<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ --------------
Commission File Number: 1-9046
-----------------
CABLEVISION SYSTEMS CORPORATION
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2776686
- -------------------------------- (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
One Media Crossways, Woodbury, New York 11797
- --------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 364-8450
--------------
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
------- -----
Number of shares of common stock outstanding as of August 4,
1997:
Class A Common Stock - 13,778,687
Class B Common Stock - 11,109,709
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
---------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues....................................... $ 797,065 $ 624,496 $ 438,516 $ 320,331
---------- ---------- --------- ----------
Operating expenses:
Technical...................................... 340,430 257,580 189,031 128,890
Selling, general and
administrative............................... 214,619 146,439 129,752 73,551
Depreciation and amortization.................... 222,581 175,168 114,576 90,474
---------- ---------- --------- ----------
777,630 579,187 433,359 292,915
---------- ---------- --------- ----------
Operating profit......................... 19,435 45,309 5,157 27,416
---------- ---------- --------- ----------
Other income (expense):
Interest expense............................... (153,785) (132,099) (81,023) (62,402)
Interest income................................ 828 2,240 405 438
Share of affiliates' net losses................ (31,481) (40,061) (18,858) (19,093)
Write off of deferred interest and
financing costs.............................. - (24,012) - (24,012)
Provision for preferential payment to
related party................................ (2,800) (2,800) (1,400) (1,400)
Minority interest.............................. 3,828 (4,810) 6,103 (2,455)
Miscellaneous.................................. (3,991) (4,243) (2,394) (2,666)
---------- ---------- --------- ----------
(187,401) (205,785) (97,167) (111,590)
---------- ---------- --------- ----------
Net loss......................................... (167,966) (160,476) (92,010) (84,174)
Dividend requirements applicable to
preferred stocks............................... (72,731) (58,173) (36,766) (33,795)
---------- ---------- --------- ----------
Net loss applicable to common
shareholders................................... $(240,697) $(218,649) $(128,776) $(117,969)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Net loss per common share........................ $ (9.69) $ (8.81) $ (5.18) $ (4.75)
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Average number of common shares
outstanding (in thousands) 24,842 24,819 24,843 24,828
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
See accompanying notes to
consolidated financial statements.
-2-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
---- ----
<S> <C> <C>
Cash and cash equivalents....................................... $ 34,460 $ 11,612
Accounts receivable trade (less allowance for doubtful
accounts of $25,434 and $12,955)............................... 188,976 105,406
Notes and other receivables (including affiliate amount of
$7,764 in 1997)................................................ 35,719 19,368
Prepaid expenses and other assets............................... 61,402 23,053
Property, plant and equipment, net.............................. 1,698,710 1,390,971
Investments in affiliates....................................... 41,619 311,865
Advances to affiliates.......................................... 7,128 7,855
Feature film inventory.......................................... 159,142 134,258
Franchises, net of accumulated amortization of
$427,613 and $389,791.......................................... 392,007 379,466
Affiliation agreements, net of accumulated amortization of
$114,315 and $44,385........................................... 245,457 162,388
Excess costs over fair value of net assets acquired and other
intangible assets, net of accumulated amortization of
$627,994 and $549,256........................................... 1,675,650 436,606
Deferred financing, acquisition and other costs, net of
accumulated amortization of $29,209 and $29,755................. 108,054 51,877
---------- ----------
$4,648,324 $3,034,725
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to
consolidated financial statements.
-3-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable . . . . . . . . . . . . . . . . . . $ 215,961 $ 186,409
Accrued liabilities:
Interest . . . . . . . . . . . . . . . . . . . . . 53,212 45,774
Payroll and related benefits . . . . . . . . . . . 76,396 63,987
Franchise fees . . . . . . . . . . . . . . . . . . 25,194 26,453
Other. . . . . . . . . . . . . . . . . . . . . . . 276,121 104,172
Accounts payable to affiliates . . . . . . . . . . . 8,791 14,012
Feature film and contract rights payable . . . . . . 256,817 115,437
Deferred revenue . . . . . . . . . . . . . . . . . . 30,536 -
Bank debt. . . . . . . . . . . . . . . . . . . . . . 2,863,066 1,670,245
Subordinated debentures. . . . . . . . . . . . . . . 1,323,172 1,323,105
Subordinated notes payable . . . . . . . . . . . . . 151,000 141,268
Obligation to related party. . . . . . . . . . . . . 189,958 192,819
Capital lease obligations and other debt . . . . . . 45,095 7,264
Minority interest. . . . . . . . . . . . . . . . . . 134,110 -
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . . 5,649,429 3,890,945
---------- ----------
Deficit investment in affiliates . . . . . . . . . . 550,581 512,800
---------- ----------
Series H Redeemable Exchangeable Preferred Stock 306,762 289,506
---------- ----------
Series M Redeemable Exchangeable Preferred Stock 756,122 715,759
---------- ----------
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, 13,733,347 and 13,583,676 shares issued. . . 137 136
Class B Common Stock, $.01 par value, 20,000,000 shares
authorized, 11,119,709 and 11,254,709 shares issued 112 113
Paid-in capital. . . . . . . . . . . . . . . . . . 164,950 164,538
---------- ----------
Accumulated deficit. . . . . . . . . . . . . . . . (2,779,784) (2,539,087)
---------- ----------
Total stockholders' deficiency . . . . . . . . . . (2,614,570) (2,374,285)
---------- ----------
$4,648,324 $3,034,725
---------- ----------
---------- ----------
</TABLE>
See accompanying notes
to consolidated financial statements.
-4-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................................... $(167,966) $(160,476)
--------- ---------
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization................................. 222,581 175,168
Share of affiliates' net losses............................... 31,481 40,061
Minority interest in earnings................................. (3,828) 4,810
Amortization of deferred financing............................ 3,063 3,331
Amortization of deferred interest............................. - 4,684
Amortization of debenture discount............................ 67 44
Accretion of interest on debt................................. - 6,828
Write off of deferred interest and finance costs.............. - 24,012
Loss on sale of equipment..................................... 2,891 2,004
Changes in assets and liabilities net of effects
of acquisition:
Accounts receivable trade................................ (17,295) 761
Notes receivable, affiliates............................. (7,764) -
Notes and other receivables.............................. 2,497 (506)
Prepaid expenses and other assets........................ (6,605) (8,404)
Advances to affiliates................................... 11,972 (3,347)
Feature film inventory................................... 13,165 11,345
Accounts payable......................................... 11,169 (2,837)
Accrued interest......................................... 6,612 5,392
Accrued payroll and related benefits..................... 5,876 7,446
Accrued franchise fees................................... (1,307) (2,104)
Accrued liabilities, other............................... 28,011 (15,787)
Accounts payable to affiliates........................... (8,625) 5,391
Feature film rights payable.............................. (2,902) (11,361)
Deferred revenue......................................... (5,209) -
--------- ---------
Total adjustments...................................... 285,850 246,931
--------- ---------
Net cash provided by operating activities..................... $ 117,884 $ 86,455
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
to consolidated financial statements.
-5-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from investing activities:
Capital expenditures............................................... $(202,630) $(178,094)
Advance related to acquisition..................................... - (70,000)
Proceeds from sale of plant and equipment.......................... 406 399
Additions to intangible assets..................................... (860) (1,665)
(Increase) decrease in investments in affiliates, net.............. 11,185 (46,485)
Payments for acquisitions, net of cash acquired.................... (695,669) -
--------- ---------
Net cash used in investing activities............................ (887,568) (295,845)
--------- ---------
Cash flows from financing activities:
Proceeds from bank debt.......................................... 1,700,913 914,676
Repayment of bank debt........................................... (839,667) (788,690)
Proceeds from senior debt........................................ - 5,500
Repayment of senior debt......................................... - (911,131)
Preferred stock dividends........................................ (15,112) (15,130)
Net proceeds from issuance of Redeemable
Exchangeable Convertible Preferred Stock....................... - 624,734
Proceeds from issuance of senior subordinated debt............... - 399,385
Issuance of common stock......................................... 417 2,990
Decrease in obligation to related party.......................... (2,861) (2,864)
Payments of capital lease obligations and other debt............. (2,703) (1,647)
Additions to deferred financing and other costs.................. (48,455) (16,629)
--------- ---------
Net cash provided by financing activities........................ 792,532 211,194
--------- ---------
Net increase in cash and cash equivalents.......................... 22,848 1,804
Cash and cash equivalents at beginning of year..................... 11,612 15,332
--------- ---------
Cash and cash equivalents at end of period......................... $ 34,460 $ 17,136
--------- ---------
--------- ---------
</TABLE>
See accompanying notes
to consolidated financial statements.
-6-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements of Cablevision
Systems Corporation and its majority owned subsidiaries (the "Company") have
been prepared in accordance with 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.
Note 2. Responsibility for Interim Financial Statements
-----------------------------------------------
The financial statements as of and for the three and six months ended June
30, 1997 presented in this Form 10-Q are unaudited; however, in the opinion
of management, such statements include all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented.
The interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
The results of operations for the interim periods are not necessarily
indicative of the results that might be expected for future interim periods
or for the full year ending December 31, 1997.
Note 3. Loss Per Common Share
---------------------
Net loss per common share is computed based on the weighted average number of
common shares outstanding. Common stock equivalents were not included in the
computation as their effect would be to decrease net loss per share. In
February 1997, the Financial Accounting Standards Board issued its Statement
No. 128, "Earnings per Share." Among other provisions, SFAS No. 128
simplifies the standards for computing earnings per share. The Company does
not expect the adoption of SFAS No. 128 to have a material impact on its
financial statements.
Note 4. 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 $143,217 and $118,648 for the six
-7-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
months ended June 30, 1997 and 1996, respectively. The Company's noncash
financing activities for the six months ended June 30, 1997 and 1996
included capital lease obligations of $18,803 and $2,111, respectively,
incurred when the Company entered into leases for new equipment and preferred
stock dividend requirements of $57,619 and $43,043, respectively.
Note 5. Acquisitions
------------
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. As a
result of the exchange of 25% of the Company's interest in Rainbow Media for
NBC's interests in certain entities, the Company recorded goodwill of $54,108
which will be amortized over a 10 year period.
On April 16, 1997, the Company and certain of its affiliates and ITT
Corporation ("ITT") and certain of its affiliates, entered into definitive
agreements ("MSG Agreement") relating to the acquisition by subsidiaries of
Cablevision of ITT's 50 percent interest in Madison Square Garden L.P.
("MSG"). The transaction closed on June 17, 1997 when MSG borrowed $799,000
under its credit facility which was used to redeem a portion of ITT's
interest in MSG for $500,000 and to repay its existing indebtedness. Rainbow
Media contributed its SportsChannel Associates programming company to MSG,
which, together with the redemption, increased the Company's interest in MSG
to 89.8% and reduced ITT's interest to 10.2%. The remaining 10.2% interest
is subject to certain puts and calls as specified in the MSG agreement. The
acquisition was accounted for using the purchase method of accounting. The
excess of the purchase price over the net book value of assets acquired of
approximately $266,039 will be allocated to the specific assets acquired when
independent appraisals are obtained and will be amortized accordingly.
In June 1997, the Company acquired from Warburg Pincus Investors, L.P.
("Warburg") the interests that the Company did not already own in A-R Cable
Partners ("Nashoba") and Cablevision of Framingham ("Framingham") for a
purchase price of approximately $33,348 and $7,865, respectively. The
acquisitions of Nashoba and Framingham 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 $22,815 and $11,743 for
the acquisition of Nashoba and Framingham, respectively, and is being
amortized over 10 years.
-8-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Pro Forma Results of Operations
- -------------------------------
The following unaudited pro forma condensed results of operations are
presented for the six months ended June 30, 1997 and 1996 as if the
acquisitions of MSG, Nashoba and Framingham, the NBC transaction and the
acquisition of A-R Cable (see Note 6) had occurred on January 1, 1997 and
1996, respectively.
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
Net revenues $ 1,096,813 $ 962,265
----------- ----------
----------- ----------
Net loss $ (242,099) $ (227,603)
----------- ----------
----------- ----------
Net loss per common share $ (9.75) $ (9.17)
----------- ----------
----------- ----------
The pro forma information presented above gives effect to certain
adjustments, including the amortization of acquired intangible assets and
increased interest expense on acquisition debt. The pro forma information
has been prepared for comparative purposes only and does not purport to
indicate the results of operations which would actually have occurred had the
transactions been made at the beginning of the periods indicated, or which
may occur in the future. These amounts do not reflect any gain that may be
recognized on the liquidation of A-R Cable's preferred stock.
Note 6. Recent Developments
-------------------
On July 2, 1997 the Company acquired from Warburg the Series A preferred
stock of A-R Cable Services, Inc. (A-R Cable) for an aggregate purchase price
of approximately $112,301. The operations of A-R Cable (together with its
debt of $398,617) will be consolidated with those of the Company as of July
2, 1997.
On June 6, 1997, the Company entered into an agreement with TCI
Communications, Inc., a subsidiary of Tele-Communications, Inc. whereby the
Company will issue 12,235,543 shares of Class A common stock, subject to
adjustment in certain events, in exchange for cable television systems
located in New Jersey, Long Island and New York's Rockland and Westchester
counties serving approximately 824,000 subscribers at June 30, 1997 and
having stipulated outstanding indebtedness of $669,000 at closing, with
operating profit before depreciation and amortization for the six months
ended June 30, 1997 of approximately $97,200. The closing is conditioned,
-9-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
among other things, upon expiration or termination of the waiting period
under the Hart-Scott-Rodino ("HSR") Antitrust Improvements Act of 1976,
receipt of approvals from federal, state and local governmental agencies and
others, and approval of the Company's shareholders. On August 1, 1997, the
United States Federal Trade Commission issued a second request with respect
to the HSR Act filing, seeking additional information with respect to the
pending transaction.
On June 22, 1997, Rainbow Media Sports Holdings, Inc. ("Rainbow Sports"), a
wholly-owned subsidiary of Rainbow Media entered into an agreement with Fox
Sports Net, LLC ("Fox Sports"), a subsidiary of Fox/Liberty Networks, LLC, to
organize three partnerships, Regional Programming Partners, National Sports
Partners and National Advertising Partners (the "Fox Liberty Transaction").
Upon the formation of Regional Programming Partners, Rainbow Media will
contribute its partnership interests in its regional sports channels and MSG
in exchange for a 60% interest in Regional Programming Partners. Fox Sports
will contribute $850,000 in cash to Regional Programming Partners in exchange
for a 40% interest in Regional Programming Partners. Upon the formation of
National Sports Partners and National Advertising Partners, the Company and
Fox Sports will each contribute certain assets to the partnerships for a 50%
partnership interest. Consummation of the transaction is subject to
regulatory approvals and third party consents.
On July 25, 1997, the Company paid $283,445 plus accrued interest of $9,361
to redeem its $275,000 10-3/4% Senior Subordinated Debentures due 2004. The
payment included a redemption premium of $8,445.
-10-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
- ---------------------
The following table sets forth on an unaudited historical basis certain items
related to operations as a percentage of net revenues for the periods
indicated.
STATEMENT OF OPERATIONS DATA
- ----------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------
1997 1996
----------------------- ---------------------- (Increase)
% of% % of Decrease
Amount Revenue Amount Revenues in Net Loss
------ ------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 797,065 100% $ 624,496 100% $ 172,569
Operating expenses:
Technical.......................................... 340,430 43 257,580 41 (82,850)
Selling, general & administrative.................. 214,619 27 146,439 23 (68,180)
Depreciation and amortization...................... 222,581 28 175,168 28 (47,413)
--------- ---------- ----------
Operating profit...................................... 19,435 2 45,309 7 (25,874)
Other expense:
Interest expense, net............................... (152,957) (19) (129,859) (21) (23,098)
Share of affiliates' net loss....................... (31,481) (4) (40,061) (6) 8,580
Write-off of deferred interest
financing costs................................... - - (24,012) (4) 24,012
Provision for preferential payment to related party (2,800) - (2,800) - -
Minority interest................................... 3,828 1 (4,810) (1) 8,638
Miscellaneous, net.................................. (3,991) (1) (4,243) (1) 252
--------- ---------- ----------
Net loss.............................................. (167,966) (21) (160,476) (26) (7,490)
Dividend requirements applicable to preferred
stocks............................................. (72,731) (9) (58,173) (9) (14,558)
--------- ---------- ----------
Net loss applicable to common shareholders............ $(240,697) (30)% $ (218,649) (35)% $ (22,048)
--------- ---------- ----------
--------- ---------- ----------
OTHER OPERATING DATA:
- -----------------------
Operating profit before depreciation
and amortization(1).................................. $ 242,016 $ 220,477
Net cash provided by operating activities.............. 117,884 86,455
Net cash used in investing activities(2)............... 887,568 295,845
Net cash provided by financing activities(2)........... 792,532 211,194
</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 1. - "Consolidated Statements of Cash Flows."
-11-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS DATA
- ----------------------------
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------
1997 1996
----------------------- ---------------------- (Increase)
% of% % of Decrease
Amount Revenue Amount Revenues in Net Loss
------ ------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues............................................... $ 438,516 100% $ 320,331 100% $ 118,185
Operating expense:
Technical............................................ 189,031 43 128,890 40 (60,141)
Selling, general & administrative.................... 129,752 30 73,551 22 (56,201)
Depreciation and amortization........................ 114,576 26 90,474 28 (24,102)
--------- ---------- ----------
Operating profit....................................... 5,157 1 27,416 9 (22,259)
Other expense:
Interest expense, net.............................. (80,618) 18 (61,964) (19) (18,654)
Share of affiliates' net loss...................... (18,858) (4) (19,093) (6) 235
Write-off of deferred interest and
financing costs.................................. - - (24,012) (8) 24,012
Provision for preferential payment to
related party.................................... (1,400) - (1,400) - -
Minority interest.................................. 6,103 1 (2,455) (1) 8,558
Miscellaneous, net................................. (2,394) (1) (2,666) (1) 272
--------- ---------- ----------
Net loss............................................... (92,010) (21) (84,174) (26) (7,836)
Dividend requirements applicable to preferred
stocks............................................... 36,766 (8) (33,795) (11) (2,971)
--------- ---------- ----------
Net loss applicable to common shareholders............. ($128,776) (29)% $ (117,969) (37)% $ (10,807)
--------- ---------- ----------
--------- ---------- ----------
OTHER OPERATING DATA:
- ---------------------
Operating profit before depreciation
and amortization (1) ................................. $ 119,733 $ 117,890
Net cash provided by operating activities............... 54,241 40,248
Net cash used in investing activities................... 594,742 113,484
Net cash provided by financing activities............... 561,475 62,355
</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.
-12-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Acquisitions In August and September 1996, the Company acquired all of the
interests in U.S. Cable and Cablevision of Newark, respectively, that it did
not already own. These acquisitions along with the transactions completed in
the second quarter of 1997 discussed in Note 5 will be referred to as the
"Acquisitions" in the following discussion.
Revenues for the three and six months ended June 30, 1997 increased $118.2
million (37%) and $172.6 million (28%), respectively, over the corresponding
1996 periods. Approximately $78.4 million (24%) and $105.8 million (17%) of
the increase was attributable to the Acquisitions for the three and six
months ended June 30, 1997, respectively, with the remaining increases of
approximately $14.6 million (5%) and $22.2 million (4%) resulting from higher
revenue per subscriber; and approximately $16.6 million (5%) and $26.2
million (4%) due to increases in other revenue sources such as Rainbow
Media's programming services, advertising and a developing commercial
telephony business, and approximately $8.6 million (3%) and $18.3 million
(3%) attributable to internal growth of over 76,000 and 81,900 in the average
number of subscribers.
Technical Expenses increased $60.1 million (47%) and $82.9 million (32%) for
the three and six months ended June 30, 1997 compared to the same 1996
periods. Approximately $38.8 million (30%) and $50.7 million (20%) of the
increase for the three and six months ended June 30, 1997, respectively, was
a direct result of the Acquisitions. The remaining 17% and 12% of the
increase was attributable to increases in those costs directly associated
with the internal growth in the average number of subscribers and revenues
mentioned above. As a percentage of revenues, technical expenses increased
3% and 2%, respectively, for the three and six months ended June 30, 1997
over the same periods in 1996.
Selling, General And Administrative Expenses increased $56.2 million (76%)
and $68.2 million (47%), respectively, for the three and six months ended
June 30, 1997 when compared to the same 1996 periods. Approximately $26.9
million (37%) and $32.6 million (22%) of the increase was related to the
Acquisitions. Approximately 37% and 17% of the increase, respectively, was
due to adjustments related to an incentive stock plan. The remaining 2% and
8% of the increase resulted from higher administrative, sales and marketing,
and customer service costs. As a percentage of revenues, selling, general
and administrative expenses increased 7% and 4%, respectively, during the
three and six months ended June 30, 1997 compared to the same 1996 periods;
excluding the effects of the incentive stock plan, as a percentage of
revenues such costs remained constant.
Operating Profit Before Depreciation And Amortization increased $1.9 million
(2%) and $21.5 million (10%) for the three and six months ended June 30, 1997
over the same periods in 1996. Approximately $12.7 million and $22.5 million,
respectively, of the increase is due to the Acquisitions and $15.1 million
and $24.1 million, respectively, resulted from the combined effect of the
revenue and expense increases discussed above. These increases were offset
by a decrease in operating profit before depreciation and amortization of
$25.9 million and $25.1 million, respectively, due to the adjustments to an
incentive stock plan. On a pro forma basis, giving effect to the Acquisitions
as if they had occurred on January 1, 1996 and the exclusion of
13
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
incentive stock plan adjustments, operating profit before depreciation and
amortization would have increased 16% and 13%, respectively, for the three
and six months ended June 30, 1997 over the same periods in the prior year.
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 $24.1 million (27%) and $47.4
million (27%) for the three and six months ended June 30, 1997 over the same
periods in 1996. Approximately 22% and 20% of the respective increases were
attributable to the Acquisitions. The remaining 5% and 7% of the increases
resulted primarily from depreciation on new plant assets.
Net interest expense increased $18.7 million (30%) and $23.1 million (18%),
respectively, for the three and six months ended June 30, 1997 over the
comparable 1996 periods. Approximately 23% and 17% of the increase is
attributable to the Acquisitions. The remaining increase of 7% and 1%,
respectively, is due to higher bank borrowings partly offset by lower
interest rates.
Share of affiliates' net losses decreased to $18.9 million and $31.5 million,
respectively, for the three and six months ended June 30, 1997 from $19.1
million and $40.1 million for the same 1996 periods. Such amounts consist
primarily of the Company's share in the net losses of certain cable
affiliates which, for the three and six months ended June 30, 1997 amounted
to $19.9 million and $37.9, respectively, and $16.2 million and $34.1
million, respectively, for the same periods in the prior year; and in the net
gains/losses of certain programming businesses, in which the Company has
varying ownership interests, which amounted to gains of $1 million and $6.4
million for the three and six months ended June 30, 1997 and net losses of
$2.9 million and $6.0 million, respectively, for the same periods in the
prior year.
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 ("CNYC") in 1992.
MINORITY interest represents NBC's 25% share of the net loss of Rainbow
Media, ITT's share of net loss of MSG since the date of acquisition and
SportsChannel Associates and Liberty's share of net income of Prism.
14
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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. The Unrestricted Group of
subsidiaries consists primarily 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 Inc. notes and the
Cablevision of Framingham Holdings, Inc. note that had been issued in
connection with the acquisition of interests in those companies. 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.
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 six months ended June 30,
1997. Unrestricted Cable consists of Cablevision of Ohio, U.S. Cable, A-R
Cable Partners and Cablevision of Framingham. "Other Unrestricted
Subsidiaries" includes Rainbow Media, CSC Technology, Inc. and other
companies engaged in certain development activities.
<TABLE>
<CAPTION>
Other
Restricted Unrestricted Unrestricted Total
Group Cable Subsidiaries Company
------------ ------------ ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 517,607 $ 111,058 $ 168,400 $ 797,065
Operating expenses:
Technical 212,222 48,004 80,204 340,430
Selling, general and
administrative 94,492 23,806 96,321 214,619
Depreciation and
amortization 148,424 47,778 26,379 222,581
----------- ----------- ----------- ----------
Operating profit
(loss) $ 62,469 $ (8,530) $ (34,504) $ 19,435
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Currently payable
interest expense $ 115,152 $ 19,285 $ 16,418 $ 150,855
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Total interest expense $ 117,143 $ 19,924 $ 16,718 $ 153,785
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Bank and other senior debt $ 1,172,154 $ 512,470 $ 1,223,537 $2,908,161
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Subordinated debt $ 1,474,172 $ - $ - $1,474,172
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Obligation to related
party $ 189,958 $ - $ - $ 189,958
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Deficit investment in
affiliate $ 534,403 $ - $ 16,178 $ 550,581
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Redeemable Exchangeable
Preferred Stock $ 1,062,884 $ - $ - $1,062,884
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Capital expenditures $ 159,404 $ 30,302 $ 12,924 $ 202,630
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Ending Cable subscribers 1,937,348 623,119 - 2,560,467
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
</TABLE>
-15-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Restricted Group
On July 25, 1997, the Company paid $283 million plus accrued interest to
redeem its $275 million 10-3/4% Senior Subordinated Debentures due 2004. The
payment included a redemption premium of approximately $8 million. All funds
were obtained from borrowings under the Restricted Group's $1.3 billion
credit facility.
On July 2, 1997, the Restricted Group made a payment of $90 million to
Warburg for their remaining interests in A-R Cable Services increasing its
ownership to 100%. A-R Cable became part of the Unrestricted Group.
On June 11, 1997, the Company made a payment of $33 million to Warburg for
their remaining interests in Nashoba and Framingham increasing its ownership
to 100%. Nashoba and Framingham became part of the Unrestricted Group.
On August 6, 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 approximately $1.5 billion 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 $136 million at August 6, 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 June 30, 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, with an
average maturity of one and one-third years. The average effective annual
interest rate on all Restricted Group bank debt outstanding as of June 30,
1997 was approximately 7.6%.
The Company believes that, for the Restricted Group, internally generated
funds together with funds available under its existing Credit Agreement will
be sufficient to meet its debt service and preferred stock dividend
requirements and to fund its planned capital expenditures through 1998.
The Company intends to incur additional costs to facilitate the startup of
such adjunct businesses as high speed data service, digital video service and
residential telephony. Depending upon the timing and scope of the roll out
of these businesses, the Company may require additional capital. Depending on
the scope of the Company's participation in the PCS and DBS ventures,
additional capital may also be required. The acquisition of ITT's remaining
interest in MSG following an exercise by ITT of its put rights may be made,
at the Company's election, in either cash or shares
-16-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
of the Company's Class A Common Stock. If such payment is made in cash, the
Company would require up to $188 million of additional capital. See Note 5 -
"Acquisitions."
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 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 August 6, 1997,
Cablevision of Ohio had outstanding borrowings under its reducing revolving
facility of $226 million, and $1 million of outstanding letters of credit
leaving unrestricted and undrawn funds available amounting to $198 million.
The Restricted Group made a $10 million equity contribution to Cablevision of
Ohio 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, 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
- ----------
The U.S. Cable credit facility is led by The Bank of New York and Bank of
Montreal, as co-agents, 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.
As of August 6, 1997, U.S. Cable had $154 million of outstanding borrowings
under its revolving credit facility leaving unrestricted and undrawn funds
available amounting to $21 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.
-17-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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.
A-R Cable Group
- ---------------
As noted above, the Company acquired the interests in A-R Cable and Nashoba
and Framingham it did not already own on July 2 and June 11, 1997,
respectively.
On August 6, 1997, A-R Cable had outstanding borrowings of $398 million
leaving unrestricted and undrawn funds amounting to $10 million. A-R Cable's
credit facility remains in place with a maturity date of December 30, 1997
extendable by A-R Cable for one quarter. The Company believes it can
refinance the credit facility at maturity but there can be no assurances that
it will be able to do so.
Nashoba and Framingham's credit facilities remain in place and both have a
maturity date of June 30, 2002. As of August 6, 1997, Nashoba and Framingham
had outstanding borrowings aggregating $52 million, with unrestricted and
undrawn funds aggregating $16 million.
The Company believes that for Nashoba and Framingham, internally generated
funds together with funds available under their respective credit agreements,
will be sufficient to meet their respective debt service and capital
expenditure requirements through 1998.
Unrestricted - Other
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. On April 2, 1997 approximately $172 million
was 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 came from a $205 million
distribution by American Movie Classics Company. This distribution was
provided by funds made available under a new AMCC $250 million, seven year
revolving credit and term loan facility maturing in 2004 that closed
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 for
general corporate purposes.
As of August 6, 1997, Rainbow Media had outstanding borrowings of $157
million and $4 million in outstanding letters of credit, leaving unrestricted
and undrawn funds available amounting to $139 million. As of August 6, 1997,
AMCC had outstanding borrowings of $212 million leaving unrestricted funds
available of $38 million.
-18-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Rainbow Media's credit facility contains certain financial covenants that
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 its credit agreement will be sufficient
to meet its debt service requirements and to fund its capital expenditures
through 1998.
Madison Square Garden
- ---------------------
On June 6, 1997 Madison Square Garden L.P. ("MSG") entered into an $850
million credit agreement (the "MSG Credit Facility") with a group of banks
led by Chase Manhattan Bank, as agent. The MSG Credit Facility expires on
December 31, 2004. The Term Loan is due in 26 quarterly installments
commencing September 30, 1998, of which $40 million is payable by December
31, 1998. On July 11, 1997 a new unrestricted subsidiary of MSG, Garden
Programming, LLC, made a $40 million 14 year loan to a non-related entity.
The proceeds for such loan came from a $20 million drawdown by MSG under the
MSG Credit Facility, which was then loaned to Garden Programming LLC, and a
$20 million five year term loan entered into directly by Garden Programming
LLC with a group of banks.
As of August 6, 1997, outstanding debt under the MSG Credit Facility
consisted of a $650 million term loan and a revolving credit loan of $146
million. In addition, MSG had outstanding letters of credit of $4.7 million
as of August 6, 1997, resulting in unrestricted and undrawn funds available
amounting to $49.3 million. The funds available will be used for general
corporate purposes. The MSG Credit Facility contains certain financial
covenants that may limit its ability to utilize all of the undrawn funds
available thereunder, including covenants requiring MSG to maintain certain
financial ratios. The Company believes that for MSG, internally generated
funds together with funds available under its existing credit agreement will
be sufficient to meet its debt service requirements under its credit
agreement and to fund capital expenditures through 1998. In connection with
the Fox Liberty Transactions discussed in Note 6 to the Consolidated
Financial Statements, the Company intends to repay a portion of the MSG
Credit Facility.
-19-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Part II. Other Information
Item 1. 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
The Company's Annual Meeting of Shareholders was held on June 11,
1997.
The following matters were voted upon at the Company's Annual Meeting
of Shareholders, indicating the number of votes cast for and against
as well as the number of abstentions:
<TABLE>
<CAPTION>
Election of Directors:
---------------------
<S> <C> <C>
Class A Directors:
Charles D. Ferris: For: 12,119,713
Votes withheld: 86,042
Richard H. Hochman: For: 12,114,213
Votes withheld: 91,542
Victor Oristano: For: 12,114,288
Votes withheld: 91,467
Vincent Tese: For: 12,119,895
Votes withheld: 85,860
Class B Directors:
William J. Bell Mare A. Lustgarten For: 11,216,209
Charles F. Dolan Shelia A. Mahony Against 0
James L. Dolan Francis F. Randolph, Jr.
Patrick F. Dolan Daniel T. Sweeney
Robert S. Lemle John Tatta
Each nominee for election by the Class B common stockholders received
the same vote as indicated above.
Authorize and approve the Company's 1997 Long-Term Incentive Plan
-----------------------------------------------------------------
Class A Common Stock: For: 7,776,128
Against: 1,257,807
Abstain: 51,736
Class B Common Stock: For: 112,162,090
Against: 0
Abstain: 0
Ratification and approval of KPMG Peat Marwick LLP
--------------------------------------------------
Class A Common Stock: For: 12,172,055
Against: 24,180
Abstain: 9,520
Class B Common Stock: For: 112,162,090
Against: 0
Abstain: 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 23.
(b) The Company filed a Current Report on Form 8-K with
the Commission on April 18, 1997, June 6, 1997 and
June 22, 1997.
-20-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
SIGNATURES
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
Registrant
Date: August 12,1997 /s/ William J. Bell
------------------------ -------------------------------------------
By: William J. Bell, as Vice Chairman,
Director and Principal Financial Officer
of Cablevision Systems Corporation
Date: August 12, 1997 /s/ Andrew B. Rosengard
------------------------ --------------------------------------------
By: Andrew B. Rosengard, as Senior Vice
President and Controller and Chief
Accounting Officer of Cablevision
Systems Corporation
-21-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------- ----------- ----
27 Financial Data Schedule
-22-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 34,460
<SECURITIES> 0
<RECEIVABLES> 214,410
<ALLOWANCES> (25,434)
<INVENTORY> 159,142
<CURRENT-ASSETS> 0
<PP&E> 2,924,271
<DEPRECIATION> (1,225,561)
<TOTAL-ASSETS> 4,648,324
<CURRENT-LIABILITIES> 0
<BONDS> 4,572,291
1,062,884
15
<COMMON> 249
<OTHER-SE> (2,614,834)
<TOTAL-LIABILITY-AND-EQUITY> 4,648,324
<SALES> 0
<TOTAL-REVENUES> 808,549
<CGS> 0
<TOTAL-COSTS> 340,430
<OTHER-EXPENSES> 222,581
<LOSS-PROVISION> (11,484)
<INTEREST-EXPENSE> 153,785
<INCOME-PRETAX> (240,697)
<INCOME-TAX> 0
<INCOME-CONTINUING> (240,697)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (240,697)
<EPS-PRIMARY> (9.69)
<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>
