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 September 30, 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 October 30, 1998:
Cablevision Systems Corporation Class A Common Stock - 107,486,798
Cablevision Systems Corporation Class B Common Stock - 43,226,836
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 and Nine Months ended September 30, 1998 and 1997
(unaudited)................................................. 3
Condensed Consolidated Balance Sheets -
September 30, 1998 (unaudited) and December 31, 1997........ 4
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 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................................... 15
PART II - OTHER INFORMATION................................................ 30
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and Nine Months ended September 30, 1998 and 1997
(unaudited)................................................. 31
Condensed Consolidated Balance Sheets -
September 30, 1998 (unaudited) and December 31, 1997........ 32
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 1998 and 1997 (unaudited).... 34
Notes to Condensed Consolidated Financial Statements
(unaudited) ................................................ 35
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 41
PART II - OTHER INFORMATION................................................ 56
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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
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ......................... $ 2,287,789 $ 1,314,995 $ 806,871 $ 517,930
----------- ----------- ----------- -----------
Operating expenses:
Technical and operating ........ 1,126,798 568,259 395,827 227,829
Selling, general and
administrative ................ 638,979 347,405 216,073 132,786
Depreciation and amortization .. 497,868 363,023 178,922 140,442
----------- ----------- ----------- -----------
2,263,645 1,278,687 790,822 501,057
----------- ----------- ----------- -----------
Operating profit ........... 24,144 36,308 16,049 16,873
----------- ----------- ----------- -----------
Other income (expense):
Interest expense ............... (317,969) (261,533) (106,438) (107,748)
Interest income ................ 20,016 2,635 6,754 1,807
Share of affiliates' net loss .. (19,324) (32,243) (4,431) (762)
Gain on sale of programming and
cable interests .............. 152,683 -- 11,195 --
Write off of deferred financing
costs ........................ (4,717) (13,710) (3,101) (13,710)
Gain on redemption of subsidiary
preferred stock .............. -- 181,738 -- 181,738
Provision for preferential
payment to related party ..... (980) (4,200) -- (1,400)
Minority interests ............. 25,435 14,145 16,339 10,317
Miscellaneous, net ............. (23,052) (7,059) (9,064) (3,068)
----------- ----------- ----------- -----------
(167,908) (120,227) (88,746) 67,174
----------- ----------- ----------- -----------
Net income (loss) ................ (143,764) (83,919) (72,697) 84,047
Dividend requirements applicable
to preferred stock of CSC
Holdings, Inc. ................. (120,005) (110,324) (40,917) (37,593)
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders ............ $ (263,769) $ (194,243) $ (113,614) $ 46,454
=========== =========== =========== ===========
Basic net income (loss) per
common share ................... $ (1.90) $ (1.95) $ (.75) $ .47
=========== =========== =========== ===========
Diluted net income (loss) per
common share ................... $ (1.90) $ (1.95) $ (.75) $ .44
=========== =========== =========== ===========
Average number of common shares
outstanding (in thousands) ..... 139,030 99,432 150,609 99,568
=========== =========== =========== ===========
</TABLE>
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)
September 30, December 31,
1998 1997
-------- --------
ASSETS
Cash and cash equivalents ............................ $ 149,767 $ 410,141
Accounts receivable trade (less allowance for
doubtful accounts of $36,998 and $29,584) .......... 187,217 214,721
Notes and other receivables .......................... 137,340 98,756
Inventory, prepaid expenses and other assets ......... 233,863 55,324
Property, plant and equipment, net ................... 2,402,965 1,831,167
Investments in affiliates ............................ 284,908 207,776
Advances to affiliates ............................... 29,938 19,823
Feature film inventory ............................... 275,442 180,576
Net assets held for sale ............................. 41,193 252,610
Franchises, net of accumulated amortization of
$544,565 and $481,895 .............................. 314,638 383,369
Affiliation and other agreements, net of
accumulated amortization of $168,613
and $129,087 ....................................... 219,771 253,734
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $770,408 and $684,141 .............. 2,249,761 1,615,786
Deferred financing, acquisition and other costs,
net of accumulated amortization of $48,602
and $40,061 ........................................ 92,955 91,005
---------- ----------
$6,619,758 $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)
September 30, December 31,
1998 1997
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable ................................. $ 371,184 $ 270,652
Accrued liabilities .............................. 623,965 504,866
Accounts payable to affiliates ................... 3,698 7,978
Feature film and contract obligations ............ 362,597 292,720
Deferred revenue ................................. 390,058 277,693
Bank debt ........................................ 1,747,987 2,240,358
Senior debt ...................................... -- 112,500
Senior notes and debentures ...................... 2,194,350 898,024
Subordinated notes and debentures ................ 1,048,342 1,048,245
Subordinated notes payable ....................... -- 151,000
Obligation to related party ...................... -- 197,183
Capital lease obligations and other debt ......... 63,449 46,752
----------- -----------
Total liabilities .............................. 6,805,630 6,047,971
----------- -----------
Minority interests ............................... 730,744 821,782
----------- -----------
Preferred stock of CSC Holdings, Inc. ............ 1,545,137 1,456,549
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
Class A Common Stock, $.01 par value,
200,000,000 shares authorized,
107,460,150 and 55,897,984 shares issued ..... 1,075 560
Class B Common Stock, $.01 par value,
80,000,000 shares authorized, 43,226,836
and 44,386,836 shares issued ................. 432 444
Paid-in capital ................................ 351,700 (161,327)
Accumulated deficit ............................ (2,814,960) (2,551,191)
----------- -----------
Total stockholders' deficiency ................. (2,461,753) (2,711,514)
----------- -----------
$ 6,619,758 $ 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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
1998 1997
-------- --------
Cash flows from operating activities:
Net loss ....................................... $ (143,764) $ (83,919)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ................. 497,868 363,023
Share of affiliates' net losses ............... 19,324 32,243
Minority interests ............................ (25,435) (14,145)
Gain on sale of programming and cable
interests ................................... (152,683) --
Gain on redemption of subsidiary preferred
stock ....................................... -- (181,738)
Write off of deferred financing costs ......... 4,717 13,710
Amortization of deferred financing ............ 5,875 5,565
Amortization of debenture discount ............ 347 112
(Gain) loss on sale of equipment .............. (1,136) 4,034
Changes in assets and liabilities, net of
effects of acquisitions and dispositions .... 98,020 100,136
----------- -----------
Net cash provided by operating activities ..... 303,133 239,021
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of programming and
cable interests .............................. 437,543 --
Payments for acquisitions, net of cash
acquired ..................................... (165,980) (533,853)
Capital expenditures ........................... (387,013) (316,217)
Proceeds from sale of plant and equipment ...... 8,579 1,959
Additions to intangible assets ................. (14,822) (922)
Increase in investments in affiliates, net ..... (21,668) (174,817)
----------- -----------
Net cash used in investing activities ......... (143,361) (1,023,850)
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ........................ 4,445,647 2,271,614
Repayment of bank debt ......................... (5,651,865) (1,397,543)
Proceeds from senior debt ...................... -- 19,000
Repayment of senior debt ....................... (112,500) (19,750)
Repayment of subordinated notes payable ........ (151,000) --
Issuance of senior notes and debentures ........ 1,296,076 398,508
Redemption of senior subordinated debt ......... -- (283,445)
Dividends applicable to preferred stock of
CSC Holdings, Inc. ........................... (22,007) (22,889)
Issuance of common stock ....................... 10,699 2,718
Decrease in obligation to related party ........ (197,183) (1,491)
Payments of capital lease obligations and
other debt ................................... (8,913) (5,302)
Additions to deferred financing and other
costs ........................................ (19,690) (43,762)
Redemption of preferred stock of CSC
Holdings, Inc. ............................... (9,410) (112,306)
----------- -----------
Net cash provided by (used in) financing
activities .................................. (420,146) 805,352
----------- -----------
Net increase (decrease) in cash and cash
equivalents .................................... (260,374) 20,523
Cash and cash equivalents at beginning of year ... 410,141 11,612
----------- -----------
Cash and cash equivalents at end of period ....... $ 149,767 $ 32,135
=========== ===========
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 March 1998 and August 1998
two-for-one stock splits 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.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
Note 3. Responsibility for Interim Financial Statements
The financial statements as of and for the three and nine month periods ended
September 30, 1998 and 1997 presented in this Form 10-Q are unaudited; however,
in the opinion of
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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)
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 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 Income (Loss) Per Common Share
Basic net income (loss) per common share is computed by dividing net income
(loss) after deduction of dividend requirements applicable to the preferred
stock of CSC Holdings by the weighted average number of common shares
outstanding. Potential dilutive common shares were included in the computation
of diluted net income per share for the three months ended September 30, 1997.
Potential dilutive common shares that have an anti-dilutive effect have been
excluded from diluted net loss per share.
Information concerning the reconciliation of basic EPS to diluted EPS follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Basic EPS:
Income (loss) attributable
to common shareholders ..... $(263,769) $(194,243) $(113,614) $ 46,454
========= ========= ========= =========
Weighted average common
shares ..................... 139,030 99,432 150,609 99,568
========= ========= ========= =========
Basic income (loss) per share
attributable to common
shareholders ............... $ (1.90) $ (1.95) $ (0.75) $ 0.47
========= ========= ========= =========
Diluted EPS:
Income (loss) attributable
to common shareholders ..... $(263,769) $(194,243) $(113,614) $ 46,454
Effect of dilutive
securities ................. -- -- -- 7,331
--------- --------- --------- ---------
Income (loss) attributable
to common shareholders ..... $(263,769) $(194,243) $(113,614) $ 53,785
========= ========= ========= =========
Weighted average common shares 139,030 99,432 150,609 99,568
Effect of dilutive securities -- -- -- 23,852
--------- --------- --------- ---------
Diluted weighted average
common shares .............. 139,030 99,432 150,609 123,420
========= ========= ========= =========
Diluted income (loss) per
share attributable to
common shareholders ........ $ (1.90) $ (1.95) $ (0.75) $ 0.44
========= ========= ========= =========
</TABLE>
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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)
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 $274,359 and $232,451 for the nine months ended September 30, 1998
and 1997, respectively. The Company's noncash financing and investing activities
for the nine months ended September 30, 1998 and 1997 included capital lease
obligations of $25,610 and $24,820, respectively, incurred when the Company
entered into leases for new equipment, dividend requirements applicable to the
preferred stock of CSC Holdings of $97,998 and $87,656, 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").
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
48,942,172 shares (after adjusting for the March 1998 and August 1998
two-for-one stock splits 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 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 $704,000 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
-9-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Connecticut Systems") in and around Hartford, Vernon, Branford and Lakeville,
Connecticut (the "Proposed TCI CT Transactions"). Under the non-binding letter
of intent, in consideration for the TCI Connecticut Systems, the Company would
(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 5,882,352 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. A binding, definitive agreement
has not yet been completed. There can be no assurance that the Proposed TCI CT
Transactions will be consummated in a timely fashion, or at all.
Pro Forma Results of Operations
The following unaudited pro forma condensed results of operations are presented
for the nine months ended September 30, 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.
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
Net revenues $ 2,352,273 $ 1,848,021
============ ===========
Net loss $ (327,412) $ (186,963)
============ ===========
Basic net loss per common share $ (2.18) $ (1.26)
============ ===========
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 Splits
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 as of March 19, 1998 and one share of Class B common stock for each
share of Class B common stock issued and outstanding as of March 19, 1998. The
stock dividend was paid on March 30, 1998 to stockholders of record on March 19,
1998.
-10-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
On July 22, 1998, the Company's Board of Directors declared a two-for-one stock
split to be effected as a special stock distribution of one share of Class A
common stock for each share of Class A common stock issued and outstanding as of
August 10, 1998 and one share of Class B common stock for each share of Class B
common stock issued and outstanding as of August 10, 1998. The stock dividend
was paid on August 21, 1998 to stockholders of record on August 10, 1998. All
share and per share information has been adjusted to reflect the above
two-for-one stock splits.
Note 8. Acquisitions
The Wiz
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 approximately
$92,000 for the assets, of which $10,000 was put into escrow pending resolution
of the final calculation of the purchase price. As of September 30, 1998,
approximately $612 remains in the escrow account. 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 $17,000 and will be allocated to the specific assets
acquired when independent appraisals are obtained.
Madison Square Garden
On June 17, 1998, the Company purchased 50% of ITT's remaining interest in
Madison Square Garden, L.P. ("MSG") for $94,000 pursuant to ITT's exercise of
its first put option.
Note 9. Dispositions
In 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 $309,000 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. In
addition, the Company completed the sale of cable television systems in
Wellsville/Penn Yan, New York for approximately $11,500 and Windsor, New York
and New Milford, Pennsylvania for approximately $4,800. The Company recognized a
net gain of approximately $135,000 on the sale of these systems. In addition,
the
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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)
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.
In July 1998, CSC Holdings issued $500,000 principal amount of 7 1/4% Senior
Notes due 2008 (the "2008 Notes") and $500,000 principal amount of 7 5/8 %
Senior Debentures due 2018 (the "Debentures"). The Debentures were issued at a
discount of $495. The 2008 Notes and Debentures are not redeemable by CSC
Holdings prior to maturity.
Note 11. Net Assets Held for Sale
In 1998, A-R Cable entered into an agreement to sell its cable television
systems in Bootheel, Missouri for approximately $5,000. 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. These transactions were consummated in
the fourth quarter of 1998 and the Company expects to record gains as a result
of these transactions.
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 condensed consolidated balance sheet as net assets held for
sale.
The accompanying condensed consolidated statement of operations for the nine
months ended September 30, 1998 includes net revenues aggregating approximately
$25,054 and net income aggregating approximately $10,321 relating to the cable
systems held for sale.
-12-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Note 12. Preferred Stock of CSC Holdings, Inc.
The preferred stock of CSC Holdings, Inc. at September 30, 1998 and December 31,
1997 consists of the issued and outstanding preferred stock of CSC Holdings 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 354,539 325,048
11 1/8% Series M Redeemable Exchangeable
Preferred Stock 867,267 798,760
8% Series C Cumulative Preferred Stock -- 9,410
---------- ----------
$1,545,137 $1,456,549
========== ==========
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 August 12, 1998, the Company and a wholly owned subsidiary of the Company
entered into an Agreement and Plan of Merger with Clearview Cinema Group, Inc.
("Clearview") pursuant to which the Company will acquire all of the outstanding
shares of stock of Clearview for $24.25 per share, payable in a combination of
cash and shares of the Company's common stock. The Company also entered into a
stockholders agreement with certain stockholders of Clearview, holding in the
aggregate a majority of the voting power of Clearview's stock, pursuant to which
such stockholders agreed to vote their shares in favor of the merger. The
purchase price, including assumption of debt but excluding cash on hand, is
estimated at $160,000. The transaction is expected to be consummated in the
fourth quarter of 1998.
CSC Holdings and Loews Cineplex Entertainment Corporation ("Loews") have entered
into an agreement dated August 26, 1998 as amended October 12, 1998 (the
"Initial Theaters Agreement") relating to the acquisition (the "Initial Loews
Transaction") by CSC Holdings of Loews' interests in the real property and
assets specifically related to or located at 12 movie theaters in New York City
and one in northern New Jersey (the "Initial Loews Theaters"). Under the Initial
Theaters Agreement, CSC Holdings will pay Loews $85,000 in cash for the Initial
Loews Theaters. In addition, CSC Holdings has entered into a second agreement
with Loews pursuant to which CSC Holdings has the right, subject to satisfactory
completion of its due diligence investigation, to purchase up to an additional
10 movie theaters (the "Additional Loews Theaters") in the greater New York
metropolitan area for approximately $6,700 in cash (the "Additional Loews
Theaters Transaction"). In connection with the Additional Loews Theaters
-13-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Transaction, Loews has granted CSC Holdings a right of first offer on an
additional 21 movie theaters in the greater New York metropolitan area until the
first anniversary of the closing of the Initial Loews Transaction. The Initial
Loews Transaction is expected to be completed later this year and the Additional
Loews Theaters Transaction is expected to be completed contemporaneously
therewith or shortly thereafter. The closings of both transactions are subject
to customary closing conditions including the receipt of various consents and
approvals.
-14-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward looking statements are not guarantees of future performance or results
and involve risks and uncertainties and that actual results or developments may
differ materially from the forward looking statements as a result of various
factors. Factors that may cause such differences to occur include but are not
limited to (i) the level of growth in the Company's revenues, (ii) subscriber
demand, competition, the cost of programming and industry conditions, (iii)
whether expenses of the Company continue to increase or increase at a rate
faster than expected, (iv) whether any unconsummated transactions are
consummated on the terms and at the times set forth (if at all), (v) new
competitors entering the Company's franchise areas and (vi) other risks and
uncertainties inherent in the cable television business. The information
contained herein concerning year 2000 issues ("Y2K") constitutes forward looking
information. The identification and remediation of Y2K issues is a technological
effort that has never been undertaken before and estimates of the outcome, time
and expense of this endeavor are, for that reason, particularly hard to make
with any certainty. As a result, the Company's estimates may prove to be
materially inaccurate. More specifically, the Company's forecasts may prove to
be wrong for the reasons described below under the caption "Risks of the
Company's Y2K Issues" as well as for the following reasons, among other: (i) the
Company's forecasts are dependent upon the representations of third parties
which may be inaccurate or mistaken; (ii) the nature of the Y2K issue is such
that detection of all issues is difficult and cannot be assured and, as a
result, problems may exist which have not been, and are not, identified in a
timely manner; (iii) because of the lack of experience with problems of this
nature and magnitude, it is difficult to estimate remediation costs with
accuracy; (iv) remediation requires the efforts of third parties whose
performance is beyond the control of the Company; and (v) because the Y2K issues
are so widespread and because the number of third parties who can provide
meaningful remediation services is limited, the Company may have difficulty
obtaining the timely assistance of such third parties, particularly as such
services are needed closer to January 1, 2000.
-15-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
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>
Nine Months Ended September 30,
----------------------------------------------------------
1998 1997
--------------------------- --------------------------- (Increase)
% of % of Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 2,287,789 100% $ 1,314,995 100% $ 972,794
Operating expenses:
Technical and operating ...... 1,126,798 49 568,259 43 (558,539)
Selling, general &
administrative ............... 638,979 28 347,405 26 (291,574)
Depreciation and amortization 497,868 22 363,023 28 (134,845)
----------- ----------- -----------
Operating profit ............... 24,144 1 36,308 3 (12,164)
Other income (expense):
Interest expense, net ........ (297,953) (13) (258,898) (20) (39,055)
Share of affiliates' net loss (19,324) (1) (32,243) (2) 12,919
Gain on sale of programming
and cable interests ........ 152,683 7 -- -- 152,683
Write off of deferred
financing costs ............ (4,717) -- (13,710) (1) 8,993
Gain on redemption of
subsidiary preferred stock . -- -- 181,738 14 (181,738)
Provision for preferential
payment to related party ... (980) -- (4,200) -- 3,220
Minority interests ........... 25,435 1 14,145 1 11,290
Miscellaneous, net ........... (23,052) (1) (7,059) (1) (15,993)
----------- ----------- -----------
Net loss ....................... $ (143,764) (6) $ (83,919) (6) $ (59,845)
=========== =========== ===========
OTHER OPERATING DATA:
Operating profit before
depreciation and
amortization(1) .............. $ 522,012 $ 399,331
Currently payable interest
expense ...................... 311,748 255,855
Net cash provided by operating
activities(2) ................ 303,133 239,021
Net cash used in investing
activities(2) ................ (143,361) (1,023,850)
Net cash provided by (used in)
financing activities(2) ...... (420,146) 805,352
</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."
-16-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------
1998 1997
----------------------- ----------------------- (Increase)
% of % of Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ...................... $ 806,871 100% $ 517,930 100% $ 288,941
Operating expenses:
Technical and operating ..... 395,827 49 227,829 44 (167,998)
Selling, general &
administrative ............ 216,073 27 132,786 26 (83,287)
Depreciation and amortization 178,922 22 140,442 27 (38,480)
--------- --------- ---------
Operating profit .............. 16,049 2 16,873 3 (824)
Other income (expense):
Interest expense, net ....... (99,684) (12) (105,941) (20) 6,257
Share of affiliates' net loss (4,431) (1) (762) -- (3,669)
Gain on sale of programming
and cable interests ....... 11,195 1 -- -- 11,195
Write off of deferred
financing costs ........... (3,101) -- (13,710) (3) 10,609
Gain on redemption of
subsidiary preferred stock -- -- 181,738 35 (181,738)
Provision for preferential
payment to related party .. -- -- (1,400) -- 1,400
Minority interests .......... 16,339 2 10,317 2 6,022
Miscellaneous, net .......... (9,064) (1) (3,068) (1) (5,996)
--------- --------- ----------
Net income (loss) ............. $ (72,697) (9) $ 84,047 16 $(156,744)
========= ========= =========
OTHER OPERATING DATA:
Operating profit before
depreciation and
amortization(1) ............. $ 194,971 $ 157,315
Currently payable interest
expense ..................... 104,150 105,000
Net cash provided by operating
activities .................. 226,023 121,137
Net cash used in investing
activities .................. (138,545) (136,282)
Net cash provided by (used in)
financing activities ........ (110,684) 12,820
</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.
-17-
<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). In June 1998, the
Company purchased 50% of ITT's remaining interest in Madison Square Garden.
1998 Dispositions. In the nine months ended September 30,1998, 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; Paragould, Arkansas;
Wellsville/Penn Yan, New York; Windsor, New York; and New Milford, Pennsylvania
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 of Rainbow Media's
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 and nine months ended September 30, 1998 increased $288.9
million (56%) and $972.8 million (74%), respectively, over the corresponding
1997 periods. Approximately $233.7 million (45%) and $812.0 million (62%) of the
increases were attributable to the Net Acquisitions for the three and nine
months ended September 30, 1998, respectively; approximately $18.0 million (3%)
and $70.8 million (5%) resulted from higher revenue per subscriber;
approximately $29.0 million (6%) and $66.4 million (5%) were attributable to
increases in other revenue sources such as Rainbow Media's programming services,
advertising and a developing commercial telephony business; and approximately
$8.2 million (2%) and $23.6 million (2%) to internal growth in the average
number of subscribers.
Technical and operating expenses increased $168.0 million (74%) and $558.5
million (98%), respectively, for the three and nine months ended September 30,
1998 compared to the same
-18-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
1997 periods. Approximately $149.6 million (66%) and $500.5 million (88%) of the
increases were a direct result of the Net Acquisitions for the three and nine
months ended September 30, 1998, respectively. The remaining $18.4 million (8%)
and $58.0 million (10%) increase was attributable to increases in those costs
directly associated with the internal growth in the average number of
subscribers and revenues mentioned above. As a percentage of revenues, technical
expenses increased 5% and 6%, respectively, for the three and nine months ended
September 30, 1998 over the same periods in 1997.
Selling, general and administrative expenses increased $83.3 million (63%) and
$291.6 million (84%), respectively, for the three and nine months ended
September 30, 1998 when compared to the same 1997 periods. Approximately $61.0
million (46%) and $188.2 million (54%), respectively, of the increases for the
three and nine months ended September 30, 1998 were related to the Net
Acquisitions and $10.0 million (8%) and $53.9 million (16%), respectively, were
due to charges related to an incentive stock plan. The remaining 9% and 14%
increases resulted from higher administrative and customer service costs.
Excluding the effects of the incentive stock plan, as a percentage of revenues
such costs increased 1% and remained constant, respectively, for the three and
nine months ended September 30, 1998 compared to the same 1997 periods.
Operating profit before depreciation and amortization increased $37.7 million
(24%) and $122.7 million (31%), respectively, for the three and nine months
ended September 30, 1998 over the same periods in 1997. Approximately $23.1
million (15%) and $123.3 million (31%), respectively, of the increases were
attributable to the Net Acquisitions. The remaining increase or (decrease) of
approximately $14.6 million (9%) and $(.6) million, respectively, resulted 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 charges, operating
profit before depreciation and amortization would have increased 12.5% and
13.1%, respectively, for the three and nine months ended September 30, 1998 over
the same periods in 1997. 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 expenses increased $38.5 million (27%) and $134.8
million (37%), respectively, for the three and nine months ended September 30,
1998 as compared to the same 1997 periods. Approximately $35.5 million (25%) and
$126.3 million (35%), respectively, of the increases for the three and nine
months ended September 30, 1998 were related to the Net Acquisitions and the
remaining 2% increase in each of the three and nine months ended September 30,
1998 resulted primarily from depreciation on new plant assets, partially 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.
-19-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Net interest expense decreased $6.3 million (6%) for the three months ended
September 30, 1998 and increased $39.1 million (15%) for the nine months ended
September 30, 1998 over the comparable 1997 periods. Approximately $16.7 million
(16%) of the decrease for the three months ended September 30, 1998 is
attributable to the Net Acquisitions, offset by a $10.4 million (10%) increase
due to higher outstanding debt balances. Approximately $43.3 million (17%) of
the increase for the nine months ended September 30, 1998 is due to higher
outstanding debt balances, partially offset by a $4.2 million (2%) decrease
attributable to the Net Acquisitions.
Share of affiliates' net loss increased to $4.4 million for the three months
ended September 30, 1998 from $.8 million for the same 1997 period. For the nine
months ended September 30, 1998, share of affiliates' net loss decreased to
$19.3 million from $32.2 million for the same period in the prior year. For the
three and nine months ended September 30, 1998, such amounts consisted of the
Company's share of the net losses of certain programming businesses in which the
Company has varying minority ownership interests. For the three months ended
September 30, 1997, such amount consisted of the Company's share of net losses
of certain programming businesses in which the Company has varying minority
ownership interests. For the nine months ended September 30, 1997, such amount
consisted of the Company's share of net losses of certain cable affiliates of
$37.9 million and net profits of $5.7 million of certain programming businesses
in which the Company has varying minority ownership interests.
Gain on sale of programming and cable interests for the three and nine months
ended September 30, 1998 includes gains of approximately $11.2 million and
$135.0 million, respectively, as a result of the sale of the assets of U.S.
Cable and cable television systems in Rockford, Illinois, Paragould, Arkansas,
Wellsville/Penn Yan, New York, Windsor, New York and New Milford, Pennsylvania.
Additionally, the gain for the nine months ended September 30, 1998 includes
approximately $17.7 million as a result of the sale of an interest in a regional
sports programming business in the first quarter of 1998.
Gain on redemption of subsidiary preferred stock for the three and nine months
ended September 30, 1997 represents the gain recognized upon the redemption of
A-R Cable's Series A preferred stock of $181.7 million.
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 and nine months ended September 30, 1998
represents Fox Liberty's 40% share of the net income (loss) of Regional
Programming Partners, ITT's share of the net loss of Madison Square Garden, and
NBC's 25% share of the net loss of Rainbow Media. For the comparable 1997
periods, the minority interest represented NBC's 25% share of the net income of
American Movie Classics through March 31, 1997, NBC's 25% share of the net loss
of Rainbow Media from the date of the NBC transaction, ITT's share of the net
losses of
-20-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Madison Square Garden and SportsChannel Associates (since the date of the
transaction) and Liberty's share of the net income of SportsChannel Prism.
Net miscellaneous expense increased to $9.1 million and $23.1 million,
respectively, for the three and nine months ended September 30, 1998 from $3.1
million and $7.1 million for the same 1997 periods. Approximately $9.5 million
and $18.0 million of the increase, respectively, for the three and nine months
ended September 30, 1998 related to federal alternative minimum taxes and state
income taxes. Remaining decreases of $3.5 million and $2.0 million,
respectively, for the three and nine months ended September 30, 1998 reflect a
reduction in various other miscellaneous items.
Liquidity and Capital Resources
Cablevision Systems Corporation does not have any operations independent of CSC
Holdings and the TCI Systems. In addition, Cablevision Systems Corporation 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, 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 September 30, 1998, the Restricted
Group encompassed approximately 2,534,000 cable television subscribers,
including approximately 49,000 subscribers in systems held for sale.
The Unrestricted Group principally includes the Company's cable television
operations other than those included in the Restricted Group. At September 30,
1998, the Unrestricted Group encompassed approximately 880,000 cable television
subscribers ("Unrestricted Cable"), including approximately 846,000 subscribers
of the TCI Systems and approximately 34,000 subscribers of systems held for sale
(see Note 11 - "Net Assets Held for Sale"). Other Unrestricted Group
subsidiaries ("Unrestricted Other") include Rainbow Media, CSC Technology, Inc.
(the Company's subsidiary engaged in research and development of new technology)
and other companies engaged in certain development activities. Cablevision
Electronics Investments, Inc. which acquired substantially all of the assets
associated with approximately 40 Nobody Beats The Wiz consumer electronics store
locations 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 nine months ended September 30, 1998.
-21-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Other
Restricted Unrestricted Unrestricted Total
Group Cable Subsidiaries Company
----- ----- ------------ -------
(Dollars in thousands)
Revenues $1,079,783 $ 278,698 $ 929,308 $2,287,789
========== ============ ============ ==========
Operating profit (loss)
before depreciation and
amortization $ 417,443 $ 112,261 $ (7,692) $ 522,012
========== ============ ============ ==========
Currently payable
interest expense $ 239,263 $ 25,936 $ 46,549 $ 311,748
========== ============ ============ ==========
Total interest expense $ 243,268 $ 26,091 $ 48,610 $ 317,969
========== ============ ============ ==========
Bank and other senior
debt $ 569,292 $ 550,500 $ 691,644 $1,811,436
========== ============ ============ ==========
Senior notes and
debentures $2,194,350 $ -- $ -- $2,194,350
========== ============ ============ ==========
Subordinated notes and
debentures $1,048,342 $ -- $ -- $1,048,342
========== ============ ============ ==========
Capital expenditures $ 300,863 $ 19,580 $ 66,570 $ 387,013
========== ============ ============ ==========
Ending subscribers 2,534,335 879,889 -- 3,414,224
========== ============ ============ ==========
Restricted Group
The Company believes that, for the Restricted Group, internally generated funds,
together with funds available under the Restricted Group's Credit Agreement will
be sufficient through 1999 to meet all known funding requirements.
On May 28, 1998, CSC Holdings and certain other subsidiaries of the Company,
closed on a new $2.8 billion credit facility. The $2.8 billion reducing revolver
credit facility, maturing in March 2007, consists of a $1.4 billion CSC Holdings
credit facility, a $1.4 billion MFR credit facility of which $600 million is
available, and an $800 million credit facility for certain unrestricted
subsidiaries of the Company acquired from TCI on March 4, 1998 ("TCI Systems").
While the $800 million TCI Systems credit facility is in place, only $600
million of the $1.4 billion MFR facility may be utilized.
On June 17, 1998, promissory notes totaling $151 million were redeemed with bank
borrowings under the CSC Holdings and MFR credit facilities.
On July 21, 1998, CSC Holdings issued $500 million face amount of 7 1/4% Senior
Notes due 2008 and $500 million face amount of 7 5/8% Senior Debentures due
2018. The net proceeds of $985 million were used to repay outstanding borrowings
under the CSC Holdings credit facility.
On July 27, 1998, the Company reduced the CSC Holdings credit facility by $400
million to $1.0 billion, and the MFR credit facility by $200 million to $1.2
billion, which includes a reduction of the TCI credit facility by $100 million
to $700 million. On October 16, 1998, taking into account the commitment
reduction, the Restricted Group had total usage under its existing $1.5 billion
Credit Agreement (including the MFR credit facility) of $580 million and letters
of credit of $60.8 million issued on behalf of CSC Holdings. Unrestricted and
undrawn funds available to the Restricted Group amounted to approximately $859.2
million as of October 16, 1998. The Credit Agreement contains certain financial
covenants that may limit the Restricted Group's ability to
-22-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
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 October 16, 1998, CSC
Holdings had entered into interest exchange (swap) agreements with several of
its banks on a notional amount of $225 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 1.3 years. The average effective annual
interest rate on all Restricted Group bank debt outstanding as of October 16,
1998 was approximately 6.7%.
The terms of the instruments governing the TCI Systems' indebtedness prohibit
transfer of funds (except for certain payments, related to overhead allocations
and expense reimbursement) from the TCI Systems to the Restricted Group and are
expected to prohibit such transfer of funds for the foreseeable future. The
Company believes that for the Restricted Group such limitations on transfer of
funds or payments will not have an adverse effect on the ability of the Company
to meet its obligations.
TCI Systems
On May 28, 1998, the TCI Systems closed on their $800 million credit facility
which was reduced by $100 million on July 27, 1998. On October 16, 1998, taking
into account the commitment reduction, usage under the $700 million credit
facility was $557 million with undrawn funds of $143 million. The Company
believes that for the TCI Systems, internally generated funds, together with
funds available under their $700 million credit facility will be sufficient
through 1999 to meet their debt service requirements and to fund their planned
capital expenditures.
Rainbow Media
Rainbow Media has a $300 million non-amortizing revolving credit facility
maturing on December 31, 2000 of which $40 million is restricted for specific
purposes. Of the $260 million balance of the facility, a further $180 million is
restricted to provide for repayment of a like amount of inter-company borrowings
as described below. Direct borrowings as of October 16, 1998 amounted to $34
million leaving a balance of $46 million available to Rainbow Media under the
credit facility as of that date.
American Movie Classics has a $100 million reducing revolving credit facility
and a $132 million amortizing term loan in place. Both loans will mature on
March 31, 2004. The amount of the available commitment under the revolver will
not begin to step down until 2002. As of October 16, 1998, American Movie
Classics had outstanding borrowings of $198 million, leaving unrestricted funds
available of $34 million.
In June 1998, American Movie Classics made a $16 million excess cash flow
distribution to Rainbow Media by drawing under its revolving credit. Rainbow
Media used the funds to partly repay its bank debt.
-23-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Both credit facilities contain certain financial covenants that may limit the
ability to utilize all of the undrawn funds available, including covenants
requiring that certain financial ratios be maintained.
In June 1998, Regional Programming Partners ("RPP"), a partnership which is 60%
owned by Rainbow Media and 40% owned by Fox/Liberty, made an inter-company loan
to Rainbow Media of $180 million, which Rainbow Media used to repay bank debt.
RPP funded this loan from cash on hand. The inter-company loan is a four year
demand note maturing March 31, 2002, which requires quarterly interest payments
at LIBOR plus 7/8% per annum, is subordinated to Rainbow Media's bank debt and
requires that Rainbow Media maintain sufficient availability under its revolving
credit to permit the repayment in full to RPP if RPP requires the funds for its
own operating needs.
In June 1998, RPP utilized $94 million to redeem 50% of ITT's remaining interest
in Madison Square Garden, L.P. ("MSG").
As of October 16, 1998, RPP had cash on hand of $136 million.
The Company believes that for Rainbow Media, internally generated funds,
together with funds available under its existing credit agreement will be
sufficient through 1999 to meet its known funding requirements.
The Company believes that for American Movie Classics, internally generated
funds, together with the funds available under its credit agreement will be
sufficient to meet its debt service and capital expenditure requirements through
1999.
Madison Square Garden
MSG has a $500 million revolving credit facility maturing on December 31, 2004
(the "MSG Credit Facility").
As of October 16, 1998, outstanding debt under the MSG Credit Facility was $310
million. In addition, MSG had outstanding letters of credit of $4 million
resulting in unrestricted and undrawn funds available amounting to $186 million.
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 and to fund capital expenditures through 1999.
Garden Programming, LLC, an unrestricted subsidiary of MSG, has a $20 million
term loan maturing on July 11, 2002. Garden Programming, LLC has in turn made a
$40 million loan to a related entity, maturing on November 1, 2011.
-24-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Cablevision Electronics Investments, Inc.
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 (not including $8 million in pre-acquisition
funding from CSC Holdings) 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 October 16, 1998, usage under the $110
million credit facility was $78.9 million with $16.9 million available
thereunder, based on the level of inventory as of that date. Cablevision
Electronics has received additional equity contributions from CSC Holdings of
$29 million through September 30, 1998, bringing the total amount of equity
contributed to $87 million. In addition, Cablevision Electronics has received
other financial support of approximately $34.8 million, through October 16,
1998, in the form of letters of credit and guarantees, in respect of Cablevision
Electronics' inventory purchases. CSC Holdings believes that Cablevision
Electronics will require additional financial support in respect of planned
increases in inventory purchases and other requirements through 1999.
Operating Activities
Cash provided by operating activities amounted to $303.1 million for the nine
months ended September 30, 1998 compared to $239.0 million for the nine months
ended September 30, 1997. The 1998 cash provided by operating activities
consisted primarily of depreciation and amortization of $497.9 million, a net
increase in cash resulting from changes in assets and liabilities of $98.0
million, and other non-cash items of $3.7 million, offset by a net loss of
$143.8 million and the gain on the sale of programming and cable interests of
$152.7 million.
Cash provided by operating activities amounted to $239.0 million for the nine
months ended September 30, 1997 which consisted primarily of depreciation and
amortization of $363.0 million, other non-cash items of $41.5 and a net increase
in cash resulting from changes in assets and liabilities of $100.1 million,
partially offset by a net loss of $83.9 million and the gain on the redemption
of subsidiary preferred stock of $181.7 million.
Investing Activities
Net cash used in investing activities for the nine months ended September 30,
1998 was $143.4 million compared to $1,023.9 million for the nine months ended
September 30, 1997. The 1998 investing activities consisted of $387.0 million of
capital expenditures, $166.0 million of payments for acquisitions, and other net
cash payments of $27.9 million, partially offset by net proceeds of $437.5
million from the sale of programming and cable interests.
Net cash used in investing activities for the nine months ended September 30,
1997 was $1,023.9 million. The 1997 investing activities consisted primarily of
$316.2 million of capital
-25-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
expenditures, $533.9 million of payments for acquisitions, and a $174.8 million
increase in investment in affiliates, partially offset by other items of $1.0
million.
Financing Activities
Cash used in financing activities amounted to $420.1 million for the nine months
ended September 30, 1998 compared to net cash provided by financing activities
of $805.4 million for the nine months ended September 30, 1997. In 1998, the
Company's financing activities consisted primarily of the net repayment of bank
debt, subordinated notes payable and senior debt of $1,469.7 million, the
repayment of an obligation to a related party of $197.2 million, the payment of
dividends applicable to the preferred stock of a subsidiary of $22.0 million,
and other net cash payments aggregating $27.3 million, partially offset by
$1,296.1 million derived from the issuance of senior notes and debentures.
In 1997, the Company's financing activities consisted of the net proceeds from
bank debt of $874.1 million and the net proceeds of $398.5 million from the
issuance of senior debentures, partially offset by the redemption of senior
subordinated debt of $283.4 million, $112.3 million used for the redemption of
preferred stock of CSC Holdings, additions to deferred financing and other costs
of $43.8 million, payments of dividends applicable to the preferred stock of CSC
Holdings of $22.9 million and other net cash payments aggregating $4.8 million.
Year 2000
The year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. As a result of these issues, the potential exists for
computer system failure or miscalculations by computer programs, which could
cause disruption of the Company's operations.
The Company recognizes the need to ensure that any disruption of its operations
resulting from the Y2K issue is minimized. Accordingly, the Company has
developed a plan to identify and address Y2K issues. The Company has retained an
independent "big five" consulting firm to assist in the development and
implementation of this plan.
Pursuant to the Y2K plan, each of the Company's business units has designated a
team, consisting of a Y2K coordinator and a member of the consulting firm, which
is responsible for the Y2K compliance of the systems used by that business unit.
The efforts of each of these business unit teams is coordinated through, and
directed by, a Central Program Management Office (the "CPMO"), consisting of
representatives of the Company's information systems, internal audit,
controllers, legal and finance departments. The CPMO operates under the
direction of the Company's Chief Information Officer, Mr. Thomas Dolan. Y2K
issues that cross business unit lines and cannot be resolved between the CPMO
and the business unit teams, are referred to an Operations Steering Committee
(the "Steering Committee") consisting of the most senior officers of each of the
Company's principal business units. The Steering Committee will meet
periodically to review the progress of the Company's Y2K compliance efforts. The
Board of Directors has designated a committee of the Board consisting of Messrs.
James Dolan,
-26-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Thomas Dolan, Leo Hindery and Richard Hochman, to monitor the Company's progress
and report to the full Board.
Y2K Program - Phases
The Company has developed a six phase program to assess and address the Y2K
issue. These phases consist of the following:
Phase 1 - Awareness - The Company maintains an ongoing program of communications
with its management and employee base to ensure that all employees are aware of
the Y2K issue and the importance of the Company's efforts to address the issue.
This is accomplished, among other means, through the distribution of memoranda,
the establishment and maintenance of an intranet web site, and meetings and
seminars.
Phase 2 - Inventory and Assessment - This phase consisted of the Company's
efforts to identify all of the information technology ("IT") and non-IT systems
used in each area of its businesses. Each identified system has been assessed
for its criticality to the Company's businesses and assigned a criticality
rating on a five point scale consisting of (1) "Critical" (required for
continued operation); (2) "High" (major business impact); (3) "Medium"
(significant business impact); (4) "Low" (minor business impact); and (5)
"Minimal" (insignificant or no business impact). Additionally, during this phase
the Company contacted the vendors of each of its systems to determine which
systems are Y2K compliant or non-compliant. Based upon its phase two review,
which was substantially completed during the third fiscal quarter of 1998, the
Company believes that approximately 35% of its IT and non-IT systems may be
non-compliant and that approximately 65% of these non-compliant systems are of a
criticality rating of (3) "Medium" (significant business impact) or above.
Phase 3 - Strategy and Planning - During this phase the Company is (a)
developing a testing plan for all compliant systems, and (b) developing a
strategy for remediating and testing non-compliant systems. Remediation
strategies may range from software upgrades to replacement, discontinuance or
bypass of non-compliant systems. As of October 31, 1998, the Company had
substantially completed the strategy and planning stage for all of its systems
with a criticality rating of 1 or 2 and is currently in the process of its phase
three efforts for its systems with a criticality rating of 3 or 4.
Phase 4 - Portfolio Transformation/Remediation - During this phase the Company
will execute the remediation strategies for non-compliant systems as identified
during phase three. The Company is now beginning the remediation of certain of
the most critical non-compliant systems.
Phase 5 - Testing - During this phase, the Company will test all of its
compliant systems (of Level 4 or above), and, in conjunction with its phase four
remediation efforts, its non-compliant systems. The testing of certain of the
Company's most critical compliant systems has recently begun.
-27-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
Phase 6 - Implementation - During this phase, all of the Company's remediated
and tested systems will be redeployed.
The completion of phases across the Company's businesses is not expected to
occur sequentially. As the Company will focus initially on its most critical
systems, it is likely that a number of critical systems will be in phases four
and five, while less critical systems are in phase three. It is the Company's
goal that all IT and non-IT systems with a criticality rating of 1, 2, 3 and 4
will be tested and implemented by the end of the third fiscal quarter of 1999.
There can be no assurance that the Company will be successful in achieving this
goal.
Costs of Compliance - Because the Company is still in the process of analyzing
its strategy and remediation planning for non-compliant items, and has not
completed testing of compliant or non-compliant systems, it is not possible to
predict with certainty the costs that will be incurred in connection with the
Y2K program. Further, in many cases, the Company planned to replace or upgrade
certain non-compliant systems irrespective of Y2K compliance issues. In such
cases the portion of such expenditure attributable to Y2K issues is often not
reasonably determinable. Based on its review to date, the Company believes that
the costs associated with its Y2K program, including costs of replacing or
upgrading non-compliant systems that were not already scheduled to be replaced
or upgraded, accelerating programs that were already contemplated specifically
for the purpose of addressing Y2K issues, and including both internal and
external resources, may range between $40 to $60 million for its existing
businesses. This estimate includes amounts for the Company's telecommunications
systems, including cable, modem and telephone, for Rainbow Media's programming
operations, for Madison Square Garden including the arena, its professional
sports teams, its cable television networks, and for Radio City Entertainment,
for the Wiz and for corporate and company-wide needs. Costs incurred to date
have not been material to the operations of the Company. There can be no
assurance that actual expenditures will not deviate from these estimates and
that the amount of such deviation will not be material. Such expenditures are
expected to be funded from cash flow from operations and borrowings. See
"Liquidity and Capital Resources".
Risks of the Company's Y2K Issues - Many of the IT and non-IT systems that are
necessary for the continued operation of the Company's businesses are dependent
upon components that may not be Y2K compliant. While the Company's Y2K
compliance program is designed to identify and remediate these systems in order
to avoid interruption of its operations, there can be no assurance that it will
be able to identify all noncompliant systems or successfully remediate all those
that are identified. Failure of IT or non-IT systems that are necessary for the
operation of the Company's businesses, including, without limitation, its
billing systems, addressable
controller and converter systems, purchasing, finance and inventory systems,
marketing databases and point of sale systems, could have a material adverse
effect on the Company.
The Company is dependent upon third-party products and services, such as utility
services and programming uplinks, for the operation of its businesses. While, as
part of the Inventory and Assessment phase of its Y2K program, the Company has
contacted third party product and service providers to ascertain whether Y2K
compliance issues may exist, it has in many cases not received assurances from
such suppliers. Moreover, in most cases the Company does not have
-28-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(formerly CSC Parent Corporation)
the ability to verify any assurances it does receive from third party suppliers.
If critical IT or non-IT systems used by such third party suppliers fail as a
result of a Y2K compliance issue, and as a result of such failure the ability of
such supplier to continue to provide such product or service to the Company is
interrupted, the Company's ability to continue to provide services to its
customers may be interrupted. Such an interruption could have a material adverse
effect on the Company. The Company intends to consider contingency plans to
address those risks, although no such plans have yet been identified, and there
can be no assurance that any such plan would resolve such problems in a
satisfactory manner. In addition to the risks associated with failure of IT
Systems due to Y2K problems, the failure of non-IT systems would pose
significant risks to the Company. For example, the Company and its subsidiaries
operate facilities for both employees and the public. Failure of the non-IT
systems at such facilities could result in health and safety risks that could
lead to the closure or unavailability of such facilities. This could result in
lost revenues to the Company and the risk of actions against the Company if the
businesses of others are disrupted. Also, the failure of such non-IT systems
could result in injury to individuals which could expose the Company to actions
on, by, or on behalf of such individuals.
-29-
<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 5. Other Information
Submission of Stockholder Proposals for 1999 Annual Meeting.
Proposals of stockholders intended to be presented at the Company's 1999
annual meeting of stockholders must be received by the Company at its
executive offices on or prior to February 10, 1999 to be eligible for
inclusion in the Company's proxy material to be used in connection with
the 1999 meeting. Pursuant to the Company's by-laws, notice of any
proposal to be presented by any stockholder or of the name of any person
to be nominated by any stockholder for election as a director of the
Company at any meeting of stockholders shall be given to the secretary of
the Company not less than 60 days and not more than 90 days prior to the
date of the meeting, provided, however, that if the date of the meeting is
publicly announced or disclosed less than 70 days prior to the date of the
meeting, such notice shall be given not more than ten days after such date
is first so announced or disclosed. The Company has not yet set a date for
its 1999 annual meeting of stockholders.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 58.
(b) The Company filed a Current Report on Form 8-K with the Commission
on March 4, 1998, March 19, 1998, May 18, 1998 and September 1,
1998.
-30-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ........................ $ 2,043,600 $ 1,314,995 $ 697,866 $ 517,930
----------- ----------- ----------- -----------
Operating expenses:
Technical and operating ....... 1,033,302 568,259 354,249 227,829
Selling, general and
administrative .............. 595,123 347,405 199,103 132,786
Depreciation and amortization . 407,860 363,023 139,219 140,442
----------- ----------- ----------- -----------
2,036,285 1,278,687 692,571 501,057
----------- ----------- ----------- -----------
Operating profit ............ 7,315 36,308 5,295 16,873
----------- ----------- ----------- -----------
Other income (expense):
Interest expense .............. (293,876) (261,533) (96,259) (107,748)
Interest income ............... 19,950 2,635 6,735 1,807
Share of affiliates' net loss . (19,324) (32,243) (4,431) (762)
Gain on sale of programming and
cable interests ............. 152,683 -- 11,195 --
Write off of deferred
financing costs ............. (4,717) (13,710) (3,101) (13,710)
Gain on redemption of
subsidiary preferred stock .. -- 181,738 -- 181,738
Provision for preferential
payment to related party .... (980) (4,200) -- (1,400)
Minority interests ............ 25,435 14,145 16,339 10,317
Miscellaneous, net ............ (19,799) (7,059) (7,939) (3,068)
----------- ----------- ----------- -----------
(140,628) (120,227) (77,461) 67,174
----------- ----------- ----------- -----------
Net income (loss) ............... (133,313) (83,919) (72,166) 84,047
Dividend requirements applicable
to preferred stock .............. (120,005) (110,324) (40,917) (37,593)
----------- ----------- ----------- -----------
Net income (loss) applicable to
common shareholders ........... $ (253,318) $ (194,243) $ (113,083) $ 46,454
=========== =========== =========== ===========
Basic net income (loss) per
common share .................. -- $ (1.95) -- $ .47
=========== =========== =========== ===========
Diluted net income (loss) per
common share .................. -- $ (1.95) -- $ .44
=========== =========== =========== ===========
Average number of common shares
outstanding (in thousands) .... -- 99,432 -- 99,568
=========== =========== =========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-31-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................ $ 149,089 $ 410,141
Accounts receivable trade (less allowance for
doubtful accounts of $28,223 and $29,584) .......... 171,591 214,721
Notes and other receivables .......................... 132,700 98,756
Inventory, prepaid expenses and other assets ......... 230,719 55,324
Property, plant and equipment, net ................... 1,967,937 1,831,167
Investments in affiliates ............................ 284,908 207,776
Advances to affiliates ............................... 29,924 19,823
Feature film inventory ............................... 275,442 180,576
Net assets held for sale ............................. 41,193 252,610
Franchises, net of accumulated amortization of
$544,565 and $481,895 .............................. 314,638 383,369
Affiliation and other agreements, net of
accumulated amortization of $168,613
and $129,087 ....................................... 219,771 253,734
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $719,560 and $684,141 .............. 1,596,941 1,615,786
Deferred financing, acquisition and other costs,
net of accumulated amortization of $48,447
and $40,061 ........................................ 90,721 91,005
---------- ----------
$5,505,574 $5,614,788
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-32-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Accounts payable ...................................... $ 327,027 $ 270,652
Accrued liabilities ................................... 588,760 504,866
Accounts payable to affiliates ........................ 15,161 7,978
Feature film and contract obligations ................. 362,597 292,720
Deferred revenue ...................................... 390,058 277,693
Bank debt ............................................. 1,197,487 2,240,358
Senior debt ........................................... -- 112,500
Senior notes and debentures ........................... 2,194,350 898,024
Subordinated notes and debentures ..................... 1,048,342 1,048,245
Subordinated notes payable ............................ -- 151,000
Obligation to related party ........................... -- 197,183
Capital lease obligations and other debt .............. 63,449 46,752
----------- -----------
Total liabilities .................................. 6,187,231 6,047,971
----------- -----------
Minority interests .................................... 730,744 821,782
----------- -----------
Series H Redeemable Exchangeable Preferred Stock ...... 354,539 325,048
----------- -----------
Series M Redeemable Exchangeable Preferred Stock ...... 867,267 798,760
----------- -----------
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 55,897,984 shares
issued ............................................ -- 560
Class B Common Stock, $.01 par value, 20,000,000
shares authorized, -0- and 44,386,836 shares issued -- 444
Paid-in capital ..................................... 170,288 171,399
Accumulated deficit ................................. (2,804,509) (2,551,191)
----------- -----------
Total stockholders' deficiency ...................... (2,634,207) (2,378,773)
----------- -----------
$ 5,505,574 $ 5,614,788
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-33-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
1998 1997
----------- -----------
Cash flows from operating activities:
Net loss ....................................... $ (133,313) $ (83,919)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ................. 407,860 363,023
Share of affiliates' net losses ............... 19,324 32,243
Minority interests ............................ (25,435) (14,145)
Gain on sale of programming and cable
interests ................................... (152,683) --
Gain on redemption of subsidiary preferred
stock ....................................... -- (181,738)
Write off of deferred financing costs ......... 4,717 13,710
Amortization of deferred financing ............ 5,720 5,565
Amortization of debenture discount ............ 347 112
(Gain) loss on sale of equipment .............. (1,136) 4,034
Changes in assets and liabilities, net of
effects of acquisitions and dispositions .... 33,807 100,136
----------- -----------
Net cash provided by operating activities ..... 159,208 239,021
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of programming and
cable interests .............................. 437,543 --
Payments for acquisitions, net of cash
acquired ..................................... (154,402) (533,853)
Capital expenditures ........................... (370,553) (316,217)
Proceeds from sale of plant and equipment ...... 8,700 1,959
Additions to intangible assets ................. (13,619) (922)
Increase in investments in affiliates, net ..... (21,668) (174,817)
----------- -----------
Net cash used in investing activities ......... (113,999) (1,023,850)
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ........................ 3,831,397 2,271,614
Repayment of bank debt ......................... (4,917,865) (1,397,543)
Proceeds from senior debt ...................... -- 19,000
Repayment of senior debt ....................... (112,500) (19,750)
Repayment of subordinated notes payable ........ (151,000) --
Issuance of senior notes and debentures ........ 1,296,076 398,508
Redemption of senior subordinated debt ......... -- (283,445)
Dividends applicable to preferred stock ........ (22,007) (22,889)
Issuance of common stock ....................... 2,444 2,718
Decrease in obligation to related party ........ (197,183) (1,491)
Payments of capital lease obligations and
other debt ................................... (8,913) (5,302)
Additions to deferred financing and other
costs ........................................ (17,301) (43,762)
Redemption of preferred stock .................. (9,409) (112,306)
----------- -----------
Net cash provided by (used in) financing
activities ................................. (306,261) 805,352
----------- -----------
Net increase (decrease) in cash and cash
equivalents .................................... (261,052) 20,523
Cash and cash equivalents at beginning of year ... 410,141 11,612
----------- -----------
Cash and cash equivalents at end of period ....... $ 149,089 $ 32,135
=========== ===========
See accompanying notes to
condensed consolidated financial statements.
-34-
<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.
Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.
Note 2. Responsibility for Interim Financial Statements
The financial statements as of and for the three and nine month periods ended
September 30, 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 Income (Loss) Per Common Share
Basic net income (loss) per common share for the three and nine months ended
September 30, 1997 is computed by dividing net income (loss) after deduction of
preferred stock dividends by the weighted average number of common shares
outstanding. Diluted net income per share is similar to basic net income per
share but represents the dilutive effect on a per share basis of potential
common shares as if they had been outstanding at the beginning of the periods
presented. Potential dilutive common shares were not included in the computation
of diluted net loss per share for the nine months ended September 30, 1997 as
their effect would be antidilutive. Basic net loss per common share for the
three and nine months ended September 30, 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.
-35-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
The Company paid cash interest expense of approximately $259,734 and $232,451
for the nine months ended September 30, 1998 and 1997, respectively. The
Company's noncash financing and investing activities for the nine months ended
September 30, 1998 and 1997 included capital lease obligations of $25,610 and
$24,820, respectively, incurred when the Company entered into leases for new
equipment, preferred stock dividend requirements of $97,998 and $87,656,
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, TCI contributed to Cablevision Parent certain cable television
systems (the "TCI Systems"). Also 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
-36-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
the exchange discussed above. Prior year share and per share information has
been adjusted to reflect the two-for-one stock splits effected in the form of a
common stock dividend to stockholders of Cablevision Parent on March 30, 1998
and August 21, 1998.
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"). Under the non-binding letter of intent, in consideration for the
TCI Connecticut Systems, Cablevision Parent would (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
5,882,352 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. A binding, definitive agreement has
not yet been completed. There can be no assurance that the Proposed TCI CT
Transactions will be consummated in a timely fashion, or at all.
Note 6. Acquisitions
The Wiz
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. As of September 30, 1998,
approximately $612 remains in the escrow account. 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 $17,000 and will be allocated to the specific assets
acquired when independent appraisals are obtained.
-37-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Madison Square Garden
On June 17, 1998, the Company purchased 50% of ITT's remaining interest in
Madison Square Garden, L.P. ("MSG") for $94,000 pursuant to ITT's exercise of
its first put option.
Note 7. Dispositions
In 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 $309,000 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. In
addition, the Company completed the sale of cable television systems in
Wellsville/Penn Yan, New York for approximately $11,500 and Windsor, New York
and New Milford, Pennsylvania for approximately $4,800. The Company recognized a
net gain of approximately $135,000 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.
In July 1998, the Company issued $500,000 principal amount of 7 1/4% Senior
Notes due 2008 (the "2008 Notes") and $500,000 principal amount of 7 5/8% Senior
Debentures due 2018 (the "Debentures"). The Debentures were issued at a discount
of $495. The 2008 Notes and Debentures are not redeemable by the Company prior
to maturity.
Note 9. Net Assets Held for Sale
In 1998, A-R Cable entered into an agreement to sell its cable television
systems in Bootheel, Missouri for approximately $5,000. 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. These transactions were consummated in
the fourth quarter of 1998 and the Company expects to record gains as a result
of these transactions.
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
-38-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
(see Note 5), have been classified in the condensed consolidated balance sheet
as net assets held for sale.
The accompanying condensed consolidated statement of operations for the nine
months ended September 30, 1998 includes net revenues aggregating approximately
$25,054 and net income aggregating approximately $10,321 relating to the cable
systems held for sale.
Note 10. Preferred Stock
In January 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).
Note 11. Recent Developments
On August 12, 1998, Cablevision Parent and a wholly owned subsidiary of
Cablevision Parent entered into an Agreement and Plan of Merger with Clearview
Cinema Group, Inc. ("Clearview") pursuant to which Cablevision Parent will
acquire all of the outstanding shares of stock of Clearview for $24.25 per
share, payable in a combination of cash and shares of Cablevision Parent's
common stock. Cablevision Parent also entered into a stockholders agreement with
certain stockholders of Clearview, holding in the aggregate a majority of the
voting power of Clearview's stock, pursuant to which such stockholders agreed to
vote their shares in favor of the merger. The purchase price, including
assumption of debt but excluding cash on hand, is estimated at $160,000. The
transaction is expected to be consummated in the fourth quarter of 1998.
The Company and Loews Cineplex Entertainment Corporation ("Loews") have entered
into an agreement dated August 26, 1998 as amended October 12, 1998 (the
"Initial Theaters Agreement") relating to the acquisition (the "Initial Loews
Transaction") by the Company of Loews' interests in the real property and assets
specifically related to or located at 12 movie theaters in New York City and one
in northern New Jersey (the "Initial Loews Theaters"). Under the Initial
Theaters Agreement, the Company will pay Loews $85,000 in cash for the Initial
Loews Theaters. In addition, the Company has entered into a second agreement
with Loews pursuant to which the Company has the right, subject to satisfactory
completion of its due diligence investigation, to purchase up to an additional
10 movie theaters (the "Additional Loews Theaters") in the greater New York
metropolitan area for approximately $6,700 in cash (the "Additional Loews
Theaters Transaction"). In connection with the Additional Loews Theaters
Transaction, Loews has granted the Company a right of first offer on an
additional 21 movie theaters in the greater New York metropolitan area until the
first anniversary of the closing of the
-39-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Initial Loews Transaction. The Initial Loews Transaction is expected to be
completed later this year and the Additional Loews Theaters Transaction is
expected to be completed contemporaneously therewith or shortly thereafter. The
closings of both transactions are subject to customary closing conditions
including the receipt of various consents and approvals.
-40-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that such
forward looking statements are not guarantees of future performance or results
and involve risks and uncertainties and that actual results or developments may
differ materially from the forward looking statements as a result of various
factors. Factors that may cause such differences to occur include but are not
limited to (i) the level of growth in the Company's revenues, (ii) subscriber
demand, competition, the cost of programming and industry conditions, (iii)
whether expenses of the Company continue to increase or increase at a rate
faster than expected, (iv) whether any unconsummated transactions are
consummated on the terms and at the times set forth (if at all), (v) new
competitors entering the Company's franchise areas and (vi) other risks and
uncertainties inherent in the cable television business. The information
contained herein concerning year 2000 issues ("Y2K") constitutes forward looking
information. The identification and remediation of Y2K issues is a technological
effort that has never been undertaken before and estimates of the outcome, time
and expense of this endeavor are, for that reason, particularly hard to make
with any certainty. As a result, the Company's estimates may prove to be
materially inaccurate. More specifically, the Company's forecasts may prove to
be wrong for the reasons described below under the caption "Risks of the
Company's Y2K Issues" as well as for the following reasons, among other: (i) the
Company's forecasts are dependent upon the representations of third parties
which may be inaccurate or mistaken; (ii) the nature of the Y2K issue is such
that detection of all issues is difficult and cannot be assured and, as a
result, problems may exist which have not been, and are not, identified in a
timely manner; (iii) because of the lack of experience with problems of this
nature and magnitude, it is difficult to estimate remediation costs with
accuracy; (iv) remediation requires the efforts of third parties whose
performance is beyond the control of the Company; and (v) because the Y2K issues
are so widespread and because the number of third parties who can provide
meaningful remediation services is limited, the Company may have difficulty
obtaining the timely assistance of such third parties, particularly as such
services are needed closer to January 1, 2000.
-41-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
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>
Nine Months Ended September 30,
----------------------------------------------------------
1998 1997
--------------------------- --------------------------- (Increase)
% of % of Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ................................ $ 2,043,600 100% $ 1,314,995 100% $ 728,605
Operating expenses:
Technical and operating .............. 1,033,302 51 568,259 43 (465,043)
Selling, general &
administrative ..................... 595,123 29 347,405 26 (247,718)
Depreciation and amortization ........ 407,860 20 363,023 28 (44,837)
----------- ----------- -----------
Operating profit ........................ 7,315 -- 36,308 3 (28,993)
Other income (expense):
Interest expense, net ................ (273,926) (13) (258,898) (20) (15,028)
Share of affiliates' net loss (19,324) (1) (32,243) (2) 12,919
Gain on sale of programming
and cable interests ................ 152,683 7 -- -- 152,683
Write off of deferred
financing costs .................... (4,717) -- (13,710) (1) 8,993
Gain on redemption of
subsidiary preferred stock ......... -- -- 181,738 14 (181,738)
Provision for preferential
payment to related party ........... (980) -- (4,200) -- 3,220
Minority interests ................... 25,435 1 14,145 1 11,290
Miscellaneous, net ................... (19,799) (1) (7,059) (1) (12,740)
----------- ----------- -----------
Net loss ................................ $ (133,313) (7) $ (83,919) (6) $ (49,394)
=========== =========== ===========
OTHER OPERATING DATA:
Operating profit before
depreciation and
amortization(1) ....................... $ 415,175 $ 399,331
Currently payable interest
expense ............................... 287,810 255,855
Net cash provided by operating
activities(2) ......................... 159,208 239,021
Net cash used in investing
activities(2) ......................... (113,999) (1,023,850)
Net cash provided by (used in)
financing activities(2) ............... (306,261) 805,352
</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."
-42-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------
1998 1997
----------------------- ----------------------- (Increase)
% of % of Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 697,866 100% $ 517,930 100% $ 179,936
Operating expenses:
Technical and operating ...... 354,249 51 227,829 44 (126,420)
Selling, general &
administrative ............. 199,103 29 132,786 26 (66,317)
Depreciation and amortization 139,219 20 140,442 27 1,223
--------- --------- ---------
Operating profit ............... 5,295 1 16,873 3 (11,578)
Other income (expense):
Interest expense, net ....... (89,524) (13) (105,941) (20) 16,417
Share of affiliates' net loss (4,431) (1) (762) -- (3,669)
Gain on sale of programming
and cable interests ....... 11,195 2 -- -- 11,195
Write off of deferred
financing costs ........... (3,101) -- (13,710) (3) 10,609
Gain on redemption of
subsidiary preferred stock -- -- 181,738 35 (181,738)
Provision for preferential
payment to related party .. -- -- (1,400) -- 1,400
Minority interests .......... 16,339 2 10,317 2 6,022
Miscellaneous, net .......... (7,939) (1) (3,068) (1) (4,871)
--------- --------- ---------
Net income (loss) .............. $ (72,166) (10) $ 84,047 16 $(156,213)
========= ========= =========
OTHER OPERATING DATA:
Operating profit before
depreciation and
amortization(1) .............. $ 144,514 $ 157,315
Currently payable interest
expense ...................... 94,126 105,000
Net cash provided by operating
activities ................... 179,797 121,137
Net cash used in investing
activities ................... (128,646) (136,282)
Net cash provided by (used in)
financing activities ......... (72,176) 12,820
</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.
-43-
<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. In June 1998, the Company purchased 50% of ITT's
remaining interest in Madison Square Garden.
1998 Dispositions. In the nine months ended September 30, 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; Paragould, Arkansas;
Wellsville/Penn Yan, New York; Windsor, New York; and New Milford, Pennsylvania
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 of Rainbow Media's
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 and nine months ended September 30, 1998 increased $179.9
million (35%) and $728.6 million (55%), respectively, over the corresponding
1997 periods. Approximately $124.7 million (24%) and $567.8 million (43%) of the
increases were attributable to the Net Acquisitions for the three and nine
months ended September 30, 1998, respectively; approximately $18.0 million (3%)
and $70.8 million (5%) resulted from higher revenue per subscriber;
approximately $29.0 million (6%) and $66.4 million (5%) were attributable to
increases in other revenue sources such as Rainbow Media's programming services,
advertising and a developing commercial telephony business; and approximately
$8.2 million (2%) and $23.6 million (2%) to internal growth in the average
number of subscribers.
Technical and operating expenses increased $126.4 million (55%) and $465.0
million (82%), respectively, for the three and nine months ended September 30,
1998 compared to the same 1997 periods. Approximately $108.0 million (47%) and
$407.0 million (72%) of the increase was a direct result of the Net Acquisitions
for the three and nine months ended September 30,
-44-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
1998, respectively. The remaining $18.4 million (8%) and $58.0 million (10%)
increases were attributable to increases in those costs directly associated with
the internal growth in the average number of subscribers and revenues mentioned
above. As a percentage of revenues, technical expenses increased 7% and 8%,
respectively, for the three and nine months ended September 30, 1998 over the
same periods in 1997.
Selling, general and administrative expenses increased $66.3 million (50%) and
$247.7 million (71%), respectively, for the three and nine months ended
September 30, 1998 when compared to the same 1997 periods. Approximately $44.0
million (33%) and $144.3 million (42%), respectively, of the increases for the
three and nine months ended September 30, 1998 were related to the Net
Acquisitions and $10.0 million (8%) and $53.9 million (16%), respectively, were
due to charges related to an incentive stock plan. The remaining 9% and 14%
increases resulted from higher administrative and customer service costs.
Excluding the effects of the incentive stock plan, as a percentage of revenues
such costs increased 2% and 1%, respectively, for the three and nine months
ended September 30, 1998 compared to the same 1997 periods.
Operating profit before depreciation and amortization decreased $12.8 million
(8%) for the three months ended September 30, 1998 and increased $15.8 million
(4%) for the nine months ended September 30, 1998 over the same periods in 1997.
The decrease in operating profit before depreciation and amortization for the
three months ended September 30, 1998 consists of a decrease of $27.3 million
(17%) attributable to the Net Acquisitions, partially offset by a $14.5 million
(9%) increase resulting from the combined effect of the revenue and expense
increases discussed above. The increase for the nine months ended September 30,
1998 of $15.8 million was comprised of a $16.5 million (4%) increase as a result
of the Net Acquisitions, partially offset by a $.7 million decrease attributable
to the combined effects 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 charges, operating
profit before depreciation and amortization would have increased 12.4% and
13.8%, respectively, for the three and nine months ended September 30, 1998 over
the same periods in 1997. 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 expenses decreased $1.2 million (1%) for the three
months ended September 30, 1998 and increased $44.8 million (12%) for the nine
months ended September 30, 1998 as compared to the same 1997 periods. The
decrease for the three months ended September 30, 1998 compared to the
comparable 1997 period consists of a $4.2 million (3%) decrease attributable to
the Net Acquisitions and a $3.0 million (2%) increase resulting from
depreciation on new plant assets, partially 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. Approximately $36.3 million (10%) of the increase for the nine months
ended September 30, 1998 compared to the same period in 1997
-45-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
was attributable to the Net Acquisitions. The remaining $8.5 million (2%)
increase for the nine months ended September 30, 1998 resulted primarily from
depreciation on new plant assets, partially 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 decreased $16.4 million (15%) for the three months ended
September 30, 1998 and increased $15.0 million (6%) for the nine months ended
September 30, 1998 over the comparable 1997 periods. The net decrease for the
three months ended September 30, 1998 as compared to the same period in the
prior year consists of a $26.9 million (25%) decrease attributable to the Net
Acquisitions, partially offset by a $10.4 million (10%) increase as a result of
higher outstanding debt balances. Approximately $43.3 million (17%) of the net
increase for the nine months ended September 30, 1998 is due to higher
outstanding debt balances, partially offset by a $28.3 million (11%) decrease in
net interest expense attributable to the Net Acquisitions.
Share of affiliates' net loss increased to $4.4 million for the three months
ended September 30, 1998 from $.8 million for the same 1997 period. For the nine
months ended September 30, 1998, share of affiliates' net loss decreased to
$19.3 million from $32.2 million for the same period in the prior year. For the
three and nine months ended September 30, 1998, such amounts consisted of the
Company's share of the net losses of certain programming businesses in which the
Company has varying minority ownership interests. For the three months ended
September 30, 1997, such amount consisted of the Company's share of net losses
of certain programming businesses in which the Company has varying minority
ownership interests. For the nine months ended September 30, 1997, such amount
consisted of the Company's share of net losses of certain cable affiliates of
$37.9 million and net profits of $5.7 million of certain programming businesses
in which the Company has varying minority ownership interests.
Gain on sale of programming and cable interests for the three and nine months
ended September 30, 1998 includes gains of approximately $11.2 million and
$135.0 million, respectively, as a result of the sale of the assets of U.S.
Cable and cable television systems in Rockford, Illinois, Paragould, Arkansas,
Wellsville/Penn Yan, New York, Windsor, New York and New Milford, Pennsylvania.
Additionally, the gain for the nine months ended September 30, 1998 includes
approximately $17.7 million as a result of the sale of an interest in a regional
sports programming business in the first quarter of 1998.
Gain on redemption of subsidiary preferred stock for the three and nine months
ended September 30, 1997 represents the gain recognized upon the redemption of
A-R Cable's Series A preferred stock of $181.7 million.
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.
-46-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Minority interest for the three and nine months ended September 30, 1998
represents Fox Liberty's 40% share of the net income (loss) of Regional
Programming Partners, ITT's share of the net loss of Madison Square Garden, and
NBC's 25% share of the net loss of Rainbow Media. For the comparable 1997
periods, the minority interest represented NBC's 25% share of the net income of
American Movie Classics through March 31, 1997, NBC's 25% share of the net loss
of Rainbow Media from the date of the NBC transaction, ITT's share of the net
losses of Madison Square Garden and SportsChannel Associates (since the date of
the transaction) and Liberty's share of the net income of SportsChannel Prism.
Net miscellaneous expense increased to $7.9 million and $19.8 million,
respectively, for the three and nine months ended September 30, 1998 from $3.1
million and $7.1 for the same 1997 periods. Approximately $8.4 million and $14.8
million of the increase, respectively, for the three and nine months ended
September 30, 1998 related to federal alternative minimum taxes and state income
taxes. Remaining decreases of $3.5 million and $2.0 million, respectively, for
the three and nine months ended September 30, 1998 reflect a reduction in
various other miscellaneous items.
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, 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 September 30, 1998, the Restricted
Group encompassed approximately 2,534,000 cable television subscribers,
including approximately 49,000 subscribers in systems held for sale.
The Unrestricted Group principally includes the Company's cable television
operations other than those included in the Restricted Group. At September 30,
1998, the Unrestricted Group encompassed approximately 34,000 cable television
subscribers ("Unrestricted Cable") of systems held for sale (see Note 9 - "Net
Assets Held for Sale"). Other Unrestricted Group subsidiaries ("Unrestricted
Other") include Rainbow Media, CSC Technology, Inc. (the Company's subsidiary
engaged in research and development of new technology) and other companies
engaged in certain development activities. Cablevision Electronics Investments,
Inc. which acquired substantially all of the assets associated with
approximately 40 Nobody Beats The Wiz consumer electronics store locations on
February 9, 1998, is also included in the Unrestricted Group.
-47-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
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 nine months ended September 30, 1998.
<TABLE>
<CAPTION>
Other
Restricted Unrestricted Unrestricted Total
Group Cable Subsidiaries Company
---------- -------------- -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $1,079,783 $ 19,841 $ 943,976 $2,043,600
========== ============== ============== ==========
Operating profit (loss)
before depreciation and
amortization $ 417,443 $ 5,424 $ (7,692) 415,175
========== ============== ============== ==========
Currently payable
interest expense $ 239,263 $ 1,998 $ 46,549 $ 287,810
========== ============== ============== ==========
Total interest expense $ 243,268 $ 1,998 $ 48,610 $ 293,876
========== ============== ============== ==========
Bank and other senior
debt $ 569,292 $ -- $ 691,644 $1,260,936
========== ============== ============== ==========
Senior notes and
debentures $2,194,350 -- -- $2,194,350
========== ============== ============== ==========
Subordinated debt $1,048,342 $ -- $ -- $1,048,342
========== ============== ============== ==========
Redeemable exchangeable
preferred stock $1,221,806 $ -- $ -- $1,221,806
========== ============== ============== ==========
Capital expenditures $ 300,863 $ 3,120 $ 66,570 $ 370,553
========== ============== ============== ==========
Ending subscribers 2,534,335 33,520 -- 2,567,855
========== ============== ============== ==========
</TABLE>
Restricted Group
The Company believes that, for the Restricted Group, internally generated funds,
together with funds available under the Restricted Group's Credit Agreement will
be sufficient through 1999 to meet all known funding requirements.
On May 28, 1998, the Company and certain other subsidiaries of Cablevision
Parent, closed on a new $2.8 billion credit facility. The $2.8 billion reducing
revolver credit facility, maturing in March 2007, consists of a $1.4 billion CSC
Holdings, Inc. credit facility, a $1.4 billion MFR credit facility of which $600
million is available, and an $800 million credit facility for certain
unrestricted subsidiaries of Cablevision Parent acquired from TCI on March 4,
1998 ("TCI Systems"). While the $800 million TCI Systems credit facility is in
place, only $600 million of the $1.4 billion MFR facility may be utilized.
On June 17, 1998, promissory notes totaling $151 million were redeemed with bank
borrowings under the CSC Holdings, Inc. and MFR credit facilities.
-48-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
On July 21, 1998, the Company issued $500 million face amount of 7 1/4% Senior
Notes due 2008 and $500 million face amount of 7 5/8% Senior Debentures due
2018. The net proceeds of $985 million were used to repay outstanding borrowings
under the Company's credit facility.
On July 27, 1998, the Company reduced the CSC Holdings, Inc. credit facility by
$400 million to $1.0 billion, and the MFR credit facility by $200 million to
$1.2 billion, which includes a reduction of the TCI credit facility by $100
million to $700 million. On October 16, 1998, taking into account the commitment
reduction, the Restricted Group had total usage under its existing $1.5 billion
Credit Agreement (including the MFR credit facility) of $580 million and letters
of credit of $60.8 million issued on behalf of the Company. Unrestricted and
undrawn funds available to the Restricted Group amounted to approximately $859.2
million as of October 16, 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 October 16, 1998, the Company had entered into interest
exchange (swap) agreements with several of its banks on a notional amount of
$225 million, on which the Company pays a fixed rate of interest and receives a
variable rate of interest for specified periods, with an average maturity of 1.3
years. The average effective annual interest rate on all Restricted Group bank
debt outstanding as of October 16, 1998 was approximately 6.7%.
Rainbow Media
Rainbow Media has a $300 million non-amortizing revolving credit facility
maturing on December 31, 2000 of which $40 million is restricted for specific
purposes. Of the $260 million balance of the facility, a further $180 million is
restricted to provide for repayment of a like amount of inter-company borrowings
as described below. Direct borrowings as of October 16, 1998 amounted to $34
million leaving a balance of $46 million available to Rainbow Media under the
credit facility as of that date.
American Movie Classics has a $100 million reducing revolving credit facility
and a $132 million amortizing term loan in place. Both loans will mature on
March 31, 2004. The amount of the available commitment under the revolver will
not begin to step down until 2002. As of October 16, 1998, American Movie
Classics had outstanding borrowings of $198 million, leaving unrestricted funds
available of $34 million.
In June 1998, American Movie Classics made a $16 million excess cash flow
distribution to Rainbow Media by drawing under its revolving credit. Rainbow
Media used the funds to partly repay its bank debt.
Both credit facilities contain certain financial covenants that may limit the
ability to utilize all of the undrawn funds available, including covenants
requiring that certain financial ratios be maintained.
In June 1998, Regional Programming Partners ("RPP"), a partnership which is 60%
owned by Rainbow Media and 40% owned by Fox/Liberty, made an inter-company loan
to Rainbow Media
-49-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
of $180 million, which Rainbow Media used to repay bank debt. RPP funded this
loan from cash on hand. The inter-company loan is a four year demand note
maturing March 31, 2002, which requires quarterly interest payments at LIBOR
plus 7/8% per annum, is subordinated to Rainbow Media's bank debt and requires
that Rainbow Media maintain sufficient availability under its revolving credit
to permit the repayment in full to RPP if RPP requires the funds for its own
operating needs.
In June 1998, RPP utilized $94 million to redeem 50% of ITT's remaining interest
in Madison Square Garden, L.P. ("MSG").
As of October 16, 1998, RPP had cash on hand of $136 million.
The Company believes that for Rainbow Media, internally generated funds,
together with funds available under its existing credit agreement will be
sufficient through 1999 to meet its known funding requirements.
The Company believes that for American Movie Classics, internally generated
funds, together with the funds available under its credit agreement will be
sufficient to meet its debt service and capital expenditure requirements through
1999.
Madison Square Garden
MSG has a $500 million revolving credit facility maturing on December 31, 2004
(the "MSG Credit Facility").
As of October 16, 1998, outstanding debt under the MSG Credit Facility was $310
million. In addition, MSG had outstanding letters of credit of $4 million
resulting in unrestricted and undrawn funds available amounting to $186 million.
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 and to fund capital expenditures through 1999.
Garden Programming, LLC, an unrestricted subsidiary of MSG, has a $20 million
term loan maturing on July 11, 2002. Garden Programming, LLC has in turn made a
$40 million loan to a related entity, maturing on November 1, 2011.
Cablevision Electronics Investments, Inc.
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 (not including $8 million in pre-acquisition
funding 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
-50-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Electronics is subject to an availability calculation based on a percentage of
eligible inventory. On October 16, 1998, usage under the $110 million credit
facility was $78.9 million with $16.9 million available thereunder, based on the
level of inventory as of that date. Cablevision Electronics has received
additional equity contributions from the Company of $29 million through
September 30, 1998, bringing the total amount of equity contributed to $87
million. In addition, Cablevision Electronics has received other financial
support of approximately $34.8 million, through October 16, 1998, in the form of
letters of credit and guarantees, in respect of Cablevision Electronics'
inventory purchases. The Company believes that Cablevision Electronics will
require additional financial support in respect of planned increases in
inventory purchases and other requirements through 1999.
Operating Activities
Cash provided by operating activities amounted to $159.2 million for the nine
months ended September 30, 1998 compared to $239.0 million for the nine months
ended September 30, 1997. The 1998 cash provided by operating activities
consisted primarily of depreciation and amortization of $407.9 million, a net
increase in cash resulting from changes in assets and liabilities of $33.8
million, and other non-cash items of $3.5 million, offset by a net loss of
$133.3 million and the gain on the sale of programming and cable interests of
$152.7 million.
Cash provided by operating activities amounted to $239.0 million for the nine
months ended September 30, 1997 which consisted primarily of depreciation and
amortization of $363.0 million, other non-cash items of $41.5 million and a net
increase in cash resulting from changes in assets and liabilities of $100.1
million, partially offset by a net loss of $83.9 million and the gain on the
redemption of subsidiary preferred stock of $181.7 million.
Investing Activities
Net cash used in investing activities for the nine months ended September 30,
1998 was $114.0 million compared to $1,023.9 million for the nine months ended
September 30, 1997. The 1998 investing activities consisted of $370.6 million of
capital expenditures, $154.4 million of payments for acquisitions, and other net
cash payments of $26.5 million, partially offset by net proceeds of $437.5
million from the sale of programming and cable interests.
Net cash used in investing activities for the nine months ended September 30,
1997 was $1,023.9 million. The 1997 investing activities consisted primarily of
$316.2 million of capital expenditures, $533.9 million of payments for
acquisitions, and a $174.8 million increase in investment in affiliates,
partially offset by other items of $1.0 million.
Financing Activities
Cash used in financing activities amounted to $306.3 million for the nine months
ended September 30, 1998 compared to net cash provided by financing activities
of $805.4 million for the nine months ended September 30, 1997. In 1998, the
Company's financing activities consisted primarily of the net repayment of bank
debt, subordinated notes payable and senior
-51-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
debt of $1,350.0 million, the repayment of an obligation to a related party of
$197.2 million, the payment of dividends applicable to preferred stock of $22.0
million, the redemption of preferred stock of $9.4 million, and other net cash
payments aggregating $23.8 million, partially offset by $1,296.1 million derived
from the issuance of senior notes and debentures.
In 1997, the Company's financing activities consisted of the net proceeds from
bank debt of $874.1 million and the net proceeds of $398.5 million from the
issuance of senior debentures, partially offset by the redemption of senior
subordinated debt of $283.4 million, $112.3 million used for the redemption of
preferred stock, additions to deferred financing and other costs of $43.8
million, payments of dividends applicable to preferred stock of $22.9 million
and other net cash payments aggregating $4.8 million.
Year 2000
The year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. As a result of these issues, the potential exists for
computer system failure or miscalculations by computer programs, which could
cause disruption of the Company's operations.
The Company recognizes the need to ensure that any disruption of its operations
resulting from the Y2K issue is minimized. Accordingly, the Company has
developed a plan to identify and address Y2K issues. The Company has retained an
independent "big five" consulting firm to assist in the development and
implementation of this plan.
Pursuant to the Y2K plan, each of the Company's business units has designated a
team, consisting of a Y2K coordinator and a member of the consulting firm, which
is responsible for the Y2K compliance of the systems used by that business unit.
The efforts of each of these business unit teams is coordinated through, and
directed by, a Central Program Management Office (the "CPMO"), consisting of
representatives of the Company's information systems, internal audit,
controllers, legal and finance departments. The CPMO operates under the
direction of the Company's Chief Information Officer, Mr. Thomas Dolan. Y2K
issues that cross business unit lines and cannot be resolved between the CPMO
and the business unit teams, are referred to an Operations Steering Committee
(the "Steering Committee") consisting of the most senior officers of each of the
Company's principal business units. The Steering Committee will meet
periodically to review the progress of the Company's Y2K compliance efforts. The
Board of Directors has designated a committee of the Board consisting of Messrs.
James Dolan, Thomas Dolan, Leo Hindery and Richard Hochman, to monitor the
Company's progress and report to the full Board.
Y2K Program - Phases
The Company has developed a six phase program to assess and address the Y2K
issue. These phases consist of the following:
-52-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Phase 1 - Awareness - The Company maintains an ongoing program of communications
with its management and employee base to ensure that all employees are aware of
the Y2K issue and the importance of the Company's efforts to address the issue.
This is accomplished, among other means, through the distribution of memoranda,
the establishment and maintenance of an intranet web site, and meetings and
seminars.
Phase 2 - Inventory and Assessment - This phase consisted of the Company's
efforts to identify all of the information technology ("IT") and non-IT systems
used in each area of its businesses. Each identified system has been assessed
for its criticality to the Company's businesses and assigned a criticality
rating on a five point scale consisting of (1) "Critical" (required for
continued operation); (2) "High" (major business impact); (3) "Medium"
(significant business impact); (4) "Low" (minor business impact); and (5)
"Minimal" (insignificant or no business impact). Additionally, during this phase
the Company contacted the vendors of each of its systems to determine which
systems are Y2K compliant or non-compliant. Based upon its phase two review,
which was substantially completed during the third fiscal quarter of 1998, the
Company believes that approximately 35% of its IT and non-IT systems may be
non-compliant and that approximately 65% of these non-compliant systems are of a
criticality rating of (3) "Medium" (significant business impact) or above.
Phase 3 - Strategy and Planning - During this phase the Company is (a)
developing a testing plan for all compliant systems, and (b) developing a
strategy for remediating and testing non-compliant systems. Remediation
strategies may range from software upgrades to replacement, discontinuance or
bypass of non-compliant systems. As of October 31, 1998, the Company had
substantially completed the strategy and planning stage for all of its systems
with a criticality rating of 1 or 2 and is currently in the process of its phase
three efforts for its systems with a criticality rating of 3 or 4.
Phase 4 - Portfolio Transformation/Remediation - During this phase the Company
will execute the remediation strategies for non-compliant systems as identified
during phase three. The Company is now beginning the remediation of certain of
the most critical non-compliant systems.
Phase 5 - Testing - During this phase, the Company will test all of its
compliant systems (of Level 4 or above), and, in conjunction with its phase four
remediation efforts, its non-compliant systems. The testing of certain of the
Company's most critical compliant systems has recently begun.
Phase 6 - Implementation - During this phase, all of the Company's remediated
and tested systems will be redeployed.
The completion of phases across the Company's businesses is not expected to
occur sequentially. As the Company will focus initially on its most critical
systems, it is likely that a number of critical systems will be in phases four
and five, while less critical systems are in phase three. It is the Company's
goal that all IT and non-IT systems with a criticality rating of 1, 2, 3 and 4
will be tested and implemented by the end of the third fiscal quarter of 1999.
There can be no assurance that the Company will be successful in achieving this
goal.
-53-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
Costs of Compliance - Because the Company is still in the process of analyzing
its strategy and remediation planning for non-compliant items, and has not
completed testing of compliant or non-compliant systems, it is not possible to
predict with certainty the costs that will be incurred in connection with the
Y2K program. Further, in many cases, the Company planned to replace or upgrade
certain non-compliant systems irrespective of Y2K compliance issues. In such
cases the portion of such expenditure attributable to Y2K issues is often not
reasonably determinable. Based on its review to date, the Company believes that
the costs associated with its Y2K program, including costs of replacing or
upgrading non-compliant systems that were not already scheduled to be replaced
or upgraded, accelerating programs that were already contemplated specifically
for the purpose of addressing Y2K issues, and including both internal and
external resources, may range between $40 to $60 million for its existing
businesses. This estimate includes amounts for the Company's telecommunications
systems, including cable, modem and telephone, for Rainbow Media's programming
operations, for Madison Square Garden including the arena, its professional
sports teams, its cable television networks, and for Radio City Entertainment,
for the Wiz and for corporate and company-wide needs. Costs incurred to date
have not been material to the operations of the Company. There can be no
assurance that actual expenditures will not deviate from these estimates and
that the amount of such deviation will not be material. Such expenditures are
expected to be funded from cash flow from operations and borrowings. See
"Liquidity and Capital Resources".
Risks of the Company's Y2K Issues -Many of the IT and non-IT systems that are
necessary for the continued operation of the Company's businesses are dependent
upon components that may not be Y2K compliant. While the Company's Y2K
compliance program is designed to identify and remediate these systems in order
to avoid interruption of its operations, there can be no assurance that it will
be able to identify all noncompliant systems or successfully remediate all those
that are identified. Failure of IT or non-IT systems that are necessary for the
operation of the Company's businesses, including, without limitation, its
billing systems, addressable controller and converter systems, purchasing,
finance and inventory systems, marketing databases and point of sale systems,
could have a material adverse effect on the Company.
The Company is dependent upon third-party products and services, such as utility
services and programming uplinks, for the operation of its businesses. While, as
part of the Inventory and Assessment phase of its Y2K program, the Company has
contacted third party product and service providers to ascertain whether Y2K
compliance issues may exist, it has in many cases not received assurances from
such suppliers. Moreover, in most cases the Company does not have the ability to
verify any assurances it does receive from third party suppliers. If critical IT
or non-IT systems used by such third party suppliers fail as a result of a Y2K
compliance issue, and as a result of such failure the ability of such supplier
to continue to provide such product or service to the Company is interrupted,
the Company's ability to continue to provide services to its customers may be
interrupted. Such an interruption could have a material adverse effect on the
Company. The Company intends to consider contingency plans to address those
risks, although no such plans have yet been identified, and there can be no
assurance that any such plan would resolve such problems in a satisfactory
manner. In addition to the risks associated with failure of IT Systems due to
Y2K problems, the failure of non-IT systems would pose significant risks to
-54-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
(formerly Cablevision Systems Corporation)
the Company. For example, the Company and its subsidiaries operate facilities
for both employees and the public. Failure of the non-IT systems at such
facilities could result in health and safety risks that could lead to the
closure or unavailability of such facilities. This could result in lost revenues
to the Company and the risk of actions against the Company if the businesses of
others are disrupted. Also, the failure of such non-IT systems could result in
injury to individuals which could expose the Company to actions on, by, or on
behalf of such individuals.
-55-
<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 58.
(b) The Company filed a Current Report on Form 8-K with the Commission
on February 5, 1998, March 4, 1998, March 19, 1998, July 6, 1998 and
July 21, 1998.
-56-
<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: November 16, 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: November 16, 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.
-57-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- - ------- ----------- ----
27 Financial Data Schedule - Cablevision Systems Corporation and
Subsidiaries
27.1 Financial Data Schedule - CSC Holdings, Inc. and Subsidiaries
-58-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001053112
<NAME> Cablevision Systems Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 149,767
<SECURITIES> 0
<RECEIVABLES> 224,215
<ALLOWANCES> (36,998)
<INVENTORY> 275,442
<CURRENT-ASSETS> 0
<PP&E> 4,023,276
<DEPRECIATION> (1,620,311)
<TOTAL-ASSETS> 6,619,758
<CURRENT-LIABILITIES> 0
<BONDS> 5,054,128
0
1,507
<COMMON> 0
<OTHER-SE> (2,463,260)
<TOTAL-LIABILITY-AND-EQUITY> 6,619,758
<SALES> 0
<TOTAL-REVENUES> 2,306,928
<CGS> 0
<TOTAL-COSTS> 1,126,798
<OTHER-EXPENSES> 497,868
<LOSS-PROVISION> (19,139)
<INTEREST-EXPENSE> 317,969
<INCOME-PRETAX> (143,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> (143,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (143,764)
<EPS-PRIMARY> (1.90)
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 149,089
<SECURITIES> 0
<RECEIVABLES> 199,814
<ALLOWANCES> (28,223)
<INVENTORY> 275,442
<CURRENT-ASSETS> 0
<PP&E> 3,549,088
<DEPRECIATION> (1,581,151)
<TOTAL-ASSETS> 5,505,574
<CURRENT-LIABILITIES> 0
<BONDS> 4,503,628
1,221,806
<COMMON> 0
14
<OTHER-SE> (2,634,221)
<TOTAL-LIABILITY-AND-EQUITY> 5,505,574
<SALES> 0
<TOTAL-REVENUES> 2,060,547
<CGS> 0
<TOTAL-COSTS> 1,033,302
<OTHER-EXPENSES> 407,860
<LOSS-PROVISION> (16,947)
<INTEREST-EXPENSE> 293,876
<INCOME-PRETAX> (133,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (133,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133,313)
<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>
