<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 September 30, 2000
-----------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
<TABLE>
<CAPTION>
Commission File Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
------ ---------------------------- ------------------
<S> <C> <C>
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
</TABLE>
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days.
Cablevision Systems Corporation Yes /X/ No / /
CSC Holdings, Inc. Yes /X/ No / /
Number of shares of common stock outstanding as of October 31, 2000:
Cablevision Systems Corporation Class A Common Stock - 132,542,225
Cablevision Systems Corporation Class B Common Stock - 42,151,236
CSC Holdings, Inc. Common Stock - 1,000
================================================================================
<PAGE>
TABLE OF CONTENTS
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and Nine Months ended September 30, 2000 and 1999
(unaudited)....................................................3
Condensed Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999...........4
Condensed Consolidated Statements of Cash Flows - Nine Months
ended September 30, 2000 and 1999 (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
Item 3. Quantitative and Qualitative Disclosures About Market Risk....31
PART II - OTHER INFORMATION................................................32
CSC HOLDINGS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations -
Three and Nine Months ended September 30, 2000 and 1999
(unaudited)...................................................33
Condensed Consolidated Balance Sheets -
September 30, 2000 (unaudited) and December 31, 1999..........34
Condensed Consolidated Statements of Cash Flows - Nine Months
ended September 30, 2000 and 1999 (unaudited).................36
Notes to Condensed Consolidated Financial Statements
(unaudited)...................................................37
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................42
Item 3. Quantitative and Qualitative Disclosures About Market Risk....42
PART II - OTHER INFORMATION................................................43
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues, net (including retail electronics
sales of $467,440, $396,853, $171,682
and $137,505) ......................... $ 3,165,349 $ 2,782,327 $ 1,035,548 $ 902,310
----------- ----------- ----------- -----------
Operating expenses:
Technical and operating ................ 1,199,695 1,074,503 365,750 317,372
Retail electronics cost of sales ....... 383,860 316,569 142,008 111,781
Selling, general and
administrative ....................... 771,036 899,028 262,891 280,784
Depreciation and amortization .......... 709,333 627,909 238,503 212,737
----------- ----------- ----------- -----------
3,063,924 2,918,009 1,009,152 922,674
----------- ----------- ----------- -----------
Operating income (loss) .......... 101,425 (135,682) 26,396 (20,364)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense ....................... (421,740) (344,075) (150,193) (120,517)
Interest income ........................ 4,505 6,937 1,801 2,077
Equity in net loss of affiliates, net .. (13,034) (8,857) (10,765) (4,497)
Gain on sale of cable assets ........... 130,758 -- 130,758 --
Write off of deferred financing costs .. -- (4,425) -- (19)
Minority interests ..................... (124,013) (88,796) (37,158) (32,521)
Miscellaneous, net ..................... (5,286) (9,659) (981) (2,222)
----------- ----------- ----------- -----------
(428,810) (448,875) (66,538) (157,699)
----------- ----------- ----------- -----------
Net loss .................................. $ (327,385) $ (584,557) $ (40,142) $ (178,063)
=========== =========== =========== ===========
Basic and diluted net loss per common share $ (1.89) $ (3.84) $ (.23) $ (1.17)
=========== =========== =========== ===========
Average number of common shares
outstanding (in thousands) ............. 173,631 152,081 174,053 152,461
=========== =========== =========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-3-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents ...................................................... $ 38,557 $ 62,665
Accounts receivable trade (less allowance for doubtful accounts of
$42,936 and $35,357) ........................................................ 266,621 226,304
Notes and other receivables .................................................... 127,834 129,596
Inventory, prepaid expenses and other assets ................................... 286,392 211,179
Property, plant and equipment, net ............................................. 3,046,894 2,752,495
Investments in affiliates ...................................................... 70,971 58,423
Other investments .............................................................. 440,362 256,442
Advances to affiliates ......................................................... 59,913 46,685
Feature film inventory, net .................................................... 318,551 335,826
Net assets held for sale ....................................................... 531,191 269,349
Franchises, net of accumulated amortization of
$740,307 and $703,237 ....................................................... 460,119 651,777
Affiliation and other agreements, net of accumulated amortization of
$285,890 and $244,249 ....................................................... 131,609 173,250
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$781,524 and $727,134 ....................................................... 1,817,798 1,816,030
Deferred financing, acquisition and other costs, net of
accumulated amortization of $73,389 and $51,063 ............................. 152,496 140,287
---------- ----------
$7,749,308 $7,130,308
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-4-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(continued)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY (unaudited)
<S> <C> <C>
Accounts payable ............................................ $ 435,787 $ 411,804
Accrued expenses ............................................ 950,617 1,048,623
Feature film and contract obligations ....................... 299,333 371,126
Deferred revenue ............................................ 341,707 274,043
Bank debt ................................................... 3,129,697 2,254,487
Senior notes and debentures ................................. 2,693,057 2,692,602
Subordinated notes and debentures ........................... 1,048,614 1,048,513
Capital lease obligations and other debt .................... 119,332 99,099
----------- -----------
Total liabilities ........................................ 9,018,144 8,200,297
----------- -----------
Minority interests .......................................... 586,170 592,583
----------- -----------
Preferred stock of CSC Holdings, Inc. ....................... 1,514,257 1,404,511
----------- -----------
Commitments and contingencies
Stockholders' deficiency:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized, none issued ............................. -- --
Class A Common Stock, $.01 par value, 400,000,000 shares
authorized, 132,333,699 and 130,091,237 shares issued 1,323 1,301
Class B Common Stock, $.01 par value, 160,000,000 shares
authorized, 42,154,536 and 43,126,836 shares issued . 422 431
Paid-in capital .......................................... 745,110 731,986
Accumulated deficit ...................................... (4,127,687) (3,800,302)
----------- -----------
(3,380,832) (3,066,584)
Accumulated other comprehensive income ................... 12,068 --
Treasury stock, at cost (7,118 shares) ................... (499) (499)
----------- -----------
Total stockholders' deficiency ........................... (3,369,263) (3,067,083)
----------- -----------
$ 7,749,308 $ 7,130,308
=========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-5-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................. $ (327,385) $ (584,557)
----------- -----------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ...................... 709,333 627,909
Equity in net loss of affiliates, net .............. 13,034 8,857
Minority interests ................................. 111,249 66,886
Gain on sale of cable assets ....................... (130,758) --
Gain on sale of investments ........................ -- (10,861)
Write off of investment in affiliate ............... -- 15,100
Write off of deferred financing costs .............. -- 4,425
Amortization of deferred financing and other costs . 17,494 6,212
Amortization of debenture discount ................. 556 418
(Gain) loss on sale of equipment ................... (2,931) 3,269
Changes in assets and liabilities, net of effects of
acquisitions and dispositions .................. (181,138) 24,933
----------- -----------
Net cash provided by operating activities ....... 209,454 162,591
----------- -----------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired .... (128,720) (114,447)
Proceeds from sale of investments .................. -- 10,861
Capital expenditures ............................... (890,645) (595,429)
Proceeds from sale of equipment .................... 107 722
Additions to intangible assets ..................... (98) (7,740)
Increase in investments in affiliates, net ......... (30,805) (32,106)
Increase in other investments ...................... (494) (1,736)
----------- -----------
Net cash used in investing activities ........... (1,050,655) (739,875)
----------- -----------
Cash flows from financing activities:
Proceeds from bank debt ............................ 3,198,182 3,033,291
Repayment of bank debt ............................. (2,342,972) (3,037,729)
Issuance of senior notes ........................... -- 497,670
Issuance of common stock ........................... 17,106 11,024
Purchase of treasury stock ......................... -- (499)
Payments of capital lease obligations and other debt (29,606) (15,407)
Additions to deferred financing and other costs .... (25,617) (19,449)
----------- -----------
Net cash provided by financing activities ....... 817,093 468,901
----------- -----------
Net decrease in cash and cash equivalents ............... (24,108) (108,383)
Cash and cash equivalents at beginning of year .......... 62,665 173,826
----------- -----------
Cash and cash equivalents at end of period .............. $ 38,557 $ 65,443
=========== ===========
</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. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Cablevision Systems Corporation and its majority owned subsidiaries (the
"Company" or "Cablevision") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.
Note 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the three and nine month periods ended
September 30, 2000 and 1999 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, Inc.'s Annual Report on Form 10-K for the year ended December 31,
1999.
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, 2000.
Note 3. RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
Note 4. 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.
Note 5. INVESTMENTS
The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has classified
such investments as available-for-sale. Accordingly, these investments are
stated at fair value and unrealized holding gains and losses are included in
accumulated other comprehensive income as a separate component of stockholders'
deficiency.
-7-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
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 $420,300 and $325,220 for the nine months ended September 30, 2000
and 1999, respectively. The Company's noncash financing and investing activities
for the nine months ended September 30, 2000 and 1999 included capital lease
obligations of $50,383 and $45,751, respectively, incurred when the Company
entered into leases for new equipment, the receipt of Salon.com common shares
valued at $7,300 in 2000, and the receipt of Charter Communications, Inc.'s
common stock valued at closing at approximately $165,500 in connection with the
sale of the cable television system serving Kalamazoo, Michigan in 2000.
Note 7. ACQUISITION
In January 2000, Regional Programming Partners acquired the 70% interest in
SportsChannel Florida Associates held by Front Row Communications for
approximately $130,600 (including the repayment of $20,000 in debt) increasing
its ownership to 100%. The acquisition was accounted for as a purchase with the
operations of the acquired business 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 8. DISPOSITION
In September 2000, the Company completed the sale of the cable television system
serving Kalamazoo, Michigan, for 11,173,376 shares of Charter Communications,
Inc.'s common stock valued at approximately $165,500 at closing and recognized a
gain of approximately $130,800.
Note 9. AT HOME
As of September 30, 2000 and 1999, deferred revenue derived from the receipt of
At Home warrants, net of amortization taken, amounted to approximately $116,474
and $174,567, respectively. For the nine months ended September 30, 2000 and
1999, the Company recognized approximately $45,000 and $37,600, respectively, of
this deferred revenue.
On June 19, 2000, Cablevision commenced an action in the Delaware Court of
Chancery to protect its rights regarding an agreement, dated as of March 28,
2000, among Excite@Home, AT&T Corp., Comcast Corporation and Cox Communications,
Inc. On June 30, 2000, Excite@Home, AT&T, Comcast and Cox filed answers in the
Delaware Court of Chancery to Cablevision's complaint. In addition, Excite@Home
asserted counterclaims against Cablevision
-8-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
seeking to rescind its agreements with Cablevision and cancel the Excite@Home
warrants owned by Cablevision. On August 17, 2000, Cablevision and Excite@Home
announced that the parties agreed to dismiss Cablevision's claims against
Excite@Home and its partners immediately, and Cablevision consented to
Excite@Home's completion of the transactions contemplated by the March 28, 2000
agreement. Cablevision and Excite@Home further agreed to dismiss without
prejudice Excite@Home's claims against Cablevision.
Note 10. 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 income or expense and the costs
of Year 2000 remediation).
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Telecommunication Services ................ $ 1,756,224 $ 1,601,118 $ 592,867 $ 543,154
Rainbow Media Holdings .................... 998,089 815,896 289,295 228,246
Retail Electronics ........................ 467,440 396,853 171,682 137,505
All Other ................................. 55,931 64,648 19,914 25,563
Intersegment Eliminations ................. (112,335) (96,188) (38,210) (32,158)
----------- ----------- ----------- -----------
Total ............................ $ 3,165,349 $ 2,782,327 $ 1,035,548 $ 902,310
=========== =========== =========== ===========
ADJUSTED OPERATING CASH FLOW
Telecommunication Services ................ $ 733,859 $ 679,320 $ 250,614 $ 232,172
Rainbow Media Holdings .................... 170,317 119,451 52,185 44,604
Retail Electronics ........................ (49,806) (27,005) (18,038) (10,203)
All Other ................................. (39,251) (35,193) (12,629) (13,224)
----------- ----------- ----------- -----------
Total ............................ $ 815,119 $ 736,573 $ 272,132 $ 253,349
=========== =========== =========== ===========
</TABLE>
A reconciliation of reportable segment amounts to the Company's consolidated
balances is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Total revenue for reportable segments ..... $ 3,221,753 $ 2,813,867 $ 1,053,844 $ 908,905
Other revenue and intersegment eliminations (56,404) (31,540) (18,296) (6,595)
----------- ----------- ----------- -----------
Total consolidated revenue .......... $ 3,165,349 $ 2,782,327 $ 1,035,548 $ 902,310
=========== =========== =========== ===========
</TABLE>
-9-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
ADJUSTED OPERATING CASH FLOW TO NET LOSS
Total adjusted operating cash flow for reportable
segments .................................. $ 854,370 $ 771,766 $ 284,761 $ 266,573
Other adjusted operating cash flow deficit ...... (39,251) (35,193) (12,629) (13,224)
Items excluded from adjusted operating cash flow:
Depreciation and amortization ............. (709,333) (627,909) (238,503) (212,737)
Incentive stock plan expense .............. (888) (216,388) (7,233) (49,391)
Year 2000 remediation ..................... (3,473) (27,958) -- (11,585)
Interest expense .......................... (421,740) (344,075) (150,193) (120,517)
Interest income ........................... 4,505 6,937 1,801 2,077
Equity in net loss of affiliates, net ..... (13,034) (8,857) (10,765) (4,497)
Gain on sale of cable assets .............. 130,758 -- 130,758 --
Write off of deferred financing costs ..... -- (4,425) -- (19)
Minority interests ........................ (124,013) (88,796) (37,158) (32,521)
Miscellaneous, net ........................ (5,286) (9,659) (981) (2,222)
--------- --------- --------- ---------
Net loss ........................ $(327,385) $(584,557) $ (40,142) $(178,063)
========= ========= ========= =========
</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 11. NET ASSETS HELD FOR SALE
The net assets attributable to the Company's cable television systems located in
and around the greater Cleveland, Ohio metropolitan area and in Boston and
Eastern Massachusetts are classified in the accompanying balance sheet as of
September 30, 2000 as net assets held for sale.
Note 12. TRACKING STOCK
In August 2000, the Company filed preliminary proxy materials with the
Securities and Exchange Commission ("SEC") related to the vote of the Company's
shareholders that is required to amend the Company's charter to authorize and
issue a new series of common stock called Rainbow Media Group tracking stock.
The new series would be designed to track the economic performance of the
businesses and interests of the Rainbow Media Group, which are currently part,
but not all, of the Company's Rainbow Media Holdings, Inc. subsidiary. In
October 2000, definitive proxy materials were mailed to shareholders. The
November 10, 2000 special stockholders' meeting with respect to the tracking
stock and related matters was adjourned until December 8, 2000.
-10-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Note 13. COMPREHENSIVE INCOME
Other comprehensive income for the three and nine months ended September 30,
2000 of $12,068 represents unrealized net gains on available-for-sale
securities.
Note 14. SUBSEQUENT EVENT
In November 2000, the Company completed the sale of the cable television systems
in the greater Cleveland, Ohio metropolitan area to Adelphia Communications
Corporation for $991,000 in cash and 10,800,000 shares, valued at closing at
$359,100, in Adelphia Communications Corporation common stock. The Company
anticipates recording a gain on the sale.
-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 the Company's revenues;
(ii) subscriber demand, competition, the cost of programming and industry
conditions;
(iii) the regulatory environment in which the Company
operates;
(iv) the level of capital expenditures and whether expenses of
the Company continue to increase or increase at a rate faster than
expected;
(v) pending and future acquisitions and dispositions of assets;
(vi) whether any pending uncompleted transactions are completed on the terms
and at the times set forth (if at all);
(vii) new competitors entering the Company's franchise areas;
(viii) other risks and uncertainties inherent in the cable television business,
the programming and entertainment businesses and the Company's other
businesses;
(ix) financial community and rating agency perceptions of the Company's
business, operations, financial condition and the industry in which it
operates; and
(x) the factors described in CSC Holdings, Inc.'s most recent registration
statement on Form S-3 and Cablevision Systems Corporation's Proxy
Statement dated October 10, 2000 ("Proxy"), including the sections
entitled "Risk Factors" contained therein.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
TRANSACTIONS
2000 ACQUISITIONS. In January 2000, Regional Programming Partners ("RPP")
acquired the 70% interest in SportsChannel Florida Associates held by Front Row
Communications, Inc., increasing RPP's ownership to 100%. In May 2000, Rainbow
Media Holdings, Inc. ("Rainbow Media Holdings") acquired the 50% interest in
MuchMusic USA held by Chum, Ltd., increasing Rainbow Media Holdings' ownership
to 100%. In August 2000, Rainbow Media Holdings purchased the remaining
interests in News 12 New Jersey LLC that it did not already own from the Newark
Morning Ledger Co.
2000 DISPOSITION. In September 2000, the Company completed the sale of the cable
television system serving Kalamazoo, Michigan.
1999 ACQUISITIONS. In April 1999, CSC Holdings, Inc. ("CSC Holdings") purchased
ITT Corporation's remaining minority interest in Madison Square Garden, L.P.
("MSG"). In 1999, CSC Holdings acquired interests in the real property and
assets related to certain movie theaters.
The above transactions are collectively referred to as the "Transactions."
-12-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
The following tables set forth on an unaudited historical basis certain items
related to operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------------------
2000 1999
------------------------- --------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net ........................... $ 1,035,548 100% $ 902,310 100% $ 133,238
Operating expenses:
Technical and operating ............. 365,750 35 317,372 35 (48,378)
Retail electronics cost of sales .... 142,008 14 111,781 12 (30,227)
Selling, general and administrative . 262,891 25 280,784 31 17,893
Depreciation and amortization ....... 238,503 23 212,737 24 (25,766)
----------- ----------- -----------
Operating income (loss) ................. 26,396 3 (20,364) (2) 46,760
Other income (expense):
Interest expense, net ............... (148,392) (14) (118,440) (13) (29,952)
Equity in net loss of affiliates, net (10,765) (1) (4,497) (1) (6,268)
Gain on sale of cable assets ........ 130,758 13 -- -- 130,758
Write off of deferred financing costs -- -- (19) -- 19
Minority interests .................. (37,158) (4) (32,521) (4) (4,637)
Miscellaneous, net .................. (981) -- (2,222) -- 1,241
----------- ----------- -----------
Net loss ................................ $ (40,142) (4)% $ (178,063) (20)% $ 137,921
=========== =========== ===========
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------
2000 1999
------------------------- ---------------------------- (Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net Loss
------ -------- ------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues, net ........................... $ 3,165,349 100% $ 2,782,327 100% $ 383,022
Operating expenses:
Technical and operating ............. 1,199,695 38 1,074,503 39 (125,192)
Retail electronics cost of sales .... 383,860 12 316,569 11 (67,291)
Selling, general and administrative . 771,036 24 899,028 32 127,992
Depreciation and amortization ....... 709,333 22 627,909 23 (81,424)
----------- ----------- -----------
Operating income (loss) ................. 101,425 3 (135,682) (5) 237,107
Other income (expense):
Interest expense, net ............... (417,235) (13) (337,138) (12) (80,097)
Equity in net loss of affiliates, net (13,034) -- (8,857) -- (4,177)
Gain on sale of cable assets ........ 130,758 4 -- -- 130,758
Write off of deferred financing costs -- -- (4,425) -- 4,425
Minority interests .................. (124,013) (4) (88,796) (3) (35,217)
Miscellaneous, net .................. (5,286) -- (9,659) -- 4,373
----------- ----------- -----------
Net loss ................................ $ (327,385) (10)% $ (584,557) (21)% $ 257,172
=========== =========== ===========
</TABLE>
-13-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1999
CONSOLIDATED RESULTS
REVENUES for the three and nine months ended September 30, 2000 increased $133.2
million (15%) and $383.0 million (14%), respectively, as compared to revenues
for the same periods in the prior year. Approximately $88.6 million (10%) and
$238.2 million (8%), respectively, was from increases in revenue sources such as
Rainbow Media Holdings' 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;
approximately $19.8 million (2%) and $69.6 million (3%), respectively, resulted
from higher revenue per subscriber; and approximately $17.3 million (2%) and
$49.3 million (2%), respectively, was attributable to the Transactions. The
remaining increase of $7.5 million (1%) and $25.9 million (1%), respectively,
was attributable to internal growth in the average number of subscribers in the
Company's cable television systems during the periods.
TECHNICAL AND OPERATING EXPENSES for the three and nine months ended September
30, 2000 increased $48.4 million (15%) and $125.2 million (12%), respectively,
compared to the same periods in 1999. Approximately $37.1 million (12%) and
$92.7 million (9%), respectively, of the increase was attributable to increased
costs directly associated with the growth in revenues and subscribers discussed
above, as well as to increases in programming costs for cable television
services, with the remaining $11.3 million (3%) and $32.5 million (3%),
respectively, attributable to the Transactions. As a percentage of revenues,
technical and operating expenses remained constant during the three month period
in 2000 and decreased 1% during the nine month period in 2000 as compared to the
same periods in 1999.
RETAIL ELECTRONICS COST OF SALES for the three and nine months ended September
30, 2000 amounted to approximately $142.0 million and $383.9 million,
respectively, (83% and 82%, respectively, of retail electronics sales) compared
to approximately $111.8 million and $316.6 million (81% and 80%, respectively,
of retail electronics sales) for the three and nine months ended September 30,
1999, respectively. Cost of sales include the cost of merchandise sold,
including freight costs incurred and certain occupancy and buying costs, for the
retail electronics segment.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the three and nine months ended
September 30, 2000 decreased $17.9 million (6%) and $128.0 million (14%),
respectively, over the comparable periods in 1999. The change for the three and
nine month periods consisted of decreases of approximately $41.8 million (15%)
and $213.6 million (23%), respectively, related to an incentive stock plan and
approximately $11.6 million (4%) and $24.4 million (3%), respectively, related
to lower Year 2000 remediation costs. Offsetting these decreases were net
increases of approximately $29.7 million (11%) and $95.8 million (11%),
respectively, in sales and marketing and administrative costs and approximately
$5.8 million (2%) and $14.2 million (1%), respectively, directly attributable to
the Transactions. As a percentage of revenues, selling, general and
administrative expenses decreased 6% and 8%, respectively, during the 2000
periods compared to
-14-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
the 1999 periods. Excluding the effects of the incentive stock plan and the Year
2000 remediation costs, as a percentage of revenues such costs increased 1%
during the three month period in 2000 and remained constant during the nine
month period in 2000 as compared to the same periods in 1999.
OPERATING PROFIT BEFORE DEPRECIATION AND AMORTIZATION increased $72.5 million
(38%) to $264.9 million and $318.6 million (65%) to $810.8 million for the three
and nine months ended September 30, 2000 from $192.4 million and $492.2 million
for the comparable periods in 1999. Approximately $41.8 million (22%) and $213.6
million (43%) of the increase resulted from lower costs related to an incentive
stock plan and approximately $30.7 million (16%) and $105.0 million (22%),
respectively, resulted from the combined effect of the revenue and expense
changes discussed above. On a pro forma basis, giving effect to the Transactions
as if they had occurred on January 1, 1999 and excluding the Company's systems
held for sale, the incentive stock plan costs referred to above and the costs of
Year 2000 remediation, operating profit before depreciation and amortization
would have increased 7.2% and 11.4% for the three and nine month periods in
2000. 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 $25.8 million (12%) and $81.4
million (13%), respectively, for the three and nine months ended September 30,
2000 as compared to the same periods in 1999. Approximately $23.0 million (11%)
and $59.1 million (9%) of the increase resulted primarily from depreciation on
new plant assets. The remaining increase of $2.8 million (1%) and $22.3 million
(4%) was directly attributable to the Transactions.
NET INTEREST EXPENSE increased $30.0 million (25%) and $80.1 million (24%),
respectively, for the three and nine months ended September 30, 2000 compared to
the same periods in 1999. The net increases are primarily attributable to higher
interest rates and debt incurred to fund capital expenditures and acquisitions.
EQUITY IN NET LOSS OF AFFILIATES, NET consisted of the Company's share of the
net income or losses of certain programming businesses and personal
communication services businesses in which the Company has varying minority
ownership interests.
GAIN ON SALE OF CABLE ASSETS of $130.8 million for the three and nine months
ended September 30, 2000 resulted from the sale of the cable television system
in Kalamazoo, Michigan.
MINORITY INTERESTS for the three and nine months ended September 30, 2000 and
1999 include CSC Holdings' preferred stock dividend requirements, FOX Sports
Networks, LLC's 40% share of the net income (loss) of Regional Programming
Partners, ITT Corporation's share of the net loss of
-15-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
MSG through April 8, 1999 and NBC Cable Holding, Inc.'s 26% (25% in 1999) share
of the net loss of Rainbow Media Holdings.
NET MISCELLANEOUS EXPENSE decreased $1.2 million to $1.0 million for the three
months ended September 30, 2000 and $4.4 million to $5.3 million for the nine
months ended September 30, 2000 as compared to the same periods in 1999. For the
three and nine months ended September 30, 2000, miscellaneous expense included a
$2.2 million income tax provision and various other items. For the three and
nine months ended September 30, 1999, miscellaneous expense included $1.1
million and $4.4 million, respectively, relating to federal, state and local
income taxes and approximately $1.1 million, in each period, relating to various
other items. Additionally, the nine month period in 1999 included a charge of
approximately $15.1 million resulting from the write off of an investment held
by Rainbow Media Holdings and a gain of approximately $10.9 million resulting
from the sale of certain marketable securities.
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 Holdings, consisting
principally of interests in cable television programming networks and MSG, which
owns and operates professional sports teams, regional cable television networks,
live productions, and entertainment venues; and Retail Electronics, which
represents the operations of Cablevision Electronics' retail electronics stores.
The Company allocates certain costs to each segment based upon their
proportionate estimated usage of services.
TELECOMMUNICATION SERVICES
The tables below set forth, for the periods presented, certain unaudited
historical financial information and the percentage that those items bear to
revenues for the Company's telecommunication services segment.
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------
2000 1999
------------------- ------------------
% of Net % of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net......................... $ 592,867 100% $ 543,154 100%
Technical and operating expenses...... 235,588 40 218,150 40
Selling, general and administrative
expenses............................ 110,954 19 117,814 22
Depreciation and amortization......... 163,935 28 152,410 28
--------- ----------
Operating profit................ $ 82,390 14% $ 54,780 10%
========= ==========
</TABLE>
-16-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
2000 1999
------------------- ------------------
% of Net % of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net......................... $1,756,224 100% $1,601,118 100%
Technical and operating expenses...... 702,359 40 645,471 40
Selling, general and administrative
expenses............................ 323,784 18 396,049 25
Depreciation and amortization......... 481,782 27 455,199 28
--------- ---------
Operating profit................ $ 248,299 14% $ 104,399 7%
========= =========
</TABLE>
REVENUES for the three and nine months ended September 30, 2000 increased $49.7
million (9%) and $155.1 million (10%), respectively, as compared to revenues for
the same periods in the prior year. Approximately $19.8 million (4%) and $69.6
million (4%), respectively, of the increases resulted from higher revenue per
subscriber; approximately $19.2 million (4%) and $48.3 million (3%),
respectively, was attributable to increased revenues from the Company's
developing telephone and modem businesses and revenue recognized in connection
with the At Home transaction; and approximately $7.5 million (1%) and $25.9
million (2%), respectively, was attributable to internal growth in the average
number of subscribers in the Company's cable television systems during the
periods. The remaining increase of approximately $3.2 million and $11.3 million
(1%), respectively, resulted from increases in other revenue sources, including
advertising.
TECHNICAL AND OPERATING EXPENSES for the three and nine months ended September
30, 2000 increased $17.4 million (8%) and $56.9 million (9%), respectively, over
the same periods in 1999. The increased costs were directly associated with the
growth in revenues and subscribers discussed above, as well as to increases in
programming costs for cable television services. As a percentage of revenues,
technical and operating expenses remained relatively constant during the three
and nine months ended September 30, 2000 as compared to the same periods in the
prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased $6.9 million (6%) and
$72.3 million (18%) for the three and nine months ended September 30, 2000 as
compared to the same periods in 1999. The decreases consisted of a decrease of
$18.6 million (16%) and $109.1 million (28%), respectively, resulting from lower
charges related to an incentive stock plan and a decrease of approximately $1.7
million (1%) and $4.9 million (1%), respectively, resulting from lower Year 2000
remediation costs. These decreases were partially offset by an increase of
approximately $13.4 million (11%) and $41.7 million (11%) in customer service
and sales and marketing costs, respectively. As a percentage of revenues,
selling, general and administrative expenses decreased 3% and 7%, respectively,
during the three and nine months ended September 30, 2000 compared to the same
1999 periods. Excluding the effects of the incentive stock plan and the Year
2000 remediation costs, such costs increased 1% for both the three and nine
months ended September 30, 2000 as compared to the same periods in the prior
year, as a percentage of revenues.
-17-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
DEPRECIATION AND AMORTIZATION EXPENSE increased $11.5 million (8%) and $26.6
million (6%), respectively, for the three and nine months ended September 30,
2000 over the comparable 1999 periods. The increases resulted primarily from
depreciation on new plant assets.
RAINBOW MEDIA HOLDINGS
The tables below set forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenues for
the Rainbow Media Holdings segment.
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------
2000 1999
------------------- ------------------
% of Net % of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net........................ $ 289,295 100% $ 228,246 100%
Technical and operating expenses..... 150,431 52 111,053 49
Selling, general and administrative
expenses........................... 89,413 31 102,621 45
Depreciation and amortization........ 40,717 14 40,228 18
-------- ---------
Operating profit (loss)........ $ 8,734 3% $ (25,656) (11)%
======== =========
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
2000 1999
------------------- ------------------
% of Net % of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net........................ $ 998,089 100% $ 815,896 100%
Technical and operating expenses..... 560,023 56 471,255 58
Selling, general and administrative
expenses........................... 265,239 27 335,678 41
Depreciation and amortization........ 137,564 14 119,592 15
--------- ---------
Operating profit (loss)........ $ 35,263 4% $(110,629) (14)%
========= =========
</TABLE>
REVENUES for the three and nine months ended September 30, 2000 increased $61.0
million (27%) and $182.2 million (22%), respectively, as compared to revenues
for the same periods in the prior year. Approximately $19.5 million (9%) and
$71.7 million (9%), respectively, of the increase was attributable to internal
growth in programming network subscribers and rate increases; approximately
$18.5 million (8%) and $49.9 million (6%), respectively, was a direct result of
the Transactions; and approximately $9.9 million (4%) and $35.5 million (4%),
respectively, was due to increases in advertising revenues. The remaining $13.1
million (6%) and $25.1 million (3%), respectively, of the increase was primarily
the result of a greater number of concerts, special events and sporting events
at Madison Square Garden and Radio City Music Hall.
-18-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
TECHNICAL AND OPERATING EXPENSES for the three and nine months ended September
30, 2000 increased $39.4 million (35%) and $88.8 million (19%), respectively,
over the comparable 1999 periods. Approximately $12.7 million (11%) and $35.0
million (8%), respectively, of the increase was the direct result of the
Transactions. The remaining net increase of $26.7 million (24%) and $53.8
million (11%), respectively, was primarily attributable to increased costs
directly associated with the net increases in revenues discussed above. As a
percentage of revenues, technical and operating expenses increased 3% for the
three month period and decreased 2% for the nine month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES for the three and nine months ended
September 30, 2000 decreased $13.2 million (13%) and $70.4 million (21%),
respectively, over the same 1999 periods. Decreases of approximately $23.1
million (23%) and $103.1 million (31%), respectively, were attributable to lower
expenses related to an incentive stock plan and decreases of $4.2 million (4%)
and $9.9 million (3%), respectively, resulted from lower Year 2000 remediation
costs. These decreases were partially offset by an increase of $7.9 million (8%)
and $26.6 million (8%), respectively, for the three and nine month period
attributable to sales and marketing initiatives, advertising related expenses
and other general cost increases and an increase of $6.2 million (6%) and $16.0
million (5%), respectively, resulting from the Transactions. As a percentage of
revenues, selling, general and administrative expenses decreased 14% for both
the three and nine month periods. Excluding the effects of the incentive stock
plan and Year 2000 remediation costs, as a percentage of revenues such costs
decreased 2% and 1%, respectively, for the three and nine month period in 2000
compared to the same periods in 1999.
DEPRECIATION AND AMORTIZATION EXPENSE increased $0.5 million (1%) and $18.0
million (15%) for the three and nine months ended September 30, 2000 over the
same 1999 periods. Increases of approximately $1.8 million (4%) and $20.6
million (17%), respectively, for the three and nine months were a direct result
of the Transactions. The remaining net decrease of $1.3 million (3%) and $2.6
million (2%), respectively, for the three and nine month periods resulted from
decreases in amortization expense due to certain intangible assets which became
fully amortized during the period, partially offset by increases in depreciation
on capital expenditures made during the period.
RETAIL ELECTRONICS
The tables below set forth, for the periods presented, certain historical
financial information and the percentage that those items bear to revenues for
the Company's retail electronics segment, Cablevision Electronics Investments,
Inc. ("Cablevision Electronics").
-19-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------
2000 1999
--------------------- ------------------
% of Net % of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net........................ $ 171,682 100% $ 137,505 100%
Cost of sales........................ 142,008 83 111,781 81
Selling, general and administrative
expenses........................... 47,829 28 36,652 27
Depreciation and amortization........ 5,041 3 1,713 1
-------- --------
Operating loss................. $(23,196) (14)% $(12,641) (9)%
======== ========
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
2000 1999
-------------------- ------------------
% of Net % of Net
Amount Revenues Amount Revenues
------ -------- ------ --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Revenues, net....................... $ 467,440 100% $ 396,853 100%
Cost of sales....................... 383,860 82 316,569 80
Selling, general and administrative
expenses.......................... 133,173 28 109,736 28
Depreciation and amortization....... 13,184 3 4,667 1
--------- ---------
Operating loss................. $ (62,777) (13)% $ (34,119) (9)%
========= =========
</TABLE>
REVENUES for the three and nine months ended September 30, 2000 amounted to
approximately $171.7 million and $467.4 million, respectively, compared to
revenues of approximately $137.5 million and $396.9 million for the three and
nine months ended September 30, 1999, respectively. Comparable store sales
accounted for $21.4 million (16%) and $44.1 million (11%) of the increase in
revenue, while new and relocated stores contributed $12.8 million (9%) and $26.4
million (7%) of the increase in revenue for the three and nine months ended
September 30, 2000, respectively.
COST OF SALES for the three and nine months ended September 30, 2000 amounted to
approximately $142.0 million and $383.9 million (83% and 82% of revenues),
respectively. For the three and nine months ended September 30, 1999, costs of
sales amounted to $111.8 million and $316.6 million (81% and 80% of revenues),
respectively. Such costs include the cost of merchandise sold, including freight
costs incurred, as well as store occupancy and buying costs. The increase in
cost of sales, as a percentage of revenues, is attributable to changes in the
sales mix and inventory provisions.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES amounted to approximately $47.8
million and $133.2 million for the three and nine months ended September 30,
2000, respectively and $36.7 million and $109.7 million for the three and nine
months ended September 30, 1999, respectively. Selling, general and
administrative expenses consist of retail store expenses (excluding store
occupancy costs), the salaries and commissions of store personnel, the costs of
advertising, operating the distribution center and corporate support functions
other than buying.
-20-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
DEPRECIATION AND AMORTIZATION EXPENSE amounted to approximately $5.0 million and
$13.2 million for the three and nine months ended September 30, 2000,
respectively, and $1.7 million and $4.7 million for the three and nine months
ended September 30, 1999, respectively. Depreciation and amortization expense
includes the depreciation of all property and equipment in service, and, for the
1999 periods, the amortization of intangible assets which resulted from the Wiz
acquisition.
-21-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES
Cablevision Systems Corporation ("Cablevision") does not have any operations
independent of its subsidiaries. In addition, Cablevision 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 does not have cash needs
independent of the needs of its subsidiaries.
Cablevision is currently structured as a restricted group and an unrestricted
group of subsidiaries. The Restricted Group currently includes all of CSC
Holdings' cable operations in and around the greater New York City 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. At September 30, 2000, the Restricted
Group encompassed approximately 3,502,700 cable television subscribers,
including approximately 356,900 subscribers in its Massachusetts systems and
313,800 subscribers which comprised the recently sold Cleveland, Ohio area cable
system.
The Unrestricted Group includes principally Rainbow Media Holdings, including
Madison Square Garden and other companies engaged in certain developmental
activities ("New Media"), including high-speed cable modem service, residential
telephone service, developing (non-Long Island) commercial telephone service,
research and development expenses and deferred revenue amortization related to
the At Home transaction. The Unrestricted Group also includes Cablevision
Electronics, which operates 41 THE WIZ consumer electronics store locations, and
CCG Holdings, Inc. ("CCG Holdings"), 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 nine months ended September 30, 2000.
<TABLE>
<CAPTION>
Interest Capital
Revenues AOCF* Expense Expenditures
-------- ----- ------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Restricted Group**.......... $1,666,302 $748,482 $352,535 $696,155
New Media***................ 89,922 (51,885) 2 132,661
Rainbow Media Holdings
(including AMC and MSG)... 998,089 170,345 61,069 36,513
Retail Electronics.......... 467,440 (49,806) 10,231 23,327
Other....................... (56,404) (2,017) (2,097) 1,989
---------- -------- -------- --------
Total.................... $3,165,349 $815,119 $421,740 $890,645
========== ======== ======== ========
</TABLE>
----------
* Defined as operating income (loss) before depreciation and amortization and
excluding incentive stock plan expense of $888 and the costs of Year 2000
remediation of $3,473.
** Includes results of the Kalamazoo, MI system through September 6, 2000, as
well as results of the Cleveland, Ohio area system and of the Massachusetts
systems held for sale, through September 30, 2000.
*** Consists of developmental operations, including those related to systems
held for sale.
-22-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Restricted Unrestricted
Group Group Total
----- ----- -----
(dollars in thousands)
<S> <C> <C> <C>
DEBT AND REDEEMABLE PREFERRED STOCK
Senior debt.......................... $2,231,094 $ -- $2,231,094
Senior notes and debentures.......... 2,693,057 -- 2,693,057
Subordinated notes and debentures.... 1,048,614 -- 1,048,614
---------- ---------- ----------
5,972,765 -- 5,972,765
---------- ---------- ----------
Redeemable preferred stock of CSC Holdings 1,514,257 -- 1,514,257
---------- ---------- ----------
Rainbow Media Holdings:
RMHI senior debt.................. -- 266,730 266,730
AMC senior debt................... -- 366,923 366,923
MSG senior debt................... -- 274,325 274,325
---------- ---------- ----------
Total Rainbow Media Holdings debt -- 907,978 907,978
---------- ---------- ----------
Retail Electronics debt.............. -- 94,970 94,970
Other debt........................... -- 14,987 14,987
---------- ---------- ----------
Total debt and redeemable
preferred stock ............... $7,487,022 $1,017,935 $8,504,957
========== ========== ==========
</TABLE>
RESTRICTED GROUP
The Restricted Group's plant upgrade, combined with additional amounts required
for the start up and operation of new businesses such as high speed internet
access, digital video services, the expansion of residential telephone services
and the roll out of non-Long Island based commercial telephone businesses, as
well as additional investments or acquisitions, will require significant
additional funding. The Company expects to obtain the requisite funds through
internally generated funds, amounts available under CSC Holdings' credit
facilities, proceeds from asset sales and/or additional capital market
issuances.
In November 2000, the Company completed the sale of its Ohio cable system to
Adelphia Communications Corporation ("Adelphia") for $991.0 million in cash and
10.8 million shares of Adelphia common stock. The cash proceeds received in the
transaction were used to repay outstanding bank debt under the Company's
revolving credit facility and to retire a $450 million bridge loan facility. In
September 2000, the Company completed the sale of its Kalamazoo, Michigan cable
system to Charter Communications, Inc. ("Charter") in exchange for 11.2 million
shares of Charter common stock.
In April 2000, the Company announced the sale of its cable systems in Boston and
Eastern Massachusetts to AT&T Corporation ("AT&T") in exchange for cable systems
in certain northern New York suburbs, approximately $878 million in AT&T stock
and approximately $284 million in cash, subject to certain adjustments. The
consummation of this transaction is subject to the receipt of franchise transfer
and other required approvals. The Company expects to
-23-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
apply the cash proceeds from the Massachusetts transactions, as well as any cash
proceeds received from the monetization of any of its holdings of common stock,
toward the reduction of outstanding debt.
As of November 2, 2000, the Restricted Group had in total $2.2 billion in
reducing revolving credit facilities, consisting of a $1.2 billion facility
available to Cablevision MFR, Inc. and certain of the Company's New Jersey
subsidiaries and a $1.0 billion facility available to CSC Holdings and other
Restricted Group subsidiaries. Both facilities mature in March 2007, with
commitments beginning to reduce in June 2001. On July 31, 2000, CSC Holdings
closed on a $450 million term loan facility which provided additional
availability until certain pending cable system sales closed. This facility was
repaid and terminated on November 2, 2000 with cash proceeds from the sale of
the Company's Ohio cable system to Adelphia. As of November 2, 2000, the
Restricted Group had outstanding borrowings under its credit facilities of
$1,356 million and letters of credit of $41.6 million. Unrestricted and
undrawn funds available to the Restricted Group amounted to approximately
$802.4 million as of the same date.
<TABLE>
<CAPTION>
--------------------------------------
As of November 2, 2000
(in thousands)
--------------------------------------
CSC Holdings MFR Total
------------ --- -----
<S> <C> <C> <C>
Total revolving credit
facility............... $1,000,000 $ 1,200,000 $ 2,200,000
Outstanding debt......... 398,000 958,000 1,356,000
Outstanding letters of
credit................. 41,633 -- 41,633
----------- ----------- -----------
Availability........ $ 560,367 $ 242,000 $ 802,367
=========== =========== ===========
</TABLE>
The revolving credit agreements contain certain financial covenants that may
limit the Restricted Group's ability to utilize all of the undrawn funds
available thereunder, including covenants requiring the Restricted Group to
maintain certain financial ratios and restricting the permitted uses of borrowed
funds.
As of November 2, 2000, CSC Holdings had entered into interest exchange (swap)
agreements with several of its banks covering a notional principal amount of
$250 million that require CSC Holdings to pay a floating rate of interest. These
swaps mature in 2001 and 2002.
RAINBOW MEDIA HOLDINGS AND AMERICAN MOVIE CLASSICS
Rainbow Media Holdings had a $300 million non-amortizing revolving credit
facility maturing on December 31, 2000, which was reduced to $294 million as of
October 31, 2000 as a result of the sale of Rainbow Media Holdings' interest in
one of its subsidiaries. Rainbow Media Holdings is restricted from accessing
$21.5 million of the facility in order to provide for
-24-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
repayment of a like amount of intercompany borrowings from RPP as described
below. Direct borrowings as of November 2, 2000, amounted to $244.5 million,
leaving a balance of $28 million available to Rainbow Media Holdings under the
credit facility as of that date. During 2000, Rainbow Media Holdings repaid
$158.5 million of its $180 million loan from RPP with borrowings under its
credit facility.
In May 1999, American Movie Classics, a wholly-owned subsidiary of Rainbow Media
Holdings, entered into a new $425 million credit facility which matures on March
31, 2006, with commitment reductions beginning in June 2004. As of November 2,
2000, American Movie Classics had outstanding borrowings of $352 million,
leaving unrestricted funds available of $73 million.
Both the Rainbow Media Holdings and American Movie Classics 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.
Rainbow Media Holdings' potential investments in new programming content and
services, as well as its debt repayment obligations discussed above, will
require significant additional funding. The Company expects to obtain such
funding through a $1 billion credit facility it is currently in the process of
arranging for Rainbow Media Group, LLC (a subsidiary of Rainbow Media Holdings).
The new facility would repay and replace the existing Rainbow Media Holdings and
American Movie Classics credit facilities and provide additional availability.
The Company has received commitments in excess of $800 million to date and
expects to close the facility by the end of November 2000. However, there can be
no assurance that the facility can be completed on acceptable terms and
conditions or at all.
RPP
In June 1998, RPP, a partnership which is 60% owned by Rainbow Media Holdings
and 40% owned by Fox Sports Networks, LLC ("Fox"), made an intercompany loan to
Rainbow Media Holdings of $180 million, of which $21.5 million was outstanding
as of November 2, 2000. The intercompany loan is a four year demand note
maturing March 31, 2002 and requires that Rainbow Media Holdings maintain
sufficient availability under its revolving credit facility to permit the
repayment in full to RPP if RPP requires the funds for its own operating needs.
MSG
MSG has a $500 million revolving credit facility maturing on December 31, 2004
(the "MSG Credit Facility"). As of November 2, 2000, outstanding debt under the
MSG Credit Facility was $280 million. In addition, MSG had outstanding letters
of credit of $13 million, resulting in unrestricted and undrawn funds available
of $207 million. The MSG Credit Facility contains certain financial covenants
that may limit MSG's 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
-25-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
under its existing credit agreement, will be sufficient to meet its projected
funding requirements over the next twelve months.
Garden Programming, LLC, an unrestricted subsidiary of MSG, had a $20 million
term loan maturing on July 11, 2002. The loan was replaced with borrowings under
the MSG Credit Facility and cancelled on September 29, 2000.
RETAIL ELECTRONICS
Cablevision Electronics has a $130 million stand alone revolving credit facility
which matures at the end of February 2001. 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 November 2, 2000, total outstanding debt under the credit facility
was $95 million with no additional availability. CSC Holdings' investment in
Cablevision Electronics was approximately $158.9 million at September 30, 2000.
Through November 2, 2000, Cablevision Electronics has received other financial
support of approximately $201.8 million 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 over the next twelve months. Funds available
under Cablevision Electronics' credit agreement, assuming the credit facility
can be renewed at maturity, together with this additional financial support,
will be sufficient to meet its projected funding requirements over the next
twelve months; however, no assurances as to the Company's ability to renew the
credit facility at maturity on acceptable terms and conditions, or to renew the
credit facility at all, can be provided.
CCG HOLDINGS
CCG Holdings, which owns the Company's motion picture theater assets, had a $15
million revolving credit bank facility, which was repaid and retired, through an
intercompany loan, on September 7, 2000.
RAINBOW MEDIA GROUP TRACKING STOCK PROPOSAL
If the proposed Rainbow Media Group tracking stock issuance is completed as
described in the Proxy, the Company's financing structure would be separated
between the proposed Cablevision NY Group and Rainbow Media Group. Rainbow Media
Holdings' entities which are part of the proposed Rainbow Media Group tracking
stock would secure funding arrangements independent from the Cablevision NY
Group, and the Rainbow Media Holdings' entities which are not included in the
tracking stock (referred to as the Rainbow NY Group), principally Madison Square
Garden and its subsidiaries, the MetroChannels, Rainbow Advertising Sales
Corporation and News 12 businesses, would be part of the Cablevision NY Group
funding group.
-26-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Funding for the Cablevision NY Group's ongoing capital investment and
operational requirements would be provided, in part, through separate financial
arrangements made available to the Restricted Group, Madison Square Garden, and
Cablevision Electronics as described above. The Rainbow NY Group's cash
requirements would be funded through the Restricted Group credit facilities,
partner contributions, or the Madison Square Garden credit facility. Financing
for the Rainbow Media Group would be provided, in part, by the existing Rainbow
Media Holdings and American Movie Classics credit facilities, which the Company
expects to replace with a new Rainbow Media Group combined credit facility as
described above.
The Cablevision NY Group's principal financing groups, including the Restricted
Group, Madison Square Garden, and Cablevision Electronics will continue to have
financing requirements as described above, and the Company expects to be able to
raise the requisite funding in the same manner as described above.
The Rainbow Media Group's potential investments in new programming content and
services, as well as its debt repayment obligations discussed above, will
require significant additional funding. The Company may obtain the requisite
funds through internally generated funds, through bank credit facilities,
through debt or equity capital markets transactions, or through a combination of
the foregoing. As described above, the Company is currently in discussions with
banks to obtain funding through a new credit facility. However, there can be no
assurance that the Rainbow Media Group will be able to obtain refinancing or
funds from other sources on acceptable terms and conditions or at all.
FINANCIAL INSTRUMENTS
In July 1999, the Company entered into a $100 million facility with a third
party for the Company to acquire a beneficial interest in shares of its Class A
Common Stock through a forward swap contract facility. In August 2000, the
availability of this facility was extended to June 2001 with a final maturity
for any swaps executed of February 2002. The terms of this facility provide for
the settlement of any obligations of the Company thereunder either in cash or
the Company's Class A Common Stock. The Company's obligation is guaranteed by
CSC Holdings. Currently there are no outstanding contracts under this facility.
OPERATING ACTIVITIES
Net cash provided by operating activities amounted to $209.5 million for the
nine months ended September 30, 2000 compared to $162.6 million for the nine
months ended September 30, 1999. The 2000 cash provided by operating activities
consisted primarily of $390.6 million of income before depreciation,
amortization and other non-cash items, partially offset by a net decrease in
cash resulting from changes in assets and liabilities of $181.1 million.
The 1999 cash provided by operating activities of $162.6 million consisted
primarily of $137.7 million of income before depreciation, amortization and
other non-cash items and an increase in cash resulting from changes in assets
and liabilities of $24.9 million.
-27-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
INVESTING ACTIVITIES
Net cash used in investing activities for the nine months ended September 30,
2000 was $1,050.7 million compared to $739.9 million for the nine months ended
September 30, 1999. The 2000 investing activities consisted of $890.6 million of
capital expenditures, $128.7 million of payments for acquisitions, and other
items of $31.4 million.
Net cash used in investing activities for the nine months ended September 30,
1999 of $739.9 million consisted of $595.4 million of capital expenditures,
$114.4 million of payments for acquisitions, and other items of $41.0 million,
partially offset by proceeds from the sale of marketable securities of $10.9
million.
FINANCING ACTIVITIES
Net cash provided by financing activities amounted to $817.1 million for the
nine months ended September 30, 2000 compared to $468.9 million for the nine
months ended September 30, 1999. In 2000, the Company's financing activities
consisted primarily of additional bank borrowings of $855.2 million, partially
offset by other items aggregating $38.1 million.
Net cash provided by financing activities of $468.9 million for the nine months
ended September 30, 1999 consisted primarily of the issuance of senior notes of
$497.7 million, partially offset by other items aggregating $28.8 million.
YEAR 2000
The Year 2000 issue ("Y2K") refers to the inability of certain computerized
systems and technologies to recognize and/or correctly process dates beyond
December 31, 1999.
For the nine months ended September 30, 2000 and 1999, the Company recorded
approximately $3.5 million and $28.0 million, respectively, of expenses relating
to Y2K remediation.
-28-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
RAINBOW MEDIA GROUP
FINANCIAL INFORMATION
The information set forth herein for the Rainbow Media Group sets forth
information for certain businesses and interests included within the Rainbow
Media Holdings subsidiary referred to as the Rainbow Media Group. The Company
has filed preliminary proxy materials with the Securities and Exchange
Commission related to the vote of Cablevision shareholders that is required to
amend the Cablevision charter to authorize and issue a new series of Cablevision
common stock called Rainbow Media Group tracking stock and distributed
definitive proxy materials to Cablevision shareholders. That series of
Cablevision common stock would be designed to track the economic performance of
the Rainbow Media Group. No solicitation is being made hereby.
The proxy materials filed with the Securities and Exchange Commission state that
Rainbow Media Group tracking stock may be issued following a favorable
shareholder vote, but there are no assurances that an issuance will be made or
as to the manner in which an issuance may be accomplished. Only the definitive
proxy materials distributed to Cablevision shareholders should be relied upon in
reviewing the businesses, financial condition or results of operations of the
Rainbow Media Group.
A Cablevision tracking stock, such as the Rainbow Media Group common stock that
may be issued after a Cablevision shareholder vote, represents an interest in
Cablevision and is not a direct interest in the businesses and interests
included in the Rainbow Media Group. If the Rainbow Media Group tracking stock
is issued, dividends (if any), entitlements in the event of a merger or similar
transaction and rights in liquidation will not necessarily be related to the
performance of the Rainbow Media Group or the value of the assets in the Rainbow
Media Group. Instead, such determinations will be made by the Cablevision Board
of Directors, subject to the provisions of the Cablevision charter. The Company
does not expect to pay any dividends on any series of Cablevision common stock
for the foreseeable future.
In connection with the preparation of the financial information for the Rainbow
Media Group tracking stock, the Company has made certain allocations of
Cablevision costs based on existing policies. If the Company were to alter those
policies, which the Company is entitled to do at any time, there could be
material adverse effects on the Rainbow Media Group financial statements. This
factor should be considered in analyzing the financial information set forth.
-29-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
Statement of Financial Accounting Standards No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS 133"), requires that all derivative
financial instruments, such as interest rate swap contracts, be recognized in
the financial statements and measured at fair value regardless of the purpose or
intent for holding them. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or stockholders' equity
(as a component of comprehensive income), depending on whether the derivative is
being used to hedge changes in fair value or cash flows. SFAS 133, as amended,
is effective for fiscal years beginning after June 15, 2000. The Company does
not expect that the adoption of SFAS 133 will have a material effect on its
financial condition or results of operations.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "REVENUE
RECOGNITION IN FINANCIAL STATEMENTS" ("SAB 101") which summarizes certain of the
SEC staff's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company will be required to
adopt the accounting provisions of SAB 101 during the fourth quarter of 2000.
The Company does not believe that the implementation of SAB 101 will have a
significant effect on its financial condition or results of operations.
Statement of Position 00-02 "ACCOUNTING BY PRODUCERS OR DISTRIBUTORS OF FILMS"
("SOP 00-02") replaces Statement of Financial Accounting Standards No. 53, and
provides guidance covering revenue recognition for sales or licenses of films
and the accounting and reporting of film production costs. SOP 00-02 is
effective for financial statements for fiscal years beginning after December 31,
2000. The Company does not believe that the adoption of SOP 00-02 will have a
significant effect on its financial position or results of operations.
EITF Issue No. 00-14, "ACCOUNTING FOR CERTAIN SALES INCENTIVES" ("EITF 00-14")
addresses among other things, (i) the recognition, measurement, and income
statement classification for sales incentives offered voluntarily by a vendor
without charge to customers; (ii) vendor offers that entitle a customer to
receive a reduction in the price of a product or service by submitting a form or
claim for a refund or rebate of a specified amount, and (iii) offers by a vendor
for a free product or service when the customer purchases another specified item
if the vendor will deliver that free product or service to the customer at the
point of sale of the specified item. EITF 00-14 is effective for all reporting
periods beginning after May 18, 2000, and will be applied prospectively. The
Company does not believe that the adoption of EITF 00-14 will have a significant
effect on its financial position or results of operations.
-30-
<PAGE>
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks from changes in interest rates and
certain equity security prices. The Company's exposure to interest rate
movements results from its use of floating and fixed rate debt to fund its
working capital, capital expenditures, and other operational and investment
requirements. To manage interest rate risk, the Company has from time to time
entered into interest rate swap contracts to adjust the proportion of total debt
that is subject to variable and fixed interest rates. Such contracts fix the
borrowing rates on floating rate debt to hedge against the risk of rising rates
and/or convert fixed rate borrowings to variable rate to hedge against the risk
of higher borrowing costs in a declining interest rate environment. The Company
does not enter into interest rate derivative contracts for speculative or
trading purposes. The Company's exposure to changes in equity security prices
stems from its investment in At Home Corporation common stock warrants (the
value of which fluctuates based on changes in the stock price of the underlying
security) and the Charter common stock.
FAIR VALUE OF DEBT: Based on the level of interest rates prevailing at September
30, 2000, the fair value of the Company's fixed-rate debt and redeemable
preferred stock of $5,274 million exceeded its carrying cost by approximately
$19 million. The fair value of these financial instruments is estimated based on
reference to quoted market prices for these or comparable securities. The
Company's floating rate borrowings bear interest at current market rates and
thus approximate fair value. The effect of a hypothetical 100 basis point
decrease in interest rates prevailing at September 30, 2000 would increase the
estimated fair value of debt and redeemable preferred stock instruments by
approximately $287 million. This estimate is based on the assumption of an
immediate and parallel shift in interest rates across all maturities.
INTEREST RATE HEDGE CONTRACTS: As of September 30, 2000, the Company had
outstanding interest rate swap contracts to pay variable rates of interest
(based upon LIBOR with the latest maturity in 2002) covering a total notional
principal amount of $250 million. As of September 30, 2000, the fair market
liability of all interest rate hedge contracts was approximately $1.0 million.
Assuming an immediate and parallel shift in interest rates across the yield
curve, a 100 basis point increase in interest rates from September 30, 2000
prevailing levels would increase the fair market value liability of all hedge
contracts by $2.7 million to a liability of $3.7 million.
EQUITY PRICE RISK: As of September 30, 2000, the fair market value of the
Company's warrants to acquire At Home Corporation's common stock was $278.8
million, which exceeded its carrying value of $248.1 million. The potential
change in the fair value of this investment, assuming a 10% change in price,
would be approximately $28.9 million.
As of September 30, 2000, the fair market value of the Company's holdings of
Charter common stock was $181.7 million. Assuming a 10% change in price, the
potential change in the fair value of this investment would be approximately
$18.2 million.
-31-
<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.
On June 19, 2000, Cablevision commenced an action in the Delaware
Court of Chancery to protect its rights regarding an agreement, dated
as of March 28, 2000, among Excite@Home, AT&T Corp., Comcast
Corporation and Cox Communications, Inc. See Cablevision's Form 8-K
filed on July 3, 2000. On August 17, 2000, Cablevision and
Excite@Home announced that the parties agreed to dismiss
Cablevision's claims against Excite@Home and its partners
immediately, and Cablevision consented to Excite@Home's completion of
the transactions contemplated by the March 28, 2000 agreement.
Cablevision and Excite@Home further agreed to dismiss without
prejudice Excite@Home's claims against Cablevision. See Cablevision's
Form 8-K filed on August 23, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 45.
(b) The Company filed Current Reports on Form 8-K with the
Commission on July 3, 2000 and August 23, 2000.
-32-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues, net (including retail electronics
sales of $467,440, $396,853, $171,682
and $137,505) ......................... $ 3,165,349 $ 2,782,327 $ 1,035,548 $ 902,310
----------- ----------- ----------- -----------
Operating expenses:
Technical and operating ................ 1,199,695 1,074,503 365,750 317,372
Retail electronics cost of sales ....... 383,860 316,569 142,008 111,781
Selling, general and
administrative ....................... 771,036 899,028 262,891 280,784
Depreciation and amortization .......... 709,333 627,909 238,503 212,737
----------- ----------- ----------- -----------
3,063,924 2,918,009 1,009,152 922,674
----------- ----------- ----------- -----------
Operating income (loss) .......... 101,425 (135,682) 26,396 (20,364)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense ....................... (421,740) (344,075) (150,193) (120,517)
Interest income ........................ 4,505 6,937 1,801 2,077
Equity in net loss of affiliates, net .. (13,034) (8,857) (10,765) (4,497)
Gain on sale of cable assets ........... 130,758 -- 130,758 --
Write off of deferred financing costs .. -- (4,425) -- (19)
Minority interests ..................... (1,503) 42,680 4,823 12,265
Miscellaneous, net ..................... (5,286) (9,659) (981) (2,222)
----------- ----------- ----------- -----------
(306,300) (317,399) (24,557) (112,913)
----------- ----------- ----------- -----------
Net income (loss) ......................... (204,875) (453,081) 1,839 (133,277)
Dividend requirements applicable to
preferred stock ........................ (122,510) (131,476) (41,981) (44,786)
----------- ----------- ----------- -----------
Net loss applicable to common shareholder . $ (327,385) $ (584,557) $ (40,142) $ (178,063)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-33-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS (unaudited)
Cash and cash equivalents ...................................................... $ 38,557 $ 62,665
Accounts receivable trade (less allowance for doubtful accounts of
$42,936 and $35,357) ........................................................ 266,621 226,304
Notes and other receivables .................................................... 127,834 129,596
Inventory, prepaid expenses and other assets ................................... 286,392 211,179
Property, plant and equipment, net ............................................. 3,046,894 2,752,495
Investments in affiliates ...................................................... 70,971 58,423
Other investments .............................................................. 440,362 256,442
Advances to affiliates ......................................................... 59,913 46,685
Feature film inventory, net .................................................... 318,551 335,826
Net assets held for sale ....................................................... 531,191 269,349
Franchises, net of accumulated amortization of
$740,307 and $703,237 ....................................................... 460,119 651,777
Affiliation and other agreements, net of accumulated amortization of
$285,890 and $244,249 ....................................................... 131,609 173,250
Excess costs over fair value of net assets acquired and other intangible assets,
net of accumulated amortization of
$781,524 and $727,134 ....................................................... 1,817,798 1,816,030
Deferred financing, acquisition and other costs, net of
accumulated amortization of $73,389 and $51,063 ............................. 152,496 140,287
---------- ----------
$7,749,308 $7,130,308
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-34-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(continued)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S DEFICIENCY (unaudited)
Accounts payable........................................................................ $ 432,595 $ 410,413
Accrued expenses........................................................................ 950,617 1,048,599
Accounts payable to affiliates.......................................................... 31,628 12,745
Feature film and contract obligations................................................... 299,333 371,126
Deferred revenue........................................................................ 341,707 274,043
Bank debt............................................................................... 3,129,697 2,254,487
Senior notes and debentures............................................................. 2,693,057 2,692,602
Subordinated notes and debentures....................................................... 1,048,614 1,048,513
Capital lease obligations and other debt................................................ 119,332 99,099
------------ -------------
Total liabilities.................................................................... 9,046,580 8,211,627
------------ -----------
Minority interests...................................................................... 586,170 592,583
------------ ------------
Series H Redeemable Exchangeable Preferred Stock........................................ 434,181 409,757
------------ ------------
Series M Redeemable Exchangeable Preferred Stock........................................ 1,080,076 994,754
------------ ------------
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)......................................................... -- --
Common Stock, $.01 par value, 10,000,000 shares authorized,
1,000 shares issued............................................................. -- --
Paid-in capital...................................................................... 759,979 763,948
Accumulated deficit.................................................................. (4,169,746) (3,842,361)
---------- ----------
(3,409,767) (3,078,413)
Accumulated other comprehensive income............................................... 12,068 --
---------- ----------
Total stockholder's deficiency....................................................... (3,397,699) (3,078,413)
---------- ----------
$7,749,308 $7,130,308
========== ==========
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-35-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................... $ (204,875) $ (453,081)
------------ ------------
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................................... 709,333 627,909
Equity in net loss of affiliates, net............................ 13,034 8,857
Minority interests............................................... 1,503 (42,680)
Gain on sale of cable assets..................................... (130,758) -
Gain on sale of investments...................................... - (10,861)
Write off of investment in affiliate............................. - 15,100
Write off of deferred financing costs............................ - 4,425
Amortization of deferred financing and other costs............... 17,494 6,212
Amortization of debenture discount............................... 556 418
(Gain) loss on sale of equipment................................. (2,931) 3,269
Changes in assets and liabilities, net of effects of
acquisitions and dispositions................................ (164,032) 33,825
------------ ------------
Net cash provided by operating activities.................... 239,324 193,393
------------ ------------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired.................... (128,720) (114,447)
Proceeds from sale of marketable securities........................ - 10,861
Capital expenditures............................................... (890,645) (595,429)
Proceeds from sale of plant and equipment.......................... 107 722
Additions to intangible assets..................................... (98) (6,107)
Increase in investments in affiliates, net......................... (30,805) (32,106)
Increase in other investments...................................... (494) (1,736)
------------ ------------
Net cash used in investing activities........................ (1,050,655) (738,242)
------------ ------------
Cash flows from financing activities:
Proceeds from bank debt............................................ 3,198,182 3,033,291
Repayment of bank debt............................................. (2,342,972) (3,037,729)
Issuance of senior notes........................................... - 497,670
Dividends applicable to preferred stock............................ (12,764) (21,910)
Payments of capital lease obligations and other debt............... (29,606) (15,407)
Additions to deferred financing and other costs ................... (25,617) (19,449)
------------ ------------
Net cash provided by financing activities.................... 787,223 436,466
------------ ------------
Net decrease in cash and cash equivalents............................. (24,108) (108,383)
Cash and cash equivalents at beginning of year........................ 62,665 173,826
------------ ------------
Cash and cash equivalents at end of period............................ $ 38,557 $ 65,443
============ ============
</TABLE>
See accompanying notes to
condensed consolidated financial statements.
-36-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of CSC
Holdings, Inc. and its majority owned subsidiaries (the "Company") have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
In April 1999, Cablevision Systems Corporation ("Cablevision") contributed
certain cable television systems acquired from Tele-Communications, Inc. (the
"TCI Systems") on March 4, 1998 to the Company. This transaction was accounted
for in a manner similar to a pooling of interests, whereby the assets and
liabilities of the TCI Systems were recorded at historical book value (net
assets of $509,574). Prior period consolidated financial statements of the
Company have been restated to include the financial position and results of
operations of the TCI Systems from March 4, 1998.
Note 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS
The financial statements as of and for the three and nine month periods ended
September 30, 2000 and 1999 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, 1999.
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, 2000.
Note 3. RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
Note 4. LOSS PER COMMON SHARE
Net loss per common share for the three and nine months ended September 30, 2000
and 1999 is not presented since the Company is a wholly owned subsidiary of
Cablevision.
-37-
<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Note 5. INVESTMENTS
The Company accounts for its investments in marketable securities in accordance
with Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." The Company has classified
such investments as available-for-sale. Accordingly, these investments are
stated at fair value and unrealized holding gains and losses are included in
accumulated other comprehensive income as a separate component of stockholder's
deficiency.
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 $420,300 and $325,220 for the nine months ended September 30, 2000
and 1999, respectively. The Company's noncash financing and investing activities
for the nine months ended September 30, 2000 and 1999 included capital lease
obligations of $50,383 and $45,751, respectively, incurred when the Company
entered into leases for new equipment, preferred stock dividend requirements of
$109,746 and $109,566, respectively, the receipt of Salon.com common shares
valued at $7,300 in 2000, and the receipt of Charter Communications, Inc.'s
common stock valued at closing at approximately $165,500 in connection with the
sale of the cable television system serving Kalamazoo, Michigan in 2000.
Note 7. ACQUISITION
In January 2000, Regional Programming Partners acquired the 70% interest in
SportsChannel Florida Associates held by Front Row Communications for
approximately $130,600 (including the repayment of $20,000 in debt) increasing
its ownership to 100%. The acquisition was accounted for as a purchase with the
operations of the acquired business 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 8. DISPOSITION
In September 2000, the Company completed the sale of the cable system serving
Kalamazoo, Michigan, for 11,173,376 shares of Charter Communications, Inc.'s
common stock valued at approximately $165,500 at closing and recognized a gain
of approximately $130,800.
Note 9. AT HOME
As of September 30, 2000 and 1999, deferred revenue derived from the receipt of
At Home warrants, net of amortization taken, amounted to approximately $116,474
and $174,567,
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<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
respectively. For the nine months ended September 30, 2000 and 1999, the
Company recognized approximately $45,000 and $37,600, respectively, of this
deferred revenue.
On June 19, 2000, Cablevision commenced an action in the Delaware Court of
Chancery to protect its rights regarding an agreement, dated as of March 28,
2000, among Excite@Home, AT&T Corp., Comcast Corporation and Cox Communications,
Inc. On June 30, 2000, Excite@Home, AT&T, Comcast and Cox filed answers in the
Delaware Court of Chancery to Cablevision's complaint. In addition, Excite@Home
asserted counterclaims against Cablevision seeking to rescind its agreements
with Cablevision and cancel the Excite@Home warrants owned by Cablevision. On
August 17, 2000, Cablevision and Excite@Home announced that the parties agreed
to dismiss Cablevision's claims against Excite@Home and its partners
immediately, and Cablevision consented to Excite@Home's completion of the
transactions contemplated by the March 28, 2000 agreement. Cablevision and
Excite@Home further agreed to dismiss without prejudice Excite@Home's claims
against Cablevision.
Note 10. 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 income or expense and the costs
of Year 2000 remediation).
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Telecommunication Services . $ 1,756,224 $ 1,601,118 $ 592,867 $ 543,154
Rainbow Media Holdings ..... 998,089 815,896 289,295 228,246
Retail Electronics ......... 467,440 396,853 171,682 137,505
All Other .................. 55,931 64,648 19,914 25,563
Intersegment Eliminations .. (112,335) (96,188) (38,210) (32,158)
----------- ----------- ----------- -----------
Total ............. $ 3,165,349 $ 2,782,327 $ 1,035,548 $ 902,310
=========== =========== =========== ===========
ADJUSTED OPERATING CASH FLOW
Telecommunication Services . $ 733,859 $ 679,320 $ 250,614 $ 232,172
Rainbow Media Holdings ..... 170,317 119,451 52,185 44,604
Retail Electronics ......... (49,806) (27,005) (18,038) (10,203)
All Other .................. (39,251) (35,193) (12,629) (13,224)
----------- ----------- ----------- -----------
Total ............. $ 815,119 $ 736,573 $ 272,132 $ 253,349
=========== =========== =========== ===========
</TABLE>
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<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>
Nine Months Ended Three Months Ended
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Total revenue for reportable segments ................. $ 3,221,753 $ 2,813,867 $ 1,053,844 $ 908,905
Other revenue and intersegment eliminations ........... (56,404) (31,540) (18,296) (6,595)
----------- ----------- ----------- -----------
Total consolidated revenue ...................... $ 3,165,349 $ 2,782,327 $ 1,035,548 $ 902,310
=========== =========== =========== ===========
ADJUSTED OPERATING CASH FLOW TO NET LOSS Total adjusted
operating cash flow for reportable segments .... $ 854,370 $ 771,766 $ 284,761 $ 266,573
Other adjusted operating cash flow deficit ............ (39,251) (35,193) (12,629) (13,224)
Items excluded from adjusted operating cash flow:
Depreciation and amortization ................... (709,333) (627,909) (238,503) (212,737)
Incentive stock plan expense .................... (888) (216,388) (7,233) (49,391)
Year 2000 remediation ........................... (3,473) (27,958) -- (11,585)
Interest expense ................................ (421,740) (344,075) (150,193) (120,517)
Interest income ................................. 4,505 6,937 1,801 2,077
Equity in net loss of affiliates, net ........... (13,034) (8,857) (10,765) (4,497)
Write off of deferred financing costs ........... -- (4,425) -- (19)
Gain on sale of cable assets .................... 130,758 -- 130,758 --
Minority interests .............................. (1,503) 42,680 4,823 12,265
Miscellaneous, net .............................. (5,286) (9,659) (981) (2,222)
----------- ----------- ----------- -----------
Net income (loss) ..................... $ (204,875) $ (453,081) $ 1,839 $ (133,277)
=========== =========== =========== ===========
</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 11. NET ASSETS HELD FOR SALE
The net assets attributable to the Company's cable television systems located in
and around the greater Cleveland, Ohio metropolitan area and in Boston and
Eastern Massachusetts are classified in the accompanying balance sheet as of
September 30, 2000 as net assets held for sale.
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<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)
Note 12. TRACKING STOCK
In August 2000, Cablevision filed preliminary proxy materials with the
Securities and Exchange Commission ("SEC") related to the vote of Cablevision's
shareholders that is required to amend Cablevision's charter to authorize and
issue a new series of common stock called Rainbow Media Group tracking stock.
The new series would be designed to track the economic performance of the
businesses and interests of the Rainbow Media Group, which are currently part,
but not all, of the Company's Rainbow Media Holdings, Inc. subsidiary. In
October 2000, definitive proxy materials were mailed to Cablevision
shareholders. The November 10, 2000 special stockholders' meeting with respect
to the tracking stock and related matters was adjourned until December 8, 2000.
Note 13. COMPREHENSIVE INCOME
Other comprehensive income for the three and nine months ended September 30,
2000 of $12,068 represents unrealized net gains on available-for-sale
securities.
Note 14. SUBSEQUENT EVENT
In November 2000, the Company completed the sale of the cable television systems
in the greater Cleveland, Ohio metropolitan area to Adelphia Communications
Corporation for $991,000 in cash and 10,800,000 shares, valued at closing at
$359,100, in Adelphia Communications Corporation common stock. The Company
anticipates recording a gain on the sale.
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<PAGE>
CSC HOLDINGS, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In April 1999, Cablevision Systems Corporation contributed certain cable
television systems acquired from Tele-Communications, Inc. (the "TCI Systems")
on March 4, 1998 to the Company. This transaction was accounted for in a manner
similar to a pooling of interests, whereby the assets and liabilities of the TCI
Systems were recorded at historical book value. Prior period consolidated
financial statements of the Company have been restated to include the financial
position and results of operations of the TCI Systems from March 4, 1998. As a
result, the operations of CSC Holdings, Inc. are identical to the operations of
Cablevision Systems Corporation, except for dividends attributable to the
preferred stock of CSC Holdings, Inc. which have been reported in minority
interests in the consolidated financial statements of Cablevision Systems
Corporation.
Refer to Cablevision Systems Corporation's Management's Discussion and Analysis
of Financial Condition and Results of Operations on pages 12 through 30 of this
Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to Cablevision Systems Corporation's Quantitative and Qualitative
Disclosures About Market Risk on page 31 of this Form 10-Q.
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<PAGE>
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.
On June 19, 2000, Cablevision commenced an action in the Delaware
Court of Chancery to protect its rights regarding an agreement, dated
as of March 28, 2000, among Excite@Home, AT&T Corp., Comcast
Corporation and Cox Communications, Inc. See Cablevision's Form 8-K
filed on July 3, 2000. On August 17, 2000, Cablevision and
Excite@Home announced that the parties agreed to dismiss
Cablevision's claims against Excite@Home and its partners
immediately, and Cablevision consented to Excite@Home's completion of
the transactions contemplated by the March 28, 2000 agreement.
Cablevision and Excite@Home further agreed to dismiss without
prejudice Excite@Home's claims against Cablevision. See Cablevision's
Form 8-K filed on August 23, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The index to exhibits is on page 45.
(b) The Company filed Current Reports on Form 8-K with the
Commission on July 3, 2000 and August 23, 2000.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
CABLEVISION SYSTEMS CORPORATION
CSC HOLDINGS, INC.
Date: November 14, 2000 /s/ William J. Bell
----------------- ------------------------------------------------
By: William J. Bell, as Vice Chairman,
Director and Principal Financial Officer
of Cablevision Systems Corporation and
CSC Holdings, Inc.
Date: November 14, 2000 /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.
-44-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
--- ----------- ---
27 Financial Data Schedule - Cablevision Systems Corporation and Subsidiaries
27.1 Financial Data Schedule - CSC Holdings, Inc. and Subsidiaries
-45-
