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 March 31, 1998
--------------
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 Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
- - ------ ---------------------------- ------------------
1-14764 Cablevision Systems Corporation 11-3415180
(formerly CSC Parent Corporation)
Delaware
One Media Crossways
Woodbury, New York 11797
(516) 364-8450
1-9046 CSC Holdings, Inc. (formerly 11-2776686
Cablevision Systems Corporation)
Delaware
One Media Crossways
Woodbury, New York 11797
(516) 364-8450
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Cablevision Systems Corporation Yes |X| No |_|
CSC Holdings, Inc. Yes |X| No |_|
Number of shares of common stock outstanding as of May 6, 1998:
Cablevision Systems Corporation Class A Common Stock - 53,058,849
Cablevision Systems Corporation Class B Common Stock - 22,193,418
CSC Holdings, Inc. Class A Common Stock - 1,000
================================================================================
<PAGE>
TABLE OF CONTENTS
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three Months ended March 31, 1998 and 1997 (unaudited)............3
Condensed Consolidated Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997..................4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1998 and 1997 (unaudited)............6
Notes to Condensed Consolidated Financial Statements (unaudited)..7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................13
PART II - OTHER INFORMATION...................................................23
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three Months ended March 31, 1998 and 1997 (unaudited)...........24
Condensed Consolidated Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997.................25
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1998 and 1997 (unaudited)...........27
Notes to Condensed Consolidated Financial Statements
(unaudited)......................................................28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................33
PART II - OTHER INFORMATION...................................................42
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
(Dollars in thousands, except per share data)
(Unaudited)
1998 1997
---- ----
Revenues ............................................. $ 675,728 $ 358,549
--------- ---------
Operating expenses:
Technical .......................................... 343,720 151,399
Selling, general and
administrative .................................. 196,589 84,867
Depreciation and amortization ...................... 146,579 108,005
--------- ---------
686,888 344,271
--------- ---------
Operating profit (loss) ....................... (11,160) 14,278
--------- ---------
Other income (expense):
Interest expense ................................... (97,974) (72,762)
Interest income .................................... 6,729 423
Share of affiliates' net loss ...................... (13,865) (12,623)
Gain on sale of programming and cable interests .... 137,268 --
Provision for preferential payment to related
party ............................................. (980) (1,400)
Minority interests ................................. 82 (2,275)
Miscellaneous ...................................... (8,209) (1,597)
--------- ---------
23,051 (90,234)
--------- ---------
Net income (loss) .................................... 11,891 (75,956)
Dividend requirements applicable to preferred stock
of CSC Holdings, Inc. .............................. (39,095) (35,965)
--------- ---------
Net loss applicable to common shareholders ........... $ (27,204) $(111,921)
========= =========
Basic net loss per common share....................... $ (.47) $ (2.25)
========= =========
Average number of common shares outstanding
(in thousands) ..................................... 57,884 49,682
========= =========
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
---- ----
Cash and cash equivalents ............................ $ 446,972 $ 410,141
Accounts receivable trade (less allowance for doubtful
accounts of $34,636 and $29,584) ................... 196,363 214,721
Notes and other receivables .......................... 118,486 98,756
Prepaid expenses and other assets .................... 155,912 55,324
Property, plant and equipment, net ................... 2,333,938 1,831,167
Investments in affiliates ............................ 280,435 207,776
Advances to affiliates ............................... 36,000 19,823
Feature film inventory ............................... 173,681 180,576
Net assets held for sale ............................. 42,731 252,610
Franchises, net of accumulated amortization of
$498,606 and $481,895 .............................. 359,686 383,369
Affiliation and other agreements, net of accumulated
amortization of $142,173 and $129,087 .............. 240,648 253,734
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $683,789 and $684,141 .............. 2,317,992 1,615,786
Deferred financing, acquisition and other costs, net of
accumulated amortization of $42,964 and $40,061 .... 88,084 91,005
---------- ----------
$6,790,928 $5,614,788
========== ==========
See accompanying notes to condensed consolidated financial statements.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
March 31, December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable ..................................... $ 294,527 $ 270,652
Accrued liabilities .................................. 597,803 504,866
Accounts payable to affiliates ....................... 12,854 7,978
Feature film and contract obligations ................ 278,352 292,720
Deferred revenue ..................................... 326,936 277,693
Bank debt ............................................ 2,776,029 2,240,358
Senior debt .......................................... -- 112,500
Senior notes and debentures .......................... 1,194,665 898,024
Subordinated debentures .............................. 1,048,275 1,048,245
Subordinated notes payable ........................... 151,000 151,000
Obligation to related party .......................... -- 197,183
Capital lease obligations and other debt ............. 44,549 46,752
----------- -----------
Total liabilities ................................. 6,724,990 6,047,971
----------- -----------
Minority interests ................................... 820,307 821,782
----------- -----------
Preferred stock of CSC Holdings, Inc. ................ 1,478,898 1,456,549
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
Class A Common Stock, $.01 par value, 200,000,000
shares authorized, 52,676,806 and 27,948,992
shares issued .................................. 527 280
Class B Common Stock, $.01 par value, 80,000,000
shares authorized, 22,193,418 shares issued .... 222 222
Paid-in capital ................................... 344,379 (160,825)
Accumulated deficit ............................... (2,578,395) (2,551,191)
----------- -----------
Total stockholders' deficiency .................... (2,233,267) (2,711,514)
----------- -----------
$ 6,790,928 $ 5,614,788
=========== ===========
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net income (loss) ................................... $ 11,891 $ (75,956)
--------- ---------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization ................... 146,579 108,005
Share of affiliates' net losses ................. 13,865 12,623
Minority interest ............................... (82) 2,275
Gain on sale of programming and cable
interests ..................................... (137,268) --
Amortization of deferred financing .............. 1,920 1,313
Amortization of debenture discount .............. 100 33
Loss on sale of equipment ....................... 288 1,162
Changes in assets and liabilities,
net of effects of acquisitions and
dispositions .................................. 29,135 14,188
--------- ---------
Total adjustments ......................... 54,537 139,599
--------- ---------
Net cash provided by operating activities ........ 66,428 63,643
--------- ---------
Cash flows from investing activities:
Advance related to acquisitions ..................... -- (30,000)
Net proceeds from sale of programming and
cable interests ................................... 424,370 --
Payments for acquisitions, net of cash
acquired .......................................... (72,779) --
Capital expenditures ................................ (150,453) (93,799)
Proceeds from sale of plant and equipment ........... 298 357
Additions to intangible assets ...................... (11,687) (419)
--------- ---------
Increase in investments in affiliates, net .......... (11,736) (168,965)
--------- ---------
Net cash provided by (used in) investing
activities ...................................... 178,013 (292,826)
--------- ---------
Cash flows from financing activities:
Proceeds from bank debt ............................. 894,988 324,955
Repayment of bank debt .............................. (1,073,164) (80,640)
Repayment of senior debt ............................ (112,500) --
Issuance of senior notes and debentures ............. 296,571 --
Dividends applicable to preferred stock
of CSC Holdings, Inc. ............................. (7,336) (7,778)
Issuance of common stock ............................ 2,614 95
Decrease in obligation to related party ............. (197,183) (4,230)
Payments of capital lease obligations
and other debt .................................... (2,168) (839)
Additions to deferred financing and
other costs ....................................... (23) (506)
Redemption of preferred stock of CSC Holdings, Inc. . (9,409) --
--------- ---------
Net cash provided by (used in) financing
activities ...................................... (207,610) 231,057
--------- ---------
Net increase in cash and cash equivalents ............ 36,831 1,874
Cash and cash equivalents at beginning of year ....... 410,141 11,612
--------- ---------
Cash and cash equivalents at end of period ........... $ 446,972 $ 13,486
========= =========
See accompanying notes to condensed consolidated financial statements.
-6-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1. The Company and Nature of Operations
CSC Parent Corporation ("CSC Parent") was formed on November 21, 1997 as a
wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision"). CSC
Parent did not conduct any business activities prior to March 4, 1998, other
than those incident to its formation and the execution of certain documents in
connection with contributions to CSC Parent of certain partnership interests and
assets of TCI Communications, Inc. (the "Contributed Businesses") (see Note 6).
In connection with the Contribution and Merger Agreement described in Note 6, a
wholly owned subsidiary of CSC Parent was merged with and into Cablevision and
Cablevision became a wholly-owned subsidiary of CSC Parent (the "Merger"). In
the Merger, each outstanding share of Cablevision Class A Common Stock and
Cablevision Class B Common Stock was converted into one share of CSC Parent
Class A Common Stock and CSC Parent Class B Common Stock, respectively.
Subsequent to the Merger, Cablevision changed its name to CSC Holdings, Inc.
("CSC Holdings") and CSC Parent changed its name to Cablevision Systems
Corporation. The Merger was accounted for in a manner similar to a pooling of
interests, whereby the assets and liabilities of CSC Holdings have been recorded
at historical book value. Cablevision Systems Corporation's historical financial
information represents the historical financial information of CSC Holdings. For
purposes of the accompanying consolidated financial statements of Cablevision
Systems Corporation, all share and per share information has been retroactively
restated to reflect the number of shares which were issued to shareholders on
March 4, 1998 in the exchange discussed above. All share and per share
information has also been adjusted for the two-for-one split described in Note
7.
Note 2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Cablevision Systems Corporation (formerly CSC Parent) 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 3. Responsibility for Interim Financial Statements
The financial statements as of and for the three month periods ended March 31,
1998 and 1997 presented in this Form 10-Q are unaudited; however, in the opinion
of management, such
-7-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
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 and CSC
Holdings Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
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, 1998.
Note 4. Basic Net Loss Per Common Share
Net loss per common share is computed by dividing net loss after deduction of
dividends on preferred stock of CSC Holdings, Inc. by the weighted average
number of common shares outstanding. Potential dilutive common shares were not
included in the computation as their effect would be antidilutive.
Note 5. 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 $75,537 and $51,040 for the three months ended March 31, 1998 and
1997, respectively. The Company's noncash financing activities for the three
months ended March 31, 1998 and 1997 included capital lease obligations of
$11,534, incurred when the Company entered into leases for new equipment in
1997, dividend requirements applicable to the preferred stock of CSC Holdings,
Inc. of $31,759 and $28,408, respectively, the issuance of common stock valued
at $497,987 in connection with the acquisition of the TCI Systems (see Note 6)
in 1998, the issuance of common stock valued at $4,848 to redeem certain limited
partnership interests in a subsidiary of the Company in 1998, and the
acquisition of warrants from At Home Corporation valued at $74,788 in 1998.
Note 6. Holding Company Reorganization
On March 4, 1998, the Company completed a holding company reorganization (the
"Holding Company Reorganization") pursuant to an Amended and Restated
Contribution and Merger Agreement, dated June 6, 1997 (the "Contribution and
Merger Agreement"), by and among the Company, CSC Holdings, Merger Sub, and TCI
Communications, Inc. ("TCI").
-8-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Pursuant to the Contribution and Merger Agreement, TCI caused to be contributed
to the Company or its designees all of the partnership interests and capital
stock of certain entities owned directly or indirectly by TCI and all the assets
related to the businesses of certain cable television systems owned and operated
directly or indirectly by TCI ("TCI Systems"). In consideration for those cable
television systems, the Company issued to certain TCI entities an aggregate of
24,471,086 shares (after adjusting for the two-for-one stock split discussed in
Note 7) of the Company's Class A Common Stock, valued for accounting purposes at
approximately $498,000, and assumed certain liabilities related to such systems
(including an aggregate amount of indebtedness for borrowed money equal to
$669,000).
The assumed debt was refinanced with borrowings under a new $800,000 bridge
revolving credit facility entered into by certain subsidiaries of the Company
with a group of banks led by Toronto Dominion (Texas), Inc. as administrative
arranging agent. The facility has a final maturity of March 4, 2000.
The acquisition was accounted for as a purchase with the operations of the
acquired systems being consolidated with those of the Company as of the
acquisition date. The excess of the purchase price over the net book value of
assets acquired approximates $703,000 and will be allocated to the specific
assets acquired when independent appraisals are obtained.
On January 27, 1998, the Company, CSC Holdings and a subsidiary of TCI entered
into a non-binding letter of intent for the Company to acquire TCI's cable
television systems (the "TCI Connecticut Systems") in and around Hartford,
Vernon, Branford and Lakeville, Connecticut (the "Proposed TCI CT
Transactions"). In consideration for the TCI Connecticut Systems the Company
will (i) transfer to TCI its cable television systems serving Kalamazoo,
Michigan, (ii) transfer to TCI other cable television systems to be identified
by TCI and purchased with approximately $25,000 of funds provided by the
Company, (iii) issue approximately 2,941,176 shares of the Company's Class A
common stock, and (iv) assume certain indebtedness relating to the TCI
Connecticut Systems, which is anticipated to total approximately $110,000.
The closing of the Proposed TCI CT Transactions will be conditioned, among other
things, upon regulatory and other customary approvals. The Proposed TCI CT
Transactions are currently expected to be consummated during 1998. However,
there can be no assurance that the Proposed TCI CT Transactions will be
consummated in a timely fashion, or at all.
-9-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED 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 three months ended March 31, 1998 and 1997 as if certain acquisitions
and transactions, which occurred during 1997, and the acquisition of the TCI
systems had occurred on January 1, 1998 and 1997, respectively.
Three Months Ended March 31,
1998 1997
---- ----
Net revenues $ 739,895 $ 616,076
========== ==========
Net loss $ (96,903) $ (111,429)
========== ==========
Basic net loss per common
share $ (1.67) $ (1.50)
========== ==========
The pro forma information presented above gives effect to certain adjustments,
including the amortization of acquired intangible assets and increased interest
expense on acquisition debt. The pro forma information has been prepared for
comparative purposes only and does not purport to indicate the results of
operations which would actually have occurred had the transactions been made at
the beginning of the periods indicated or which may occur in the future.
Note 7. Stock Split
On March 4, 1998, the Company's Board of Directors declared a two-for-one stock
split to be effected in the form of a common stock dividend of one share of
Class A common stock for each share of Class A common stock issued and
outstanding and one share of Class B common stock for each share of Class B
common stock issued and outstanding. The stock dividend was paid on March 30,
1998 to stockholders of record on March 19, 1998. All share and per share
information has been adjusted to reflect the two-for-one stock split.
Note 8. Nobody Beats The Wiz Acquisition
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with approximately 40 Nobody Beats The Wiz consumer
electronics store locations from The Wiz, Inc. and certain of its subsidiaries
and affiliates (collectively, the "Wiz"). The Wiz had filed for bankruptcy
protection on December 16, 1997. Cablevision Electronics paid
-10-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
approximately $92,000 for the assets, of which $10,000 was put into escrow
pending resolution of the final calculation of the purchase price. In addition,
prior to closing, Cablevision Electronics provided approximately $8,000 for the
Wiz to meet certain operating costs.
The acquisition was accounted for as a purchase with the operations of the
stores being consolidated with the operations of the Company as of the date of
acquisition. The excess of the purchase price over the net book value of assets
acquired approximates $19,900 and will be allocated to the specific assets
acquired when independent appraisals are obtained.
Note 9. Dispositions
In the first quarter of 1998, the Company completed the sale of substantially
all of the assets of U.S. Cable Television Group, L.P. ("U.S. Cable") for
approximately $311,000 and the cable television systems in Rockford, Illinois
and Paragould, Arkansas owned by A-R Cable Services, Inc. ("A-R Cable") for
approximately $99,800 in cash. The Company recognized a net gain of
approximately $119,600 on the sale of these systems. In addition, the Company
recognized a gain of approximately $17,700 as a result of the sale of an
interest in a regional sports programming business.
Note 10. Senior Debentures
In February 1998, CSC Holdings issued $300,000 principal amount of 7 7/8% Senior
Debentures due 2018 (the "2018 Debentures"). The 2018 Debentures were issued at
a discount of $3,429. The 2018 Debentures can not be redeemed by CSC Holdings
prior to maturity.
Note 11. Net Assets Held for Sale
In 1997, A-R Cable entered into an agreement to sell its cable television
systems in Wellsville/Penn Yan, New York for approximately $11,500 and cable
television systems in Windsor, New York and New Milford, Pennsylvania for
approximately $4,800 in cash.
In addition, in 1998, A-R Cable entered into an agreement to transfer its cable
television system in Rensselaer, New York plus $16,000 in cash to Time Warner
in exchange for Time Warner's Litchfield, Connecticut system.
The pending transactions are subject to the receipt of regulatory and other
customary approvals and are currently expected to be consummated in the first
half of 1998. The Company expects to record gains upon the consummation of these
transactions. There can be no assurance that the pending transactions will be
consummated in a timely fashion, or at all.
For financial reporting purposes, the assets and liabilities attributable to the
above transactions, as well as the assets and liabilities of the cable
television systems serving Kalamazoo, Michigan (see Note 6), have been
classified in the consolidated balance sheet as net assets held for sale.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
The accompanying consolidated statement of operations for the three months ended
March 31, 1998 includes net revenues aggregating approximately $9,067 and net
income aggregating approximately $2,444 relating to the cable systems held for
sale.
Note 12. Preferred Stock of CSC Holdings, Inc.
The preferred stock of CSC Holdings, Inc. at March 31, 1998 and December 31,
1997 consists of CSC Holdings issued and outstanding preferred stock as follows:
8 1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock $ 323,331 $ 323,331
11 3/4% Series H Redeemable Exchangeable
Preferred Stock 334,595 325,048
11 1/8% Series M Redeemable Exchangeable
Preferred Stock 820,972 798,760
---------- ----------
$1,478,898 $1,447,139
========== ==========
In January 1998, CSC Holdings redeemed all of its outstanding 8% Series C
Cumulative Preferred Stock at a price calculated to be approximately $85.06 per
share (including accrued dividends) in cash (approximately $9,400 in the
aggregate for all outstanding shares).
Note 13. Recent Developments
On March 9, 1998, ITT Corporation ("ITT") notified the Company of its election
to exercise the first put with respect to 50% of ITT's interest in Madison
Square Garden, L.P. ("MSG") for $94,000.
-12-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
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>
Three Months Ended March 31,
------------------------------------------------
1998 1997
---------------------- --------------------
% of Net % of Net (Increase)/Decrease
Amount Revenues Amount Revenues in Net Loss
--------- -------- --------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 675,728 100% $ 358,549 100% $ 317,179
Operating expenses:
Technical .................... 343,720 51 151,399 42 (192,321)
Selling, general &
administrative ............. 196,589 29 84,867 24 (111,722)
Depreciation and
amortization ............... 146,579 22 108,005 30 (38,574)
--------- --------- ---------
Operating profit (loss) ........ (11,160) (2) 14,278 4 (25,438)
Other expense:
Interest expense, net ........ (91,245) (14) (72,339) (20) (18,906)
Share of affiliates' net loss (13,865) (2) (12,623) (4) (1,242)
Gain on sale of programming
and cable interests ........ 137,268 20 -- -- 137,268
Provision for preferential
payment to related party ... (980) -- (1,400) -- 420
Minority interests ........... 82 -- (2,275) (1) 2,357
Miscellaneous, net ........... (8,209) (1) (1,597) -- (6,612)
--------- --------- ---------
Net income (loss).............. $ 11,891 2% $ (75,956) (21)% $ 87,847
========= ========= =========
OTHER OPERATING DATA:
Operating profit before
depreciation and
amortization (1) ............. $ 135,419 $ 122,283
Currently payable interest
expense, net ................. 95,954 71,416
Net cash provided by
operating activities
(2) .......................... 66,428 63,643
Net cash provided by
(used in) investing
activities (2) ............... 178,013 (292,826)
Net cash provided by
(used in) financing
activities (2) ............... (207,610) 231,057
</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. - "Condensed Consolidated Statements of Cash Flows".
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
1998 Acquisitions. In February 1998, the Company acquired substantially all of
the assets associated with approximately 40 Nobody Beats The Wiz consumer
electronics store locations. In addition, in March 1998, the Company acquired
certain cable television systems in New York and New Jersey from TCI (see Note 6
of Notes to Condensed Consolidated Financial Statements).
1998 Dispositions. In 1998, the Company completed the sale of substantially all
of the assets of U.S. Cable and the sale of cable television systems in
Rockford, Illinois and Paragould, Arkansas owned by A-R Cable. In addition,
Rainbow Media completed the sale of an interest in a regional sports programming
business.
1997 Acquisitions and Transactions. In April 1997, the Company exchanged 25% of
its interest in Rainbow Media for NBC's interest in certain programming
entities. In June 1997, the Company redeemed a portion of ITT's interest in
Madison Square Garden which increased Rainbow Media's interest in Madison Square
Garden from 50% to 89.8%. In June 1997, the Company acquired from Warburg Pincus
the equity interest that Warburg Pincus had in certain cable television systems
in Massachusetts giving the Company full ownership of these systems. In July
1997, the Company acquired from Warburg Pincus the Series A Preferred Stock of
A-R Cable which resulted in the consolidation of A-R Cable's operations from the
date of the transaction. In December 1997, Rainbow Media completed certain
transactions with Fox/Liberty Networks, LLC ("Fox/Liberty"). Also in December
1997, Madison Square Garden acquired all of the membership interests in Radio
City Productions.
1997 Dispositions. In 1997, the Company completed the sale of the cable
television systems in Allen and Gibsonberg Townships, Ohio owned by Cablevision
of the Midwest, Inc. and the sale of cable television systems owned by A-R Cable
in Maine. In addition, in 1997, Rainbow Media completed the sale of the assets
of a subsidiary, CV Radio Associates, L.P.
All the above transactions completed in 1997 and 1998 are collectively
referred to as the "Net Acquisitions."
Revenues for the three months ended March 31, 1998 increased $317.2 million
(88%) over the corresponding 1997 period. Approximately $259.1 million (72%) of
the increase was attributable to the Net Acquisitions; approximately $29.1
million (8%) resulted from higher revenue per subscriber; approximately $23.0
million (6%) to increases in other revenue sources such as Rainbow Media's
programming services, advertising and a developing commercial telephony
business; and approximately $6.0 million (2%) to internal growth of over 52,000
in the average number of subscribers.
Technical expenses increased $192.3 million (127%) for the three months ended
March 31, 1998 compared to the same 1997 period. Approximately $164.5 million
(109%) of the increase was a direct result of the Net Acquisitions. The
remaining 18% increase was attributable to increases in those costs directly
associated with the internal growth in the average number of subscribers and
-14-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
revenues mentioned above, as well as to increases in programming rates for
certain cable television services. As a percentage of revenues, technical
expenses increased 9% in 1998 over 1997.
Selling, general and administrative expenses increased $111.7 million (132%) for
the three months ended March 31, 1998 when compared to the same 1997 period.
Approximately $55.2 million (65%) of the increase was related to the Net
Acquisitions and $38.3 million (45%) was due to non-cash adjustments related to
an incentive stock plan. The remaining 22% increase resulted from higher
administrative, sales and marketing, and customer service costs. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
decreased 1% during the first three months of 1998 compared to the same 1997
period.
Operating profit before depreciation and amortization increased $13.1 million
(11%) to $135.4 million for the 1998 period from $122.3 million in the same 1997
period. Approximately $39.4 million (32%) of the increase was attributable to
the Net Acquisitions. This increase was offset by a decrease of approximately
$26.3 million (21%) resulting from the combined effect of the revenue and
expense increases discussed above. On a pro forma basis, giving effect to the
Net Acquisitions as if they had occurred on January 1, 1997 and the exclusion of
incentive stock plan adjustments, operating profit before depreciation and
amortization would have increased 13.4% in 1998. Operating profit before
depreciation and amortization is presented here to provide additional
information about the Company's ability to meet future debt service, capital
expenditures and working capital requirements. Operating profit before
depreciation and amortization should be considered in addition to and not as a
substitute for net income and cash flows as indicators of financial performance
and liquidity as reported in accordance with generally accepted accounting
principles.
Depreciation and amortization expense increased $38.6 million (36%) for the
three months ended March 31, 1998 as compared to the same 1997 period.
Approximately 31% was attributable to the Net Acquisitions. The remaining 5%
increase resulted primarily from depreciation on new plant assets, offset by a
decrease in depreciation and amortization for certain assets held for sale and a
decrease in amortization expense resulting from certain intangible assets
becoming fully amortized in 1997.
Net interest expense increased $18.9 million (26%) for the three months ended
March 31, 1998 over the comparable 1997 period. Approximately $5.0 million (7%)
of the increase is attributable to the Net Acquisitions. The remaining increase
of approximately $13.9 million (19%) is primarily due to higher outstanding debt
balances.
Share of affiliates' net loss increased to $13.9 million for the three months
ended March 31, 1998 from $12.6 million for the same 1997 period. For the three
months ended March 31, 1998, such amount consisted of the Company's share of the
net losses of certain programming businesses in which the Company has varying
ownership interests. For the comparable period in 1997, such amount consisted
primarily of the Company's share in the net losses of certain cable affiliates
for
-15-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
the period prior to consolidation of $17.9 million and the Company's share of
the net profits of $5.3 million of certain programming businesses in which the
Company has varying ownership interests.
Gain on sale of programming and cable interests for the three months ended March
31, 1998 consists of a gain of approximately $119.6 million as a result of the
sale of the assets of U.S. Cable and cable television systems in Rockford,
Illinois and Paragould, Arkansas and a gain of approximately $17.7 million as a
result of the sale of an interest in a regional sports programming business.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment made in
connection with the acquisition of Cablevision of New York City ("CNYC") in
1992. Effective March 4, 1998, these preferential payments were terminated upon
the retirement of Mr. Dolan's preferred interest.
Minority interest for the three months ended March 31, 1998 represents Fox
Liberty's 40% share of the net income of Regional Programming Partners, ITT's
share of the net income of Madison Square Garden, and NBC's 25% share of the net
loss of Rainbow Media. For 1997, the minority interest represented NBC's 25%
share of the net income of American Movie Classics.
Liquidity and Capital Resources
The Company does not have any operations independent of CSC Holdings and the TCI
Systems. In addition, it has no borrowings and does not have outstanding any
securities other than its Class A Common Stock and Class B Common Stock, on
which it does not intend to pay any dividends in the foreseeable future.
Accordingly, the Company does not have cash needs independent of the needs of
its subsidiaries.
The Company is structured as a restricted group and an unrestricted group of
subsidiaries.
The Restricted Group includes all of CSC Holdings' cable operations in and
around the greater New York City metropolitan area, including Long Island, in
and around the greater Cleveland, Ohio metropolitan area and in and around
Boston, Massachusetts and the commercial telephony operations of the Company's
subsidiary, Cablevision Lightpath, Inc. on Long Island, New York. At March 31,
1998, the Restricted Group encompassed approximately 2,490,000 cable television
subscribers, including approximately 49,000 subscribers of systems held for
sale.
The Unrestricted Group principally includes the Company's cable television
operations other than those included in the Restricted Group. At March 31, 1998,
the Unrestricted Group encompassed approximately 884,000 cable television
subscribers ("Unrestricted Cable"), including approximately 835,000 subscribers
of the TCI Systems and approximately 45,000 subscribers of
-16-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
systems held for sale (see Note 11 -- "Net Assets Held for Sale"). Other
Unrestricted Group subsidiaries ("Unrestricted Other") include Rainbow Media and
CSC Technology, Inc. (the Company's subsidiary engaged in research and
development of new technology). Cablevision Electronics Investments, Inc. which
acquired Nobody Beats The Wiz on February 9, 1998, is also included in the
Unrestricted 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 three months ended March 31, 1998. Unrestricted
Cable consists of U.S. Cable for the period prior to the disposition and the TCI
Systems since the date of acquisition. "Other Unrestricted Subsidiaries"
includes Rainbow Media, CSC Technology, Inc., Cablevision Electronics, Inc. and
other companies engaged in certain development activities.
<TABLE>
<CAPTION>
Restricted Unrestricted Other Unrestricted Total
Group Cable Subsidiaries Company
----- ----- ------------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 355,130 $ 43,977 $ 276,621 $ 675,728
========== ============ =========== ==========
Operating profit (loss) before
depreciation and amortization $ 131,750 $ 13,539 $ (9,870) $ 135,419
========== ============ =========== ==========
Currently payable interest expense $ 74,899 $ 5,267 $ 15,788 $ 95,954
========== ============ =========== ==========
Total interest expense $ 76,154 $ 5,267 $ 16,553 $ 97,974
========== ============ =========== ==========
Bank and other senior debt $1,291,108 $ 645,250 $ 884,220 $2,820,578
========== ============ =========== ==========
Senior notes and debentures $1,194,665 $ -- $ -- $1,194,665
========== ============ =========== ==========
Subordinated debt $1,199,275 $ -- $ -- $1,199,275
========== ============ =========== ==========
Capital expenditures $ 129,177 $ 3,320 $ 17,956 $ 150,453
========== ============ =========== ==========
Ending subscribers 2,489,575 883,577 -- 3,373,152
========== ============ =========== ==========
</TABLE>
-17-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Restricted Group
The Company believes that, for the Restricted Group, internally generated funds,
together with funds available under CSC Holdings' Credit Agreement or the Credit
Commitments (each as defined below) will be sufficient through 1999 to meet all
funding requirements. The liquidity positions of the significant entities in the
Unrestricted Group are discussed below.
As of March 9, 1998, CSC Holdings received commitments from a group of banks led
by Toronto Dominion for a $2.8 billion credit facility ("Credit Commitments")
for the Restricted Group which includes separate credit agreements for CSC
Holdings' New Jersey systems as well as for the TCI Systems. Closing of the new
credit facility, which is subject to regulatory approval, is expected to occur
by June 30, 1998, however, there can be no assurance that the closing of the new
credit facility will take place on the terms contemplated by the Credit
Commitments or at all.
On February 3, 1998, CSC Holdings issued $300 million face amount of 7-7/8%
Senior Debentures due 2018. The net proceeds of $291.7 million were used to
repay outstanding borrowings under the Restricted Group credit facility.
On May 1, 1998, the Restricted Group had total usage under its existing $1.7
billion Credit Agreement (including the credit facility for CSC Holdings' New
Jersey Systems, collectively the "Credit Agreement") of $1,316 million and
letters of credit of $38 million issued on behalf of the CSC Holdings.
Unrestricted and undrawn funds available to the Restricted Group amounted to
approximately $346 million as of May 1, 1998. 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 May 1, 1998, CSC
Holdings had entered into interest exchange (swap and interest rate cap)
agreements with several of its banks on a notional amount of $250 million, on
which CSC Holdings pays a fixed rate of interest and receives a variable rate of
interest for specified periods, with an average maturity of 1.6 years. The
average effective annual interest rate on all Restricted Group bank debt
outstanding as of March 31, 1998 was approximately 7.5%.
The promissory notes of certain of CSC Holdings' subsidiaries are guaranteed by
CSC Holdings and the obligations under the guarantees rank pari passu with CSC
Holdings' public subordinated debt. The promissory notes are payable in cash or,
at CSC Holdings' option through the first anniversary of the notes, in shares of
the Company's Class A Common Stock.
The terms of the instruments governing the TCI Systems' indebtedness prohibit
transfer of funds (except for certain payments, related to corporate overhead
allocations) from the TCI Systems to the Restricted Group and are expected to
prohibit such transfer of funds for the foreseeable future. The Restricted Group
does not expect that such limitations on transfer of funds or payments will have
an adverse effect on the ability of the Company to meet its obligations.
-18-
<PAGE>
TCI Systems
On March 4, 1998, the Company completed the acquisition of the TCI Systems for
24.4 million shares, adjusted for the two-for-one stock split, of the Company's
Class A Common Stock and for the assumption of $669 million of debt. The TCI
Systems borrowed $670 million under a new $800 million bridge revolving credit
facility and used the proceeds to repay the amounts outstanding under the
existing TCI Systems credit facilities and certain intercompany debt owed to
TCI. On May 1, 1998, usage under the $800 million bridge credit facility was
$625 million with undrawn funds of $175 million. The Company believes that, for
the TCI Systems, internally generated funds together with funds available under
its $800 million credit facility will be sufficient through 1999 to meet their
debt service requirements and to fund their planned capital expenditures.
Rainbow Media
In April 1997, Rainbow Media entered into a new $300 million, three year
revolving credit facility with Canadian Imperial Bank of Commerce and
Toronto-Dominion (Texas), Inc., as Co-agents and a group of banks. Upon closing
the new facility, Rainbow Media drew $172 million which was used to repay, in
part, the previous $202 million credit facility. Concurrently with entering into
the new Rainbow Media credit facility, American Movie Classics entered into a
new $250 million credit facility. American Movie Classics drew $225 million
under its new facility, applied $20 million to repay its existing debt and fees
and distributed $205 million to Rainbow Media. Rainbow Media used $30 million of
the proceeds from the American Movie Classics' distribution to fully repay the
balance of its existing $202 million facility, distributed $169 million to the
Restricted Group and used the balance of the distribution for interest and fees.
The American Movie Classics $250 million bank loan is a seven year revolving
credit and term loan facility maturing 2004.
Rainbow Media's credit facility was amended in December 1997, which amendment,
among other things, extended the maturity date to December 31, 2000. American
Movie Classics' credit facility was also amended in December 1997 to provide for
a $146 million term loan and a $100 million revolving credit. As of May 1, 1998,
American Movie Classics had outstanding borrowings of $196 million, leaving
unrestricted funds available of $43 million.
The Rainbow Media credit facility contains certain financial covenants that may
limit its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring Rainbow Media to maintain certain financial
ratios.
As of May 1, 1998, Rainbow Media had outstanding borrowings of $207 million,
leaving unrestricted and undrawn funds available of $53 million for 1998. The
amount available under the Rainbow Media revolving credit increases by $20
million on January 1, 1999 and by another $20 million on January 1, 2000. In
addition, as of May 1, 1998, Regional Programming Partners ("RPP"), a newly
formed partnership which is 60% owned by Rainbow Media and 40% owned by
Fox/Liberty, had a cash balance of $407 million which is the amount remaining
from the
-19-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
$850 million contribution made by Fox/Liberty for its interest in RPP. In June
1998, RPP expects to contribute $94 million of the RPP cash balance to MSG to
enable MSG to redeem the first put with respect to ITT Corporation's interest in
MSG (see Note 12). Additionally, according to the terms of the Rainbow Media and
Fox/Liberty agreement, RPP is permitted to lend up to $180 million to Rainbow
Media to pay down Rainbow Media's debt. Rainbow Media and RPP currently expect
to enter into such inter-company loan which would be subordinated to Rainbow
Media's bank debt. Rainbow Media would pay quarterly interest to RPP and would
be required to maintain sufficient availability under its revolving credit
facility to permit the repayment in full to RPP if RPP requires the funds for
its own operating needs. 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 1999.
Madison Square Garden
In June 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. In December 1997, the MSG Credit Facility was amended
into a $500 million revolving credit facility expiring on December 31, 2004. At
the time the facility was amended, MSG's outstanding bank debt was reduced by
$450 million, from $806 million to $356 million. The proceeds for the repayment
came from a capital contribution from Regional Programming Partners, the newly
formed partnership which is 60% owned by Rainbow Media and 40% owned by
Fox/Liberty. Regional Programming Partners had received $850 million from
Fox/Liberty in connection with the formation of the partnership.
In July 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
then loaned it 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 May
1, 1998 outstanding debt under the Garden Programming, LLC term loan was $20
million.
As of May 1, 1998, outstanding debt under the MSG Credit Facility was $421
million. In addition, MSG had outstanding letters of credit of $5 million
resulting in unrestricted and undrawn funds available amounting to $74 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
1999.
-20-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Nobody Beats the Wiz
On February 9, 1998, Cablevision Electronics completed the acquisition of
certain assets of the Wiz. The purchase price and expenses were funded through a
$50 million equity contribution from the Company and approximately $45 million
in borrowings under the new $110 million Cablevision Electronics stand alone
credit facility. Under the terms of the credit facility, the total amount of
borrowings available to Cablevision Electronics is subject to an availability
calculation based on a percentage of eligible inventory. On May 1, 1998, usage
under the $110 million credit facility was $42.8 million with $15 million
available thereunder, based on the level of inventory as of that date.
Cablevision Electronics has received additional equity contributions from CSC
Holdings of $25 million through May 1, 1998, as well as other financial support
of approximately $14.6 in the form of letters of credit and guarantees, in
respect of Cablevision Electronics' inventory purchases.
Operating Activities
Cash provided by operating activities amounted to $66.4 million for the three
months ended March 31, 1998 compared to $63.6 million for the three months ended
March 31, 1997. The 1998 cash provided by operating activities consisted
primarily of net income of $11.9 million, depreciation and amortization of
$146.6 million, other non-cash items of $16.1 million and a net increase in cash
resulting from changes in assets and liabilities of $29.1 million, offset by the
net gain on the sale of programming and cable interests of $137.3 million.
Cash provided by operating activities amounted to $63.6 million for the three
months ended March 31, 1997 which consisted primarily of depreciation and
amortization of $108.0 million and other non-cash items of $17.4 million, and a
net increase in cash resulting from changes in assets and liabilities of $14.2,
partially offset by a net loss of $76.0 million.
Investing Activities
Net cash provided by investing activities for the three months ended March 31,
1998 was $178.0 million compared to net cash used in investing activities of
$292.8 million for the three months ended March 31, 1997. The 1998 investing
activities consisted of net proceeds of $424.4 million from the sale of
programming and cable interests, offset by $150.5 million of capital
expenditures, $72.8 million of payments for acquisitions, and other items of
$23.1 million.
Net cash used in investing activities for the three months ended March 31, 1997
was $292.8 million. The 1997 investing activities consisted primarily of $93.8
million of capital expenditures, $169.0 million in increases in investment in
affiliates, and $30 million of an advance related to acquisitions.
-21-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Financing Activities
Cash used in financing activities amounted to $207.6 million for the three
months ended March 31, 1998 compared to net cash provided by financing
activities of $231.1 million for the three months ended March 31, 1997. In 1998,
the Company's financing activities consisted primarily of the repayment of an
obligation to a related party of $197.2 million, the net repayment of bank debt
and senior debt of $290.7 million, the payment of dividends applicable to the
preferred stock of a subsidiary of $7.3 million and the redemption of preferred
stock of a subsidiary of $9.4 million, partially offset by $296.6 million
derived from the issuance of senior debentures.
In 1997 the Company's financing activities consisted of the net proceeds from
bank debt of $244.3 million, partially offset by payments of dividends
applicable to the preferred stock of a subsidiary of $7.8 million and other net
cash payments aggregating $5.5 million.
-22-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 44.
(b) The Company filed a Current Report on Form 8-K with the
Commission on March 4, 1998.
-23-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
(Dollars in thousands, except per share data)
(Unaudited)
1998 1997
---- ----
Revenues ............................................. $ 645,382 $ 358,549
--------- ---------
Operating expenses:
Technical .......................................... 332,019 151,399
Selling, general and
administrative .................................. 189,181 84,867
Depreciation and amortization ...................... 135,049 108,005
--------- ---------
656,249 344,271
--------- ---------
Operating profit (loss) ....................... (10,867) 14,278
--------- ---------
Other income (expense):
Interest expense ................................... (94,512) (72,762)
Interest income .................................... 6,717 423
Share of affiliates' net loss ...................... (13,865) (12,623)
Gain on sale of programming and cable
interests ........................................ 137,268 --
Provision for preferential payment to
related party .................................... (980) (1,400)
Minority interests ................................. 82 (2,275)
Miscellaneous ...................................... (8,209) (1,597)
--------- ---------
26,501 (90,234)
--------- ---------
Net income (loss) .................................... 15,634 (75,956)
Dividend requirements applicable to preferred
stock .............................................. (39,095) (35,965)
--------- ---------
Net loss applicable to common shareholder ............ $ (23,461) $(111,921)
========= =========
Basic net loss per common share ...................... -- $ (2.25)
========= =========
Average number of common shares outstanding
(in thousands) ..................................... -- 49,682
========= =========
See accompanying notes to condensed consolidated financial statements.
-24-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, December 31,
ASSETS 1998 1997
---- ----
Cash and cash equivalents ............................ $ 442,172 $ 410,141
Accounts receivable trade (less allowance for
doubtful accounts of $26,094 and $29,584) .......... 179,914 214,721
Notes and other receivables .......................... 117,813 98,756
Prepaid expenses and other assets .................... 154,466 55,324
Property, plant and equipment, net ................... 1,880,447 1,831,167
Investments in affiliates ............................ 280,435 207,776
Advances to affiliates ............................... 42,535 19,823
Feature film inventory ............................... 173,681 180,576
Net assets held for sale ............................. 42,731 252,610
Franchises, net of accumulated amortization of
$498,606 and $481,895 .............................. 359,686 383,369
Affiliation and other agreements, net of accumulated
amortization of $142,173 and $129,087 .............. 240,648 253,734
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $677,180 and $684,141 .............. 1,622,135 1,615,786
Deferred financing, acquisition and other costs, net of
accumulated amortization of $42,964 and $40,061 .... 88,084 91,005
---------- ----------
$5,624,747 $5,614,788
========== ==========
See accompanying notes to condensed consolidated financial statements.
-25-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
Accounts payable ................................... $ 283,430 $ 270,652
Accrued liabilities ................................ 574,645 504,866
Accounts payable to affiliates ..................... 20,592 7,978
Feature film and contract obligations .............. 278,352 292,720
Deferred revenue ................................... 326,936 277,693
Bank debt .......................................... 2,130,779 2,240,358
Senior debt ........................................ -- 112,500
Senior notes and debentures ........................ 1,194,665 898,024
Subordinated debentures ............................ 1,048,275 1,048,245
Subordinated notes payable ......................... 151,000 151,000
Obligation to related party ........................ -- 197,183
Capital lease obligations and other debt ........... 44,549 46,752
----------- -----------
Total liabilities ............................... 6,053,223 6,047,971
----------- -----------
Minority interests ................................. 820,307 821,782
----------- -----------
Series H Redeemable Exchangeable Preferred Stock ... 334,595 325,048
----------- -----------
Series M Redeemable Exchangeable Preferred Stock ... 820,972 798,760
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
8% Series C Cumulative Preferred Stock, $.01
par value, 112,500 shares authorized, 110,622
shares issued in 1997 ($100 per share
liquidation preference) ...................... -- 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, 1,000 and 27,948,992 shares
issued ....................................... -- 280
Class B Common Stock, $.01 par value, 20,000,000
shares authorized, -0- and 22,193,418 shares
issued ....................................... -- 222
Paid-in capital ................................. 170,288 171,901
Accumulated deficit ............................. (2,574,652) (2,551,191)
----------- -----------
Total stockholders' deficiency .................. (2,404,350) (2,378,773)
----------- -----------
$ 5,624,747 $ 5,614,788
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-26-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................... $ 15,634 $ (75,956)
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .................... 135,049 108,005
Share of affiliates' net losses .................. 13,865 12,623
Minority interest ................................ (82) 2,275
Gain of sale of programming and cable interests .. (137,268) --
Amortization of deferred financing ............... 1,920 1,313
Amortization of debenture discount ............... 100 33
Loss on sale of equipment ........................ 288 1,162
Changes in assets and liabilities, net of effects
of acquisitions and dispositions ............... (5,087) 14,188
----------- -----------
Total adjustments .......................... 8,785 139,599
----------- -----------
Net cash provided by operating activities ......... 24,419 63,643
----------- -----------
Cash flows from investing activities:
Advance related to acquisitions ...................... -- (30,000)
Net proceeds from sale of programming and cable
interests .......................................... 424,370 --
Payment for acquisitions, net of cash acquired ....... (61,206) --
Capital expenditures ................................. (149,648) (93,799)
Proceeds from sale of plant and equipment ............ 298 357
Additions to intangible assets ....................... (11,686) (419)
Increase in investments in affiliates, net ........... (11,736) (168,965)
----------- -----------
Net cash provided by (used in) investing
activities ....................................... 190,392 (292,826)
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt .............................. 894,988 324,955
Repayment of bank debt ............................... (1,048,164) (80,640)
Repayment of senior debt ............................. (112,500) --
Issuance of senior notes and debentures .............. 296,571 --
Preferred stock dividends ............................ (7,336) (7,778)
Issuance of common stock ............................. 2,444 95
Decrease in obligation to related party .............. (197,183) (4,230)
Payments of capital lease obligations and
other debt ......................................... (2,168) (839)
Additions to deferred financing and other
costs .............................................. (23) (506)
Redemption of preferred stock ........................ (9,409) --
----------- -----------
Net cash provided by (used in) financing
activities ....................................... (182,780) 231,057
----------- -----------
Net increase in cash and cash equivalents ............. 32,031 1,874
Cash and cash equivalents at beginning of year ........ 410,141 11,612
----------- -----------
Cash and cash equivalents at end of period ............ $ 442,172 $ 13,486
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-27-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of CSC
Holdings, Inc. (formerly 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 month periods ended March 31,
1998 and 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, 1997.
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, 1998.
Note 3. Basic Net Loss Per Common Share
Net loss per common share for the three months ended March 31, 1997 is computed
by dividing net loss after deduction of preferred stock dividends by the
weighted average number of common shares outstanding. Potential dilutive common
shares were not included in the computation as their effect would be
antidilutive. Net loss per common share for the three months ended March 31,
1998 is not presented since the Company is a wholly owned subsidiary of
Cablevision Parent (see Note 5).
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 $74,628 and $51,040 for the three months ended March 31, 1998 and
1997, respectively. The Company's noncash financing activities for the three
months ended March 31, 1998 and 1997 included capital lease obligations of
$11,534 incurred when the Company entered into leases for new equipment in 1997,
preferred
-28-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
stock dividend requirements of $31,759 and $28,408, respectively, the issuance
of common stock valued at $4,848 to redeem certain limited partnership interests
in a subsidiary of the Company in 1998, and the acquisition of warrants from At
Home Corporation valued at $74,788 in 1998.
Note 5. Holding Company Reorganization
On March 4, 1998, the Company completed a holding company reorganization (the
"Holding Company Reorganization") pursuant to an Amended and Restated
Contribution and Merger Agreement, dated June 6, 1997 (the "Contribution and
Merger Agreement"), by and among the Company, CSC Parent Corporation
("Cablevision Parent"), CSC Merger Corporation, ("Merger Sub"), and TCI
Communications, Inc., ("TCI"). Pursuant to the Contribution and Merger
Agreement, each outstanding share of the Company's Class A Common Stock and each
outstanding share of the Company's Class B Common Stock were automatically
converted on a share for share basis for Class A Common Stock and Class B Common
Stock of Cablevision Parent. Cablevision Parent is authorized to issue
200,000,000 shares of Class A Common Stock, 80,000,000 shares of Class B Common
Stock and 10,000,000 shares of Preferred Stock. The Company is authorized to
issue 50,000,000 shares of Class A Common Stock and 20,000,000 shares of Class B
Common Stock.
As a result of the Holding Company Reorganization, Cablevision Parent has become
the holding company of the Company. In connection with the Holding Company
Reorganization, the Company's name, which formerly was Cablevision Systems
Corporation, has been changed to CSC Holdings, Inc. and Cablevision Parent's
name has been changed to Cablevision Systems Corporation.
The preferred stock and debt of the Company remain unchanged as securities of
CSC Holdings, Inc., except that the Company's 8-1/2% Cumulative Convertible
Exchangeable Preferred Stock, par value $0.01 per share (the "Series I Preferred
Stock"), in accordance with its terms, became exchangeable for Cablevision
Parent Class A Common Stock instead of being convertible into the Company's
Class A Common Stock.
For purposes of the accompanying condensed consolidated financial statements of
the Company, all share and per share information has been retroactively restated
to reflect the number of Cablevision Parent shares which were issued to the
Company's shareholders on March 4, 1998 in the exchange discussed above. All
share and per share information has been adjusted to reflect the two-for-one
stock split effected in the form of a common stock dividend to stockholders of
Cablevision Parent on March 30, 1998.
-29-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
On January 27, 1998, the Company, Cablevision Parent and a subsidiary of TCI
entered into a non-binding letter of intent for Cablevision Parent to acquire
TCI's cable television systems (the "TCI Connecticut Systems") in and around
Hartford, Vernon, Branford and Lakeville, Connecticut (the "Proposed TCI CT
Transactions"). In consideration for the TCI Connecticut Systems Cablevision
Parent will (i) transfer to TCI its cable television systems serving Kalamazoo,
Michigan, (ii) transfer to TCI other cable television systems to be identified
by TCI and purchased with approximately $25,000 of funds provided by Cablevision
Parent, (iii) issue approximately 2,941,176 shares of Cablevision Parent's Class
A common stock, and (iv) assume certain indebtedness relating to the TCI
Connecticut Systems, which is anticipated to total approximately $110,000.
The closing of the Proposed TCI CT Transactions will be conditioned, among other
things, upon regulatory and other customary approvals. The Proposed TCI CT
Transactions are currently expected to be consummated during 1998. However,
there can be no assurance that the Proposed TCI CT Transactions will be
consummated in a timely fashion, or at all.
Note 6. Nobody Beats The Wiz Acquisition
On February 9, 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of the Company, acquired substantially
all of the assets associated with approximately 40 Nobody Beats The Wiz consumer
electronics store locations from The Wiz, Inc. and certain of its subsidiaries
and affiliates (collectively, the "Wiz"). The Wiz had filed for bankruptcy
protection on December 16, 1997. Cablevision Electronics paid approximately
$92,000 for the assets, of which $10,000 was put into escrow pending resolution
of the final calculation of the purchase price. In addition, prior to closing,
Cablevision Electronics provided approximately $8,000 for the Wiz to meet
certain operating costs.
The acquisition was accounted for as a purchase with the operations of the
stores being consolidated with the operations of the Company as of the date of
acquisition. The excess of the purchase price over the net book value of assets
acquired approximates $19,900 and will be allocated to the specific assets
acquired when independent appraisals are obtained.
Note 7. Dispositions
In the first quarter of 1998, the Company completed the sale of substantially
all of the assets of U.S. Cable Television Group, L.P. ("U.S. Cable") for
approximately $311,000 and the cable television systems in Rockford, Illinois
and Paragould, Arkansas owned by A-R Cable Services, Inc. ("A-R Cable") for
approximately $99,800 in cash. The Company recognized a net gain of
-30-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
approximately $119,600 on the sale of these systems. In addition, the Company
recognized a gain of approximately $17,700 as a result of the sale of an
interest in a regional sports programming business.
Note 8. Senior Debentures
In February 1998, the Company issued $300,000 principal amount of 7 7/8% Senior
Debentures due 2018 (the "2018 Debentures"). The 2018 Debentures were issued at
a discount of $3,429. The 2018 Debentures can not be redeemed by the Company
prior to maturity.
Note 9. Net Assets Held for Sale
In 1997, A-R Cable entered into an agreement to sell its cable television
systems in Wellsville/Penn Yan, New York for approximately $11,500 and cable
television systems in Windsor, New York and New Milford, Pennsylvania for
approximately $4,800 in cash.
In addition, in 1998, A-R Cable entered into an agreement to transfer its cable
television system in Rensselaer, New York plus $16,000 in cash to Time Warner in
exchange for Time Warner's Litchfield, Connecticut system.
The pending transactions are subject to the receipt of regulatory and other
customary approvals and are currently expected to be consummated in the first
half of 1998. The Company expects to record gains upon the consummation of these
transactions. There can be no assurance that the pending transactions will be
consummated in a timely fashion, or at all.
For financial reporting purposes, the assets and liabilities attributable to the
above transactions, as well as the assets and liabilities of the cable
television systems serving Kalamazoo, Michigan (see Note 5), have been
classified in the consolidated balance sheet as net assets held for sale.
The accompanying consolidated statement of operations for the three months ended
March 31, 1998 includes net revenues aggregating approximately $9,067 and net
income aggregating approximately $2,444 relating to the cable systems held for
sale.
Note 10. Preferred Stock
On January 2, 1998, the Company redeemed all of the outstanding 8% Series C
Cumulative Preferred Stock ("Series C Preferred Stock") at a price calculated to
be approximately $85.06 per share (including accrued dividends) in cash
(approximately $9,400 in the aggregate for all outstanding shares).
-31-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Note 11. Recent Developments
On March 9, 1998, ITT Corporation ("ITT") notified the Company of its election
to exercise the first put with respect to 50% of ITT's interest in Madison
Square Garden, L.P. ("MSG") for $94,000.
-32-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
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>
Three Months Ended March 31,
--------------------------------------------
1998 1997
------------------- ---------------------
% of Net % of Net (Increase)/Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 645,382 100% $ 358,549 100% $ 286,833
Operating expenses:
Technical .................... 332,019 51 151,399 42 (180,620)
Selling, general &
administrative ............. 189,181 29 84,867 24 (104,314)
Depreciation and
amortization ............... 135,049 21 108,005 30 (27,044)
--------- --------- --------
Operating profit (loss) ........ (10,867) (2) 14,278 4 (25,145)
Other expense:
Interest expense, net ........ (87,795) (14) (72,339) (20) (15,456)
Share of affiliates' net
loss ....................... (13,865) (2) (12,623) (4) (1,242)
Gain on sale of programming
and cable interests ........ 137,268 21 -- -- 137,268
Provision for preferential
payment to related party ... (980) -- (1,400) -- 420
Minority interests ........... 82 -- (2,275) (1) 2,357
Miscellaneous, net ........... (8,209) (1) (1,597) -- (6,612)
--------- --------- --------
Net income (loss)............... $ 15,634 2% $ (75,956) (21)% $ 91,590
========= ========= =========
OTHER OPERATING DATA:
Operating profit before
depreciation and
amortization (1).............. $ 124,182 $ 122,283
Currently payable interest
expense, net.................. 92,492 71,416
Net cash provided by operating
activities (2)................ 24,419 63,643
Net cash provided by (used in)
investing activities (2)...... 190,392 (292,826)
Net cash provided by (used in)
financing activities (2)...... (182,780) 231,057
</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. - "Condensed Consolidated Statements of Cash Flows".
-33-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
1998 Acquisitions. In February 1998, the Company acquired substantially all of
the assets associated with approximately 40 Nobody Beats The Wiz consumer
electronics store locations.
1998 Dispositions. In 1998, the Company completed the sale of substantially all
of the assets of U.S. Cable and the sale of cable television systems in
Rockford, Illinois and Paragould, Arkansas owned by A-R Cable. In addition,
Rainbow Media completed the sale of an interest in a regional sports programming
business.
1997 Acquisitions and Transactions. In April 1997, the Company exchanged 25% of
its interest in Rainbow Media for NBC's interest in certain programming
entities. In June 1997, the Company redeemed a portion of ITT's interest in
Madison Square Garden which increased Rainbow Media's interest in Madison Square
Garden from 50% to 89.8%. In June 1997, the Company acquired from Warburg Pincus
the equity interest that Warburg Pincus had in certain cable television systems
in Massachusetts giving the Company full ownership of these systems. In July
1997, the Company acquired from Warburg Pincus the Series A Preferred Stock of
A-R Cable which resulted in the consolidation of A-R Cable's operations from the
date of the transaction. In December 1997, Rainbow Media completed certain
transactions with Fox/Liberty Networks, LLC ("Fox/Liberty"). Also in December
1997, Madison Square Garden acquired all of the membership interests in Radio
City Productions.
1997 Dispositions. In 1997, the Company completed the sale of the cable
television systems in Allen and Gibsonberg Townships, Ohio owned by Cablevision
of the Midwest, Inc. and the sale of cable television systems owned by A-R Cable
in Maine. In addition, in 1997, Rainbow Media completed the sale of the assets
of a subsidiary, CV Radio Associates, L.P.
All the above transactions completed in 1997 and 1998 are collectively
referred to as the "Net Acquisitions."
Revenues for the three months ended March 31, 1998 increased $286.8 million
(80%) over the corresponding 1997 period. Approximately $228.8 million (64%) of
the increase was attributable to the Net Acquisitions; approximately $29.1
million (8%) resulted from higher revenue per subscriber; approximately $23.0
million (6%) to increases in other revenue sources such as Rainbow Media's
programming services, advertising and a developing commercial telephony
business; and approximately $6.0 million (2%) to internal growth of over 52,000
in the average number of subscribers.
Technical expenses increased $180.6 million (119%) for the three months ended
March 31, 1998 compared to the same 1997 period. Approximately $152.8 million
(101%) of the increase was a direct result of the Net Acquisitions. The
remaining 18% 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 well as to increases in programming rates for
certain cable television services. As a percentage of revenues, technical
expenses increased 9% in 1998 over 1997.
-34-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Selling, general and administrative expenses increased $104.3 million (123%) for
the three months ended March 31, 1998 when compared to the same 1997 period.
Approximately $47.8 million (56%) of the increase was related to the Net
Acquisitions and $38.3 million (45%) was due to non-cash adjustments related to
an incentive stock plan. The remaining 22% increase resulted from higher
administrative, sales and marketing, and customer service costs. Excluding the
effects of the incentive stock plan, as a percentage of revenues such costs
decreased 1% during the first three months of 1998 compared to the same 1997
period.
Operating profit before depreciation and amortization increased $1.9 million
(2%) to $124.2 million for the 1998 period from $122.3 million in the same 1997
period. Approximately $28.2 million (23%) of the increase was attributable to
the Net Acquisitions. This increase was offset by a decrease of approximately
$26.3 million (21%) resulting from the combined effect of the revenue and
expense increases discussed above. On a pro forma basis, giving effect to the
Net Acquisitions as if they had occurred on January 1, 1997 and the exclusion of
incentive stock plan adjustments, operating profit before depreciation and
amortization would have increased 14.6% in 1998. Operating profit before
depreciation and amortization is presented here to provide additional
information about the Company's ability to meet future debt service, capital
expenditures and working capital requirements. Operating profit before
depreciation and amortization should be considered in addition to and not as a
substitute for net income and cash flows as indicators of financial performance
and liquidity as reported in accordance with generally accepted accounting
principles.
Depreciation and amortization expense increased $27.0 million (25%) for the
three months ended March 31, 1998 as compared to the same 1997 period.
Approximately 20% was attributable to the Net Acquisitions. The remaining 5%
increase resulted primarily from depreciation on new plant assets, offset by a
decrease in depreciation and amortization for certain assets held for sale and a
decrease in amortization expense resulting from certain intangible assets
becoming fully amortized during 1997.
Net interest expense increased $15.5 million (21%) for the three months ended
March 31, 1998 over the comparable 1997 period. Approximately $1.5 million (2%)
is attributable to the Net Acquisitions. The remaining increase of approximately
$13.9 million (19%) is primarily due to higher outstanding debt balances.
Share of affiliates' net loss increased to $13.9 million for the three months
ended March 31, 1998 from $12.6 million for the same 1997 period. For the three
months ended March 31, 1998, such amount consisted of the Company's share of the
net losses of certain programming businesses in which the Company has varying
ownership interests. For the comparable period in 1997, such amount consisted
primarily of the Company's share in the net losses of certain cable affiliates
for the period prior to consolidation of $17.9 million and the Company's share
of the net profits of $5.3 million of certain programming businesses in which
the Company has varying ownership interests.
-35-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Gain on sale of programming and cable interests for the three months ended March
31, 1998 consists of a gain of approximately $119.6 million as a result of the
sale of the assets of U.S. Cable and cable television systems in Rockford,
Illinois and Paragould, Arkansas and a gain of approximately $17.7 million as a
result of the sale of an interest in a regional sports programming business.
Provision for preferential payment to related party consists of the expensing of
the proportionate amount due with respect to an annual payment made in
connection with the acquisition of Cablevision of New York City ("CNYC") in
1992. Effective March 4, 1998, these preferential payments were terminated upon
the retirement of Mr. Dolan's preferred interest.
Minority interest for the three months ended March 31, 1998 represents Fox
Liberty's 40% share of the net income of Regional Programming Partners, ITT's
share of the net income of Madison Square Garden, and NBC's 25% share of the net
loss of Rainbow Media. For 1997, the minority interest represented NBC's 25%
share of the net income of American Movie Classics.
Liquidity and Capital Resources
For financing purposes, the Company is structured as a restricted group and an
unrestricted group of subsidiaries.
The Restricted Group includes all of the Company's cable operations in and
around the greater New York City metropolitan area, including Long Island, in
and around the greater Cleveland, Ohio metropolitan area and in and around
Boston, Massachusetts and the commercial telephony operations of the Company's
subsidiary, Cablevision Lightpath, Inc. on Long Island, New York. At March 31,
1998, the Restricted Group encompassed approximately 2,490,000 cable television
subscribers, including approximately 49,000 subscribers of systems held for
sale.
The Unrestricted Group principally includes the Company's cable television
operations other than those included in the Restricted Group. At March 31, 1998,
the Unrestricted Group encompassed approximately 49,000 cable television
subscribers ("Unrestricted Cable") including 45,000 subscribers of systems held
for sale (see Note 9 -- "Net Assets Held for Sale"). Other Unrestricted Group
subsidiaries ("Unrestricted Other") include Rainbow Media and CSC Technology,
Inc. (the Company's subsidiary engaged in research and development of new
technology). Cablevision Electronics Investments, Inc. which acquired Nobody
Beats The Wiz on February 9, 1998, is also included in the Unrestricted 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 three months ended March 31, 1998. Unrestricted
Cable consists of U.S. Cable for the period prior to the disposition. "Other
Unrestricted Subsidiaries" includes Rainbow Media, CSC
-36-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Technology, Inc., Cablevision Electronics Investments, Inc. and other companies
engaged in certain development activities.
<TABLE>
<CAPTION>
Restricted Unrestricted Other Unrestricted Total
Group Cable Subsidiaries Company
----- ----- ------------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $ 355,130 $ 11,637 $ 278,615 $ 645,382
=========== ============ ========== ==========
Operating profit (loss) before
depreciation and amortization $ 131,750 $ 2,302 $ (9,870) $ 124,182
=========== ============ ========== ==========
Currently payable interest expense $ 74,899 $ 1,805 $ 15,788 $ 92,492
=========== ============ ========== ==========
Total interest expense $ 76,154 $ 1,805 $ 16,553 $ 94,512
=========== ============ ========== ==========
Bank and other senior debt $1,291,108 $ - $ 884,220 $2,175,328
=========== ============ ========== ==========
Senior notes and debentures $1,194,665 $ - $ - $1,194,665
=========== ============ ========== ==========
Subordinated debt $1,199,275 $ - $ - $1,199,275
=========== ============ ========== ==========
Redeemable exchangeable
preferred stock $1,155,567 $ - $ - $1,155,567
=========== ============ ========== ==========
Capital expenditures $ 129,177 $ 2,515 $ 17,956 $ 149,648
=========== ============ ========== ==========
Ending subscribers 2,489,575 48,925 - 2,538,500
=========== ============ ========== ==========
</TABLE>
-37-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Restricted Group
The Company believes that, for the Restricted Group, internally generated funds,
together with funds available under the Company's Credit Agreement or the Credit
Commitments (each as defined below) will be sufficient through 1999 to meet all
funding requirements. The liquidity positions of the significant entities in the
Unrestricted Group are discussed below.
As of March 9, 1998, the Company received commitments from a group of banks led
by Toronto Dominion for a $2.8 billion credit facility ("Credit Commitments")
for the Restricted Group which includes separate credit agreements for the
Company's New Jersey systems as well as for the TCI Systems. Closing of the new
credit facility, which is subject to regulatory approval, is expected to occur
by June 30, 1998, however, there can be no assurance that the closing of the new
credit facility will take place on the terms contemplated by the Credit
Commitments or at all.
On February 3, 1998, the Company issued $300 million face amount of 7-7/8%
Senior Debentures due 2018. The net proceeds of $291.7 million were used to
repay outstanding borrowings under the Restricted Group credit facility.
On May 1, 1998, the Restricted Group had total usage under its existing $1.7
billion Credit Agreement (including the credit facility for the Company's New
Jersey Systems, collectively the "Credit Agreement") of $1,316 million and
letters of credit of $38 million issued on behalf of the Company. Unrestricted
and undrawn funds available to the Restricted Group amounted to approximately
$346 million as of May 1, 1998. 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 May 1, 1998, the Company had entered into interest
exchange (swap and interest rate cap) agreements with several of its banks on a
notional amount of $250 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 1.6 years. The average effective annual interest rate on all
Restricted Group bank debt outstanding as of March 31, 1998 was approximately
7.5%.
The promissory notes of certain of the Company's subsidiaries are guaranteed by
the Company and the obligations under the guarantees rank pari passu with the
Company's public subordinated debt. The promissory notes are payable in cash or,
at the Company's option through the first anniversary of the notes, in shares of
Cablevision Parent's Class A Common Stock.
The terms of the instruments governing the TCI Systems' indebtedness prohibit
transfer of funds (except for certain payments, related to corporate overhead
allocations) from the TCI Systems to the Restricted Group and are expected to
prohibit such transfer of funds for the foreseeable future. The Restricted Group
does not expect that such limitations on transfer of funds or payments will have
an adverse effect on the ability of the Company to meet its obligations.
-38-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Rainbow Media
In April 1997, Rainbow Media entered into a new $300 million, three year
revolving credit facility with Canadian Imperial Bank of Commerce and
Toronto-Dominion (Texas), Inc., as Co-agents and a group of banks. Upon closing
the new facility, Rainbow Media drew $172 million which was used to repay, in
part, the previous $202 million credit facility. Concurrently with entering into
the new Rainbow Media credit facility, American Movie Classics entered into a
new $250 million credit facility. American Movie Classics drew $225 million
under its new facility, applied $20 million to repay its existing debt and fees
and distributed $205 million to Rainbow Media. Rainbow Media used $30 million of
the proceeds from the American Movie Classics' distribution to fully repay the
balance of its existing $202 million facility, distributed $169 million to the
Restricted Group and used the balance of the distribution for interest and fees.
The American Movie Classics $250 million bank loan is a seven year revolving
credit and term loan facility maturing 2004.
Rainbow Media's credit facility was amended in December 1997, which amendment,
among other things, extended the maturity date to December 31, 2000. American
Movie Classics' credit facility was also amended in December 1997 to provide for
a $146 million term loan and a $100 million revolving credit. As of May 1, 1998,
American Movie Classics had outstanding borrowings of $196 million, leaving
unrestricted funds available of $43 million.
The Rainbow Media credit facility contains certain financial covenants that may
limit its ability to utilize all of the undrawn funds available thereunder,
including covenants requiring Rainbow Media to maintain certain financial
ratios.
As of May 1, 1998, Rainbow Media had outstanding borrowings of $207 million,
leaving unrestricted and undrawn funds available of $53 million for 1998. The
amount available under the Rainbow Media revolving credit increases by $20
million on January 1, 1999 and by another $20 million on January 1, 2000. In
addition, as of May 1, 1998, Regional Programming Partners ("RPP"), a newly
formed partnership which is 60% owned by Rainbow Media and 40% owned by
Fox/Liberty, had a cash balance of $407 million which is the amount remaining
from the $850 million contribution made by Fox/Liberty for its interest in RPP.
In June 1998, RPP expects to contribute $94 million of the RPP cash balance to
MSG to enable MSG to redeem the first put with respect to ITT Corporation's
interest in MSG (see Note 12). Additionally, according to the terms of the
Rainbow Media and Fox/Liberty agreement, RPP is permitted to lend up to $180
million to Rainbow Media to pay down Rainbow Media's debt. Rainbow Media and RPP
currently expect to enter into such inter-company loan which would be
subordinated to Rainbow Media's bank debt. Rainbow Media would pay quarterly
interest to RPP and would be required to maintain sufficient availability under
its revolving credit facility to permit the repayment in full to RPP if RPP
requires the funds for its own operating needs. 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 1999.
-39-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Madison Square Garden
In June 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. In December 1997, the MSG Credit Facility was amended
into a $500 million revolving credit facility expiring on December 31, 2004. At
the time the facility was amended, MSG's outstanding bank debt was reduced by
$450 million, from $806 million to $356 million. The proceeds for the repayment
came from a capital contribution from Regional Programming Partners, the newly
formed partnership which is 60% owned by Rainbow Media and 40% owned by
Fox/Liberty. Regional Programming Partners had received $850 million from
Fox/Liberty in connection with the formation of the partnership.
In July 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
then loaned it 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 May
1, 1998 outstanding debt under the Garden Programming, LLC term loan was $20
million.
As of May 1, 1998, outstanding debt under the MSG Credit Facility was $421
million. In addition, MSG had outstanding letters of credit of $5 million
resulting in unrestricted and undrawn funds available amounting to $74 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
1999.
Nobody Beats the Wiz
On February 9, 1998, Cablevision Electronics completed the acquisition of
certain assets of the Wiz. The purchase price and expenses were funded through a
$50 million equity contribution from the Company and approximately $45 million
in borrowings under the new $110 million Cablevision Electronics stand alone
credit facility. Under the terms of the credit facility, the total amount of
borrowings available to Cablevision Electronics is subject to an availability
calculation based on a percentage of eligible inventory. On May 1, 1998, usage
under the $110 million credit facility was $42.8 million with $15 million
available thereunder, based on the level of inventory as of that date.
Cablevision Electronics has received additional equity contributions of $25
million from the Company through May 1, 1998, as well as other financial support
of approximately $14.6 million in the form of letters of credit and guarantees,
in respect of Cablevision Electronics' inventory purchases.
-40-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Operating Activities
Cash provided by operating activities amounted to $24.4 million for the three
months ended March 31, 1998 compared to $63.6 million for the three months ended
March 31, 1997. The 1998 cash provided by operating activities consisted
primarily of net income of $15.6 million, depreciation and amortization of
$135.0 million, other non-cash items of $16.1 million, offset by the gain on the
sale of programming and cable interests of $137.3 million and a net decrease in
cash resulting from changes in assets and liabilities of $5.1 million.
Cash provided by operating activities amounted to $63.6 million for the three
months ended March 31, 1997 which consisted primarily of depreciation and
amortization of $108.0 million and other non-cash items of $17.4 million, and a
net increase in cash resulting from changes in assets and liabilities of $14.2,
partially offset by a net loss of $76.0 million.
Investing Activities
Net cash provided by investing activities for the three months ended March 31,
1998 was $190.4 million compared to net cash used in investing activities of
$292.8 million for the three months ended March 31, 1997. The 1998 investing
activities consisted of net proceeds of $424.4 million from the sale of
programming and cable interests, offset by $149.6 million of capital
expenditures, $61.2 million of payments for acquisitions, and other items of
$23.1 million.
Net cash used in investing activities for the three months ended March 31, 1997
was $292.8 million. The 1997 investing activities consisted primarily of $93.8
million of capital expenditures, $169.0 million in increases in investment in
affiliates, and $30 million of an advance related to acquisitions.
Financing Activities
Cash used in financing activities amounted to $182.8 million for the three
months ended March 31, 1998 compared to net cash provided by financing
activities of $231.1 million for the three months ended March 31, 1997. In 1998,
the Company's financing activities consisted primarily of $265.7 million of net
repayments of bank debt and senior debt, the repayment of an obligation to a
related party of $197.2 million, payments of preferred stock dividends of $7.3
million, and the redemption of preferred stock of $9.4 million, partially offset
by $296.6 million derived from the issuance of senior debentures.
In 1997 the Company's financing activities consisted of the net proceeds from
bank debt of $244.3 million, partially offset by payments of preferred stock
dividends of $7.8 million and other net cash payments aggregating $5.5 million.
-41-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 44.
(b) The Company filed a Current Report on Form 8-K with the
Commission on February 5, 1998, March 4, 1998 and March 19,
1998.
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
CABLEVISION SYSTEMS CORPORATION
CSC HOLDINGS, INC.
Date: May 15, 1998 /s/ William J. Bell
-------------- -------------------------------------------
By: William J. Bell, as Vice Chairman,
Director and Principal Financial
Officer of Cablevision Systems
Corporation and CSC Holdings, Inc.
Date: May 15, 1998 /s/ Andrew B. Rosengard
-------------- -------------------------------------------
By: Andrew B. Rosengard, as Executive
Vice President, Financial Planning
and Controller and Principal
Accounting Officer of Cablevision
Systems Corporation and CSC Holdings,
Inc.
-43-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
--- ----------- ---
27.1 Financial Data Schedule - Cablevision Systems Corporation
and Subsidiaries
27.2 Financial Data Schedule - CSC Holdings, Inc. and
Subsidiaries
-44-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001053112
<NAME> Cablevision Systems Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 446,972
<SECURITIES> 0
<RECEIVABLES> 230,999
<ALLOWANCES> (34,636)
<INVENTORY> 173,681
<CURRENT-ASSETS> 0
<PP&E> 3,793,206
<DEPRECIATION> (1,459,268)
<TOTAL-ASSETS> 6,790,928
<CURRENT-LIABILITIES> 0
<BONDS> 5,214,518
0
<COMMON> 749
0
<OTHER-SE> (2,234,016)
<TOTAL-LIABILITY-AND-EQUITY> 6,790,928
<SALES> 0
<TOTAL-REVENUES> 681,523
<CGS> 0
<TOTAL-COSTS> 343,720
<OTHER-EXPENSES> 146,579
<LOSS-PROVISION> (5,795)
<INTEREST-EXPENSE> 97,974
<INCOME-PRETAX> 11,891
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,891
<EPS-PRIMARY> (.47)
<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>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000784681
<NAME> CSC Holdings Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 442,172
<SECURITIES> 0
<RECEIVABLES> 206,008
<ALLOWANCES> (26,094)
<INVENTORY> 173,681
<CURRENT-ASSETS> 0
<PP&E> 3,334,794
<DEPRECIATION> (1,454,347)
<TOTAL-ASSETS> 5,624,747
<CURRENT-LIABILITIES> 0
<BONDS> 4,569,268
1,155,567
<COMMON> 0
14
<OTHER-SE> (2,404,364)
<TOTAL-LIABILITY-AND-EQUITY> 5,624,747
<SALES> 0
<TOTAL-REVENUES> 650,906
<CGS> 0
<TOTAL-COSTS> 332,019
<OTHER-EXPENSES> 135,049
<LOSS-PROVISION> (5,524)
<INTEREST-EXPENSE> 94,512
<INCOME-PRETAX> 15,634
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,634
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,634
<EPS-PRIMARY> (0)
<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>
