SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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
Delaware
1111 Stewart Avenue
Bethpage, New York 11714
(516) 803-2300
1-9046 CSC Holdings, Inc. 11-2776686
Delaware
1111 Stewart Avenue
Bethpage, New York 11714
(516) 803-2300
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 July 30, 1999:
Cablevision Systems Corporation Class A Common Stock - 109,268,125
Cablevision Systems Corporation Class B Common Stock - 43,126,836
CSC Holdings, Inc. Common Stock - 1,000
================================================================================
<PAGE>
TABLE OF CONTENTS
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and Six Months ended June 30, 1999 and 1998 (unaudited)......3
Condensed Consolidated Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998....................4
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 1999 and 1998 (unaudited)................6
Notes to Condensed Consolidated Financial Statements (unaudited)...7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................12
PART II - OTHER INFORMATION.................................................33
CSC HOLDINGS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and Six Months ended June 30, 1999 and 1998 (unaudited).....35
Condensed Consolidated Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998...................36
Condensed Consolidated Statements of Cash Flows -
Six Months ended June 30, 1999 and 1998 (unaudited)...............38
Notes to Condensed Consolidated Financial Statements (unaudited)..39
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................44
PART II - OTHER INFORMATION.................................................45
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues ....................................... $ 1,880,017 $ 1,480,918 $ 946,309 $ 805,190
----------- ----------- ----------- -----------
Operating expenses:
Technical and operating ..................... 757,131 628,804 355,250 316,400
Cost of sales ............................... 197,214 116,518 92,417 85,202
Selling, general and
administrative ........................... 625,818 408,555 297,194 211,966
Depreciation and amortization ............... 415,172 318,946 209,719 172,367
----------- ----------- ----------- -----------
1,995,335 1,472,823 954,580 785,935
----------- ----------- ----------- -----------
Operating profit (loss) ............. (115,318) 8,095 (8,271) 19,255
----------- ----------- ----------- -----------
Other income (expense):
Interest expense ............................ (223,558) (211,531) (114,266) (113,557)
Interest income ............................. 4,860 13,262 1,981 6,533
Equity in net loss of affiliates ............ (4,360) (14,893) (965) (1,028)
Gain on sale of programming interests
and cable assets, net .................... -- 141,488 -- 4,220
Write off of deferred financing costs ....... (4,406) (1,616) (4,406) (1,616)
Provision for preferential payment to
related party ............................ -- (980) -- --
Minority interests .......................... (56,275) (69,992) (38,656) (30,979)
Miscellaneous, net .......................... (7,437) (13,988) (3,264) (5,779)
----------- ----------- ----------- -----------
(291,176) (158,250) (159,576) (142,206)
----------- ----------- ----------- -----------
Net loss ....................................... $ (406,494) $ (150,155) $ (167,847) $ (122,951)
=========== =========== =========== ===========
Basic and diluted net loss per common share .... $ (2.68) $ (1.13) $ (1.10) $ (.82)
=========== =========== =========== ===========
Average number of common shares
outstanding (in thousands) .................. 151,888 133,146 152,149 150,332
=========== =========== =========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents .................................. $ 58,289 $ 173,826
Accounts receivable trade (less allowance for
doubtful accounts of $38,932 and $34,377) ............... 205,937 197,726
Notes and other receivables ................................ 170,874 188,455
Inventory, prepaid expenses and other assets ............... 200,342 206,073
Property, plant and equipment, net ......................... 2,689,362 2,506,834
Investments in affiliates .................................. 290,330 276,231
Advances to affiliates ..................................... 40,182 36,964
Feature film inventory ..................................... 289,738 293,310
Net assets held for sale ................................... 11,867 11,006
Franchises, net of accumulated amortization
of $733,271 and $640,735 ................................ 758,118 850,653
Affiliation and other agreements, net of accumulated
amortization of $208,383 and $181,928 ................... 183,195 206,456
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $837,909 and $775,557 .................. 1,982,375 2,003,128
Deferred financing, acquisition and other costs, net of
accumulated amortization of $45,064 and $41,882 ......... 101,069 110,400
---------- ----------
$6,981,678 $7,061,062
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' DEFICIENCY 1999 1998
---- ----
<S> <C> <C>
Accounts payable ................................................. $ 411,030 $ 423,039
Accrued liabilities .............................................. 948,659 885,488
Feature film and contract obligations ............................ 319,202 373,722
Deferred revenue ................................................. 240,367 334,213
Bank debt ........................................................ 2,475,714 2,051,549
Senior notes and debentures ...................................... 2,194,631 2,194,443
Subordinated notes and debentures ................................ 1,048,443 1,048,375
Capital lease obligations and other debt ......................... 76,941 63,241
----------- -----------
Total liabilities ............................................. 7,714,987 7,374,070
----------- -----------
Minority interests ............................................... 624,965 719,007
----------- -----------
Preferred stock of CSC Holdings, Inc. ............................ 1,651,690 1,579,670
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized, none issued .................................. -- --
Class A Common Stock, $.01 par value, 200,000,000 shares
authorized, 109,211,896 and 108,267,606 shares issued .... 1,092 1,083
Class B Common Stock, $.01 par value, 80,000,000 shares
authorized, 43,126,836 and 43,226,836 shares issued ...... 431 432
Paid-in capital .............................................. 395,200 386,495
Accumulated deficit .......................................... (3,406,189) (2,999,695)
----------- -----------
(3,009,466) (2,611,685)
Treasury stock, at cost (6,470 shares) ....................... (498) --
----------- -----------
Total stockholders' deficiency ............................... (3,009,964) (2,611,685)
----------- -----------
$ 6,981,678 $ 7,061,062
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ $ (406,494) $ (150,155)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................... 415,172 318,946
Equity in net loss of affiliates ................................. 4,360 14,893
Minority interests ............................................... 41,605 55,322
Gain on sale of programming interests and cable assets ........... -- (141,488)
Gain on sale of marketable securities ............................ (10,861) --
Write off of investment in affiliate ............................. 15,100 --
Write off of deferred financing costs ............................ 4,406 1,616
Amortization of deferred financing costs ......................... 4,042 3,713
Amortization of debenture discount ............................... 256 221
(Gain) loss on sale of equipment ................................. 2,115 (1,802)
Changes in assets and liabilities, net of effects of
acquisitions and dispositions ................................ (78,404) (38,826)
----------- -----------
Net cash provided by (used in) operating activities .............. (8,703) 62,440
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of programming interests and cable assets .... -- 440,177
Payments for acquisitions, net of cash acquired ..................... (114,447) (165,854)
Proceeds from sale of marketable securities ......................... 10,861 --
Capital expenditures ................................................ (380,850) (258,849)
Proceeds from sale of plant and equipment ........................... 431 9,705
Additions to intangible assets ...................................... (6,756) (12,643)
Increase in investments in affiliates, net .......................... (33,559) (17,352)
----------- -----------
Net cash used in investing activities ............................ (524,320) (4,816)
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ............................................. 1,873,047 3,808,751
Repayment of bank debt .............................................. (1,448,882) (3,929,748)
Repayment of senior debt ............................................ -- (112,500)
Repayment of subordinated notes payable ............................. -- (151,000)
Issuance of senior notes and debentures ............................. -- 296,571
Issuance of common stock ............................................ 8,713 8,706
Purchase of treasury stock .......................................... (498) --
Decrease in obligation to related party ............................. -- (197,183)
Payments of capital lease obligations and other debt ................ (9,072) (5,642)
Additions to deferred financing and other costs ..................... (5,822) (3,338)
Redemption of preferred stock of CSC Holdings, Inc. ................. -- (9,409)
----------- -----------
Net cash provided by (used in) financing activities .............. 417,486 (294,792)
----------- -----------
Net decrease in cash and cash equivalents .............................. (115,537) (237,168)
Cash and cash equivalents at beginning of year ......................... 173,826 410,141
----------- -----------
Cash and cash equivalents at end of period ............................. $ 58,289 $ 172,973
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 Tele-Communications, Inc. (the "TCI Transaction").
In connection with the TCI Transaction, 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.
All share and per share information has been adjusted for two-for-one stock
splits effected on each of March 30, 1998 and August 21, 1998.
Note 2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Cablevision Systems Corporation and its majority owned subsidiaries (the
"Company") have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
Note 3. Responsibility for Interim Financial Statements
The financial statements as of and for the three and six month periods ended
June 30, 1999 and 1998 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 and CSC
Holdings' Annual Reports on Form 10-K for the year ended December 31, 1998.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
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, 1999.
Note 4. Reclassifications
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
Note 5. Loss Per Common Share
Basic and diluted net loss per common share is computed by dividing net loss by
the weighted average number of common shares outstanding. Potential dilutive
common shares were not included in the computation as their effect would be
antidilutive. Loss per share amounts have been adjusted to reflect the
two-for-one stock splits of the Company's common stock effective March 30, 1998
and August 21, 1998.
Note 6. Cash Flows
For purposes of the condensed 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 $204,780 and $199,128 for the six months ended June 30, 1999 and
1998, respectively. The Company's noncash financing and investing activities for
the six months ended June 30, 1999 and 1998 included capital lease obligations
of $22,772 and $4,699, respectively, incurred when the Company entered into
leases for new equipment, the issuance of common stock valued at $497,987 in
connection with the TCI Transaction 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 receipt of warrants from At Home Corporation valued at
$74,788 in 1998.
Note 7. Acquisitions
At various times in 1999, the Company acquired interests in the real property
and assets specifically related to certain movie theaters for an aggregate
purchase price of approximately $27,600. The acquisitions were accounted for as
a purchase with the operations of the acquired theaters being consolidated with
those of the Company as of the acquisition dates. The purchase price will be
allocated to the specific assets acquired when an independent appraisal is
obtained.
-8-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
In April 1999, ITT Corporation ("ITT") exercised its second put for the
remainder of its minority interest in Madison Square Garden and settled certain
matters between the parties for a payment of $87,000.
Note 8. At Home
As of June 30, 1999 and 1998, deferred revenue derived from the receipt of At
Home warrents, net of amortization taken, amounted to approximately $187,245 and
$234,657, respectively. For the six months ended June 30, 1999 and 1998, the
Company recognized approximately $25,068 and $13,477, respectively, of this
deferred revenue.
Note 9. Segment Information
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization and excluding incentive stock plan expense and the costs of year
2000 remediation).
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Telecommunication Services ...... $ 1,057,964 $ 885,354 $ 532,474 $ 486,499
Rainbow Media ................... 587,650 502,080 289,055 240,604
Retail Electronics .............. 259,348 134,720 136,331 100,416
All Other ....................... 39,085 164 20,778 176
Intersegment Eliminations ....... (64,030) (41,400) (32,329) (22,505)
----------- ----------- ----------- -----------
Total ................ $ 1,880,017 $ 1,480,918 $ 946,309 $ 805,190
=========== =========== =========== ===========
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
Adjusted Operating Cash Flow
Telecommunication Services ...... $ 447,148 $ 351,449 $ 228,790 $ 200,122
Rainbow Media ................... 74,847 61,542 46,597 28,812
Retail Electronics .............. (16,802) (13,480) (5,497) (6,670)
All Other ....................... (21,969) (1,117) (13,983) (605)
----------- ----------- ----------- -----------
Total ................ $ 483,224 $ 398,394 $ 255,907 $ 221,659
=========== =========== =========== ===========
</TABLE>
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Total revenue for reportable segments ................ $ 1,904,962 $ 1,522,154 $ 957,860 $ 827,519
Other revenue and intersegment eliminations .......... (24,945) (41,236) (11,551) (22,329)
----------- ----------- ----------- -----------
Total consolidated revenue .................... $ 1,880,017 $ 1,480,918 $ 946,309 $ 805,190
=========== =========== =========== ===========
Adjusted Operating Cash Flow to Net Loss
Total adjusted operating cash flow for reportable
segments ...................................... $ 505,193 $ 399,511 $ 269,890 $ 222,264
Other adjusted operating cash flow deficit ........... (21,969) (1,117) (13,983) (605)
Items excluded from adjusted operating cash flow:
Depreciation and amortization ................. (415,172) (318,946) (209,719) (172,367)
Incentive stock plan expense .................. (166,997) (71,353) (45,658) (30,037)
Year 2000 remediation ......................... (16,373) -- (8,801) --
Interest expense .............................. (223,558) (211,531) (114,266) (113,557)
Interest income ............................... 4,860 13,262 1,981 6,533
Equity in net loss of affiliates .............. (4,360) (14,893) (965) (1,028)
Gain on sale of programming interests and
cable assets, net ........................ -- 141,488 -- 4,220
Write off of deferred financing costs ......... (4,406) (1,616) (4,406) (1,616)
Provision for preferential payment to
related party ............................ -- (980) -- --
Minority interests ............................ (56,275) (69,992) (38,656) (30,979)
Miscellaneous, net ............................ (7,437) (13,988) (3,264) (5,779)
----------- ----------- ----------- -----------
Net loss ............................ $ (406,494) $ (150,155) $ (167,847) $ (122,951)
=========== =========== =========== ===========
</TABLE>
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
Note 10. Financial Instruments
In July 1999, the Company entered into a $100 million facility with a third
party for the Company to acquire a beneficial interest in shares of its Class A
common stock through a forward swap contract facility that is available through
June 2000 with a final maturity date for all executed swaps of February 2001.
The terms of the facility provide for the settlement of any obligations of the
Company thereunder either in cash or the Company's Class A common stock.
-10-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
The Company's obligation is guaranteed by CSC Holdings. Currently, there are no
outstanding contracts under this facility.
Note 11. Recent Developments
In May 1999, the Company entered into an agreement with Cable T.V. of
Tri-States, Inc., Matamoras Video Cable, Inc., Montague Cable Company, Inc. and
Joseph Biondo for the purchase of cable television systems with approximately
4,500 subscribers located in the Port Jervis, New York area.
In May 1999, CSC Holdings and the New Jersey Devils professional hockey team
entered into a non-binding letter of intent to form a joint venture to develop a
hockey arena and an adjacent entertainment and shopping complex in Hoboken, New
Jersey. No definitive documentation has been executed with respect to the
proposed New Jersey arena and entertainment/shopping complex and there are no
assurances that the necessary documentation will be executed or that this
transaction will be consummated.
In July 1999, CSC Holdings issued $500,000 principal amount of 8 1/8% Senior
Notes due 2009 (the "Senior Notes"). The Senior Notes were issued at a discount
of $2,330. The Senior Notes can not be redeemed by CSC Holdings prior to
maturity.
-11-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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;
(vi) other risks and uncertainties inherent in the cable television business;
(vii) financial community and rating agency perceptions of the Company and its
business, operations, financial condition and the industry in which it
operates; and
(viii) the factors described in CSC Holdings' recently filed registration
statement on Form S-4, including the section entitled "Risk Factors"
contained therein.
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 following reasons, among
others:
(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.
-12-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
Recent Transactions
1999 Acquisitions. In 1999, the Company purchased certain theater assets from
Loews Cineplex Entertainment Corporation ("Loews"). In April 1999, CSC Holdings
purchased ITT's remaining minority interest in Madison Square Garden.
1998 Acquisitions and Dispositions. In December 1998, the net assets of
Clearview Cinema Group, Inc. ("Clearview") and certain assets of Loews were
acquired. In March 1998, the Company acquired certain cable television systems
in New York and New Jersey from Tele-Communications, Inc. (the "TCI Systems").
In June 1998, CSC Holdings purchased 50% of ITT's then remaining minority
interest in Madison Square Garden. In addition, in February 1998, Cablevision
Electronics Investments, Inc. ("Cablevision Electronics") acquired substantially
all of the assets associated with 40 The Wiz consumer electronics store
locations (the "Wiz Transaction").
In 1998, CSC Holdings completed the sale of substantially all of the assets of
U.S. Cable Television Group, L.P. ("U.S. Cable") and the sale of several smaller
cable television systems. Also in 1998, CSC Holdings transferred its cable
television system in Rensselaer, New York plus approximately $16 million in cash
in exchange for Time Warner's Litchfield, Connecticut system. In addition,
Rainbow Media Holdings, Inc. ("Rainbow Media") completed the sale of an interest
in a regional sports programming business.
The above transactions completed in 1999 and 1998 are collectively referred to
as the "Net Acquisitions."
-13-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Results of Operations
The following tables set forth on an unaudited historical basis certain items
related to operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------------------------------------
1999 1998
-------------------------- -------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues ................................... $ 1,880,017 100% $ 1,480,918 100% $ 399,099
Operating expenses:
Technical and operating .................. 757,131 40 628,804 42 (128,327)
Cost of sales ............................ 197,214 11 116,518 8 (80,696)
Selling, general and administrative ...... 625,818 33 408,555 28 (217,263)
Depreciation and amortization ............ 415,172 22 318,946 22 (96,226)
----------- ----------- -----------
Operating profit (loss) .................... (115,318) (6) 8,095 -- (123,413)
Other income (expense):
Interest expense, net .................... (218,698) (12) (198,269) (13) (20,429)
Equity in net loss of affiliates ......... (4,360) -- (14,893) (1) 10,533
Gain on sale of programming interests
and cable assets, net .................. -- -- 141,488 10 (141,488)
Write off of deferred financing costs .... (4,406) -- (1,616) -- (2,790)
Provision for preferential payment to
related party .......................... -- -- (980) -- 980
Minority interests ....................... (56,275) (3) (69,992) (5) 13,717
Miscellaneous, net ....................... (7,437) (1) (13,988) (1) 6,551
----------- ----------- -----------
Net loss ................................... $ (406,494) (22)% $ (150,155) (10)% $ (256,339)
=========== =========== ===========
Three Months Ended June 30,
---------------------------------------------------------
1999 1998
-------------------------- -------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues ................................... $ 946,309 100% $ 805,190 100% $ 141,119
Operating expenses:
Technical and operating .................. 355,250 38 316,400 40 (38,850)
Cost of sales ............................ 92,417 10 85,202 11 (7,215)
Selling, general and administrative ...... 297,194 31 211,966 26 (85,228)
Depreciation and amortization ............ 209,719 22 172,367 21 (37,352)
----------- ----------- -----------
Operating profit (loss) .................... (8,271) (1) 19,255 2 (27,526)
Other income (expense):
Interest expense, net .................... (112,285) (12) (107,024) (13) (5,261)
Equity in net loss of affiliates ......... (965) -- (1,028) -- 63
Gain on sale of programming interests
and cable assets, net .................. -- -- 4,220 1 (4,220)
Write off of deferred financing costs .... (4,406) (1) (1,616) -- (2,790)
Minority interests ....................... (38,656) (4) (30,979) (4) (7,677)
Miscellaneous, net ....................... (3,264) -- (5,779) (1) 2,515
----------- ----------- -----------
Net loss ................................... $ (167,847) (18)% $ (122,951) (15)% $ (44,896)
=========== =========== ===========
</TABLE>
-14-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Comparison of Three and Six Months ended June 30, 1999 Versus Three and Six
Months ended June 30, 1998.
Consolidated Results
Revenues for the three and six months ended June 30, 1999 increased $141.1
million (18%) and $399.1 million (27%), respectively, as compared to revenues
for the same periods in the prior year. Approximately $59.9 million (7%) and
$236.0 million (16%), respectively, of the increase was attributable to the Net
Acquisitions; approximately $60.5 million (8%) and $116.9 million (8%),
respectively, was from increases in other revenue sources such as Rainbow
Media's programming services, advertising on the Company's cable television
systems, revenue derived from the developing telephone and modem businesses and
revenue recognized in connection with the At Home transaction; and approximately
$12.2 million (2%) and $29.2 million (2%), respectively, resulted from higher
revenue per subscriber. The remaining increase of $8.5 million (1%) and $17.0
million (1%), respectively, was attributable to internal growth in the average
number of subscribers during the periods.
Technical and operating expenses for the three and six months ended June 30,
1999 increased $38.9 million (12%) and $128.3 million (20%), respectively,
compared to the same periods in 1998. Approximately $17.0 million (5%) and $56.1
million (9%), respectively, was attributable to the Net Acquisitions, with the
remaining $21.9 million (7%) and $72.2 million (11%), respectively, attributable
to increased costs directly associated with the growth in subscribers and
revenues discussed above, as well as to increases in programming costs for cable
television services. As a percentage of revenues, technical and operating
expenses decreased 2% during both of the 1999 periods as compared to the 1998
periods.
Cost of sales for the three and six months ended June 30, 1999 amounted to
approximately $92.4 million and $197.2 million, respectively, (68% and 76%,
respectively, of retail electronics sales) compared to approximately $85.2
million and $116.5 million (85% and 86%, respectively, of retail electronics
sales) for the three months ended June 30, 1998 and from the date of the Wiz
Transaction through June 30, 1998, respectively. Cost of sales include the cost
of merchandise sold, including freight costs incurred, as well as store
occupancy and buying costs for the Company's retail electronics segment.
Selling, general and administrative expenses increased $85.2 million (40%) and
$217.3 million (53%), respectively, for the three and six months ended June 30,
1999 over the comparable periods in 1998. Approximately $29.7 million (14%) and
$61.8 million (15%), respectively, was directly attributable to the Net
Acquisitions and approximately $14.5 million (7%) and $93.4 million (23%),
respectively, was due to a higher level of charges related to an incentive stock
plan. Approximately $33.0 million (15%) and $47.6 million (11%), respectively,
resulted from additional sales and marketing and administrative costs and
approximately $8.0 million (4%) and $14.5 million (4%), respectively, was due to
year 2000 remediation costs. As a percentage of revenues, selling, general and
administrative expenses increased 5% in both of the 1999 periods compared to the
1998
-15-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
periods. Excluding the effects of the incentive stock plan and the year 2000
remediation costs, as a percentage of revenues such costs increased 3% and 1%,
respectively.
Operating profit before depreciation and amortization increased $9.8 million
(5%) for the three months ended June 30, 1999 and decreased $27.2 million (8%)
for the six months ended June 30, 1999 as compared to the same periods in 1998.
The increase for the three months ended June 30, 1999 was comprised of an
increase of $18.3 million (10%) resulting from the combined effect of the
revenue and expense changes discussed above and an increase of approximately
$6.0 million (3%) attributable to the Net Acquisitions, partially offset by an
increase of $14.5 million (8%) in charges related to an incentive stock plan.
The decrease for the six months ended June 30, 1999 resulted from the $93.4
million (29%) increase in charges related to an incentive stock plan, partially
offset by an increase of approximately $37.4 million (11%) attributable to the
Net Acquisitions and an increase of $28.8 million (10%) resulting from the
combined effect of the revenue and expense changes discussed above. On a pro
forma basis, giving effect to the Net Acquisitions as if they had occurred on
January 1, 1998 and excluding the incentive stock plan charges referred to above
and the costs of year 2000 remediation, operating profit before depreciation and
amortization would have increased 12.2% and 12.3% for the three and six months
ended June 30, 1999 over the comparable 1998 periods. 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 (loss) and cash flows as indicators of financial
performance and liquidity as reported in accordance with generally accepted
accounting principles.
Depreciation and amortization expense increased $37.4 million (22%) and $96.2
million (30%), respectively, for the three and six months ended June 30, 1999 as
compared to the same periods in 1998. Approximately $17.1 million (10%) and
$59.9 million (19%), respectively, of the increase was directly attributable to
the Net Acquisitions. The remaining increase of $20.3 million (12%) and $36.3
million (11%), respectively, resulted primarily from depreciation on new plant
assets.
Net interest expense increased $5.3 million (5%) and $20.4 million (10%),
respectively, for the three and six months ended June 30, 1999 compared to the
same periods in 1998. The net increase is primarily attributable to debt
incurred to fund acquisitions and capital expenditures, partly offset by lower
interest rates.
Equity in net loss of affiliates remained constant at approximately $1.0 million
for the three months ended June 30, 1999 and 1998 and decreased to $4.4 million
from $14.9 million for the six months ended June 30, 1999 compared to the same
period in 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.
Gain on sale of programming interests and cable assets for the three and six
months ended June 30, 1998 consisted primarily of a gain of approximately $4.2
million and $123.8 million, respectively,
-16-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
resulting from the sale of certain cable television systems and a gain of
approximately $17.7 million from the sale of an interest in a regional sports
programming business in the first quarter of 1998.
Provision for preferential payment to related party consisted of the expensing
of the proportionate amount due with respect to an annual payment to Charles F.
Dolan made in connection with the acquisition of Cablevision of New York City.
Effective March 4, 1998, these preferential payments were terminated upon the
retirement of Mr. Dolan's preferred interest.
Minority interests for the three and six months ended June 30, 1999 and 1998
include CSC Holdings' preferred stock dividend requirements, 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 through April 8, 1999 and NBC's 25% share
of the net loss of Rainbow Media.
Net miscellaneous expense decreased to $3.3 million and $7.4 million,
respectively, for the three and six months ended June 30, 1999 compared to $5.8
million and $14.0 million, respectively, for the same periods in the prior year.
For the three and six months ended June 30, 1999, miscellaneous expense
consisted primarily of a charge of approximately $15.1 million resulting from
the write off of an investment held by Rainbow Media and a gain of approximately
$10.9 million resulting from the sale of certain marketable securities. For the
three and six months ended June 30, 1998, miscellaneous expense included $4.6
million and $9.2 million, respectively, relating to federal alternative minimum
taxes and state income taxes and approximately $1.2 million and $4.8 million,
respectively, relating to various other items.
-17-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Business Segments Results
The Company classifies its business interests into three fundamental areas:
Telecommunication Services, consisting principally of its cable television,
telephone and modem services operations; Rainbow Media, consisting principally
of interests in cable television programming networks and MSG, which owns and
operates professional sports teams, regional cable television networks, live
productions and entertainment venues; and Retail Electronics, which represents
the operations of Cablevision Electronics' retail electronics stores. The
Company allocates certain costs to each segment based upon their proportionate
estimated usage of services.
Telecommunication Services
The tables below set forth, for the periods presented, certain unaudited
historical financial information and the percentage that those items bear to
revenues for the Company's telecommunication services segment.
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------
1999 1998
----------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues ........................................ $ 532,474 100% $ 486,499 100%
Technical and operating expenses ................ 211,378 40 195,127 40
Selling, general and administrative expenses .... 127,928 24 107,673 22
Depreciation and amortization ................... 152,031 28 132,226 27
---------- ----------
Operating profit ....................... $ 41,137 8% $ 51,473 11%
========== ==========
Six Months Ended June 30,
--------------------------------------------------
1999 1998
----------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
Revenues ........................................ $1,057,964 100% $ 885,354 100%
Technical and operating expenses ................ 427,321 40 358,696 41
Selling, general and administrative expenses .... 278,235 26 211,783 24
Depreciation and amortization ................... 302,789 29 239,984 27
---------- ----------
Operating profit ....................... $ 49,619 5% $ 74,891 8%
========== ==========
</TABLE>
Revenues for the three and six months ended June 30, 1999 increased $46.0
million (10%) and $172.6 million (20%), respectively, as compared to revenues
for the same periods in the prior year. Approximately $8.0 million (2%) and
$84.9 million (10%), respectively, was attributable to the Net Acquisitions;
approximately $12.2 million (3%) and $29.2 million (3%), respectively, resulted
from higher revenue per subscriber and approximately $8.5 million (2%) and $17.0
million (2%),
-18-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
respectively, was attributable to internal growth in the average number of
subscribers during the periods. Approximately $12.1 million (2%) and $26.0
million (3%), respectively, was attributable to revenues from the Company's
developing telephone and modem businesses and revenue recognized in connection
with the At Home transaction. The remaining increase of approximately $5.2
million (1%) and $15.5 million (2%), respectively, resulted from other revenue
sources, including advertising.
Technical and operating expenses for the three and six months ended June 30,
1999 increased $16.3 million (8%) and $68.6 million (19%), respectively, over
the same periods in 1998. Approximately $3.6 million (2%) and $35.8 million
(10%), respectively, was attributable to the Net Acquisitions, with the
remaining $12.7 million (6%) and $32.8 million (9%), respectively, attributable
to increased costs directly associated with the growth in subscribers and
revenues discussed above, as well as to increases in programming costs for cable
television services. As a percentage of revenues, technical and operating
expenses remained relatively constant during the three months ended June 30,
1999 and decreased 1% during the six months ended June 30, 1999, as compared to
the same periods in the prior year.
Selling, general and administrative expenses increased $20.3 million (19%) and
$66.5 million (31%), respectively, for the three and six months ended June 30,
1999 as compared to the same periods in 1998. Approximately $15.8 million (15%)
and $53.7 million (25%), respectively, was due to higher charges related to an
incentive stock plan, approximately $3.1 million (3%) and $2.3 million (1%),
respectively, resulted from increased customer service and sales and marketing
costs and approximately $2.1 million (2%) and $2.6 million (1%) was due to year
2000 remediation costs. A decrease of $.7 million (1%) and an increase of
approximately $7.9 million (4%), respectively, was directly attributable to the
Net Acquisitions. As a percentage of revenues, selling, general and
administrative expenses increased 2% during both the three and six months ended
June 30, 1999 compared to the same 1998 periods. Excluding the effects of the
incentive stock plan and the year 2000 remediation costs, such costs decreased
1% and 2%, respectively, for the three and six months ended June 30, 1999 as
compared to the same periods in the prior year, as a percentage of revenues.
Depreciation and amortization expense increased $19.8 million (15%) and $62.8
million (26%), respectively, for the three and six months ended June 30, 1999
over the comparable 1998 periods. Approximately $11.0 million (8%) and $48.6
million (20%), respectively, of the increase was directly attributable to the
Net Acquisitions. The remaining increase of $8.8 million (7%) and $14.2 million
(6%), respectively, resulted primarily from depreciation on new plant assets.
-19-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Rainbow Media
The tables below set forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenues for
Rainbow Media.
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------
1999 1998
----------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues ........................................ $ 289,055 100% $ 240,604 100%
Technical and operating expenses ................ 157,741 55 142,315 59
Selling, general and administrative expenses .... 99,874 34 83,091 35
Depreciation and amortization ................... 39,848 14 36,691 15
--------- ---------
Operating loss ......................... $ (8,408) (3)% $ (21,493) (9)%
========= =========
Six Months Ended June 30,
--------------------------------------------------
1999 1998
----------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
Revenues ........................................ $ 587,650 100% $ 502,080 100%
Technical and operating expenses ................ 360,202 61 308,605 62
Selling, general and administrative expenses .... 233,057 40 166,712 33
Depreciation and amortization ................... 79,364 14 72,357 14
--------- ---------
Operating loss ......................... $ (84,973) (15)% $ (45,594) (9)%
========= =========
</TABLE>
Revenues for the three and six months ended June 30, 1999 increased $48.5
million (20%) and $85.6 million (17%), respectively, as compared to revenues for
the same periods in the prior year. Approximately $23.7 million (10%) and $45.7
million (9%), respectively, of the increase was attributable to internal growth
in programming network subscribers, rate increases and new channel launches.
Approximately $13.4 million (6%) and $16.2 million (3%), respectively, of the
net increase was attributable to an increase in advertising revenue. The
remaining $11.4 million (4%) and $23.7 million (5%), respectively, of the net
increase relates primarily to Madison Square Garden and is attributable to a
greater number of events, including the Knicks advancing to the NBA finals and
special events during the 1999 period, partially offset by a decrease in
revenues as a result of fewer performances at Radio City Music Hall due to its
closing for restoration.
Technical and operating expenses for the three and six months ended June 30,
1999 increased $15.4 million (11%) and $51.6 million (17%), respectively, over
the comparable 1998 periods. Approximately $6.9 million (5%) and $10.8 million
(4%), respectively, was associated with increased programming for new launches.
Approximately $13.0 million (4%) of the increase for
-20-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
the six months ended June 30, 1999 related to special events which occurred
during the 1999 period. The remaining net increase of $8.5 million (6%) and
$27.8 million (9%), respectively, was attributable to increased costs directly
associated with the net increase in revenues discussed above. As a percentage of
revenues, technical and operating expenses decreased 4% and 1% for the three and
six months ended June 30, 1999 over the comparable periods in 1998.
Selling, general and administrative expenses increased $16.8 million (20%) and
$66.3 million (40%), respectively, for the three and six months ended June 30,
1999 as compared to the same periods in 1998. Approximately $15.2 million (18%)
and $20.6 million (12%), respectively, was attributable to increases in sales
and marketing initiatives including the promotion of new channel launches,
advertising related expenses and other general cost increases. An approximate
$1.3 million (1%) decrease for the three month period and a $39.8 million (24%)
increase for the six month period was directly attributable to charges for an
incentive stock plan. Approximately $2.9 million (3%) and $5.9 million (4%),
respectively, was attributable to year 2000 remediation costs. As a percentage
of revenues, selling, general and administrative expenses decreased 1% for the
three month period and increased 7% for the six month period. Excluding the
effects of the incentive stock plan and the year 2000 remediation costs, as a
percentage of revenues such costs increased 2% for the three months ended June
30, 1999 and remained relatively constant for the six months ended June 30, 1999
as compared to the same periods in the prior year.
Depreciation and amortization expense increased $3.2 million (9%) and $7.0
million (10%), respectively, for the three and six months ended June 30, 1999
over the comparable periods in 1998 primarily due to depreciation on additional
fixed assets.
-21-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Retail Electronics
The tables below set forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenues for
the Company's retail electronics segment, Cablevision Electronics. The
information presented is for the three months ended June 30, 1999 and 1998 and
for the six months ended June 30, 1999 and the period from the date of the Wiz
Transaction, February 9, 1998 through June 30, 1998.
<TABLE>
<CAPTION>
Three Months Ended June 30,
--------------------------------------------------
1999 1998
----------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues ........................................ $ 136,331 100% $ 100,416 100%
Cost of sales ................................... 92,417 68 85,202 85
Selling, general and administrative expenses .... 49,892 37 21,884 22
Depreciation and amortization ................... 1,502 1 424 --
--------- ---------
Operating loss ............................. $ (7,480) (6)% $ (7,094) (7)%
========= =========
Six Months Ended Period Ended
June 30, 1999 June 30, 1998
----------------------- -----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
Revenues ........................................ $ 259,348 100% $ 134,720 100%
Cost of sales ................................... 197,214 76 116,518 86
Selling, general and administrative expenses .... 80,658 31 31,682 24
Depreciation and amortization ................... 2,954 1 1,202 1
--------- ---------
Operating loss ............................. $ (21,478) (8)% $ (14,682) (11)%
========= =========
</TABLE>
Revenues for the three and six months ended June 30, 1999 amounted to
approximately $136.3 million and $259.3 million, respectively, compared to
revenues of approximately $100.4 million for the three months ended June 30,
1998 and approximately $134.7 million for the period ended June 30, 1998. The
revenues for the period ended June 30, 1998 include operations of Cablevision
Electronics from the date of the Wiz Transaction, February 9, 1998, through June
30, 1998.
Cost of sales for the three and six months ended June 30, 1999 amounted to
approximately $92.4 million and $197.2 million (68% and 76% of revenues),
respectively. For the three months ended June 30, 1998 and for the period ended
June 30, 1998, costs of sales amounted to $85.2 million and $116.5 million (85%
and 86% of revenues), respectively. Such costs include the cost of merchandise
sold, including freight costs incurred, as well as store occupancy and buying
costs.
Selling, general and administrative expenses amounted to approximately $49.9
million and $80.7 million (37% and 31% of revenues) for the three and six months
ended June 30, 1999,
-22-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
respectively and $21.9 million and $31.7 million (22% and 24% of revenues) for
the three months ended June 30, 1998 and from the date of the Wiz Transaction
through June 30, 1998, respectively. Selling, general and administrative
expenses consist of retail store expenses (excluding store occupancy costs), the
salaries and commissions of sales personnel, the costs of advertising, the costs
of operating the distribution center and corporate support functions other than
buying.
Depreciation and amortization expense amounted to approximately $1.5 million and
$3.0 million for the three and six months ended June 30, 1999, respectively and
$.4 million and $1.2 million for the three months ended June 30, 1998 and from
the date of the Wiz Transaction through June 30, 1998, respectively.
Depreciation and amortization expense includes the depreciation of all property
and equipment and the amortization of intangible assets which resulted from the
Wiz Transaction.
Liquidity and Capital Resources
Cablevision Systems Corporation does not have any operations independent of its
subsidiaries. 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, Cablevision Systems Corporation does not have
cash needs independent of the needs of its subsidiaries.
Cablevision Systems Corporation 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 the Boston, Massachusetts
Metropolitan area and the commercial telephone operations of the Company's
subsidiary, Cablevision Lightpath, Inc. on Long Island, New York. As of April 4,
1999, the cable television subscribers of the TCI Systems (847,432 at March 31,
1999) became part of the Restricted Group upon the transfer of the TCI Systems
from Cablevision Systems Corporation to CSC Holdings, Inc.
The Unrestricted Group principally includes Rainbow Media, including Madison
Square Garden, other companies engaged in certain development activities ("New
Media"), Cablevision Electronics which acquired substantially all of the assets
associated with 40 The Wiz consumer electronics store locations on February 9,
1998 and Cablevision Cinemas, LLC which owns the Company's motion picture
theater assets.
-23-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
The following table presents selected historical results of operations and other
financial information related to the captioned groups or entities as of and for
the six months ended June 30, 1999.
<TABLE>
<CAPTION>
Interest Capital
Revenues AOCF* Expense Expenditures
-------- ----- ------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Restricted Group** .................. $ 1,025,245 $ 445,888 $ 189,711 $ 296,095
New Media ........................... 32,719 1,260 66 37,745
Rainbow Media (including MSG
and AMC) .......................... 587,650 74,847 26,036 24,837
Retail Electronics .................. 259,348 (16,802) 3,829 12,022
Other ............................... (24,945) (21,969) 3,916 10,151
----------- ----------- ----------- -----------
Total ........................... $ 1,880,017 $ 483,224 $ 223,558 $ 380,850
=========== =========== =========== ===========
</TABLE>
- - ------------------
* Defined as operating income (loss) before depreciation and amortization
and excluding incentive stock plan expense of $166,997 and the costs of
year 2000 remediation of $16,373.
** Includes the TCI Systems.
<TABLE>
<CAPTION>
Restricted Unrestricted
Group Group Total
----- ----- -----
(dollars in thousands)
<S> <C> <C> <C>
Debt and Redeemable Preferred Stock
Senior debt ......................................... $1,674,340 $ -- $1,674,340
Senior notes and debentures ......................... 2,194,631 -- 2,194,631
Subordinated notes and debentures ................... 1,048,443 -- 1,048,443
---------- ---------- ----------
4,917,414 -- 4,917,414
---------- ---------- ----------
Redeemable preferred stock of CSC Holdings .......... 1,328,359 -- 1,328,359
Rainbow Media:
RMHI senior debt ................................ -- 63,410 63,410
AMC senior debt ................................. -- 295,881 295,881
MSG senior debt ................................. -- 420,000 420,000
---------- ---------- ----------
Total Rainbow Media debt ..................... -- 779,291 779,291
---------- ---------- ----------
Retail Electronics debt ............................. -- 73,827 73,827
Other debt .......................................... -- 25,197 25,197
---------- ---------- ----------
Total debt and redeemable preferred stock .... $6,245,773 $ 878,315 $7,124,088
========== ========== ==========
</TABLE>
-24-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 2000 to fund its required spending. Planned
acceleration of the Company's plant upgrade, combined with additional amounts in
respect of the start up and operation of new businesses, such as high speed
internet access and digital video services, the expansion of residential
telephone services and the roll out of non-Long Island based commercial
telephone services, as well as additional investments or acquisitions, will
require raising additional capital. The Company may obtain the requisite funds
through assets sales, the monetization of certain investments, the issuance of
trust preferred securities and/or the incurrence of additional indebtedness. If
the additional capital were raised primarily through indebtedness, the Company
would require a waiver of certain financial covenants under the Restricted
Group's credit agreement. There can be no assurances that such a waiver could be
obtained. However, it is the Company's intent to obtain any such additional
capital in a manner that does not adversely affect its debt ratings.
In July 1999, the Company issued $500 million face amount of 8 1/8% Senior Notes
due 2009. The net proceeds of $491 million were used to repay outstanding
borrowings under CSC Holdings' credit facility.
CSC Holdings and certain other subsidiaries of the Company have a $2.2 billion
revolving credit facility maturing in March 2007 consisting of a $1 billion CSC
Holdings credit facility and a $1.2 billion MFR credit facility for its New
Jersey cable operations.
On August 4, 1999, the Restricted Group had total usage under its existing
credit agreement (including the MFR credit facility) of $1.2 billion and letters
of credit of $36.5 million issued on behalf of CSC Holdings. Unrestricted and
undrawn funds available to the Restricted Group amounted to approximately $944.5
million as of August 4, 1999.
----------------------------------------
As of August 4, 1999
(in thousands)
----------------------------------------
CSC
Holdings MFR Total
---------- ---------- ----------
Total facility $1,000,000 $1,200,000 $2,200,000
Outstanding debt 399,000 820,000 1,219,000
Outstanding letters of credit 36,453 -- 36,453
---------- ---------- ----------
Availability $ 564,547 $ 380,000 $ 944,547
========== ========== ==========
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 August 4, 1999, CSC Holdings had entered into interest exchange (swap)
agreements with several of its banks for 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 7 months. The
average effective annual interest rate on all Restricted Group bank debt
outstanding as of August 4, 1999 was approximately 6.3%.
TCI Systems
In May 1998, the TCI Systems entered into an $800 million credit facility which
was reduced by $100 million in July 1998.
On April 4, 1999, the TCI Systems were transferred to CSC Holdings. The
commitments under the TCI facility were terminated and the balance outstanding
was repaid on April 5, 1999 from borrowings under the MFR credit facility.
Rainbow Media
RMHI/AMC
Rainbow Media has a $300 million non-amortizing revolving credit facility
maturing on December 31, 2000, of which $20 million is restricted for specific
purposes. Of the $280 million balance of the facility, a further $180 million is
restricted to provide for repayment of a like amount of inter-company borrowings
from Regional Programming Partners ("RPP") as described below. As of August 4,
1999, there were outstanding borrowings of $39 million, leaving a balance of $61
million available to Rainbow Media under the credit facility as of that date.
On May 12, 1999, American Movie Classics, a wholly-owned subsidiary of Rainbow
Media, closed on a new $425 million credit facility consisting of a $200 million
reducing revolving credit facility and a $225 million amortizing term loan, both
of which mature on March 31, 2006. The amount of the available commitment under
the revolver will not begin to be reduced until June 2004. On May 12, 1999,
American Movie Classics distributed to its parent, Rainbow Media, approximately
$97 million, which Rainbow Media used to repay outstanding borrowings plus
interest and fees under its credit facility. As of August 4, 1999, American
Movie Classics had outstanding borrowings of $281 million, leaving unrestricted
funds available of $144 million.
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.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
The Company believes that for Rainbow Media and its wholly-owned subsidiaries,
which includes American Movie Classics, internally generated funds, together
with funds available under their credit agreements will be sufficient through
2000 to meet its projected funding requirements. Repayment of Rainbow Media's
credit facility at maturity may be met by refinancing the credit facility or
funds provided by other sources, including, without limitation, the Company.
There can be no assurance that Rainbow Media will be able to obtain refinancing
or funds from other sources on acceptable terms or at all.
RPP
In June 1998, Regional Programming Partners ("RPP"), a partnership which is 60%
owned by Rainbow Media and 40% owned by Fox/Liberty Networks, LLC, 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.
MSG
MSG has a $500 million revolving credit facility maturing on December 31, 2004
(the "MSG Credit Facility"). As of August 4, 1999, outstanding debt under the
MSG Credit Facility was $410 million. In addition, MSG had outstanding letters
of credit of $3.3 million resulting in unrestricted and undrawn funds available
of $86.7 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 projected funding requirements through 2000.
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 an unrelated entity, maturing on November 1, 2011.
Retail Electronics
Cablevision Electronics has a $110 million stand alone revolving 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 August 4, 1999, total
outstanding debt under the credit facility was $73.2 million with $3.1 million
in additional availability, based on the level of inventory as of that date. CSC
Holdings' investment in Cablevision Electronics was approximately $87.9 million
at June 30, 1999. Cablevision
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Electronics has received other financial support of approximately $54.4 million,
through August 4, 1999, in the form of letters of credit, guarantees and
intercompany loans primarily in respect of Cablevision Electronics' inventory
purchases.
The Company believes that Cablevision Electronics will require additional
financial support from CSC Holdings in respect of planned increases in inventory
purchases and other requirements through 2000 and that funds available under
Cablevision Electronics' credit agreement, together with this additional
financial support, will be sufficient to meet its projected funding requirements
through 2000.
Cablevision Cinemas, LLC
Cablevision Cinemas, LLC has a $15 million revolving credit bank facility
maturing on June 30, 2003. As of August 4, 1999, there was $7 million
outstanding under this bank facility.
In February 1999, Cablevision Cinemas, LLC completed the previously announced
acquisition of a motion picture theater from Loews for an aggregate purchase
price of approximately $21.8 million which was funded by an equity contribution
from CSC Holdings. In addition, Cablevision Cinemas, LLC acquired certain other
movie theaters for an additional $5.8 million from its available funds.
The Company believes that for Cablevision Cinemas, LLC, internally generated
funds, together with funds available under the existing credit agreement, will
be sufficient to meet its projected funding requirements through 2000.
Operating Activities
Net cash used in operating activities amounted to $8.7 million for the six
months ended June 30, 1999 compared to net cash provided by operating activities
of $62.4 million for the six months ended June 30, 1998. The 1999 cash used in
operating activities consisted primarily of a net loss of $406.5 million and a
net decrease in cash resulting from changes in assets and liabilities of $78.4
million, partially offset by depreciation and amortization of $415.2 million and
other non-cash items of $61.0 million.
The 1998 cash provided by operating activities of $62.4 million consisted
primarily of approximately $101.2 million of income before depreciation,
amortization and other non-cash items, offset by changes in assets and
liabilities of $38.8 million.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 1999 was
$524.3 million compared to net cash used in investing activities of $4.8 million
for the six months ended June 30, 1998. The 1999 investing activities consisted
of $380.9 million of capital expenditures, $114.4 million of payments for
acquisitions and other items of $39.9 million, partially offset by proceeds from
the sale of marketable securities of $10.9 million.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Net cash used in investing activities for the six months ended June 30, 1998 of
$4.8 million consisted of net proceeds of $440.2 million from the sale of
programming interests and cable assets, partially offset by $258.8 million of
capital expenditures, $165.9 million of payments for acquisitions and other
items of $20.3 million.
Financing Activities
Net cash provided by financing activities amounted to $417.5 million for the six
months ended June 30, 1999 compared to net cash used in financing activities of
$294.8 million for the six months ended June 30, 1998. In 1999, the Company's
financing activities consisted primarily of additional bank borrowings of $424.2
million, partially offset by other items aggregating $6.7 million.
Net cash used in financing activities of $294.8 million for the six months ended
June 30, 1998 consisted primarily of the net repayment of bank debt,
subordinated notes and senior debt of $384.5 million, the repayment of an
obligation to a related party of $197.2 million, the redemption of preferred
stock of subsidiary of $9.4 million and other net cash payments aggregating $.3
million, partially offset by $296.6 million derived from the issuance of senior
debentures.
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 developed a
plan to identify and address Y2K issues. The Company retained an independent
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 (including a Y2K coordinator assisted by 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 meets 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.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 One - 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 Two - 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. We continue to assess the criticality of these
systems to reflect changes in the business environment and greater understanding
of potential Y2K impacts. The scale consists 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 Three - Strategy and Planning - During this phase, the Company developed a
testing plan for all compliant systems and developed 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. The Company has substantially completed the strategy and planning stage
for all of its systems.
Phase Four - Portfolio Transformation/Remediation - During this phase, the
Company is executing the remediation strategies for non-compliant systems as
identified during Phase Three. The Company's efforts toward the remediation of
its most critical non-compliant systems are on target to be substantially
complete by September 30, 1999.
Phase Five - Testing - During this phase, which is running concurrently with the
remediation phase, the Company is testing 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 is ongoing, with the most significant effort planned over the
next several months.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Phase Six - 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 substantially 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
remediation methods for non-compliant systems, 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, for
Cablevision Cinemas and for corporate and company-wide needs. For the six months
ended June 30, 1999, the Company recorded approximately $16.3 million of
expenses relating to Y2K remediation. Additionally, through June 30, 1999, the
Company incurred $2.6 million of capital expenditures. In 1998, the Company
recorded approximately $7.6 million of expenses relating to Y2K remediation.
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.
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 non-compliant 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.
-31-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 has developed contingency plans to address
those risks, with major risk areas identified and initial plans completed.
Refinement of those contingency plans will continue throughout 1999, as
information about the potential risks is received. 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.
-32-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Part II. Other Information
Item 1. Legal Proceedings
The Company is party to various lawsuits, some involving substantial
amounts. Management does not believe that such lawsuits will have a
material adverse impact on the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company's Annual Meeting of Shareholders was held on June 17,
1999.
The following matters were voted upon at the Company's Annual
Meeting of Shareholders, indicating the number of votes cast for and
against as well as the number of abstentions:
Election of Directors:
Class A Directors:
Charles D. Ferris: For: 97,509,705
Votes withheld: 1,350,995
Richard H. Hochman: For: 98,474,639
Votes withheld: 386,061
Victor Oristano: For: 98,656,468
Votes withheld: 204,232
Vincent Tese: For: 95,539,148
Votes withheld: 1,321,552
Class B Directors:
William J. Bell For: 430,128,360
Charles F. Dolan Against: --
James L. Dolan
Patrick F. Dolan
Thomas C. Dolan
William R. Fitzgerald
Leo J. Hindery, Jr.
Robert S. Lemle
Marc A. Lustgarten
Sheila A. Mahony
John Tatta
Each nominee for election by the Class B common stockholders
received the same vote as indicated above.
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Amendment to Certificate of Incorporation to Authorize Additional Common
Shares
Class A Common Stock: For: 70,820,921
Against: 27,974,441
Abstain: 65,338
Class B Common Stock: For: 430,128,360
Against: --
Abstain: --
Ratification and approval of KPMG LLP
Class A Common Stock: For: 98,764,466
Against: 57,826
Abstain: 38,408
Class B Common Stock: For: 430,128,360
Against: --
Abstain: --
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 47.
(b) The Company has not filed any Current Reports on Form 8-K with
the Commission during the quarter for which this report is
filed.
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues ..................................... $ 1,880,017 $ 1,480,918 $ 946,309 $ 805,190
----------- ----------- ----------- -----------
Operating expenses:
Technical and operating ................... 757,131 628,804 355,250 316,400
Cost of sales ............................. 197,214 116,518 92,417 85,202
Selling, general and
administrative ......................... 625,818 408,555 297,194 211,966
Depreciation and amortization ............. 415,172 318,946 209,719 172,367
----------- ----------- ----------- -----------
1,995,335 1,472,823 954,580 785,935
----------- ----------- ----------- -----------
Operating profit (loss) ........... (115,318) 8,095 (8,271) 19,255
----------- ----------- ----------- -----------
Other income (expense):
Interest expense .......................... (223,558) (211,531) (114,266) (113,557)
Interest income ........................... 4,860 13,262 1,981 6,533
Equity in net loss of affiliates .......... (4,360) (14,893) (965) (1,028)
Gain on sale of programming interests
and cable assets, net .................. -- 141,488 -- 4,220
Write off of deferred financing costs ..... (4,406) (1,616) (4,406) (1,616)
Provision for preferential payment to
related party .......................... -- (980) -- --
Minority interests ........................ 30,415 9,096 5,191 9,014
Miscellaneous, net ........................ (7,437) (13,988) (3,264) (5,779)
----------- ----------- ----------- -----------
(204,486) (79,162) (115,729) (102,213)
----------- ----------- ----------- -----------
Net loss ..................................... (319,804) (71,067) (124,000) (82,958)
Dividend requirements applicable to
preferred stock ........................... (86,690) (79,088) (43,847) (39,993)
----------- ----------- ----------- -----------
Net loss applicable to common shareholder .... $ (406,494) $ (150,155) $ (167,847) $ (122,951)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents .................................. $ 58,289 $ 173,826
Accounts receivable trade (less allowance for
doubtful accounts of $38,932 and $34,377) ............... 205,937 197,726
Notes and other receivables ................................ 170,874 188,455
Inventory, prepaid expenses and other assets ............... 200,342 206,073
Property, plant and equipment, net ......................... 2,689,362 2,506,834
Investments in affiliates .................................. 290,330 276,231
Advances to affiliates ..................................... 34,913 36,927
Feature film inventory ..................................... 289,738 293,310
Net assets held for sale ................................... 11,867 11,006
Franchises, net of accumulated amortization
of $733,271 and $640,735 ................................ 758,118 850,653
Affiliation and other agreements, net of accumulated
amortization of $208,383 and $181,928 ................... 183,195 206,456
Excess costs over fair value of net assets acquired
and other intangible assets, net of accumulated
amortization of $837,909 and $775,557 ................... 1,982,375 2,003,128
Deferred financing, acquisition and other costs, net of
accumulated amortization of $45,064 and $41,882 ......... 101,069 110,400
---------- ----------
$6,976,409 $7,061,025
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDER'S DEFICIENCY 1999 1998
---- ----
<S> <C> <C>
Accounts payable ......................................................... $ 411,030 $ 423,039
Accrued liabilities ...................................................... 948,659 883,841
Feature film and contract obligations .................................... 319,202 373,722
Deferred revenue ......................................................... 240,367 334,213
Bank debt ................................................................ 2,475,714 2,051,549
Senior notes and debentures .............................................. 2,194,631 2,194,443
Subordinated notes and debentures ........................................ 1,048,443 1,048,375
Capital lease obligations and other debt ................................. 76,941 63,241
----------- -----------
Total liabilities ..................................................... 7,714,987 7,372,423
----------- -----------
Minority interests ....................................................... 624,965 719,007
----------- -----------
Series H Redeemable Exchangeable Preferred Stock ......................... 386,706 364,953
----------- -----------
Series M Redeemable Exchangeable Preferred Stock ......................... 941,653 891,386
----------- -----------
Commitments and contingencies
Stockholder's deficiency:
Series A Cumulative Convertible Preferred Stock,
200,000 shares authorized, none issued ........................... -- --
Series B Cumulative Convertible Preferred Stock,
200,000 shares authorized, none issued ........................... -- --
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
Common Stock, $1.00 par value, 1,000 shares authorized,
1,000 shares issued .............................................. 1 1
Paid-in capital ...................................................... 756,331 754,995
Accumulated deficit .................................................. (3,448,248) (3,041,754)
----------- -----------
Total stockholder's deficiency ....................................... (2,691,902) (2,286,744)
----------- -----------
$ 6,976,409 $ 7,061,025
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
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<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................ $ (319,804) $ (71,067)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization .................................... 415,172 318,946
Equity in net loss of affiliates ................................. 4,360 14,893
Minority interests ............................................... (30,415) (9,096)
Gain on sale of programming interests and cable assets ........... -- (141,488)
Gain on sale of marketable securities ............................ (10,861) --
Write off of investment in affiliate ............................. 15,100 --
Write off of deferred financing costs ............................ 4,406 1,616
Amortization of deferred financing costs ......................... 4,042 3,713
Amortization of debenture discount ............................... 256 221
(Gain) loss on sale of equipment ................................. 2,115 (1,802)
Changes in assets and liabilities, net of effects of
acquisitions and dispositions ................................ (71,525) (44,152)
----------- -----------
Net cash provided by operating activities ........................... 12,846 71,784
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of programming interests and cable assets .... -- 440,177
Payments for acquisitions, net of cash acquired ..................... (114,447) (154,266)
Proceeds from sale of marketable securities ......................... 10,861 --
Capital expenditures ................................................ (380,850) (258,849)
Proceeds from sale of plant and equipment ........................... 431 9,705
Additions to intangible assets ...................................... (5,420) (12,643)
Increase in investments in affiliates, net .......................... (33,559) (17,352)
----------- -----------
Net cash provided by (used in) investing activities .............. (522,984) 6,772
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ............................................. 1,873,047 3,808,751
Repayment of bank debt .............................................. (1,448,882) (3,929,748)
Repayment of senior debt ............................................ -- (112,500)
Repayment of subordinated notes payable ............................. -- (151,000)
Issuance of senior notes and debentures ............................. -- 296,571
Dividends applicable to preferred stock ............................. (14,670) (14,670)
Issuance of common stock ............................................ -- 2,444
Decrease in obligation to related party ............................. -- (197,183)
Payments of capital lease obligations and other debt ................ (9,072) (5,642)
Additions to deferred financing and other costs ..................... (5,822) (3,338)
Redemption of preferred stock ....................................... -- (9,409)
----------- -----------
Net cash provided by (used in) financing activities .............. 394,601 (315,724)
----------- -----------
Net decrease in cash and cash equivalents .............................. (115,537) (237,168)
Cash and cash equivalents at beginning of year ......................... 173,826 410,141
----------- -----------
Cash and cash equivalents at end of period ............................. $ 58,289 $ 172,973
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-38-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
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. 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.
In April 1999, Cablevision Systems Corporation contributed certain cable
television systems acquired from Tele-Communications, Inc. (the "TCI Systems")
on March 4, 1998 to the Company. This transaction was accounted for in a manner
similar to a pooling of interests, whereby the assets and liabilities of the TCI
Systems were recorded at historical book value (net assets of $509,574). Prior
period consolidated financial statements of the Company have been restated to
include the financial position and results of operations of the TCI Systems from
March 4, 1998.
Note 2. Responsibility for Interim Financial Statements
The financial statements as of and for the three and six month periods ended
June 30, 1999 and 1998 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 year ended December 31, 1998.
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, 1999.
Note 3. Reclassifications
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
Note 4. Loss Per Common Share
Net loss per common share for the three and six months ended June 30, 1999 and
1998 is not presented since the Company is a wholly owned subsidiary of
Cablevision Systems Corporation.
-39-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Note 5. Cash Flows
For purposes of the condensed 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 $204,780 and $199,128 for the six months ended June 30, 1999 and
1998, respectively. The Company's noncash financing and investing activities for
the six months ended June 30, 1999 and 1998 included capital lease obligations
of $22,772 and $4,699, respectively, incurred when the Company entered into
leases for new equipment, preferred stock dividend requirements of $72,020 and
$64,418, 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 receipt of warrants from At Home Corporation valued at $74,788 in 1998.
Note 6. Acquisitions
At various times in 1999, the Company acquired interests in the real property
and assets specifically related to certain movie theaters for an aggregate
purchase price of approximately $27,600. The acquisitions were accounted for as
a purchase with the operations of the acquired theaters being consolidated with
those of the Company as of the acquisition dates. The purchase price will be
allocated to the specific assets acquired when an independent appraisal is
obtained.
In April 1999, ITT Corporation ("ITT") exercised its second put for the
remainder of its minority interest in Madison Square Garden and settled certain
matters between the parties for a payment of $87,000.
Note 7. At Home
As of June 30, 1999 and 1998, deferred revenue derived from the receipt of At
Home warrents, net of amortization taken, amounted to approximately $187,245 and
$234,657, respectively. For the six months ended June 30, 1999 and 1998, the
Company recognized approximately $25,068 and $13,477, respectively, of this
deferred revenue.
Note 8. Segment Information
The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income (loss) before depreciation and
amortization and excluding incentive stock plan expense and the costs of year
2000 remediation).
-40-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Telecommunication Services ...... $ 1,057,964 $ 885,354 $ 532,474 $ 486,499
Rainbow Media ................... 587,650 502,080 289,055 240,604
Retail Electronics .............. 259,348 134,720 136,331 100,416
All Other ....................... 39,085 164 20,778 176
Intersegment Eliminations ....... (64,030) (41,400) (32,329) (22,505)
----------- ----------- ----------- -----------
Total ................ $ 1,880,017 $ 1,480,918 $ 946,309 $ 805,190
=========== =========== =========== ===========
Six Months Ended June 30, Three Months Ended June 30,
------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
Adjusted Operating Cash Flow
Telecommunication Services ...... $ 447,148 $ 351,449 $ 228,790 $ 200,122
Rainbow Media ................... 74,847 61,542 46,597 28,812
Retail Electronics .............. (16,802) (13,480) (5,497) (6,670)
All Other ....................... (21,969) (1,117) (13,983) (605)
----------- ----------- ----------- -----------
Total ................ $ 483,224 $ 398,394 $ 255,907 $ 221,659
=========== =========== =========== ===========
</TABLE>
-41-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue
Total revenue for reportable segments ...................... $ 1,904,962 $ 1,522,154 $ 957,860 $ 827,519
Other revenue and intersegment eliminations ................ (24,945) (41,236) (11,551) (22,329)
----------- ----------- ----------- -----------
Total consolidated revenue .......................... $ 1,880,017 $ 1,480,918 $ 946,309 $ 805,190
=========== =========== =========== ===========
Adjusted Operating Cash Flow to Net Loss
Total adjusted operating cash flow for
reportable segments ................................. $ 505,193 $ 399,511 $ 269,890 $ 222,264
Other adjusted operating cash flow deficit ................. (21,969) (1,117) (13,983) (605)
Items excluded from adjusted operating cash flow:
Depreciation and amortization ....................... (415,172) (318,946) (209,719) (172,367)
Incentive stock plan expense ........................ (166,997) (71,353) (45,658) (30,037)
Year 2000 remediation ............................... (16,373) -- (8,801) --
Interest expense .................................... (223,558) (211,531) (114,266) (113,557)
Interest income ..................................... 4,860 13,262 1,981 6,533
Equity in net loss of affiliates .................... (4,360) (14,893) (965) (1,028)
Gain on sale of programming interests and
cable assets, net .............................. -- 141,488 -- 4,220
Write off of deferred financing costs ............... (4,406) (1,616) (4,406) (1,616)
Provision for preferential payment to
related party .................................. -- (980) -- --
Minority interests .................................. 30,415 9,096 5,191 9,014
Miscellaneous, net .................................. (7,437) (13,988) (3,264) (5,779)
----------- ----------- ----------- -----------
Net loss .................................. $ (319,804) $ (71,067) $ (124,000) $ (82,958)
=========== =========== =========== ===========
</TABLE>
Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.
The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.
Note 9. Financial Instruments
In July 1999, Cablevision Systems Corporation ("Cablevision") entered into a
$100 million facility with a third party for Cablevision to acquire a beneficial
interest in shares of its Class A
-42-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
common stock through a forward swap contract facility that is available through
June 2000 with a final maturity date for all executed swaps of February 2001.
The terms of the facility provide for the settlement of any obligations of
Cablevision thereunder either in cash or Cablevision's Class A common stock.
Cablevision's obligation is guaranteed by the Company. Currently, there are no
outstanding contracts under this facility.
Note 10. Recent Developments
In May 1999, the Company entered into an agreement with Cable T.V. of
Tri-States, Inc., Matamoras Video Cable, Inc., Montague Cable Company, Inc. and
Joseph Biondo for the purchase of cable television systems with approximately
4,500 subscribers located in the Port Jervis, New York area.
In May 1999, the Company and the New Jersey Devils professional hockey team
entered into a non-binding letter of intent to form a joint venture to develop a
hockey arena and an adjacent entertainment and shopping complex in Hoboken, New
Jersey. No definitive documentation has been executed with respect to the
proposed New Jersey arena and entertainment/shopping complex and there are no
assurances that the necessary documentation will be executed or that this
transaction will be consummated. It has not yet been determined whether the
Company will be involved in the transaction, if the transaction is consummated.
In July 1999, the Company issued $500,000 principal amount of 8 1/8% Senior
Notes due 2009 (the "Senior Notes"). The Senior Notes were issued at a discount
of $2,330. The Senior Notes can not be redeemed by the Company prior to
maturity.
-43-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In April 1999, Cablevision Systems Corporation contributed certain cable
television systems acquired from Tele-Communications, Inc. (the "TCI Systems")
on March 4, 1998 to the Company. This transaction was accounted for in a manner
similar to a pooling of interests, whereby the assets and liabilities of the TCI
Systems were recorded at historical book value. Prior period consolidated
financial statements of the Company have been restated to include the financial
position and results of operations of the TCI Systems from March 4, 1998. As a
result, the operations of CSC Holdings are identical to the operations of
Cablevision Systems Corporation, except for dividends attributable to the
preferred stock of CSC Holdings which have been reported in minority interests
in the consolidated financial statements of Cablevision Systems Corporation.
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations on pages 12 through 32 of this
Form 10-Q.
-44-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
Part II. Other Information
Item 1. Legal Proceedings
The Company is party to various lawsuits, some involving substantial
amounts. Management does not believe that such lawsuits will have a
material adverse impact on the financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 47.
(b) The Company has not filed any Current Reports on Form 8-K with
the Commission during the quarter for which this report is
filed.
-45-
<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: August 16, 1999 /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: August 16, 1999 /s/ Andrew B. Rosengard
--------------------- ------------------------------
By: Andrew B. Rosengard, as Executive
Vice President, Finance and
Controller and Principal Accounting
Officer of Cablevision Systems
Corporation and CSC Holdings, Inc.
-46-
<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
-47-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001053112
<NAME> Cablevision Systems Corporation and Subsidiaries
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 58,289
<SECURITIES> 0
<RECEIVABLES> 244,869
<ALLOWANCES> (38,932)
<INVENTORY> 289,738
<CURRENT-ASSETS> 0
<PP&E> 4,654,377
<DEPRECIATION> (1,965,015)
<TOTAL-ASSETS> 6,981,678
<CURRENT-LIABILITIES> 0
<BONDS> 5,795,729
0
0
<COMMON> 1,523
<OTHER-SE> (3,011,487)
<TOTAL-LIABILITY-AND-EQUITY> 6,981,678
<SALES> 0
<TOTAL-REVENUES> 1,893,858
<CGS> 197,214
<TOTAL-COSTS> 757,131
<OTHER-EXPENSES> 415,172
<LOSS-PROVISION> (13,841)
<INTEREST-EXPENSE> 223,558
<INCOME-PRETAX> (406,494)
<INCOME-TAX> 0
<INCOME-CONTINUING> (406,494)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (406,494)
<EPS-BASIC> (2.68)
<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. and Subsidiaries
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 58,289
<SECURITIES> 0
<RECEIVABLES> 244,869
<ALLOWANCES> (38,932)
<INVENTORY> 289,738
<CURRENT-ASSETS> 0
<PP&E> 4,654,377
<DEPRECIATION> (1,965,015)
<TOTAL-ASSETS> 6,976,409
<CURRENT-LIABILITIES> 0
<BONDS> 5,795,729
1,328,359
14
<COMMON> 1
<OTHER-SE> (2,691,917)
<TOTAL-LIABILITY-AND-EQUITY> 6,976,409
<SALES> 0
<TOTAL-REVENUES> 1,893,858
<CGS> 197,214
<TOTAL-COSTS> 757,131
<OTHER-EXPENSES> 415,172
<LOSS-PROVISION> (13,841)
<INTEREST-EXPENSE> 223,558
<INCOME-PRETAX> (319,804)
<INCOME-TAX> 0
<INCOME-CONTINUING> (319,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (319,804)
<EPS-BASIC> (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>
