<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
----------------------
Date of Report (Date of earliest
event reported): June 17, 1997
CABLEVISION SYSTEMS CORPORATION
--------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9046 11-2776686
-------------- ------------------------ ------------------
(State of (Commission File Number) (IRS Employer
incorporation) Identification No.)
One Media Crossways, Woodbury, New York 11797
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(Address of principal executive offices) (Zip Code)
(516) 364-8450
-------------------------------
(Registrant's telephone number,
including area code)
<PAGE>
ITEM 5. Other Events.
On June 17, 1997, Cablevision Systems Corporation (the "Registrant"
or the "Company") and ITT Corporation ("ITT") and certain of their affiliates
completed the redemption by Madison Square Garden, L.P. ("MSG") of a portion
of ITT's 50% interest in MSG (the "MSG Redemption"). As a result of the MSG
Redemption and the contemporaneous contribution by Rainbow Media Holdings,
Inc. ("Rainbow Media") of SportsChannel Associates ("SportsChannel New York")
to MSG (described below), Rainbow Media's interest in MSG increased from 50%
to 89.8%. ITT received $500 million from MSG and maintains a 10.2% equity
interest in MSG. MSG financed the redemption with borrowings under an $850
million senior secured credit facility.
ITT has the right to require the Company to repurchase one-half of
its remaining equity interest in MSG on June 17, 1998 (the "Initial Put
Right") for $75 million (or $94 million if ITT contributes to MSG ownership
of an aircraft used to transport professional sports teams) and its remaining
equity interest in MSG on June 17, 1999 for $75 million (or $94 million if
the aircraft is contributed). If ITT does not exercise its Initial Put Right,
the purchase price for its entire remaining equity interest in MSG on June
17, 1999 will be $150 million (or $188 million if the aircraft is
contributed). The Company has the right to satisfy any or all of its put
obligations by having MSG redeem the equity interests being put by ITT in
cash. The Company also can satisfy its put obligation in cash or, subject to
certain conditions, the Company's Class A common stock. ITT's put rights with
respect to its remaining equity interest in MSG will be accelerated if there
occurs a bankruptcy event relating to the Company or MSG, a dissolution of
MSG or an acceleration of or failure to pay at maturity any indebtedness of
the Company or MSG in an aggregate amount equal to or greater than $20
million. The Company has the right on June 17, 2000 to purchase for cash
ITT's remaining equity interest in MSG if ITT chooses not to exercise either
of its put options. The purchase price for ITT's remaining equity interest in
MSG so repurchased by the Company will be the greater of the fair market
value of ITT's remaining equity interest in MSG and the amount ITT would have
received if it had exercised its right to put such interests to the Company.
The Company will also have the right to repurchase, or at the Company's
election to cause MSG to redeem, all of ITT's remaining equity interest in
MSG at any time following a Change in Control (as defined) of ITT, at the
same purchase price that would apply if ITT put its remaining equity interest
in MSG to the Company.
The financial statements of Madison Square Garden, L.P. are filed
herewith as Exhibit 99.1.
The Registrant files herewith the following condensed pro forma
consolidated financial information for the year ended December 31, 1996 and
six months ended June 30, 1997, including the pro forma information relating
to the MSG Redemption.
CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following condensed pro forma consolidated balance sheet as of June
30, 1997 presents the Company's financial position as adjusted to give effect
to the acquisition by the Company from Warburg Pincus Investors, L.P.
("Warburg") of the equity interests that Warburg owned in A-R Cable Services,
Inc. ("A-R Cable") for $112.3 million on July 2, 1997 (the "A-R Cable
Transaction") as described under "Recent Developments" in the Company's Form
10-Q for the quarter ended June 30, 1997 (the "June 30, 1997 Form 10-Q"), as
if it had occurred as of that date. The following condensed pro forma
consolidated statement of operations for the year ended December 31, 1996
presents the Company's consolidated results of operations as adjusted to give
effect to (i) the transaction in which Rainbow Programming Holdings, Inc.
merged with and into Rainbow Media and NBC Cable Holding, Inc., a subsidiary
of National Broadcasting Company, Inc. ("NBC"), received a 25% equity interest
in non-voting Class C common stock of Rainbow Media in exchange for NBC's
contribution of its partnership interests in certain of Rainbow Media's
programming networks (collectively, the "NBC Transaction"), as described
under "Note 5. Acquisitions" in the June 30, 1997 Form 10-Q, (ii) the MSG
Redemption, (iii) the acquisition by the Company from Warburg of the equity
interests that Warburg owned in A-R Cable Partners and Cablevision of
Framingham Holdings, Inc. ("CFHI") for $41.2 million on June 11, 1997, as
described under "Note 5. Acquisitions" in the June 30, 1997 Form 10-Q, and
the A-R Cable Transaction (collectively, the "1997 Warburg Transactions"),
and (iv) the 1996 acquisitions of U.S. Cable Television Group, L.P. ("U.S.
Cable") and Cablevision of Newark (the "U.S. Cable and Newark Acquisitions")
as described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, in each case as if they had occurred at the beginning of
the period presented. The following condensed pro forma consolidated
statement of operations for the six months ended June 30, 1997 presents the
Company's consolidated results of operations as adjusted to give effect to
(i) the NBC Transaction, (ii) the MSG Redemption, and (iii) the 1997 Warburg
Transactions, in each case as if they had occurred at the beginning of the
period presented.
The condensed pro forma consolidated financial statements should be read
in conjunction with the notes thereto and the historical consolidated
financial statements and notes thereto incorporated herein by reference. The
pro forma financial information has been prepared for comparative purposes
only and is not necessarily indicative of what the actual financial position
or results of operations of the Company would have been had the transactions
occurred on the dates indicated nor does it purport to indicate the future
results of operations or the future financial condition of the Company.
1
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
A-R CABLE
HISTORICAL TRANSACTION* PRO FORMA
---------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 34,460 $ 215(1) $ 34,675
Accounts receivable--trade, net.................... 188,976 1,911(1) 190,887
Notes and other receivables........................ 35,719 1,378(1) 37,097
Prepaid expenses and other assets.................. 61,402 689(1) 40,166
(21,925)(4)
Property, plant and equipment, net................. 1,698,710 105,718(1) 1,804,428
Investments in affiliates.......................... 41,619 41,619
Advances to affiliates............................. 7,128 195(1) 3,810
(3,513)(2)
Feature film inventory............................. 159,142 159,142
Intangible assets, net............................. 2,313,114 87,052(1) 2,400,166
Deferred financing, acquisition
and other costs, net............................. 108,054 373(1) 108,427
---------- ---------- ----------
$4,648,324 $ 172,093 $4,820,417
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES & STOCKHOLDERS' DEFICIENCY
Accounts payable................................... $ 215,961 $ 16,493(1) $ 232,454
Accrued liabilities................................ 430,923 19,507(1) 450,430
Accounts payable to affiliates..................... 8,791 28,113(1) 8,393
(24,998)(5)
(3,513)(2)
Deferred revenue................................... 30,536 30,536
Feature film and contract rights payable........... 256,817 256,817
Bank debt.......................................... 2,863,066 90,376(4) 2,953,442
Senior debt........................................ 398,367(1) 398,367
Subordinated debentures............................ 1,323,172 1,323,172
Subordinated notes payable......................... 151,000 151,000
Obligation to related party........................ 189,958 189,958
Capital lease obligations and other debt........... 45,095 45,095
Minority interest.................................. 134,110 134,110
---------- ---------- ----------
5,649,429 524,345 6,173,774
---------- ---------- ----------
Deficit investment in affiliates................... 550,581 (533,990)(2) 16,591
---------- ---------- ----------
Redeemable preferred stock......................... 1,062,884 364,569(1) 1,062,884
(269,041)(3)
(95,528)(2)
---------- ---------- ----------
Stockholders' deficiency:
Preferred stock.................................. 15 15
Common stock..................................... 249 249
Paid-in capital.................................. 164,950 164,950
Accumulated deficit.............................. (2,779,784) 24,998(5) (2,598,046)
156,740(3)
---------- ---------- ----------
(2,614,570) 181,738 (2,432,832)
---------- ---------- ----------
$4,648,324 $ 172,093 $4,820,417
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
* See Note A of Notes to Condensed Pro Forma Consolidated Financial Statements.
2
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS*
-----------------------------------------------------------------
1997 U.S. CABLE/
NBC MSG WARBURG NEWARK
HISTORICAL TRANSACTION REDEMPTION TRANSACTIONS ACQUISITIONS PRO FORMA
---------- ----------- ----------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues........................ $1,315,142 $ 121,591(6) $ 399,214(10) $ 142,575(15) $ 67,429(21) $2,045,951
---------- --------- --------- ---------- --------- -----------
Operating expenses:
Technical..................... 538,272 83,938(6) 253,618(10) 54,309(15) 30,820(21) 960,957
Selling, general and
administrative.............. 313,476 38,592(6) 55,289(10) 32,591(15) 15,545(21) 449,805
(5,067)(16) (621)(22)
Depreciation and
amortization................ 388,982 3,870(6) 60,860(10) 46,686(15) 23,981(21) 557,527
5,391(7) 10,520(11) 3,456(17) 13,781(23)
---------- --------- --------- ---------- --------- -----------
1,240,730 131,791 380,287 131,975 83,506 1,968,289
---------- --------- --------- ---------- --------- -----------
Operating profit (loss)..... 74,412 (10,200) 18,927 10,600 (16,077) 77,662
Other income (expense):
Interest expense.............. (268,177) (424)(6) (17,850)(10) (45,884)(15) (14,137)(21) (425,854)
(66,185)(12) (13,018)(18) (2,214)(24)
1,786(16) 249(22)
Interest income............... 3,162 477(6) 53(15) 53(21) 3,745
Share of affiliates' net
income (loss)............... (82,028) 3,266(8) (2,041)(13) 73,166(19) 844(25) (6,793)
Write-off of deferred interest
and financing costs......... (37,784) (3,495)(15) (41,279)
Provision for preferential
payment to related party.... (5,600) (5,600)
Minority interest............. (9,417) 14,393 (9) 18,547(14) 23,523
Miscellaneous, net............ (6,647) (498)(6) 1,766(10) (2,798)(15) (157)(21) (8,334)
---------- --------- --------- ---------- --------- -----------
Net income (loss)............... (332,079) 7,014 (46,836) 20,410(20) (31,439) (382,930)
Dividend requirements applicable
to preferred stock............ (127,780) 49,977(15) (127,780)
(49,977)(16)
---------- --------- --------- ---------- --------- -----------
Net income (loss) applicable to
common stockholders........... $ (459,859) $ 7,014 $ (46,836) $ 20,410 $ (31,439) $ (510,710)
---------- --------- --------- ---------- --------- -----------
---------- --------- --------- ---------- --------- -----------
Net loss per common share....... $ (18.52) $ (20.57)
---------- -----------
---------- -----------
Average number of common shares
outstanding (in thousands).... 24,827 24,827
---------- -----------
---------- -----------
</TABLE>
- ------------------------
* See Note B of Notes to Condensed Pro Forma Consolidated Financial
Statements.
3
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS*
------------------------------------------------
NBC MSG 1997 WARBURG
HISTORICAL TRANSACTION REDEMPTION TRANSACTIONS PRO FORMA
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.................. $ 797,065 $ 33,905(26) $194,337(30) $ 71,506(35) $1,096,813
--------- --------- -------- --------- ----------
Operating expenses:
Technical............... 340,430 21,388(26) 117,926(30) 27,083(35) 506,827
Selling, general and
administrative.......... 214,619 11,251(26) 28,178(30) 17,644(35) 269,173
(2,519)(36)
Depreciation and
amortization............ 222,581 1,508 (26) 28,289(30) 21,676(35) 281,808
1,348 (27) 4,822(31) 1,584(37)
--------- --------- -------- --------- ----------
777,630 35,495 179,215 65,468 1,057,808
--------- --------- -------- --------- ----------
Operating profit
(loss).............. 19,435 (1,590) 15,122 6,038 39,005
Other income (expense):
Interest expense........ (153,785) (642)(26) (8,371)(30) (22,074)(35) (209,227)
(20,638)(32) (4,912)(38)
1,195(36)
Interest income......... 828 142(26) 22(35) 992
Share of affiliates' net
income (loss)......... (31,481) 1,922(28) (8,277)(33) 37,837(39) 1
Provision for
preferential payment
to related party...... (2,800) (2,800)
Minority interest....... 3,828 1,269(29) 3,936(34) 9,033
Miscellaneous, net...... (3,991) (2,382)(35) (6,373)
--------- --------- -------- --------- ----------
Net income (loss)......... (167,966) 1,101 (18,228) 15,724(40) (169,369)
Dividend requirements
applicable to preferred 28,297(35)
stock................... (72,731) (28,297)(36) (72,731)
--------- --------- -------- --------- ----------
Net income (loss)
applicable to common
stockholders............ $(240,697) $ 1,101 $(18,228) $ 15,724 $ (242,100)
--------- --------- -------- --------- ----------
--------- --------- -------- --------- ----------
Net loss per common
share................... $ (9.69) $ (9.75)
---------- -----------
---------- -----------
Average number of common
shares outstanding (in
thousands).............. 24,842 24,842
---------- -----------
---------- -----------
</TABLE>
- ------------------------
* See Note C of Notes to Condensed Pro Forma Consolidated Financial
Statements.
4
<PAGE>
NOTE A--NOTES TO CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30,
1997
1997 WARBURG TRANSACTIONS
(1) As a result of the A-R Cable Transaction, the assets and liabilities of
A-R Cable will be combined with the Company's consolidated balance sheet
amounts. The adjustments referenced by this Note (1) reflect the
consolidation of such amounts as of the balance sheet date.
(2) Represents the elimination of the Company's deficit investment in A-R Cable
($533,990,000), the elimination of the Company's A-R Cable preferred stock
($95,528,000) and the reclassification of intercompany amounts.
(3) Represents the excess ($156,740,000) of the book value at June 30, 1997
($269,041,000) of A-R Cable's series A preferred stock over the purchase
price attributable to such preferred stock ($112,301,000).
(4) Represents the additional bank debt ($90,376,000) incurred to purchase the
series A preferred stock of A-R Cable and the reclassification of the
deposit of $21,925,000 made in February 1997 with respect to the
transaction.
(5) Represents the elimination of the liability for management fees and accrued
interest thereon recorded by A-R Cable but previously reserved by the
Company.
NOTE B-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1996
NBC TRANSACTION
(6) As a result of the NBC Transaction, the results of operations of certain
companies previously accounted for under the equity method are now
consolidated with the Company's consolidated results of operations. The
adjustments referenced by this Note (6) reflect the consolidation of such
amounts for the year ended December 31, 1996.
(7) Represents the amortization, based on an average 10-year life, of the excess
costs resulting from the exchange of 25% of the Company's interests in
Rainbow Media for NBC's interests in certain individual entities.
(8) Represents the elimination of the Company's share of affiliates' net income
or loss previously recorded for entities that are now consolidated and
records the additional share of affiliates' net income or loss of interests
contributed by NBC in certain entities that continue to be recorded on an
equity basis.
(9) Represents NBC's minority interest in the net loss of Rainbow Media and a
minority interest in one of the companies previously accounted for under the
equity method.
5
<PAGE>
NOTE B-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
MSG REDEMPTION
(10) As a result of the MSG Redemption, the results of operations of MSG will be
combined with the Company's consolidated results of operations. The
adjustments referenced by this Note (10) reflect the consolidation of such
amounts for the year ended December 31, 1996.
(11) Represents the amortization, based on an average 30-year life, of the
excess costs resulting from the acquisition of 39.8% of MSG and the
contribution of SportsChannel New York to MSG.
(12) Represents interest expense on additional debt incurred to purchase
additional interests in MSG and the amortization of deferred financing costs
incurred in connection with obtaining the additional bank debt.
(13) Represents the elimination of the Company's share of net income of MSG
previously recorded using the equity method of accounting.
(14) Represents the minority interest in the net loss of MSG and SportsChannel
New York owned by ITT, and by NBC through its interest in Rainbow Media.
1997 WARBURG TRANSACTIONS
(15) As a result of the 1997 Warburg Transactions, the results of operations of
A-R Cable, A-R Cable Partners and CFHI("the Warburg Companies") will be
combined with the Company's consolidated results of operations. The
adjustments referenced by this Note (15) reflect the consolidation of such
amounts for the year ended December 31, 1996.
(16) Represents the elimination of preferred stock dividends recorded by A-R
Cable and management fees and accrued interest thereon earned by the Company
and recorded on the books of the Warburg Companies. These management fees
and related interest had not been paid and the Company had not reflected any
accrual for such amounts in its financial statements.
(17) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired of $34,558,000.
(18) Represents interest expense on the additional bank debt incurred to
complete the 1997 Warburg Transactions.
(19) Represents the elimination of the net losses of the Warburg Companies
previously recorded by the Company using the equity method of accounting.
(20) The Condensed Pro Forma Statement of Operations for the Year Ended December
31, 1996 does not give effect to the gain recorded on the liquidation of A-R
Cable's series A preferred stock.
U.S. CABLE/NEWARK ACQUISITIONS
(21) As a result of the acquisition of the 80% partnership interest in U.S.
Cable and the acquisition of 75% of partnership interests in Cablevision of
Newark not already owned by the Company, the results of operations of U.S.
Cable and Cablevision of Newark were combined with the Company's
consolidated results of operations as of the acquisition date. The
adjustments referenced by this Note (21) reflect the consolidation of such
amounts for the period prior to the acquisition date.
6
<PAGE>
NOTE B-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
(22) Represents the elimination of management fees and interest thereon earned
by the Company and recorded on the books of U.S. Cable and Cablevision of
Newark. These management fees and related interest had not been paid and the
Company had not reflected any accrual for such amounts in its financial
statements.
(23) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired, offset by the elimination of
pre-acquisition amortization of intangibles.
(24) Represents the interest expense on the additional bank debt incurred to
complete the acquisition of Cablevision of Newark.
(25) Represents the elimination of the net loss of Cablevision of Newark
previously recorded by the Company using the equity method of accounting.
NOTE C-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1997
NBC TRANSACTION
(26) As a result of the NBC Transaction, the results of operations of certain
companies previously accounted for on an equity basis are now consolidated
with the Company's consolidated results of operations. The adjustments
referenced by this Note (26) reflect the consolidation of such amounts for
the period prior to the date of the transaction.
(27) Represents the amortization, based on an average 10-year life, of the
excess costs resulting from the exchange of 25% of the Company's interests
in Rainbow Media for NBC's interests in certain entities.
(28) Represents the elimination of the Company's share of affiliates' net income
or loss previously recorded for entities that are now consolidated and
records the additional share of affiliates' net income or loss of interests
contributed by NBC in certain entities that continue to be recorded on an
equity basis.
(29) Represents NBC's minority interest in the net loss of Rainbow Media and a
minority interest in one of the companies previously accounted for under the
equity method.
MSG REDEMPTION
(30) As a result of the MSG Redemption, the results of operations of MSG will be
combined with the Company's consolidated results of operations. The
adjustments referenced by this Note (30) reflect the consolidation of such
amounts for the period prior to the date of the transaction.
(31) Represents the amortization, based on an average 30-year life, of the
excess costs resulting from the acquisition of 39.8% of MSG and the
contribution of SportsChannel New York to MSG.
7
<PAGE>
NOTE C-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1997 (CONTINUED)
(32) Represents interest expense on additional debt incurred to purchase
additional interests in MSG and the amortization of deferred financing costs
incurred in connection with obtaining the additional bank debt.
(33) Represents the elimination of the Company's share of net income of MSG
previously recorded using the equity method of accounting.
(34) Represents the minority interest in the net loss of MSG and SportsChannel
New York owned by ITT, and by NBC through its interest in Rainbow Media.
1997 WARBURG TRANSACTIONS
(35) As a result of the 1997 Warburg Transactions, the results of operations of
the Warburg Companies will be combined with the Company's consolidated
results of operations. The adjustments referenced by this Note (35) reflect
the consolidation of such amounts for the six months ended June 30, 1997.
(36) Represents the elimination of preferred stock dividends recorded by A-R
Cable and management fees and accrued interest thereon earned by the Company
and recorded on the books of the Warburg Companies. These management fees
and related interest had not been paid and the Company had not reflected any
accrual for such amounts in its financial statements.
(37) Represents the amortization, based on an average 10-year life, of the
excess cost over fair value of assets acquired of $34,558,000.
(38) Represents interest expense on the additional bank debt incurred to
complete the 1997 Warburg Transactions.
(39) Represents the elimination of the net losses of the Warburg Companies
previously recorded by the Company using the equity method of accounting and
the elimination of preferred stock dividends previously recorded by A-R
Cable.
(40) The Condensed Pro Forma Statement of Operations for the Six Months Ended
June 30, 1997 does not give effect to the gain recorded on the liquidation
of A-R Cable's series A preferred stock.
8
<PAGE>
ITEM 7. Financial Statements, PRO FORMA Financial Information and
Exhibits.
(c) Exhibits.
99.1 Financial Statements of Madison Square Garden, L.P.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLEVISION SYSTEMS CORPORATION
By: /s/ William J. Bell
--------------------------
Name: William J. Bell
Title: Vice Chairman
Date: August 29, 1997
<PAGE>
EXHIBIT 99.1
MADISON SQUARE GARDEN, L.P.
FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
As of December 31, 1996 and 1995
and for the Year Ended December 31, 1996
and for the Periods from March 10, 1995
through December 31, 1995 and
from April 3, 1994 through March 9, 1995
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Partners of
Madison Square Garden, L.P.:
We have audited the accompanying Statements of Financial Position of Madison
Square Garden, L.P. as of December 31, 1996 and 1995, and the related Statements
of Operations, Changes in Members' Equity and Cash Flows for the year ended
December 31, 1996 and the period from March 10, 1995 through December 31, 1995.
We have also audited the accompanying Statements of Operations and Cash Flows of
Madison Square Garden Corporation for the period from April 3, 1994 through
March 9, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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 financial statements referred to above present fairly,
in all material respects, the financial position of Madison Square Garden, L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the year ended December 31, 1996 and the period from March 10, 1995
through December 31, 1995, and the results of operations and cash flows of
Madison Square Garden Corporation for the period from April 3, 1994 through
March 9, 1995, all in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
NEW YORK, NEW YORK
January 21, 1997 (except with respect to the
matter discussed in Note I, as to which the
date is June 17, 1997)
2
<PAGE>
Madison Square Garden, L.P.
STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
Assets
<S> <C> <C>
Cash.................................................................................. $ 708 $ 11,799
Trade receivables, net of allowance for doubtful accounts of $3,337 and $4,914........ 53,039 38,019
Prepaid expenses...................................................................... 8,405 8,168
Other current assets.................................................................. 7,047 4,504
------------ ------------
Total current assets............................................................. 69,199 62,490
Property and equipment, net........................................................... 177,305 199,638
Intangible assets, net................................................................ 978,241 1,011,599
Other assets.......................................................................... 21,414 9,351
------------ ------------
Total assets..................................................................... $ 1,246,159 $ 1,283,078
------------ ------------
------------ ------------
Liabilities and Members' Equity
Trade accounts payable................................................................ $ 9,398 $ 22,798
Accrued expenses...................................................................... 78,866 73,021
Deferred revenue...................................................................... 61,749 59,449
------------ ------------
Total current liabilities........................................................ 150,013 155,268
Long term debt........................................................................ 228,000 263,000
Deferred compensation................................................................. 6,987 9,463
Accrued sports rights................................................................. 88,223 112,923
Other liabilities..................................................................... 45,351 28,202
------------ ------------
Total liabilities................................................................ 518,574 568,856
Members' Equity
Members' contribution................................................................. 720,000 720,000
Accumulated earnings (losses)......................................................... 7,585 (5,778)
------------ ------------
Total members' equity................................................................. 727,585 714,222
------------ ------------
Total liabilities and members' equity................................................. $ 1,246,159 $ 1,283,078
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
Madison Square Garden, L.P.
STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
PERIOD FROM (PREDECESSOR BASIS OF
MARCH 10, 1995 ACCOUNTING) NOTE A
---------------------
YEAR ENDED TO PERIOD FROM
DECEMBER 31, DECEMBER 31, APRIL 3, 1994
1996 1995 TO MARCH 9, 1995
------------ -------------- -------------------
<S> <C> <C> <C>
Revenues..................................................... $ 423,731 $ 295,684 $ 325,833
Expenses
Operating expenses......................................... 317,178 221,539 302,881
General and administrative expenses........................ 16,246 12,005 13,907
------------ -------------- ----------
Operating income before depreciation and amortization........ 90,307 62,140 9,045
Depreciation and amortization................................ 60,860 51,131 15,347
------------ -------------- ----------
Operating income............................................. 29,447 11,009 (6,302)
Interest expense, net........................................ 17,850 16,787 15
Intercompany interest expense................................ -- -- 30,124
Intercompany administration fee.............................. -- -- 3,430
Gain on sales of businesses.................................. (1,766) -- --
------------ -------------- ----------
Net income (loss)............................................ $ 13,363 $ (5,778) (39,871)
------------ -------------- ------------
------------ -------------- ------------
Accumulated Deficit, Beginning of Period..................... (332,508)
------------
Accumulated Deficit, End of Period........................... $ (372,379)
------------
------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
Madison Square Garden, L.P.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
CABLEVISION
ITT SYSTEMS
CORPORATION CORPORATION TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Members' Initial Contribution, March 10, 1995.............................. $ 610,000 $ 110,000 $ 720,000
Net Loss................................................................... (2,889) (2,889) (5,778)
----------- ----------- ----------
Members' Equity as of December 31, 1995.................................... $ 607,111 $ 107,111 $ 714,222
Change in Partnership Interests............................................ (81,250) 81,250 --
Net Income................................................................. 6,682 6,681 13,363
----------- ----------- ----------
Members' Equity as of December 31, 1996.................................... $ 532,543 $ 195,042 $ 727,585
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
5
<PAGE>
Madison Square Garden, L.P.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
(PREDECESSOR BASIS OF
PERIOD FROM ACCOUNTING) NOTE A
MARCH 10, 1995 PERIOD FROM
YEAR ENDED TO APRIL 3, 1994
DECEMBER 31, DECEMBER 31, TO
1996 1995 MARCH 9, 1995
------------ -------------- ---------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss)........................................... $ 13,363 $ (5,778) $ (39,871)
Adjustments to reconcile net income (loss) to net
cash provided from operations:
Depreciation and amortization............................. 60,860 51,131 15,347
Gain on sales of businesses............................... (1,766) -- --
(Increase)/decrease in trade receivables.................. (16,127) 14,847 146
(Increase)/decrease in other assets....................... (13,368) 147 722
Increase in trade accounts payable and accrued
expenses and other liabilities........................... 1,855 15,992 15,803
Increase/(decrease) in deferred revenue................... 4,417 15,261 (2,123)
Decrease in deferred compensation......................... (2,476) (5,884) (2,870)
(Decrease)/increase in accrued sports rights.............. (24,700) (23,112) 43,699
Decrease in other assets and other liabilities,
net...................................................... -- -- (3,250)
---------- ------------ -----------
Net cash provided from operations...................... 22,058 62,604 27,603
---------- ------------ -----------
Investing Activities
Capital expenditures........................................ (5,747) (11,899) (7,795)
Proceeds from sales of businesses........................... 21,168 -- --
Acquisition costs, net of cash acquired..................... (9,801) (1,021,906) --
Other....................................................... (3,769) -- --
---------- ------------ -----------
Net cash provided from (used for)
investing activities.................................. 1,851 (1,033,805) (7,795)
---------- ------------ -----------
Financing Activities
Borrowing from banks........................................ -- 318,000 --
Principal repayments, net................................... (35,000) (55,000) --
Members' contribution....................................... -- 720,000 --
Forgiveness of payable to affiliate......................... -- -- (468,045)
Contributed capital from affiliate.......................... -- -- 468,045
Intercompany transfers to affiliate......................... -- -- (367,674)
Intercompany transfers from affiliate....................... -- -- 347,943
---------- ------------ -----------
Net cash (used for) provided from
financing activities.................................. (35,000) 983,000 (19,731)
---------- ------------ -----------
(Decrease)/increase in cash.................................. (11,091) 11,799 77
Cash at beginning of period.................................. 11,799 -- 3,308
---------- ------------ -----------
Cash at end of period........................................ $ 708 $ 11,799 $ 3,385
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
6
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED)
Note A--The Partnership
FORMATION AND OWNERSHIP STRUCTURE
On March 10, 1995 (the "Acquisition Date"), MSG Holdings, L.P.
("Holdings"), a partnership among subsidiaries of Cablevision Systems
Corporation ("Cablevision"), and ITT Corporation ("ITT") acquired the
business and assets of Madison Square Garden Corporation from Viacom, Inc. in
a transaction in which that corporation merged with and into Holdings. The
name of Holdings was subsequently changed to Madison Square Garden, L.P.
("MSG" or the "Partnership").
The Partnership funded the purchase price of the acquisition of
approximately $1 billion through borrowings of approximately $290 million
under a credit agreement with various lending institutions (see Note C) and
equity contributions from the partners. As agreed by the partners, each has
equal management control over MSG. The Partnership has allocated its net
income/loss between the partners in the accompanying Statements of Changes in
Members' Equity in accordance with the partnership agreement.
The acquisition of Madison Square Garden Corporation by the Partnership
was accounted for using the purchase method of accounting. Accordingly, the
purchase price was allocated to the assets acquired, including goodwill and
certain player contracts, and the liabilities assumed based upon their
estimated fair values. In February 1997, Cablevision made a cash payment to
ITT of $168,750, which equalized their respective partnership interests.
The following unaudited pro forma 1995 information for MSG has been
prepared assuming the acquisition had taken place on January 1, 1995:
1995
----------
Operating revenues, net.......................... $ 387,154
Operating income................................. 21,179
Net income (loss)................................ $ 989
The pro forma information does not purport to be indicative of the
results that would actually have been obtained if the acquisition had
occurred at the beginning of the period nor is it indicative of future
results.
The effects of the acquisition and related financings resulted in a new
basis of accounting reflecting estimated fair values of assets and
liabilities at the Acquisition Date. The financial statements for the period
from April 3, 1994 to March 9, 1995 represent those of Madison Square Garden
Corporation, as a wholly-owned subsidiary of Viacom, Inc.
Note B--Significant Accounting Policies
BASIS OF PRESENTATION
7
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
MSG operates in one business segment, namely sports entertainment. MSG
encompasses the operations of the Madison Square Garden entertainment complex
which includes the main arena, a theater and various events within the
complex. The New York Knickerbockers ("Knicks") Basketball Club, a member of
the National Basketball Association ("NBA"), The New York Rangers ("Rangers")
Hockey Club, a member of the National Hockey League ("NHL") and Madison
Square Garden Network ("MSGN"), a regional sports network. SRO Motorsports
("SRO") and Miss Universe ("MU") were sold in March 1996 and November 1996,
respectively.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures in these financial
statements. Actual results could differ from those estimates.
REVENUE RECOGNITION
MSG derives its revenues primarily from the sale of advertising and event
sponsorships, fees from cable system operators for carriage of MSGN, ticket
sales, fees for licensing of the luxury suites, sale of food and merchandise,
distributions of revenues from NBA and NHL contracts and rental of the
complex for entertainment events.
The Knicks and Rangers derive revenues principally from ticket sales and
distributions of league wide revenue and are recognized as the games are
played.
MSGN charges a fee to cable system operators based on a contractual rate
per subscriber and recognizes this revenue in the period that the service is
provided. MSGN sells commercial spots to advertisers at various rates
depending on time period, programs and commercial length and recognizes this
revenue in the period the spots are aired.
Event related revenues from the sale of tickets, sponsorships, food and
merchandise and rental income are recognized as the underlying event occurs.
Revenues from the sale of advertising in the form of signage and license
fees from the rental of the arena's luxury suites are recognized ratably over
the term of the respective agreements.
INTANGIBLE ASSETS
Intangible assets include goodwill and other intangibles arising from the
acquisition of Madison Square Garden Corporation by the Partnership of
approximately $912,300 and $897,500 as of December 31, 1996 and 1995,
respectively. Goodwill is amortized, on a straight-line basis, over forty
years. Intangible assets related to the value of certain player contracts
existing on the Acquisition Date of $153,000 are amortized, on a
straight-line basis, over an estimated useful life of six years. Accumulated
amortization related to goodwill and certain player contracts totaled $87,064
and $38,830 as of December 31, 1996 and 1995, respectively. Amortization
expense of intangibles totaled $48,234, $38,830 and $457 for the year ended
December 31, 1996, for the period from the Acquisition Date to December 31,
1995 and for the period April 3, 1994 to March 9, 1995, respectively.
8
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Recoverability of goodwill and intangible assets is assessed regularly
and impairments, if any, are recognized in operating results if a permanent
dimunition in value were to occur based on an undiscounted cash flow analysis.
PROPERTY AND EQUIPMENT
Property and equipment owned as of March 9, 1995 are stated at their fair
market value on the Acquisition Date and assets acquired subsequent to March
9, 1995 are stated at cost. Provision for depreciation on all assets is
computed using the straight-line method over the estimated useful lives of
the assets ranging from three years for certain equipment to fifty years for
the arena. Leasehold improvements are amortized using the straight-line
method over the term of the lease or the life of the improvement, whichever
is shorter.
BROADCAST RIGHTS
MSG acquires the rights to various sporting events and programming for
exhibition on MSGN. The costs incurred in acquiring the programs, to the
extent they are estimated to be recovered from future revenues, are
capitalized and amortized as the programs are available for broadcast.
PLAYER CONTRACTS
Costs incurred to acquire player contracts, including signing bonuses,
are amortized over the contract period of the respective player.
Note C--Long Term Debt
Long term debt consists of borrowings made pursuant to a credit agreement
(the "Credit Agreement") between the Partnership and various lending
institutions.
Borrowings under the Credit Agreement as of December 31, consisted of:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Eurodollar loan due January 17, 1996 @ 6.5625% interest rate.............................. $ -- $ 150,000
Eurodollar loan due March 15, 1996 @ 6.4375% interest rate................................ -- 113,000
Eurodollar loan due January 02, 1997 @ 6.2500% interest rate.............................. 37,000 --
Eurodollar loan due January 23, 1997 @ 6.3125% interest rate.............................. 5,000 --
Eurodollar loan due February 20, 1997 @ 6.1250% interest rate............................. 5,000 --
Eurodollar loan due March 17, 1997 @ 6.1875% interest rate................................ 88,000 --
Eurodollar loan due April 15, 1997 @ 6.2500% interest rate................................ 93,000 --
---------- ----------
Total................................................................................. $ 228,000 $ 263,000
---------- ----------
---------- ----------
</TABLE>
9
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Credit Agreement allows the Partnership to borrow an amount not to
exceed the unutilized commitment at either the base rate (the higher of one
half percent above the federal funds rate or the prime rate) or LIBOR plus
.625%. The Partnership may elect the term of the loan, from one to six
months. Borrowings under the Credit Agreement are classified as long term
debt in the accompanying Statements of Financial Position since the
Partnership has the intent and ability to refinance the Eurodollar loans for
periods exceeding one year pursuant to the Credit Agreement, which is
noncancelable. The Partnership may prepay outstanding loans or reduce the
unutilized commitment at any time. The Partnership is required to pay a fee
based on the unutilized commitment. The unutilized commitment as of December
31, 1996 was $101,575. Maturity of any borrowings under the Credit Agreement
may not exceed three years after the initial borrowing, or March 9, 1998. The
carrying amount of the debt approximates its fair value. Interest expense for
the Credit Agreement approximated $17,200 and $16,300 for the year ended
December 31, 1996 and for the period from the Acquisition Date to December 31,
1995, respectively and interest paid during these periods approximated
$17,500 and $13,900, respectively.
The Credit Agreement contains certain covenants and restrictions
including that the Partnership maintain certain financial ratios with which
the Partnership has complied.
Note D--Commitments
The Partnership has various agreements and commitments under a variety of
contracts. Certain of these contracts provide for payments which are
guaranteed. In addition, the Partnership has various long term noncancellable
operating lease commitments for office space and practice facilities for its
professional sports teams. Future cash payments required under these
contracts and noncancellable operating lease commitments for office space and
practice facilities as of December 31, 1996 are as follows:
1997..................................... $ 68,000
1998..................................... 51,395
1999..................................... 47,545
2000..................................... 32,872
2001..................................... 30,994
Thereafter............................... 67,387
---------
Total.................................... $ 298,193
---------
---------
Rent expense, including rentals of certain equipment, totaled $4,505,
$3,700 and $4,000 for the year ended December 31, 1996, for the period from
the Acquisition Date to December 31, 1995 and for the period April 3, 1994 to
March 9, 1995, respectively.
As of December 31, 1996 the Partnership has obligations to make future
payments for the rights to broadcast certain sporting events and other
programming through the year 2000 of approximately $198,000. In a prior
period, the Partnership recognized a loss and recorded a reserve on a
contract, representing the difference between estimated aggregate revenues
and expenses related to the contract. The remaining liability associated with
this contract is recorded in accrued sports rights in the accompanying
Statements of Financial Position.
10
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Partnership is a defendant in various lawsuits. In the opinion of
counsel these suits should not have a material adverse effect on the
financial position and results of operations of the Partnership.
Note E--Pension and Other Postretirement Benefits Plans
The Partnership sponsors several non-contributory pension plans covering
the Partnership's non-union employees and certain union employees. Benefits
payable to retirees under these plans are based upon years of service and
participant's compensation and are funded through trusts established under
the plans. The Partnership's funding policy is to meet the minimum funding
requirements of the Employee Retirement Income Security Act of 1974. Plan
assets consist primarily of shares in a balanced fund that invests primarily
in common stocks, bonds, United States government securities and cash.
Components of the Partnership's net periodic pension cost for defined
benefit plans are as follows:
<TABLE>
<CAPTION>
(PREDECESSOR
BASIS OF
ACCOUNTING)
PERIOD FROM NOTE A
YEAR ENDED MARCH 10, 1995 PERIOD FROM
DECEMBER 31, TO DECEMBER 31, APRIL 3, 1994
1996 1995 TO MARCH 9, 1995
------------- --------------- -------------------
<S> <C> <C> <C>
Service cost.................................................... $ 1,296 $ 1,010 $ 148
Interest cost................................................... 1,485 1,111 161
Actual return on plan assets.................................... (1,461) (1,117) (107)
Net amortization and deferral................................... 244 -- 102
------ ------ -----
Net periodic pension cost....................................... $ 1,564 $ 1,004 $ 304
------ ------ -----
------ ------ -----
</TABLE>
The funded status and the amounts recorded on the Partnership's balance
sheet for its defined pension plans were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Plan assets at fair value................................................................... $ 15,153 $ 13,740
Projected benefit obligation................................................................ (22,309) (20,225)
--------- ---------
Plan assets (less than) projected benefit obligation........................................ (7,156) (6,485)
Unrecognized net loss....................................................................... 241 524
Unrecognized prior service cost............................................................. 113 --
--------- ---------
(Accrued) pension liability................................................................. $ (6,802) $ (5,961)
--------- ---------
--------- ---------
Accumulated benefit obligation.............................................................. $ 16,246 $ 14,559
--------- ---------
--------- ---------
Vested benefit obligation................................................................... $ 14,466 $ 12,948
--------- ---------
--------- ---------
</TABLE>
Assumptions used to determine pension costs and projected benefit obligation
for all periods are as follows:
<TABLE>
<S> <C>
Discount rate......................................................................... 7.5%
Rate of return on plan assets......................................................... 10.0%
Rate of increase in future compensation levels........................................ 5.0%
</TABLE>
11
<PAGE>
In addition, the Partnership contributes to various multiemployer defined
benefit pension plans. Pension expense recognized for these multiemployer plans
for the year ended December 31, 1996, for the period from the Acquisition Date
to December 31, 1995 and the period from April 3, 1994 to March 9, 1995
approximated $1,324, $967 and $1,879, respectively.
The Partnership also sponsors a welfare plan which provides certain
postretirement health care and life insurance benefits to certain non-union
employees and their dependents who are eligible for early or normal retirement
under the Partnership's retirement plan. The welfare plan is contributory and
contains cost-sharing features such as deductibles and co-insurance payments.
The Partnership funds these benefits as claims are paid.
Components of the Partnership's costs for postretirement benefits are as
follows:
1996 1995
--------- ---------
Service cost................................... $ 213 $ 257
Interest cost.................................. 283 289
Amortization of unrecognized prior
service benefit............................... (81) --
--------- ---------
Periodic postretirement benefit cost........... $ 415 $ 546
--------- ---------
--------- ---------
Components of the liability recognized in the Partnership's balance sheet
with respect to the Partnership sponsored welfare plans are as follows:
1996 1995
--------- ---------
Current retirees................................. $ 788 $ 2,134
Eligible active participants..................... 270 801
Other active participants........................ 1,053 2,329
--------- ---------
Accumulated postretirement benefit obligation.... 2,111 5,264
Unrecognized prior service benefit............... 3,411 --
Unrecognized net gain............................ 137 199
--------- ---------
Accrued postretirement benefit obligation........ $ 5,659 $ 5,463
--------- ---------
--------- ---------
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% for 1996 and 1995. The assumed health care cost
trend rates used in measuring the accumulated postretirement benefit
obligation was 7% for 1996, decreasing to an ultimate rate of 5% by the year
2004. If the health care cost trend assumptions were increased by 1% the
accumulated postretirement benefit obligation as of December 31, 1996 would
be increased by approximately 17%. The effect of this change on the estimated
aggregate of service and interest cost for 1996 would be an increase of 19%.
In 1996, the Partnership amended its postretirement health care programs,
principally to reflect a change from a traditional reimbursement program to a
managed care program. These amendments resulted in a reduction of the
Partnership's accumulated postretirement benefit obligation, which created an
unrecognized prior service benefit. The unrecognized prior service benefit is
being amortized over approximately 17 years.
In addition, the Partnership contributes to multiemployer plans which
provide health and welfare benefits to active as well as retired employees.
The Partnership incurred costs of $2,452 and $1,800 related to those plans
for the year ended December 31, 1996 and for the period from the Acquisition
Date to December 31, 1995, respectively.
12
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note F--Transactions with Related Parties
The Partnership charges Cablevision Systems Inc. ("CSI") a fee for
carriage of the MSGN signal pursuant to a letter agreement dated June 20,
1995. The fee charged is similar to those charged other cable operators.
Revenues from CSI totaled $24,517 and $18,330 for the year ended December 31,
1996 and for the period from the Acquisition Date to December 31, 1995,
respectively.
The Partnership has an agreement with Rainbow Advertising Sales
Corporation ("RASCO"), a subsidiary of Cablevision, appointing RASCO as its
exclusive representative for advertising by national advertisers on MSGN. The
agreement extends through September 30, 1998. RASCO generated advertising
revenues, net of commissions, of $9,417 and $1,844 for the year ended
December 31, 1996 and for the period from the Acquisition Date to December
31, 1995, respectively.
Note G--Property and Equipment
PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land.................................................................. $ 20,000 $ 20,000
Building.............................................................. 104,815 103,883
Equipment............................................................. 63,365 76,090
Furniture and fixtures................................................ 7,518 7,014
Leasehold improvements................................................ 5,934 4,952
---------- ----------
Total................................................................. 201,632 211,939
Less accumulated depreciation......................................... 24,327 12,301
---------- ----------
Property and equipment, net........................................... $ 177,305 $ 199,638
---------- ----------
---------- ----------
</TABLE>
13
<PAGE>
MADISON SQUARE GARDEN, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Note H--Income Taxes
The predecessor company has filed federal, state and local income tax
returns on a consolidated basis with Viacom. The predecessor company does not
have a formal tax sharing agreement with Viacom, nor has the predecessor company
received any benefits attributable to losses from the predecessor company's
operations from Viacom. As a result, the predecessor company has not recorded an
income tax benefit in the accompanying statements of operations.
The Partnership is not subject to income taxes, therefore no tax provision
has been made in the accompanying financial statements.
Note I--Subsequent Events
On June 17, 1997, MSG redeemed a portion of ITT's stake in the Partnership
for $500 million. Simultaneously, with the redemption, Cablevision contributed
SportsChannel Associates ("SCNY") to the Partnership, with SCNY becoming a
wholly-owned subsidiary of MSG. As a result of the aforementioned transactions,
Cablevision's partnership interest increased to 89.8%, while ITT's partnership
interest decreased to 10.2%. ITT has an option to require Cablevision to
purchase its continuing 10.2 percent interest in the two years from June 17,
1997. Similarly, in three years, Cablevision has an option to purchase ITT's
10.2 percent interest should ITT choose not to exercise its option within that
time frame.
In conjunction with the June 17, 1997 transactions, MSG entered into a $850
million credit facility with various lending institutions. In addition to the
financing of the $500 million redemption, proceeds from the credit facility were
used to refinance debt outstanding under MSG's existing Credit Agreement.
The credit facility contains certain covenants and restrictions including that
the Partnership maintain certain financial ratios. Such covenants and
restrictions do not take effect until September 30, 1997.
14
<PAGE>
MADISON SQUARE GARDEN L.P.
INTERIM FINANCIAL STATEMENTS
As of June 30, 1997 and December 31, 1996, and for the six months ended
June 30, 1997 and 1996
(Unaudited)
15
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Cash............................................................................... $ 2,361 $ 708
Trade receivables, net of allowance for doubtful accounts of $4,011 and 3,337,
respectively..................................................................... 65,193 53,039
Prepaid expenses................................................................... 11,706 8,405
Other current assets............................................................... 11,291 7,047
------------ ------------
Total current assets........................................................... 90,551 69,199
Property and equipment, net.......................................................... 178,360 177,305
Intangible assets, net............................................................... 1,261,907 978,241
Other assets......................................................................... 46,881 21,414
------------ ------------
Total assets................................................................... $ 1,577,699 $1,246,159
------------ ------------
------------ ------------
Liabilities and Members' Equity
Trade accounts payable............................................................. $ 11,301 $ 9,398
Accrued expenses................................................................... 86,796 78,866
Deferred revenues.................................................................. 30,536 61,749
------------ ------------
Total current liabilities...................................................... 128,633 150,013
Long term debt....................................................................... 804,000 228,000
Deferred compensation................................................................ 12,697 6,987
Accrued sports rights................................................................ 100,942 88,223
Other liabilities.................................................................... 40,708 45,351
------------ ------------
Total liabilities.............................................................. 1,086,980 518,574
Members' Equity
Members' contribution.............................................................. 476,319 720,000
Accumulated earnings (losses)...................................................... 14,400 7,585
------------ ------------
Total members' equity.......................................................... 490,719 727,585
------------ ------------
Total liabilities and members' equity........................................ $ 1,577,699 $1,246,159
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Revenues................................................................................. $ 219,785 $ 219,678
Expenses.................................................................................
Operating expenses....................................................................... 161,294 168,405
General and administrative expenses...................................................... 9,854 7,594
----------- -----------
Operating income before depreciation and amortization.................................... 48,637 43,679
Depreciation and amortization............................................................ 31,613 32,165
----------- -----------
Operating income......................................................................... 17,024 11,514
Interest expense, net.................................................................... 10,209 9,454
----------- -----------
Net income............................................................................... $ 6,815 $ 2,060
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
CABLEVISION
ITT SYSTEMS
CORPORATION CORPORATION TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
Members' Equity as of December 31, 1996.................................... $ 532,543 $ 195,042 $ 727,585
Change in Partnership Interests............................................ (168,750) 168,750 --
Redemption of Partnership Interests........................................ (500,000) -- (500,000)
Goodwill Resulting from Redemption of Partnership Interests................ 172,488 -- 172,488
Contribution of SportsChannel New York..................................... 8,551 75,280 83,831
Net Income................................................................. 5,222 1,593 6,815
----------- ----------- ----------
Members' Equity as of June 30, 1997........................................ $ 50,054 $ 440,665 $ 490,719
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
MADISON SQUARE GARDEN, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands of dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 6,815 $ 2,060
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation.............................................................. 6,998 8,171
Amortization.............................................................. 24,615 23,994
Changes in assets and liabilities:
Decrease in trade receivables............................................ 361 4,042
Increase in other current assets......................................... 1,909 (2,281)
Decrease in trade accounts payable....................................... (7,121) (12,903)
Decrease in accrued expenses............................................. (15,352) (2,228)
Decrease in deferred revenues............................................ (31,214) (23,963)
Increase in deferred compensation........................................ 5,712 127
Decrease in accrued sports rights........................................ (37,281) (38,151)
Decrease in other, net................................................... (4,643) (4,659)
-------- -------
Net cash provided from (used in) operating activities.................. (49,201) (45,791)
-------- -------
Cash flows from investing activities:
Capital expenditures........................................................ (6,292) (1,920)
Acquisition costs........................................................... (4,528) (7,615)
Proceeds from sale of business.............................................. -- 13,074
-------- -------
Net cash provided from (used in) investing activities.................. (10,820) 3,539
-------- -------
Cash flows from financing activities:
Borrowings, net under credit facilities..................................... 55,000 37,000
Repayment of former credit facility......................................... (278,000) --
Initial borrowings on new credit facilities................................. 799,000 --
Debt issuance costs......................................................... (17,658) --
Partner's capital contribution.............................................. 3,332 --
Redemption of partners' capital............................................. (500,000) --
-------- -------
Net cash provided from financing activities............................ 61,674 37,000
-------- -------
Net increase/(decrease) in cash........................................ 1,653 (5,252)
Cash at beginning of period............................................ 708 11,799
-------- -------
Cash at end of period.................................................. $ 2,361 $ 6,547
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
MADISON SQUARE GARDEN, L.P.
Notes to Unaudited Interim Financial Statements
(Amounts in thousands)
Note 1: Organization
On March 10, 1995 (the "Acquisition Date"), MSG Holdings, L.P.
("Holdings"), a partnership among subsidiaries of Cablevision Systems
Corporation ("Cablevision"), and ITT Corporation ("ITT") acquired the
business and assets of Madison Square Garden Corporation from Viacom, Inc. in
a transaction in which that corporation merged with and into Holdings. The
name of Holdings was subsequently changed to Madison Square Garden, L.P.
("MSG" or the "Partnership").
In February 1997, Cablevision made a cash payment to ITT of $168,750,
which equalized their respective partnership interests.
On June 17, 1997, MSG redeemed a portion of ITT's stake in the
Partnership for $500 million ("ITT Redemption"). Simultaneously, with the ITT
redemption, Cablevision contributed SportsChannel Associates ("SCNY") to the
Partnership, with SCNY becoming a wholly-owned subsidiary of MSG. As a result
of the aforementioned transactions, Cablevision's partnership interest
increased to 89.8%, while ITT's partnership interest decreased to 10.2%. ITT
has an option to require Cablevision to purchase its continuing 10.2 percent
interest in the two years from June 17, 1997. Similarly, in three years,
Cablevision has an option to purchase ITT's 10.2 percent interest should ITT
choose not to exercise its option within that time frame.
The ITT Redemption price was for an amount in excess of ITT's recorded
partnership interest and accordingly the Partnership recorded Goodwill of
approximately $172 million. In addition, the Partnership recorded adjustments
to certain assets and liabilities, including certain broadcasting rights
agreements, which were originally recorded by a subsidiary of Cablevision.
The effect of these adjustments was an increase to Goodwill of approximately
$70 million. The underlying analysis which forms the basis for these
adjustments is preliminary and may change as evaluations are completed.
In conjunction with the June 17, 1997, transaction MSG entered into a
$850 million Term Loan and Revolving Credit Facility (the 'Credit Facility';
see Note 3).
20
<PAGE>
MADISON SQUARE GARDEN, L.P.
Notes to Unaudited Interim Financial Statements--(Continued)
(Amounts in thousands)
Note 2: Basis of Presentation and Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared by MSG, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. All significant intercompany balances and transactions have been
eliminated in the accompanying consolidated financial statements.
The financial information presented herein reflects all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the results for the interim
periods presented. The interim financial statements and notes thereto should be
read in conjunction with the December 31, 1996, audited financial statements of
MSG included elsewhere herein. Certain prior period amounts have been
reclassified to conform with the current presentation. The results for interim
periods are not necessarily indicative of the results to be expected for the
full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and disclosures in these financial
statements. Actual results could differ from those estimates.
MSG operates in one business segment, namely sports entertainment. MSG
encompasses the operations of the Madison Square Garden entertainment complex
which includes the main arena, a theater and various events within the complex.
The New York Knickerbockers Basketball Club, a member of the National Basketball
Association, The New York Rangers Hockey Club, a member of the National Hockey
League and Madison Square Garden Network, a regional sports network. SRO
Motorsports and Miss Universe were sold in March 1996 and November 1996.
Intangible Assets
Recoverability of goodwill and intangible assets is assessed regularly and
impairments, if any, are recognized in operating results if a permanent
dimunition in value were to occur based on an undiscounted cash flow analysis.
21
<PAGE>
MADISON SQUARE GARDEN, L.P.
Notes to Unaudited Interim Financial Statements--(Continued)
(Amounts in thousands)
Note 3: Long-Term Debt and Financing Arrangements
On June 6, 1997, the Partnership entered into the Credit Facility with
various lending institutions. The Credit Facility consists of a $650 million
Term Loan and a $200 million Revolving Credit Facility. The Term Loan is payable
in 26 quarterly installments commencing on September 30, 1998. The Revolving
Credit Facility expires December 31, 2004; amounts outstanding are payable at
that time. Loans under the Credit Facility bear interest at current market rates
plus a margin based on the Partnership's consolidated leverage ratio. The
margins range from 0% to 2%.
On June 17, 1997, the Partnership borrowed $799 million (the "initial
borrowing") under the Credit Facility with $650 million borrowed under the Term
Loan and $149 million under the Revolving Credit Facility. The proceeds of the
initial borrowing were used to fund the ITT Redemption, repay the Partnership's
existing long term debt and pay transaction costs. Deferred financing costs
associated with the Credit Facility of approximately $17.7 million are being
amortized over the term of the Credit Facility.
As of June 30, 1997, outstanding debt under the Credit Facility consists of
Term Loans of $650 million and Revolving Credit loans of $154 million. The loans
bear interest at rates of 7.69% to 7.88%.
Note 4: Subsequent Event
On July 11, 1997, MSG entered into an agreement whereby a wholly owned
subsidiary of MSG agreed to loan a broadcast content provider (borrower) $40
million (the 'Loan'). The Partnership has drawn on its existing credit facility
and has entered into promissory notes for $20 million in order to finance the
Loan. The Loan matures on November 1, 2011 and bears interest at a rate which
approximates MSG's borrowing rate. The Loan is secured by certain assets of the
borrower and a guarantee by an affiliate of the borrower.
22
