SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 [FEE REQUIRED]
- --------- For the fiscal year ended December 31, 1996
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 Number: 1-9046
Cablevision Systems Corporation
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(Exact name of registrant as specified in its charter)
Delaware 11-2776686
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Media Crossways, Woodbury, New York 11797
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 364-8450
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Class A Common Stock
Name of each exchange on which registered: American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. 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 Registrant's 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 the registrant
based on the closing price at which such stock was sold on the American Stock
Exchange on March 18, 1997: $419,287,050.
Number of shares of common stock outstanding as of March 18, 1997:
Class A Common Stock - 13,587,151
Class B Common Stock - 11,251,234
Documents incorporated by reference - The Company 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 on Form 8 to this
report containing the information required to be disclosed under Part III of
Form 10-K.
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TABLE OF CONTENTS
Page
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Part I
Item 1. Business. 3
2. Properties. 27
3. Legal Proceedings. 27
4. Submission of Matters to a Vote of
Security Holders. 27
Part II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters. 28
6. Selected Financial Data. 30
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 32
8. Consolidated Financial Statements. 45
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 82
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. 82
* 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 on Form 8 to this report containing the information
required to be disclosed under Part III of Form 10-K.
(2)
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PART I
Item 1. Business
The Company
Cablevision Systems Corporation, a Delaware corporation and its majority owned
subsidiaries (the "Company") own and operate cable television systems in sixteen
states with approximately 2,445,000 subscribers at December 31, 1996. The
Company also has ownership interests in and/or manages other cable television
systems which served an aggregate of approximately 381,000 subscribers at
December 31, 1996. Through Rainbow Media Holdings, Inc. (successor to Rainbow
Programming Holdings, Inc.), a company owned 75% by the Company and 25% by NBC
Cable Holdings, Inc. ("NBC Cable") a subsidiary of National Broadcasting
Company, Inc. ("NBC") and its majority owned subsidiaries ("Rainbow Media" or
"Rainbow Programming"), the Company owns interests in and manages four
nationally distributed 24 hour entertainment pay television networks, eight
regional sports networks (one of which is not managed by Rainbow Media), two
national sports networks, and four regional news networks. Rainbow Media also
owns and operates Rainbow Advertising Sales Corporation, a cable advertising
sales organization. In addition, Rainbow Media currently co-manages and has a
50% ownership interest in Madison Square Garden, L.P. ("MSG"), a sports
entertainment company which owns and operates the Madison Square Garden Network,
two New York based professional sports teams, the Madison Square Garden Arena
and the adjoining Theater at MSG. The Company was formed in 1985 to effect a
reorganization of its predecessors.
Cable
Cable television is a service that delivers multiple channels of television
programming to subscribers who pay a monthly fee for the services they receive.
Television and radio signals are received over-the-air or via satellite delivery
by antennas, microwave relay stations and satellite earth stations and are
modulated, amplified and distributed over a network of coaxial and fiber optic
cable to the subscribers' television sets. Cable television systems typically
are constructed and operated pursuant to non-exclusive franchises awarded by
local governmental authorities for specified periods of time.
The Company's cable television systems offer varying levels of service which may
include, among other programming, local broadcast network affiliates and
independent television stations, satellite-delivered "superstations" such as
WTBS (Atlanta), certain other news, information and entertainment channels such
as CNN, CNBC, ESPN, MTV, and certain premium services such as HBO, Showtime, The
Movie Channel and Cinemax.
The Company's cable television revenues are derived principally from monthly
fees paid by subscribers. In addition to recurring subscriber revenues, the
Company derives revenues from installation charges, from the sales of
pay-per-view movies and events, and from the sale of advertising time on
advertiser supported programming. Certain services and equipment provided by
substantially all of the Company's cable television systems are subject to
regulation. See "Business - Cable Television Operations - Regulation - 1992
Cable Act."
(3)
<PAGE>
The Company's consolidated cable television systems are concentrated in the New
York City greater metropolitan area (69.1% of the Company's total subscribers)
and the greater Cleveland metropolitan area (12.6% of total subscribers). The
Company believes that its cable systems on Long Island comprise the largest
group of contiguous cable television systems under common ownership in the
United States (measured by number of subscribers).
Programming
Rainbow Media develops and provides nationally distributed programming networks
that each serve a defined niche of the pay television viewing audience. Rainbow
Media's owned and operated national networks are American Movie Classics
("AMCC"), Bravo, The Independent Film Channel and Much Music.
Rainbow Media produces and distributes regional and local programming. Under the
SportsChannel brand name, the Company owns interests in and operates regional
sports networks in New York, Chicago, New England, San Francisco, Cleveland,
Cincinnati, Florida and Philadelphia. These services have obtained rights to
distribute the games of various professional baseball, hockey and/or basketball
games as well as local collegiate and high school events in their respective
regions. In addition, the Company produces and distributes four regional news
networks serving the surburban areas surrounding New York City.
Rainbow Media owns a 50% interest in, and together with ITT jointly manages,
MSG, which owns the Madison Square Garden Network, the New York Knickerbockers,
the New York Rangers, the Madison Square Garden Arena and the Theater at MSG
(formerly known as the Paramount Theater).
Rainbow Media also owns and operates Rainbow Advertising Sales Corporation
("Rainbow Advertising"), a cable advertising sales organization, that serves as
a national spot cable sales representative, the national and regional sales
representative for various regional sports networks and the regional cable
advertising representative for cable systems in the Cleveland and New York
metropolitan areas.
Financing Structure
For financing purposes, the Company is structured as a restricted group and an
unrestricted group of subsidiaries.
The restricted group consists of Cablevision Systems Corporation and certain of
its subsidiaries, including Cablevision of New York City ("CNYC"), a subsidiary
holding the cable television assets previously a part of Cablevision of Boston
Limited Partnership ("Cablevision of Boston"), Cablevision of Newark as of
September 27, 1996, and Cablevision MFR, Inc. ("Cablevision MFR") as of November
20, 1996 (collectively, the "Restricted Group").
The unrestricted group of subsidiaries consists primarily of Cablevision of Ohio
as of April 17, 1996 (consisting of Telerama, Inc., Cablevision of the Midwest,
Inc., and Cablevision of Cleveland L.P.), U.S. Cable Television Group, L.P.
("U.S. Cable") as of August 13, 1996, CSC Technology, Inc. and Rainbow Media. In
addition, the Company has an unrestricted
(4)
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group of investments, consisting of investments in A-R Cable Services, Inc.
("A-R Cable"), Cablevision of Framingham Holdings, Inc. ("CFHI"), and A-R Cable
Partners.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for a discussion of the financing
of the Company including a discussion of restrictions on investments by the
Restricted Group.
Recent Developments
On March 6, 1997, two wholly-owned subsidiaries of Rainbow Media entered into an
agreement in principle (the "March 1997 Letter") with ITT Corporation ("ITT") to
acquire a majority stake in the equity of MSG.
As discussed below, on February 18, 1997, Rainbow Media, on behalf of two of its
wholly-owned subsidiaries, Rainbow Garden Corporation and Garden LP Holding
Corp., made a payment of $168.75 million (plus accrued interest) to ITT,
increasing its partnership interest in MSG from approximately 26.6% to 50% and
thus equalizing its interest in MSG.
Under the March 1997 Letter, Rainbow Media would increase its equity
interest in MSG from 50% to 88.5%. ITT would receive $500 million and maintain
an 11.5% equity interest in MSG, with the right to require the Company to
purchase ITT's remaining 11.5% equity interest in MSG for an aggregate of $150
million in the two years following the closing. The Company can satisfy the put
in cash or the Company's Class A Common Stock. In three years, the Company also
would have the right to purchase ITT's remaining equity interest in MSG if
ITT chooses not to exercise its "put" option.
The Company has received a commitment letter from the Chase Manhattan Bank and
Chase Securities Inc., for the provision to MSG of an $850 million stand alone
senior secured credit facility. The facility would consist of a $650 million,
seven and one-half year term loan and a $200 million revolving credit facility.
The proceeds of the term loan would be used to redeem 77% of ITT's remaining 50%
interest in MSG, as described above, and to refinance MSG's existing
indebtedness. The proceeds of the revolving facility would be used to finance a
portion of the above described transaction, and to finance MSG's working capital
requirements and general corporate needs. The commitment letter is subject to a
number of conditions precedent, including the execution of definitive loan
documentation.
The transactions contemplated by the March 1997 Letter would close upon
satisfaction of the conditions thereto, including the execution of a definitive
acquisition agreement, the approval of the National Basketball Association and
the National Hockey League and other customary conditions.
(5)
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On April 1, 1997, Rainbow Media consummated a transaction (the "NBC"
Transaction") in which Rainbow Programming Holdings, Inc. merged with and into
Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC
received a 25% equity interest (which interest may be increased up to 27% under
certain circumstances) in non-voting Class C common stock of Rainbow Media. The
Company owns the remaining 75% equity interest in Rainbow Media. The partnership
interests in certain of Rainbow Media's programming services formerly owned by
NBC are now owned by subsidiaries of Rainbow Media.
On August 13, 1996, the Company acquired the partnership interests in U.S. Cable
that it did not already own for approximately $4 million and repaid the debt
owed to GECC of approximately $154 million with proceeds from a new $175 million
U.S. Cable credit facility.
During 1996, Rainbow Media invested approximately $5.8 million 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. In the first quarter
of 1997, Rainbow Media invested an additional $3.7 million in the joint venture.
In May 1996, the Company entered into an agreement (the "Warburg Agreement")
with Warburg, Pincus Investors, L.P. ("Warburg") to acquire from Warburg
interests that the Company does not already own in A-R Cable Services, Inc.
("A-R Cable"), A-R Cable Partners, Cablevision of Newark and Cablevision of
Framingham Holdings, Inc. for $183 million subject to certain adjustments and
regulatory approval. On September 27, 1996, the Company acquired from Warburg
the equity interests that Warburg owned in Cablevision of Newark for
approximately $37 million, giving the Company full ownership of Cablevision of
Newark. In connection with the acquisition of the remaining Warburg Companies,
the Company agreed to assume the outstanding debt of the respective entities
(approximately $470 million as of December 31, 1996). These systems served
approximately 381,000 subscribers as of December 31, 1996. On February 3, 1997,
the Company made a non-refundable deposit of $30 million in partial payment of
the purchase price under the Warburg Agreement. The transaction is expected
to close in July 1997.
On August 23, 1996, the Company entered into an agreement with Northcoast
Operating Co., Inc. ("Northcoast") and certain of its affiliates, to form a
limited liability company (the "LLC") to participate in the auctions conducted
by the Federal Communications Commission ("FCC") for certain licenses to conduct
a personal communications service ("PCS") business. The Company has contributed
an aggregate of approximately $31 million 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. Northcoast is a Delaware corporation
controlled by John Dolan. John Dolan is a nephew of Charles F. Dolan and a
cousin of James Dolan.
(6)
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Cable Television Operations
General.
As of December 31, 1996, the Company's consolidated cable television systems
served approximately 2,445,000 subscribers in sixteen states, primarily in the
metropolitan areas of New York, Ohio, Connecticut, New Jersey, Michigan, and
Massachusetts.
The following table sets forth certain statistical data regarding the Company's
cable television operations (1). During 1996, Cablevision of Newark and U.S.
Cable, formerly unconsolidated affiliates, became part of the Restricted and
Unrestricted Groups, respectively. North Coast Cable was transferred to the
Unrestricted Group in exchange for V Cable's Long Island cable television
system. Cable television systems in Lynbrook and Portchester, N.Y., formerly
unconsolidated affiliates, became part of the Restricted Group in exchange for a
cable television system located in Haverhill, MA. formerly owned by the
Restricted Group. During 1995 Cablevision of Boston, formerly an unconsolidated
affiliate, became part of the Restricted Group and Cablevision of Chicago was
sold. During 1994 CNYC and North Coast Cable became part of the Restricted
Group.
As of December 31,
----------------------------
1996 1995 1994
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Homes passed (2):
Restricted group 2,982,000 2,796,000 2,370,000
Unrestricted group 876,000 532,000 529,000
--------- --------- ---------
Company consolidated 3,858,000 3,328,000 2,899,000
========= ========= =========
Managed unconsolidated cable 539,000 988,000 1,427,000
affiliates ========= ========= =========
Basic service subscribers:
Restricted group 1,888,000 1,756,000 1,477,000
Unrestricted group 557,000 305,000 291,000
--------- --------- ---------
Company consolidated 2,445,000 2,061,000 1,768,000
========= ========= =========
Managed unconsolidated cable 381,000 662,000 861,000
affiliates ========= ========= =========
Average number of premium units per basic subscriber:
Restricted group 1.7 2.0 1.9
Unrestricted group 1.3 1.3 1.1
Company consolidated 1.6 1.9 1.8
Managed unconsolidated cable
affiliates 0.9 1.1 1.2
Average revenue per basic subscriber (3):
Restricted group $38.84 $38.08 $37.48
Unrestricted group $29.54 $31.43 $30.52
Company consolidated $36.71 $37.07 $36.33
Managed unconsolidated cable $29.89 $28.68 $29.71
affiliates
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(1) No information is provided in this table for any period in which an entity
was not a consolidated subsidiary of the Company.
(2) 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.
(3) 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
"Business - Cable Television Operations - Subscriber Rates and Services;
Marketing and Sales."
(7)
<PAGE>
Subscriber Rates and Services; Marketing and Sales.
The Company's cable television systems offer a package of services, generally
marketed as "Family Cable", which includes, among other programming, broadcast
network local affiliates and independent television stations,
satellite-delivered "superstations" and certain other news, information and
entertainment channels such as CNN, CNBC, ESPN and MTV. For additional charges,
the Company's cable television systems provide certain premium services such as
HBO, Showtime, The Movie Channel 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 public leased access channels.
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,
most 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.
In certain areas with sufficient system capacity, the Company has branded a new
product offering called OptimumTV. OptimumTV, which includes a minimum of 77
analog channels, offers the basic and Family packages noted above, as well as
premium services, and a group of three new packages containing premium networks
and ad-supported news, information and entertainment channels. Depending upon
the market, OptimumTV offers customers anywhere from 20 to 30 new cable
channels, including additional pay-per-view channels that offer new films and
sporting events on a transactional basis.
Since its existing cable television systems are substantially fully built, the
Company's sales efforts are primarily directed toward increasing penetration and
revenues in its franchise areas. The Company sells its cable television services
through door-to-door selling supported by telemarketing, direct mail
advertising, promotional campaigns and local media and newspaper advertising.
Certain services and equipment (converters which are leased to subscribers)
provided by substantially all of the Company's cable television systems are
subject to regulation. See "Business - 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 35 channels and 86% of its
(8)
<PAGE>
subscribers are currently served by systems having a capacity of at least 52
channels. As a result of currently ongoing upgrades, the Company expects that by
December 1997 approximately 79% (85% excluding U.S. Cable) of its subscribers
will be served by systems having a capacity of at least 77 channels. A
substantial portion of the system upgrades either completed or underway will
utilize fiber optic cable.
Programming.
Adequate programming is available to the Company from a variety of sources.
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 of the Company and certain of its affiliates, or on the number of
subscribers subscribing to the particular service. The Company's programming
contracts are generally for a fixed period of time and are subject to negotiated
renewal. The Company's 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 Company will
continue to have access to programming services at reasonable price levels.
Franchises.
The Company's cable television 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. In 1996 franchise fee payments made by the Company
aggregated approximately 4% of total revenues.
The Company's franchise agreements are generally for a term of ten to fifteen
years from the date of grant, although recently renewals have often been for
five to ten year terms. Some of the franchises grant the Company an option to
renew. Except for the Company's franchises for the Town of Brookhaven, New York
which expired in 1991, the town of Islip which expired in 1994 and the City of
Norwalk which expired in 1996, the expiration dates for the Company's ten
largest franchises range from 1997 to 2001. In certain cases, including the Town
of Brookhaven, the Company is operating under temporary licenses while
negotiating renewal terms with the franchising authorities. Franchises usually
require the consent of the franchising authority prior to the sale, assignment,
transfer or change in ownership or operating control of the franchisee.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") provide significant procedural protections for cable operators seeking
renewal of their franchises. See "Business - Cable Television Operations -
Regulation". In connection with a renewal, a franchising authority may impose
different and more stringent terms. The Company has never lost a franchise as a
result of a failure to obtain a renewal.
(9)
<PAGE>
Competition.
The Company's cable television systems generally compete with the direct
reception of broadcast television signals by antenna and with other methods of
delivering television signals to the home for a fee. The extent of such
competition depends upon the number and quality of the signals available by
direct antenna reception as compared to the number and quality of signals
distributed by the cable system. The Company's cable television systems also
compete to varying degrees with other communications and entertainment media,
including movies, theater and other entertainment activities.
The Telecommunications Act of 1996 ("1996 Telecom Act") repealed the 1984 Act
prohibition against telco-cable cross-ownership and provides that a local
exchange telephone company may provide video programming directly to subscribers
through a variety of means, including (1) as a radio-based (MMDS or DBS)
multichannel video programming distributor; (2) as a cable operator, fully
subject to the franchising, rate regulation and other provisions of the 1984 and
1992 Cable Acts; and (3) through an "open video system" that is certified by the
FCC to be offering nondiscriminatory access to a portion of its channel capacity
for unaffiliated program distributors, subject only to selected portions of the
regulations applicable to cable operators. Non-telephone companies may also
become "open video systems" and provide video competition to cable systems
without obtaining a franchise. A local telephone company also may provide the
"transmission of video programming" on a common carrier basis. As noted below,
telephone companies in several of the Company's franchise areas have applied for
franchises to offer cable service fully subject to the 1984 and 1992 Cable Acts.
Several companies have sought to become "open video systems" in areas in which
the company operates cable systems in Boston, New York City and Westchester
County, New York.
The 1996 Telecom Act also prohibits a telephone company or a cable system
operator in the same market from acquiring each other, except in limited
circumstances, such as areas of smaller population.
Cable television also competes with the home video industry. Owners of
videocassette recorders are able to rent many of the same movies, special events
and music videos that are available on certain premium services. The
availability of videocassettes has affected the degree to which the Company is
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 Company's cable television
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
(10)
<PAGE>
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 Company competes
with MDS and MMDS operators generally in its metropolitan service areas.
Satellite master antenna systems ("SMATV") generally serve large multiple
dwelling units. The FCC has preempted all state and local regulation of SMATV
operations. SMATV is limited to the buildings within which the operator has
received permission from the building owner to provide service. The FCC has
recently streamlined its MDS regulations and opened substantially more microwave
channels to MDS and SMATV operators, which could increase the strength of their
competition with cable television systems. The Company competes with SMATV
operators primarily in the New York City metropolitan service 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 proposed establishing 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 proposed using auctions to select licensees. Suite 12 Group, the
originator of this service, currently holds an experimental license and has
constructed a video transmission service using the 28 Ghz band in a portion of
the Company's New York City service area. The FCC has proposed barring both
telephone and cable companies from bidding for LMDS frequencies in their own
service areas.
The 1984 Cable Act specifically legalized, under certain circumstances,
reception by private home earth stations of satellite-delivered cable
programming services. By law, dish owners have the right to receive broadcast
superstations and network affiliate transmissions in return for a compulsory
copyright fee. Cable programmers have developed new marketing efforts to reach
these viewers. Direct broadcast satellite ("DBS") systems permit satellite
transmissions from the low-power C-Band to be received by antennae approximately
60 to 72 inches in diameter at the viewer's home. Higher power DBS systems
providing transmissions over the Ku-Band permit the use of smaller receiver
antennae and thus are more appealing to customers. Four DBS systems are now
operational in the United States, some with investment by companies with
substantial resources such as Hughes Electronics Corp., AT&T Corp., News
Corporation and MCI. Both C-Band and Ku-Band DBS delivery of television signals
are competitive alternatives to cable television.
Other technologies supply services that may compete with certain services
provided by cable television. These technologies include translator stations
(which rebroadcast signals at different frequencies at lower power to improve
reception) and low-power television stations (which operate on a single channel
at power levels substantially below those of most conventional broadcasters and,
therefore, reach a smaller service area).
(11)
<PAGE>
The full extent to which developing media will compete with cable television
systems may not be known for several years. There can be no assurance that
existing, proposed or as yet undeveloped technologies will not become dominant
in the future and render cable television systems less profitable or even
obsolete.
Although substantially all the Company's cable television franchises 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 Company operates or a municipality could build a competing cable
system. SNET, the dominant telephone company in Connecticut has obtained a
statewide franchise to build and operate a competing cable television system in
the communities in Connecticut in which the Company currently holds a cable
franchise. Ameritech has applied for franchises to offer cable service in
certain of the Company's franchise areas in the Midwest. 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.
Regulation.
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 Company's systems. The 1992 Cable Act reintroduced rate regulation
for certain services and equipment provided by most cable systems in the United
States, including substantially all of the Company's systems. While several
(12)
<PAGE>
of the provisions of the 1992 Cable Act have been amended or superseded by the
1996 Telecom Act, other provisions remain in place.
The 1992 Cable Act requires each cable system to establish a basic service
package consisting, at a minimum, of all local broadcast signals and all
non-satellite delivered distant broadcast signals that the cable system wishes
to carry, and all public, educational and governmental access programming. The
rates for the basic service package are subject to regulation by local
franchising authorities. Under the FCC's 1993 rate regulation rules, a cable
operator whose per channel rates as of September 30, 1992 exceeded an FCC
established benchmark was required to reduce its per channel rates for the basic
service package by up to 10% unless it could justify higher rates on the basis
of its costs. In 1994, after reconsideration, the FCC ordered a further
reduction of 7% in rates for the basic service tier in effect on September 30,
1992, for an overall reduction of 17% from those rates. Franchise authorities
(local municipalities or state cable television regulators) are also empowered
to regulate the rates charged for the installation and lease of the equipment
used by subscribers to receive the basic service package (including a converter
box, a remote control unit and, if requested by a subscriber, an addressable
converter box or other equipment required to access programming offered on a per
channel or per program basis), including equipment that may also be used to
receive other packages of programming, and the installation and monthly use of
connections for additional television sets. The FCC's rules require franchise
authorities to regulate rates for equipment and connections for additional
television sets on the basis of an actual cost formula developed by the FCC,
plus a return of 11.25%. No additional charge is permitted for the delivery of
regulated services to additional sets unless the operator incurs additional
programming costs in connection with the delivery of such services to multiple
sets.
The FCC may, in response to complaints by a subscriber, municipality or other
governmental entity, reduce the rates for service packages other than the basic
service package if it finds that such rates are unreasonable. The FCC will in
response to complaints also regulate, on the basis of actual cost, the rates for
equipment used only to receive these higher packages. Services offered on a per
channel or per program basis or packages comprised only of services that are
also available on a per channel or per program basis are not subject to rate
regulation by either municipalities or the FCC.
The FCC's rules provide that, unless a cable operator can justify higher rates
on the basis of its costs, increases in the rates charged by the operator for
the basic service package or any other regulated package of service may not
exceed an inflation indexed amount, plus increases in certain costs beyond the
cable operator's control, such as taxes, franchise fees and increased
programming costs that exceed the inflation index. Increases in fees paid to
broadcast stations for the retransmission of their signals above those in effect
on October 6, 1994 may be passed through to subscribers.
In 1994 the FCC also adopted guidelines for cost-of-service showings that
establish a regulatory framework pursuant to which a cable television operator
may attempt to justify rates in excess of the benchmarks. Such justification
would be based upon (i) the operator's costs in operating a cable television
system (including certain operating expenses, depreciation and taxes) and (ii) a
return on the investment the operator has made to provide regulated cable
television services in such system (such investment being referred to as its
"ratebase", which includes working capital and certain
(13)
<PAGE>
costs associated with the construction of such system). The guidelines (1)
create a rebuttable presumption that excludes from a cable television operator's
ratebase any "excess acquisition costs" (equal to the excess of the purchase
price for a cable television system over the original construction cost of such
system, or its book value at the time of acquisition), (2) include in the rate
base the costs associated with certain intangibles such as franchise rights and
customer lists, and (3) set a uniform rate of return for regulated cable
television service of 11.25% after taxes.
In 1994 the FCC also reversed its prior policy regarding rate regulation of
packages of a la carte services. A la carte services that are offered in a
package are now subject to rate regulation by the FCC. In light of the
uncertainty created by the various criteria that the FCC previously applied to a
la carte packages, the FCC, in those cases in which it was not clear how the
FCC's previous criteria should have been applied to the package at issue, and
where only a "small number" of channels were moved from a previously regulated
tier to the package, allowed cable operators to treat existing packages as new
product tiers ("NPT") as discussed below.
The FCC, in addition to revising its rules governing a la carte channels, also
revised its regulations governing the manner in which cable operators may charge
subscribers for new cable programming services. The FCC instituted a three-year
flat fee mark-up plan for charges relating to new channels of cable programming
services in addition to the present formula for calculating the permissible rate
for new services. Commencing on January 1, 1995, operators could charge for new
channels of cable programming services added after May 14, 1994 at a markup of
up to 20 cents per channel over actual programming costs, but may not make
adjustments to monthly rates for these new services totaling more than $1.20,
plus an additional 30 cents solely for programming license fees, per subscriber
over the first two years of the three-year period. Cable operators could charge
an additional 20 cents in the third year, 1997, only for channels added in that
year. Cable operators electing to use the 20 cent per channel adjustment may not
take a 7.5% mark-up on programming cost increases, which was permitted under the
FCC's prior rate regulations. The FCC requested further comment on whether cable
operators should continue to receive the 7.5% mark-up on increases in license
fees on existing programming services.
Additionally, the FCC permitted cable operators to offer NPTs at rates that they
elect so long as, among other conditions, other service tiers that are subject
to rate regulation are priced in conformity with applicable FCC regulations and
cable operators do not remove programming services from existing service tiers
and offer them on the NPT.
Under the 1992 Cable Act, systems may not require subscribers to purchase any
service package other than the basic service package as a condition of access to
video programming offered on a per channel or per program basis. Cable systems
are allowed up to ten years to the extent necessary to implement the necessary
technology to facilitate this access. Substantially all of the Company's systems
are currently capable of implementing the technology mandated by the 1992 Cable
Act.
In addition, the 1992 Cable Act (i) requires cable programmers under certain
circumstances to offer their programming to present and future competitors of
cable television such as MMDS, SMATV and DBS, and prohibits new exclusive
contracts with program suppliers without FCC approval, (ii) directs the FCC to
set standards for limiting the number of channels that a cable television system
(14)
<PAGE>
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) above 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. 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
Company's cable television systems and have elected to negotiate with the
Company for Retransmission Consent. The Company has obtained Retransmission
Consent agreements with most broadcast stations it currently carries, 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 has 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.
A number of lawsuits have been filed in federal court challenging the
constitutionality of various provisions of the 1992 Cable Act. A challenge to
the constitutionality of the 1992 Cable Act's Must Carry rules was denied by a
federal court in April 1993. On appeal, the United States Supreme Court returned
this decision to the lower court for further proceedings. The lower court again
upheld the Must Carry rules, but this decision is on appeal to the Supreme
Court. Most other challenged provisions of the 1992 Cable Act have been upheld
at the federal district court and federal Court of Appeals level, including
provisions governing rate regulation and retransmission consent, and appeal of
the rate regulation decision was unsuccessful. The Company cannot predict the
outcome of any of the foregoing litigation affecting the 1992 Cable Act.
1996 Telecom Act. The 1996 Telecom Act deregulates the rates for non-basic tiers
of service provided by all cable operators after March 31, 1999 and immediately
deregulates the upper tier rates of entities that operate small cable systems as
defined under the statute. It permits regulated equipment rates to be computed
by aggregating costs of broad categories of equipment at the franchise, system,
regional or company level. The 1996 Telecom act eliminates the right of
individual subscribers to file rate complaints with the FCC concerning certain
nonbasic cable programming service tiers, and requires such complaints to be
filed by municipalities.
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<PAGE>
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
Company's franchise areas, this provision will allow the Company greater
flexibility in packaging and pricing its product in those markets.
The 1996 Telecom Act also eliminates the uniform rate structure requirements of
the 1992 Cable Act for cable operators in areas subject to effective competition
or to video programming offered on a per channel or per program basis, and
allows non-uniform bulk discount rates to be offered to multiple dwelling units.
Other FCC Regulation. In addition to the rules and regulations promulgated by
the FCC under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act,
the FCC has promulgated other rules affecting the Company. FCC rules require
that cable systems black out certain network and sports programming on imported
distant broadcast signals upon request. The FCC also requires that cable systems
delete syndicated programming carried on distant signals upon the request of any
local station holding the exclusive right to broadcast the same program within
the local television market and, in certain cases, upon the request of the
copyright owner of such programs. These rules affect the diversity and cost of
the Company's programming options for its cable 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; home wiring 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, 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 Company's cable television systems operate
have done so. The 1996 Telecom Act modifies the pole attachment provisions of
the Communications Act by requiring that utilities provide cable systems and
telecommunications carriers with nondiscriminatory access to any pole, conduit
or right-of-way controlled by the utility. The FCC is required to adopt new
regulations to govern the charges for pole attachments used by companies
providing telecommunications services, including cable operators. These
regulations are likely to increase the rates charged to cable companies
providing voice and data, in addition to video services. These new pole
attachment regulations will not become effective, however, until five years
after enactment of the 1996 Telecom Act, and any
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<PAGE>
subsequent increase in attachment rates resulting from the FCC's new regulations
will be phased in equal annual increments over a period of five years.
The FCC's technical guidelines for signal leakage became substantially more
stringent in 1990, requiring upgrading expenditures by the Company. Two-way
radio stations, microwave-relay stations and satellite earth stations used by
the Company's cable television 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 has recommended to Congress the abolition
of the compulsory licenses for cable television carriage of broadcast signals.
Any such action by Congress could adversely affect the Company's ability to
obtain such programming and could increase the cost of such programming.
Cable Television Cross-Media Ownership Limitations. In addition to the
prohibition on telephone company-cable cross-ownership, now removed by the 1996
Telecom Act, the 1984 Cable Act prohibited any person or entity from owning
broadcast television and cable properties in the same market. The 1992 Cable Act
imposed limits on new acquisitions of SMATV or MMDS systems by cable operators
in their franchise areas. The 1996 Telecom Act repeals the statutory ban on
cable-broadcast station cross-ownership to permit common ownership or control of
a television station and a cable system with overlapping service areas. The 1996
Telecom Act leaves in place, however, the cable system-television station
cross-ownership restriction contained in the FCC's rules and does not prejudge
the Commission's review of the regulation. The 1996 Telecom Act also directed
the FCC to revise its existing regulations concerning broadcast network-cable
cross-ownership to permit common control of both a television network and a
cable system, which the FCC has done. The 1996 Telecom Act removes the statutory
ban on cable-MMDS cross-ownership on any cable operator in a franchise area
where one cable operator is subject to effective competition.
State and Municipal Regulation of Cable Television. Regulatory responsibility
for essentially local aspects of the cable business such as franchisee
selection, system design and construction, safety, and consumer services remains
with either state or local officials and, in some jurisdictions, with both. The
1992 Cable Act expanded the factors that a franchising authority can consider in
deciding whether to renew a franchise and limits the damages for certain
constitutional claims against franchising authorities for their franchising
activities. New York law provides for comprehensive state-wide regulation,
including approval of transfers of cable franchises and consumer protection
legislation. 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.
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<PAGE>
Telecommunications Regulation. The 1996 Telecom Act removes barriers to entry in
the local telephone market that is now monopolized by the BOCs and other local
exchange carriers by preempting state and local laws that restrict competition
and by requiring incumbent local exchange telephone companies to provide
nondiscriminatory access and interconnection to potential competitors, such as
cable operators and long distance companies. At the same time, the new law
eliminates the Modified Final Judgment and permits the BOCs to enter the market
for long distance service (through a separate subsidiary) after they satisfy a
"competitive checklist." The 1996 Telecom Act also permits interstate utility
companies to enter the telecommunications market for the first time.
The 1996 Telecom Act also eliminates or streamlines many of the requirements
applicable to local exchange carriers, and requires the FCC and states to review
universal service programs and encourage access to advanced telecommunications
services provided by all entities, including cable companies, by schools,
libraries and other public institutions. The FCC and, in some cases, states are
required to conduct numerous rulemaking proceedings to implement these
provisions.
Consolidated Cable Affiliates
Cablevision of New York City. In July 1992, the Company acquired (the "CNYC
Acquisition") substantially all of the remaining interests in Cablevision of New
York City - Phase I through Phase V ("CNYC"), the operator of a cable television
system that was under development in The Bronx and parts of Brooklyn, New York.
Prior to the CNYC Acquisition, the Company had a 15% interest in CNYC and Mr.
Dolan owned the remaining interests. Mr. Dolan remains a partner in CNYC, with a
1% interest and the right to certain preferential payments. CNYC holds
franchises that permit construction of the franchised areas in specified phases.
Construction of the systems in the Brooklyn and The Bronx franchises has been
substantially completed.
Under the agreement between the Company and Mr. Dolan, a new limited partnership
("CNYC LP") was formed and holds 99% of the partnership interests in CNYC. The
remaining 1% interest in CNYC is owned by the existing corporate general
partner, Cablevision Systems New York City Corporation, which is a wholly-owned
subsidiary of the Company. Subsidiaries of the Company own a 1% general
partnership interest and a 98% limited partnership interest in CNYC LP and Mr.
Dolan retains a 1% limited partnership interest in CNYC LP plus certain
preferential rights. Mr. Dolan's preferential rights entitle him to an annual
cash payment (the "Annual Payment") of 14% multiplied by the outstanding balance
of his "Minimum Payment". The Minimum Payment is $40.0 million and is to be paid
to Mr. Dolan prior to any distributions from CNYC LP to partners other than Mr.
Dolan. In addition, Mr. Dolan has the right, exercisable on December 31, 1997,
and as of the earlier of (1) December 31, 2000 and (2) December 31 of the first
year after 1997 during which CNYC achieves an aggregate of 400,000 subscribers,
to require the Company to purchase (Mr. Dolan's "put") his interest in CNYC LP.
The Company has the right to require Mr. Dolan to sell his interest in CNYC LP
to the Company (the Company's "call") during the three-year period commencing
one year after the expiration of Mr. Dolan's second put. In the event of a put,
Mr. Dolan will be entitled to receive from the Company the Minimum Payment, any
accrued but unpaid Annual Payments, a guaranteed return on certain of his
investments in CNYC LP and a Preferred Payment defined as a payment (not
exceeding $150.0 million) equal to 40% of the
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Appraised Equity Value (as defined) of CNYC LP after making certain deductions
including a deduction of a 25% compound annual return on approximately 85% of
the Company's investments with respect to the construction of Phases III, IV and
V of CNYC and 100% of certain of the Company's other investments in CNYC,
including Mr. Dolan's Annual Payment. In the event the Company exercises its
call, the purchase price will be computed on the same basis as for a put except
that there will be no payment in respect of the Appraised Equity Value amount.
The Company has the right to make payment of the put or call exercise price in
the form of shares of the Company's Class B Common Stock or, if Mr. Dolan so
elects, Class A Common Stock, except that all Annual Payments must be paid in
cash to the extent permitted under the Company's Credit Agreement (as defined
below). Under the Credit Agreement, the Company is currently prohibited from
paying the Preferred Payment in cash and, accordingly, without the consent of
the bank lenders, would be required to pay it in shares of the Company's Common
Stock.
The Company has agreed to invest in CNYC LP sufficient funds to permit CNYC LP
to make the required Annual Payments to Mr. Dolan. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Restricted Group."
Cablevision of Boston. On December 15, 1995, the Company acquired the interests
in Cablevision of Boston that it did not previously own pursuant to an agreement
entered into by the Company and Cablevision of Boston. In connection with the
acquisition, the limited partners (other than the Company) of Cablevision of
Boston received 682,454 shares (of which 680,266 shares were issued by December
31, 1995) of the Company's Class A Common Stock and the Company paid
approximately $83 million, (including fees and expenses) primarily with funds
borrowed under the Company's Credit Agreement, to repay existing Cablevision of
Boston indebtedness and to make certain payments to Charles F. Dolan, ("Mr.
Dolan") referred to below. Upon consummation of the acquisition, Cablevision of
Boston became a member of the Restricted Group and all outstanding subordinated
advances made by the Company to Cablevision of Boston became intercompany
indebtedness. Mr. Dolan, a former general partner of Cablevision of Boston and
the Chairman of the Board of the Company, received 7,357 shares of the Company's
Class A Common Stock and approximately $20.8 million in cash to repay a portion
of Cablevision of Boston's indebtedness to him in connection with the
acquisition. The Company and its affiliates (other than Cablevision of Boston's
former general partners and their affiliates) received 1,041,553 shares of the
Company's Class A Common Stock (such shares are reflected as treasury shares at
December 31, 1995) and assumed approximately $42.9 million of intercompany
indebtedness referred to above. As part of the acquisition of Cablevision of
Boston, the Company entered into an agreement with Mr. Dolan with respect to his
0.5% general partnership interest in Cablevision of Brookline Limited
Partnership ("Cablevision of Brookline"), a partnership affiliated with
Cablevision of Boston. The Company acquired the remaining 99.5% of the
partnership interests in Cablevision of Brookline in the acquisition of
Cablevision of Boston. Under the agreement, the Company has a right of first
refusal to acquire Mr. Dolan's general partnership interest and a right to
acquire such interest on the earlier to occur of Mr. Dolan's death or January 1,
2002 at the greater of $10,000 or the book value of such interest. Mr. Dolan's
estate has the right to put the interest to the Company at the same price.
Additionally, in the event of a change of control of the Company or Cablevision
of Brookline, Mr. Dolan will have the right to put his general partnership
interest in
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<PAGE>
Cablevision of Brookline to the Company at the greater of (i) prices declining
from $3.9 million for the year ended December 15, 1996 to $10,000 for the year
ended December 15, 2002 and (ii) the book value of such interest.
Cablevision MFR. In August 1994, Cablevision MFR, Inc. ("Cablevision MFR"), a
wholly-owned subsidiary of the Company, acquired substantially all of the assets
of Monmouth Cablevision Associates, L.P. ("Monmouth Cablevision") and Riverview
Cablevision Associates, L.P. ("Riverview Cablevision") (collectively,
"Monmouth/Riverview") consisting of cable television systems in New Jersey. The
operations of Monmouth Cablevision and Riverview Cablevision are consolidated
with those of the Company as of the date of acquisition. The aggregate purchase
price for the two New Jersey systems was $391.2 million. Approximately $237.8
million of such purchase price was financed by a senior credit facility of newly
formed subsidiaries of Cablevision MFR secured solely by the assets of the
systems. The remaining $153.4 million of such purchase price was paid with cash
of approximately $12.1 million and the issuance, by Cablevision MFR, of
subordinated promissory notes (the "MFR Notes") totalling $141.3 million due in
1998 and bearing interest at 6% until the third anniversary and 8% thereafter
increasing to 8% and 10%, respectively, if the Company exercises its option to
pay interest in shares of the Company's Class A common stock.
Principal and interest on the Cablevision MFR promissory notes, which may be
paid in cash or, under certain circumstances at the Company's option, in shares
of the Company's Class A common stock, are guaranteed by the Company. The
Company's obligations under the guarantees rank pari passu with the Company's
public subordinated debt. In certain circumstances, Cablevision MFR may extend
the maturity date of the promissory notes until 2003 for certain additional
consideration. In the event the maturity is so extended, the interest and
principal of such notes may thereafter be paid only in cash.
V Cable, Inc. In February 1996, the Company entered into an agreement with
General Electric Capital Corporation ("GECC") pursuant to which the Company
effected a reorganization and recapitalization of V Cable whereby all existing
indebtedness of V Cable was repaid and V Cable's Cleveland area cable operations
became part of Cablevision of Ohio and its remaining cable operations in the New
York area became part of the Company's Restricted Group. V Cable's debt was
repaid with $500 million from the Company's issuance of its 11 1/8% Series M
Preferred Stock and borrowings under the Company's Credit Agreement.
Cablevision of Ohio. In March and April, 1996, Cablevision of Ohio was formed to
hold the Company's interests in cable television systems in the Cleveland, Ohio
metropolitan area. Cablevision of Ohio is comprised of Telerama Inc., (formerly
a subsidiary of V Cable, Inc.), Cablevision of the Midwest, Inc. and Cablevision
of Cleveland, L.P. For a description of the financing of Cablevision of Ohio,
see Item 7. - "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Cablevision of Ohio."
U.S. Cable. In March and August, 1996, U.S. Cable was refinanced and the Company
purchased the partnership interests therein that it did not already own, with
the result that U.S. Cable is now a
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wholly-owned and separately financed subsidiary of the Company. For a
description of the financing of U.S. Cable, see Item 7. - "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - U.S. Cable."
Other Cable Affiliates
A-R Cable. A-R Cable comprises a group of cable television systems in which the
Company holds a minority equity interest and Warburg holds the remaining equity
interest. The Company expects to purchase the Warburg interests in July, 1997.
For a description of the proposed transaction, see "Recent Developments."
A-R Cable Partners. In June 1994, A-R Cable Partners, a partnership comprised of
subsidiaries of the Company and Warburg completed the purchase of certain assets
of Nashoba Communications, a group of three limited partnerships, for a purchase
price of approximately $90.5 million. The Company provided $11.9 million for its
30% interest in A-R Cable Partners and $1.5 million in loans. The Company
manages the operations of A-R Cable Partners pursuant to a management agreement
which provides for a fee equal to 3-1/2% of gross receipts, as defined, plus
reimbursement of certain costs and an allocation of certain selling, general and
administrative expenses. The Company expects to complete the purchase of
Warburg's interests in A-R Cable Partners in July, 1997. See "Recent
Developments."
Cablevision of Framingham. In August 1994, Cablevision of Framingham Holdings,
Inc. ("CFHI"), a corporation 30% owned by the Company and 70% owned by Warburg,
acquired substantially all of the assets of Framingham Cablevision Associates,
L.P. ("Framingham Cablevision") consisting of cable television systems in
Massachusetts. The aggregate purchase price, including fees and expenses, for
Framingham Cablevision's assets was $37.5 million. Approximately $9.7 million of
such purchase price was paid by the issuance by CFHI of a promissory note,
guaranteed by the Company, (the "CFHI Note") due in 1998 and bearing interest at
6% until the third anniversary and 8% thereafter (increasing to 8% and 10%,
respectively, if interest is paid in shares of the Company's Class A Common
Stock). The Company manages the operations of CFHI pursuant to a management
agreement which provides for a fee equal to 3-1/2% of gross receipts, as
defined, plus reimbursement of certain costs and an allocation of certain
selling, general and administrative expenses. The Company intends to complete
the purchase of Warburg's interests in CFHI in July, 1997. See "Recent
Developments."
Programming Operations
General.
The Company conducts its programming activities through Rainbow Media and
through subsidiaries of Rainbow Media in partnership with certain unaffiliated
entities, including Liberty Media Corporation. Rainbow Media's businesses
include eight regional SportsChannel services, four national
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entertainment services (AMCC, Bravo Network ("Bravo") Much Music ("MM") and the
Independent Film Channel ("IFC")), Rainbow News 12 (regional news services
serving the suburban areas surrounding New York City), and the national sports
services of Prime SportsChannel Networks (Prime Network and NewSport). Rainbow
Media also owns a 50% interest in MSG. See "The Company - Recent Developments".
Rainbow Media acts as managing partner for each of these programming businesses,
other than MSG (which is managed jointly with ITT) and SportsChannel Florida
Associates (which is managed by Front Row Communications, Inc.), and has
reflected its share of the profits or losses in these businesses using the
equity method of accounting except for AMCC, SportsChannel New York and News12
Long Island, Connecticut, and Westchester, whose operations were consolidated
with those of the Company. Certain of Rainbow Media's programming interests are
held through Rainbow Program Enterprises ("RPE"), which is substantially wholly
owned by Rainbow Media. Effective with the closing of the NBC Transaction, all
majority owned companies will be consolidated with the Company. See "Recent
Developments".
The following table sets forth subscriber information as of December 31, 1996
and ownership information as of April 1, 1997 for each of
the Company's programming businesses:
<TABLE>
<CAPTION>
Programming
Businesses Subscribers Ownership
- ---------- ------------- ---------
(In Millions)
<S> <C> <C>
National Entertainment:
American Movie Classics 55.7 Company - 100%
Bravo 21.6 Company - 100%
Bravo Latin America 1.3 Company - 100%
The Independent Film Channel 2.4 Company - 100%
MuchMusic 3.8 Company and Chum Ltd.- 50% each
Sports:
Madison Square Garden Network 5.5 Company and ITT - 50% each
SportsChannel New York 3.1 Company - 100%
SportsChannel Pacific 2.7 Company and Liberty - 50% each
Prism/SportsChannelPhiladelphia 2.5 Company - 66 2/3%; Liberty - 33 1/3%
SportsChannel Chicago 2.7 Company and Liberty - 50% each
SportsChannel New England 1.5 Company - 100%
SportsChannel Ohio/Cincinnati 3.6 Company - 100%
SportsChannel Florida 1.7 Company and Front Row - 50% each (1)
Prime Network/NewSport 60.3 Company and Liberty - 50% each
News Services:
News12 Long Island .7 Company - 100%
News12 Connecticut .2 Company - 100%
News12 New Jersey .4 Company and Newark Star Ledger - 50% each
News12 Westchester .1 Company - 100%
</TABLE>
(1) Front Row has the option to acquire an additional 20% from the Company.
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In March 1995, MSG Holdings, L.P. ("MSG Holdings"), a partnership among
subsidiaries of Rainbow Programming and subsidiaries of ITT acquired the
business and assets of MSG in a transaction in which MSG merged with and into
MSG Holdings. MSG owns the Madison Square Garden Arena and the adjoining
Paramount Theater, the New York Rangers professional hockey team, the New York
Knicks professional basketball team and the Madison Square Garden Network, a
sports programming network with over five million subscribers. The purchase
price paid by MSG Holdings for MSG was $1,009.1 million. The name of MSG
Holdings has been changed to Madison Square Garden, L.P.
MSG Holdings funded the purchase price of the acquisition through (i) borrowings
of $289.1 million under a $450 million credit agreement among MSG Holdings,
various lending institutions and Chemical Bank as administrative agent, (ii) an
equity contribution from Rainbow Programming of $110 million, and (iii) an
equity contribution from ITT of $610 million. ITT, Rainbow Programming and the
Company are parties to an agreement made as of August 15, 1994 as amended, (the
"Bid Agreement") that, as amended, provided Rainbow Programming the right to
acquire interests in MSG Holdings from ITT sufficient to equalize the interests
of ITT and Rainbow Programming in MSG Holdings by making certain scheduled
payments totalling $250 million (plus interest on any unpaid portion thereof) on
specified dates up to and including March 17, 1997. As of February 18, 1997, the
Company has made all such scheduled payments and has equalized the interests of
ITT and Rainbow Programming in MSG Holdings from funds available from the
Company's Restricted Group principal bank credit agreement. In addition, the
Company, through Rainbow Programming, funded the periodic interest payments,
aggregating approximately $47.7 million, on unpaid portions of the $250 million
amount that was required to equalize the interests of ITT and Rainbow
Programming in MSG Holdings. These payments were also made from funds available
under the Company's Restricted Group principal bank credit agreement. MSG
Holdings is managed on a 50-50 basis by Rainbow Programming and ITT.
In connection with obtaining the consent of the National Hockey League (the
"NHL") and the National Basketball Association ("NBA") to the indirect transfers
of the New York Rangers and the New York Knickerbockers, respectively, resulting
from the merger, the Company and Rainbow Programming entered into agreements
with the NHL and the NBA, agreeing, among other things, to conduct themselves in
accordance with the relevant rules of each league.
As described under "Recent Developments," subsidiaries of Rainbow Programming
have entered into an agreement in principle with ITT to acquire a majority state
in the equity of MSG Holdings.
On April 1, 1997, Rainbow Media consummated the NBC Transaction in which
Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly
formed subsidiary of the Company. In addition, NBC received a 25% equity
interest (which interest may be increased up to 27% under certain circumstances)
in non-voting Class C common stock of Rainbow Media. The Company owns the
remaining 75% equity interest in Rainbow Media. The partnership interests in
certain of Rainbow Media's programming services formerly owned by NBC are now
owned by subsidiaries of Rainbow Media.
(23)
<PAGE>
In July 1995 Rainbow Media consummated the purchase of NBC's interests in
SportsChannel New York and Rainbow News 12 Company for approximately $95.5
million, giving Rainbow Media a 100% interest in SportsChannel New York and
Rainbow News 12 Company. The purchase was financed by an additional drawdown of
$94 million under Rainbow Media's $202 million amended and restated credit
facility and by a $2.5 million equity contribution from the Company for the
balance of the purchase price and related fees.
In July 1994, the proceeds of the initial $105 million loan under the original
Rainbow Media facility plus $76 million of equity from the Company were used to
purchase Liberty Media Corporation's 50% interest in AMCC giving Rainbow Media a
75% ownership interest in AMCC.
Rainbow Media's financing needs have been funded by the Restricted Group's
investments in and advances to Rainbow Media, by sales of equity interests in
the programming businesses and, through separate, external debt financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources".
Competition.
There are numerous programming services with which Rainbow Media competes for
cable television system distribution and for subscribers, including network
television, other national and regional cable services, independent broadcast
television stations, television superstations, the home videocassette industry,
and developing pay-per-view services. Rainbow Media and the other programming
services are competing for limited channel capacity and for inclusion in the
basic service tier of the systems offering their programming services. Many of
these program distributors are large, publicly-held companies which have greater
financial resources than Rainbow Media.
Rainbow Media also competes for the availability of programming, through
competition for telecast rights to films and competition for rights agreements
with sports teams. The Company anticipates that such competition will increase
as the number of programming distributors increases.
In general, the programming services offered by Rainbow Media compete with other
forms of television-related services and entertainment media on the basis of the
price of services, the variety and quality of programming offered and the
effectiveness of Rainbow Media's marketing efforts.
Regulation.
Cable television program distributors such as Rainbow Media are not
regulated by the FCC under the Communications Act of 1934. To the extent that
regulations and laws, either presently in force or proposed, hinder or stimulate
the growth of the cable television and satellite industries, the business of
Rainbow Media will be directly affected. As discussed above under
"Business - Cable Television Operations Regulation", the 1992 Cable Act limits
in certain ways the
(24)
<PAGE>
Company's ability to freely manage the Rainbow Media services or carry the
Rainbow Media services on their affiliates' systems and imposes or could impose
other regulations on the Rainbow Media companies. The "program access"
provisions of the 1992 Cable Act require that Rainbow Media services be sold,
under certain circumstances, to multichannel video programming providers that
compete with the Company's local cable systems. The 1996 Telecom Act extends the
program access requirements of the 1992 Cable Act to a telephone company that
provides video programming by any means directly to subscribers, and to
programming in which such a company holds an attributable ownership interest,
thus allowing the Company's cable systems similar access to programming
developed by their telephone company competitors.
The 1984 Cable Act prohibits localities from requiring carriage of specific
programming services, providing a more open market for Rainbow Media and other
cable program distributors. The 1984 Cable Act limits the number of commercial
leased access channels that a cable television operator must make available for
potentially competitive services but the 1992 Cable Act empowers the FCC to set
the rates and conditions for such leased access channels. The reimposition of
the FCC's rules requiring blackout of syndicated programming on distant
broadcast signals for which a local broadcasting station has an exclusive
contract opened new channels for Rainbow Media's services.
Satellite common carriers, from whom Rainbow Media and its affiliates obtain
transponder channel time to distribute their programming, are directly regulated
by the FCC. All common carriers must obtain from the FCC a certificate for the
construction and operation of their interstate communications facilities.
Satellite common carriers must also obtain FCC authorization to utilize
satellite orbital slots assigned to the United States by the World
Administrative Radio Conference. Such slots are finite in number, thus limiting
the number of carriers that can provide satellite service and the number of
channels available for program producers and distributors such as Rainbow Media
and its affiliates. Nevertheless, there are at present numerous competing
satellite services that provide transponders for video services to the cable
industry.
All common carriers must offer their communications service to Rainbow Media and
others on a nondiscriminatory basis (including by means of a lottery). A
satellite carrier cannot unreasonably discriminate against any customer in its
charges or conditions of carriage.
Advertising Services
Rainbow Advertising sells advertising time to national, regional and local
advertisers on behalf of the Company's cable television systems and
SportsChannel and Rainbow News 12 programming services, as well as on behalf of
unaffiliated cable television systems.
Other Affiliates
Atlantic Publishing. Atlantic Cable Television Publishing Corporation ("Atlantic
Publishing") holds a minority equity interest and a debt interest in a company
that publishes a weekly cable television guide which is offered to the Company's
subscribers and to other unaffiliated cable
(25)
<PAGE>
television operators. As of December 31, 1996, the Company had advanced an
aggregate of approximately $16.6 million to Atlantic Publishing, reflecting
approximately $0.1 million, $1.0 million and $0.6 million, net, paid back during
1996, 1995 and 1994, respectively. The Company has written off all of its
advances to Atlantic Publishing other than $2.4 million. Atlantic Publishing is
owned by a trust for certain Dolan family members; however, the Company has the
option to purchase Atlantic Publishing for an amount equal to the owner's net
investment therein plus interest. The current owner has made only a nominal
investment in Atlantic Publishing to date.
Radio Station WKNR. The Company is the owner of Cleveland Radio Associates
("WKNR"), an AM radio station serving the Cleveland metropolitan area with an
all-sports format.
Employees and Labor Relations
As of December 31, 1996, the Company had 5,928 full-time, 704 part-time and 486
temporary employees. There are no collective bargaining agreements with
employees of the Company. The Company believes that its relations with its
employees are satisfactory.
(26)
<PAGE>
Item 2. Properties
The Company generally leases the real estate where its business offices,
microwave receiving antennae, earth stations, transponders, microwave towers,
warehouses, headend equipment, hub sites, program production studios and access
studios are located. Significant leasehold properties include fourteen business
offices, comprising the Company's headquarters located in Woodbury, New York
with approximately 329,000 square feet of space, and the headend sites. The
Company believes its properties are adequate for its use.
The Company generally owns all assets (other than real property) related to its
cable television operations, including its program production equipment, headend
equipment (towers, antennae, electronic equipment and satellite earth stations),
cable system plant (distribution equipment, amplifiers, subscriber drops and
hardware), converters, test equipment, tools and maintenance equipment.
Similarly, the unconsolidated entities managed by the Company generally own such
assets related to their cable television operations. The Company generally
leases its service and other vehicles.
Substantially all of the assets of Cablevision of Ohio, U.S. Cable, Rainbow
Media and AMCC are pledged to secure borrowings under their respective credit
agreements.
Item 3. Legal Proceedings
The Company is party to various lawsuits, some involving substantial amounts.
Management does not believe that such lawsuits will have a material adverse
impact on the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
(27)
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's Class A Common Stock, par value $.01 per share ("Class A Common
Stock"), is traded on the American Stock Exchange under the symbol "CVC". The
following table sets forth the high and low sales prices for the last two years
of Class A Common Stock as reported by the American Stock Exchange for the
periods indicated.
1996 1995
-------------------- ---------------------
Quarter High Low High Low
------- ---- --- ---- ---
First 60-3/8 52-3/4 58-3/4 48-7/8
Second 58 44 63-3/4 52-1/4
Third 46-1/4 38-7/8 69-3/4 58
Fourth 43-3/8 25 61 49-3/4
As of March 18, 1997, there were 883 holders of record of Class A Common Stock.
There is no public trading market for the Company's Class B Common Stock, par
value $.01 per share ("Class B Common Stock"). As of March 18, 1997, there were
23 holders of record of Class B Common Stock.
Dividends. The Company has not paid any dividends on shares of Class A or Class
B Common Stock. The Company intends to retain earnings to fund the growth of its
business and does not anticipate paying any cash dividends on shares of Class A
or Class B Common Stock in the foreseeable future.
The Company may pay cash dividends on its capital stock only from surplus as
determined under Delaware law. Holders of Class A and 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 the Company from funds
legally available therefor. No dividend may be declared or paid in cash or
property on shares of either Class A or Class B Common Stock unless the same
dividend is paid simultaneously on each share of the other class of common
stock. In the case of any stock dividend, holders of Class A Common Stock are
entitled to receive the same percentage dividend (payable in shares of Class A
Common Stock) as the holders of Class B Common Stock receive (payable in shares
of Class B Common Stock). The Company paid $29.3 million of cash dividends on
the Series I Preferred Stock and $97.5 million of dividends in additional shares
of Series H and M Preferred Stock. The Company is restricted from paying
dividends on its preferred stock (other than on the Company's 8% Series C
Cumulative Preferred Stock) under the provisions of its senior credit agreement
if a default has occurred and is continuing under such agreement. Additionally,
the Company's senior subordinated debt instruments may restrict the payment of
dividends in respect of any shares of capital stock in certain circumstances.
(28)
<PAGE>
Dividends may not be paid in respect of shares of Class A or Class B Common
Stock unless all dividends due and payable in respect of the preferred stock of
the Company have been paid or provided for. Further, dividends may not be paid
in respect of shares of Class A or Class B Common Stock under the Company's
senior credit agreement. See Item 7.-"Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources-Restricted Group."
(29)
<PAGE>
Item 6. Selected Financial Data
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected
financial data have been derived from the consolidated financial statements of
the Company. Acquisitions made by the Company were accounted for under the
purchase method of accounting and, accordingly, the acquisition costs were
allocated to the net assets acquired based on their fair value, except for
assets previously owned by Mr. Dolan or affiliates of Mr. Dolan which were
recorded at historical cost. Acquisitions are reflected in operating, balance
sheet and statistical data from the time of acquisition. The selected financial
data presented below should be read in conjunction with the financial statements
of the Company and notes thereto included in Item 8 of this Report.
<TABLE>
<CAPTION>
Cablevision Systems Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- ----------- ------ --------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenues .......................................... $ 1,315,142 $ 1,078,060 $ 837,169 $ 666,724 $ 572,487
Operating expenses
Technical ...................................... 538,272 412,479 302,885 241,877 204,449
Selling, general and administrative ............ 313,476 266,209 195,942 172,687 120,356
Restructuring charge ........................... -- -- 4,306 -- --
Depreciation and amortization .................. 388,982 319,929 271,343 194,904 168,538
----------- ----------- --------- --------- ---------
Operating profit .................................. 74,412 79,443 62,693 57,256 79,144
Other income (expense):
Interest expense, net .......................... (265,015) (311,887) (261,781) (230,327) (193,379)
Share of affiliates' net loss .................. (82,028) (93,024) (82,864) (61,017) (47,278)
Gain (loss) on sale of programming and
affiliate interest, net ...................... -- 35,989 -- (330) 7,053
Gain on sale of marketable securities, net ..... -- -- -- -- 733
Provision for loss on Olympics venture ......... -- -- -- -- (50,000)
Loss on sale of preferred stock ................ -- -- -- -- (20,000)
Write off of deferred interest and
financing costs .............................. (37,784) (5,517) (9,884) (1,044) (12,284)
Loss on redemption of debentures ............... -- -- (7,088) -- --
Settlement of litigation and related matters ... -- -- -- -- (5,655)
Provision for preferential payment to
related party ................................ (5,600) (5,600) (5,600) (5,600) (2,662)
Minority interest .............................. (9,417) (8,637) (3,429) 3,000 --
Miscellaneous, net ............................. (6,647) (8,225) (7,198) (8,720) (6,175)
----------- ----------- --------- --------- ---------
Net loss .......................................... (332,079) (317,458) (315,151) (246,782) (250,503)
Preferred dividend requirement .................... (127,780) (20,249) (6,385) (885) (885)
----------- ----------- --------- --------- ---------
Net loss applicable to common shareholders ........ $ (459,859) $ (337,707) $(321,536) $(247,667) $(251,388)
=========== =========== ========= ========= =========
Net loss per common share ......................... $ (18.52) $ (14.17) $ (13.72) $ (10.83) $ (11.17)
=========== =========== ========= ========= =========
Average number of common shares outstanding
(in thousands) ................................ 24,827 23,826 23,444 22,859 22,512
=========== =========== ========= ========= =========
Cash dividends declared per common share.........$ -- $ -- $ -- $ -- $ --
=========== =========== ========= ========= =========
</TABLE>
(30)
<PAGE>
<TABLE>
<CAPTION>
Cablevision Systems Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- ----------- ------ --------- -------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Balance Sheet Data:
Total assets ............................................. 3,034,725 $ 2,502,305 $ 2,176,413 $ 1,327,418 $ 1,251,157
Total debt ............................................... 3,334,701 3,157,107 3,169,236 2,235,499 2,004,452
Deficit investment in affiliates ......................... 512,800 453,935 393,637 325,732 251,679
Redeemable preferred stock ............................... 1,005,265 257,751 -- -- --
Stockholders' deficiency ................................. (2,374,285) (1,891,676) (1,818,535) (1,503,244) (1,250,248)
Statistical Data:
Homes passed by cable .................................... 3,858,000 3,328,000 2,899,000 2,240,000 2,019,000
Basic service subscribers ................................ 2,445,000 2,061,000 1,768,000 1,379,000 1,262,000
Basic service subscribers as a percentage of
homes passed ........................................ 63.4% 61.9% 61.0% 61.6% 62.5%
Number of premium television units ....................... 3,862,000 3,990,000 3,208,000 3,003,000 2,802,000
Average number of premium units per basic
subscriber at period end ............................ 1.6 1.9 1.8 2.2 2.2
Average monthly revenue per basic subscriber (1) ......... $ 36.71 $ 37.07 $ 36.33 $ 36.59 $ 37.64
(1) Based on recurring service revenues divided by average subscribers for the
month of December.
</TABLE>
(31)
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Recent Acquisitions
The Company's high levels of interest expense and depreciation and amortization,
largely associated with acquisitions made by the Company in the past, have had
and will continue to have a negative impact on the reported results of the
Company. Consequently, the Company expects to report substantial net losses for
at least the next several years.
1996 acquisitions. In September 1996, the Company acquired from Warburg the
equity interests that Warburg owned in Cablevision of Newark giving the Company
full ownership of Cablevision of Newark. In August 1996, the Company acquired
the partnership interests in U.S. Cable that it did not already own.
1995 acquisitions. In July 1995, the Company, through Rainbow Programming,
purchased NBC's interests in SportsChannel New York and Rainbow News 12 Company,
giving Rainbow Programming a 100% interest in these companies. In December 1995,
the Company acquired the interests in Cablevision of Boston that it did not
previously own and upon consummation of the acquisition, Cablevision of Boston
became a member of the Restricted Group. The foregoing acquisitions will be
referred to as the "1995 Acquisitions".
1994 acquisitions. In March 1994, the Company completed the North Coast Cable
Acquisition. In July 1994, the Company through Rainbow Programming, purchased an
additional 50% interest in AMCC giving Rainbow Programming a 75% ownership
interest in AMCC and in August 1994, the Company consummated the acquisition of
Monmouth Cablevision and Riverview Cablevision. The foregoing acquisitions will
collectively be referred to as the "1994 Acquisitions".
The 1996 Acquisitions and the 1995 Acquisitions will collectively be referred to
as the "Acquisitions".
For a description of the Company's recent acquisitions, see Item 1 - "Business -
Recent Developments."
(32)
<PAGE>
Results of Operations
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1996 1995
--------------------- -------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ............................................. $ 1,315,142 100% $ 1,078,060 100% $237,082
Operating expenses:
Technical ......................................... 538,272 41 412,479 38 (125,793)
Selling, general & administrative ................. 313,476 24 266,209 25 (47,267)
Depreciation and amortization ..................... 388,982 29 319,929 30 (69,053)
----------- --------- --------
Operating profit ..................................... 74,412 6 79,443 7 (5,031)
Other income (expense):
Interest expense, net ............................. (265,015) (20) (311,887) (29) 46,872
Share of affiliates' net loss ..................... (82,028) (6) (93,024) (9) 10,996
Gain on sale of affiliate interests, net .......... - - 35,989 3 (35,989)
Write off of deferred interest and financing costs (37,784) (3) (5,517) - (32,267)
Provision for preferential payment to related party (5,600) - (5,600) - -
Minority interest ................................. (9,417) (1) (8,637) (1) (780)
Miscellaneous ..................................... (6,647) (1) (8,225) (1) 1,578
----------- --------- ---------
Net loss ............................................. $ (332,079) (25%) $ (317,458) (29)% $(14,621)
=========== ========= =========
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1).............................. $463,394 $399,372
Currently payable interest expense, net.............. 255,986 254,930
Net cash provided by operating activities (2)........ 200,380 154,715
Net cash used in investing activities (2)............ 741,748 551,234
Net cash provided by financing activities (2)........ 537,648 400,501
</TABLE>
(1) Operating profit before depreciation and amortization is presented here to
provide additional information about the Company's ability to meet future
debt service, capital expenditures and working capital requirements.
Operating profit before depreciation and amortization should be considered
in addition to and not as a substitute for net income and cash flows as
indicators of financial performance and liquidity as reported in accordance
with generally accepted accounting principles.
(2) See Item 8. - "Consolidated Statements of Cash Flows".
(33)
<PAGE>
Comparison of Year Ended December 31, 1996 Versus Year Ended December 31, 1995.
Revenues for the year ended December 31, 1996 increased $237.1 million (22%) as
compared to net revenues for the prior year. Approximately $136.8 million (13%)
of the increase was attributable to the Acquisitions; approximately $52.4
million (4.9%) to internal growth of over 118,500 in the average number of
subscribers during the year; approximately $19.1 million (2%) resulted from
higher revenue per subscriber as a result of rate increases and new product
launches; and approximately $28.8 million to increases in other revenue sources
such as programming, advertising, pay per view and developing businesses.
Technical expenses for 1996 increased $125.8 million (30%) over the 1995 amount.
Approximately 18% was attributable to the Acquisitions with the remaining 12%
attributable to increased costs directly associated with the growth in
subscribers and revenues discussed above, as well as to increases in programming
rates for certain of the Company's cable television services. As a percentage of
revenues, technical expenses increased 3% during 1996 as compared to 1995.
Selling, general and administrative expenses increased $47.3 million (18%) for
1996 as compared to the 1995 level. Approximately 13% was directly attributable
to the Acquisitions. During 1996 adjustments were made related to an incentive
stock plan which resulted in a decrease of (6%). The remaining 11% increase
resulted from higher customer service, administrative and sales and marketing
costs. As a percentage of revenues, selling, general and administrative expenses
decreased 1% in 1996 compared to 1995.
Operating profit before depreciation and amortization increased $64.0 million
(16%) to $463.4 million for 1996 from $399.4 million for 1995. Approximately
$28.0 million (7%) of the increase was attributable to the Acquisitions. The
remaining $36.0 million (9%) resulted from the combined effect of the revenue
and expense changes discussed above. On a pro forma basis, giving effect to the
Acquisitions as if they had occurred on January 1, 1995 and the exclusion of
incentive stock plan adjustments, referred to above, operating profit before
depreciation and amortization would have increased 6% in 1996. Operating profit
before depreciation and amortization is presented here to provide additional
information about the Company's ability to meet future debt service, capital
expenditures and working capital requirements. Operating profit before
depreciation and amortization should be considered in addition to and not as a
substitute for net income and cash flows as indicators of financial performance
and liquidity as reported in accordance with generally accepted accounting
principles.
Depreciation and amortization expense increased $69.1 million (22%) during 1996
as compared to 1995. The entire increase was directly attributable to the
Acquisitions. Depreciation charges of $12.5 million on capital expenditures made
during 1996 and 1995 were substantially offset by decreased amortization expense
resulting from certain intangible assets becoming fully amortized during the
periods.
Net interest expense decreased $46.9 million (15%) during 1996 compared to 1995.
A $80.1 million decrease that was due to the retirement of debt from the
issuance of preferred stock in 1995
(34)
<PAGE>
and 1996, and $4.7 million due to lower average bank debt borrowing rates, was
offset by interest on additional borrowings of $26.7 million for the
Acquisitions and additional interest of $11.2 million due to higher average bank
debt and the May 1996 debt restructurings.
Share of affiliates' net losses of $82.0 million for 1996 and $93.0 million for
1995 consist primarily of the Company's share of net losses in certain cable
affiliates, primarily A-R Cable ($74.0 million in 1996 and $83.1 million in
1995) and the Company's net share of the profits and losses in certain
programming businesses in which the Company has varying ownership interests,
which share of net losses amounted to $8.0 million in 1996 and $9.9 million in
1995.
Write off of deferred interest and financing costs consists of the write off of
deferred interest and financing costs of $24 million related to a refinancing of
the Company's subsidiary, V Cable, Inc. Also, during the third and fourth
quarters of 1996, approximately $10.7 million of deferred financing costs
incurred in connection with the Company's former $1.5 billion Restricted Group
credit facility were written off when the old facility was replaced with a new
$1.7 billion credit facility (see "Liquidity and Capital Resources"). In
addition, during the fourth quarter of 1996, $3.1 million of deferred financing
costs associated with the 1993 acquisitions of the Company's MFR subsidiary were
written off in connection with a new reorganization and refinancing involving
certain of the Company's subsidiaries. In 1995, deferred financing costs written
off were associated with Rainbow Programming's replacement of its original $105
million credit facility in January 1995 with a new $202 million facility.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment ($5.6 million)
made in connection with the acquisition of Cablevision of New York City in 1992.
Minority interest represents NBC's share of the net income of AMCC.
Other Items
Dividend requirements applicable to preferred stocks amounted to $127.8 million
for 1996, representing an increase of $107.5 for the year due to the Company's
issuances of preferred stock during the fourth quarter of 1995 and first quarter
of 1996.
(35)
<PAGE>
Results of Operations
The following table sets forth on a historical basis certain items related to
operations as a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA Years Ended December 31,
-------------------------------------------------------
1995 1994
---------------------- ---------------------
<S> <C> <C> <C> <C> <C>
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues................................................ 1,078,060 100% $ 837,169 100% $ 240,891
Operating expenses:
Technical ........................................... 412,479 38 302,885 36 (109,594)
Selling, general & administrative ................... 266,209 25 195,942 23 (70,267)
Restructuring charge ................................ - - 4,306 1 4,306
Depreciation and amortization ....................... 319,929 30 271,343 32 (48,586)
-------- -------- --------
Operating profit ....................................... 79,443 7 62,693 8 16,750
Other income (expense):
Interest expense, net ............................... (311,887) (29) (261,781) (31) (50,106)
Share of affiliates' net loss ....................... (93,024) (9) (82,864) (10) (10,160)
Gain on sale of affiliate interests, net ............ 35,989 3 - - 35,989
Write off of deferred financing costs ............... (5,517) - (9,884) (1) 4,367
Loss on redemption of debt .......................... - - (7,088) (1) 7,088
Provision for preferential payment to
related party ..................................... (5,600) -- (5,600) (1) -
Minority interest ................................... (8,637) (1) (3,429) - (5,208)
Miscellaneous ....................................... (8,225) (1) (7,198) (1) (1,027)
-------- -------- --------
Net loss ............................................... $(317,458) (29)% $(315,151) (38)% $ (2,307)
========= ========= =========
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1) ................................ $ 399,372 $ 334,036
Currently payable interest expense, net ................ 254,930 208,685
Net cash provided by operating activities (2) ......... 154,715 126,625
Net cash used in investing activities (2) .............. 551,234 953,870
Net cash provided by financing activities (2)........... 400,501 825,651
</TABLE>
(1) Operating profit before depreciation and amortization is presented here to
provide additional information about the Company's ability to meet future
debt service, capital expenditures and working capital requirements.
Operating profit before depreciation and amortization should be considered
in addition to and not as a substitute for net income and cash flows as
indicators of financial performance and liquidity as reported in accordance
with generally accepted accounting principles.
(2) See Item 8. - "Consolidated Statements of Cash Flows."
(36)
<PAGE>
Comparison of Year Ended December 31, 1995 Versus Year Ended December 31, 1994.
Revenues for the year ended December 31, 1995 increased $240.9 million (29%) as
compared to net revenues for the prior year. Approximately $148.0 million (18%)
of the increase was attributable to the Acquisitions; approximately $64.3
million (8%) to internal growth of over 145,800 in the average number of
subscribers during the year; and approximately $28.6 million (3%) resulted from
higher revenue per subscriber as a result of rate increases and to increases in
other revenue sources such as advertising and pay per view.
Technical expenses for 1995 increased $109.6 million (36%) over the 1994 amount.
Approximately 19% was attributable to the Acquisitions with the remaining 17%
attributable to increased costs directly associated with the growth in
subscribers and revenues discussed above, as well as to increases in programming
rates for certain of the Company's cable television services. As a percentage of
revenues, technical expenses increased 2% during 1995 as compared to 1994.
Selling, general and administrative expenses increased $70.3 million (36%) for
1995 as compared to the 1994 level. Approximately 18% was directly attributable
to the Acquisitions. The remaining 18% 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 1995
compared to 1994.
Operating profit before depreciation and amortization increased $65.3 million
(20%) to $399.4 million for 1995 from $334.0 million (including a $4.3 million
restructuring charge) for 1994. The 1995 increases were primarily the result of
the Acquisitions. Operating profit before depreciation and amortization is
presented here to provide additional information about the Company's ability to
meet future debt service, capital expenditures and working capital requirements.
Operating profit before depreciation and amortization should be considered in
addition to and not as a substitute for net income and cash flows as indicators
of financial performance and liquidity as reported in accordance with generally
accepted accounting principles.
Depreciation and amortization expense increased $48.6 million (18%) during 1995
as compared to 1994 primarily as a result of the Acquisitions. Increased
depreciation charges on capital expenditures made during 1995 and 1994 were
completely offset by decreased amortization expense, primarily the result of
certain intangible assets which became fully amortized during the periods.
Net interest expense increased $50.1 million (19%) during 1995 compared to 1994.
Approximately $29.8 million (11%) of the increase was attributable to the
Acquisitions. The remaining increase of 8% was due to higher average debt
balances (including borrowings of $110 million in March 1995 to acquire an
interest in MSG) and higher interest rates in 1995 compared to 1994, and to the
increasing accretion of interest on certain components of V Cable's debt which
require no current cash outlays.
(37)
<PAGE>
Share of affiliates' net losses of $93.0 million for 1995 and $82.9 million for
1994 consist primarily of the Company's share of net losses in certain cable
affiliates, primarily A-R Cable ($83.1 million in 1995 and $81.9 million in
1994), and the Company's net share of the profits and losses in certain
programming businesses in which the Company has varying ownership interests,
whose net losses amounted to $9.9 million in 1995 and $1.0 million in 1994.
Gain on sale of affiliate interests in 1995 resulted from the collection of
previously reserved interest, net of certain expenses, of $15.3 million on
advances to Cablevision of Chicago, a cable television affiliate which was sold
during 1995, and to a gain of $20.7 million on the sale of the Company's
interests in a programming partnership.
Write off of deferred financing costs in 1995 relates primarily to costs
associated with former credit facilities of subsidiaries of the Company which
are now members of the Restricted Group's Credit Agreement and to costs
associated with Rainbow Programming's original $105 million credit facility
which was replaced in January 1995 with a new $202 million facility.
Provision for preferential payment to related party in 1995 consists of the
expensing of $5.6 million representing the amount due with respect to an annual
payment made in connection with the CNYC Acquisition in 1992.
Minority interest represents NBC's share of the net income of AMCC.
Inflation. The effects of inflation on the Company's costs have generally been
offset by increases in subscriber rates.
Liquidity and Capital Resources
For financing purposes, the Company is structured as the Restricted Group,
consisting of Cablevision Systems Corporation and certain of its subsidiaries
and an unrestricted group of certain subsidiaries. Unrestricted Cable consists
of Cablevision of Ohio, U.S. Cable, Rainbow Media and CSC Technology, Inc.
The Restricted Group has executed limited recourse guarantees with respect to
A-R Cable, as described below, and has guaranteed the MFR Notes and the CFHI
Note. Otherwise, the Restricted Group does not guarantee the indebtedness of any
unrestricted subsidiary nor does any unrestricted subsidiary guarantee the
indebtedness of the Restricted Group.
(38)
<PAGE>
The following table presents selected unaudited historical results of operations
and other financial and statistical information related to the captioned groups
or entities as of and for the year ended December 31, 1996. Unrestricted Cable
consists of Cablevision of Ohio and U.S. Cable. Rainbow Media (including Rainbow
Advertising, SportsChannel New York and AMCC) and CSC Technology, Inc. is
included in "Other Unrestricted Subsidiaries." Adjustments have been made
between the Restricted Group and Unrestricted Cable to reflect the transfer of
certain cable television systems among the groups.
<TABLE>
<CAPTION>
Other
Restricted Unrestricted Unrestricted Total
Group Cable Subsidiaries Company
---------- ------------ ------------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues .................. $ 938,252 $ 158,382 $ 218,508 $1,315,142
Operating expenses:
Technical ................ 376,507 66,897 94,868 538,272
Selling, general and
administrative ....... 169,505 32,065 111,906 313,476
Depreciation and
amortization ......... 283,404 61,837 43,741 388,982
---------- ---------- --------- ----------
Operating profit
(loss) ................... $ 108,836 $ (2,417) $ (32,007) $ 74,412
========== ========= ========= ==========
Currently payable
interest expense ......... $ 206,368 $ 29,371 $ 20,247 $ 255,986
========== ========= ========= ==========
Total interest expense .... $ 213,723 $ 31,737 $ 22,717 $ 268,177
========== ========= ========= ==========
Senior debt ............... $ 984,554 $ 471,881 $ 221,074 $1,677,509
========== ========= ========= ==========
Subordinated debt ......... $1,464,373 $ -- $ -- $1,464,373
========== ========= ========= ==========
Obligation to related
party .................... $ 192,819(1) $ -- $ -- $ 192,819
========== ========= ========= ==========
Deficit investment in
affiliates ............... $ 506,919 $ -- $ 5,881 $ 512,800
========== ========= ========= ==========
Redeemable Exchangeable
Preferred Stock .......... $1,005,265 $ -- $ -- $1,005,265
========== ========= ========= ==========
Capital expenditures ..... $ 338,468 $ 84,855 $ 26,332 $ 449,165(2)
========== ========= ========= ==========
Ending Cable subscribers .. 1,888,000 557,000 -- 2,445,000
========== ========= ========= ==========
</TABLE>
- ----------
(1) Obligation of NYC LP Corp., a wholly-owned Restricted Group subsidiary,
relating to the CNYC Acquisition.
(2) Includes intercompany elimination of $490.
(39)
<PAGE>
Restricted Group
On April 17, 1996, the Long Island System of V Cable became a member of the
Restricted Group and the Cleveland system became a member of the Unrestricted
Group and a party to the Cablevision of Ohio Credit Agreement. This resulted in
a net increase in borrowings of $140 million under the Restricted Group's Credit
Agreement, defined below.
On September 5, 1996, the Company entered into a $1.7 billion reducing revolver
credit facility with a group of banks led by Toronto Dominion (Texas), Inc. as
Administrative and Arranging Agent. The total facility consists of a $1.3
billion facility ("Parent Facility") and a $400 million facility available to
the Restricted Group's New Jersey systems. Both facilities start reducing on
September 30, 1999, with a final maturity of September 30, 2005. The facilities
are collectively referred to as the "Credit Agreement."
On November 26, 1996, the Company borrowed $298 million under its $400 million
facility available to the Restricted Group's New Jersey systems and used the
proceeds to repay the amounts outstanding under the Cablevision of Newark,
Cablevision of Monmouth/Hudson and Cablevision of New Jersey credit facilities.
All of the systems described became part of the Restricted Group's New Jersey
systems ("Cablevision MFR").
On February 18, 1997, the Company advanced approximately $169 million to Rainbow
Media, bringing to $250 million the total investment used by Rainbow Media to
increase its ownership position in MSG to 50%. Rainbow Media expects to return
the advance of $169 million to the Company upon consummation of a new credit
facility. See Rainbow Media, below.
On February 3, 1997, the Company made a non-refundable deposit of $30 million in
partial payment of the purchase price under the Warburg Agreement to acquire
Warburg's ownership interests in A-R Cable, A-R Cable Partners and Cablevision
of Framingham. The transaction is expected to close in July, 1997.
On March 18, 1997, the Restricted Group had total usage under its $1.7 billion
Credit Agreement (including the credit facility for MFR, Inc., collectively the
"Credit Agreement") of $1,220 million and letters of credit of $17 million
issued on behalf of the Company. Unrestricted and undrawn funds available to the
Restricted Group under the Credit Agreement amounted to approximately $471
million at March 18, 1997.
The Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder, including covenants requiring the Restricted Group to maintain
certain financial ratios and restricting the permitted uses of borrowed funds.
As of March 18, 1997, the Company had entered into interest exchange (swap and
interest rate cap) agreements with several of their banks on a notional amount
of $225 million, on which the Company pays a fixed rate of interest and receives
a variable rate of interest for specified periods,
(40)
<PAGE>
with an average maturity of one and one-third years. The average effective
annual interest rate on all bank debt outstanding as of January 31, 1997 was
approximately 7.4%.
The Restricted Group, excluding CNYC, made capital expenditures of approximately
$289.8 million in 1996 and $150.2 million in 1995, primarily in connection with
system rebuilds and upgrades, the expansion of existing cable plant to pass
additional homes and other general capital needs. CNYC made capital expenditures
of $48.7 million in 1996 and $84.3 million in 1995.
Under the CNYC purchase agreement, the Restricted Group has guaranteed certain
payments to Mr. Dolan, consisting of an annual payment of $5.6 million (the
"Annual Payment") a $40 million minimum payment (the "Minimum Payment") and a
preferred payment (not to exceed $150 million) based upon an appraised value of
CNYC (the "Preferred Payment"). The Minimum Payment and the Preferred Payment
are each payable in cash or common stock at the Company's election. Under the
Credit Agreement, the Company is currently prohibited from paying amounts in
respect of the Preferred Payment in cash.
During 1996 the Restricted Group contributed a total of $10.2 million to
Cablevision MFR, $8.5 million in order for Cablevision MFR to make cash interest
payments on its promissory notes and $1.7 million to pay financing related costs
on the new facility. In addition, the Restricted Group contributed $20 million
during 1996, $10 million in February 1997 and $6 million in March 1997 to
Cablevision of Ohio which was used by Cablevision of Ohio to reduce bank debt.
The Company believes that, for the Restricted Group, internally generated funds
together with funds available under its existing Credit Agreement will be
sufficient through 1998 to meet its debt service and preferred stock dividend
requirements and to fund its planned capital expenditures.
The Company intends to incur additional costs to facilitate the startup of such
adjunct businesses as high speed data service, residential telephony and digital
video service. To roll out these businesses significantly beyond the development
phases, the Company will require additional capital. Further participation in
the PCS and DBS ventures will also require additional capital. The acquisition
of ITT's remaining interest in MSG following an exercise by ITT of its put
rights as described under "Business-Recent Developments" may be made, at the
Company's election, in either cash or shares of the Company's Class A Common
Stock. If such payment is made in cash, the Company would require up to $150
million of additional capital. See Item 1 - "Business - Recent Developments".
Any further acquisitions and/or other investments by the Company will be funded
by undrawn borrowing capacity and by possible increases in the amount available
under the Credit Agreement, additional borrowings from other sources, and/or
possible future sales of debt, equity or equity related securities.
The senior secured indebtedness incurred by A-R Cable is guaranteed by the
Restricted Group, but recourse against the Restricted Group is limited solely to
the common stock of A-R Cable pledged to A-R Cable's senior secured lenders. The
Cablevision MFR and CFHI promissory notes are guaranteed by the Company and the
obligations under the guarantees rank pari passu with the
(41)
<PAGE>
Company's public subordinated debt. The promissory notes are payable in cash or,
at the Company's option through the first anniversary of the notes, in shares of
the Company's Class A Common Stock.
The terms of the instruments governing A-R Cable's, Cablevision of Ohio's and
U.S. Cable's indebtedness prohibit transfer of funds (except for certain
payments, related to corporate overhead allocations, by A-R Cable, Cablevision
of Ohio and U.S. Cable) from A-R Cable, Cablevision of Ohio and U.S. Cable to
the Restricted Group and are expected to prohibit such transfer of funds for the
foreseeable future. The Restricted Group does not expect that such limitations
on transfer of funds or payments will have an adverse effect on the ability of
the Company to meet its obligations.
V Cable, Inc.
In March and April 1996, all remaining indebtedness of V Cable and VC Holding
amounting to approximately $924 million, including accrued interest, was repaid
from borrowings of $209 million under the new Cablevision of Ohio Credit
Facility (see Cablevision of Ohio, below), with the balance of approximately
$715 million provided by the Restricted Group. Upon payment and satisfaction of
all outstanding indebtedness of V Cable and VC Holding, such credit agreements
with GECC were terminated.
Cablevision of Ohio
The Company's subsidiaries Telerama, Inc., Cablevision of the Midwest, Inc., and
Cablevision of Cleveland, L.P., (collectively "Cablevision of Ohio") are party
to a credit facility with a group of banks led by NationsBank of Texas, N.A., as
agent (the "Cablevision of Ohio Credit Facility") which consists of a nine year
$425 million reducing revolving credit facility which matures on June 30, 2005
and a nine and one half year $75 million term loan facility which matures on
December 31, 2005. The reducing revolving facility has scheduled facility
reductions beginning in 1999. The term loan facility requires repayments of
$375,000 per year from 1997 through 2003 with the balance to be repaid in the
final two years. As of March 18, 1997, Cablevision of Ohio had outstanding
borrowings under its reducing revolving facility of $231 million, $1 million of
outstanding letters of credit leaving unrestricted and undrawn funds available
amounting to $193 million. The Restricted Group made a $20 million equity
contribution to Cablevision of Ohio in October, 1996, $10 million in February,
1997, and an additional $6 million in March, 1997, the proceeds of which were
used to pay down debt under the reducing revolving credit facility. The funds
available under the reducing revolving credit facility will be used to rebuild
the Cablevision of Ohio plant and for general corporate purposes. The
Cablevision of Ohio Credit Facility contains certain financial covenants that
may limit its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring Cablevision of Ohio to maintain certain financial
ratios.
The Company believes that for Cablevision of Ohio, internally generated funds
together with funds available under its existing credit agreement and capital
contributions from the Restricted Group,
(42)
<PAGE>
will be sufficient to meet its debt service requirements including amortization
requirements under its credit agreement and to fund its capital expenditures
through 1998.
U.S. Cable
On August 13, 1996, the Company purchased the partnership interests in U.S.
Cable that it did not already own for approximately $4 million and repaid the
balance of the debt owned to GECC of approximately $154 million. The redemption
of the partnership interests and repayment of the GECC debt was financed under a
new $175 million U.S. Cable credit facility. The credit facility is led by The
Bank of New York, as agent, and consists of a three year $175 million revolving
credit facility maturing on August 13, 1999. The revolving facility is payable
in full upon maturity. The funds available under the credit facility will be
used to finance working capital and general corporate purposes.
At March 18, 1997, U.S. Cable had $158.8 million outstanding borrowings under
its revolving credit facility leaving unrestricted and undrawn funds available
amounting to $16.2 million. The U.S. Cable facility contains certain financial
covenants that may limit its ability to utilize all of the undrawn funds
available thereunder, including covenants requiring U.S. Cable to maintain
certain financial ratios.
The Company believes that for U.S. Cable, internally generated funds together
with funds available under its existing credit agreement will be sufficient to
meet its debt service requirements and to fund its capital expenditures through
1998.
Rainbow Media
Rainbow Media has executed a new $300 million, three year credit facility with
Canadian Imperial Bank of Commerce and Toronto-Dominion (Texas), Inc. as
co-agents, and a group of banks. The actual closing of the credit facility was
subject to several conditions having been satisfied. Those conditions have now
been satisfied and the closing of the new facility is anticipated shortly. Upon
closing, approximately $172 million is expected to be drawn to refinance, in
part, the previous $202 million credit facility. The balance of the funds
utilized to fully repay the $202 million facility and to repay $169 million to
the Restricted Group will come from a distribution by American Movie Classics
Company. This distribution will be provided by funds made available under a new
$250 million, seven year revolving credit and term loan facility maturing in
2004 and closing concurrently with the Rainbow Media credit facility.
The Rainbow Media three year revolving credit facility matures on March 31, 2000
and is payable in full on such date. The funds available under the credit
facility will be used to finance working capital requirements and general
corporate purposes.
(43)
<PAGE>
The credit facility contains certain financial covenants that may limit its
ability to utilize all of the undrawn funds available thereunder, including
covenants requiring Rainbow Media to maintain certain financial ratios.
The Company believes that for Rainbow Media, internally generated funds together
with funds available under this credit agreement will be sufficient to meet its
debt service requirements and to fund its capital expenditures through 1998.
(44)
<PAGE>
Item 8. Consolidated Financial Statements.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report .................................. 46
Consolidated Balance Sheets - December 31, 1996 and 1995 ....... 47
Consolidated Statements of Operations - years
ended December 31, 1996, 1995 and 1994 .................... 49
Consolidated Statements of Stockholders' Deficiency - years
ended December 31, 1996, 1995 and 1994 .................... 50
Consolidated Statements of Cash Flows - years ended
December 31, 1996, 1995 and 1994 .......................... 51
Notes to Consolidated Financial Statements ..................... 53
(45)
<PAGE>
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, 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.
/s/ KPMG Peat Marwick LLP
--------------------------
KPMG Peat Marwick LLP
Jericho, New York
April 1, 1997
(46)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands)
ASSETS 1996 1995
---- ----
Cash and cash equivalents .............................. $ 11,612 $ 15,332
Accounts receivable trade (less allowance for
doubtful accounts of $12,955 and $12,678) ........... 105,406 100,506
Notes and other receivables ............................ 19,368 16,762
Prepaid expenses and other assets ...................... 23,053 19,353
Property, plant and equipment, net ..................... 1,390,971 1,026,355
Investments in affiliates .............................. 311,865 141,345
Advances to affiliates ................................. 7,855 6,909
Feature film inventory ................................. 134,258 143,916
Franchises, net of accumulated
amortization of $389,791 and $314,218 ............... 379,466 363,077
Affiliation agreements, net of accumulated
amortization of $44,385 and $20,598 ................. 162,388 124,848
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $549,256 and $518,178 ............... 436,606 468,133
Deferred financing, acquisition and other costs, net
of accumulated amortization of $29,755 and $23,899 .. 51,877 47,673
Deferred interest expense, net of accumulated
amortization of $42,142 ............................. - 28,096
---------- ----------
$3,034,725 $2,502,305
========== ==========
See accompanying notes to
consolidated financial statements.
(47)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable ..................................................... $ 186,409 $ 156,470
Accrued liabilities:
Interest ......................................................... 45,774 41,908
Payroll and related benefits ..................................... 63,987 47,997
Franchise fees ................................................... 26,453 21,980
Other ............................................................ 104,172 116,125
Accounts payable to affiliates ....................................... 14,012 12,708
Feature film rights payable .......................................... 115,437 128,000
Bank debt ............................................................ 1,670,245 992,469
Senior debt .......................................................... -- 898,803
Subordinated debentures .............................................. 1,323,105 923,608
Subordinated notes payable ........................................... 141,268 141,268
Obligation to related party .......................................... 192,819 192,945
Capital lease obligations and other debt ............................. 7,264 8,014
---------- ----------
Total liabilities ................................................ 3,890,945 3,682,295
---------- ----------
Deficit investment in affiliates ..................................... 512,800 453,935
---------- ----------
Series H Redeemable Exchangeable Preferred Stock ..................... 289,506 257,751
---------- ----------
Series M Redeemable Exchangeable Preferred Stock ..................... 715,759 -
---------- ----------
Commitments and contingencies
Stockholders' deficiency:
8% Series C Cumulative Preferred Stock, $.01 par
value, 112,500 shares authorized, 110,622 shares
issued ($100 per share liquidation preference) ............... 1 1
8% Series D Cumulative Preferred Stock, $.01 par
value, 112,500 shares authorized, none issued
($100 per share liquidation preference)...................... - -
8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock, $.01 par value, 1,380,000 shares
authorized and issued ($250 per share liquidation
preference) .................................................. 14 14
Class A Common Stock, $.01 par value, 50,000,000 shares
authorized, 13,583,676 and 14,210,599 shares issued .......... 136 142
Class B Common Stock, $.01 par value, 20,000,000 shares
authorized, 11,254,709 and 11,572,709 shares issued .......... 113 116
Paid-in capital .................................................. 164,538 247,671
Accumulated deficit .............................................. (2,539,087) (2,079,228)
---------- ----------
(2,374,285) (1,831,284)
Less treasury stock, at cost (1,091,553 shares) .................. -- (60,392)
---------- ----------
Total stockholders' deficiency ................................... (2,374,285) (1,891,676)
---------- ----------
$3,034,725 $2,502,305
========== ==========
</TABLE>
See accompanying notes
to consolidated financial statements.
(48)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER
31, 1996, 1995 AND 1994
(Dollars in thousands,
except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- ------
<S> <C> <C> <C> <C>
Revenues (including affiliate amounts of $9,487, $7,087
and $8,290) ......................................... $ 1,315,142 $ 1,078,060 $ 837,169
----------- ----------- --------
Operating expenses:
Technical (including affiliate amounts of $37,610,
$37,756, and $20,232) .............................. 538,272 412,479 302,885
Selling, general and administrative
(including affiliate amount of $(1,003) in 1994) ... 313,476 266,209 195,942
Restructuring charge ................................. -- -- 4,306
Depreciation and amortization ........................ 388,982 319,929 271,343
----------- ----------- ----------
1,240,730 998,617 774,476
----------- ----------- ----------
Operating profit ...................................... 74,412 79,443 62,693
----------- ----------- ----------
Other income (expense):
Interest expense ..................................... (268,177) (313,850) (263,299)
Interest income (including affiliate
amounts of $568, $468 and $493) ...................... 3,162 1,963 1,518
Share of affiliates' net loss ........................ (82,028) (93,024) (82,864)
Gain (loss) on sale of programming and affiliate
interests, net ....................................... -- 35,989 --
Write off of deferred interest and financing costs ... (37,784) (5,517) (9,884)
Loss on redemption of debentures ..................... -- -- (7,088)
Provision for preferential payment to related party .. (5,600) (5,600) (5,600)
Minority interest .................................... (9,417) (8,637) (3,429)
Miscellaneous, net ................................... (6,647) (8,225) (7,198)
----------- --------- ----------
(406,491) (396,901) (377,844)
----------- --------- ----------
Net loss .............................................. (332,079) (317,458) (315,151)
Dividend requirements applicable to preferred
stock ............................................... (127,780) (20,249) (6,385)
Net loss applicable to common shareholders ............ $ (459,859) $ (337,707) $(321,536)
=========== =========== ==========
Net loss per common share ............................. $ (18.52) $ (14.17) $ (13.72)
=========== =========== ==========
Average number of common shares outstanding
(in thousands) ....................................... 24,827 23,826 23,444
=========== =========== ==========
</TABLE>
See accompanying notes
to consolidated financial statements.
(49)
<PAGE>
<TABLE>
<CAPTION>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
Paid-in Capital
(Par Value
Series C Series E Series I Class A Class B in Excess
Preferred Preferred Preferred Common Common of Capital Accumulated Treasury
Stock Stock Stock Stock Stock Contributed Deficit Stock Total
----- ----- ----- ----- ----- ----------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 .... $1 $ - $ - $ 108 $ 124 $(80,255) $(1,419,985) (3,237) $(1,503,244)
Net loss .................... - - - - - - (315,151) - (315,151)
Issuance of Series E
preferred stock ........... - 1 - - - 98,406 - - 98,407
Cost of acquisition ......... - - - - - (101,600) - - (101,600)
Employee stock transactions . - - - 5 - 9,433 - - 9,438
Conversion of Class B to
Class A ................... - - - 6 (6) - - - -
Preferred dividend
requirements .. - - - - - - (6,385) - (6,385)
--- --- --- --- --- -------- ---------- ------ ---------
Balance December 31, 1994 .... 1 1 - 119 118 (74,016) (1,741,521) (3,237) 1,818,535)
Net loss .................... - - - - - - (317,458) - (317,458)
Issuances of preferred stock. - - 14 - - 323,317 - - 323,331
Redemption of Series E
preferred stock ........... - (1) - - - (103,002) - - (103,003)
Employee stock transactions . - - - 5 - 7,715 - - 7,720
Payment for acquisition, net - - - 16 - 93,657 - (57,155) 36,518
Conversion of Class B to
Class A ................... - - - 2 (2) - - - -
Preferred dividend
requirements ............. - - - - - - (20,249) - (20,249)
--- --- --- --- --- -------- ---------- ------ ---------
Balance December 31, 1995 .... 1 - 14 142 116 247,671 (2,079,228) (60,392) (189,676)
Net loss .................... - - - - - - (332,079) - (332,079)
Issuances of preferred stock - - - - - (25,979) - - (25,979)
Employee stock transactions.. - - - 1 - 3,228 - - 3,229
Conversion of Class B to
Class A.................... - - - 3 (3) - - - -
Retirement of treasury stock - - - (10) - (60,382) - 60,392 -
Preferred dividend
requirements .............. - - - - - (127,780) - (127,780)
--- --- --- --- --- -------- ---------- ------ ---------
Balance December 31, 1996 .... $1 $ - $14 $ 136 $ 113 $ 164,538 $(2,539,087) $ - $(2,374,285)
=== === ===== ===== ===== ========= =========== ====== ===========
</TABLE>
See accompanying notes
to consolidated financial statements.
(50)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ----- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ........................................................... $(332,079) $(317,458) $(315,151)
--------- --------- ---------
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization ................................... 388,982 319,929 271,343
Share of affiliates' net loss ................................... 82,028 93,024 82,864
Minority interest ............................................... 9,417 8,637 3,429
(Gain) loss on sale of programming and affiliates interests, net -- (35,989) --
Write off of deferred interest and financing costs .............. 37,784 5,517 9,884
Loss on redemption of debentures ................................ -- -- 7,088
Loss on sale of equipment, net .................................. 4,733 4,077 3,844
Amortization of deferred financing .............................. 7,395 5,320 4,844
Amortization of deferred interest expense ....................... 4,684 14,047 14,048
Amortization of debenture discount .............................. 112 74 148
Accretion of interest on debt ................................... 6,828 39,479 35,574
Change in assets and liabilities, net of effects of acquisitions:
Increase in accounts receivable trade ....................... (2,709) (17,200) (3,923)
Decrease in notes receivable affiliates ..................... -- 357 715
Increase in notes and other receivables ..................... (1,810) (2,421) (3,076)
Increase in prepaid expenses and other assets ............... (12,428) (3,189) (8,675)
(Increase) decrease in advances to affiliates ............... (2,168) 3,994 1,326
Increase (decrease) in feature film inventory ............... 9,658 (14,420) 7,760
Increase in accounts payable ................................ 15,830 24,685 19,069
Increase (decrease) in accrued liabilities .................. (4,618) 22,412 (2,126)
Increase (decrease) in accounts payable to affiliates ....... 1,304 (2,746) 6,037
Increase (decrease) in feature film rights payable .......... (12,563) 6,586 (8,397)
--------- --------- ---------
Total adjustments .................................................. 532,459 472,173 441,776
Net cash provided by operating activities .......................... 200,380 154,715 126,625
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures ................................................. (449,165) (287,138) (284,858)
Payments for acquisitions, net of cash acquired ...................... (113,095) (293,902) (673,611)
Proceeds from sale of programming and affiliate interests ............ -- 32,850 --
Proceeds from sale of equipment ...................................... 814 1,873 1,515
(Increase) decrease in investments in affiliates, net ................ (179,536) (3,901) 3,457
Additions to intangible assets, net .................................. (766) (1,016) (373)
Net cash used in investing activities .............................. (741,748) (551,234) (953,870)
--------- --------- ---------
</TABLE>
See accompanying notes
to consolidated financial statements.
(51)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(Dollars in thousands)
(continued)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of bank debt to finance acquisitions ............ $ 113,095 $ 293,902 $ 542,608
Proceeds from bank debt .................................. 1,940,471 425,916 965,654
Repayment of bank debt ................................... (1,576,585) (1,062,768) (698,435)
Proceeds from senior debt ................................ 12,500 10,000 2,500
Repayment of senior debt ................................. (918,131) (13,116) (8,500)
Redemption of debentures ................................. -- -- (202,000)
Issuance of subordinated notes payable and other debt .... -- -- 145,268
Issuance of subordinated debentures ...................... 399,385 300,000 --
Net proceeds from issuances of redeemable exchangeable
convertible preferred stock ............................ 624,021 573,331 98,407
Redemption of redeemable exchangeable convertible
preferred stock ........................................ -- (103,003) --
Preferred stock dividends ................................ (30,266) (12,498) (6,385)
Issuance of common stock ................................. 3,229 7,720 9,438
Obligation to related party .............................. (126) (134) --
Payments on capital lease obligations and other debt ..... (3,321) (6,583) (2,678)
Additions to deferred financing and other ................ (26,624) (12,266) (20,226)
----------- ----------- ---------
Net cash provided by financing activities .............. 537,648 400,501 825,651
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents ........ (3,720) 3,982 (1,594)
Cash and cash equivalents at beginning of year .............. 15,332 11,350 12,944
----------- ----------- ---------
Cash and cash equivalents at end of year.................... $ 11,612 $ 15,332 $ 11,350
=========== =========== =========
</TABLE>
See accompanying notes
to consolidated financial statements.
(52)
<PAGE>
CABLEVISION SYSTEMS CORPORATION 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
Cablevision Systems Corporation and its majority-owned subsidiaries (the
"Company") own and operate cable television systems. The Company also has
ownership interests in and manages other cable television systems and has
interests in companies that produce and distribute national and regional
programming services and that provide advertising sales services for the cable
television industry. The Company's revenues are derived principally from the
provision of cable television and programming services, which include recurring
monthly fees paid by subscribers. For financing purposes, Cablevision Systems
Corporation and certain of its subsidiaries are structured as a restricted group
and an unrestricted group (see Note 4).
Principles of Consolidation
The consolidated financial statements include the accounts of Cablevision
Systems Corporation and its majority-owned subsidiaries. The Company's interests
in less than majority-owned entities and its 100% common stock interest in A-R
Cable Services, Inc. (see Note 2) are carried on the equity method. Advances to
affiliates are recorded at cost, adjusted when recoverability is doubtful. All
significant intercompany transactions and balances are eliminated in
consolidation.
Revenue Recognition
The Company recognizes cable television and programming revenues as services are
provided to subscribers. Advertising revenues are recognized when commercials
are telecast.
Long-Lived Assets
Property, plant and equipment, including construction materials, are carried at
cost, which includes all direct costs and certain indirect costs associated with
the construction of cable television transmission and distribution systems, and
the costs of new subscriber installations.
Franchises are amortized on the straight-line basis over the average remaining
terms (7 to 11 years) of the franchises at the time of acquisition. Affiliation
agreements are amortized on a straight-line basis over an average life of
approximately 10 years. Other intangible assets are amortized on the
straight-line basis over the periods benefited (2 to 10 years), except that
excess costs over fair value of net assets acquired are being amortized on the
straight-line basis over periods ranging from 5 to 20 years.
(53)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective January 1, 1996. 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. The adoption of
Statement No. 121 had no impact on the Company's financial position or results
of operations.
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 amortized
on the straight-line method over either the contract period or the intended
number of days to be aired. Amounts payable during the five years subsequent to
December 31, 1996 related to feature film telecast rights amount to $24,369 in
1997, $18,464 in 1998, $16,790 in 1999, $6,067 in 2000 and $12,395 in 2001.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized, on the straight-line
basis, over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", which requires the
liability method of accounting for deferred income taxes and permits the
recognition of deferred tax assets, subject to an ongoing assessment of
realizability.
Loss Per Share
Net loss per common share is computed based on the average number of common
shares outstanding after giving effect to dividend requirements on the Company's
preferred stock. Common stock equivalents were not included in the computation
as their effect would be to decrease net loss per share.
(54)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers
short-term investments with a maturity at date of purchase of three months or
less to be cash equivalents. The Company paid cash interest expense of
approximately $252,120, $252,344 and $198,535 during 1996, 1995 and 1994,
respectively. During 1996, 1995 and 1994, the Company's noncash investing and
financing activities included capital lease obligations of $2,571, $1,086 and
$4,020, respectively, incurred when the Company entered into leases for new
equipment; obligation to related party of $101,460 in 1994 (see Note 8); Series
H preferred stock dividend requirements of $31,755 and $7,751 in 1996 and 1995,
respectively, and Series M preferred stock dividend requirements of $65,759 in
1996 (See Note 5); and the issuance in 1995 of 687,623 shares of the Company's
Class A Common Stock (fair value of $37,733) for the acquisition of Cablevision
of Boston (See Note 2).
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS
1996 Acquisitions:
In August, 1996, the Company acquired the remaining approximate 80% partnership
interest in U.S. Cable that it did not already own for approximately $4,010 and
repaid the debt owed by U.S. Cable to General Electric Capital Corporation
("GECC") of approximately $154,000 with proceeds from a new $175,000 credit
facility (see Note 4).
See Note 8 - "Affiliate Transactions" for a discussion of the Company's
investment in Northcoast Operating Co., Inc.
In May 1996, the Company entered into an agreement (the "Warburg Agreement")
with Warburg, Pincus Investors, L.P. ("Warburg") to acquire from Warburg the
interests that the Company does not already own in A-R Cable Services, Inc.
("A-R Cable"), A-R Cable Partners, Cablevision of Newark and Cablevision of
Framingham (each a "Warburg Company") for an aggregate purchase
(55)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
price of $183,000 subject to certain adjustments and regulatory approval. In
September, 1996, the Company acquired the 75% equity interest that Warburg owned
in Cablevision of Newark for approximately $37,000, giving the Company full
ownership of Cablevision of Newark. At December 31, 1996, acquisition of the
other Warburg Companies have not been completed (see Note 14).
The acquisitions of U.S. Cable and Cablevision of Newark were accounted for as
purchases with the operations of these companies being consolidated with those
of the Company as of the acquisition dates. The excess of the purchase price
over the net book value of assets acquired approximates $211,707 ($148,439 for
the acquisition of U.S. Cable and $63,268 for the acquisition of Cablevision of
Newark) and will be allocated to the specific assets acquired when independent
appraisals are completed. For purposes of the 1996 consolidated financial
statements, the excess purchase price has been recorded as excess costs over
fair value of net assets acquired and is being amortized over 7 years.
In October, 1996, Rainbow Programming Holdings, Inc., a wholly-owned subsidiary
of the Company, ("Rainbow Programming") made a payment of $81.25 million to ITT
Corporation, a Delaware Corporation ("ITT"), increasing its partnership interest
in MSG Holdings, L.P. ("MSG Holdings") from approximately 15.2% to approximately
26.6%. See Note 14 for a description of the transaction in which Rainbow
Programming equalized its interests in MSG Holdings and a discussion of plans to
acquire a majority interest in MSG Holdings.
During 1996, Rainbow Programming invested approximately $5,756 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 Programming also contributed to the joint venture its interest in
certain agreements with the licensee of such frequencies.
1995 Acquisitions:
In March 1995, MSG Holdings, a partnership among subsidiaries of Rainbow
Programming and subsidiaries of ITT acquired the business and assets of Madison
Square Garden Corporation ("MSG") in a transaction in which MSG merged with and
into MSG Holdings. The purchase price paid by MSG Holdings for MSG was
$1,009,100. MSG Holdings funded the purchase price of the acquisition through
(i) borrowings of $289,100 under a $450,000 credit agreement among MSG Holdings,
various lending institutions and Chemical Bank as administrative agent, (ii) an
equity contribution from Rainbow Programming of $110,000, and (iii) an equity
contribution from ITT of $610,000. ITT, Rainbow Programming and the Company were
parties to an agreement made as of August 15, 1994, as amended, (the "Bid
Agreement") that provided Rainbow Programming the right to acquire interests in
MSG Holdings from ITT sufficient to equalize the interests of ITT and Rainbow
Programming in MSG Holdings by making certain scheduled payments totalling
(56)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
$250,000 (plus interest on any unpaid portion thereof) on specified dates up to
and including March 17, 1997 (see Note 14).
In July 1995, Rainbow Programming consummated the purchase from National
Broadcasting Company ("NBC") of the approximate 50% interests in each of
SportsChannel Associates (New York) ("SportsChannel New York") and Rainbow News
12 Company ("Rainbow News 12") that NBC owned for approximately $95,500, giving
Rainbow Programming a 100% interest in SportsChannel New York and Rainbow News
12. The purchase was financed by an additional drawdown of $94,000 under Rainbow
Programming's $202,000 amended and restated credit facility and by a $2,500
equity contribution from the Company for the balance of the purchase price and
related fees.
In December 1995, the Company acquired the interests in Cablevision of Boston
Limited Partnership ("Cablevision of Boston") that it did not previously own
pursuant to an agreement entered into by the Company and Cablevision of Boston.
In connection with the acquisition, the limited partners (other than the
Company) of Cablevision of Boston received approximately 680,266 shares of the
Company's Class A Common Stock valued at $37,329 and the Company paid
approximately $83,456 for the repayment of bank debt, fees and expenses and to
fund payments to Charles F. Dolan ("Mr. Dolan"), as described below, primarily
with funds borrowed under the Company's Credit Agreement. Upon consummation of
the acquisition, Cablevision of Boston became a member of the Restricted Group
(see Note 4). Mr. Dolan, a former general partner of Cablevision of Boston and
the Chairman of the Board of the Company, received 7,357 shares of the Company's
Class A Common Stock valued at $404 and approximately $20,782 in cash to repay a
portion of Cablevision of Boston's indebtedness to him. In connection with the
acquisition, the Company received 1,041,553 shares of its Class A Common Stock
valued at $57,155 (such shares are reflected as treasury shares at December 31,
1995). As part of the acquisition of Cablevision of Boston, the Company acquired
99.5% of the partnership interests in Cablevision of Brookline Limited
Partnership ("Cablevision of Brookline"), a partnership affiliated with
Cablevision of Boston, and entered into an agreement with Mr. Dolan with respect
to his remaining 0.5% general partnership interest in Cablevision of Brookline,
whereby the Company has a right of first refusal to acquire such interest
through January 1, 2002.
The acquisition of Cablevision of Boston and the purchase of interests in
SportsChannel New York and Rainbow News 12 were accounted for as purchases with
the operations of these companies being consolidated with those of the Company
as of the acquisition dates. The excess of the purchase price over the book
value of assets acquired approximated $210,426 ($115,759 for the acquisition of
Cablevision of Boston and $94,667 for the acquisition of SportsChannel New York
and Rainbow News 12) and was allocated to the specific assets acquired when
independent appraisals were completed in 1996. For purposes of the 1995
consolidated financial statements, the excess purchase price was recorded as
excess costs over fair value of net assets acquired and amortization was
calculated based on an average period of approximately 10 years.
(57)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
For 1996, these excess costs have been allocated based upon independent
appraisals as follows:
Plant and equipment $ 23,181
Affiliation agreements 61,327
Franchises 93,889
Excess cost over fair value of assets acquired 32,029
----------
$210,426
==========
1994 Acquisitions:
In March 1994, Cablevision of Cleveland, L.P. ("Cablevision Cleveland"), a
partnership whose partners are subsidiaries of the Company, purchased
substantially all of the assets and assumed certain liabilities of North Coast
Cable Limited Partnership, which operates a cable television system in
Cleveland, Ohio (the "North Coast Cable Acquisition"). The operations of North
Coast Cable are consolidated with those of the Company as of the date of
acquisition. The net cash purchase price for interests not previously owned by
the Company (and excluding excess liabilities assumed by the Company) aggregated
approximately $103,359 including expenses. The cost of the acquisition was
financed principally by borrowings under the Company's credit agreement.
In June 1994, A-R Cable Partners, a partnership comprised of subsidiaries of the
Company and E.M. Warburg, Pincus & Co., Inc. completed the purchase of certain
assets of Nashoba Communications, a group of three limited partnerships, for a
purchase price of approximately $90,500, of which approximately $47,000 was
provided by a senior credit facility secured by the assets of such systems. The
remainder of the purchase price was provided by equity contributions and
subordinated loans from the partners in A-R Cable Partners. The Company provided
approximately $12,000 for its 30% interest in A-R Cable Partners and $1,500 in
loans.
In July 1994, Rainbow Programming purchased an additional 50% interest in
American Movie Classics Company ("AMCC") for a purchase price of approximately
$181,000, increasing Rainbow Programming's interest in AMCC to approximately
75%. The results of AMCC's operations are consolidated with those of the Company
as of the date of acquisition. The acquisition was financed with a separate
$105,000 credit facility entered into by Rainbow Programming and by borrowings
under the Company's credit agreement of approximately $76,000 which was
contributed to Rainbow Programming.
In August 1994, Cablevision MFR, Inc. ("Cablevision MFR"), a wholly-owned
subsidiary of the Company, acquired substantially all of the assets of Monmouth
Cablevision Associates, L.P. ("Monmouth Cablevision") and Riverview Cablevision
Associates, L.P. ("Riverview Cablevision") consisting of cable television
systems in New Jersey. The operations of Monmouth Cablevision and Riverview
Cablevision are consolidated with those of the Company as of the date of
acquisition. The aggregate purchase price for the two New Jersey systems was
$391,215.
(58)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Approximately $237,800 of such purchase price was financed by a senior
credit facility of newly formed subsidiaries of Cablevision MFR secured solely
by the assets of the systems. The remaining $153,415 of such purchase price was
paid with cash of approximately $12,147 and the issuance, by Cablevision MFR, of
subordinated promissory notes (the "MFR Notes") totalling $141,268 due in 1998.
Also in August 1994, Cablevision of Framingham Holdings, Inc. ("CFHI"), a
corporation owned 30% by the Company and 70% by E.M. Warburg, Pincus Investors,
L.P., acquired substantially all of the assets of Framingham Cablevision
Associates, L.P. ("Framingham Cablevision") consisting of cable television
systems in Massachusetts. The aggregate purchase price, including fees and
expenses, for Framingham Cablevision's assets was $37,517. Approximately $22,700
of the purchase price was financed by a senior credit facility of a wholly-owned
subsidiary of CFHI secured by the assets of Framingham Cablevision;
approximately $9,732 was paid by the issuance by CFHI of a promissory note,
guaranteed by the Company, due in 1998 and the remaining amount was financed by
capital contributions and loans to CFHI from its stockholders. The Company
provided a capital contribution of approximately $1,320 and $300 as a loan for
its 30% interest in CFHI.
The acquisitions of North Coast Cable, AMCC, Monmouth Cablevision and Riverview
Cablevision were accounted for as purchases whereby the acquisition costs were
allocated to the various assets acquired and liabilities assumed based upon
their respective fair values. The excess of the purchase price over the book
value of net assets acquired of these entities, aggregating $625,946, has been
allocated to the specific assets acquired based on independent appraisals as
follows:
Plant and equipment $ 31,200
Affiliation agreements 145,150
Franchises 362,301
Excess cost over fair value of net assets acquired 87,295
---------
$ 625,946
=========
(59)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Pro Forma Results of Operations
The following unaudited pro forma condensed results of operations are presented
for the years ended December 31, 1996 and 1995 as if the acquisitions of U.S.
Cable and Cablevision of Newark had occurred on January 1, 1996 and 1995,
respectively, and as if the acquisition of Cablevision of Boston had occurred on
January 1, 1995.
Years Ended December 31,
---------------------------------
1996 1995
---- ----
Net revenues $1,382,571 $1,236,987
========== ==========
Net loss $ (356,953) $ (365,875)
=========== ==========
Net loss per common share $ (19.52) $ (15.77)
============= =============
The proforma information presented above gives effect to certain adjustments,
including the amortization of acquired intangible assets and increased interest
expense on acquisition debt. The proforma 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 acquisitions been made at
the beginning of the periods indicated, or which may occur in the future.
DISPOSITIONS
In July 1995, Rainbow Programming sold a minority general partnership interest
in Courtroom Television Network to NBC for cash totalling $5,000. The Company
recognized a net gain of $20,662 on the sale.
In August 1995, Cablevision of Chicago ("Cablevision of Chicago"), an affiliate
of the Company, sold its cable television systems to Continental Cablevision,
Inc. The Company did not have a material ownership interest in Cablevision of
Chicago but had loans and advances outstanding to Cablevision of Chicago in the
amount of $12,346 (plus accrued interest which the Company had fully reserved).
The Company recognized a net gain of approximately $15,327 on the sale,
representing the accrued interest which the Company had reserved.
RESTRUCTURING
A-R Cable. 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
(60)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
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 has financial or voting control over A-R Cable's
operations. For reporting purposes, the Company accounts for its investment in
A-R Cable using the equity method of accounting whereby the Company records 100%
of the net losses of A-R Cable since it continues to own 100% of A-R Cable's
outstanding common stock.
Included in share of affiliates' net loss in the accompanying consolidated
statements of operations for the years ended December 31, 1996, 1995 and 1994 is
$68,492, $72,257 and $67,092, respectively, representing A-R Cable's net loss
plus dividend requirements for the Series A Preferred Stock of A-R Cable, which
is not owned by the Company. Included in deficit investment in affiliates is
$504,496 and $442,940 at December 31, 1996 and 1995, respectively, representing
A-R Cable losses and external dividend requirements recorded by the Company in
excess of amounts invested by the Company therein. At December 31, 1996 and 1995
and for the years then ended, A-R Cable's total assets, liabilities (including
preferred stock) and net revenues amounted to $204,072 and $222,831; $792,564
and $738,581; $120,355 and $113,292, respectively.
The Company continues to guarantee the debt of A-R Cable to GECC under a limited
recourse guarantee wherein recourse to the Company is limited solely to the
common and Series B Preferred Stock of A-R Cable owned by the Company.
The Company manages A-R Cable under a management agreement that provides for
cost reimbursement, an allocation of overhead charges and a management fee of
3-1/2% of gross receipts, as defined, with interest on unpaid amounts thereon at
a rate of 10% per annum. The 3-1/2% fee and interest thereon is payable by A-R
Cable only after repayment in full of its senior debt and certain other
obligations. Under certain circumstances, the fee is subject to reduction to
2-1/2% of gross receipts.
During 1996 and 1995 CSC purchased additional shares of the new Series B
Preferred Stock for a cash investment of $2,025 and $3,740, respectively, and
during 1995 Warburg Pincus purchased additional shares of the new Series A
Preferred Stock for a cash investment of $210.
As described in the "Acquisitions - 1996 Acquisitions" section of this Note 2,
in May 1996, the Company entered into an agreement with Warburg to acquire from
Warburg the interests that the Company does not own in certain companies,
including A-R Cable. The A-R Cable acquisition had not been completed at
December 31, 1996 (see Note 14). After July 2, 1997, if the Company has not
completed the A-R Cable acquisition, Warburg may irrevocably cause the sale of
A-R Cable.
(61)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items, which are
depreciated or amortized primarily on a straight-line basis over the estimated
useful lives shown below:
December 31,
--------------- Estimated
Communication transmission 1996 1995 Useful Lives
---- ---- ------------
and distribution systems:
Converters ......................... $ 430,028 $ 329,091 3 to 5 years
Headends ........................... 88,386 59,320 6 to 9 years
Central office equipment ........... 35,992 26,443 10 years
Distribution systems ............... 1,416,468 1,127,836 10 to 15 years
Program, service and test
equipment ........................ 150,433 105,759 4 to 7 years
Microwave equipment ................ 6,082 5,442 7 1/2 years
Construction in progress (including
materials and supplies) .......... 124,993 74,499 --
Furniture and fixtures ................. 34,556 26,038 5 to 12 years
Transportation equipment ............... 53,854 41,352 2 to 12 years
Building and building improvements ..... 34,076 23,033 22 to 39 years
Leasehold improvements ................. 48,671 41,939 Term of lease
Land and land improvements ............. 10,458 9,118 --
---------- ---------
2,433,997 1,869,870
Less accumulated depreciation and
amortization ......................... 1,043,026 843,515
---------- ---------
$1,390,971 $1,026,355
========== ==========
NOTE 4. DEBT
Bank Debt
Restricted Group
For financing purposes, Cablevision Systems Corporation and certain of its
subsidiaries (including Cablevision of Boston as of December 15, 1995, the Long
Island system formerly included as part of V Cable, as of April 17, 1996,
Cablevision of Newark as well as Cablevision of Monmouth, Cablevision of Hudson
and Cablevision MFR as of November 20, 1996) are collectively referred to as the
"Restricted Group". On September 5, 1996, the Restricted Group entered into a
new $1.7
(62)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
billion reducing revolver credit facility (the "Credit Agreement") with
a group of banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as
administrative and arranging agent. This Credit Agreement replaced a $1.5
billion facility that was also with a group of banks led by Toronto-Dominion.
The Credit Agreement consists of a $1.3 billion facility ("Parent Facility") and
a $400 million facility available to the Restricted Group's New Jersey systems.
Both facilities start reducing on September 30, 1999, with a final maturity of
September 30, 2005. The total amount of bank debt outstanding under the Credit
Agreement at December 31, 1996 was $977,566 ($559,244 was outstanding at
December 31, 1995 under the previous $1.5 billion credit facility). As of
December 31, 1996, approximately $16,900 was restricted for certain letters of
credit issued for the Company.
Unrestricted and undrawn funds available to the Restricted Group under the
Credit Agreement amounted to approximately $705,500 at December 31, 1996. The
Credit Agreement contains certain financial covenants that may limit the
Restricted Group's ability to utilize all of the undrawn funds available
thereunder. The Credit Agreement contains various restrictive covenants, among
which are the maintenance of various financial ratios and tests, and limitations
on various payments, including preferred dividends. The Company is restricted
from paying any dividends on its common stock. The Company was in compliance
with the covenants of its Credit Agreement at December 31, 1996.
Interest on outstanding amounts may be paid, at the option of the Company, based
on various formulas which relate to the prime rate, rates for certificates of
deposit or other prescribed rates. The Company has entered into interest rate
swap agreements with several banks on a notional amount of $160,000 as of
December 31, 1996 whereby the Company pays a fixed rate of interest and receives
a variable rate. In addition, the Company has entered into interest rate cap
agreements on a notional amount of $65,000 which limits the interest rate the
Company will pay to 8%. Interest rates and terms vary in accordance with each of
the agreements. The Company enters into interest rate swap agreements to hedge
against interest rate risk, as required by its Credit Agreement, and therefore
accounts for these agreements as hedges of floating rate debt, whereby interest
expense is recorded using the revised rate, with any fees or other payments
amortized as yield adjustments. As of December 31, 1996, the interest rate
agreements expire at various times through the year 2000 and have a weighted
average life of approximately one and one-third years. 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 7.2% and 8.6% on December 31, 1996 and 1995, respectively. The Company is
also obligated to pay fees of 3/8 of 1% per annum on the unused loan commitment
and from 1-3/8% to 1-5/8% per annum on letters of credit issued under the Credit
Agreement.
Substantially all of the assets of the Restricted Group, amounting to
approximately $2,278,246 at December 31, 1996, support borrowings under the
Credit Agreement.
(63)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Cablevision MFR
Cablevision MFR and its subsidiaries, Monmouth Cablevision and Riverview
Cablevision, were party to a credit facility with a group of banks led by
Nations Bank of Texas, N.A., as agent (the "MFR Credit Facility"). The maximum
amount available to Cablevision MFR under the MFR Credit Facility was $285,000
with a final maturity at June 30, 2003. The facility was a reducing revolving
loan, with scheduled facility reductions beginning on March 31, 1996 resulting
in a 15% reduction by December 31, 1998. As of December 31, 1995, Cablevision
MFR had outstanding bank borrowings of $195,200. On November 26, 1996, the
outstanding balance of $207,800 under the MFR credit facility was repaid from
funds borrowed under the new restricted group facility and the MFR facility was
terminated.
Unrestricted Cable
Cablevision of Ohio
The Company's subsidiaries Telerama, Inc., Cablevision of the Midwest, Inc. and
Cablevision of Cleveland L.P., (collectively "Cablevision of Ohio") are party to
a credit facility entered into during 1996 with a group of banks led by
NationsBank of Texas, N.A., as agent, which consists of a nine year $425,000
reducing revolving credit facility which matures on June 30, 2005 and a nine and
one half year $75,000 term loan facility which matures on December 31, 2005. The
reducing revolving facility has scheduled facility reductions beginning in 1999.
The term loan facility requires repayments of $375 per year from 1997 through
2003 with the balance to be repaid in the final two years. As of December 31,
1996, Cablevision of Ohio had outstanding borrowings under its reducing
revolving facility of $237,189 and approximately $1,100 of outstanding letters
of credit, leaving unrestricted and undrawn funds available amounting to
approximately $186,700. Amounts outstanding under the facility bear interest at
varying rates based upon the banks base rate or LIBOR rate, as defined in the
facility. Cablevision of Ohio has entered into interest rate swap agreements
with several banks on a notional amount of $175,000 as of December 31, 1996
whereby the Company pays a fixed rate of interest and receives a variable rate.
Interest rates and terms vary in accordance with each of the agreements.
Cablevision of Ohio enters into interest rate swap agreements to hedge against
interest rate risk, and therefore accounts for these agreements as hedges of
floating rate debt, whereby interest expense is recorded using the revised rate,
with any fees or other payments amortized as yield adjustments. The interest
rate agreements expire in November 1999. Cablevision of Ohio is exposed to
credit loss in the event of nonperformance by the other parties to the interest
rate swap agreements, however, Cablevision of Ohio does not anticipate
nonperformance by the counterparties. The weighted average interest rate was
7.9% on December 31, 1996.
Substantially all of the equity interests held by the Company in Cablevision of
Ohio have been pledged to secure borrowings under the credit facility.
(64)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The Cablevision of Ohio Credit Facility contains certain financial covenants
that may limit its ability to utilize all of the undrawn funds available
thereunder, including covenants requiring Cablevision of Ohio to maintain
certain financial ratios. Cablevision of Ohio was in compliance with all
restrictive covenants of the credit facility at December 31, 1996.
U.S. Cable
In August 1996, the Company repaid the balance of the debt owed to GECC of
approximately $154,000. The repayment of the GECC debt was financed under a new
$175,000 U.S. Cable credit facility. The credit facility is with a group of
banks led by the Bank of New York, as agent, and consists of a three year
$175,000 revolving credit facility maturing on August 13, 1999. The revolving
credit facility is payable in full upon maturity. As of December 31, 1996 U.S.
Cable had outstanding borrowings under its revolving credit facility of
approximately $159,500, leaving unrestricted and undrawn funds available
amounting to $15,500. Amounts outstanding under the facility bear interest at
varying rates based upon the banks base rate or LIBOR rate, as defined in the
loan agreement. The weighted average interest rate was 7.6 % on December 31,
1996.
Substantially all of the partnership interests held by the Company in U.S. Cable
are pledged to secure borrowings under the credit facility.
The U.S. Cable facility contains certain financial covenants that may limit its
ability to utilize all of the undrawn funds available thereunder, including
covenants requiring U.S. Cable to maintain certain financial ratios. U.S. Cable
was in compliance with all restrictive covenants of the credit facility at
December 31, 1996.
Rainbow Programming
In January 1995, Rainbow Programming entered into an amended and restated credit
facility for $202,000, the entire amount of which was outstanding on December
31, 1996 and 1995. The credit facility is payable in full on March 31, 1997 and
can be extended to June 30, 1997 at Rainbow Programming's option and bears
interest at varying rates based upon the banks' Base Rate or Eurodollar Rate, as
defined in the credit agreement. The loan is secured by a pledge of the
Company's stock in Rainbow Programming and is guaranteed by the subsidiaries of
Rainbow Programming as permitted. The weighted average interest rate during 1996
and 1995 was 8.9% and 8.7%, respectively. The credit agreement contains various
restrictive covenants with which Rainbow Programming was in compliance at
December 31, 1996. See Note 14.
(65)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
American Movie Classics Company
AMCC is party to a loan agreement (the "AMCC Loan Agreement") with a group of
banks (with the Toronto Dominion Bank as Lead Bank). The AMCC Loan Agreement,
which permits maximum borrowings of $34,030 and matures on June 30, 1998, is
comprised of a $19,030 term loan and a $15,000 revolver. At December 31, 1996
and 1995, there were no borrowings under the revolver and an outstanding balance
of $19,030 and $36,025, respectively under the term loan. Borrowings under the
AMCC Loan Agreement bear interest at varying rates above the Lead Bank's Base,
CD or LIBOR rate depending on the ratio of debt to cash flow, as defined in the
Loan Agreement. AMCC has entered into an interest rate swap agreement on a
notional amount of $20,000 under which AMCC pays a fixed rate and receives a
variable rate. The interest rate swap agreement expires on October 6, 1997. AMCC
is exposed to credit loss in the event of nonperformance by the other parties to
the interest rate swap agreement; however, it does not anticipate nonperformance
by the counterparties. At December 31, 1996 and 1995 the weighted average
interest rate on bank indebtedness approximated 7.0% and 6.8%, respectively.
Substantially all of the assets of AMCC, amounting to $161,931 at December 31,
1996, have been pledged to secure the borrowings under the AMCC Loan Agreement.
The AMCC Loan Agreement contains various restrictive covenants with which AMCC
was in compliance at December 31, 1996. See Note 14.
Senior Debt
Under the credit agreement between V Cable, Inc. ("V Cable"), a subsidiary of
the Company, and GECC (the "V Cable Credit Agreement"), GECC had provided a term
loan (the "V Cable Term Loan") in the amount of $20,000 to V Cable. In addition,
GECC had extended to VC Holding, a subsidiary of V Cable, a $505,000 term loan
(the "Series A Term Loan), a $25,000 revolving line of credit (the "Revolving
Line") and a $202,554 term loan (the "Series B Term Loan"), all of which
comprised the VC Holding Credit Agreement. At December 31, 1995, amounts
outstanding under the V Cable Term Loan, the Series A Term Loan and the Series B
Term Loan were $801,444.
V Cable had agreed to assume, on December 31, 1997, approximately $121,000 of
debt of U.S. Cable, which amount was subject to adjustment, upward or downward,
depending on U.S. Cable's ratio of debt to cash flow (as defined) in 1997 and
thereafter. Included in Senior Debt at December 31, 1995 was $97,359,
representing the present value of debt of U.S. Cable that would have been
assumed in 1997. The effective interest rate on this debt was approximately 11%.
Amortization of deferred interest expense in connection with the assumption of
U.S. Cable's debt amounted to $4,684 in 1996, $14,047 in 1995 and $14,048 in
1994.
In February 1996, the Company entered into the GECC Agreement, as amended, which
provided for, among other things, the payment of all existing indebtedness of V
Cable and the formation of Cablevision of Ohio, which entered into a separate
$500,000 credit facility with a group of banks
(66)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
(see section titled "Bank Debt - Unrestricted Cable - Cablevision of Ohio" of
this Note 4). In March 1996, approximately $500,000 of V Cable indebtedness
(which includes accrued interest) was paid with funds made available from the
proceeds of the Company's issuance of Series M Preferred Stock (see Note 5),
$209,000 was repaid from borrowings under the Cablevision of Ohio credit
facility and the remaining indebtedness of V Cable was paid from borrowings
under the Credit Agreement.
Subordinated Debentures
On May 16, 1996, the Company issued $150,000 principal amount ($149,422
amortized amount at December 31, 1996) of 9 7/8% Senior Subordinated Notes due
2006 (the "2006 Notes") and $250,000 principal amount of 10 1/2% Senior
Subordinated Debentures due 2016 (the "2016 Debentures"). The 2006 Notes are
redeemable at the Company's option, in whole or in part, on May 15, 2001, May
15, 2002 and May 15, 2003 at the redemption price of 104.938%, 103.292% and
101.646%, respectively, of the principal amount and thereafter at 100% of the
aggregate principal amount, in each case together with accrued interest to the
redemption date. The 2016 Debentures are redeemable at the Company's option, in
whole or in part, on May 15, 2006, May 15, 2007, May 15, 2008 and May 15, 2009,
at the redemption price of 105.25%, 103.938%, 102.625% and 101.313%,
respectively, of the principal amount and thereafter at 100% of the aggregate
principal amount, in each case together with accrued interest to the redemption
date. The indentures under which the 2006 Notes and 2016 Debentures were issued
contain various covenants, which are generally less restrictive than those
contained in the Company's Credit Agreement, with which the Company was in
compliance at December 31, 1996. The net proceeds of approximately $389,000 were
used to repay borrowings under the Company's Credit Agreement.
In November 1995, the Company issued $300,000 principal amount of 9-1/4% Senior
Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at
the Company's option, in whole or in part, on November 1, 2000, November 1, 2001
and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%,
respectively, of the principal amount and thereafter at 100% of the principal
amount, in each case together with accrued interest to the redemption date. The
indenture under which the 2005 Notes were issued contains various covenants,
which are generally less restrictive than those contained in the Company's
Credit Agreement, with which the Company was in compliance at December 31, 1996.
The net proceeds of approximately $292,500 were used to reduce bank borrowings.
In February 1993, the Company issued $200,000 face amount ($198,993 and $198,930
amortized amounts at December 31, 1996 and 1995, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013
Debentures are redeemable, at the Company's option, on February 15, 2003,
February 15, 2004, February 15, 2005 and February 15, 2006 at the redemption
price of 104.80%, 103.60%, 102.40% and 101.20%, respectively, of the principal
amount and thereafter at the redemption price of 100% of the principal amount,
in each
(67)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
case together with accrued interest to the redemption date. The indenture under
which the 2013 Debentures were issued contains various covenants, which are
generally less restrictive than those contained in the Company's Credit
Agreement, with which the Company was in compliance at December 31, 1996.
Also in 1993, the Company issued $150,000 face amount ($149,690 and $149,678
amortized amounts at December 31, 1996 and 1995, respectively) of its 9-7/8%
Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023
Debentures are redeemable, at the Company's option, on and after April 1, 2003
at the redemption price of 104.938% reducing ratably to 100% of the principal
amount on and after April 1, 2010, in each case together with accrued interest
to the redemption date. The indenture under which the 2023 Debentures were
issued contains various covenants, which are generally less restrictive than
those contained in the Company's Credit Agreement, with which the Company was in
compliance at December 31, 1996.
In April 1992, the Company issued $275,000 of its 10-3/4% Senior Subordinated
Debentures due 2004 (the "2004 Debentures"). The 2004 Debentures are redeemable,
at the Company's option, on April 1, 1997 and April 1, 1998 at the redemption
price of 103.071% and 101.536%, respectively, of the principal amount, and on
April 1, 1999 and thereafter at the redemption price of 100% of the principal
amount, in each case together with accrued interest to the redemption date. The
Indenture under which the 2004 Debentures were issued contains various
covenants, which are generally less restrictive than those contained in the
Company's Credit Agreement, with which the Company was in compliance at December
31, 1996. The Indenture requires a sinking fund providing for the redemption on
April 1, 2002 and April 1, 2003 of $68,750 principal amount of the 2004
Debentures, at a redemption price equal to 100% of the principal amount, plus
accrued interest to the redemption date.
Subordinated Notes Payable
In connection with the acquisition of Monmouth Cablevision and Riverview
Cablevision, in August 1994, Cablevision MFR issued promissory notes totalling
$141,268, due in 1998, which bear interest at 6% until the third anniversary and
8% thereafter (increasing to 8% and 10% respectively, if interest is paid in
shares of the Company's Class A Common Stock). Principal and interest on the
notes is payable, at Cablevision MFR's election, in cash or in shares of the
Company's Class A Common Stock. The promissory notes are guaranteed by the
Company and the obligations under the guarantee rank pari passu with the
Company's subordinated debentures. In certain circumstances, Cablevision MFR may
extend the maturity date of the promissory notes until 2003 for certain
additional consideration.
(68)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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, 1996 are as follows:
Restricted Cablevision U.S. Rainbow
Group Ohio Cable Programming AMCC Total
----------- ----------- --------- ----------- -------- -------
1997 $ 3,691 $451 $ - $202,008 $12,980 $219,130
1998 143,935 451 - - 6,050 150,436
1999 996 451 159,460 - - 160,907
2000 270 400 - - - 670
2001 40,550 375 - - - 40,925
NOTE 5. PREFERRED STOCK
In February 1996, the Company issued 6,500,000 depositary shares, representing
65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the
"Series L Preferred Stock") with a liquidation preference of $650,000, which
were subsequently exchanged for Series M Redeemable Exchangeable Preferred Stock
on August 2, 1996 with terms identical to the Series L Preferred. Net proceeds
were approximately $626,000. The depositary shares are exchangeable, in whole
but not in part, at the option of the Company, on or after April 1, 1996, for
the Company's 11-1/8% Senior Subordinated Debentures due 2008. The Company is
required to redeem the Series M Preferred Stock on April 1, 2008 at a redemption
price equal to the liquidation preference of $10,000 per share plus accumulated
and unpaid dividends. The Series M Preferred Stock is redeemable at various
redemption prices beginning at 105.563% at any time on or after April 1, 2003,
at the option of the Company, with accumulated and unpaid dividends thereon to
the date of redemption. Before April 1, 2001, dividends may, at the option of
the Company, be paid in cash or by issuing fully paid and nonassessable shares
of Series M Preferred stock with an aggregate liquidation preference equal to
the amount of such dividends. On and after April 1, 2001, dividends must be paid
in cash. The Company satisfied its dividend requirements by issuing 6,576
additional shares of Series M Preferred Stock in 1996.
In November 1995, the Company issued 13,800,000 depositary shares representing
1,380,000 shares of 8-1/2% Series I Cumulative Convertible Exchangeable
Preferred Stock (the "Series I Preferred Stock") with an aggregate liquidation
preference of $345,000. The depositary shares are convertible into shares of the
Company's Class A Common Stock, at any time after January 8, 1996 at the option
of the holder, at an initial conversion price of $67.44 per share of Class A
Common Stock subject to adjustment under certain conditions. The Series I
Preferred Stock is exchangeable into 8-1/2% Convertible Subordinated Debentures
due 2007, at the option of the Company, in whole but not in part, on or after
January 1, 1998 at a rate of $25.00 principal amount of exchange
(69)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
debentures for each depositary share. The Series I Preferred Stock is redeemable
at the option of the Company, in whole or in part, on November 1, 1999, November
1, 2000, and November 1, 2001 and thereafter at 102.8%, 101.4% and 100.0%,
respectively, of the principal amount plus accrued and unpaid dividends thereon.
The net proceeds of the Series I Preferred Stock of approximately $334,200 were
used to repay bank borrowings. The Company paid a cash dividend of approximately
$29,325 in 1996 and $4,399 in 1995.
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, after January 1, 1996, to
exchange the Series H Preferred Stock for the Company's 11-3/4% Senior
Subordinated Debentures due 2007 in an aggregate principal amount equal to the
aggregate liquidation preference of the shares of Series H Preferred Stock. The
net proceeds of approximately $239,300 were used to repay bank debt. The Company
satisfied its dividend requirements by issuing 317,549 and 77,510 additional
shares of Series H Preferred Stock in 1996 and 1995, respectively.
The holders of the Company's 8% Series C Cumulative Preferred Stock ("Series C
Preferred Stock") may require the Company to redeem for cash at any time
commencing December 31, 1997 all or a portion of the outstanding shares of the
Series C Preferred Stock. The Company has the right, upon notice to the holders
requesting redemption, to convert all or a part of such shares into shares of
Class B Common Stock. If, in the future, holders require the Company to redeem
their Series C Preferred Stock, it is the Company's intention to convert such
shares into Class B Common Stock. The Company paid cash dividends on the Series
C Preferred Stock during each of 1996 and 1995 of $885.
(70)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 6. INCOME TAXES
The Company and its majority-owned subsidiaries file consolidated federal income
tax returns. At December 31, 1996 the Company had consolidated net operating
loss carry forwards for tax purposes of approximately $1,222,876 , which expire
between 2002 and 2011.
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, 1996 and 1995 are as follows:
1996 1995
-------- -------
Deferred Asset (Liability)
Depreciation and amortization $ (3,154) $ (45,358)
Receivables from affiliates (8,221) 19,179
Benefit plans 11,951 11,025
Allowance for doubtful accounts 5,228 5,202
Deficit investment in affiliate 251,639 226,662
Benefits of tax loss carry forwards 513,608 429,906
Other 2,462 2,180
--------- ---------
Net deferred tax assets 773,513 648,796
Valuation allowance (773,513) (648,796)
--------- ---------
$ - $ -
========= =========
The Company has provided a valuation allowance for the total amount of net
deferred tax assets since realization of these assets was not assured due
principally to the Company's history of operating losses.
NOTE 7. OPERATING LEASES
The Company leases certain office, production and transmission facilities under
terms of leases expiring at various dates through 2012. The leases generally
provide for fixed annual rentals plus certain real estate taxes and other costs.
Rent expense for the years ended December 31, 1996, 1995 and 1994 amounted to
$22,195, $16,823 and $12,036, 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, 1996, 1995 and 1994 amounted to approximately $8,585, $7,790 and
$6,947, respectively. The minimum future annual rentals for all operating
(71)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
leases during the next five years, including pole rentals from January 1, 1997
through December 31, 2001, and thereafter, at rates now in force are
approximately: 1997, $24,466; 1998, $20,636; 1999, $19,149; 2000, $17,709; 2001,
$14,302; thereafter, $18,871.
NOTE 8. AFFILIATE TRANSACTIONS
The Company has affiliation agreements with certain cable television programming
companies, including MSG Holdings, varying ownership interests in which were
held, directly or indirectly, by Rainbow Programming during the three years
ended December 31, 1996. Rainbow Programming's investment in these programming
companies is accounted for on the equity method of accounting. Accordingly, the
Company recorded losses of approximately $(8,018), $(9,930) and $(1,007) in
1996, 1995 and 1994, respectively, representing its percentage interests in the
results of operations of these programming companies. Such amounts include
$4,304 for 1994 of the Company's share of the net income of AMCC prior to its
consolidation with the Company in July 1994. In addition, such amounts include
$(3,293) and $(175) for 1995 and 1994, respectively, of the Company's share of
net losses in SportsChannel New York and Rainbow News 12 prior to their
consolidation with the Company in July 1995. At December 31, 1996 and 1995, the
Company's investment in these programming companies amounted to approximately
$277,241 and $134,969, respectively. Costs incurred by the Company for
programming services provided by these non-consolidated affiliates and included
in technical expense for the years ended December 31, 1996, 1995 and 1994
amounted to approximately $37,610, $37,756 and $20,232, respectively. At
December 31, 1996 and 1995, amounts due from certain of these programming
affiliates aggregated $63 and $584, respectively, and are included in advances
to affiliates. Also, at December 31, 1996 and 1995 amounts due to certain of
these affiliates, primarily for programming services provided to the Company,
aggregated $14,012 and $12,607, respectively, and are included in accounts
payable to affiliates.
Summarized combined financial information relating to these programming
companies at December 31, 1996, 1995 and 1994 and for the years then ended is as
follows:
1996 1995 1994
--------- --------- -------
Current assets $ 101,901 $ 73,232 $ 97,184
========= ========= ========
Noncurrent assets $ 54,116 $ 47,387 $ 33,815
========= ========= ========
Current liabilities $ 77,793 $ 59,451 $ 64,000
========= ========= ========
Noncurrent liabilities $ 23,984 $ 16,490 $ 6,257
========= ========= ========
Net revenues $ 269,542 $ 240,518 $270,676
========= ========= ========
Net income (loss) $ (13,943) $ (5,490) $ 3,473
========= ========= ========
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 remains a 1% partner in
(72)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
CNYC and is entitled to certain preferential payments. Mr. Dolan's preferential
rights entitle him to an annual cash payment (the "Annual Payment") of 14%
multiplied by the outstanding balance of his "Minimum Payment". The Minimum
Payment is $40,000 and is to be paid to Mr. Dolan prior to any distributions to
partners other than Mr. Dolan. In addition, Mr. Dolan has the right, exercisable
beginning on December 31, 1997, to require the Company to purchase his interest.
Mr. Dolan would be entitled to receive from the Company the Minimum Payment, any
accrued but unpaid Annual Payments, a guaranteed return on certain of his
investments in CNYC and a Preferred Payment defined as a payment (not exceeding
$150,000) equal to 40% of the Appraised Equity Value (as defined) of CNYC after
making certain deductions. Based upon estimates for accounting purposes of the
Appraised Equity Value of CNYC made by the Company, the maximum amount of the
Preferred Payment was accrued during 1992 through 1994 as an additional
obligation to Mr. Dolan relating to the Company's purchase of CNYC, which has
also been charged to par value in excess of capital contributed. The total
amount owed to Mr. Dolan at December 31, 1996 of approximately $192,819 in
respect of the Preferred Payment, the Minimum Payment and the Annual Payment
reflects a reduction of approximately $4,081 at December 31, 1996 representing
Mr. Dolan's obligation to reimburse the Company in connection with certain
claims paid or owed by CNYC.
During 1996, 1995 and 1994, the Company made advances to or incurred costs on
behalf of other affiliates engaged in providing cable television, cable
television programming, and related services. Amounts due from these affiliates
amounted to $7,792 and $6,325 at December 31, 1996 and 1995, respectively and
are included in advances to affiliates.
In September 1996, the Company acquired the interests in Cablevision of Newark
that it did not previously own from an affiliate of Warburg. The Company's share
of the net losses of Cablevision of Newark prior to its consolidation amounted
to $844, $2,957 and $3,631 in 1996, 1995 and 1994, respectively.
In connection with its 30% interest in A-R Cable Partners (see note 2), the
Company recorded its share of the losses of A-R Cable Partners amounting to
$3,184 and $3,505 for 1996 and 1995 and $1,886 for the period from acquisition
through December 31, 1994.
Also, in connection with its 30% interest in CFHI (see note 2), the Company
recorded its share of the losses of CFHI amounting to $1,490 and $1,535 for 1996
and 1995 and $654 from the date of acquisition through December 31, 1994.
The Company manages the operations of A-R Cable, A-R Cable Partners, CFHI (and
the operations of Cablevision of Newark through September 1996) for a fee equal
to 3-1/2% of gross receipts, as defined, plus reimbursement of certain costs and
an allocation of certain selling, general and administrative expenses. In
certain cases, interest is charged on unpaid amounts. For 1996, 1995 and 1994,
such management fees, expenses and interest amounted to approximately $12,436,
(73)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
$11,531 and $9,457, respectively, of which $7,724, $6,918 and $5,536,
respectively, were reserved by the Company.
The Company managed the properties of U.S. Cable, until its acquisition in
August 1996, under management agreements that provided for cost reimbursement,
including an allocation of overhead charges. For 1996, 1995 and 1994, such cost
reimbursement amounted to $2,396, $3,538 and $3,344, respectively, which
included an allocation of overhead charges of $1,829, $2,881 and $2,720,
respectively.
On August 23, 1996, the Company entered into an agreement with Northcoast
Operating Co., Inc. ("Northcoast") and certain of its affiliates, to form a
limited liability company (the "LLC") to participate in the auctions conducted
by the Federal Communications Commission ("FCC") for certain licenses to conduct
a personal communications service ("PCS") business. The Company has contributed
an aggregate of approximately $31,000 to the LLC (either directly or through a
loan to Northcoast) and holds a 49.9% interest in the LLC and certain
preferential distribution rights. Northcoast is a Delaware corporation
controlled by John Dolan. John Dolan is a nephew of Charles F. Dolan and a
cousin of James Dolan.
NOTE 9. BENEFIT PLANS
The Company maintains the CSSC Supplemental Benefit Plan (the "Benefit Plan")
for the benefit of certain officers and employees of the Company. As part of the
Benefit Plan, the Company established a nonqualified defined benefit pension
plan, which provides that, upon attaining normal retirement age, a participant
will receive a benefit equal to a specified percentage of the participant's
average compensation, as defined. All participants are 100% vested in the
Benefit Plan. Net periodic pension cost for the years ended December 31, 1996,
1995 and 1994 amounted to $(25), $(9) and $103, respectively. At December 31,
1996 and 1995, the fair value of Benefit Plan assets exceeded the projected
benefit obligation by approximately $2,537 and $2,119, respectively.
In addition, the Company accrues a liability in the amount of 7% of certain
officers' and employees' compensation, as defined. Each year the Company also
accrues for the benefit of these officers and employees interest on such
amounts. The officer or employee will receive such amounts upon termination of
employment. All participants are 100% vested in this plan. The cost associated
with this plan for the years ended December 31, 1996, 1995 and 1994 was
approximately $400, $495 and $337, respectively.
The Company also maintains a pension plan and a 401(k) savings plan
(collectively, the "Plan"), pursuant to which the Company contributes 1-1/2% of
eligible employees' annual compensation, as defined, to the defined contribution
pension portion of the Plan and an equivalent amount to the Section 401(k)
portion of the Plan. The Company also makes matching contributions for employee
(74)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
voluntary contributions to the 401(k) portion of the Plan. The cost associated
with the Plan was approximately $5,565 and $4,287 and $3,125 for the years ended
December 31, 1996, 1995 and 1994, respectively.
NOTE 10. STOCK BENEFIT PLANS
On June 19, 1996 the Company's shareholders approved the First Amended and
Restated 1996 Employee Stock Plan, as amended, (the "1996 Plan"), under which
the Company is authorized to issue a maximum of 1,500,000 shares. Under the 1996
Plan, the Company is able to grant incentive stock options, nonqualified stock
options, restricted stock, conjunctive and alternative stock appreciation
rights, stock grants and stock bonus awards. The other terms of the 1996 Plan
are substantially identical to those of the Company's Employee Stock Plan
(described below) except that under the 1996 Plan the Compensation Committee has
the authority, in its discretion, to add performance criteria as a condition to
any employee's exercise of an award granted under the 1996 Plan.
Under the 1996 Plan the Company issued options to purchase 548,555 shares of
Class A Common Stock, stock appreciation rights related to 548,555 shares under
option and 92,100 bonus award shares. The options and related conjunctive stock
appreciation rights are exercisable at various prices ranging from $47.875 to
$49.50 per share and vest in either 25% or 33 1/3% annual increments beginning
from the date of the grant. The bonus awards vest primarily over a four year
period.
Previously, the Company maintained an Employee Stock Plan (the "Stock Plan")
under which the Company was authorized to issue a maximum of 3,500,000 shares.
Pursuant to its terms, no awards could be granted under the Stock Plan after
December 5, 1995. The Company granted under the Stock Plan incentive stock
options, nonqualified stock options, restricted stock, conjunctive stock
appreciation rights, stock grants and stock bonus awards. The exercise price of
stock options could not be less than the fair market value per share of class A
common stock on the date the option was granted and the options could expire no
longer than ten years from date of grant. Conjunctive stock appreciation rights
permit the employee to elect to receive payment in cash, either in lieu of the
right to exercise such option or in addition to the stock received upon the
exercise of such option, equal to the difference between the fair market value
of the stock as of the date the right is exercised, and the exercise price.
Under the Stock Plan, during 1995 the Company issued options to purchase 56,950
shares of Class A common stock, stock appreciation rights related to 56,950
shares under option and stock awards of 11,350 common shares. The options and
related conjunctive stock appreciation rights are exercisable at prices ranging
from $50.00 to $56.50 per share and vest in 25% and 33-1/3% annual increments
beginning from the date of grant. The stock awards vest 100% in May 1999.
(75)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Under the Stock Plan, during 1994 the Company issued options to purchase 525,400
shares of Class A common stock, stock appreciation rights related to 525,400
shares under option and stock awards of 68,400 common shares. Of the options and
related conjunctive stock appreciation rights, 95,400 are exercisable at $42.00
per share and vest in 25% annual increments beginning from the date of grant and
430,000 options and conjunctive rights are exercisable at $56.50 per share and
are currently vested. The stock awards vest 100% in May 1998.
In January 1996, three employees exercised stock appreciation rights on 213,750
shares. The closing market price on December 29, 1995 of $54.25 with an exercise
price of $16.625 resulted in a total cash payment of approximately $8,042,000.
Two-thirds was paid at the time of exercise and the balance in October 1996.
In November 1994, the Company entered into agreements with three employees to
pay the value, as of that date, of options exercised with respect to 405,000
shares of the Company's Class A Common Stock, and to replace those options with
a combination of stock appreciation rights and newly issued options, with the
exercise price set at the market price of such stock on that date. In accordance
with the agreement, one-third of the value of the exercised options was paid in
cash with the remaining portion paid in November, 1995. Accordingly, the Company
recorded expense related to the purchase of these options amounting to $13,215
in 1994, representing the cash payment of approximately $4,673 and a liability
for future payments.
At December 31, 1996, options for approximately 668,907 shares were exercisable.
As a result of stock awards, bonus awards, stock appreciation rights and the
expensing of the cash payment made for certain executive stock options, the
Company recorded (income)/expense of approximately $(8,558), $7,757 and $6,814
in 1996, 1995 and 1994, respectively. The yearly amounts reflect vesting
schedules for applicable grants as well as fluctuations in the market price of
the Company's Class A Common Stock.
The Company applies APB 25 and related interpretations in accounting for its
various stock option plans. Had compensation cost been recognized consistent
with Statement of Financial Accounting Standards No. 123, for options granted in
1995 and 1996, net loss would have increased by $4,191 in 1996 and by an
insignificant amount in 1995. There was no material impact on net loss per
share.
The per share weighted average value of stock options issued by the Company
during 1996 and 1995, as determined by the Black-Scholes option pricing model,
was $19.41 and $21.55, respectively, on the date of grant. In 1996 and 1995, the
assumptions of no dividends, expected volatility of 34%, and an expected life of
five years were used by the Company in determining the value of stock options
granted by the Company. In addition, the calculations assumed a risk free
interest rate of approximately 6.7% in each period.
(76)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Pro forma net loss reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma net loss amounts discussed above because
compensation cost is calculated over the options' vesting periods and
compensation costs for options granted prior to January 1, 1995 are not
considered. Stock transactions under the Stock Plan and the 1996 Plan are as
follows:
<TABLE>
<CAPTION>
Shares Stock
Under Appreciation Stock Available Option
Option Rights Awards For Grant Price Range
------ ------ ------ --------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 1,734,695 854,945 325,650 151,343 $14.50-$38.25
Granted 525,400 525,400 68,400 (593,800) $42.00-$56.50
Exercised/issued (358,528) (161,952) (48,430) -- $14.50-$36.00
Cancelled (434,390) (59,866) (109,241) 543,631 $16.63-$42.00
--------- --------- -------- -------
Balance, December 31, 1994 1,467,177 1,158,527 236,379 101,174 $14.50-$56.50
Granted 56,950 56,950 11,350 (68,300) $50.00-$56.50
Exercised/issued (418,102) (55,764) 17,302 - $14.50-$42.00
Cancelled (40,343) (32,026) (115,231) 155,574 $16.63-$42.00
--------- --------- -------- -------
Balance, December 31, 1995 1,065,682 1,127,687 149,800 - $14.50-$56.50
1996 Stock Plan 1,500,000
Granted 548,555 548,555 92,100 (640,655) $47.88-$49.50
Exercised/issued (187,141) (238,641) (147,444) - $14.50-$42.00
Cancelled-Stock Plan (44,142) (21,797) (6,206) - $24.50-$52.13
Cancelled-1996 Plan (9,800) (9,800) (300) 10,100 $49.50
--------- --------- -------- -------
Balance, December 31, 1996 1,373,154 1,406,004 87,950 869,445
========= ========= ======== =======
</TABLE>
The following table summarizes significant ranges of outstanding and exercisable
options at December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted Weighted Weighted
Average Average Average
Ranges of Remaining Exercise Exercise
Exercise Prices Shares Life in Years Price Shares Price
================================================================================
$ 21.25 - 29.875 275,660 4.4 $25.94 275,660 $25.94
32.75 - 42.00 345,889 7.5 40.46 162,939 41.11
47.875 - 52.125 536,605 9.4 49.68 15,308 51.55
56.50 215,000 7.8 56.50 215,000 56.50
(77)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Programming, has entered into several contracts
with professional and other sports teams relating to cable television
programming including rights agreements. Amounts payable under these contracts
during the five years subsequent to December 31, 1996 amount to $50,687 in 1997,
$50,724 in 1998, $50,476 in 1999, $53,112 in 2000 and $55,018 in 2001.
In addition, Rainbow Programming has guaranteed rights payments to several
professional sports teams relating to certain affiliated sports programming
companies. Amounts guaranteed on behalf of such affiliated sports programming
companies during the five years subsequent to December 31, 1996 amount to $9,133
in 1997, $3,681 in 1998, $2,846 in 1999, $340 in 2000 and $340 in 2001.
The Company and its cable television affiliates have an affiliation agreement
with a program supplier whereby the Company is obligated to make Base Rate
Annual Payments, as defined and subject to certain adjustments pursuant to the
agreement, through 2004. The Company would be contingently liable for its
proportionate share of Base Rate Annual Payments, based on subscriber usage, of
approximately $12,714 in 1997; $13,158 in 1998; $13,617 in 1999 and for the
years 2000 through 2004. Such payments would increase by percentage increases in
the Consumer Price Index, or five percent, whichever is less, over the prior
year's Base Rate Annual Payment.
The Company does not provide post-retirement benefits to any of its employees.
NOTE 12. 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.
The Company recorded a one time charge of $4,306 during 1994 to provide for
severance and related costs, attributable entirely to terminated employees,
resulting from a restructuring of its operations. Substantially all of such
amounts were paid during 1994.
NOTE 13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Trade Accounts Receivable, Notes and Other
Receivables, Prepaid Expenses and Other Assets, Accounts Payable, Accrued
Liabilities, Accounts Payable to Affiliates, Feature Film Rights Payable and
Obligation to Related Party
(78)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
The carrying amount approximates fair value due to the short maturity of these
instruments.
Bank Debt, Senior Debt, Subordinated Debentures, Subordinated Notes Payable and
Redeemable Exchangeable Preferred Stock
The fair values of each of the Company's long-term debt instruments and
redeemable preferred stock are based on quoted market prices for the same or
similar issues or on the current rates offered to the Company for instruments of
the same remaining maturities.
Interest Rate Swap and Cap Agreements
The fair values of interest rate swap and cap agreements are obtained from
dealer quotes. These values represent the estimated amount the Company would
receive or pay to terminate agreements, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
The fair value of the Company's financial instruments are summarized as follows:
December 31, 1996
----------------------------
Carrying Estimated
Amount Fair Value
-------- ----------
Long term debt instruments:
Bank debt $1,670,245 $1,670,245
Subordinated debentures 1,323,105 1,330,438
Subordinated notes payable 141,268 136,000
Redeemable exchangeable preferred stock 1,005,265 1,195,981
---------- ----------
$4,139,883 $4,332,664
========== ==========
Interest rate swap and cap agreements:
In a net payable position $ - $ 4,238
========== ==========
December 31, 1995
---------------------------
Carrying Estimated
Amount Fair Value
--------- ----------
Long term debt instruments:
Bank debt $ 992,469 $ 992,469
Senior debt 898,803 898,803
Subordinated debentures 923,608 972,125
Subordinated notes payable 141,268 135,400
Redeemable exchangeable preferred stock 257,751 266,772
---------- ----------
$3,213,899 $3,265,569
========== ==========
Interest rate swap and cap agreements:
In a net payable position $ - $ 11,055
========== ==========
(79)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
NOTE 14. SUBSEQUENT EVENTS
On February 18, 1997, Rainbow Programming made a payment to ITT of $168,750 plus
interest, fully equalizing its interest in MSG Holdings, and bringing the total
of such payments to $360,000, plus interest payments aggregating $47,700. On
March 6, 1997 Rainbow Programming entered into letter of intent (the "March 1997
Letter") with ITT to acquire a majority interest in the equity of MSG Holdings.
The March 1997 Letter is a nonbinding letter of intent and is not an agreement
to enter into a formal contract with respect to such transaction.
In February 1997, the Company made a nonrefundable deposit of $30,000 in partial
payment of the purchase price under the Warburg Agreement. Acquisition of the
remaining interests in the Warburg Companies that the Company does not already
own is expected to close in July 1997.
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
received a 25% equity interest (which interest may be increased up to 27% under
certain circumstances) in non-voting Class C common stock of Rainbow Media. The
company owns the remaining 75% equity interest in Rainbow Media. The partnership
interests in certain of Rainbow Media's programming services formerly owned by
NBC are now owned by subsidiaries of Rainbow Media.
Rainbow Media has executed a new $300 million three year credit facility
with Canadian Imperial Bank of Commerce and Toronto-Dominion (Texas), Inc. as
co-agents, and a group of banks. The actual closing of the credit facility was
subject to several conditions having been satisfied. Those conditions have now
been satisfied and the closing of the new facility is anticipated shortly. Upon
closing, approximately $172 million is expected to be drawn to refinance, in
part, the previous $202 million credit facility. The balance of the funds
utilized to fully repay the $202 million facility and to repay $169 million to
the Restricted Group will come from a distribution by American Movie Classics
Company. This distribution will be provided by funds made available under a new
$250 million, seven year revolving credit and term loan facility maturing in
2004 and closing concurrently with the Rainbow Media credit facility. The
Rainbow Media three year revolving credit facility matures on March 31, 2000 and
is payable in full on such date. The funds available under the credit facility
will be used to finance working capital requirements and general corporate
purposes. The credit facility contains certain financial covenants that may
limit its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring Rainbow Media to maintain certain financial
ratios.
(80)
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(continued)
NOTE 15. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
-------------------- --------------------- ------------------ --------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ...............$ 304,165 $ 245,401 $ 320,331 $ 263,734 $ 331,122 $ 278,158 $ 359,524 $ 290,767
Operating expenses ..... 286,272 231,696 292,915 252,695 302,570 249,603 358,973 264,623
Operating profit
(loss) ...............$ 17,893 $ 13,705 $ 27,416 $ 11,039 $ 28,552 $ 28,555 $ 551 $ 26,144
Net loss applicable to
common shareholders ..$(100,680) $(100,973) $(117,969) $ (99,384) $(106,931) $ (44,033) $(134,279) $ (93,317)
Net loss per common
share ................$ (4.06) $ (4.27) $ (4.75) $ (4.18) $ (4.31) $ (1.85) $ (5.40) $ (3.88)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
TOTAL
---------------------
1996 1995
-------- ------
Revenues ...............$ 1,315,142 $ 1,078,060
Operating expenses ..... 1,240,730 998,617
Operating profit
(loss) ...............$ 74,412 $ 79,443
Net loss applicable to
common shareholders ..$ (459,859) $ (337,707)
Net loss per common
share ................$ (18.52) $ (14.17)
=========== ===========
(81)
<PAGE>
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 the Company's definitive proxy statement for
its Annual Meeting of Shareholders anticipated to be held in June, 1997 or if
such definitive proxy statement is not filed with the Commission prior to April
30, 1997, to an amendment to this report on Form 10-K filed under cover of Form
10-K/A.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Pursuant to regulations promulgated by the Securities and Exchange Commission,
the Company is required to identify, based solely on a review of reports filed
under Section 16(a) of the Securities Exchange Act of 1934, each person who, at
any time during its fiscal year ended December 31, 1996, was a director, officer
or beneficial owner of more than ten percent of the Company's Class A Common
Stock that failed to file on a timely basis any such reports. Based on such
review, the Company is aware of no such failure other than (i) a report on Form
3 filed by Margaret Albergo on November 18, 1996, with respect to her election
as an executive officer of the Company on October 18, 1996, (ii) a report on
Form 3 filed by Robert May on November 18, 1996, with respect to his election as
an executive officer of the Company on October 18, 1996, and (iii) a report on
Form 3 filed by Vincent Tese on October 8, 1996 with respect to his election as
a director of the Company on June 19, 1996.
PART IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and
Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements as indicated in the index is set forth on
page 45.
2. Financial Statement schedule:
Page
No.
----
Schedule supporting consolidated financial statements:
Schedule II - Valuation and Qualifying Accounts.............. 84
(82)
<PAGE>
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. Independent auditors report and accompanying financial statements of
A-R Cable Services, Inc. are filed as part of this report on page 85.
4. The Index to Exhibits is on page 104.
(b) Reports on Form 8-K:
The Company did not file reports on Form 8-K during the last quarter of the
fiscal period covered by this report.
(83)
<PAGE>
CABLEVISION SYSTEMS CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at
Beginning Charged to Costs Charged to Deductions- Balance at
of Period and Expenses Other Accounts Write-Offs End of Period
--------- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for doubtful
accounts .............. $12,678 $18,489 $ - $(18,212) $12,955
======= ======= ======= ======= =======
Year Ended December 31, 1995
Allowance for doubtful
accounts.............. $10,087 $14,551 $ $(11,960) $12,678
======= ======= ======= ======== =======
Year Ended December 31, 1994
Allowance for doubtful
accounts.............. $ 5,055 $11,849 $ - $ (6,817) $10,087
======= ======= ======= ======== =======
</TABLE>
(84)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of
Cablevision Systems Corporation)
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
(85)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
A-R Cable Services, Inc.
We have audited the accompanying consolidated balance sheets of A-R Cable
Services, Inc. (a wholly-owned subsidiary of Cablevision Systems Corporation)
and subsidiaries as of December 31, 1996 and 1995 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, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of A-R Cable Services,
Inc. and subsidiaries at December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Jericho, New York
April 1, 1997
(86)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(in thousands)
1996 1995
---- ----
ASSETS
Cash and cash equivalents .................................. $ 67 $ 25
Accounts receivable trade (less allowance for doubtful
accounts of $351 and $376) ............................. 2,516 2,089
Notes and other receivables ................................ 1,170 1,179
Prepaid expenses ........................................... 546 661
Property, plant and equipment, net ......................... 107,776 113,787
Excess costs over fair value of net assets acquired, net of
accumulated amortization of $75,222 and $69,290 ........ 91,124 103,226
Deferred financing and other costs, net of accumulated
amortization of $8,619 and $7,563 ...................... 873 1,864
-------- --------
$204,072 $222,831
======== ========
See accompanying notes to
consolidated financial statements.
(87)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(in thousands)
1996 1995
---- ----
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Accounts payable ................................... $ 17,813 $ 15,714
Accrued liabilities:
Interest ....................................... 4,354 5,316
Payroll and related benefits ................... 2,901 2,167
Franchise fees ................................. 1,690 1,607
Insurance ...................................... 1,403 1,262
Other .......................................... 5,358 5,338
Amounts payable to affiliates, net ................. 177 293
Due to parent ...................................... 25,108 17,799
Senior term loan ................................... 402,967 410,000
Capital lease obligations .......................... - 10
Subscriber deposits ................................ 421 705
--------- ---------
Total liabilities .............................. 462,192 460,211
--------- ---------
Commitments and contingencies
Preferred Stock - Series A ......................... 245,867 205,051
--------- ---------
Preferred Stock - Series B ......................... 84,505 73,319
--------- ---------
Stockholder's deficiency:
Common stock $.50 par value, 20,000 shares
authorized, 19,000 shares issued and
outstanding ................................. 9,500 9,500
Paid-in capital ................................ 46,261 41,350
Accumulated deficit ............................ (644,253) (566,600)
--------- ---------
Total stockholder's deficiency .............. (588,492) (515,750)
--------- ---------
$ 204,072 $ 222,831
========= =========
See accompanying notes to
consolidated financial statements.
(88)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues (including affiliate amounts of
$1,433, $1,268 and $1,306) ..................... $ 120,355 $ 113,292 $ 107,026
--------- --------- --------
Operating expenses:
Technical expenses (including affiliate amounts
of $3,357, $3,260 and $2,246) ................ 47,678 43,808 38,269
Selling, general and administrative expenses
(including affiliate amounts of $8,105, $7,628
and $7,262) ................................. 27,384 26,104 22,592
Depreciation and amortization .................. 30,573 46,100 64,695
--------- --------- --------
105,635 116,012 125,556
-------- --------- --------
Operating profit (loss) .................... 14,720 (2,720) (18,530)
Other income (expense):
Interest expense, net (including affiliate
amounts of $1,634, $1,110 and $659) .......... (39,755) (41,408) (33,572)
Miscellaneous, net ............................. (2,641) (182) (799)
--------- --------- --------
Net loss before income tax benefit ................ (27,676) (44,310) (52,901)
--------- --------- --------
Income tax benefit ................................ - 6,082 14,045
--------- --------- --------
Net loss .......................................... (27,676) (38,228) (38,856)
--------- --------- --------
Dividend requirements applicable to:
Series A Preferred Stock ....................... (40,816) (34,029) (28,236)
Series B Preferred Stock ....................... (9,161) (7,901) (6,749)
--------- --------- --------
(49,977) (41,930) (34,985)
--------- --------- --------
Net loss applicable to common stockholder ......... $ (77,653) $ (80,158) $ (73,841)
========= ========= =========
</TABLE>
See accompanying notes
to consolidated financial statements.
(89)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1993 ....... 19,000 $9,500 $41,350 $(412,601) (361,751)
Preferred dividend requirements - - - (34,985) (34,985)
Net loss ...................... - - - (38,856) (38,856)
------ ------ ------- --------- ---------
Balance December 31, 1994 ....... 19,000 9,500 41,350 (486,442) (435,592)
Preferred dividend requirements - - - (41,930) (41,930)
Net loss ...................... - - - (38,228) (38,228)
------ ------ ------- --------- ---------
Balance December 31, 1995 ....... 19,000 9,500 41,350 (566,600) (515,750)
Capital contribution .......... - - 4,911 - 4,911
Preferred dividend requirements - - (49,977) (49,977)
Net loss ...................... - - - (27,676) (27,676)
------ ------ ------- --------- ---------
Balance December 31, 1996 ....... 19,000 $9,500 $46,261 $(644,253) $(588,492)
====== ====== ======= ========= =========
</TABLE>
See accompanying notes to
consolidated financial statements.
(90)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ............................................... $(27,676) $(38,228) $(38,856)
-------- -------- --------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Income tax benefit ................................. - (6,082) (14,045)
Depreciation and amortization ...................... 30,573 46,100 64,695
Amortization of deferred financing
costs .............................................. 1,045 1,268 1,630
(Gain) loss on sale of equipment ..................... 243 (29) 165
Change in assets and liabilities:
Decrease (increase) in accounts
receivable trade ................................... (418) (744) 24
Decrease (increase) in notes and other
receivables ...................................... 38 437 (92)
Decrease (increase) in prepaid expenses ............ 21 (40) 26
Increase (decrease) in accounts payable ............ 1,328 1,539 (391)
Increase (decrease) in accrued liabilities ......... 676 (289) 3,051
Increase (decrease) in amounts payable to
affiliates, net .................................. (186) 55 (364)
Increase in due to parent .......................... 7,309 6,474 4,134
Decrease in subscriber deposits .................... (284) (77) (91)
-------- -------- --------
Total adjustments ................................ 40,345 48,612 58,742
-------- -------- --------
Net cash provided by operating
activities ...................................... 12,669 10,384 19,886
-------- -------- --------
Cash flows from investing activities:
Cash received upon exchange of cable systems .......... 5,883 - -
Additions to intangible assets ........................ (108) - -
Capital expenditures .................................. (13,527) (24,635) (24,404)
Proceeds from sale of equipment ....................... 143 921 322
-------- -------- --------
Net cash used in investing activities................ $ (7,609) $(23,714) $(24,082)
-------- -------- --------
</TABLE>
See accompanying notes to
consolidated financial statements.
(91)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(in thousands)
(continued)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from senior debt ............................. $ 23,000 $ 23,000 $ 9,500
Repayments of senior debt ............................. (30,033) (13,575) (6,425)
Proceeds from issuance of Series A Preferred
Stock ............................................... - 210 998
Proceeds from issuance of Series B Preferred
Stock ............................................... 2,025 3,740 427
Repayment of capital lease obligations ................ (10) (61) (161)
Additions to deferred financing and other costs ....... - - (500)
-------- -------- -------
Net cash provided by (used in) financing
activities ........................................ (5,018) 13,314 3,839
-------- -------- -------
Net decrease in cash and cash equivalents ............... 42 (16) (357)
Cash and cash equivalents at beginning of year .......... 25 41 398
-------- -------- -------
Cash and cash equivalents at end of year................. $ 67 $ 25 $ 41
======== ======== =======
</TABLE>
See accompanying notes to
consolidated financial statements.
(92)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
A-R Cable Services, Inc. ("A-R Cable" or the "Company"), a wholly-owned
subsidiary of Cablevision Systems Corporation ("CSC") or ("Parent"), was
organized for the purpose of constructing and operating cable television
systems. The Company's revenues are derived principally from its cable
television operations which include recurring monthly fees paid by subscribers.
In October 1996, the Company agreed to exchange certain of its cable systems in
New York for a cable system owned by CSC located in Massachusetts plus $5,883 of
cash. The transaction was treated in a manner similar to a pooling of interests
for accounting purposes whereby the net assets received were recorded at
historical cost and the difference, amounting to $4,911, between the historical
value of the assets transferred to CSC and the historical value of the assets
received from CSC plus cash was recorded as a capital contribution from CSC.
In May 1992, the Company and CSC consummated a restructuring and refinancing
transaction. In connection with this restructuring, Warburg, Pincus Investors,
L.P. ("Warburg Pincus") purchased a new Series A Preferred Stock of the Company
for a cash investment of $105,000, and CSC purchased a new Series B Preferred
Stock of the Company for a cash investment of $45,000.
During 1996 and 1995 CSC purchased additional shares of the new Series B
Preferred Stock for a cash investment of $2,025 and $3,740, respectively, and
during 1995 Warburg Pincus purchased additional shares of the new Series A
Preferred Stock for a cash investment of $210. The Series A Preferred Stock is
entitled to a 19% annual dividend. The Series B Preferred Stock is entitled to a
12% annual dividend. Dividends on the Series A and Series B Preferred Stock are
not payable until the repayment in full of all outstanding indebtedness to GECC
(see Note 3).
In May 1996, CSC entered into an agreement with Warburg Pincus to acquire from
Warburg Pincus the approximately 70% of equity interest in the Company that CSC
does not already own for $106.7 million. In addition, in connection with the
acquisition, CSC agreed to assume the outstanding debt of the Company. On
February 3, 1997, CSC made a non-refundable deposit of approximately $22 million
in partial payment of the purchase price for Warburg Pincus' interests in the
Company. The transaction is expected to close in July 1997.
The balance of the Company's senior term loan, amounting to $402,967 at December
31, 1996, matures on December 30, 1997. The Company has the option, with a
significant investment from CSC, to extend the senior term loan to April 1,
1998.
(93)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenues as cable television services are provided to
subscribers.
Long-Lived Assets
Property, plant and equipment, including construction materials, are recorded 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.
Property, plant and equipment are being depreciated over their estimated useful
lives using the straight-line method. Leasehold improvements are amortized over
the shorter of their useful lives or the term of the related leases.
Excess costs over fair value of net assets acquired are being amortized over 20
years on the straight-line basis.
The Company implemented the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," effective January 1, 1996. 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. The adoption of
Statement No. 121 had no impact on the Company's financial positions or results
of operations.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on the straight-line
basis over the life of the related debt.
(94)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Income Taxes
The Company is not a member of the CSC consolidated group for federal tax
purposes and, accordingly, files a separate federal income tax return on behalf
of itself and its consolidated subsidiaries. Income taxes are provided based
upon the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), 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.
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 $38,149, $40,300 and $26,672 during the years ended December 31,
1996, 1995 and 1994, respectively. The Company's noncash investing and financing
activities included preferred stock dividend requirements of $49,977, $41,930
and $34,985 in 1996, 1995 and 1994, respectively.
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.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform to the 1996 presentation.
(95)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items which are
depreciated over the estimated useful lives shown below:
December 31, Estimated
1996 1995 Useful Lives
---------- --------- ------------
Distribution systems..................$220,242 $220,728 5-15 years
Machinery and equipment............... 6,779 6,654 5-7 years
Furniture and fixtures................ 1,487 1,472 7 years
Vehicles.............................. 8,539 7,816 4 years
Buildings............................. 1,930 2,137 25 years
Leasehold improvements................ 1,317 1,326 Life of lease
Land.................................. 800 920 -
-------- ---------
241,094 241,053
Less accumulated depreciation
and amortization.................... 133,318 127,266
-------- ---------
$107,776 $113,787
======== ========
NOTE 3. SENIOR TERM LOAN
The Company's outstanding borrowings under its senior term loan and revolving
lines of credit (the "Senior Term Loan") with GECC amounted to $402,967 and
$410,000 at December 31, 1996 and 1995, respectively. The facility consists of a
$279,117 senior term loan, $91,250 in special funding advances and a $45,000
revolving line of credit. The senior term loan and revolving line of credit are
non-amortizing and mature on December 30, 1997. The Company has the option, with
a significant investment from CSC, to extend the senior term loan to April 1,
1998. The special funding advances require amortization, amounting to $3,750 per
quarter, commencing December 31, 1996, with the balance due on December 30,
1997. Aggregate undrawn funds available under the revolving line of credit at
December 31, 1996 amounted to approximately $12,400 of which $191 was restricted
for certain letters of credit issued on behalf of the Company.
Interest rates on the Senior Term Loan are at floating rates based on either
GECC's LIBOR (as defined in the agreement) or Index Rate plus applicable
percentages, which vary depending upon certain prescribed financial ratios. The
weighted average interest rate approximated 8.9% at December 31, 1996 and 9.2%
at December 31, 1995.
(96)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Substantially all of the assets of the Company have been pledged to secure the
borrowings under the Senior Term Loan agreement.
The Senior Term Loan agreement contains various restrictive covenants, among
which are the maintenance of certain financial ratios, limitations regarding
certain transactions by the Company, prohibitions against the transfer of funds
to the parent company (except for reimbursement of certain expenses) and
limitations on levels of permitted capital expenditures. The Company was in
compliance with all of the covenants of its Senior Term Loan agreement at
December 31, 1996.
NOTE 4. INCOME TAXES
The Company's tax returns for the years 1984 to 1989 have been examined by the
Internal Revenue Service and certain issues related to the amortization of
intangible assets are being appealed by the Company. Management believes that
any settlement arising out of this examination will not have a material adverse
effect on the financial position of the Company.
At December 31, 1996, the Company had a net operating loss carry forward of
approximately $242,858, which expires in varying amounts from 2003 to 2011. In
1992, the Company underwent an ownership change within the meaning of Internal
Revenue Code Section 382 which limits the amount of net operating loss carry
forward from the period prior to the transaction that can be utilized to offset
any taxable income in periods subsequent to the transaction. Therefore, of the
$242,858 of net operating loss carry forwards for tax purposes, $201,888 is
restricted and $40,970 is currently available.
Usage of the $201,888 net operating loss carry forward is limited to a fixed
annual amount, calculated using the Federal long-term tax-exempt rate times the
value of the Company prior to the ownership change. This amount is increased in
any year in which the Company recognizes any built in gain from the sale of
assets owned prior to the ownership change. Based on this formula, none of the
$201,888 restricted net operating loss carry forward would currently be
available to the Company.
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, 1996 and 1995 are as follows:
(97)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
Deferred Asset (Liability) 1996 1995
-------------------------- ---- ----
Depreciation and amortization .................... $(10,829) $(15,534)
Benefit plans .................................... 478 340
Allowance for doubtful accounts .................. 169 169
Benefits of tax loss carry forwards .............. 92,286 87,813
Other ............................................ (99) (338)
-------- --------
Net deferred tax assets ....................... 82,005 72,450
Valuation allowance .............................. (82,005) (72,450)
-------- --------
Net deferred tax liabilities .................. $ - $ -
======== ========
The Company has provided a valuation allowance for the entire amount of the net
deferred tax assets in 1996 and 1995 since realization of these assets was not
assured due to the Company's history of operating losses. Also, in connection
with the acquisition of the Company by CSC in January 1988, the Company recorded
certain fair value adjustments net of their tax effects. In accordance with SFAS
109, these assets have been adjusted to their remaining pre tax amounts at
January 1, 1993, the date the Company adopted SFAS 109. Amortization of these
amounts in 1995 and 1994 resulted in the recognition of income tax benefits of
$6,082 and $14,045, respectively. These amounts were fully amortized in 1995.
NOTE 5. AFFILIATE TRANSACTIONS
The Company has an agreement with CSC whereby the Company is managed by CSC in
exchange for a management fee of 3-1/2% of gross receipts, as defined. Interest
on unpaid amounts accumulates at a rate of 10% per annum. Such management fees
amounted to $4,208, $3,963 and $3,738 in 1996, 1995 and 1994, respectively, and
interest thereon amounted to $1,634, $1,110 and $659 in 1996, 1995 and 1994,
respectively.
The Company is also charged for cost reimbursement and an allocation of certain
selling, general and administrative expenses by CSC. For the years ended
December 31, 1996, 1995 and 1994 these cost reimbursements and expense
allocations approximated $3,897, $3,665 and $3,524, respectively. In accordance
with certain restrictive covenants contained in its Senior Term Loan agreement,
the Company may not pay in excess of specified amounts, subject to certain
escalation provisions, of allocated corporate overhead expenses charged by CSC
in any fiscal year. In addition, CSC also provided certain programming services
to the Company. At December 31, 1996 and 1995, the total balance due CSC for
management fees, interest, cost reimbursement, allocated expenses and certain
programming services amounted to $25,108 and $17,799, respectively.
(98)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
CSC has interests in several companies engaged in providing cable television
services and programming services to the cable television industry, including
the Company. During 1996, 1995 and 1994, the Company was charged approximately
$3,357, $3,260 and $2,246, respectively, by these companies for these services
and the total amount due these companies as of December 31, 1996 and 1995 was
$221 and $293, respectively.
NOTE 6. BENEFIT PLANS
CSC maintains a pension and a 401(k) savings plan (collectively, the "Plan")
pursuant to which the Company contributes 1-1/2% of eligible employees' annual
compensation, as defined, to the defined contribution pension portion of the
Plan and an equivalent amount to the section 401(k) portion of the Plan. The
Company also makes matching contributions to employee voluntary contributions to
the 401(k) portion of the Plan. Total expense related to the Plan for the years
ended December 31, 1996, 1995 and 1994 was approximately $387, $375 and $334,
respectively.
The Company does not provide any postretirement benefits to its employees.
NOTE 7. OPERATING LEASES
The Company leases certain office, production, satellite transponder, and
transmission facilities under terms of operating leases expiring at various
dates. The leases generally provide for fixed annual rentals plus certain real
estate taxes and other costs. Rent expense for the years ended December 31,
1996, 1995 and 1994 was approximately $1,080, $1,110 and $1,240, 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, 1996, 1995 and 1994 was approximately $1,894, $2,311 and $1,745,
respectively.
The minimum future annual rentals for all operating leases, including pole
rentals, from January 1, 1997 through December 31, 2001 at rates now in force
are approximately: 1997, $2,699; 1998, $2,424; 1999, $2,243; 2000, $2,214; 2001,
$2,167.
(99)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
NOTE 8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL
INSTRUMENTS
Cash and Cash Equivalents, Trade Accounts Receivable, Notes and Other
Receivables, Accounts Payable, Accrued Liabilities, Accounts Payable to
Affiliates and Due to Parent
The carrying amount approximates fair value because of the short maturity of
these instruments.
Senior Term Loan
The fair values of the Company's long-term debt instruments are based on quoted
market prices for the same or similar issues or on the current rates offered to
the Company for instruments of the same remaining maturities.
The fair value of the Company's financial instruments are summarized as follows:
Carrying Estimated
Amount Fair Value
------ ----------
Long term debt instruments:
Senior term loans, December 31, 1996.......... $402,967 $402,967
======== ========
Senior term loans, December 31, 1995.......... $410,000 $410,000
======== ========
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 9. COMMITMENTS AND CONTINGENCIES
CSC and its cable television affiliates, including the Company, have an
affiliation agreement with a program supplier whereby CSC and its cable
television affiliates are obligated to make Base Rate Annual Payments, as
defined, through 2004. The Company would be contingently liable for its
proportionate share of Base Rate Annual Payments, based on subscriber usage, of
approximately $1,099 in 1997; $1,137 in 1998; $1,177 in 1999 and for the years
2000 through 2004. Such payments would increase by percentage increases in the
Consumer Price Index or five percent, whichever is less, over the prior year's
Base Annual Payment.
(100)
<PAGE>
A-R CABLE SERVICES, INC. AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(continued)
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.
(101)
<PAGE>
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 31st day of
March, 1997.
Cablevision Systems Corporation
By: /s/ William J. Bell
------------------------------
Name: William J. Bell
Title: Vice Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Francis F. Randolph, Jr., Marc A. Lustgarten and Robert
S. Lemle, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him in his name, place
and stead, in any and all capacities, to sign this report, and file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons in the capacities and
on the dates indicated.
Name Title Date
---- ----- ----
/s/ James L. Dolan Chief Executive Officer March 31, 1997
- ----------------------- and Director
James L. Dolan (Principal Executive
Officer)
/s/ William J. Bell Vice Chairman and Director March 31, 1997
- -----------------------
William J. Bell (Principal Financial Officer)
/s/ Andrew B. Rosengard Senior Vice President March 31, 1997
- ------------------------- and Controller
Andrew B. Rosengard (Principal Accounting Officer)
(102)
<PAGE>
SIGNATURES
(continued)
/s/ Charles F. Dolan Chairman of the Board March 31, 1997
- --------------------------- of Directors
Charles F. Dolan
Marc A. Lustgarten Vice Chairman and Director March 31, 1997
- ---------------------------
Marc A. Lustgarten
/s/ Robert May Chief Operating Officer March 31, 1997
- ---------------------------
Robert May
/s/ Robert S. Lemle Executive Vice President, March 31, 1997
- --------------------------- General Counsel, Secretary
Robert S. Lemle and Director
/s/ Sheila A. Mahony Senior Vice President March 31, 1997
- ----------------------------- and Director
Sheila A. Mahony
/s/ John Tatta Director and Chairman of March 31, 1997
- ----------------------------- the Executive Committee
John Tatta
Patrick F. Dolan Director March 31, 1997
- -----------------------------
Patrick F. Dolan
Francis F. Randolph, Jr. Director March 31, 1997
- -----------------------------
Francis F. Randolph, Jr.
/s/ Daniel T. Sweeney Director March 31, 1997
- -----------------------------
Daniel T. Sweeney
/s/ Charles D. Ferris Director March 31, 1997
- -----------------------------
Charles D. Ferris
/s/ Richard H. Hochman Director March 31, 1997
- -----------------------------
Richard H. Hochman
/s/ Victor Oristano Director March 31, 1997
- -----------------------------
Victor Oristano
/s/ Vincent Tese Director March 31, 1997
- -----------------------------
Vincent Tese
(103)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
3.1 --Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 dated
January 17, 1986, File No. 33-1936 (the "S-1")).
3.1A --Amendment to Certificate of Incorporation and
complete copy of amended and restated Certificate of
Incorporation (incorporated herein by reference to
Exhibits 3.1A(i) and 3.1A(ii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1989 (the "1989 10-K")).
3.1B --Certificate of Designations for the Series E
Redeemable Exchangeable Convertible Preferred Stock
(incorporated herein by reference to the Company's
Annual Report on form 10-K/A for the year ended
December 31, 1993, filed on April 13, 1994).
3.1C --Certificate of Designations for the Series F
Redeemable Preferred Stock (incorporated herein by
reference to the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1993, filed on April
13, 1994).
3.1D --Certificate of Designations for the Series G
Redeemable Exchangeable Preferred Stock (incorporated
herein by reference to Exhibit 3.1D to the Company's
Registration Statement on Form S-4, File No. 33-62717).
3.1E --Certificate of Designations for the Series H
Redeemable Exchangeable Preferred Stock (incorporated
by reference to Exhibit 4.1E to the Company's
Registration Statement on Form S-4, File No. 33-63691).
3.1F --Certificate of Designations for the Series I
Cumulative Convertible Exchangeable Preferred Stock
(incorporated by reference to Exhibit 99.3 to the
Company's Current Report on Form 8-K dated November 7,
1995).
3.1G --Certificate of Designations for the Series L
Redeemable Exchangeable Preferred Stock (incorporated
herein by reference to Exhibit 3.1G of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
3.1H --Certificate of Designations for the Series M
Redeemable Exchangeable Preferred Stock (incorporated
by reference to Exhibit 4.1(f) to the Company's
Registration Statement on Form S-4, File No.
333-00527).
3.2 --By-laws of the Registrant (incorporated hereby by
reference to Exhibit 3.2 to the S-1).
(104)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
3.2A --Amendment to By-laws and complete copy of amended and
restated By-laws (incorporated herein by reference to
Exhibit 3.2 to the 1989 10-K).
3.2B --Amendment to By-laws and complete copy of amended and
restated By-laws (incorporated herein by reference to
Exhibit 3.2B to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1992 (the
"1992 10-K").
3.2C --Amendment to By-laws and complete copy of amended and
restated By-laws (incorporated herein by reference to
Exhibit 3.2C to the Company's Annual Report on Form
10-K405 for the fiscal year ended December 31, 1994).
3.2D --Amendment to By-laws of the Registrant and complete
copy of amended and restated By-laws (incorporated
herein by reference to Exhibit 3.2D to the Company's
Registration Statement on Form S-4, File No. 33-62717).
4.1 --Indenture dated as of April 1, 1992 relating to the
Registrant's $275,000,000 10 3/4% Senior Subordinated
Debentures due April 1, 2004 (incorporated herein by
reference to Exhibit 4.2 to the 1992 10-K).
4.2 --Indenture dated as of February 15, 1993 relating to
the Registrant's $200,000,000 9 7/8% Senior
Subordinated Debentures due February 15, 2013
(incorporated herein by reference to Exhibit 4.3 to the
1992 10-K).
4.3 --Indenture dated as of April 1, 1993 relating to the
Registrant's $150,000,000 9-7/8% Senior Subordinated
Debentures due 2023 (incorporated by reference to the
Company's Registration Statement on Form S-4, File No.
33-61814).
4.4 --Supplemental indenture dated as of November 1, 1995
between the Company and the Bank of New York, Trustee,
to the indenture dated November 1, 1995 (incorporated
by reference to Exhibit 99.6 to the Company's Current
Report on Form 8-K filed November 1, 1995).
4.5 --Registration Rights Agreement, dated September 26,
1995, between the Registrant and Bear, Stearns & Co.,
Inc., Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Morgan Stanley & Co.,
Incorporated (incorporated by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-4,
Registration No. 33-63691).
(105)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
4.6 --Registration Rights Agreement, dated February 15,
1996 between the Registrant and Bear, Stearns & Co.,
Inc., Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, and Morgan Stanley & Co.,
Incorporated (incorporated herein by reference to
Exhibit 4.6 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.1 --Registration Rights Agreement between Cablevision
Systems Company and the Registrant (incorporated herein
by reference to Exhibit 10.1 of the S-1).
10.2 --Registration Rights Agreement between CSC Holdings
Company and the Registrant (incorporated herein by
reference to Exhibit 10.2 to the S-1)
10.3 --Form of Right of First Refusal Agreement between
Dolan and the Registrant (incorporated herein by
reference to Exhibit 10.4 to the S-1)
10.4 --Supplemental Benefit Plan of the Registrant
(incorporated herein by reference to Exhibit 10.7 to
the S-1)
10.5 --Cablevision Money Purchase Pension Plan, and Trust
Agreement dated as of December 1, 1983 between
Cablevision Systems Development Company and Dolan and
Tatta, as Trustees (incorporated herein by reference to
Exhibit 10.8 to the 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 the
Registrant dated January 27, 1986 (incorporated herein
by reference to Exhibit 10.9 to the S-1)
10.8 --Amended and Restated Agreement dated as of June 1,
1983 between SportsChannel Associates and Cablevision
Systems Holdings Company (incorporated herein by
reference to Exhibit 10.11 to the S-1)
10.9 --Lease Agreement dated as of October 9, 1978 between
Cablevision Systems Development Company and Industrial
and Research Associates Co. and amendment dated June
21, 1985 between Industrial and Research Associates Co.
and Cablevision Company (incorporated herein by
reference to Exhibit 10.18 to the S-1)
(106)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
10.10 --Lease Agreement dated May 1, 1982 between Industrial
and Research Associates Co. and Cablevision Systems
Development Company (incorporated herein by reference
to Exhibit 10.19 to the S-1)
10.11 --Agreement of Sublease dated as of July 9, 1982
between Cablevision Systems Development Company and
Ontel Corporation (incorporated herein by reference to
Exhibit 10.20 to the S-1)
10.12 --Agreement of Sublease dated as of June 21, 1985
between Grumman Data Systems Corporation and
Cablevision Company (incorporated herein by reference
to Exhibit 10.21 to the S-1)
10.13 --Agreement dated as of June 21, 1985 between
Industrial and Research Associates Co., Grumman Data
Systems Corporation and Cablevision Company
(incorporated herein by reference to Exhibit 10.22 to
the S-1)
10.14 --Lease Agreement dated as of June 21, 1985 between
Industrial and Research Associates Co. and Cablevision
Company (incorporated herein by reference to Exhibit
10.23 to the S-1)
10.15 --Lease Agreement dated as of February 1, 1985 between
Cablevision Company and County of Nassau (incorporated
herein by reference to Exhibit 10.24 to the S-1)
10.16 --Lease Agreement dated as of January 1, 1981 between
Cablevision Systems Development Company and Precision
Dynamics Corporation and amendment dated January 15,
1985 between Cablevision Company and Nineteen New York
Properties Limited Partnership (incorporated herein by
reference to Exhibit 10.25 to the S-1)
10.17 --Option Certificate for 840,000 Shares Issued Pursuant
to the 1986 Nonqualified Stock Option Plan of the
Registrant (incorporated herein by reference to Exhibit
10.29 to the S-1)
(107)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
10.19 --Purchase and Reorganization Agreement dated as of
December 20, 1991 between the Registrant and Charles F.
Dolan (incorporated herein by reference to Exhibit 2(c)
to the January 1992 8-K).
10.20 --Amendment No. 1 dated as of March 28, 1992 to
Purchase and Reorganization Agreement dated as of
December 20, 1991 between the Registrant and Charles F.
Dolan (incorporated herein by reference to Exhibit 2(g)
to the March 1992 Form 8).
10.21 --Letter Agreement dated February 12, 1992, among the
Registrant, A-R Cable Services, Inc. and Warburg Pincus
Investors, L.P. (incorporated herein by reference to
Exhibit 28(a) to the Registrant's Current Report on
Form 8-K dated February 21, 1992 (the "February 1992
8-K")).
10.22 --Letter Agreement dated February 12, 1992 among the
Registrant, A-R Cable Services, Inc. and General
Electric Capital Corporation (incorporated herein by
reference to Exhibit 28(b) to the February 1992 8-K).
10.23 --Letter Agreement dated February 12, 1992 among the
Registrant and A-R Cable Services, Inc. (incorporated
herein by reference to Exhibit 28(b) to the February
1992 8-K).
10.24 --Non-Competition Agreement, dated as of December 31,
1992, among V Cable, Inc., VC Holding, Inc. and the
Registrant, for the benefit of V Cable, Inc., VC
Holding, Inc. and General Electric Capital Corporation
(incorporated herein by reference to Exhibit 10.37 to
the 1992 10-K).
10.25 --Non-Competition Agreement, dated as of December 31,
1992, between U.S. Cable Television Group, L.P. and the
Registrant, for the benefit of U.S. Cable Television
Group, L.P. and General Electric Capital Corporation
(incorporated herein by reference to Exhibit 10.38 to
the 1992 10-K).
10.26 --CSC Nonrecourse Guaranty and Pledge Agreement, dated
as of December 31, 1992, between the Registrant and
General Electric Capital Corporation, as Agent for the
Lenders (incorporated herein by reference to Exhibit
10.39 to the 1992 10-K).
(108)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
10.27 --U.S. Cable Investment Agreement, dated as of June 30,
1992, among V Cable, Inc., V Cable GP, Inc., U.S. Cable
Television Group, L.P. and U.S. Cable Partners
(incorporated herein by reference to Exhibit 10.40 to
the 1992 10-K).
10.28 --Newco Investment Agreement, dated as of December 31,
1992, among VC Holding, Inc., V Cable, Inc. and U.S.
Cable Television Group (incorporated herein by
reference to Exhibit 10.41 to the 1992 10-K).
10.29 --Senior Loan Agreement, dated as of December 31, 1992,
among V Cable, Inc., the Lenders named therein and
General Electric Capital Corporation, as Agent for the
Lenders and as Lender (incorporated herein by reference
to Exhibit 10.42 to the 1992 10-K).
10.30 --Cablevision Systems Corporation Amended and Restated
Employee Stock Plan (incorporated herein by reference
to Exhibit 10.46 to the 1992 10-K).
10.31 --Cablevision Systems Corporation 401(K) Savings Plan
(incorporated herein by reference to Exhibit 10.47 to
the 1992 10-K).
10.32 --Fourth Amended and Restated Credit Agreement, dated
as of June 18, 1993, among Cablevision of New York City
- Phase I L.P., Cablevision Systems New York City
Corporation, Cablevision of New York City- Master L.P.,
each of the Banks signatory thereto, The Chase
Manhattan Bank (National Association) as Agent and The
First National Bank of Chicago and CIBC, Inc. each as
Co-Agent (incorporated herein by reference to Exhibit
10.49 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1993).
10.33 --Asset Purchase Agreement, dated as of July 23, 1993,
by and between Cablevision of Cleveland, L.P. and North
Coast Cable Limited Partnership (incorporated herein by
reference to Exhibit 10.50 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June
30, 1993).
10.34 --Master Agreement, dated as of October 26, 1993,
between Cablevision MFR, Inc., Monmouth Cablevision
Associates, Framingham Cablevision Associates and
Riverview Cablevision Associates, L.P. (incorporated
herein by reference to Exhibit 10.51 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1993 (the "September 1993 10-Q").
(109)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
10.35 --Asset Purchase Agreement, dated as of October 26,
1993, between Monmouth Cablevision Associates and
Cablevision MFR, Inc. (incorporated herein by reference
to Exhibit 10.52 to the September 1993 10-Q).
10.36 --Asset Purchase Agreement, dated as of October 26,
1993, between Framingham Cablevision Associates,
Limited Partnership and Cablevision MFR, Inc.
(incorporated herein by reference to Exhibit 10.53 to
the September 1993 10-Q).
10.37 --Asset Purchase Agreement, dated as of October 26,
1993 between Riverview Cablevision Associates, L.P. and
Cablevision MFR, Inc. (incorporated herein by reference
to Exhibit 10.54 to the September 1993 10-Q).
10.38 --Asset Purchase Agreement among A-R Cable Partners,
Nashoba Communications Limited Partnership, Nashoba
Communications Limited Partnership No. 7 and Nashoba
Communications of Belmont Limited Partnership dated as
of November 5, 1993 (incorporated herein by reference
to Exhibit 10.55 to the September 1993 10-Q).
10.39 --Loan Agreement, dated as of June 30, 1994 among
Rainbow Programming Holdings, Inc., the Guarantors as
defined therein, Toronto-Dominion Bank, the other banks
party thereto and Toronto-Dominion (Texas), Inc., as
Agent (incorporated herein by reference to Exhibit
10.58 to the Company's June 30, 1994 10-Q).
10.40 --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, Cablevision Systems Corporation,
COB, Inc., Cablevision Systems Services Corporation and
Cablevision Finance Limited Partnership (incorporated
herein by reference to Exhibit 10.59 to the Company's
June 30, 1994 10-Q).
10.41 --Credit Agreement, dated as of June 15, 1994, among
Cablevision of Framingham, Inc., the several lenders
parties thereto, The Chase Manhattan Bank, N.A., as
Agent and CIBC Inc., as Co-Agent (incorporated herein
by reference to Exhibit 10.60 to the Company's June 30,
1994 10-Q).
10.42 --Amendment No. 1, dated as of August 8, 1994, to the
Credit Agreement, dated as of June 15, 1994, among
Cablevision of Framingham, Inc., the several lenders
(110)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
parties thereto, the Chase Manhattan Bank, N.A., as
Agent and CIBC, Inc., as Co-Agent (incorporated herein
by reference to Exhibit 10.61 to the Company's June 30,
1994 10-Q).
10.43 --Asset Purchase Agreement, dated as of October 26,
1993, between Monmouth Cablevision Associates and
Cablevision MFR, Inc. as amended by Amendment No. 1
thereto, dated as of April 6, 1994 and Amendment No. 2
thereto, dated as of June 3, 1994 (restated)
(incorporated herein by reference to Exhibit 10.62 to
the Company's June 30, 1994 10-Q).
10.44 --Asset Purchase Agreement, dated as of October 26,
1993, between Riverview Cablevision Associates, Limited
Partnership, and Cablevision MFR, Inc., as amended by
Amendment No. 1 thereto, dated as of April 6, 1994 and
Amendment No. 2 thereto, dated as of June 3, 1994
(restated) (incorporated herein by reference to Exhibit
10.63 to the Company's June 30, 1994 10-Q).
10.45 --Asset Purchase Agreement, dated as of October 26,
1993, between Framingham Cablevision Associates,
Limited Partnership, and Cablevision MFR, Inc., as
amended and assigned to Cablevision Framingham
Holdings, Inc. by Amendment No. 1 thereto, dated as of
April 6, 1994, and as further amended by Amendment No.
2 thereto, dated as of June 3, 1994 (restated)
(incorporated herein by reference to Exhibit 10.64 to
the Company's June 30, 1994 10-Q).
10.46 --Credit Agreement, dated as of June 15, 1994 (the
"Credit Agreement"), by and among Cablevision MFR,
Inc., Cablevision of Riverview, Inc. and Cablevision of
Monmouth, Inc., the Lenders from time to time party
thereto and NationsBank of Texas, N.A., as
Administrative Lender (incorporated herein by reference
to Exhibit 10.65 to the Company's June 30, 1994 10-Q).
10.47 --Agreement, dated as of August 15, 1994 among ITT
Corporation, the Registrant and Rainbow Programming
Holdings, Inc. (incorporated herein by reference to
Exhibit 10.65 of the Company's Current Report on Form
8-K dated September 21, 1994).
10.48 --Amendment Agreement, dated as of September 12, 1994
among ITT Corporation, the Registrant and Rainbow
Programming Holdings, Inc. (incorporated herein by
reference to Exhibit 10.66 of the Company's Current
Report on Form 8-K dated September 21, 1994).
(111)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
10.49 --Agreement and Plan of Merger, (the "MSG Merger
Agreement") dated as of August 27, 1994 among Viacom
Inc., Paramount Communications Realty Corporation, ITT
Corporation, Rainbow Garden Corporation and MSG
Holdings, Inc. (incorporated herein by reference to
Exhibit 10.67 of the Company's Current Report on Form
8-K dated September 21, 1994).
10.50 --Fourth Amended and Restated Credit Agreement, dated
as of October 14, 1994 (the "Credit Agreement"), among
Cablevision Systems Corporation, the Restricted
Subsidiaries (as defined therein) banks party thereto,
Toronto Dominion (Texas), Inc., as Agent, and Bank of
Montreal, Chicago Branch, The Bank of New York, The
Bank of Nova Scotia, The Canadian Imperial Bank of
Commerce and NationsBank of Texas, N.A., as Co-Agents
(incorporated herein by reference to Exhibit 10.68 to
the Company's September 30, 1994 10-Q).
10.51 --First Amended and Restated Credit Agreement, dated as
of October 14, 1994, among Cablevision of New Jersey,
Inc., Cablevision Systems Corporation, the banks party
thereto, Toronto Dominion (Texas), Inc., as Agent and
Bank of Montreal, Chicago Branch, The Bank of New York,
The Bank of Nova Scotia, The Canadian Imperial Bank of
Commerce and NationsBank of Texas, N.A., as Co-Agents
(incorporated herein by reference to Exhibit 10.69 to
the Company's September 30, 1994 10-Q).
10.52 --Amendment No. 1 to the Credit Agreement (incorporated
herein by reference to Exhibit 10.61 to the Company's
Annual Report on Form 10-K405 for the fiscal year ended
December 31, 1994).
10.53 --Amendment No. 1 to First Amended and Restated Credit
Agreement, dated as of October 14, 1994, among
Cablevision of New Jersey, Inc., Cablevision Systems
Corporation, the banks party thereto, Toronto Dominion
(Texas), Inc., as Agent and Bank of Montreal, Chicago
Branch, The Bank of New York, The Bank of Nova Scotia,
The Canadian Imperial Bank of Commerce and NationsBank
of Texas, N.A., as Co-Agents (incorporated herein by
reference to Exhibit 10.62 to the Company's Annual
Report on Form 10-K405 for the fiscal year ended
December 31, 1994).
10.54 --Amended and Restated Loan Agreement, dated as of
January 27, 1995 among Rainbow Programming Holdings,
Inc., the guarantors (as defined therein), Toronto
Dominion (Texas) Inc. and Canadian Imperial Bank of
Commerce, as co-agents and Toronto Dominion (Texas),
Inc., as administrative agent (incorporated herein
(112)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
by reference to Exhibit 10.63 to the Company's Annual
Report on Form 10-K405 for the fiscal year ended
December 31, 1994).
10.55 --Amendment No. 1 dated as of March 10, 1995 to the MSG
Merger Agreement (incorporated herein by reference to
Exhibit 10.64 to the Company's Annual Report on Form
10-K405 for the fiscal year ended December 31, 1994).
10.56 --Amendment No. 2 dated as of March 10, 1995 to the MSG
Merger Agreement (incorporated herein by reference to
Exhibit 10.65 to the Company's Annual Report on Form
10-K405 for the fiscal year ended December 31, 1994).
10.57 --Agreement and undertaking, dated as of March 10, 1995
from MSG Holdings, LP, MSG Eden Corporation, the
Registrant, 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 Company's
Annual Report on Form 10-K405 for the fiscal year ended
December 31, 1994).
10.58 --Consent Agreement, dated as of March 10, 1995 by and
among the National Hockey League, MSG Holdings, L.P.,
MSG Eden Corporation, ITT Eden Corporation, ITT MSG
Inc., ITT Corporation, Garden L.P. Holdings Corp.,
Rainbow Garden Corporation, Rainbow Programming
Holdings Inc. and the Registrant (incorporated herein
by reference to Exhibit 10.67 to the Company's Annual
Report on Form 10-K405 for the fiscal year ended
December 31, 1994).
10.59 --Amendment to consulting agreement dated as of
November 28, 1994 between the Company and John Tatta
(incorporated herein by reference to Exhibit 10.68 to
the Company's Annual Report on Form 10-K405 for the
fiscal year ended December 31, 1994).
10.60 --Employment Agreement, dated as of November 30, 1994,
between the Registrant and William J. Bell
(incorporated herein by reference to Exhibit 10.69 to
the Company's Annual Report on Form 10-K405 for the
fiscal year ended December 31, 1994).
10.61 --Employment Agreement, dated as of November 30, 1994,
between the Registrant and Marc A. Lustgarten
(incorporated herein by reference to Exhibit 10.70 to
the
(113)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
Company's Annual Report on Form 10-K405 for the fiscal
year ended December 31, 1994).
10.62 --Employment Agreement, dated as of November 30, 1994,
between the Registrant and Robert S. Lemle
(incorporated herein by reference to Exhibit 10.71 to
the Company's Annual Report on Form 10-K405 for the
fiscal year ended December 31, 1994).
10.63 --Amendment No. 2 and Waiver, dated as of September 28,
1995 to the Credit Agreement (incorporated herein by
reference to Exhibit 10.63 of the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995).
10.64 --Amendment No. 3 and Waiver, dated as of November 7,
1995, to the Credit Agreement (incorporated herein by
reference to Exhibit 10.64 of the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995).
10.65 --Amendment No. 4 and Waiver, dated as of March 4,
1996, to the Credit Agreement (incorporated herein by
reference to Exhibit 10.65 of the Company's Annual
Report on Form 10-K for the fiscal year ended December
31, 1995).
10.66 --Amended and Restated Senior Loan Agreement, dated as
of March 15, 1996, among U.S. Cable Television Group,
L.P., the Lenders named therein and General Electric
Capital Corporation, as Agent and Lender (incorporated
herein by reference to Exhibit 10.66 of the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.67 --Amended and Restated Loan Agreement, dated as of
March 15, 1996, among VC Holding, Inc., the Lenders
named therein and General Electric Capital Corporation,
as Agent and Lender (incorporated herein by reference
to Exhibit 10.67 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.68 --Partnership interests Redemption Agreement, dated as
of March 15, 1996, among U.S. Cable Television Group,
L.P., U.S. Cable Partners, Pompadur Trust No. 1, The
Rule Trust, dated June 11, 1987, Elliot H. Stein, I.
Martin Pompadur and General Electric Capital
Corporation (incorporated herein by reference to
Exhibit 10.68 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
(114)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
10.69 --Second Amended and Restated Agreement of Limited
Partnership of U.S. Cable Television Group, L.P., dated
as of March 15, 1996 (incorporated herein by reference
to Exhibit 10.69 of the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).
10.70 --Cablevision Systems Corporation 1996 Employee Stock
Plan (incorporated herein by reference to Exhibit 10.70
of the Company's Annual Report on Form 10 -K for the
fiscal year ended December 31, 1995).
10.71 --Credit Agreement, dated as of April 17, 1996, among
Cablevision of Cleveland, L.P., Telerama, Inc.,
Cablevision of the Midwest, Inc., the lenders from time
to time party thereto, NationsBank of Texas, N.A., as
Administrative Agent, Canadian Imperial Bank of
Commerce as Documentation Agent, The Toronto-Dominion
Bank as Syndicate Agent, and The First National Bank of
Boston, The Bank of Nova Scotia, Corcstatcs Bank, N.A.,
Credit Lyonnais Cayman Island Branch, PNC Bank,
National Association and Royal Bank of Canada, as
Co-Agents (incorporated herein by reference to Exhibit
10.71 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1996).
10.72 --Fifth Amended and Restated Credit Agreement, dated as
of September 5, 1996, among Cablevision Systems
Corporation, the Restricted Subsidiaries (as defined
herein), the banks party thereto, and Toronto Dominion
(Texas), Inc., as Arranging Agent, The Bank of New
York, The Bank of Nova Scotia, The Canadian Imperial
Bank of Commerce, NationsBank of Texas, N.A., and The
Chase Manhattan Bank, as Agents, Bank of Montreal,
Chicago Branch, Fleet Bank, N.A., Mellon Bank, N.A.,
and Regal Bank of Canada, as Co-Agents, The Bank of
Nova Scotia and The Canadian Imperial Bank of Commerce,
as Co-Syndication Agents, and The Bank of New York, as
Documentation Agent (incorporated herein by reference
to Exhibit 10.72 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1996).
10.73 --Credit Agreement, dated as of September 5, 1996,
among Cablevision MFR, Inc., Cablevision Systems
Corporation, the Guarantors (as defined therein), the
banks party thereto, and Toronto Dominion (Texas), Inc.
as Arranging Agent, The Bank of New York, The Bank of
Nova Scotia, The Canadian Imperial Bank of Commerce,
NationsBank of Texas, N.A., and The Chase Manhattan
Bank, as Agents, Bank of Montreal, Chicago Branch,
Fleet Bank, N.A., Mellon Bank, N.A., and Regal Bank of
Canada, as Co-Agents, The Bank of Nova Scotia and The
Canadian Imperial Bank of Commerce, as Co-Syndication
Agents, and The Bank
(115)
<PAGE>
INDEX TO EXHIBITS
(continued)
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ------
of New York, as Documentation Agent (incorporated
herein by reference to Exhibit 10.73 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1996).
10.74 --Agreement, dated February 4, 1996, among Cablevision
Systems Corporation, Rainbow Programming Holdings, Inc.
and ITT Corporation (incorporated herein by reference
to Exhibit 10.74 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30,
1996).
10.75 --Master Stock Purchase Agreement, dated as of May 10,
1996, between Warburg Pincus Investors, L.P., a
Delaware limited partnership, and the Company
(incorporated by reference to Exhibit 99 to the
Company's Current Report on Form 8-K dated May 10,
1996).
10.76 --Letter, dated March 6, 1997, among ITT MSG Inc., ITT
Eden Corp., Rainbow Garden Corp. and Garden L.P.
Holding Corp. (incorporated by reference to Exhibit
99.2 of the Company's Current Report on Form 8-K dated
March 6, 1997).
21 --Subsidiaries of the Registrant
23.1 --Consent of Independent Auditors
27 --Financial Data Schedule
28.1-- --Form of Guarantee and Indemnification Agreement among
Dolan, the Registrant and directors and officers of the
Registrant (incorporated herein by reference to Exhibit
28 to the S-1)
(116)
Exhibit 21
SUBSIDIARIES
OF
CABLEVISION SYSTEMS CORPORATION
State of
Name Organization
- ---- ------------
A-R Cable Investments, Inc. Delaware
A-R Cable Services, Inc. Massachusetts
Rainbow Programming Holdings, Inc. New York
V Cable, Inc. Delaware
NYC LP Corp. Delaware
Cablevision of New York City - Master L.P. Delaware
Cablevision MFR, Inc. Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements (numbers 33-05987, 33-08768, 33-19409, 33-20583 and 33-54346) filed
on Forms S-8 and in the registration statements (numbers 33-29192, 33-33596 and
33-62313) filed on Forms S-3 of Cablevision Systems Corporation of our reports
dated April 1, 1997 relating to: (i) the consolidated balance sheets of
Cablevision Systems Corporation and Subsidiaries as of December 31, 1996 and
1995 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, 1996, and (ii) the consolidated balance
sheets of A-R Cable Services, Inc. and Subsidiaries as of December 31, 1996 and
1995 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, 1996, which reports appear in the December 31, 1996 annual report
on Form 10-K of Cablevision Systems Corporation.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Jericho, New York
April 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,612
<SECURITIES> 0
<RECEIVABLES> 118,361
<ALLOWANCES> (12,955)
<INVENTORY> 134,258
<CURRENT-ASSETS> 0
<PP&E> 2,433,997
<DEPRECIATION> (1,043,026)
<TOTAL-ASSETS> 3,034,725
<CURRENT-LIABILITIES> 0
<BONDS> 3,334,701
1,005,265
15
<COMMON> 249
<OTHER-SE> (2,374,549)
<TOTAL-LIABILITY-AND-EQUITY> 3,034,725
<SALES> 0
<TOTAL-REVENUES> 1,333,631
<CGS> 0
<TOTAL-COSTS> 538,272
<OTHER-EXPENSES> 388,982
<LOSS-PROVISION> (18,489)
<INTEREST-EXPENSE> 268,177
<INCOME-PRETAX> (332,079)
<INCOME-TAX> 0
<INCOME-CONTINUING> (332,079)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (332,079)
<EPS-PRIMARY> (18.52)
<EPS-DILUTED> 0<F1>
<FN>
<F1>Not presented as the resultant computation would be a decrease in net loss
per share and therefore not meaningful.
</FN>
</TABLE>
