and New York Systems.
On January 31, 1997, the outstanding balances of the aforementioned loans
($17,815,000 at December 31, 1996) were repaid in full.
(continued)
7
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
(4) Income Taxes
The TCI New Jersey and New York Systems are included in the consolidated
federal income tax return of TCI. Income tax expense for the TCI New
Jersey and New York Systems is based on those items in the consolidated
calculation applicable to the TCI New Jersey and New York Systems.
Intercompany tax allocation represents an apportionment of tax expense or
benefit (other than deferred taxes) among subsidiaries of TCI in relation
to their respective amounts of taxable earnings or losses. The payable or
receivable arising from the intercompany tax allocation is recorded as an
increase or decrease in parent's investment.
Income tax benefit (expense) for the years ended December 31, 1997, 1996
and 1995 consists of:
Current Deferred Total
-------- -------- --------
amounts in thousands
Year ended December 31, 1997:
Intercompany allocation $(28,804) -- (28,804)
Federal -- 7,653 7,653
State and local (28) 2,162 2,134
-------- -------- --------
$(28,832) 9,815 (19,017)
======== ======== ========
Year ended December 31, 1996:
Intercompany allocation $(21,322) -- (21,322)
Federal -- 5,119 5,119
State and local (329) 1,446 1,117
-------- -------- --------
$(21,651) 6,565 (15,086)
======== ======== ========
Year ended December 31, 1995:
Intercompany allocation $(20,212) -- (20,212)
Federal -- 3,945 3,945
State and local (31) 1,115 1,084
-------- -------- --------
$(20,243) 5,060 (15,183)
======== ======== ========
Income tax expense differs from the amounts computed by applying the
federal income tax rate of 35% as a result of the following:
Years ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
amounts in thousands
Computed "expected" tax expense $(19,725) (15,138) (15,225)
Amortization not deductible for
tax purposes (645) (645) (645)
State and local income taxes, net
of federal income tax benefit 1,387 726 705
Other (34) (29) (18)
-------- -------- --------
$(19,017) (15,086) (15,183)
======== ======== ========
(continued)
8
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
December 31,
-------------------
1997 1996
-------- --------
amounts in thousands
Deferred tax assets:
Non-deductible accruals $ 278 249
Investment in consolidated
partnership, due principally to
differences in earnings recognition 2,248 --
-------- --------
Total gross deferred tax assets 2,526 249
-------- --------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation 38,070 39,763
Franchise costs, principally due to
differences in amortization 143,925 148,441
Investment in consolidated
partnership, due principally to
differences in earnings recognition -- 1,329
-------- --------
Total gross deferred tax liabilities 181,995 189,533
-------- --------
Net deferred tax liability $179,469 189,284
======== ========
(5) Parent's Investment
Parent's investment in the TCI New Jersey and New York Systems at December
31, 1997 and 1996 is summarized as follows:
December 31,
-------------------------
1997 1996
-------- --------
amounts in thousands
Due to TCIC $139,920 158,936
Retained earnings 281,919 244,579
-------- --------
$421,839 403,515
======== ========
The amount due to TCIC represents non-interest-bearing advances for
operations, acquisitions and construction costs as well as the allocation
of certain costs from TCIC. See note 6.
(continued)
9
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
(6) Transactions with Related Parties
The amounts due to TCIC consist of various non-interest bearing
intercompany advances and expense allocations. Due to TCIC's ownership of
100% of the parent's investment of the TCI New Jersey and New York
Systems, the amounts due to TCIC have been classified as a component of
parent's investment in the accompanying combined financial statements.
Such amounts are due on demand.
The TCI New Jersey and New York Systems purchase, at TCIC's cost,
substantially all of their pay television and other programming from
affiliates of TCIC. Charges for such programming are included in operating
expenses in the accompanying combined financial statements.
Certain subsidiaries of TCIC provide administrative services to the TCI
New Jersey and New York Systems and have assumed managerial responsibility
of the TCI New Jersey and New York Systems' cable television system
operations and construction. As compensation for these services, the TCI
New Jersey and New York Systems pay a monthly fee calculated on a
per-customer basis.
The intercompany advances and expense activity in amounts due to TCIC
consists of the following:
December 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
amounts in thousands
Beginning of year $ 158,936 199,199 241,182
Programming charges 57,670 51,587 42,274
Administrative fees 6,579 7,248 5,101
Tax allocations 28,804 21,322 20,212
Cash transfers (112,069) (120,420) (109,570)
--------- --------- ---------
End of year $ 139,920 158,936 199,199
========= ========= =========
(7) Commitments and Contingencies
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 and
1994, the Federal Communications Commission ("FCC") adopted certain rate
regulations required by the 1992 Cable Act and imposed a moratorium on
certain rate increases. As a result of such actions, the TCI New Jersey
and New York Systems' basic and tier service rates and its equipment and
installation charges (the "Regulated Services") are subject to the
jurisdiction of local franchising authorities and the FCC. Basic and tier
service rates are evaluated against competitive benchmark rates as
published by the FCC, and equipment and installation charges are based on
actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations.
The rate regulations do not apply to the relatively few systems which are
subject to "effective competition" or to services offered on an individual
service basis, such as premium movie and pay-per-view services.
(continued)
10
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
The TCI New Jersey and New York Systems believe that they have complied in
all material respects with the provisions of the 1992 Cable Act, including
its rate setting provisions. However, the TCI New Jersey and New York
Systems' rates for Regulated Services are subject to review by the FCC, if
a complaint has been filed, or the appropriate franchise authority, if
such authority has been certified. If, as a result of the review process,
a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of
tier service rates would be retroactive to the date of complaint. Any
refunds of the excess portion of all other Regulated Service rates would
be retroactive to one year prior to the implementation of the rate
reductions.
On June 20, 1997, a lawsuit was filed against a system included in the TCI
New Jersey and New York Systems, in which the plaintiff alleges
inappropriate behavior by a former employee of such system. The plaintiff
further alleges that such system is liable for the acts of the former
employee under theories of negligent hiring, negligent retention and
negligent supervision and seeks $5 million in damages. Such system has
answered the complaint and is seeking discovery concerning plaintiff's
background. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition of this matter should not have a material adverse
effect upon the financial condition of the TCI New Jersey and New York
Systems.
On September 1, 1994, Intellectual Property Development Corporation filed
suit in Federal District Court in New York against a system included in
the TCI New Jersey and New York Systems for the alleged infringement of a
patent directed to the use of fiber optic cables in a cable television
distribution system. The patent expired in January of 1996. Discovery on
liability issues is substantially complete, while no discovery on damages
has been taken. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition of this matter should not have a material adverse
effect upon the financial condition of the TCI New Jersey and New York
Systems.
The TCI New Jersey and New York Systems lease business offices, have
entered into pole rental agreements and use certain equipment under lease
arrangements. Rental expense under such arrangements amounted to
$4,140,000, $3,432,000 and $3,360,000 in 1997, 1996 and 1995,
respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
thousands):
1998 $ 1,557
1999 1,587
2000 1,597
2001 1,464
2002 1,489
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other properties; thus it is
anticipated that future minimum lease commitments will not be less than
the amount shown for 1998.
(continued)
11
<PAGE>
TCI NEW JERSEY AND NEW YORK SYSTEMS
(Defined in note 1)
Notes to Combined Financial Statements
Management of the TCI New Jersey and New York Systems has not yet assessed
the cost associated with its year 2000 readiness efforts to ensure that
its computer systems and related software properly recognize the year 2000
and continue to process business information, and the related potential
impact on the TCI New Jersey and New York Systems' results of operations.
Amounts expended to date have not been material, although there can be no
assurance that costs ultimately required to be paid to ensure the TCI New
Jersey and New York Systems' year 2000 readiness will not have an adverse
effect on the TCI New Jersey and New York Systems' financial position.
Additionally, there can be no assurance that the systems of the TCI New
Jersey and New York Systems' suppliers will be converted in time or that
any such failure to convert by such third parties will not have an adverse
effect on the TCI New Jersey and New York Systems' financial position.
12
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets,
as defined in note 1)
Combined Financial Statements
(With Independent Auditors' Report Thereon)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
TKR Cable Company:
We have audited the accompanying combined balance sheets of the TKR New Jersey /
New York Systems (a combination of certain assets as defined in note 1) as of
December 31, 1997 and 1996, and the related combined statements of operations,
changes in combined equity (deficit), and cash flows for each of the years in
the three-year period ended December 31, 1997. These combined financial
statements are the responsibility of the TKR New Jersey / New York System's
management. Our responsibility is to express an opinion on these combined
financial statements 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the TKR New Jersey /
New York Systems as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the combined financial statements, effective January
1, 1997, Tele-Communications, Inc. acquired the remaining general partnership
interest of the partnership that owns the TKR New Jersey / New York Systems. The
business combination was accounted for as a purchase. As a result of the
acquisition, the combined financial information for the periods after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.
KPMG Peat Marwick LLP
April 23, 1998
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Balance Sheets
December 31, 1997 and 1996
TCI NJNY TKR NJNY
(note 1) (note 1)
-------- --------
1997 1996
-------- --------
Assets amounts in thousands
Cash $ 12,568 911
Trade and other receivables, net 9,963 10,486
Property and equipment, at cost:
Land 1,820 987
Distribution systems 309,375 414,930
Support equipment and buildings 21,070 34,795
-------- --------
332,265 450,712
Less accumulated depreciation 24,163 140,222
-------- --------
308,102 310,490
-------- --------
Franchise costs 437,035 253,522
Less accumulated amortization 10,054 31,423
-------- --------
426,981 222,099
-------- --------
Other assets, at cost, net of amortization 4,860 8,732
-------- --------
$762,474 552,718
======== ========
Liabilities and Combined Equity (Deficit)
Accounts payable and accrued expenses $ 14,624 30,178
Debt (note 5) 573,988 583,988
Deferred income taxes (note 7) 28,582 6,612
-------- --------
Total liabilities 617,194 620,778
-------- --------
Combined equity (deficit):
Retained earnings 25,206 264,470
Due to (from) affiliates, net (note 6) 120,074 (332,530)
-------- --------
Total combined equity (deficit) 145,280 (68,060)
-------- --------
Commitments and contingencies (note 8)
$762,474 552,718
======== ========
See accompanying notes to combined financial statements.
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Operations
Years ended December 31, 1997, 1996 and 1995
TCI NJNY TKR NJNY
(note 1) (note 1)
--------- ----------------------
1997 1996 1995
--------- --------- ---------
amounts in thousands
Revenue $ 214,928 185,974 135,719
Operating costs and expenses:
Operating (note 6) 74,032 69,861 49,419
Selling, general and administrative
(note 6) 40,852 27,431 20,687
Depreciation 24,601 29,382 21,585
Amortization 10,725 5,710 2,340
--------- --------- ---------
150,210 132,384 94,031
--------- --------- ---------
Operating income 64,718 53,590 41,688
Other income (expense):
Interest expense (38,820) (34,437) (22,072)
Other, net 452 297 784
--------- --------- ---------
(38,368) (34,140) (21,288)
--------- --------- ---------
Earnings before income tax benefit
(expense) 26,350 19,450 20,400
Income tax benefit (expense) (note 7) (1,144) (400) 334
--------- --------- ---------
Net earnings $ 25,206 19,050 20,734
========= ========= =========
See accompanying notes to combined financial statements.
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Equity (Deficit)
Years ended December 31, 1997, 1996 and 1995
Retained Due to (from)
Earnings affiliates Total
--------- --------- ---------
TKR NJNY (note 1) amounts in thousands
Balance at January 1, 1995 $ 233,010 (336,745) (103,735)
Net earnings 20,734 -- 20,734
Distributions (1,120) -- (1,120)
Change in due to (from)
affiliates, net -- (7,227) (7,227)
--------- --------- ---------
Balance at December 31, 1995 252,624 (343,972) (91,348)
Net earnings 19,050 -- 19,050
Distributions (7,204) -- (7,204)
Change in due to (from)
affiliates, net -- 11,442 11,442
--------- --------- ---------
Balance at December 31, 1996 $ 264,470 (332,530) (68,060)
========= ========= =========
- - --------------------------------------------------------------------------------
Retained Due to (from)
Earnings affiliates Total
-------- ---------- ---------
TCI NJNY (note 1) amounts in thousands
Initial Capitalization $ -- 133,401 133,401
Net earnings 25,206 -- 25,206
Change in due to (from)
affiliates, net -- (13,327) (13,327)
--------- --------- ---------
Balance at December 31, 1997 $ 25,206 120,074 145,280
========= ========= =========
See accompanying notes to combined financial statements.
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
TCI NJNY TKR NJNY
(note 1) (note 1)
--------- ----------------------
1997 1996 1995
--------- --------- ---------
amounts in thousands
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 25,206 19,050 20,734
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 35,326 35,092 23,925
Deferred income tax expense (benefit) 1,144 196 (480)
Changes in operating assets and
liabilities, net of the effect of
acquisitions:
Change in receivables 523 23 (1,276)
Change in other assets 383 (4,257) (1,550)
Change in accounts payable and
accrued expenses (15,554) 9,523 9,701
--------- --------- ---------
Net cash provided by operating
activities 47,028 59,627 51,054
--------- --------- ---------
Cash flows from investing activities:
Capital expended for property and equipment (11,884) (108,493) (90,822)
Cash paid for acquisitions -- (204,855) --
Other investing activities (160) (2,514) (135)
--------- --------- ---------
Net cash used in investing activities (12,044) (315,862) (90,957)
--------- --------- ---------
Cash flows from financing activities:
Borrowings of debt 130,000 291,500 278,000
Repayments of debt (140,000) (32,000) (237,512)
Change in amounts due to (from)
affiliates, net (13,327) 11,442 (7,227)
Distributions -- (4,945) (1,120)
Change in cash overdraft -- (8,851) 7,762
--------- --------- ---------
Net cash provided by (used in)
financing activities (23,327) 257,146 39,903
--------- --------- ---------
Net increase in cash 11,657 911 --
Cash at beginning of period 911 -- --
--------- --------- ---------
Cash at end of period $ 12,568 911 --
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
Basis of Presentation
The accompanying combined financial statements of the TKR New Jersey / New
York Systems include the accounts of the cable television systems in and
around Morris County, Elizabeth, Hamilton, Warren, Raritan and Parlin, New
Jersey, and Rockland County, Ramapo and Warwick, New York. These systems
are wholly-owned by TKR Cable Company, a general partnership, (together
with its consolidated subsidiaries, "TKR"). TKR owns the cable television
systems located in Ramapo and Warwick, New York through its two corporate
subsidiaries (the "Corporate Subsidiaries"), TKR Cable Company of Ramapo,
Inc. and TKR Cable Company of Warwick, Inc. The accounts of the Corporate
Subsidiaries and the KRC/CCC Investment Partnership ("KRC/CCC IP"), an
entity engaged in cable television advertising sales, are also included in
the accompanying combined financial statements of the TKR New Jersey / New
York Systems.
Prior to January 10, 1997, TKR and KRC/CCC IP were jointly owned and
managed by Country Cable Co. ("Country Cable") and Knight-Ridder
Cablevision, Inc. ("KRC"). Country Cable is an indirect wholly-owned
subsidiary of Liberty Cable, Inc., which is a wholly-owned subsidiary of
Tele-Communications, Inc. ("TCI"). Effective January 10, 1997, a
subsidiary of Country Cable purchased KRC's 50% general partnership
interests in TKR and KRC/CCC IP and certain other assets (the
"Acquisition"). As a result, Country Cable indirectly owns 100% of TKR and
KRC/CCC IP, including the TKR New Jersey / New York Systems. All
significant intercompany transactions have been eliminated in combination
in the accompanying combined financial statements.
In the following text, "TKR Parent" refers to TKR exclusive of the TKR New
Jersey / New York Systems and the Corporate Subsidiaries.
For financial reporting purposes, the Acquisition has been reported as if
the effective date of such Acquisition was January 1, 1997. In the
accompanying combined financial statements and in the following text, TKR
NJNY refers to the results of operations and financial position of the TKR
New Jersey / New York Systems prior to the Acquisition, and TCI NJNY
refers to the results of operations and financial position of the TKR New
Jersey / New York Systems subsequent to the Acquisition. The "TKR New
Jersey / New York Systems" or the "Company" refers to both TCI NJNY and
its predecessor entity, TKR NJNY.
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
As a result of the Acquisition, which was accounted for as a purchase, the
combined financial information for the period after the Acquisition is
presented on a different cost basis than that for the period before the
Acquisition and, therefore is not comparable. The combined financial
information for the period after the Acquisition date has been adjusted to
reflect the allocation of the Acquisition purchase price based on the
estimated fair values of the TKR New Jersey / New York Systems' net
assets. In connection with such allocation, the TKR New Jersey / New York
Systems' December 31, 1996 franchise costs, property and equipment and
deferred income taxes were increased by $215.1 million, $10.3 million and
$21.1 million, respectively, and other assets was decreased by $2.8
million. The offsetting effect of such adjustments was reflected as a
$201.5 million adjustment to combined equity.
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1997 and 1996 was not material.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1997, 1996 and 1995 interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 15 years for distribution systems and 3 to 40 years for
support equipment and buildings.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales or
other dispositions of property, the original cost and cost of removal of
such property are charged to accumulated depreciation, and salvage, if
any, is credited thereto. Gains or losses are only recognized in
connection with the sales of properties in their entirety.
Franchise Costs
Franchise costs include the difference between the cost of acquiring cable
television systems and amounts allocated to their tangible assets. Such
amounts are generally amortized on a straight-line basis over 40 years.
Costs incurred by the Company in negotiating and renewing franchise
agreements are amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Impairment of Long-Lived Assets
The TKR New Jersey / New York Systems periodically review the carrying
amounts of property, plant and equipment and their identifiable intangible
assets to determine whether current events or circumstances warrant
adjustments to such carrying amounts. If an impairment adjustment is
deemed necessary, such loss is measured by the amount that the carrying
amount of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly,
actual results could vary significantly from such estimates. Assets to be
disposed of are carried at the lower of their financial statement carrying
amount or fair value less costs to sell.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized in
the period that services are delivered. Installation revenue is recognized
in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over
the estimated average period that customers are expected to remain
connected to the cable television system.
Statement of Cash Flows
With the exception of the Acquisition and certain asset transfers,
transactions effected through the intercompany account due to (from)
affiliates have been considered constructive cash receipts and payments
for purposes of the statement of cash flows.
Estimates
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 at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
(2) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $44.3 million, $37.5 million and $24.2 million
for the years ended December 31, 1997, 1996 and 1995, respectively. Cash
paid for income taxes was not material for the years ended December 31,
1997, 1996 and 1995.
In 1996, the TKR New Jersey / New York Systems distributed certain assets
equally to Country Cable and KRC as follows (amounts in thousands):
Other assets $ 478
Investment in New Jersey
Fiber Technologies 1,781
------
$2,259
======
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
(3) Merger Transaction
On March 4, 1998, TCI's New York metropolitan area cable television
systems (the "Systems"), including the TKR New Jersey / New York Systems,
were contributed to Cablevision Systems Corporation ("CSC") in exchange
for approximately 24.5 million newly issued shares of CSC Class A common
stock (as adjusted for a stock dividend). Such shares represent an
approximate 33% equity interest in CSC's total outstanding common shares.
CSC also assumed $669 million of the Systems' debt, including all amounts
outstanding under the bank credit facility of the TKR New Jersey / New
York Systems and a portion of the intercompany amounts owed by the Systems
to TCIC and its affiliates.
(4) Acquisition
In February 1996, TKR NJNY consummated a transaction to acquire certain
cable television systems and franchise rights from Sammons Communications,
Inc. for approximately $204.9 million. TKR NJNY financed $204.6 million of
the purchase price through an existing credit facility. Such acquisition
was accounted for under the purchase method of accounting and the results
of operations of the acquired franchises have been included in the
combined statements of operations since the acquisition date.
On a pro forma basis, TKR NJNY's revenue would have been increased by $7.1
million and net earnings would have been decreased by $105,000 for the
year ended December 31, 1996; and revenue would have been increased by
$43.5 million and net earnings would have been decreased by $770,000 for
the year ended December 31, 1995 had the acquired systems been combined
with TKR NJNY on January 1, 1995.
(5) Debt
Debt consists of borrowings under an $800 million unsecured revolving
credit facility which is comprised of two sub facilities, a refinancing
facility in the amount of $500 million, and an acquisition facility in the
amount of $300 million. At December 31, 1997, borrowings under the
refinancing facility aggregated $355.5 million and borrowings under the
acquisition facility aggregated $218.5 million. The revolving credit
facility's maximum commitment will be gradually reduced in increasing
quarterly increments commencing December 31, 1998 in amounts ranging from
3.75% to 5.0% of the $800 million maximum commitment level through its
September 30, 2004 termination date. Borrowings under the revolving credit
facility bear interest at variable rates (6.8% at December 31, 1997).
The revolving credit facility requires an annual commitment fee, payable
quarterly in arrears, at a rate ranging from 0.25% to 0.375% with respect
to the refinancing facility and 0.125% with respect to the acquisition
facility until the date of the initial borrowing, and thereafter at the
refinancing facility's rate, as defined. The applicable commitment fee
rate is determined based upon the maintenance of certain debt to cash flow
ratios, as defined.
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The revolving credit facility contains restrictive covenants which
require, among other things, the maintenance of certain financial ratios
(primarily the ratios of cash flow to total debt and cash flow to debt
service, as defined), and includes certain limitations on indebtedness,
investments, guarantees and dispositions.
The Company believes that the fair value and the carrying value of the
Company's debt were approximately equal at December 31, 1997.
Annual maturities of debt for each of the next five years are as follows
(amounts in thousands):
1998 $ --
1999 13,988
2000 120,000
2001 120,000
2002 160,000
The TKR New Jersey / New York Systems were a party to an interest rate
exchange agreement under which it paid, quarterly, a fixed rate of 7.09%
on a notional principal amount of $100,000,000 in exchange for which the
TKR New Jersey / New York Systems received 90 day LIBOR payments on a like
amount. The interest rate exchange agreement expired in October 1997. For
the years ended December 31, 1997, 1996 and 1995, net payments pursuant to
the interest rate protection agreement were not material.
(6) Transactions with Related Parties
The amounts due to (from) affiliates consist of amounts due to TKR Parent
with respect to various intercompany advances, and expense allocations.
The amounts due to (from) affiliates, subsequent to the Acquisition,
include the push down of the Acquisition purchase price. Due to the fact
that TKR Parent and the TKR New Jersey / New York Systems are under common
control, the amounts due to (from) affiliates have been classified as a
component of combined equity (deficit) in the accompanying combined
financial statements. Such amounts are non-interest bearing and due on
demand.
Prior to the Acquisition, TKR Parent provided certain corporate general
and administrative services and was responsible for the TKR New Jersey /
New York Systems' operations and construction. Costs related to these
services were allocated to the TKR New Jersey / New York Systems on a
basis that was intended to approximate TKR Parent's proportionate cost of
providing such services. Subsequent to the Acquisition, certain
subsidiaries of TCI provide administrative services to the TKR New Jersey
/ New York Systems and have assumed managerial responsibility of the TKR
New Jersey / New York Systems' cable television system operations and
construction. As compensation for these services, the TKR New Jersey / New
York Systems pay a monthly fee calculated on a per-customer basis. The
allocated costs for such services were $6.8 million, $2.6 million and $2.5
million for the years ended December 31, 1997, 1996 and 1995,
respectively, and are included in selling, general and administrative
expenses. Although such allocations are not necessarily representative of
the costs that the TKR New Jersey / New York Systems would have incurred
on a stand-alone basis, management believes that the resulting allocated
amounts are reasonable.
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
The TKR New Jersey / New York Systems are a party to an agreement with TCI
whereby the TKR New Jersey / New York Systems purchase certain pay and
basic television programming from TCI at TCI's actual cost of such
services. Charges for such services aggregated $51.9 million, $32.4
million and $22.8 million for the years ended December 31, 1997, 1996 and
1995, respectively.
(7) Income Taxes
As a partnership, TKR is not a tax paying entity. Accordingly, no
provision for income taxes has been recorded in the accompanying combined
financial statements for the TKR New Jersey / New York Systems, except as
explained below with respect to the operations of the Corporate
Subsidiaries.
Income tax (expense) benefit of the Corporate Subsidiaries for the years
ended December 31, 1997, 1996 and 1995 consists of:
Current Deferred Total
------- -------- -------
amounts in thousands
Year ended December 31, 1997:
Federal $ -- (892) (892)
State and local -- (252) (252)
------- ------- -------
$ -- (1,144) (1,144)
======= ======= =======
--------------------------------------------------------------------
Year ended December 31, 1996:
Federal $ (158) (152) (310)
State and local (46) (44) (90)
------- ------- -------
$ (204) (196) (400)
======= ======= =======
Year ended December 31, 1995:
Federal $ (113) 372 259
State and local (33) 108 75
------- ------- -------
$ (146) 480 334
======= ======= =======
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Income tax benefit (expense) differs from the amounts computed by applying
the federal income tax rate of 35% for the years ended December 31, 1997,
1996 and 1995 as a result of the following:
1997 1996 1995
------- ------- -------
(amounts in thousands)
Computed "expected" provision
for income taxes $(9,222) (6,613) (6,936)
Income from partnerships
included in combined
income included in Partners'
income tax returns 8,318 7,086 6,878
State income taxes, net of
Federal income tax benefit (164) (60) 50
Amortization of franchise costs
not deductible (69) (57) (57)
Other, net (7) (756) 399
------- ------- -------
$(1,144) (400) 334
======= ======= =======
The tax effects of temporary differences that give arise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are presented below:
1997 1996
-------- --------
(amounts in thousands)
Deferred tax assets:
Net operating loss carryforwards $ 2,112 3,418
Less-valuation allowance (1,550) --
Investment tax credit carryforwards 206 341
Alternative minimum tax credit
carryforwards -- 666
Other 22 --
-------- --------
Total gross deferred tax assets 790 4,425
-------- --------
Deferred tax liabilities:
Property and equipment, principally due
to differences in depreciation (5,639) (7,260)
Franchise costs, principally due to
differences in amortization (23,733) (3,277)
Other -- (500)
-------- --------
Total gross deferred tax liabilities (29,372) (11,037)
-------- --------
Net deferred tax liability $(28,582) (6,612)
======== ========
The valuation allowance for deferred tax assets was $1,827,000 as of
January 1, 1997. The valuation allowance was reduced $277,000 resulting
from the initial recognition of acquired tax benefits that were allocated
to reduce franchise costs recorded in connection with Acquisition.
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
At December 31, 1997, the Corporate Subsidiaries had approximately $5.2
million available in net operating loss carryforwards and approximately
$206,000 in investment tax credit carryforwards for income tax purposes.
Such carryforwards expire at various dates through the year 2011.
(8) Commitments and Contingencies
The TKR New Jersey / New York Systems lease business offices, have entered
into pole rental agreements and use certain equipment under lease
arrangements. Rental expense for such arrangements amounted to $3.5
million, $2.1 million and $1.8 million during the years ended December 31,
1997, 1996 and 1995, respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
thousands):
Years ending
December 31,
------------
1998 $ 1,822
1999 1,431
2000 1,207
2001 966
2002 785
It is expected that in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than
the amount shown for 1998.
As a result of the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act"), all of the TKR New Jersey / New York
Systems' cable television systems are subject to regulation by the Board
of Public Utilities (the "BPU") in New Jersey or the New York State
Commission on Cable Television (or the local franchising authority if it
opted out of the state regulatory scheme) in New York and/or the Federal
Communications Commission (the "FCC"). Regulations imposed by the 1992
Cable Act, among other things, allow regulators to limit and reduce the
rates that cable operators can charge for certain cable television
services and equipment rental charges. The BPU has issued orders affecting
some TKR New Jersey / New York Systems cable television systems in New
Jersey finding that the rates charged for basic cable television service
and certain equipment exceeded the allowable rates under the rules of the
FCC. These orders are on appeal at the FCC for substantive, as well as
procedural, reasons. Management of the TKR New Jersey / New York Systems
believes that the ultimate resolution of these issues will not have a
material adverse effect on the financial statements of the TKR New Jersey
/ New York Systems.
Certain claims and lawsuits have been filed against the TKR New Jersey /
New York Systems. Although it is reasonably possible that the TKR New
Jersey / New York systems may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. The TKR
New Jersey / New York Systems believe these claims will not have a
material adverse effect on their financial statements.
(continued)
<PAGE>
TKR NEW JERSEY / NEW YORK SYSTEMS
(A combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
Management of the TKR New Jersey / New York Systems has not yet assessed
the cost associated with its year 2000 readiness efforts to ensure that
its computer systems and related software properly recognize the year 2000
and continue to process business information, and the related potential
impact on the TKR New Jersey / New York Systems' results of operations.
Amounts expended to date have not been material, although there can be no
assurance that costs ultimately required to be paid to ensure the TKR New
Jersey / New York Systems' year 2000 readiness will not have an adverse
effect on the TKR New Jersey / New York Systems' financial position.
Additionally, there can be no assurance that the systems of the TKR New
Jersey / New York Systems' suppliers will be converted in time or that any
such failure to convert by such third parties will not have an adverse
effect on the TKR New Jersey / New York Systems' financial position.
<PAGE>
Cablevision Systems Corporation and Subsidiaries
Unaudited Condensed Pro Forma Consolidated Balance Sheet
December 31, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
TKR TCI Pro Forma
ASSETS Historical NJ/NY(1)* NJ/NY(1)* Adjustments* Pro Forma
----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 410,141 $ 12,568 $ 738 $ 423,447
Accounts receivable - trade, net 214,721 9,963 8,719 233,403
Notes and other receivables 98,756 98,756
Prepaid expenses and other assets 55,324 4,860 1,985 62,169
Property, plant and equipment, net 1,831,167 308,102 151,246 2,290,515
Investments in affiliates 218,079 218,079
Advances to affiliates 19,823 19,823
Feature film inventory 180,576 180,576
Net assets held for sale 252,610 252,610
Intangible assets, net 2,252,889 426,981 447,534 $ (170,583)(2) 2,956,821
Deferred financing, acquisition
and other costs, net 91,005 91,005
----------- ----------- ----------- ---------- -----------
5,625,091 762,474 610,222 (170,583) 6,827,204
=========== =========== =========== ========== ===========
LIABILITIES & STOCKHOLDER'S DEFICIENCY
Accounts payable and accrued liabilities 775,518 14,624 8,914 799,056
Accounts payable to affiliates 7,978 7,978
Deferred income taxes -- 28,582 179,469 (208,051)(3) --
Deferred revenue 277,693 277,693
Feature film and contract obligations 292,720 292,720
Bank Debt 2,240,358 573,988 95,012(4) 2,909,358
Senior debt 112,500 112,500
Senior notes and debentures 898,024 898,024
Subordinated debentures 1,048,245 1,048,245
Subordinated notes payable 151,000 151,000
Obligaton to related party 197,183 197,183
Capital lease obligations and other debt 46,752 46,752
----------- ----------- ----------- ---------- -----------
6,047,971 617,194 188,383 (113,039) 6,740,509
----------- ----------- ----------- ---------- -----------
Minority interests 821,782 821,782
----------- -----------
Deficit investment in affiliates 10,303 10,303
----------- -----------
Redeemable Preferred Stock 1,123,808 1,123,808
----------- -----------
Stockholders' deficiency:
Preferred Stock 15 15
Common Stock 502 245(5) 747
Paid-in Capital 171,901 145,280 421,839 (57,789)(5) 681,231
Accumulated deficit (2,551,191) (2,551,191)
----------- ----------- ----------- ---------- -----------
(2,378,773) 145,280 421,839 (57,544) (1,869,198)
----------- ----------- ----------- ---------- -----------
$ 5,625,091 $ 762,474 $ 610,222 $ (170,583) $ 6,827,204
=========== =========== =========== ========== ===========
</TABLE>
- - ----------
* See Note A of Notes to Unaudited Condensed Pro Forma Consolidated Financial
Statements.
<PAGE>
Cablevision Systems Corporation and Subsidiaries
Unaudited Condensed Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
TKR TCI Pro Forma
Historical NJ/NY(6)* NJ/NY(6)* Adjustments* Pro Forma
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,949,358 $ 214,928 $ 213,206 $ (18,159)(7) $ 2,359,333
----------- ----------- ----------- ----------- ----------
Operating expenses:
Operating, selling, general and administrative 1,368,374 114,884 115,890 (18,159)(7) 1,580,989
Depreciation and amortization 499,809 35,326 40,510 63,471(8) 639,116
----------- ----------- ----------- ----------- ----------
1,868,183 150,210 156,400 45,312 2,220,105
----------- ----------- ----------- ----------- ----------
Operating profit 81,175 64,718 56,806 (63,471) 139,228
Other income (expense):
Interest expense (368,700) (38,820) (105) (11,785)(9) (419,410)
Interest income 5,492 100 5,592
Share of affiliates' net loss (27,165) (27,165)
Gain on sale of programming and affiliate interests, net 372,053 372,053
Gain on redemption of subsidiary preferred stock 181,738 181,738
Write off of deferred interest and financing costs (24,547) (24,547)
Provision for preferential payment to related party (10,083) (10,083)
Minority interest (60,694) (125) 125(10) (60,694)
Miscellaneous, net (12,606) 452 (319) (12,473)
----------- ----------- ----------- ----------- ----------
Net income (loss) before income taxes 136,663 26,350 56,357 (75,131) 144,239
Income tax expense -- (1,144) (19,017) 20,161(11) --
----------- ----------- ----------- ----------- ----------
Net income (loss) 136,663 25,206 37,340 (54,970) 144,239
Dividend requirements applicable to preferred stock (148,767) -- -- -- (148,767)
----------- ----------- ----------- ----------- ----------
Net income (loss) applicable to common shareholders $ (12,104) $ 25,206 $ 37,340 $ (54,970) $ (4,528)
=========== =========== =========== =========== ==========
Basic net loss per common share $ (0.24) $ (0.06)
=========== ===========
Average number common shares outstanding
(in thousands) 49,804 24,472(12) 74,276
=========== =========== ===========
</TABLE>
* See Note B of Notes to Unaudited Condensed Pro Forma Consolidated Financial
Statements.
<PAGE>
Note A--Notes to Unaudited Condensed Pro Forma Consolidated Balance Sheet as of
December 31, 1997
(1) Represents the combined balance sheet of the TKR New Jersey/New York
Systems and that of the TCI New Jersey and New York Systems, respectively,
at December 31, 1997.
(2) Represents the excess of the purchase price over the estimated fair
value of net liabilities assumed at December 31, 1997 of approximately
$703,932,000 and the elimination of the predecessors' net intangible
assets of approximately $874,515,000. This adjustment does not give
effect to the Net Adjusted Working Capital adjustment to be calculated
within 90 days of the closing of the Contribution. The Company is
currently in the process of identifying and evaluating liabilities that
are required to be taken into account in determining the Net Adjusted
Working Capital adjustment. Pursuant to the purchase agreement, the
amount of any such liabilities is to be offset by a corresponding
reduction in the purchase price. Since allocations to identifiable
intangible assets cannot be estimated with any degree of certainty
prior to obtaining independent appraisals, the excess of the purchase
price over the book value of net assets acquired will be allocated to
specific assets or liabilities acquired when independent appraisals are
completed. In recent acquisitions of cable television systems, excess
costs have principally been allocated to franchises and goodwill.
(3) Represents the elimination of assets and liabilities not acquired pursuant
to the Contribution and Merger Agreement.
(4) Represents the net additional debt assumed pursuant to the Contribution
and the Merger Agreement.
(5) Represents the issuance of 24,471,086 shares of common stock valued at
approximately $497,987,000 (based on the average stock price of
Cablevision's Class A Common Stock of $40.70) plus acquisition costs and
the elimination of the predecessors' equity.
Note B--Notes to Unaudited Condensed Pro Forma Consolidated Statement of
Operations for the Year Ended December 31, 1997
(6) Represents the combined statement of operations of the TKR New Jersey/New
York Systems and that of the TCI New Jersey and New York Systems,
respectively for the year ended December 31, 1997.
(7) Represents the elimination of intercompany revenues and expenses.
(8) Represents the amortization, based on an assumed average 8-year life, of
the excess costs over the net liabilities assumed of approximately
$87,991,000 and elimination of amortization of intangibles of
approximately $24,520,000 relating to the predecessors' intangible assets.
If, after completion of the appraisal, the weighted average life of the
intangible assets were determined to be 5 years, amortization expense
would increase by $52,795,000, or, if it were determined to average 15
years, such expense would decrease by $41,062,000.
(9) Represents interest expense on $669,000,000 of the Assumed Debt assumed
pursuant to the Contribution and Merger Agreement and the elimination of
the predecessors' interest expense.
(10) Represents the elimination of the minority interest in the net income of
the systems.
(11) Represents the elimination of income tax expense assuming Cablevision
Systems Corporation had filed consolidated tax returns and the net income
of the Contributed Businesses would be offset by net losses of Cablevision
Systems Corporation.
(12) Represents the issuance of 24,471,086 shares of Cablevision Systems
Corporation Class A Common Stock.
