<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 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 May 6, 1999:
Cablevision Systems Corporation Class A Common Stock - 109,038,842
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
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three Months ended March 31, 1999 and 1998 (unaudited)...................................3
Condensed Consolidated Balance Sheets -
March 31, 1999 (unaudited) and December 31, 1998.........................................4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 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................................................................................29
CSC HOLDINGS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three Months ended March 31, 1999 and 1998 (unaudited)..................................30
Condensed Consolidated Balance Sheets -
March 31, 1999 (unaudited) and December 31, 1998........................................31
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 31, 1999 and 1998 (unaudited)..................................33
Notes to Condensed Consolidated Financial Statements (unaudited)........................34
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................................38
PART II - OTHER INFORMATION................................................................................46
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues ..................................................... $ 933,708 $ 675,728
----------- -----------
Operating expenses:
Technical and operating ................................... 401,881 312,404
Cost of sales ............................................. 104,797 31,316
Selling, general and
administrative ........................................ 328,624 196,589
Depreciation and amortization ............................. 205,453 146,579
----------- -----------
1,040,755 686,888
----------- -----------
Operating loss ..................................... (107,047) (11,160)
----------- -----------
Other income (expense):
Interest expense .......................................... (109,292) (97,974)
Interest income ........................................... 2,879 6,729
Equity in net loss of affiliates .......................... (3,395) (13,865)
Gain on sale of programming interests and cable assets, net -- 137,268
Provision for preferential payment to related party ....... -- (980)
Minority interests ........................................ (17,619) (39,013)
Miscellaneous, net ........................................ (4,173) (8,209)
----------- -----------
(131,600) (16,044)
----------- -----------
Net loss ..................................................... $ (238,647) $ (27,204)
----------- -----------
----------- -----------
Basic and diluted net loss per common share .................. $ (1.57) $ (.23)
----------- -----------
----------- -----------
Average number of common shares outstanding
(in thousands) ............................................ 151,625 115,768
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed
consolidated financial statements.
-3-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 158,574 $ 173,826
Accounts receivable trade (less allowance for doubtful accounts of
$36,693 and $34,377) ........................................................ 209,226 197,726
Notes and other receivables .................................................... 179,936 188,455
Inventory, prepaid expenses and other assets ................................... 192,297 206,073
Property, plant and equipment, net ............................................. 2,566,879 2,506,834
Investments in affiliates ...................................................... 281,905 276,231
Advances to affiliates ......................................................... 41,080 36,964
Feature film inventory ......................................................... 288,538 293,310
Net assets held for sale ....................................................... 10,656 11,006
Franchises, net of accumulated amortization of
$687,002 and $640,735 ....................................................... 804,386 850,653
Affiliation and other agreements, net of accumulated amortization of
$195,101 and $181,928 ....................................................... 193,283 206,456
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$806,636 and $775,557 ....................................................... 1,989,377 2,003,128
Deferred financing, acquisition and other costs, net of
accumulated amortization of $44,385 and $41,882 ............................. 105,819 110,400
---------- ----------
$7,021,956 $7,061,062
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-4-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
Accounts payable ............................................................................. $ 398,854 $ 423,039
Accrued liabilities .......................................................................... 988,061 885,488
Feature film and contract obligations ........................................................ 371,983 373,722
Deferred revenue ............................................................................. 258,935 334,213
Bank debt .................................................................................... 2,235,927 2,051,549
Senior notes and debentures .................................................................. 2,194,537 2,194,443
Subordinated notes and debentures ............................................................ 1,048,409 1,048,375
Capital lease obligations and other debt ..................................................... 64,974 63,241
----------- -----------
Total liabilities ........................................................................ 7,561,680 7,374,070
----------- -----------
Minority interests ........................................................................... 693,806 719,007
----------- -----------
Preferred stock of CSC Holdings, Inc. ........................................................ 1,615,178 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, 108,581,934 and 108,267,606 shares issued ................................ 1,086 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 .......................................................................... 388,575 386,495
Accumulated deficit ...................................................................... (3,238,342) (2,999,695)
----------- -----------
(2,848,250) (2,611,685)
Treasury stock, at cost (6,470 shares) ................................................... (458) --
----------- -----------
Total stockholders' deficiency ........................................................... (2,848,708) (2,611,685)
----------- -----------
$ 7,021,956 $ 7,061,062
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-5-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1999 and 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................... $ (238,647) $ (27,204)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ............................ 205,453 146,579
Equity in net loss of affiliates ......................... 3,395 13,865
Minority interests ....................................... 10,284 31,677
Gain on sale of programming interests and cable assets ... -- (137,268)
Gain on sale of marketable securities .................... (10,861) --
Write off of investment in affiliate ..................... 15,006 --
Amortization of deferred financing ....................... 2,072 1,920
Amortization of debenture discount ....................... 128 100
Loss on sale of equipment ................................ 1,159 288
Changes in assets and liabilities, net of effects
of acquisitions and dispositions ...................... 17,438 29,135
----------- -----------
Net cash provided by operating activities ................... 5,427 59,092
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of programming interests and cable assets -- 424,370
Payments for acquisitions, net of cash acquired ................ (24,787) (72,779)
Proceeds from sale of marketable securities .................... 10,861 --
Capital expenditures ........................................... (157,613) (150,453)
Proceeds from sale of plant and equipment ...................... 155 298
Additions to intangible assets ................................. (6,169) (11,687)
Increase in investments in affiliates, net ..................... (24,075) (11,736)
----------- -----------
Net cash provided by (used in) investing activities ......... (201,628) 178,013
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ........................................ 515,877 894,988
Repayment of bank debt ......................................... (331,499) (1,073,164)
Repayment of senior debt ....................................... -- (112,500)
Issuance of senior notes and debentures ........................ -- 296,571
Issuance of common stock ....................................... 2,082 2,614
Purchase of treasury stock ..................................... (458) --
Decrease in obligation to related party ........................ -- (197,183)
Payments of capital lease obligations and other debt ........... (3,186) (2,168)
Additions to deferred financing and other costs ................ (1,867) (23)
Redemption of preferred stock of CSC Holdings, Inc. ............ -- (9,409)
----------- -----------
Net cash provided by (used in) financing activities ......... 180,949 (200,274)
----------- -----------
Net increase (decrease) in cash and cash equivalents ............. (15,252) 36,831
Cash and cash equivalents at beginning of year ................... 173,826 410,141
----------- -----------
Cash and cash equivalents at end of period ....................... $ 158,574 $ 446,972
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-6-
<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 TCI 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 the two-for-one stock
splits effected on 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 month periods ended March 31,
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 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.
-7-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
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 $84,893 and $75,537 for the three months ended March 31, 1999 and
1998, respectively. The Company's noncash financing activities for the three
months ended March 31, 1999 and 1998 included capital lease obligations of
$4,919 incurred when the Company entered into leases for new equipment in 1999,
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. ACQUISITION
In February 1999, the Company acquired interests in the real property and assets
specifically related to certain movie theaters for an aggregate purchase price
of approximately $24,800. 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 date. 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)
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).
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUES
Telecommunication Services ................... $ 525,490 $ 398,855
Rainbow Media ................................ 298,595 261,476
Retail Electronics ........................... 123,017 34,304
All Other .................................... 18,307 (12)
Intersegment Eliminations .................... (31,701) (18,895)
--------- ---------
Total ............................... $ 933,708 $ 675,728
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
ADJUSTED OPERATING CASH FLOW
Telecommunication Services ................... $ 218,358 $ 151,327
Rainbow Media ................................ 28,250 32,730
Retail Electronics ........................... (11,305) (6,810)
All Other .................................... (7,986) (512)
--------- ---------
Total ............................... $ 227,317 $ 176,735
--------- ---------
--------- ---------
</TABLE>
-9-
<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>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUE
Total revenue for reportable segments ................... $ 947,102 $ 694,635
Other revenue and intersegment eliminations ............. (13,394) (18,907)
--------- ---------
Total consolidated revenue ........................ $ 933,708 $ 675,728
--------- ---------
--------- ---------
ADJUSTED OPERATING CASH FLOW TO NET LOSS
Total adjusted operating cash flow for reportable
segments .......................................... $ 235,303 $ 177,247
Other adjusted operating cash flow deficit .............. (7,986) (512)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (205,453) (146,579)
Incentive stock plan expense ...................... (121,339) (41,316)
Year 2000 remediation ............................. (7,572) --
Interest expense .................................. (109,292) (97,974)
Interest income ................................... 2,879 6,729
Equity in net loss of affiliates .................. (3,395) (13,865)
Gain on sale of programming interests and cable
assets, net .................................. -- 137,268
Provision for preferential payment to related party -- (980)
Minority interests ................................ (17,619) (39,013)
Miscellaneous, net ................................ (4,173) (8,209)
--------- ---------
Net loss ................................ $(238,647) $ (27,204)
--------- ---------
--------- ---------
</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. RECENT DEVELOPMENTS
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.
In April 1999, a $1.5 billion shelf registration statement to sell both debt and
preferred stock securities filed by the Company with the Securities and Exchange
Commission was declared effective.
-10-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
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.
-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 the Company's recently filed registration
statement on Form S-3, 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.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
-12-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
RECENT TRANSACTIONS
1999 ACQUISITIONS. In February 1999, the Company purchased certain theater
assets from Loews Cineplex Entertainment Corporation ("Loews").
1998 ACQUISITIONS. 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 February 1998,
Cablevision Electronics acquired substantially all of the assets associated with
40 The Wiz consumer electronics store locations (the "Wiz Transaction"). In
addition, in June 1998, CSC Holdings purchased 50% of ITT's then remaining
minority interest in Madison Square Garden.
1998 DISPOSITIONS. 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 table sets forth on an unaudited historical basis certain items
related to operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
1999 1998
--------------------- ---------------------
% of Net % of Net (Increase)/Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 933,708 100% $675,728 100% $ 257,980
Operating expenses:
Technical and operating................... 401,881 43 312,404 46 (89,477)
Cost of sales............................. 104,797 11 31,316 5 (73,481)
Selling, general and administrative....... 328,624 36 196,589 29 (132,035)
Depreciation and
amortization........................... 205,453 22 146,579 22 (58,874)
------- ---------- --------
Operating loss............................... (107,047) (12) (11,160) (2) (95,887)
Other income (expense):
Interest expense, net..................... (106,413) (11) (91,245) (13) (15,168)
Equity in net loss of affiliates.......... (3,395) - (13,865) (2) 10,470
Gain on sale of programming interests
and cable assets, net.................. - - 137,268 20 (137,268)
Provision for preferential
payment to related party............... - - (980) - 980
Minority interests........................ (17,619) (2) (39,013) (6) 21,394
Miscellaneous, net........................ (4,173) (1) (8,209) (1) 4,036
---------- ---------- ----------
Net loss..................................... $(238,647) (26)% $ (27,204) (4)% $(211,443)
---------- ---------- ----------
---------- ---------- ----------
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1)...................... $ 98,406 $135,419
Net cash provided by operating activities (2) 5,427 59,092
Net cash provided by (used in) investing
activities (2)............................ (201,628) 178,013
Net cash provided by (used in) financing
activities (2)............................ 180,949 (200,274)
</TABLE>
- ---------------------------------------
(1) Operating profit before depreciation and amortization is presented here
to provide additional information about the Company's ability to meet
future debt service, capital expenditures and working capital
requirements. Operating profit before depreciation and amortization
should be considered in addition to and not as a substitute for net
income and cash flows as indicators of financial performance and
liquidity as reported in accordance with generally accepted accounting
principles.
(2) See Item 1. - "Condensed Consolidated Statements of Cash Flows".
-14-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED
MARCH 31, 1998.
CONSOLIDATED RESULTS
REVENUES for the three months ended March 31, 1999 increased $258.0 million
(38%) as compared to revenues for the same period in the prior year.
Approximately $176.2 million (26%) of the increase was attributable to the Net
Acquisitions; approximately $56.1 million (8%) 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 $17.1 million (3%) resulted from higher
revenue per subscriber. The remaining increase of $8.6 million (1%) was
attributable to internal growth of 68,100 in the average number of subscribers
during the period.
TECHNICAL AND OPERATING EXPENSES for the three months ended March 31, 1999
increased $89.5 million (29%) compared to the same period in 1998. Approximately
$39.1 million (13%) was attributable to the Net Acquisitions, with the remaining
$50.4 million (16%) 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 3% during the 1999 period as compared
to the 1998 period.
COST OF SALES for the three months ended March 31, 1999 amounted to
approximately $104.8 million (85% of retail electronics sales) compared to
approximately $31.3 million (91% of retail electronics sales) from the date of
the Wiz Transaction through March 31, 1998. 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 $132.0 million (67%) for
the three months ended March 31, 1999 over the comparable period in 1998.
Approximately $78.9 million (40%) was due to a higher level of charges related
to an incentive stock plan (primarily attributable to an increase in the market
price of the Company's Class A Common Stock) and approximately $32.1 million
(17%) was directly attributable to the Net Acquisitions. Approximately $14.5
million (7%) of the increase resulted from additional administrative and sales
and marketing costs and approximately $6.5 million (3%) was due to year 2000
remediation costs. As a percentage of revenues, selling, general and
administrative expenses increased 7% in the 1999 period compared to the 1998
period. Excluding the effects of the incentive stock plan and the year 2000
remediation costs, as a percentage of revenues such costs decreased 2%.
OPERATING PROFIT BEFORE DEPRECIATION AND AMORTIZATION decreased $37.0 million
(27%) to $98.4 million for the three months ended March 31, 1999 from $135.4
million for the comparable period in 1998. The decrease resulted from the $78.9
million (58%) increase in charges related to an incentive stock plan, partially
offset by an increase of approximately $31.4 million (23%) attributable to the
Net Acquisitions and an increase of $10.5 million (8%) resulting from the
combined effect of the
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 12.4% in 1999. 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 $58.9 million (40%) for the
three months ended March 31, 1999 as compared to the same period in 1998.
Approximately $42.9 million (29%) of the increase was directly attributable to
the Net Acquisitions. The remaining $16.0 million (11%) increase resulted
primarily from depreciation on new plant assets.
NET INTEREST EXPENSE increased $15.2 million (17%) for the three months ended
March 31, 1999 compared to the same period 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 decreased to $3.4 million for the three months
ended March 31, 1999 from $13.9 million for the same 1998 period. 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 months
ended March 31, 1998 consisted primarily of a gain of approximately $119.6
million 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.
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 months ended March 31, 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
income (loss) of Madison Square Garden and NBC's 25% share of the net loss of
Rainbow Media.
NET MISCELLANEOUS EXPENSE decreased to $4.2 million for the three months ended
March 31, 1999 compared to $8.2 million for the same period in the prior year.
In 1999, miscellaneous expense includes a charge of approximately $15.0 million
resulting from the write off of an investment held by Rainbow Media, a gain of
$10.9 million resulting from the sale of certain marketable securities, and
various other expense items aggregating $.1 million. In 1998, miscellaneous
expense included
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
$4.5 million relating to federal alternative minimum taxes and state income
taxes, and various other items amounting to $3.7 million.
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 table below sets 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 March 31,
----------------------------------------------------
1999 1998
---------------------- ----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $525,490 100% $398,855 100%
Technical and operating expenses 215,943 41 163,569 41
Selling, general and administrative expenses 150,307 28 104,110 26
Depreciation and amortization 150,758 29 107,758 27
-------- ---------
Operating profit $ 8,482 2% $ 23,418 6%
--------- ---------
--------- ---------
</TABLE>
REVENUES for the three months ended March 31, 1999 increased $126.6 million
(32%) as compared to revenues for the same period in the prior year.
Approximately $76.9 million (19%) of the increase was attributable to the Net
Acquisitions; approximately $17.1 million (4%) resulted from higher revenue per
subscriber and approximately $8.6 million (2%) was attributable to internal
growth of 68,100 in the average number of subscribers during the period.
Approximately $13.2 million (4%) 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 $10.8
million (3%) resulted from other revenue sources, including advertising and pay
per view services.
TECHNICAL AND OPERATING EXPENSES for the three months ended March 31, 1999
increased $52.4 million (32%) over the same period in 1998. Approximately $32.1
million (20%) was attributable to the Net Acquisitions, with the remaining $20.3
million (12%) attributable to increased costs directly associated with the
growth in subscribers and revenues discussed above, as well as to
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
increases in programming costs for cable television services. As a percentage of
revenues, operating expenses remained relatively constant during the 1999 period
as compared to the 1998 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $46.2 million (44%) for
the three months ended March 31, 1999 as compared to the same period in 1998. An
increase of approximately $8.6 million (8%) was directly attributable to the Net
Acquisitions and $37.9 million (36%) was due to higher charges related to an
incentive stock plan, partially offset by other net decreases aggregating $.3
million. As a percentage of revenues, selling, general and administrative
expenses increased 2% in the 1999 period compared to the 1998 period. Excluding
the effects of the incentive stock plan and the year 2000 remediation costs,
such costs decreased 4% as a percentage of revenues.
DEPRECIATION AND AMORTIZATION EXPENSE increased $43.0 million (40%) for the
three months ended March 31, 1999 over the comparable 1998 period. Approximately
$37.6 million (35%) of the increase was directly attributable to the Net
Acquisitions. The remaining $5.4 million (5%) increase resulted primarily
from depreciation on new plant assets.
RAINBOW MEDIA
The table below sets 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 March 31,
----------------------------------------------------
1999 1998
---------------------- ----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $298,595 100% $261,476 100%
Technical and operating expenses 202,461 68 166,290 64
Selling, general and administrative expenses 133,183 45 83,621 32
Depreciation and amortization 39,516 13 35,666 13
--------- --------
Operating loss $ (76,565) (26)% $(24,101) (9)%
--------- --------
--------- --------
</TABLE>
REVENUES for the three months ended March 31, 1999 increased $37.1 million
(14%) as compared to revenues for the same period in the prior year.
Approximately $21.3 million (8%) of the increase was attributable to internal
growth in programming network subscribers, accompanied by new channel
launches. Approximately $13.4 million (5%) of the net increase relates to
Madison Square Garden and is attributable to a greater number of events,
including 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 and a decrease in the number of
basketball games due to the shortened NBA season. The remaining $2.4 million
(1%) was attributable to an increase in cable television advertising sales.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
TECHNICAL AND OPERATING EXPENSES for the three months ended March 31, 1999
increased $36.2 million (22%) over the comparable 1998 period. Approximately
$21.0 million (13%) of the increase was associated with increased programming
for new launches, the development of new programming for existing networks
and an increase in network programming costs. The remaining $15.2 million
(9%) net increase was attributable to increased costs directly associated
with the net increase in revenues discussed above. As a percentage of
revenues, operating expenses increased 4% during the 1999 period as compared
to the 1998 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $49.6 million (59%) for
the three months ended March 31, 1999 as compared to the same period in 1998.
Approximately $41.1 million (49%) of the increase was directly attributable to
charges for an incentive stock plan. Approximately $5.5 million (6%) was
attributable to increases in sales and marketing initiatives primarily related
to the promotion of new channel launches, advertising related expenses and other
general cost increases and approximately $3.0 million (4%) was attributable to
year 2000 remediation costs. As a percentage of revenues, selling, general and
administrative expenses increased 13% during the 1999 period as compared to the
1998 period. Excluding the effects of the incentive stock plan and the year 2000
remediation costs, as a percentage of revenues such costs decreased 1%.
DEPRECIATION AND AMORTIZATION EXPENSE increased $3.9 million (11%) for the three
months ended March 31, 1999 over the comparable period in 1998 primarily due to
depreciation on additional fixed assets.
RETAIL ELECTRONICS
The table below sets 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 March 31, 1999 and for the
period from the date of the Wiz Transaction, February 9, 1998 through March 31,
1998.
<TABLE>
<CAPTION>
Three Months Ended Period Ended
March 31, 1999 March 31, 1998
----------------------- ----------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $123,017 100% $34,304 100%
Cost of sales 104,797 85 31,316 91
Selling, general and administrative expenses 30,766 25 9,798 29
Depreciation and amortization 1,452 1 778 2
--------- --------
Operating loss $(13,998) (11)% $(7,588) (22)%
--------- --------
--------- --------
</TABLE>
REVENUES for the three months ended March 31, 1999 amounted to approximately
$123.0 million compared to
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
revenues for the period ended March 31, 1998 of approximately $34.3 million.
The revenues for the 1998 period include operations of Cablevision
Electronics from the date of the Wiz Transaction, February 9, 1998, through
March 31, 1998.
COST OF SALES for the three months ended March 31, 1999 amounted to
approximately $104.8 million (85% of revenues). For the period ended March 31,
1998, costs of sales amounted to $31.3 million (91% of revenues). 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 $30.8
million (25% of revenues) for the three months ended March 31, 1999 and $9.8
million (29% of revenues) from the date of the Wiz Transaction through March 31,
1998. 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, operating the distribution center and
corporate support functions other than buying.
DEPRECIATION AND AMORTIZATION EXPENSE amounted to approximately $1.5 million (1%
of revenues) for the three months ended March 31, 1999 and $.8 million (2% of
revenues) from the date of the Wiz Transaction through March 31, 1998.
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
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
electronics store locations on February 9, 1998 and Cablevision Cinemas, LLC
which owns the Company's motion picture theater assets.
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 three months ended March 31, 1999.
<TABLE>
<CAPTION>
Operating
Profit (Loss)
Before
Depreciation
and Interest Capital
Revenues Amortization Expense Expenditures
-------- ------------ ------- ------------
(dollars in thousands)
<S> ................................. <C> <C> <C> <C>
Restricted Group .................... $ 392,740 $ 111,815 $ 85,639 $ 110,897
TCI Systems* ........................ 117,079 47,886 8,192 15,333
New Media ........................... 15,671 (3,445) 25 15,164
Rainbow Media (including MSG and AMC) 298,595 (37,049) 11,610 7,571
Retail Electronics .................. 123,017 (12,546) 1,848 4,207
Other ............................... (13,394) (8,255) 1,978 4,441
--------- --------- --------- ---------
Total ........................... $ 933,708 $ 98,406 $ 109,292 $ 157,613
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------
*became a member of the Restricted Group on April 4, 1999.
<TABLE>
<CAPTION>
Restricted Unrestricted
Group Group Total
----- ----- -----
(dollars in thousands)
Debt and Redeemable Preferred Stock
- -----------------------------------
<S> <C> <C> <C>
Senior debt ................................... $1,037,481 $ 481,500 $1,518,981
Senior notes and debentures ................... 2,194,537 -- 2,194,537
Subordinated notes and debentures ............. 1,048,409 -- 1,048,409
---------- ---------- ----------
4,280,427 481,500 4,761,927
---------- ---------- ----------
Redeemable preferred stock of CSC Holdings .... 1,291,847 -- 1,291,847
Rainbow Media:
RMHI senior debt .......................... -- 122,630 122,630
AMC senior debt ........................... -- 203,048 203,048
MSG senior debt ........................... -- 372,000 372,000
---------- ---------- ----------
Total Rainbow Media debt ................ -- 697,678 697,678
---------- ---------- ----------
Retail Electronics debt ....................... -- 67,384 67,384
Other debt .................................... -- 16,858 16,858
---------- ---------- ----------
Total debt and redeemable preferred stock $5,572,274 $1,263,420 $6,835,694
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
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<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, to expand residential
telephone services and to roll out the non-Long Island based commercial
telephone business, as well as additional investments or acquisitions will
require raising additional capital. The Company may obtain the requisite
funds through asset sales, the monetization of certain investments, the
issuance of trust preferred securities and/or the incurrence of additional
indebtedness. The Company will seek to obtain any such additional capital in
a manner that does not adversely affect its debt ratings.
In April 1999, a $1.5 billion shelf registration statement to sell both debt and
preferred stock securities filed by the Company with the Securities and Exchange
Commission was declared effective.
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 April 30, 1999, the Restricted Group had total usage under its existing
Credit Agreement (including the MFR credit facility) of $1.5 billion and letters
of credit of $35.7 million issued on behalf of CSC Holdings. Unrestricted and
undrawn funds available to the Restricted Group amounted to approximately $623.8
million as of April 30, 1999. Upon the transfer of the TCI Systems to CSC
Holdings, which occurred on April 4, 1999, the full amount of the MFR facility
may be utilized.
<TABLE>
<CAPTION>
----------------------------------------------------------
As of April 30, 1999
(in thousands)
------------------ ------------------- -------------------
CSC
Holdings MFR Total
-------- --- -----
<S> <C> <C> <C>
Total facility $1,000,000 $1,200,000 $2,200,000
Outstanding debt 628,000 912,500 1,540,500
Outstanding letters of credit 35,659 -- 35,659
----------- ----------- -----------
Availability $ 336,341 $ 287,500 $ 623,841
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ----------------------
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
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
funds. As of April 30, 1999, CSC Holdings had entered into interest exchange
(swap) agreements with several of its banks on a notional amount of $225
million, on which CSC Holdings pays a fixed rate of interest and receives a
variable rate of interest for specified periods, with an average maturity of 8
months. The average effective annual interest rate on all Restricted Group bank
debt outstanding as of April 30, 1999 was approximately 6.1%.
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 May 12,
1999, there were no outstanding borrowings, leaving a balance of $100 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 under its credit facility. As of May 12 1999, American Movie Classics
had outstanding borrowings of $286 million, leaving unrestricted funds available
of $139 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.
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
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
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 April 30, 1999, outstanding debt under the
MSG Credit Facility was $412 million. In addition, MSG had outstanding letters
of credit of $3.3 million resulting in unrestricted and undrawn funds available
amounting to $84.7 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 stand alone credit facility, which as of April
30, 1999, was $110 million. 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
April 30, 1999, usage under the credit facility was $62.4 million with $4.6
million available thereunder, based on the level of inventory as of that
date. CSC Holdings' investment in Cablevision Electronics was approximately
$88 million at March 31, 1999. Cablevision Electronics has received other
financial support of approximately $45.6 million, through April 30, 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
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
with this additional financial support, will be sufficient to meet its projected
funding requirements through 2000.
CABLEVISION CINEMAS, LLC
Cablevision Cinemas, LLC currently has a $15 million revolving credit bank
facility maturing on June 30, 2003. As of April 30, 1999, there were no
outstanding borrowings 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 $3 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 provided by operating activities amounted to $5.4 million for the three
months ended March 31, 1999 compared to $59.1 million for the three months ended
March 31, 1998. The 1999 cash provided by operating activities consisted
primarily of depreciation and amortization of $205.5 million, other non-cash
items of $32.0 million and a net increase in cash resulting from changes in
assets and liabilities of $17.4 million, partially offset by a net loss of
$238.6 million and a gain of $10.9 million on the sale of marketable securities.
The 1998 cash provided by operating activities of $59.1 million consisted
primarily of changes in assets and liabilities of $29.1 million and
approximately $30.0 million of income before depreciation, amortization and
other non-cash expenses.
INVESTING ACTIVITIES
Net cash used in investing activities for the three months ended March 31, 1999
was $201.6 million compared to net cash provided by investing activities of
$178.0 million for the three months ended March 31, 1998. The 1999 investing
activities consisted of $157.6 million of capital expenditures, $24.8 million of
payments for acquisitions, and other items of $30.1 million, partially offset by
proceeds from the sale of marketable securities of $10.9 million.
Net cash provided by investing activities for the three months ended March 31,
1998 of $178.0 million consisted of net proceeds of $424.4 million from the sale
of programming interests and cable assets, partially offset by $150.5 million of
capital expenditures, $72.8 million of payments for acquisitions and other items
of $23.1 million.
FINANCING ACTIVITIES
Net cash provided by financing activities amounted to $180.9 million for the
three months ended March 31, 1999 compared to net cash used in financing
activities of $200.3 million for the three months ended March 31, 1998. In 1999,
the Company's financing activities consisted primarily
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<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
of additional bank borrowings of $184.4 million, partially offset by other items
aggregating $3.5 million.
Net cash used in financing activities of $200.3 million for the three months
ended March 31, 1998 consisted primarily of the repayment of an obligation to a
related party of $197.2 million.
YEAR 2000
The year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999. As a result of these issues, the potential exists for
computer system failure or miscalculations by computer programs, which could
cause disruption of the Company's operations.
The Company recognizes the need to ensure that any disruption of its operations
resulting from the Y2K issue is minimized. Accordingly, the Company 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.
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
-26-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
businesses and assigned a criticality rating on a five point scale consisting of
(1) "Critical" (required for continued operation); (2) "High" (major business
impact); (3) "Medium" (significant business impact); (4) "Low" (minor business
impact); and (5) "Minimal" (insignificant or no business impact). Additionally,
during this phase the Company contacted the vendors of each of its systems to
determine which systems are Y2K compliant or non-compliant. Based upon its Phase
Two review, which was substantially completed during the third fiscal quarter of
1998, the Company believes that approximately 35% of its IT and non-IT systems
may be non-compliant and that approximately 65% of these non-compliant systems
are of a criticality rating of (3) "Medium" (significant business impact) or
above.
PHASE 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.
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 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
-27-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
scheduled to be replaced or upgraded, accelerating programs that were already
contemplated specifically for the purpose of addressing Y2K issues, and
including both internal and external resources, may range between $40 to $60
million for its existing businesses. This estimate includes amounts for the
Company's telecommunications systems, including cable, modem and telephone, for
Rainbow Media's programming operations, for Madison Square Garden including the
arena, its professional sports teams, its cable television networks, and for
Radio City Entertainment, for the Wiz and for corporate and company-wide needs.
For the three months ended March 31, 1999, 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 noncompliant systems or successfully remediate all those
that are identified. Failure of IT or non-IT systems that are necessary for the
operation of the Company's businesses, including, without limitation, its
billing systems, addressable controller and converter systems, purchasing,
finance and inventory systems, marketing databases and point of sale systems,
could have a material adverse effect on the Company.
The Company is dependent upon third-party products and services, such as utility
services and programming uplinks, for the operation of its businesses. While, as
part of the Inventory and Assessment phase of its Y2K program, the Company has
contacted third party product and service providers to ascertain whether Y2K
compliance issues may exist, it has in many cases not received assurances from
such suppliers. Moreover, in most cases, the Company does not have the ability
to verify any assurances it does receive from third party suppliers. If critical
IT or non-IT systems used by such third party suppliers fail as a result of a
Y2K compliance issue, and as a result of such failure the ability of such
supplier to continue to provide such product or service to the Company is
interrupted, the Company's ability to continue to provide services to its
customers may be interrupted. Such an interruption could have a material adverse
effect on the Company. The Company is in the process of developing contingency
plans to address those risks, with major risk areas identified and initial plans
scheduled to be completed by June 30, 1999. 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.
-28-
<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 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 48.
(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.
-29-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues ..................................................... $ 824,984 $ 645,382
--------- ---------
Operating expenses:
Technical and operating ................................... 360,963 300,703
Cost of sales ............................................. 104,797 31,316
Selling, general and
administrative ........................................ 308,704 189,181
Depreciation and amortization ............................. 157,781 135,049
--------- ---------
932,245 656,249
--------- ---------
Operating loss ..................................... (107,261) (10,867)
--------- ---------
Other income (expense):
Interest expense .......................................... (101,100) (94,512)
Interest income ........................................... 2,862 6,717
Equity in net loss of affiliates .......................... (3,395) (13,865)
Gain on sale of programming interests and cable assets, net -- 137,268
Provision for preferential payment to related party ....... -- (980)
Minority interests ........................................ 25,825 82
Miscellaneous, net ........................................ (3,483) (8,209)
--------- ---------
(79,291) 26,501
--------- ---------
Net income (loss) ............................................ (186,552) 15,634
Dividend requirements applicable to preferred stock .......... (42,843) (39,095)
--------- ---------
Net loss applicable to common shareholder .................... $(229,395) $ (23,461)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-30-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
---- ----
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 158,276 $ 173,699
Accounts receivable trade (less allowance for doubtful accounts of
$33,944 and $31,910) ........................................................ 200,978 191,954
Notes and other receivables .................................................... 132,900 143,666
Inventory, prepaid expenses and other assets ................................... 189,305 202,512
Property, plant and equipment, net ............................................. 2,178,110 2,110,839
Investments in affiliates ...................................................... 281,905 276,231
Advances to affiliates ......................................................... 52,320 37,001
Feature film inventory ......................................................... 288,538 293,310
Net assets held for sale ....................................................... 10,656 11,006
Franchises, net of accumulated amortization of
$595,377 and $570,319 ....................................................... 302,235 327,293
Affiliation and other agreements, net of accumulated amortization of
$195,101 and $181,928 ....................................................... 193,283 206,456
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$789,764 and $762,589 ....................................................... 1,844,112 1,854,605
Deferred financing, acquisition and other costs, net of
accumulated amortization of $43,975 and $41,566 ............................. 102,751 107,288
---------- ----------
$5,935,369 $5,935,860
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-31-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
Accounts payable ............................................................ $ 353,377 $ 382,877
Accrued liabilities ......................................................... 890,424 792,909
Feature film and contract obligations ....................................... 371,983 373,722
Deferred revenue ............................................................ 258,935 334,213
Bank debt ................................................................... 1,754,427 1,528,549
Senior notes and debentures ................................................. 2,194,537 2,194,443
Subordinated notes and debentures ........................................... 1,048,409 1,048,375
Capital lease obligations and other debt .................................... 64,974 63,241
----------- -----------
Total liabilities ....................................................... 6,937,066 6,718,329
----------- -----------
Minority interests .......................................................... 760,204 785,545
----------- -----------
Series H Redeemable Exchangeable Preferred Stock ............................ 375,672 364,953
----------- -----------
Series M Redeemable Exchangeable Preferred Stock ............................ 916,175 891,386
----------- -----------
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 ......................................................... 170,287 170,287
Accumulated deficit ..................................................... (3,224,050) (2,994,655)
----------- -----------
Total stockholder's deficiency .......................................... (3,053,748) (2,824,353)
----------- -----------
$ 5,935,369 $ 5,935,860
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-32-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................................. $ (186,552) $ 15,634
----------- -----------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization ............................ 157,781 135,049
Equity in net loss of affiliates ......................... 3,395 13,865
Minority interests ....................................... (25,825) (82)
Gain on sale of programming interests and cable assets ... -- (137,268)
Gain on sale of marketable securities .................... (10,861) --
Write off of investment in affiliate ..................... 15,006 --
Amortization of deferred financing ....................... 1,996 1,920
Amortization of debenture discount ....................... 128 100
Loss on sale of equipment ................................ 559 288
Changes in assets and liabilities, net of effects
of acquisitions and dispositions ...................... 459 (5,087)
----------- -----------
Net cash provided by (used in) operating activities ......... (43,914) 24,419
----------- -----------
Cash flows from investing activities:
Net proceeds from sale of programming interests and cable assets -- 424,370
Payment for acquisitions, net of cash acquired ................. (24,787) (61,206)
Proceeds from sale of marketable securities .................... 10,861 --
Capital expenditures ........................................... (142,280) (149,648)
Proceeds from sale of plant and equipment ...................... 755 298
Additions to intangible assets ................................. (5,523) (11,686)
Increase in investments in affiliates, net ..................... (24,075) (11,736)
----------- -----------
Net cash provided by (used in) investing activities ......... (185,049) 190,392
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ........................................ 488,627 894,988
Repayment of bank debt ......................................... (262,749) (1,048,164)
Repayment of senior debt ....................................... -- (112,500)
Issuance of senior notes and debentures ........................ -- 296,571
Preferred stock dividends ...................................... (7,335) (7,336)
Issuance of common stock ....................................... -- 2,444
Decrease in obligation to related party ........................ -- (197,183)
Payments of capital lease obligations and other debt ........... (3,186) (2,168)
Additions to deferred financing and other costs ................ (1,817) (23)
Redemption of preferred stock .................................. -- (9,409)
----------- -----------
Net cash provided by (used in) financing activities ......... 213,540 (182,780)
----------- -----------
Net increase (decrease) in cash and cash equivalents ............. (15,423) 32,031
Cash and cash equivalents at beginning of year ................... 173,699 410,141
----------- -----------
Cash and cash equivalents at end of period ....................... $ 158,276 $ 442,172
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-33-
<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.
Note 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the three month periods ended March 31,
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 months ended March 31, 1999 and 1998 is
not presented since the Company is a wholly owned subsidiary of Cablevision
Systems Corporation.
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 $81,185 and $74,628 for the three months ended March 31, 1999 and
1998, respectively. The Company's noncash financing activities for the three
months ended March 31, 1999 and 1998 included capital lease obligations of
$4,919 incurred when the Company entered into leases for new equipment in 1999,
preferred stock dividend requirements of $35,508 and $31,759, respectively, the
issuance of common stock valued at $4,848 to redeem certain limited partnership
interests in a subsidiary
-34-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
of the Company in 1998, and the receipt of warrants from At Home Corporation
valued at $74,788 in 1998.
Note 6. ACQUISITIONS
In February 1999, the Company acquired interests in the real property and assets
specifically related to certain movie theaters for an aggregate purchase price
of approximately $24,800. 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 date. The purchase price will be allocated to the
specific assets acquired when an independent appraisal is obtained.
Note 7. 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>
Three Months Ended March 31,
----------------------------
Revenues 1999 1998
- -------- ---- ----
<S> <C> <C>
Telecommunication Services .................... $ 408,411 $ 366,515
Rainbow Media ................................. 298,595 261,476
Retail Electronics ............................ 123,017 34,304
All Other ..................................... 18,307 (12)
Intersegment Elimination ...................... (23,346) (16,901)
--------- ---------
Total ................................ $ 824,984 $ 645,382
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
Adjusted Operating Cash Flow 1999 1998
- ---------------------------- ---- ----
<S> <C> <C>
Telecommunication Services ................... $ 167,986 $ 139,440
Rainbow Media ................................ 28,250 32,730
Retail Electronics ........................... (11,305) (6,810)
All Other .................................... (7,986) (512)
--------- ---------
Total ............................... $ 176,945 $ 164,848
--------- ---------
--------- ---------
</TABLE>
-35-
<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>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
REVENUE
Total revenue for reportable segments ................... $ 830,023 $ 662,295
Other revenue and intersegment eliminations ............. (5,039) (16,913)
--------- ---------
Total consolidated revenue ........................ $ 824,984 $ 645,382
--------- ---------
--------- ---------
ADJUSTED OPERATING CASH FLOW TO NET LOSS
Total adjusted operating cash flow for reportable
segments .......................................... $ 184,931 $ 165,360
Other adjusted operating cash flow deficit .............. (7,986) (512)
Items excluded from adjusted operating cash flow
Depreciation and amortization ..................... (157,781) (135,049)
Incentive stock plan expense ...................... (118,958) (40,666)
Year 2000 remediation ............................. (7,467) --
Interest expense .................................. (101,100) (94,512)
Interest income ................................... 2,862 6,717
Equity in net loss of affiliates .................. (3,395) (13,865)
Gain on sale of programming interests and cable
assets, net .................................. -- 137,268
Provision for preferential payment to related party -- (980)
Minority interests ................................ 25,825 82
Miscellaneous, net ................................ (3,483) (8,209)
--------- ---------
Net loss ................................ $(186,552) $ 15,634
--------- ---------
--------- ---------
</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 8. RECENT DEVELOPMENTS
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 will be accounted for in a
manner similar to a pooling of interests, whereby the assets and liabilities of
the TCI Systems will be recorded at historical book value. The total assets and
total liabilities of the TCI Systems at March 31, 1999 amounted to $1,097,812
and $634,761, respectively. For the three months ended March 31, 1999, the TCI
Systems had net revenues of $117,079 and a net loss of $8,651.
-36-
<PAGE>
CSC HOLDINGS, INC. 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.
In April 1999, a $1.5 billion shelf registration statement to sell both debt and
preferred stock securities filed with the Company with the Securities and
Exchange Commission was declared effective.
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.
-37-
<PAGE>
CSC HOLDINGS, INC. 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 the Company's recently filed registration
statement on Form S-3, 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.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
-38-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
RECENT TRANSACTIONS
1999 ACQUISITIONS. In February 1999, the Company purchased certain theater
assets from Loews Cineplex Entertainment Corporation ("Loews").
1998 ACQUISITIONS. In December 1998, the net assets of Clearview Cinema Group,
Inc. ("Clearview") and certain assets of Loews were acquired. In February 1998,
Cablevision Electronics acquired substantially all of the assets associated with
40 The Wiz consumer electronics store locations (the "Wiz Transaction"). In
addition, in June 1998, the Company purchased 50% of ITT's then remaining
minority interest in Madison Square Garden.
1998 DISPOSITIONS. In 1998, the Company completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. ("U.S. Cable") and the sale
of several smaller cable television systems. Also in 1998, the Company
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."
1999 ASSET TRANSFER.
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 will be accounted for in a
manner similar to a pooling of interests, whereby the assets and liabilities of
the TCI Systems will be recorded at historical book value.
As a result of the transfer, beginning April 4, 1999 the operations of CSC
Holdings will be identical to the operations of Cablevision Systems Corporation.
To the extent that any disclosures regarding changes in segment data or
liquidity are identical to those of Cablevision Systems Corporation, the
following discussion will refer to the disclosures included elsewhere in this
Form 10-Q.
-39-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following table sets forth on an unaudited historical basis certain items
related to operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------
1999 1998
--------------------- ---------------------
% of Net % of Net (Increase)/Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues..................................... $ 824,984 100% $ 645,382 100% $ 179,602
Operating expenses:
Technical and operating................... 360,963 44 300,703 47 (60,260)
Cost of sales............................. 104,797 13 31,316 5 (73,481)
Selling, general and administrative....... 308,704 37 189,181 29 (119,523)
Depreciation and
amortization........................... 157,781 19 135,049 21 (22,732)
--------- ---------- ---------
Operating loss............................... (107,261) (13) (10,867) (2) (96,394)
Other income (expense):
Interest expense, net..................... (98,238) (12) (87,795) (14) (10,443)
Equity in net loss of affiliates.......... (3,395) - (13,865) (2) 10,470
Gain on sale of programming interests
and cable assets, net.................. - - 137,268 21 (137,268)
Provision for preferential
payment to related party............... - - (980) - 980
Minority interests........................ 25,825 3 82 - 25,743
Miscellaneous, net........................ (3,483) (1) (8,209) (1) 4,726
--------- ---------- ---------
Net income (loss)............................ $(186,552) (23)% $ 15,634 2% $(202,186)
--------- ---------- ---------
--------- ---------- ---------
OTHER OPERATING DATA:
Operating profit before depreciation
and amortization (1)...................... $50,520 $124,182
Net cash provided by (used in)
operating activities (2).................. (43,914) 24,419
Net cash provided by (used in) investing
activities (2)............................ (185,049) 190,392
Net cash provided by (used in) financing
activities (2)............................ 213,540 (182,780)
</TABLE>
- -----------------------------------------
(1) Operating profit before depreciation and amortization is presented here to
provide additional information about the Company's ability to meet future
debt service, capital expenditures and working capital requirements.
Operating profit before depreciation and amortization should be considered
in addition to and not as a substitute for net income and cash flows as
indicators of financial performance and liquidity as reported in accordance
with generally accepted accounting principles.
(2) See Item 1. - "Condensed Consolidated Statements of Cash Flows".
-40-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED
MARCH 31, 1998.
CONSOLIDATED RESULTS
REVENUES for the three months ended March 31, 1999 increased $179.6 million
(28%) as compared to revenues for the same period in the prior year.
Approximately $97.8 million (15%) of the increase was attributable to the Net
Acquisitions; approximately $56.1 million (9%) 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 $17.1 million (3%) resulted from higher
revenue per subscriber. The remaining increase of $8.6 million (1%) was
attributable to internal growth of 68,100 in the average number of subscribers
during the period.
TECHNICAL AND OPERATING EXPENSES for the three months ended March 31, 1999
increased $60.3 million (20%) compared to the same period in 1998. Approximately
$50.4 million (17%) was 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, with the remaining $9.9
million (3%) attributable to the Net Acquisitions. As a percentage of revenues,
technical and operating expenses decreased 3% during the 1999 period as compared
to the 1998 period.
COST OF SALES for the three months ended March 31, 1999 amounted to
approximately $104.8 million (85% of retail electronics sales) compared to
approximately $31.3 million (91% of retail electronics sales) from the date of
the Wiz Transaction through March 31, 1998. 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 $119.5 million (63%) for
the three months ended March 31, 1999 over the comparable period in 1998.
Approximately $19.6 million (10%) was directly attributable to the Net
Acquisitions and $78.9 million (42%) was due to a higher level of charges
related to an incentive stock plan. Approximately $14.5 million (7%) of the
increase resulted from additional administrative and sales and marketing costs
and $6.5 million (4%) was attributable to year 2000 remediation costs. As a
percentage of revenues, selling, general and administrative expenses increased
8% in the 1999 period compared to the 1998 period. Excluding the effects of the
incentive stock plan and the year 2000 remediation costs, as a percentage of
revenues such costs decreased 1%.
OPERATING PROFIT BEFORE DEPRECIATION AND AMORTIZATION decreased $73.7 million
(59%) to $50.5 million for the three months ended March 31, 1999 from $124.2
million for the comparable period in 1998. The decrease resulted from the $78.9
million (63%) increase in charges related to an incentive stock plan and a
decrease of $5.2 million (4%) attributable to the Net Acquisitions, partially
offset by an increase of $10.4 million (8%) 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
-41-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
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 14.5% in 1999.
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 $22.7 million (17%) for the
three months ended March 31, 1999 as compared to the same period in 1998.
Approximately $6.7 million (5%) of the increase was directly attributable to the
Net Acquisitions. The remaining $16.0 million (12%) increase resulted primarily
from depreciation on new plant assets.
NET INTEREST EXPENSE increased $10.4 million (12%) for the three months ended
March 31, 1999 compared to the same period 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 decreased to $3.4 million for the three months
ended March 31, 1999 from $13.9 million for the same 1998 period. 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 months
ended March 31, 1998 consisted primarily of a gain of approximately $119.6
million 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.
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 months ended March 31, 1999 and 1998 include
Fox Liberty's 40% share of the net income (loss) of Regional Programming
Partners, ITT's share of the net income (loss) of Madison Square Garden and
NBC's 25% share of the net loss of Rainbow Media.
NET MISCELLANEOUS EXPENSE decreased to $3.5 million for the three months ended
March 31, 1999 compared to $8.2 million for the same period in the prior year.
In 1999, miscellaneous expense includes a charge of approximately $15.0 million
resulting from the write off of an investment held by Rainbow Media, a gain of
$10.9 million resulting from the sale of certain marketable securities, and
various other net income items aggregating $.6 million. In 1998, miscellaneous
expense included $4.5 million relating to federal alternative minimum taxes and
state income taxes, and various other items amounting to $3.7 million.
-42-
<PAGE>
CSC HOLDINGS, INC. 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 table below sets 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 March 31,
------------------------------------------------------------
1999 1998
---------------------------- --------------------------
% of % of
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues $408,411 100% $366,515 100%
Technical and operating expenses 166,670 41 149,874 41
Selling, general and administrative expenses 130,387 32 96,702 26
Depreciation and amortization 103,086 25 96,228 26
-------- ---------
Operating profit $ 8,268 2% $ 23,711 7%
--------- --------
--------- --------
</TABLE>
REVENUES for the three months ended March 31, 1999 increased $41.9 million (11%)
as compared to revenues for the same period in the prior year. Approximately
$17.1 million (5%) resulted from higher revenue per subscriber and approximately
$8.6 million (2%) was attributable to internal growth of 68,100 in the average
number of subscribers during the period. Approximately $13.2 million (4%) was
attributable to revenues from the Company's developing telephone and modem
businesses and revenue recognized in connection with the At Home transaction.
Approximately $10.8 million (2%) of the increase resulted from other revenue
sources, including advertising and pay per view services, offset by a decrease
of approximately $7.8 million (2%) resulting from The Net Acquisitions.
TECHNICAL AND OPERATING EXPENSES for the three months ended March 31, 1999
increased $16.8 million (11%) over the same period in 1998. Approximately $20.3
million (13%) was 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. This increase was partially
offset by a decrease of approximately $3.5 million (2%) resulting from The Net
Acquisition. As a percentage of revenues, operating expenses remained relatively
constant during the 1999 period as compared to the 1998 period.
-43-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $33.7 million (35%) for
the three months ended March 31, 1999 as compared to the same period in 1998. An
increase of approximately $37.9 million (39%) was due to higher charges related
to an incentive stock plan, partially offset by a decrease of approximately $3.9
million (4%) resulting from the Net Acquisitions and other net decreases
aggregating approximately $.3 million. As a percentage of revenues, selling,
general and administrative expenses increased 6% in the 1999 period compared to
the 1998 period. Excluding the effects of the incentive stock plan and the year
2000 remediation costs, such costs decreased 3% as a percentage of revenues.
DEPRECIATION AND AMORTIZATION EXPENSE increased $6.9 million (7%) for the three
months ended March 31, 1999 over the comparable 1998 period. Approximately $1.5
million (1%) of the increase was directly attributable to the Net Acquisitions.
The remaining $5.4 million (6%) increase resulted primarily from depreciation on
new plant assets.
RAINBOW MEDIA
Refer to discussion on page 18 of this Quarterly Report.
RETAIL ELECTRONICS
Refer to discussion on page 19 of this Quarterly Report.
LIQUIDITY AND CAPITAL RESOURCES
Refer to discussion beginning on page 20 of this Quarterly Report.
OPERATING ACTIVITIES
Net cash used in operating activities amounted to $43.9 million for the three
months ended March 31, 1999 compared to net cash provided by operating
activities of $24.4 million for the three months ended March 31, 1998. The 1999
cash used in operating activities consisted primarily of a net loss of $186.6
million, the gain on sale of marketable securities of $10.9 million and other
non-cash items of $4.7 million, partially offset by depreciation and
amortization of $157.8 million and a net increase in cash resulting from changes
in assets and liabilities of $.5 million.
The 1998 cash provided by operating activities of $24.4 consisted primarily of
income of $29.5 million before depreciation and amortization and other non-cash
items, offset by a decrease in cash resulting from changes in assets and
liabilities of $5.1 million.
-44-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
INVESTING ACTIVITIES
Net cash used in investing activities for the three months ended March 31, 1999
was $185.0 million compared to net cash provided by investing activities of
$190.4 million for the three months ended March 31, 1998. The 1999 investing
activities consisted of $142.3 million of capital expenditures, $24.8 million of
payments for acquisitions, and other items of $28.8 million, partially offset by
proceeds from the sale of marketable securities of $10.9 million.
Net cash provided by investing activities for the three months ended March 31,
1998 of $190.4 million consisted of net proceeds of $424.4 million from the sale
of programming interests and cable assets, partially offset by $149.6 million of
capital expenditures, $61.2 million of payments for acquisitions and other items
of $23.2 million.
FINANCING ACTIVITIES
Net cash provided by financing activities amounted to $213.5 million for the
three months ended March 31, 1999 compared to net cash used in financing
activities of $182.8 million for the three months ended March 31, 1998. In 1999,
the Company's financing activities consisted primarily of bank borrowings of
$225.9 million, partially offset by payments of preferred stock dividends of
$7.3 million and other cash payments of $5.1 million.
Cash used in financing activities of $182.8 million for the three months ended
March 31, 1998 consisted primarily of the repayment of an obligation to a
related party of $197.2 million, payments of preferred stock dividends of $7.3
million and the redemption of preferred stock of $9.4 million, offset by
additional net borrowings of $30.9 million and $.2 million derived from other
items.
YEAR 2000
Refer to discussion beginning on page 26 of this Quarterly Report.
-45-
<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 48.
(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.
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
CABLEVISION SYSTEMS CORPORATION
CSC HOLDINGS, INC.
Date: May 14, 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: May 14, 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.
-47-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
- ------ ----------- ---
3.1 Certificate of Amendment of Certificate of Incorporation of CSC
Holdings, Inc., dated April 1, 1999.
3.2 Certificate of Amendment of Certificate of Incorporation of CSC
Holdings, Inc., dated April 1, 1999.
27 Financial Data Schedule - Cablevision Systems Corporation and
Subsidiaries
27.1 Financial Data Schedule - CSC Holdings, Inc. and Subsidiaries
-48-
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CSC HOLDINGS, INC.
CSC HOLDINGS, INC., a Delaware corporation, hereby certifies as
follows:
FIRST. The Board of Directors of said corporation duly adopted a
resolution setting forth and declaring advisable the amendment of (a) Sections
VII(A) and VII(H)(ii) of the Certificate of Voting Powers, Designations,
Preferences and Relative, Participating, Optional or Other Special Rights and
Qualifications, Limitations and Restrictions Thereof of the 11 3/4% Series H
Redeemable Exchangeable Preferred Stock of CSC Holdings, Inc. (the "Series H
Preferred Stock Certificate of Designations"), (b) Sections VII(A) and
VII(H)(ii) of the Certificate of Voting Powers, Designations, Preferences and
Relative, Participating, Optional or Other Special Rights and Qualifications,
Limitations and Restrictions Thereof of the 82% Series I Cumulative Convertible
Exchangeable Preferred Stock of CSC Holdings, Inc. (the "Series I Preferred
Stock Certificate of Designations"), and (c) Sections VII(A) and VII(H)(ii) of
the Certificate of Voting Powers, Designations, Preferences and Relative,
Participating, Optional or Other Special Rights and Qualifications, Limitations
and Restrictions Thereof of the 11c% Series M Redeemable Exchangeable Preferred
Stock of CSC Holdings, Inc. (the "Series M Preferred Stock Certificate of
Designations") to provide the voting rights described in the text of such
amendments as set forth below so that, as amended:
1. Section VII(A) of the Series H Certificate of Designations
shall read in its entirety as follows:
"(A) Except as otherwise required under Delaware law and
except as set forth below in this paragraph (A) or in paragraphs (B)
and (C) below, at every meeting of stockholders of the corporation,
each Holder of shares of 11 3/4% Series
<PAGE>
H Redeemable Exchangeable Preferred Stock shall be entitled to cast
1/100 of one (1) vote in person or by proxy for each share of 11
3/4% Series H Redeemable Exchangeable Preferred Stock standing in
his or her name on the transfer books of the corporation. Except (i)
as otherwise required under Delaware law, (ii) pursuant to the
Certificate of Incorporation of the corporation, as the same may be
amended from time to time, or (iii) pursuant to the provisions of
any Certificates of Designations filed with respect to any other
series of Additional Preferred Stock, and except as set forth in
paragraphs (B) and (C) below, holders of shares of Common Stock,
Holders of shares of 11 3/4% Series H Redeemable Exchangeable
Preferred Stock and Holders of shares of other series of Additional
Preferred Stock shall vote together as a single class on all matters
required or permitted to be voted upon by the stockholders of the
corporation; PROVIDED, HOWEVER, that, notwithstanding anything in
this Section VII to the contrary, except as otherwise required under
Delaware law and as set forth in paragraphs (B) and (C) below,
following any consolidation or merger in which the entity formed by
or surviving such consolidation or merger is other than the
corporation, the Holders of shares of 11 3/4% Series H Redeemable
Exchangeable Preferred Stock shall no longer be entitled or
permitted to vote on any matter required or permitted to be voted
upon by the stockholders of such resulting or surviving entity."
2. Section VII(H)(ii) of the Series H Certificate of Designations
shall read in its entirety as follows:
"(ii) Except where the holders of shares of Common Stock,
Holders of shares of 11 3/4% Series H Redeemable Exchangeable
Preferred Stock and Holders of shares of other series of Additional
Preferred Stock shall vote together as a single class, as provided
in Section VII(A) above, in any case in which the Holders of shares
of the 11 3/4% Series H Redeemable Exchangeable Preferred Stock
shall be entitled to vote pursuant to this Section VII or pursuant
to Delaware law, each Holder of shares of 11 3/4% Series H
Redeemable Exchangeable
-2-
<PAGE>
Preferred Stock shall be entitled to one vote for each share of 11
3/4% Series H Redeemable Exchangeable Preferred Stock held."
3. Section VII(A) of the Series I Certificate of Designations
shall read in its entirety as follows:
"(A) Except as otherwise required under Delaware law and
except as set forth below in this paragraph (A) or in paragraphs (B)
and (C) below, at every meeting of stockholders of the corporation,
each Holder of shares of Series I Preferred Stock shall be entitled
to cast 1/10 of one (1) vote in person or by proxy for each share of
Series I Preferred Stock standing in his or her name on the transfer
books of the corporation. Except (i) as otherwise required under
Delaware law, (ii) pursuant to the Certificate of Incorporation of
the corporation, as the same may be amended from time to time, or
(iii) pursuant to the provisions of any Certificates of Designations
filed with respect to any other series of Additional Preferred
Stock, and except as set forth in paragraphs (B) and (C) below,
holders of shares of Common Stock, Holders of shares of Series I
Preferred Stock and Holders of shares of other series of Additional
Preferred Stock shall vote together as a single class on all matters
required or permitted to be voted upon by the stockholders of the
corporation; PROVIDED, HOWEVER, that, notwithstanding anything in
this Section VII to the contrary, except as otherwise required under
Delaware law and as set forth in paragraphs (B) and (C) below,
following any consolidation or merger in which the entity formed by
or surviving such consolidation or merger is other than the
corporation, the Holders of shares of Series I Preferred Stock shall
no longer be entitled or permitted to vote on any matter required or
permitted to be voted upon by the stockholders of such resulting or
surviving entity."
4. Section VII(H)(ii) of the Series I Certificate of Designations
shall read in its entirety as follows:
-3-
<PAGE>
"(ii) Except where the holders of shares of Common Stock,
Holders of shares of Series I Preferred Stock and Holders of shares
of other series of Additional Preferred Stock shall vote together as
a single class, as provided in Section VII(A) above, in any case in
which the Holders of shares of the Series I Preferred Stock shall be
entitled to vote pursuant to this Section VII or pursuant to
Delaware law, each Holder of shares of Series I Preferred Stock
shall be entitled to one vote for each share of Series I Preferred
Stock held."
5. Section VII(A) of the Series M Certificate of Designations
shall read in its entirety as follows:
"(A) Except as otherwise required under Delaware law and
except as set forth below in this paragraph (A) or in paragraphs (B)
and (C) below, at every meeting of stockholders of the corporation,
each Holder of shares of 11 1/8% Series M Redeemable Exchangeable
Preferred Stock and Series L Preferred Stock shall be entitled to
cast one (1) vote in person or by proxy for each share of 11 1/8%
Series M Redeemable Exchangeable Preferred Stock or Series L
Preferred Stock standing in his or her name on the transfer books of
the corporation. Except (i) as otherwise required under Delaware
law, (ii) pursuant to the Certificate of Incorporation of the
corporation, as the same may be amended from time to time, or (iii)
pursuant to the provisions of any Certificates of Designations filed
with respect to any other series of Additional Preferred Stock, and
except as set forth in paragraphs (B) and (C) below, holders of
shares of Common Stock, Holders of shares of 11 1/8% Series M
Redeemable Exchangeable Preferred Stock and Holders of shares of
other series of Additional Preferred Stock shall vote together as a
single class on all matters required or permitted to be voted upon
by the stockholders of the corporation; PROVIDED, HOWEVER; that,
notwithstanding anything in this Section VII to the contrary, except
as otherwise required under Delaware law and as set forth in
paragraphs (B) and (C) below, following any consolidation or merger
in which the entity formed by or surviving such consolidation or
merger is
-4-
<PAGE>
other than the corporation, the Holders of shares of 11 1/8% Series
M Redeemable Exchangeable Preferred Stock and Series L Preferred
Stock shall no longer be entitled or permitted to vote on any matter
required or permitted to be voted upon by the stockholders of such
resulting or surviving entity."
6. Section VII(H)(ii) of the Series M Certificate of Designations
shall read in its entirety as follows:
"(ii) Except where the holders of shares of Common Stock,
Holders of shares of 11 1/8% Series M Redeemable Exchangeable
Preferred Stock and Holders of shares of other series of Additional
Preferred Stock shall vote together as a single class, as provided
in Section VII(A) above, in any case in which the Holders of shares
of the 11 1/8% Series M Redeemable Exchangeable Preferred Stock and
Series L Preferred Stock shall be entitled to vote pursuant to this
Section VII or pursuant to Delaware law, each Holder of shares of 11
1/8% Series M Redeemable Exchangeable Preferred Stock or Series L
Preferred Stock, as the case may be, shall be entitled to one vote
for each share of 11 1/8% Series M Redeemable Exchangeable Preferred
Stock or Series L Preferred Stock held."
SECOND. In lieu of a vote of stockholders, written consent to the
foregoing amendment has been given by the holder of all of the outstanding stock
entitled to vote thereon in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware; and such amendment has been
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
-5-
<PAGE>
IN WITNESS WHEREOF, CSC Holdings, Inc. has caused this
certificate to be signed by William J. Bell, its Vice Chairman, on the
2nd day of April, 1999.
CSC HOLDINGS, INC.
By /s/ William J. Bell
---------------------------
Name: William J. Bell
Title: Vice Chairman
Attested by:
/s/ David Deitch
- --------------------------
Name: David Deitch
Title: Vice President
-6-
ex-99-1.cec
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CSC HOLDINGS, INC.
CSC HOLDINGS, INC., a Delaware corporation, hereby certifies as
follows:
FIRST. The Board of Directors of said corporation duly adopted a
resolution setting forth and declaring advisable the amendment of Article Fourth
of the certificate of incorporation of said corporation to increase the total
number of shares which the corporation shall have authority to issue from
10,000,000 shares of Capital Stock to 20,000,000 shares of Capital Stock of the
par value of $0.01 per share so that, as amended, said Article shall read as
follows:
"FOURTH. The aggregate number of shares that the
corporation shall have authority to issue is 20,000,000:
(a) 10,000,000 shares of Common Stock, par value $0.01 per share;
(b) 10,000,000 shares of Preferred Stock, par value $.01 per
share ("Preferred Stock").
I. POWERS OF THE BOARD OF DIRECTORS.
Authority is hereby expressly granted to the Board of
Directors to authorize the issue of one or more series of additional
preferred stock ("Additional Preferred Stock"), and with respect to each
series to set forth in a Certificate or Certificate of Designations
provisions with respect to the issuance of such series:
(a) the maximum number of shares to constitute such
series and the distinctive designation thereof;
(b) whether the shares of such series shall have voting
rights, in addition to any voting
<PAGE>
rights provided by law and, if so, the terms of such voting rights;
(c) the dividend rate, if any, on the shares of such series,
the conditions and dates upon which such dividends shall be payable,
the preference or relation which such dividends shall bear to the
dividends payable on any other class or classes or on any other
series of capital stock, and whether such dividends shall be
cumulative or non-cumulative;
(d) whether the shares of such series shall be subject to
redemption by the corporation and, if made subject to redemption,
the times, prices and other terms and conditions of such redemption;
(e) the rights of the holders of shares of such series upon
the liquidation, dissolution or winding-up of the corporation;
(f) whether or not the shares of such series shall be subject
to the operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking fund
shall be applied to the purchase or redemption of the shares of such
series for retirement or to other corporate purposes and the terms
and provisions relative to the operation thereof;
(g) whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class and, if
so, convertible or exchangeable, the price or prices or the rate or
rates of conversion or exchange and the method, if any, of adjusting
the same;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or making of other distributions on and, upon the
purchase, redemption or other acquisition by the corporation of the
Class A Common Stock or any other class or classes of stock of the
corporation ranking junior to the shares of such series either as to
dividends or upon liquidation;
-2-
<PAGE>
(i) the conditions or restrictions, if any, upon the creation
of indebtedness of the corporation or upon the issue of any
additional stock (including additional shares of such series or of
any other series or of any other class) ranking on a parity with or
prior to the shares of such series as to dividends or distribution
of assets on liquidation, dissolution or winding-up; and
(j) any other preference and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof as shall not be inconsistent with this Article
FOURTH.
II. RANKING.
All shares of any one series of Additional Preferred Stock
shall be identical with each other in all respects, except that share of
any one series issued at different times may differ as to the dates from
which dividends, if any, thereon shall be cumulative; and all series shall
rank equally and be identical in all respects, except as permitted by the
foregoing provisions of Section I hereof; and all shares of Additional
Preferred Stock shall rank senior to the common stock both as to dividends
and upon liquidation.
III. LIQUIDATION RIGHTS.
In the event of any liquidation, dissolution or winding-up of
the corporation, before any payment or distribution of the assets of the
corporation (whether capital or surplus) shall be made to or set apart for
the holders of any class or classes of stock of the corporation ranking
junior to the Additional Preferred Stock upon liquidation, the holders of
the shares of the Additional Preferred Stock shall be entitled to receive
payment at the rate fixed herein or in the resolution or resolutions
adopted by the Board of Directors providing for the issue of such series,
plus (if dividends on shares of such series of Additional Preferred Stock
shall be cumulative) an amount equal to all dividends (whether or not
earned or declared) accumulated to the date of final distribution to such
holders; but they shall be entitled to no further
-3-
<PAGE>
payment. If, upon any liquidation, dissolution or winding-up of the
corporation, the assets of the corporation, or proceeds thereof,
distributable among the holders of the shares of the Additional Preferred
Stock shall be insufficient to pay in full the preferential amount
aforesaid, then such assets, or the proceeds thereof, shall be distributed
among such holders ratably in accordance with the respective amounts which
would be payable on such shares if all amounts payable thereon were paid
in full. For the purposes of this Section III, the voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all of the property or assets
of the corporation shall be deemed a voluntary liquidation, dissolution or
winding-up of the corporation, but a consolidation or merger of the
corporation with one or more other corporations shall not be deemed to be
a liquidation, dissolution or winding-up, voluntary or involuntary.
V. VOTING.
Except as shall be otherwise stated and expressed herein or in
the Certificate or Certificates of Designations adopted by the Board of
Directors with respect to the issuance of any series of Additional
Preferred Stock and except as otherwise required by laws of the State of
Delaware, the holders of shares of Additional Preferred Stock shall have,
with respect to such shares, no right or power to vote on any question or
in any proceeding or to be represented at, or to receive notice of, any
meeting of stockholders."
and declaring that, simultaneously with the effectiveness of said amendment of
Article Fourth, each of the issued and outstanding shares of Common Stock of the
par value of $1.00 per share shall be changed and reclassified into 5,000 shares
of Common Stock of the par value of $0.01 per share.
SECOND. In lieu of a vote of stockholders, written consent to the
foregoing amendment has been given by the holder of all of the outstanding stock
entitled to vote thereon in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware; and such amendment has been
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
-4-
<PAGE>
IN WITNESS WHEREOF, CSC Holdings, Inc. has caused this
certificate to be signed by William J. Bell, its Vice Chairman, on the
1st day of April, 1999.
CSC HOLDINGS, INC.
By /s/ William J. Bell
----------------------------
Name: William J. Bell
Title: Vice Chairman
Attested by:
/s/ David Deitch
- -------------------------
Name: David Deitch
Title: Vice President
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0001053112
<NAME> CABLEVISION SYSTEMS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 158,574
<SECURITIES> 0
<RECEIVABLES> 245,919
<ALLOWANCES> (36,693)
<INVENTORY> 288,538
<CURRENT-ASSETS> 0
<PP&E> 4,416,383
<DEPRECIATION> (1,849,504)
<TOTAL-ASSETS> 7,021,956
<CURRENT-LIABILITIES> 0
<BONDS> 5,543,847
0
0
<COMMON> 1,517
<OTHER-SE> (2,850,225)
<TOTAL-LIABILITY-AND-EQUITY> 7,021,956
<SALES> 0
<TOTAL-REVENUES> 940,587
<CGS> 104,797
<TOTAL-COSTS> 401,881
<OTHER-EXPENSES> 205,453
<LOSS-PROVISION> (6,879)
<INTEREST-EXPENSE> 109,292
<INCOME-PRETAX> (238,647)
<INCOME-TAX> 0
<INCOME-CONTINUING> (238,647)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (238,647)
<EPS-PRIMARY> (1.57)
<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>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK> 0000784681
<NAME> CSC HOLDINGS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 158,276
<SECURITIES> 0
<RECEIVABLES> 234,922
<ALLOWANCES> (33,944)
<INVENTORY> 288,538
<CURRENT-ASSETS> 0
<PP&E> 3,932,106
<DEPRECIATION> (1,753,996)
<TOTAL-ASSETS> 5,935,369
<CURRENT-LIABILITIES> 0
<BONDS> 5,062,347
1,291,847
14
<COMMON> 1
<OTHER-SE> (3,053,763)
<TOTAL-LIABILITY-AND-EQUITY> 5,935,369
<SALES> 0
<TOTAL-REVENUES> 831,279
<CGS> 104,797
<TOTAL-COSTS> 360,963
<OTHER-EXPENSES> 157,781
<LOSS-PROVISION> (6,295)
<INTEREST-EXPENSE> 101,100
<INCOME-PRETAX> (186,552)
<INCOME-TAX> 0
<INCOME-CONTINUING> (186,552)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186,552)
<EPS-PRIMARY> (0)
<EPS-DILUTED> 0<F1>
<FN>
<F1>NOT PRESENTED AS THE RESULTANT COMPUTATION WOULD BE A DECREASE IN NET LOSS PER
SHARE ANND THEREFORE NOT MEANINGFUL.
</FN>
</TABLE>
