-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MpOEMHfXPw0zkRcljn8uO16oRLQqn2uSST9fLeKVXRSgTa4IWqXyrAbV01WaySzG YD6D5ZI5Jevt8P3BqozBSg== 0000912057-97-029548.txt : 19970912 0000912057-97-029548.hdr.sgml : 19970912 ACCESSION NUMBER: 0000912057-97-029548 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970617 ITEM INFORMATION: FILED AS OF DATE: 19970829 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLEVISION SYSTEMS CORP CENTRAL INDEX KEY: 0000784681 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 112776686 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-09046 FILM NUMBER: 97673085 BUSINESS ADDRESS: STREET 1: ONE MEDIA CROSSWAYS CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5163648450 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 ---------------------- Date of Report (Date of earliest event reported): June 17, 1997 CABLEVISION SYSTEMS CORPORATION -------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-9046 11-2776686 -------------- ------------------------ ------------------ (State of (Commission File Number) (IRS Employer incorporation) Identification No.) One Media Crossways, Woodbury, New York 11797 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (516) 364-8450 ------------------------------- (Registrant's telephone number, including area code) ITEM 5. Other Events. On June 17, 1997, Cablevision Systems Corporation (the "Registrant" or the "Company") and ITT Corporation ("ITT") and certain of their affiliates completed the redemption by Madison Square Garden, L.P. ("MSG") of a portion of ITT's 50% interest in MSG (the "MSG Redemption"). As a result of the MSG Redemption and the contemporaneous contribution by Rainbow Media Holdings, Inc. ("Rainbow Media") of SportsChannel Associates ("SportsChannel New York") to MSG (described below), Rainbow Media's interest in MSG increased from 50% to 89.8%. ITT received $500 million from MSG and maintains a 10.2% equity interest in MSG. MSG financed the redemption with borrowings under an $850 million senior secured credit facility. ITT has the right to require the Company to repurchase one-half of its remaining equity interest in MSG on June 17, 1998 (the "Initial Put Right") for $75 million (or $94 million if ITT contributes to MSG ownership of an aircraft used to transport professional sports teams) and its remaining equity interest in MSG on June 17, 1999 for $75 million (or $94 million if the aircraft is contributed). If ITT does not exercise its Initial Put Right, the purchase price for its entire remaining equity interest in MSG on June 17, 1999 will be $150 million (or $188 million if the aircraft is contributed). The Company has the right to satisfy any or all of its put obligations by having MSG redeem the equity interests being put by ITT in cash. The Company also can satisfy its put obligation in cash or, subject to certain conditions, the Company's Class A common stock. ITT's put rights with respect to its remaining equity interest in MSG will be accelerated if there occurs a bankruptcy event relating to the Company or MSG, a dissolution of MSG or an acceleration of or failure to pay at maturity any indebtedness of the Company or MSG in an aggregate amount equal to or greater than $20 million. The Company has the right on June 17, 2000 to purchase for cash ITT's remaining equity interest in MSG if ITT chooses not to exercise either of its put options. The purchase price for ITT's remaining equity interest in MSG so repurchased by the Company will be the greater of the fair market value of ITT's remaining equity interest in MSG and the amount ITT would have received if it had exercised its right to put such interests to the Company. The Company will also have the right to repurchase, or at the Company's election to cause MSG to redeem, all of ITT's remaining equity interest in MSG at any time following a Change in Control (as defined) of ITT, at the same purchase price that would apply if ITT put its remaining equity interest in MSG to the Company. The financial statements of Madison Square Garden, L.P. are filed herewith as Exhibit 99.1. The Registrant files herewith the following condensed pro forma consolidated financial information for the year ended December 31, 1996 and six months ended June 30, 1997, including the pro forma information relating to the MSG Redemption. CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following condensed pro forma consolidated balance sheet as of June 30, 1997 presents the Company's financial position as adjusted to give effect to the acquisition by the Company from Warburg Pincus Investors, L.P. ("Warburg") of the equity interests that Warburg owned in A-R Cable Services, Inc. ("A-R Cable") for $112.3 million on July 2, 1997 (the "A-R Cable Transaction") as described under "Recent Developments" in the Company's Form 10-Q for the quarter ended June 30, 1997 (the "June 30, 1997 Form 10-Q"), as if it had occurred as of that date. The following condensed pro forma consolidated statement of operations for the year ended December 31, 1996 presents the Company's consolidated results of operations as adjusted to give effect to (i) the transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media and NBC Cable Holding, Inc., a subsidiary of National Broadcasting Company, Inc. ("NBC"), received a 25% equity interest in non-voting Class C common stock of Rainbow Media in exchange for NBC's contribution of its partnership interests in certain of Rainbow Media's programming networks (collectively, the "NBC Transaction"), as described under "Note 5. Acquisitions" in the June 30, 1997 Form 10-Q, (ii) the MSG Redemption, (iii) the acquisition by the Company from Warburg of the equity interests that Warburg owned in A-R Cable Partners and Cablevision of Framingham Holdings, Inc. ("CFHI") for $41.2 million on June 11, 1997, as described under "Note 5. Acquisitions" in the June 30, 1997 Form 10-Q, and the A-R Cable Transaction (collectively, the "1997 Warburg Transactions"), and (iv) the 1996 acquisitions of U.S. Cable Television Group, L.P. ("U.S. Cable") and Cablevision of Newark (the "U.S. Cable and Newark Acquisitions") as described in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, in each case as if they had occurred at the beginning of the period presented. The following condensed pro forma consolidated statement of operations for the six months ended June 30, 1997 presents the Company's consolidated results of operations as adjusted to give effect to (i) the NBC Transaction, (ii) the MSG Redemption, and (iii) the 1997 Warburg Transactions, in each case as if they had occurred at the beginning of the period presented. The condensed pro forma consolidated financial statements should be read in conjunction with the notes thereto and the historical consolidated financial statements and notes thereto incorporated herein by reference. The pro forma financial information has been prepared for comparative purposes only and is not necessarily indicative of what the actual financial position or results of operations of the Company would have been had the transactions occurred on the dates indicated nor does it purport to indicate the future results of operations or the future financial condition of the Company. 1 CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1997 (DOLLARS IN THOUSANDS)
A-R CABLE HISTORICAL TRANSACTION* PRO FORMA ---------- ------------ ----------- ASSETS Cash and cash equivalents.......................... $ 34,460 $ 215(1) $ 34,675 Accounts receivable--trade, net.................... 188,976 1,911(1) 190,887 Notes and other receivables........................ 35,719 1,378(1) 37,097 Prepaid expenses and other assets.................. 61,402 689(1) 40,166 (21,925)(4) Property, plant and equipment, net................. 1,698,710 105,718(1) 1,804,428 Investments in affiliates.......................... 41,619 41,619 Advances to affiliates............................. 7,128 195(1) 3,810 (3,513)(2) Feature film inventory............................. 159,142 159,142 Intangible assets, net............................. 2,313,114 87,052(1) 2,400,166 Deferred financing, acquisition and other costs, net............................. 108,054 373(1) 108,427 ---------- ---------- ---------- $4,648,324 $ 172,093 $4,820,417 ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES & STOCKHOLDERS' DEFICIENCY Accounts payable................................... $ 215,961 $ 16,493(1) $ 232,454 Accrued liabilities................................ 430,923 19,507(1) 450,430 Accounts payable to affiliates..................... 8,791 28,113(1) 8,393 (24,998)(5) (3,513)(2) Deferred revenue................................... 30,536 30,536 Feature film and contract rights payable........... 256,817 256,817 Bank debt.......................................... 2,863,066 90,376(4) 2,953,442 Senior debt........................................ 398,367(1) 398,367 Subordinated debentures............................ 1,323,172 1,323,172 Subordinated notes payable......................... 151,000 151,000 Obligation to related party........................ 189,958 189,958 Capital lease obligations and other debt........... 45,095 45,095 Minority interest.................................. 134,110 134,110 ---------- ---------- ---------- 5,649,429 524,345 6,173,774 ---------- ---------- ---------- Deficit investment in affiliates................... 550,581 (533,990)(2) 16,591 ---------- ---------- ---------- Redeemable preferred stock......................... 1,062,884 364,569(1) 1,062,884 (269,041)(3) (95,528)(2) ---------- ---------- ---------- Stockholders' deficiency: Preferred stock.................................. 15 15 Common stock..................................... 249 249 Paid-in capital.................................. 164,950 164,950 Accumulated deficit.............................. (2,779,784) 24,998(5) (2,598,046) 156,740(3) ---------- ---------- ---------- (2,614,570) 181,738 (2,432,832) ---------- ---------- ---------- $4,648,324 $ 172,093 $4,820,417 ---------- ---------- ---------- ---------- ---------- ----------
- ------------------------ * See Note A of Notes to Condensed Pro Forma Consolidated Financial Statements. 2 CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS* ----------------------------------------------------------------- 1997 U.S. CABLE/ NBC MSG WARBURG NEWARK HISTORICAL TRANSACTION REDEMPTION TRANSACTIONS ACQUISITIONS PRO FORMA ---------- ----------- ----------------- ------------ ----------------- ----------- Revenues........................ $1,315,142 $ 121,591(6) $ 399,214(10) $ 142,575(15) $ 67,429(21) $2,045,951 ---------- --------- --------- ---------- --------- ----------- Operating expenses: Technical..................... 538,272 83,938(6) 253,618(10) 54,309(15) 30,820(21) 960,957 Selling, general and administrative.............. 313,476 38,592(6) 55,289(10) 32,591(15) 15,545(21) 449,805 (5,067)(16) (621)(22) Depreciation and amortization................ 388,982 3,870(6) 60,860(10) 46,686(15) 23,981(21) 557,527 5,391(7) 10,520(11) 3,456(17) 13,781(23) ---------- --------- --------- ---------- --------- ----------- 1,240,730 131,791 380,287 131,975 83,506 1,968,289 ---------- --------- --------- ---------- --------- ----------- Operating profit (loss)..... 74,412 (10,200) 18,927 10,600 (16,077) 77,662 Other income (expense): Interest expense.............. (268,177) (424)(6) (17,850)(10) (45,884)(15) (14,137)(21) (425,854) (66,185)(12) (13,018)(18) (2,214)(24) 1,786(16) 249(22) Interest income............... 3,162 477(6) 53(15) 53(21) 3,745 Share of affiliates' net income (loss)............... (82,028) 3,266(8) (2,041)(13) 73,166(19) 844(25) (6,793) Write-off of deferred interest and financing costs......... (37,784) (3,495)(15) (41,279) Provision for preferential payment to related party.... (5,600) (5,600) Minority interest............. (9,417) 14,393 (9) 18,547(14) 23,523 Miscellaneous, net............ (6,647) (498)(6) 1,766(10) (2,798)(15) (157)(21) (8,334) ---------- --------- --------- ---------- --------- ----------- Net income (loss)............... (332,079) 7,014 (46,836) 20,410(20) (31,439) (382,930) Dividend requirements applicable to preferred stock............ (127,780) 49,977(15) (127,780) (49,977)(16) ---------- --------- --------- ---------- --------- ----------- Net income (loss) applicable to common stockholders........... $ (459,859) $ 7,014 $ (46,836) $ 20,410 $ (31,439) $ (510,710) ---------- --------- --------- ---------- --------- ----------- ---------- --------- --------- ---------- --------- ----------- Net loss per common share....... $ (18.52) $ (20.57) ---------- ----------- ---------- ----------- Average number of common shares outstanding (in thousands).... 24,827 24,827 ---------- ----------- ---------- -----------
- ------------------------ * See Note B of Notes to Condensed Pro Forma Consolidated Financial Statements. 3 CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS* ------------------------------------------------ NBC MSG 1997 WARBURG HISTORICAL TRANSACTION REDEMPTION TRANSACTIONS PRO FORMA ----------- ----------- ----------- ------------- ----------- Revenues.................. $ 797,065 $ 33,905(26) $194,337(30) $ 71,506(35) $1,096,813 --------- --------- -------- --------- ---------- Operating expenses: Technical............... 340,430 21,388(26) 117,926(30) 27,083(35) 506,827 Selling, general and administrative.......... 214,619 11,251(26) 28,178(30) 17,644(35) 269,173 (2,519)(36) Depreciation and amortization............ 222,581 1,508 (26) 28,289(30) 21,676(35) 281,808 1,348 (27) 4,822(31) 1,584(37) --------- --------- -------- --------- ---------- 777,630 35,495 179,215 65,468 1,057,808 --------- --------- -------- --------- ---------- Operating profit (loss).............. 19,435 (1,590) 15,122 6,038 39,005 Other income (expense): Interest expense........ (153,785) (642)(26) (8,371)(30) (22,074)(35) (209,227) (20,638)(32) (4,912)(38) 1,195(36) Interest income......... 828 142(26) 22(35) 992 Share of affiliates' net income (loss)......... (31,481) 1,922(28) (8,277)(33) 37,837(39) 1 Provision for preferential payment to related party...... (2,800) (2,800) Minority interest....... 3,828 1,269(29) 3,936(34) 9,033 Miscellaneous, net...... (3,991) (2,382)(35) (6,373) --------- --------- -------- --------- ---------- Net income (loss)......... (167,966) 1,101 (18,228) 15,724(40) (169,369) Dividend requirements applicable to preferred 28,297(35) stock................... (72,731) (28,297)(36) (72,731) --------- --------- -------- --------- ---------- Net income (loss) applicable to common stockholders............ $(240,697) $ 1,101 $(18,228) $ 15,724 $ (242,100) --------- --------- -------- --------- ---------- --------- --------- -------- --------- ---------- Net loss per common share................... $ (9.69) $ (9.75) ---------- ----------- ---------- ----------- Average number of common shares outstanding (in thousands).............. 24,842 24,842 ---------- ----------- ---------- -----------
- ------------------------ * See Note C of Notes to Condensed Pro Forma Consolidated Financial Statements. 4 NOTE A--NOTES TO CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 1997 WARBURG TRANSACTIONS (1) As a result of the A-R Cable Transaction, the assets and liabilities of A-R Cable will be combined with the Company's consolidated balance sheet amounts. The adjustments referenced by this Note (1) reflect the consolidation of such amounts as of the balance sheet date. (2) Represents the elimination of the Company's deficit investment in A-R Cable ($533,990,000), the elimination of the Company's A-R Cable preferred stock ($95,528,000) and the reclassification of intercompany amounts. (3) Represents the excess ($156,740,000) of the book value at June 30, 1997 ($269,041,000) of A-R Cable's series A preferred stock over the purchase price attributable to such preferred stock ($112,301,000). (4) Represents the additional bank debt ($90,376,000) incurred to purchase the series A preferred stock of A-R Cable and the reclassification of the deposit of $21,925,000 made in February 1997 with respect to the transaction. (5) Represents the elimination of the liability for management fees and accrued interest thereon recorded by A-R Cable but previously reserved by the Company. NOTE B-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 NBC TRANSACTION (6) As a result of the NBC Transaction, the results of operations of certain companies previously accounted for under the equity method are now consolidated with the Company's consolidated results of operations. The adjustments referenced by this Note (6) reflect the consolidation of such amounts for the year ended December 31, 1996. (7) Represents the amortization, based on an average 10-year life, of the excess costs resulting from the exchange of 25% of the Company's interests in Rainbow Media for NBC's interests in certain individual entities. (8) Represents the elimination of the Company's share of affiliates' net income or loss previously recorded for entities that are now consolidated and records the additional share of affiliates' net income or loss of interests contributed by NBC in certain entities that continue to be recorded on an equity basis. (9) Represents NBC's minority interest in the net loss of Rainbow Media and a minority interest in one of the companies previously accounted for under the equity method. 5 NOTE B-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED) MSG REDEMPTION (10) As a result of the MSG Redemption, the results of operations of MSG will be combined with the Company's consolidated results of operations. The adjustments referenced by this Note (10) reflect the consolidation of such amounts for the year ended December 31, 1996. (11) Represents the amortization, based on an average 30-year life, of the excess costs resulting from the acquisition of 39.8% of MSG and the contribution of SportsChannel New York to MSG. (12) Represents interest expense on additional debt incurred to purchase additional interests in MSG and the amortization of deferred financing costs incurred in connection with obtaining the additional bank debt. (13) Represents the elimination of the Company's share of net income of MSG previously recorded using the equity method of accounting. (14) Represents the minority interest in the net loss of MSG and SportsChannel New York owned by ITT, and by NBC through its interest in Rainbow Media. 1997 WARBURG TRANSACTIONS (15) As a result of the 1997 Warburg Transactions, the results of operations of A-R Cable, A-R Cable Partners and CFHI("the Warburg Companies") will be combined with the Company's consolidated results of operations. The adjustments referenced by this Note (15) reflect the consolidation of such amounts for the year ended December 31, 1996. (16) Represents the elimination of preferred stock dividends recorded by A-R Cable and management fees and accrued interest thereon earned by the Company and recorded on the books of the Warburg Companies. These management fees and related interest had not been paid and the Company had not reflected any accrual for such amounts in its financial statements. (17) Represents the amortization, based on an average 10-year life, of the excess cost over fair value of assets acquired of $34,558,000. (18) Represents interest expense on the additional bank debt incurred to complete the 1997 Warburg Transactions. (19) Represents the elimination of the net losses of the Warburg Companies previously recorded by the Company using the equity method of accounting. (20) The Condensed Pro Forma Statement of Operations for the Year Ended December 31, 1996 does not give effect to the gain recorded on the liquidation of A-R Cable's series A preferred stock. U.S. CABLE/NEWARK ACQUISITIONS (21) As a result of the acquisition of the 80% partnership interest in U.S. Cable and the acquisition of 75% of partnership interests in Cablevision of Newark not already owned by the Company, the results of operations of U.S. Cable and Cablevision of Newark were combined with the Company's consolidated results of operations as of the acquisition date. The adjustments referenced by this Note (21) reflect the consolidation of such amounts for the period prior to the acquisition date. 6 NOTE B-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED) (22) Represents the elimination of management fees and interest thereon earned by the Company and recorded on the books of U.S. Cable and Cablevision of Newark. These management fees and related interest had not been paid and the Company had not reflected any accrual for such amounts in its financial statements. (23) Represents the amortization, based on an average 10-year life, of the excess cost over fair value of assets acquired, offset by the elimination of pre-acquisition amortization of intangibles. (24) Represents the interest expense on the additional bank debt incurred to complete the acquisition of Cablevision of Newark. (25) Represents the elimination of the net loss of Cablevision of Newark previously recorded by the Company using the equity method of accounting. NOTE C-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 NBC TRANSACTION (26) As a result of the NBC Transaction, the results of operations of certain companies previously accounted for on an equity basis are now consolidated with the Company's consolidated results of operations. The adjustments referenced by this Note (26) reflect the consolidation of such amounts for the period prior to the date of the transaction. (27) Represents the amortization, based on an average 10-year life, of the excess costs resulting from the exchange of 25% of the Company's interests in Rainbow Media for NBC's interests in certain entities. (28) Represents the elimination of the Company's share of affiliates' net income or loss previously recorded for entities that are now consolidated and records the additional share of affiliates' net income or loss of interests contributed by NBC in certain entities that continue to be recorded on an equity basis. (29) Represents NBC's minority interest in the net loss of Rainbow Media and a minority interest in one of the companies previously accounted for under the equity method. MSG REDEMPTION (30) As a result of the MSG Redemption, the results of operations of MSG will be combined with the Company's consolidated results of operations. The adjustments referenced by this Note (30) reflect the consolidation of such amounts for the period prior to the date of the transaction. (31) Represents the amortization, based on an average 30-year life, of the excess costs resulting from the acquisition of 39.8% of MSG and the contribution of SportsChannel New York to MSG. 7 NOTE C-- NOTES TO CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 (CONTINUED) (32) Represents interest expense on additional debt incurred to purchase additional interests in MSG and the amortization of deferred financing costs incurred in connection with obtaining the additional bank debt. (33) Represents the elimination of the Company's share of net income of MSG previously recorded using the equity method of accounting. (34) Represents the minority interest in the net loss of MSG and SportsChannel New York owned by ITT, and by NBC through its interest in Rainbow Media. 1997 WARBURG TRANSACTIONS (35) As a result of the 1997 Warburg Transactions, the results of operations of the Warburg Companies will be combined with the Company's consolidated results of operations. The adjustments referenced by this Note (35) reflect the consolidation of such amounts for the six months ended June 30, 1997. (36) Represents the elimination of preferred stock dividends recorded by A-R Cable and management fees and accrued interest thereon earned by the Company and recorded on the books of the Warburg Companies. These management fees and related interest had not been paid and the Company had not reflected any accrual for such amounts in its financial statements. (37) Represents the amortization, based on an average 10-year life, of the excess cost over fair value of assets acquired of $34,558,000. (38) Represents interest expense on the additional bank debt incurred to complete the 1997 Warburg Transactions. (39) Represents the elimination of the net losses of the Warburg Companies previously recorded by the Company using the equity method of accounting and the elimination of preferred stock dividends previously recorded by A-R Cable. (40) The Condensed Pro Forma Statement of Operations for the Six Months Ended June 30, 1997 does not give effect to the gain recorded on the liquidation of A-R Cable's series A preferred stock. 8 ITEM 7. Financial Statements, PRO FORMA Financial Information and Exhibits. (c) Exhibits. 99.1 Financial Statements of Madison Square Garden, L.P. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLEVISION SYSTEMS CORPORATION By: /s/ William J. Bell -------------------------- Name: William J. Bell Title: Vice Chairman Date: August 29, 1997 EX-99.1 2 FINANCIAL STATEMENTS W/AUDIT REPORT EXHIBIT 99.1 MADISON SQUARE GARDEN, L.P. FINANCIAL STATEMENTS TOGETHER WITH AUDITORS' REPORT As of December 31, 1996 and 1995 and for the Year Ended December 31, 1996 and for the Periods from March 10, 1995 through December 31, 1995 and from April 3, 1994 through March 9, 1995 1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Partners of Madison Square Garden, L.P.: We have audited the accompanying Statements of Financial Position of Madison Square Garden, L.P. as of December 31, 1996 and 1995, and the related Statements of Operations, Changes in Members' Equity and Cash Flows for the year ended December 31, 1996 and the period from March 10, 1995 through December 31, 1995. We have also audited the accompanying Statements of Operations and Cash Flows of Madison Square Garden Corporation for the period from April 3, 1994 through March 9, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Madison Square Garden, L.P. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the year ended December 31, 1996 and the period from March 10, 1995 through December 31, 1995, and the results of operations and cash flows of Madison Square Garden Corporation for the period from April 3, 1994 through March 9, 1995, all in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP NEW YORK, NEW YORK January 21, 1997 (except with respect to the matter discussed in Note I, as to which the date is June 17, 1997) 2 Madison Square Garden, L.P. STATEMENTS OF FINANCIAL POSITION (Dollars in thousands)
DECEMBER 31, -------------------------- 1996 1995 ------------ ------------ Assets Cash.................................................................................. $ 708 $ 11,799 Trade receivables, net of allowance for doubtful accounts of $3,337 and $4,914........ 53,039 38,019 Prepaid expenses...................................................................... 8,405 8,168 Other current assets.................................................................. 7,047 4,504 ------------ ------------ Total current assets............................................................. 69,199 62,490 Property and equipment, net........................................................... 177,305 199,638 Intangible assets, net................................................................ 978,241 1,011,599 Other assets.......................................................................... 21,414 9,351 ------------ ------------ Total assets..................................................................... $ 1,246,159 $ 1,283,078 ------------ ------------ ------------ ------------ Liabilities and Members' Equity Trade accounts payable................................................................ $ 9,398 $ 22,798 Accrued expenses...................................................................... 78,866 73,021 Deferred revenue...................................................................... 61,749 59,449 ------------ ------------ Total current liabilities........................................................ 150,013 155,268 Long term debt........................................................................ 228,000 263,000 Deferred compensation................................................................. 6,987 9,463 Accrued sports rights................................................................. 88,223 112,923 Other liabilities..................................................................... 45,351 28,202 ------------ ------------ Total liabilities................................................................ 518,574 568,856 Members' Equity Members' contribution................................................................. 720,000 720,000 Accumulated earnings (losses)......................................................... 7,585 (5,778) ------------ ------------ Total members' equity................................................................. 727,585 714,222 ------------ ------------ Total liabilities and members' equity................................................. $ 1,246,159 $ 1,283,078 ------------ ------------ ------------ ------------
The accompanying notes to financial statements are an integral part of these statements. 3 Madison Square Garden, L.P. STATEMENTS OF OPERATIONS (Dollars in thousands)
PERIOD FROM (PREDECESSOR BASIS OF MARCH 10, 1995 ACCOUNTING) NOTE A --------------------- YEAR ENDED TO PERIOD FROM DECEMBER 31, DECEMBER 31, APRIL 3, 1994 1996 1995 TO MARCH 9, 1995 ------------ -------------- ------------------- Revenues..................................................... $ 423,731 $ 295,684 $ 325,833 Expenses Operating expenses......................................... 317,178 221,539 302,881 General and administrative expenses........................ 16,246 12,005 13,907 ------------ -------------- ---------- Operating income before depreciation and amortization........ 90,307 62,140 9,045 Depreciation and amortization................................ 60,860 51,131 15,347 ------------ -------------- ---------- Operating income............................................. 29,447 11,009 (6,302) Interest expense, net........................................ 17,850 16,787 15 Intercompany interest expense................................ -- -- 30,124 Intercompany administration fee.............................. -- -- 3,430 Gain on sales of businesses.................................. (1,766) -- -- ------------ -------------- ---------- Net income (loss)............................................ $ 13,363 $ (5,778) (39,871) ------------ -------------- ------------ ------------ -------------- ------------ Accumulated Deficit, Beginning of Period..................... (332,508) ------------ Accumulated Deficit, End of Period........................... $ (372,379) ------------ ------------
The accompanying notes to financial statements are an integral part of these statements. 4 Madison Square Garden, L.P. STATEMENTS OF CHANGES IN MEMBERS' EQUITY (Dollars in thousands)
CABLEVISION ITT SYSTEMS CORPORATION CORPORATION TOTAL ----------- ----------- ---------- Members' Initial Contribution, March 10, 1995.............................. $ 610,000 $ 110,000 $ 720,000 Net Loss................................................................... (2,889) (2,889) (5,778) ----------- ----------- ---------- Members' Equity as of December 31, 1995.................................... $ 607,111 $ 107,111 $ 714,222 Change in Partnership Interests............................................ (81,250) 81,250 -- Net Income................................................................. 6,682 6,681 13,363 ----------- ----------- ---------- Members' Equity as of December 31, 1996.................................... $ 532,543 $ 195,042 $ 727,585 ----------- ----------- ---------- ----------- ----------- ----------
The accompanying notes to financial statements are an integral part of these statements. 5 Madison Square Garden, L.P. STATEMENTS OF CASH FLOWS (Dollars in thousands)
(PREDECESSOR BASIS OF PERIOD FROM ACCOUNTING) NOTE A MARCH 10, 1995 PERIOD FROM YEAR ENDED TO APRIL 3, 1994 DECEMBER 31, DECEMBER 31, TO 1996 1995 MARCH 9, 1995 ------------ -------------- --------------------- Operating Activities Net income (loss)........................................... $ 13,363 $ (5,778) $ (39,871) Adjustments to reconcile net income (loss) to net cash provided from operations: Depreciation and amortization............................. 60,860 51,131 15,347 Gain on sales of businesses............................... (1,766) -- -- (Increase)/decrease in trade receivables.................. (16,127) 14,847 146 (Increase)/decrease in other assets....................... (13,368) 147 722 Increase in trade accounts payable and accrued expenses and other liabilities........................... 1,855 15,992 15,803 Increase/(decrease) in deferred revenue................... 4,417 15,261 (2,123) Decrease in deferred compensation......................... (2,476) (5,884) (2,870) (Decrease)/increase in accrued sports rights.............. (24,700) (23,112) 43,699 Decrease in other assets and other liabilities, net...................................................... -- -- (3,250) ---------- ------------ ----------- Net cash provided from operations...................... 22,058 62,604 27,603 ---------- ------------ ----------- Investing Activities Capital expenditures........................................ (5,747) (11,899) (7,795) Proceeds from sales of businesses........................... 21,168 -- -- Acquisition costs, net of cash acquired..................... (9,801) (1,021,906) -- Other....................................................... (3,769) -- -- ---------- ------------ ----------- Net cash provided from (used for) investing activities.................................. 1,851 (1,033,805) (7,795) ---------- ------------ ----------- Financing Activities Borrowing from banks........................................ -- 318,000 -- Principal repayments, net................................... (35,000) (55,000) -- Members' contribution....................................... -- 720,000 -- Forgiveness of payable to affiliate......................... -- -- (468,045) Contributed capital from affiliate.......................... -- -- 468,045 Intercompany transfers to affiliate......................... -- -- (367,674) Intercompany transfers from affiliate....................... -- -- 347,943 ---------- ------------ ----------- Net cash (used for) provided from financing activities.................................. (35,000) 983,000 (19,731) ---------- ------------ ----------- (Decrease)/increase in cash.................................. (11,091) 11,799 77 Cash at beginning of period.................................. 11,799 -- 3,308 ---------- ------------ ----------- Cash at end of period........................................ $ 708 $ 11,799 $ 3,385 ---------- ------------ ----------- ---------- ------------ -----------
The accompanying notes to financial statements are an integral part of these statements. 6 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, UNLESS OTHERWISE INDICATED) Note A--The Partnership FORMATION AND OWNERSHIP STRUCTURE On March 10, 1995 (the "Acquisition Date"), MSG Holdings, L.P. ("Holdings"), a partnership among subsidiaries of Cablevision Systems Corporation ("Cablevision"), and ITT Corporation ("ITT") acquired the business and assets of Madison Square Garden Corporation from Viacom, Inc. in a transaction in which that corporation merged with and into Holdings. The name of Holdings was subsequently changed to Madison Square Garden, L.P. ("MSG" or the "Partnership"). The Partnership funded the purchase price of the acquisition of approximately $1 billion through borrowings of approximately $290 million under a credit agreement with various lending institutions (see Note C) and equity contributions from the partners. As agreed by the partners, each has equal management control over MSG. The Partnership has allocated its net income/loss between the partners in the accompanying Statements of Changes in Members' Equity in accordance with the partnership agreement. The acquisition of Madison Square Garden Corporation by the Partnership was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the assets acquired, including goodwill and certain player contracts, and the liabilities assumed based upon their estimated fair values. In February 1997, Cablevision made a cash payment to ITT of $168,750, which equalized their respective partnership interests. The following unaudited pro forma 1995 information for MSG has been prepared assuming the acquisition had taken place on January 1, 1995: 1995 ---------- Operating revenues, net.......................... $ 387,154 Operating income................................. 21,179 Net income (loss)................................ $ 989 The pro forma information does not purport to be indicative of the results that would actually have been obtained if the acquisition had occurred at the beginning of the period nor is it indicative of future results. The effects of the acquisition and related financings resulted in a new basis of accounting reflecting estimated fair values of assets and liabilities at the Acquisition Date. The financial statements for the period from April 3, 1994 to March 9, 1995 represent those of Madison Square Garden Corporation, as a wholly-owned subsidiary of Viacom, Inc. Note B--Significant Accounting Policies BASIS OF PRESENTATION 7 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS--(Continued) MSG operates in one business segment, namely sports entertainment. MSG encompasses the operations of the Madison Square Garden entertainment complex which includes the main arena, a theater and various events within the complex. The New York Knickerbockers ("Knicks") Basketball Club, a member of the National Basketball Association ("NBA"), The New York Rangers ("Rangers") Hockey Club, a member of the National Hockey League ("NHL") and Madison Square Garden Network ("MSGN"), a regional sports network. SRO Motorsports ("SRO") and Miss Universe ("MU") were sold in March 1996 and November 1996, respectively. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures in these financial statements. Actual results could differ from those estimates. REVENUE RECOGNITION MSG derives its revenues primarily from the sale of advertising and event sponsorships, fees from cable system operators for carriage of MSGN, ticket sales, fees for licensing of the luxury suites, sale of food and merchandise, distributions of revenues from NBA and NHL contracts and rental of the complex for entertainment events. The Knicks and Rangers derive revenues principally from ticket sales and distributions of league wide revenue and are recognized as the games are played. MSGN charges a fee to cable system operators based on a contractual rate per subscriber and recognizes this revenue in the period that the service is provided. MSGN sells commercial spots to advertisers at various rates depending on time period, programs and commercial length and recognizes this revenue in the period the spots are aired. Event related revenues from the sale of tickets, sponsorships, food and merchandise and rental income are recognized as the underlying event occurs. Revenues from the sale of advertising in the form of signage and license fees from the rental of the arena's luxury suites are recognized ratably over the term of the respective agreements. INTANGIBLE ASSETS Intangible assets include goodwill and other intangibles arising from the acquisition of Madison Square Garden Corporation by the Partnership of approximately $912,300 and $897,500 as of December 31, 1996 and 1995, respectively. Goodwill is amortized, on a straight-line basis, over forty years. Intangible assets related to the value of certain player contracts existing on the Acquisition Date of $153,000 are amortized, on a straight-line basis, over an estimated useful life of six years. Accumulated amortization related to goodwill and certain player contracts totaled $87,064 and $38,830 as of December 31, 1996 and 1995, respectively. Amortization expense of intangibles totaled $48,234, $38,830 and $457 for the year ended December 31, 1996, for the period from the Acquisition Date to December 31, 1995 and for the period April 3, 1994 to March 9, 1995, respectively. 8 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS--(Continued) Recoverability of goodwill and intangible assets is assessed regularly and impairments, if any, are recognized in operating results if a permanent dimunition in value were to occur based on an undiscounted cash flow analysis. PROPERTY AND EQUIPMENT Property and equipment owned as of March 9, 1995 are stated at their fair market value on the Acquisition Date and assets acquired subsequent to March 9, 1995 are stated at cost. Provision for depreciation on all assets is computed using the straight-line method over the estimated useful lives of the assets ranging from three years for certain equipment to fifty years for the arena. Leasehold improvements are amortized using the straight-line method over the term of the lease or the life of the improvement, whichever is shorter. BROADCAST RIGHTS MSG acquires the rights to various sporting events and programming for exhibition on MSGN. The costs incurred in acquiring the programs, to the extent they are estimated to be recovered from future revenues, are capitalized and amortized as the programs are available for broadcast. PLAYER CONTRACTS Costs incurred to acquire player contracts, including signing bonuses, are amortized over the contract period of the respective player. Note C--Long Term Debt Long term debt consists of borrowings made pursuant to a credit agreement (the "Credit Agreement") between the Partnership and various lending institutions. Borrowings under the Credit Agreement as of December 31, consisted of:
1996 1995 ---------- ---------- Eurodollar loan due January 17, 1996 @ 6.5625% interest rate.............................. $ -- $ 150,000 Eurodollar loan due March 15, 1996 @ 6.4375% interest rate................................ -- 113,000 Eurodollar loan due January 02, 1997 @ 6.2500% interest rate.............................. 37,000 -- Eurodollar loan due January 23, 1997 @ 6.3125% interest rate.............................. 5,000 -- Eurodollar loan due February 20, 1997 @ 6.1250% interest rate............................. 5,000 -- Eurodollar loan due March 17, 1997 @ 6.1875% interest rate................................ 88,000 -- Eurodollar loan due April 15, 1997 @ 6.2500% interest rate................................ 93,000 -- ---------- ---------- Total................................................................................. $ 228,000 $ 263,000 ---------- ---------- ---------- ----------
9 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS--(Continued) The Credit Agreement allows the Partnership to borrow an amount not to exceed the unutilized commitment at either the base rate (the higher of one half percent above the federal funds rate or the prime rate) or LIBOR plus .625%. The Partnership may elect the term of the loan, from one to six months. Borrowings under the Credit Agreement are classified as long term debt in the accompanying Statements of Financial Position since the Partnership has the intent and ability to refinance the Eurodollar loans for periods exceeding one year pursuant to the Credit Agreement, which is noncancelable. The Partnership may prepay outstanding loans or reduce the unutilized commitment at any time. The Partnership is required to pay a fee based on the unutilized commitment. The unutilized commitment as of December 31, 1996 was $101,575. Maturity of any borrowings under the Credit Agreement may not exceed three years after the initial borrowing, or March 9, 1998. The carrying amount of the debt approximates its fair value. Interest expense for the Credit Agreement approximated $17,200 and $16,300 for the year ended December 31, 1996 and for the period from the Acquisition Date to December 31, 1995, respectively and interest paid during these periods approximated $17,500 and $13,900, respectively. The Credit Agreement contains certain covenants and restrictions including that the Partnership maintain certain financial ratios with which the Partnership has complied. Note D--Commitments The Partnership has various agreements and commitments under a variety of contracts. Certain of these contracts provide for payments which are guaranteed. In addition, the Partnership has various long term noncancellable operating lease commitments for office space and practice facilities for its professional sports teams. Future cash payments required under these contracts and noncancellable operating lease commitments for office space and practice facilities as of December 31, 1996 are as follows: 1997..................................... $ 68,000 1998..................................... 51,395 1999..................................... 47,545 2000..................................... 32,872 2001..................................... 30,994 Thereafter............................... 67,387 --------- Total.................................... $ 298,193 --------- --------- Rent expense, including rentals of certain equipment, totaled $4,505, $3,700 and $4,000 for the year ended December 31, 1996, for the period from the Acquisition Date to December 31, 1995 and for the period April 3, 1994 to March 9, 1995, respectively. As of December 31, 1996 the Partnership has obligations to make future payments for the rights to broadcast certain sporting events and other programming through the year 2000 of approximately $198,000. In a prior period, the Partnership recognized a loss and recorded a reserve on a contract, representing the difference between estimated aggregate revenues and expenses related to the contract. The remaining liability associated with this contract is recorded in accrued sports rights in the accompanying Statements of Financial Position. 10 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS--(Continued) The Partnership is a defendant in various lawsuits. In the opinion of counsel these suits should not have a material adverse effect on the financial position and results of operations of the Partnership. Note E--Pension and Other Postretirement Benefits Plans The Partnership sponsors several non-contributory pension plans covering the Partnership's non-union employees and certain union employees. Benefits payable to retirees under these plans are based upon years of service and participant's compensation and are funded through trusts established under the plans. The Partnership's funding policy is to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Plan assets consist primarily of shares in a balanced fund that invests primarily in common stocks, bonds, United States government securities and cash. Components of the Partnership's net periodic pension cost for defined benefit plans are as follows:
(PREDECESSOR BASIS OF ACCOUNTING) PERIOD FROM NOTE A YEAR ENDED MARCH 10, 1995 PERIOD FROM DECEMBER 31, TO DECEMBER 31, APRIL 3, 1994 1996 1995 TO MARCH 9, 1995 ------------- --------------- ------------------- Service cost.................................................... $ 1,296 $ 1,010 $ 148 Interest cost................................................... 1,485 1,111 161 Actual return on plan assets.................................... (1,461) (1,117) (107) Net amortization and deferral................................... 244 -- 102 ------ ------ ----- Net periodic pension cost....................................... $ 1,564 $ 1,004 $ 304 ------ ------ ----- ------ ------ -----
The funded status and the amounts recorded on the Partnership's balance sheet for its defined pension plans were as follows:
1996 1995 --------- --------- Plan assets at fair value................................................................... $ 15,153 $ 13,740 Projected benefit obligation................................................................ (22,309) (20,225) --------- --------- Plan assets (less than) projected benefit obligation........................................ (7,156) (6,485) Unrecognized net loss....................................................................... 241 524 Unrecognized prior service cost............................................................. 113 -- --------- --------- (Accrued) pension liability................................................................. $ (6,802) $ (5,961) --------- --------- --------- --------- Accumulated benefit obligation.............................................................. $ 16,246 $ 14,559 --------- --------- --------- --------- Vested benefit obligation................................................................... $ 14,466 $ 12,948 --------- --------- --------- ---------
Assumptions used to determine pension costs and projected benefit obligation for all periods are as follows: Discount rate......................................................................... 7.5% Rate of return on plan assets......................................................... 10.0% Rate of increase in future compensation levels........................................ 5.0%
11 In addition, the Partnership contributes to various multiemployer defined benefit pension plans. Pension expense recognized for these multiemployer plans for the year ended December 31, 1996, for the period from the Acquisition Date to December 31, 1995 and the period from April 3, 1994 to March 9, 1995 approximated $1,324, $967 and $1,879, respectively. The Partnership also sponsors a welfare plan which provides certain postretirement health care and life insurance benefits to certain non-union employees and their dependents who are eligible for early or normal retirement under the Partnership's retirement plan. The welfare plan is contributory and contains cost-sharing features such as deductibles and co-insurance payments. The Partnership funds these benefits as claims are paid. Components of the Partnership's costs for postretirement benefits are as follows: 1996 1995 --------- --------- Service cost................................... $ 213 $ 257 Interest cost.................................. 283 289 Amortization of unrecognized prior service benefit............................... (81) -- --------- --------- Periodic postretirement benefit cost........... $ 415 $ 546 --------- --------- --------- --------- Components of the liability recognized in the Partnership's balance sheet with respect to the Partnership sponsored welfare plans are as follows: 1996 1995 --------- --------- Current retirees................................. $ 788 $ 2,134 Eligible active participants..................... 270 801 Other active participants........................ 1,053 2,329 --------- --------- Accumulated postretirement benefit obligation.... 2,111 5,264 Unrecognized prior service benefit............... 3,411 -- Unrecognized net gain............................ 137 199 --------- --------- Accrued postretirement benefit obligation........ $ 5,659 $ 5,463 --------- --------- --------- --------- The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% for 1996 and 1995. The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation was 7% for 1996, decreasing to an ultimate rate of 5% by the year 2004. If the health care cost trend assumptions were increased by 1% the accumulated postretirement benefit obligation as of December 31, 1996 would be increased by approximately 17%. The effect of this change on the estimated aggregate of service and interest cost for 1996 would be an increase of 19%. In 1996, the Partnership amended its postretirement health care programs, principally to reflect a change from a traditional reimbursement program to a managed care program. These amendments resulted in a reduction of the Partnership's accumulated postretirement benefit obligation, which created an unrecognized prior service benefit. The unrecognized prior service benefit is being amortized over approximately 17 years. In addition, the Partnership contributes to multiemployer plans which provide health and welfare benefits to active as well as retired employees. The Partnership incurred costs of $2,452 and $1,800 related to those plans for the year ended December 31, 1996 and for the period from the Acquisition Date to December 31, 1995, respectively. 12 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS--(Continued) Note F--Transactions with Related Parties The Partnership charges Cablevision Systems Inc. ("CSI") a fee for carriage of the MSGN signal pursuant to a letter agreement dated June 20, 1995. The fee charged is similar to those charged other cable operators. Revenues from CSI totaled $24,517 and $18,330 for the year ended December 31, 1996 and for the period from the Acquisition Date to December 31, 1995, respectively. The Partnership has an agreement with Rainbow Advertising Sales Corporation ("RASCO"), a subsidiary of Cablevision, appointing RASCO as its exclusive representative for advertising by national advertisers on MSGN. The agreement extends through September 30, 1998. RASCO generated advertising revenues, net of commissions, of $9,417 and $1,844 for the year ended December 31, 1996 and for the period from the Acquisition Date to December 31, 1995, respectively. Note G--Property and Equipment PROPERTY AND EQUIPMENT CONSIST OF THE FOLLOWING:
1996 1995 ---------- ---------- Land.................................................................. $ 20,000 $ 20,000 Building.............................................................. 104,815 103,883 Equipment............................................................. 63,365 76,090 Furniture and fixtures................................................ 7,518 7,014 Leasehold improvements................................................ 5,934 4,952 ---------- ---------- Total................................................................. 201,632 211,939 Less accumulated depreciation......................................... 24,327 12,301 ---------- ---------- Property and equipment, net........................................... $ 177,305 $ 199,638 ---------- ---------- ---------- ----------
13 MADISON SQUARE GARDEN, L.P. NOTES TO FINANCIAL STATEMENTS--(Continued) Note H--Income Taxes The predecessor company has filed federal, state and local income tax returns on a consolidated basis with Viacom. The predecessor company does not have a formal tax sharing agreement with Viacom, nor has the predecessor company received any benefits attributable to losses from the predecessor company's operations from Viacom. As a result, the predecessor company has not recorded an income tax benefit in the accompanying statements of operations. The Partnership is not subject to income taxes, therefore no tax provision has been made in the accompanying financial statements. Note I--Subsequent Events On June 17, 1997, MSG redeemed a portion of ITT's stake in the Partnership for $500 million. Simultaneously, with the redemption, Cablevision contributed SportsChannel Associates ("SCNY") to the Partnership, with SCNY becoming a wholly-owned subsidiary of MSG. As a result of the aforementioned transactions, Cablevision's partnership interest increased to 89.8%, while ITT's partnership interest decreased to 10.2%. ITT has an option to require Cablevision to purchase its continuing 10.2 percent interest in the two years from June 17, 1997. Similarly, in three years, Cablevision has an option to purchase ITT's 10.2 percent interest should ITT choose not to exercise its option within that time frame. In conjunction with the June 17, 1997 transactions, MSG entered into a $850 million credit facility with various lending institutions. In addition to the financing of the $500 million redemption, proceeds from the credit facility were used to refinance debt outstanding under MSG's existing Credit Agreement. The credit facility contains certain covenants and restrictions including that the Partnership maintain certain financial ratios. Such covenants and restrictions do not take effect until September 30, 1997. 14 MADISON SQUARE GARDEN L.P. INTERIM FINANCIAL STATEMENTS As of June 30, 1997 and December 31, 1996, and for the six months ended June 30, 1997 and 1996 (Unaudited) 15 MADISON SQUARE GARDEN, L.P. STATEMENTS OF FINANCIAL POSITION (Unaudited) (in thousands of dollars)
JUNE 30, DECEMBER 31, 1997 1996 ------------ ------------ Assets Cash............................................................................... $ 2,361 $ 708 Trade receivables, net of allowance for doubtful accounts of $4,011 and 3,337, respectively..................................................................... 65,193 53,039 Prepaid expenses................................................................... 11,706 8,405 Other current assets............................................................... 11,291 7,047 ------------ ------------ Total current assets........................................................... 90,551 69,199 Property and equipment, net.......................................................... 178,360 177,305 Intangible assets, net............................................................... 1,261,907 978,241 Other assets......................................................................... 46,881 21,414 ------------ ------------ Total assets................................................................... $ 1,577,699 $1,246,159 ------------ ------------ ------------ ------------ Liabilities and Members' Equity Trade accounts payable............................................................. $ 11,301 $ 9,398 Accrued expenses................................................................... 86,796 78,866 Deferred revenues.................................................................. 30,536 61,749 ------------ ------------ Total current liabilities...................................................... 128,633 150,013 Long term debt....................................................................... 804,000 228,000 Deferred compensation................................................................ 12,697 6,987 Accrued sports rights................................................................ 100,942 88,223 Other liabilities.................................................................... 40,708 45,351 ------------ ------------ Total liabilities.............................................................. 1,086,980 518,574 Members' Equity Members' contribution.............................................................. 476,319 720,000 Accumulated earnings (losses)...................................................... 14,400 7,585 ------------ ------------ Total members' equity.......................................................... 490,719 727,585 ------------ ------------ Total liabilities and members' equity........................................ $ 1,577,699 $1,246,159 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. 16 MADISON SQUARE GARDEN, L.P. STATEMENTS OF OPERATIONS (Unaudited) (in thousands of dollars)
SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, 1997 1996 ----------- ----------- Revenues................................................................................. $ 219,785 $ 219,678 Expenses................................................................................. Operating expenses....................................................................... 161,294 168,405 General and administrative expenses...................................................... 9,854 7,594 ----------- ----------- Operating income before depreciation and amortization.................................... 48,637 43,679 Depreciation and amortization............................................................ 31,613 32,165 ----------- ----------- Operating income......................................................................... 17,024 11,514 Interest expense, net.................................................................... 10,209 9,454 ----------- ----------- Net income............................................................................... $ 6,815 $ 2,060 ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. 17 MADISON SQUARE GARDEN, L.P. STATEMENTS OF CHANGES IN MEMBERS' EQUITY (Unaudited) (in thousands of dollars)
CABLEVISION ITT SYSTEMS CORPORATION CORPORATION TOTAL ----------- ----------- ---------- Members' Equity as of December 31, 1996.................................... $ 532,543 $ 195,042 $ 727,585 Change in Partnership Interests............................................ (168,750) 168,750 -- Redemption of Partnership Interests........................................ (500,000) -- (500,000) Goodwill Resulting from Redemption of Partnership Interests................ 172,488 -- 172,488 Contribution of SportsChannel New York..................................... 8,551 75,280 83,831 Net Income................................................................. 5,222 1,593 6,815 ----------- ----------- ---------- Members' Equity as of June 30, 1997........................................ $ 50,054 $ 440,665 $ 490,719 ----------- ----------- ---------- ----------- ----------- ----------
The accompanying notes are an integral part of these consolidated financial statements. 18 MADISON SQUARE GARDEN, L.P. STATEMENTS OF CASH FLOWS (Unaudited) (in thousands of dollars)
SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1997 JUNE 30, 1996 ---------------- ---------------- Cash flows from operating activities: Net income.................................................................. $ 6,815 $ 2,060 Adjustments to reconcile net income to net cash used in operating activities: Depreciation.............................................................. 6,998 8,171 Amortization.............................................................. 24,615 23,994 Changes in assets and liabilities: Decrease in trade receivables............................................ 361 4,042 Increase in other current assets......................................... 1,909 (2,281) Decrease in trade accounts payable....................................... (7,121) (12,903) Decrease in accrued expenses............................................. (15,352) (2,228) Decrease in deferred revenues............................................ (31,214) (23,963) Increase in deferred compensation........................................ 5,712 127 Decrease in accrued sports rights........................................ (37,281) (38,151) Decrease in other, net................................................... (4,643) (4,659) -------- ------- Net cash provided from (used in) operating activities.................. (49,201) (45,791) -------- ------- Cash flows from investing activities: Capital expenditures........................................................ (6,292) (1,920) Acquisition costs........................................................... (4,528) (7,615) Proceeds from sale of business.............................................. -- 13,074 -------- ------- Net cash provided from (used in) investing activities.................. (10,820) 3,539 -------- ------- Cash flows from financing activities: Borrowings, net under credit facilities..................................... 55,000 37,000 Repayment of former credit facility......................................... (278,000) -- Initial borrowings on new credit facilities................................. 799,000 -- Debt issuance costs......................................................... (17,658) -- Partner's capital contribution.............................................. 3,332 -- Redemption of partners' capital............................................. (500,000) -- -------- ------- Net cash provided from financing activities............................ 61,674 37,000 -------- ------- Net increase/(decrease) in cash........................................ 1,653 (5,252) Cash at beginning of period............................................ 708 11,799 -------- ------- Cash at end of period.................................................. $ 2,361 $ 6,547 -------- ------- -------- -------
The accompanying notes are an integral part of these consolidated financial statements. 19 MADISON SQUARE GARDEN, L.P. Notes to Unaudited Interim Financial Statements (Amounts in thousands) Note 1: Organization On March 10, 1995 (the "Acquisition Date"), MSG Holdings, L.P. ("Holdings"), a partnership among subsidiaries of Cablevision Systems Corporation ("Cablevision"), and ITT Corporation ("ITT") acquired the business and assets of Madison Square Garden Corporation from Viacom, Inc. in a transaction in which that corporation merged with and into Holdings. The name of Holdings was subsequently changed to Madison Square Garden, L.P. ("MSG" or the "Partnership"). In February 1997, Cablevision made a cash payment to ITT of $168,750, which equalized their respective partnership interests. On June 17, 1997, MSG redeemed a portion of ITT's stake in the Partnership for $500 million ("ITT Redemption"). Simultaneously, with the ITT redemption, Cablevision contributed SportsChannel Associates ("SCNY") to the Partnership, with SCNY becoming a wholly-owned subsidiary of MSG. As a result of the aforementioned transactions, Cablevision's partnership interest increased to 89.8%, while ITT's partnership interest decreased to 10.2%. ITT has an option to require Cablevision to purchase its continuing 10.2 percent interest in the two years from June 17, 1997. Similarly, in three years, Cablevision has an option to purchase ITT's 10.2 percent interest should ITT choose not to exercise its option within that time frame. The ITT Redemption price was for an amount in excess of ITT's recorded partnership interest and accordingly the Partnership recorded Goodwill of approximately $172 million. In addition, the Partnership recorded adjustments to certain assets and liabilities, including certain broadcasting rights agreements, which were originally recorded by a subsidiary of Cablevision. The effect of these adjustments was an increase to Goodwill of approximately $70 million. The underlying analysis which forms the basis for these adjustments is preliminary and may change as evaluations are completed. In conjunction with the June 17, 1997, transaction MSG entered into a $850 million Term Loan and Revolving Credit Facility (the 'Credit Facility'; see Note 3). 20 MADISON SQUARE GARDEN, L.P. Notes to Unaudited Interim Financial Statements--(Continued) (Amounts in thousands) Note 2: Basis of Presentation and Accounting Policies Basis of Presentation The accompanying financial statements have been prepared by MSG, without audit, pursuant to 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 pursuant to such rules and regulations. All significant intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. The financial information presented herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The interim financial statements and notes thereto should be read in conjunction with the December 31, 1996, audited financial statements of MSG included elsewhere herein. Certain prior period amounts have been reclassified to conform with the current presentation. The results for interim periods are not necessarily indicative of the results to be expected for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts and disclosures in these financial statements. Actual results could differ from those estimates. MSG operates in one business segment, namely sports entertainment. MSG encompasses the operations of the Madison Square Garden entertainment complex which includes the main arena, a theater and various events within the complex. The New York Knickerbockers Basketball Club, a member of the National Basketball Association, The New York Rangers Hockey Club, a member of the National Hockey League and Madison Square Garden Network, a regional sports network. SRO Motorsports and Miss Universe were sold in March 1996 and November 1996. Intangible Assets Recoverability of goodwill and intangible assets is assessed regularly and impairments, if any, are recognized in operating results if a permanent dimunition in value were to occur based on an undiscounted cash flow analysis. 21 MADISON SQUARE GARDEN, L.P. Notes to Unaudited Interim Financial Statements--(Continued) (Amounts in thousands) Note 3: Long-Term Debt and Financing Arrangements On June 6, 1997, the Partnership entered into the Credit Facility with various lending institutions. The Credit Facility consists of a $650 million Term Loan and a $200 million Revolving Credit Facility. The Term Loan is payable in 26 quarterly installments commencing on September 30, 1998. The Revolving Credit Facility expires December 31, 2004; amounts outstanding are payable at that time. Loans under the Credit Facility bear interest at current market rates plus a margin based on the Partnership's consolidated leverage ratio. The margins range from 0% to 2%. On June 17, 1997, the Partnership borrowed $799 million (the "initial borrowing") under the Credit Facility with $650 million borrowed under the Term Loan and $149 million under the Revolving Credit Facility. The proceeds of the initial borrowing were used to fund the ITT Redemption, repay the Partnership's existing long term debt and pay transaction costs. Deferred financing costs associated with the Credit Facility of approximately $17.7 million are being amortized over the term of the Credit Facility. As of June 30, 1997, outstanding debt under the Credit Facility consists of Term Loans of $650 million and Revolving Credit loans of $154 million. The loans bear interest at rates of 7.69% to 7.88%. Note 4: Subsequent Event On July 11, 1997, MSG entered into an agreement whereby a wholly owned subsidiary of MSG agreed to loan a broadcast content provider (borrower) $40 million (the 'Loan'). The Partnership has drawn on its existing credit facility and has entered into promissory notes for $20 million in order to finance the Loan. The Loan matures on November 1, 2011 and bears interest at a rate which approximates MSG's borrowing rate. The Loan is secured by certain assets of the borrower and a guarantee by an affiliate of the borrower. 22 -----END PRIVACY-ENHANCED MESSAGE-----