-----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, Oh3DDGEPhOmYXZVDHn/1Ac6Z2VaHnxAHQkzDCOeSAgH67Kos3VL6Kj4YaO7vwGNZ sSdqgdh4ffJDBzCpYRZv0A== 0000912057-97-027660.txt : 19970814 0000912057-97-027660.hdr.sgml : 19970814 ACCESSION NUMBER: 0000912057-97-027660 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09046 FILM NUMBER: 97659622 BUSINESS ADDRESS: STREET 1: ONE MEDIA CROSSWAYS CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5163648450 10-Q 1 REG. COV SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 -------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------ -------------- Commission File Number: 1-9046 ----------------- CABLEVISION SYSTEMS CORPORATION --------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 11-2776686 - -------------------------------- (I.R.S. Employer (State or other jurisdiction of Identification No.) incorporation or organization) One Media Crossways, Woodbury, New York 11797 - --------------------------------------- ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (516) 364-8450 -------------- Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ----- Number of shares of common stock outstanding as of August 4, 1997: Class A Common Stock - 13,778,687 Class B Common Stock - 11,109,709 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
Six Months Ended Three Months Ended June 30, June 30, ---------------- ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues....................................... $ 797,065 $ 624,496 $ 438,516 $ 320,331 ---------- ---------- --------- ---------- Operating expenses: Technical...................................... 340,430 257,580 189,031 128,890 Selling, general and administrative............................... 214,619 146,439 129,752 73,551 Depreciation and amortization.................... 222,581 175,168 114,576 90,474 ---------- ---------- --------- ---------- 777,630 579,187 433,359 292,915 ---------- ---------- --------- ---------- Operating profit......................... 19,435 45,309 5,157 27,416 ---------- ---------- --------- ---------- Other income (expense): Interest expense............................... (153,785) (132,099) (81,023) (62,402) Interest income................................ 828 2,240 405 438 Share of affiliates' net losses................ (31,481) (40,061) (18,858) (19,093) Write off of deferred interest and financing costs.............................. - (24,012) - (24,012) Provision for preferential payment to related party................................ (2,800) (2,800) (1,400) (1,400) Minority interest.............................. 3,828 (4,810) 6,103 (2,455) Miscellaneous.................................. (3,991) (4,243) (2,394) (2,666) ---------- ---------- --------- ---------- (187,401) (205,785) (97,167) (111,590) ---------- ---------- --------- ---------- Net loss......................................... (167,966) (160,476) (92,010) (84,174) Dividend requirements applicable to preferred stocks............................... (72,731) (58,173) (36,766) (33,795) ---------- ---------- --------- ---------- Net loss applicable to common shareholders................................... $(240,697) $(218,649) $(128,776) $(117,969) ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Net loss per common share........................ $ (9.69) $ (8.81) $ (5.18) $ (4.75) ---------- ---------- --------- ---------- ---------- ---------- --------- ---------- Average number of common shares outstanding (in thousands) 24,842 24,819 24,843 24,828 ---------- ---------- --------- ---------- ---------- ---------- --------- ----------
See accompanying notes to consolidated financial statements. -2- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
June 30, December 31, ASSETS 1997 1996 ---- ---- Cash and cash equivalents....................................... $ 34,460 $ 11,612 Accounts receivable trade (less allowance for doubtful accounts of $25,434 and $12,955)............................... 188,976 105,406 Notes and other receivables (including affiliate amount of $7,764 in 1997)................................................ 35,719 19,368 Prepaid expenses and other assets............................... 61,402 23,053 Property, plant and equipment, net.............................. 1,698,710 1,390,971 Investments in affiliates....................................... 41,619 311,865 Advances to affiliates.......................................... 7,128 7,855 Feature film inventory.......................................... 159,142 134,258 Franchises, net of accumulated amortization of $427,613 and $389,791.......................................... 392,007 379,466 Affiliation agreements, net of accumulated amortization of $114,315 and $44,385........................................... 245,457 162,388 Excess costs over fair value of net assets acquired and other intangible assets, net of accumulated amortization of $627,994 and $549,256........................................... 1,675,650 436,606 Deferred financing, acquisition and other costs, net of accumulated amortization of $29,209 and $29,755................. 108,054 51,877 ---------- ---------- $4,648,324 $3,034,725 ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. -3- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited)
June 30, December 31, 1997 1996 ---- ---- LIABILITIES AND STOCKHOLDERS' DEFICIENCY Accounts payable . . . . . . . . . . . . . . . . . . $ 215,961 $ 186,409 Accrued liabilities: Interest . . . . . . . . . . . . . . . . . . . . . 53,212 45,774 Payroll and related benefits . . . . . . . . . . . 76,396 63,987 Franchise fees . . . . . . . . . . . . . . . . . . 25,194 26,453 Other. . . . . . . . . . . . . . . . . . . . . . . 276,121 104,172 Accounts payable to affiliates . . . . . . . . . . . 8,791 14,012 Feature film and contract rights payable . . . . . . 256,817 115,437 Deferred revenue . . . . . . . . . . . . . . . . . . 30,536 - Bank debt. . . . . . . . . . . . . . . . . . . . . . 2,863,066 1,670,245 Subordinated debentures. . . . . . . . . . . . . . . 1,323,172 1,323,105 Subordinated notes payable . . . . . . . . . . . . . 151,000 141,268 Obligation to related party. . . . . . . . . . . . . 189,958 192,819 Capital lease obligations and other debt . . . . . . 45,095 7,264 Minority interest. . . . . . . . . . . . . . . . . . 134,110 - ---------- ---------- Total liabilities. . . . . . . . . . . . . . . . . 5,649,429 3,890,945 ---------- ---------- Deficit investment in affiliates . . . . . . . . . . 550,581 512,800 ---------- ---------- Series H Redeemable Exchangeable Preferred Stock 306,762 289,506 ---------- ---------- Series M Redeemable Exchangeable Preferred Stock 756,122 715,759 ---------- ---------- Commitments and contingencies Stockholders' deficiency: 8% Series C Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized, 110,622 shares issued ($100 per share liquidation preference). . . . . 1 1 8% Series D Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized, none issued ($100 per share liquidation preference). . . . . . . . . . - - 8-1/2% Series I Cumulative Convertible Exchangeable Preferred Stock, $.01 par value, 1,380,000 shares authorized and issued ($250 per share liquidation preference). . . . . . . . . . . . . . . . . . . 14 14 Class A Common Stock, $.01 par value, 50,000,000 shares authorized, 13,733,347 and 13,583,676 shares issued. . . 137 136 Class B Common Stock, $.01 par value, 20,000,000 shares authorized, 11,119,709 and 11,254,709 shares issued 112 113 Paid-in capital. . . . . . . . . . . . . . . . . . 164,950 164,538 ---------- ---------- Accumulated deficit. . . . . . . . . . . . . . . . (2,779,784) (2,539,087) ---------- ---------- Total stockholders' deficiency . . . . . . . . . . (2,614,570) (2,374,285) ---------- ---------- $4,648,324 $3,034,725 ---------- ---------- ---------- ----------
See accompanying notes to consolidated financial statements. -4- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Dollars in thousands) (Unaudited)
1997 1996 ---- ----- Cash flows from operating activities: Net loss......................................................... $(167,966) $(160,476) --------- --------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization................................. 222,581 175,168 Share of affiliates' net losses............................... 31,481 40,061 Minority interest in earnings................................. (3,828) 4,810 Amortization of deferred financing............................ 3,063 3,331 Amortization of deferred interest............................. - 4,684 Amortization of debenture discount............................ 67 44 Accretion of interest on debt................................. - 6,828 Write off of deferred interest and finance costs.............. - 24,012 Loss on sale of equipment..................................... 2,891 2,004 Changes in assets and liabilities net of effects of acquisition: Accounts receivable trade................................ (17,295) 761 Notes receivable, affiliates............................. (7,764) - Notes and other receivables.............................. 2,497 (506) Prepaid expenses and other assets........................ (6,605) (8,404) Advances to affiliates................................... 11,972 (3,347) Feature film inventory................................... 13,165 11,345 Accounts payable......................................... 11,169 (2,837) Accrued interest......................................... 6,612 5,392 Accrued payroll and related benefits..................... 5,876 7,446 Accrued franchise fees................................... (1,307) (2,104) Accrued liabilities, other............................... 28,011 (15,787) Accounts payable to affiliates........................... (8,625) 5,391 Feature film rights payable.............................. (2,902) (11,361) Deferred revenue......................................... (5,209) - --------- --------- Total adjustments...................................... 285,850 246,931 --------- --------- Net cash provided by operating activities..................... $ 117,884 $ 86,455 --------- --------- --------- ---------
See accompanying notes to consolidated financial statements. -5- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (Dollars in thousands) (Unaudited) (continued)
1997 1996 ---- ---- Cash flows from investing activities: Capital expenditures............................................... $(202,630) $(178,094) Advance related to acquisition..................................... - (70,000) Proceeds from sale of plant and equipment.......................... 406 399 Additions to intangible assets..................................... (860) (1,665) (Increase) decrease in investments in affiliates, net.............. 11,185 (46,485) Payments for acquisitions, net of cash acquired.................... (695,669) - --------- --------- Net cash used in investing activities............................ (887,568) (295,845) --------- --------- Cash flows from financing activities: Proceeds from bank debt.......................................... 1,700,913 914,676 Repayment of bank debt........................................... (839,667) (788,690) Proceeds from senior debt........................................ - 5,500 Repayment of senior debt......................................... - (911,131) Preferred stock dividends........................................ (15,112) (15,130) Net proceeds from issuance of Redeemable Exchangeable Convertible Preferred Stock....................... - 624,734 Proceeds from issuance of senior subordinated debt............... - 399,385 Issuance of common stock......................................... 417 2,990 Decrease in obligation to related party.......................... (2,861) (2,864) Payments of capital lease obligations and other debt............. (2,703) (1,647) Additions to deferred financing and other costs.................. (48,455) (16,629) --------- --------- Net cash provided by financing activities........................ 792,532 211,194 --------- --------- Net increase in cash and cash equivalents.......................... 22,848 1,804 Cash and cash equivalents at beginning of year..................... 11,612 15,332 --------- --------- Cash and cash equivalents at end of period......................... $ 34,460 $ 17,136 --------- --------- --------- ---------
See accompanying notes to consolidated financial statements. -6- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) Note 1. Basis of Presentation --------------------- The accompanying unaudited consolidated financial statements of Cablevision Systems Corporation and its majority owned subsidiaries (the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Note 2. Responsibility for Interim Financial Statements ----------------------------------------------- The financial statements as of and for the three and six months ended June 30, 1997 presented in this Form 10-Q are unaudited; however, in the opinion of management, such statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 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, 1997. Note 3. Loss Per Common Share --------------------- Net loss per common share is computed based on the weighted average number of common shares outstanding. Common stock equivalents were not included in the computation as their effect would be to decrease net loss per share. In February 1997, the Financial Accounting Standards Board issued its Statement No. 128, "Earnings per Share." Among other provisions, SFAS No. 128 simplifies the standards for computing earnings per share. The Company does not expect the adoption of SFAS No. 128 to have a material impact on its financial statements. Note 4. Cash Flows ---------- For purposes of the consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $143,217 and $118,648 for the six -7- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) months ended June 30, 1997 and 1996, respectively. The Company's noncash financing activities for the six months ended June 30, 1997 and 1996 included capital lease obligations of $18,803 and $2,111, respectively, incurred when the Company entered into leases for new equipment and preferred stock dividend requirements of $57,619 and $43,043, respectively. Note 5. Acquisitions ------------ On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC received a 25% equity interest (which interest may be increased up to 27% under certain circumstances) in non-voting Class C common stock of Rainbow Media. The Company owns the remaining 75% equity interest in Rainbow Media. The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC are now owned by subsidiaries of Rainbow Media. As a result of the exchange of 25% of the Company's interest in Rainbow Media for NBC's interests in certain entities, the Company recorded goodwill of $54,108 which will be amortized over a 10 year period. On April 16, 1997, the Company and certain of its affiliates and ITT Corporation ("ITT") and certain of its affiliates, entered into definitive agreements ("MSG Agreement") relating to the acquisition by subsidiaries of Cablevision of ITT's 50 percent interest in Madison Square Garden L.P. ("MSG"). The transaction closed on June 17, 1997 when MSG borrowed $799,000 under its credit facility which was used to redeem a portion of ITT's interest in MSG for $500,000 and to repay its existing indebtedness. Rainbow Media contributed its SportsChannel Associates programming company to MSG, which, together with the redemption, increased the Company's interest in MSG to 89.8% and reduced ITT's interest to 10.2%. The remaining 10.2% interest is subject to certain puts and calls as specified in the MSG agreement. The acquisition was accounted for using the purchase method of accounting. The excess of the purchase price over the net book value of assets acquired of approximately $266,039 will be allocated to the specific assets acquired when independent appraisals are obtained and will be amortized accordingly. In June 1997, the Company acquired from Warburg Pincus Investors, L.P. ("Warburg") the interests that the Company did not already own in A-R Cable Partners ("Nashoba") and Cablevision of Framingham ("Framingham") for a purchase price of approximately $33,348 and $7,865, respectively. The acquisitions of Nashoba and Framingham were accounted for as purchases with the operations of these companies being consolidated with those of the Company as of the acquisition dates. The excess of the purchase price over the net book value of assets acquired approximates $22,815 and $11,743 for the acquisition of Nashoba and Framingham, respectively, and is being amortized over 10 years. -8- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) Pro Forma Results of Operations - ------------------------------- The following unaudited pro forma condensed results of operations are presented for the six months ended June 30, 1997 and 1996 as if the acquisitions of MSG, Nashoba and Framingham, the NBC transaction and the acquisition of A-R Cable (see Note 6) had occurred on January 1, 1997 and 1996, respectively. Six Months Ended June 30, ------------------------- 1997 1996 ---- ---- Net revenues $ 1,096,813 $ 962,265 ----------- ---------- ----------- ---------- Net loss $ (242,099) $ (227,603) ----------- ---------- ----------- ---------- Net loss per common share $ (9.75) $ (9.17) ----------- ---------- ----------- ---------- The pro forma information presented above gives effect to certain adjustments, including the amortization of acquired intangible assets and increased interest expense on acquisition debt. The pro forma information has been prepared for comparative purposes only and does not purport to indicate the results of operations which would actually have occurred had the transactions been made at the beginning of the periods indicated, or which may occur in the future. These amounts do not reflect any gain that may be recognized on the liquidation of A-R Cable's preferred stock. Note 6. Recent Developments ------------------- On July 2, 1997 the Company acquired from Warburg the Series A preferred stock of A-R Cable Services, Inc. (A-R Cable) for an aggregate purchase price of approximately $112,301. The operations of A-R Cable (together with its debt of $398,617) will be consolidated with those of the Company as of July 2, 1997. On June 6, 1997, the Company entered into an agreement with TCI Communications, Inc., a subsidiary of Tele-Communications, Inc. whereby the Company will issue 12,235,543 shares of Class A common stock, subject to adjustment in certain events, in exchange for cable television systems located in New Jersey, Long Island and New York's Rockland and Westchester counties serving approximately 824,000 subscribers at June 30, 1997 and having stipulated outstanding indebtedness of $669,000 at closing, with operating profit before depreciation and amortization for the six months ended June 30, 1997 of approximately $97,200. The closing is conditioned, -9- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) among other things, upon expiration or termination of the waiting period under the Hart-Scott-Rodino ("HSR") Antitrust Improvements Act of 1976, receipt of approvals from federal, state and local governmental agencies and others, and approval of the Company's shareholders. On August 1, 1997, the United States Federal Trade Commission issued a second request with respect to the HSR Act filing, seeking additional information with respect to the pending transaction. On June 22, 1997, Rainbow Media Sports Holdings, Inc. ("Rainbow Sports"), a wholly-owned subsidiary of Rainbow Media entered into an agreement with Fox Sports Net, LLC ("Fox Sports"), a subsidiary of Fox/Liberty Networks, LLC, to organize three partnerships, Regional Programming Partners, National Sports Partners and National Advertising Partners (the "Fox Liberty Transaction"). Upon the formation of Regional Programming Partners, Rainbow Media will contribute its partnership interests in its regional sports channels and MSG in exchange for a 60% interest in Regional Programming Partners. Fox Sports will contribute $850,000 in cash to Regional Programming Partners in exchange for a 40% interest in Regional Programming Partners. Upon the formation of National Sports Partners and National Advertising Partners, the Company and Fox Sports will each contribute certain assets to the partnerships for a 50% partnership interest. Consummation of the transaction is subject to regulatory approvals and third party consents. On July 25, 1997, the Company paid $283,445 plus accrued interest of $9,361 to redeem its $275,000 10-3/4% Senior Subordinated Debentures due 2004. The payment included a redemption premium of $8,445. -10- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- The following table sets forth on an unaudited historical basis certain items related to operations as a percentage of net revenues for the periods indicated. STATEMENT OF OPERATIONS DATA - ----------------------------
Six Months Ended June 30, --------------------------------------------------- 1997 1996 ----------------------- ---------------------- (Increase) % of% % of Decrease Amount Revenue Amount Revenues in Net Loss ------ ------- ------ -------- ----------- (Dollars in thousands) Revenues.............................................. $ 797,065 100% $ 624,496 100% $ 172,569 Operating expenses: Technical.......................................... 340,430 43 257,580 41 (82,850) Selling, general & administrative.................. 214,619 27 146,439 23 (68,180) Depreciation and amortization...................... 222,581 28 175,168 28 (47,413) --------- ---------- ---------- Operating profit...................................... 19,435 2 45,309 7 (25,874) Other expense: Interest expense, net............................... (152,957) (19) (129,859) (21) (23,098) Share of affiliates' net loss....................... (31,481) (4) (40,061) (6) 8,580 Write-off of deferred interest financing costs................................... - - (24,012) (4) 24,012 Provision for preferential payment to related party (2,800) - (2,800) - - Minority interest................................... 3,828 1 (4,810) (1) 8,638 Miscellaneous, net.................................. (3,991) (1) (4,243) (1) 252 --------- ---------- ---------- Net loss.............................................. (167,966) (21) (160,476) (26) (7,490) Dividend requirements applicable to preferred stocks............................................. (72,731) (9) (58,173) (9) (14,558) --------- ---------- ---------- Net loss applicable to common shareholders............ $(240,697) (30)% $ (218,649) (35)% $ (22,048) --------- ---------- ---------- --------- ---------- ---------- OTHER OPERATING DATA: - ----------------------- Operating profit before depreciation and amortization(1).................................. $ 242,016 $ 220,477 Net cash provided by operating activities.............. 117,884 86,455 Net cash used in investing activities(2)............... 887,568 295,845 Net cash provided by financing activities(2)........... 792,532 211,194
- --------------------- (1) Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. (2) See Item 1. - "Consolidated Statements of Cash Flows." -11- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES STATEMENT OF OPERATIONS DATA - ----------------------------
Three Months Ended June 30, --------------------------------------------------- 1997 1996 ----------------------- ---------------------- (Increase) % of% % of Decrease Amount Revenue Amount Revenues in Net Loss ------ ------- ------ -------- ----------- (Dollars in thousands) Revenues............................................... $ 438,516 100% $ 320,331 100% $ 118,185 Operating expense: Technical............................................ 189,031 43 128,890 40 (60,141) Selling, general & administrative.................... 129,752 30 73,551 22 (56,201) Depreciation and amortization........................ 114,576 26 90,474 28 (24,102) --------- ---------- ---------- Operating profit....................................... 5,157 1 27,416 9 (22,259) Other expense: Interest expense, net.............................. (80,618) 18 (61,964) (19) (18,654) Share of affiliates' net loss...................... (18,858) (4) (19,093) (6) 235 Write-off of deferred interest and financing costs.................................. - - (24,012) (8) 24,012 Provision for preferential payment to related party.................................... (1,400) - (1,400) - - Minority interest.................................. 6,103 1 (2,455) (1) 8,558 Miscellaneous, net................................. (2,394) (1) (2,666) (1) 272 --------- ---------- ---------- Net loss............................................... (92,010) (21) (84,174) (26) (7,836) Dividend requirements applicable to preferred stocks............................................... 36,766 (8) (33,795) (11) (2,971) --------- ---------- ---------- Net loss applicable to common shareholders............. ($128,776) (29)% $ (117,969) (37)% $ (10,807) --------- ---------- ---------- --------- ---------- ---------- OTHER OPERATING DATA: - --------------------- Operating profit before depreciation and amortization (1) ................................. $ 119,733 $ 117,890 Net cash provided by operating activities............... 54,241 40,248 Net cash used in investing activities................... 594,742 113,484 Net cash provided by financing activities............... 561,475 62,355
- --------------------- (1) Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. -12- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Acquisitions In August and September 1996, the Company acquired all of the interests in U.S. Cable and Cablevision of Newark, respectively, that it did not already own. These acquisitions along with the transactions completed in the second quarter of 1997 discussed in Note 5 will be referred to as the "Acquisitions" in the following discussion. Revenues for the three and six months ended June 30, 1997 increased $118.2 million (37%) and $172.6 million (28%), respectively, over the corresponding 1996 periods. Approximately $78.4 million (24%) and $105.8 million (17%) of the increase was attributable to the Acquisitions for the three and six months ended June 30, 1997, respectively, with the remaining increases of approximately $14.6 million (5%) and $22.2 million (4%) resulting from higher revenue per subscriber; and approximately $16.6 million (5%) and $26.2 million (4%) due to increases in other revenue sources such as Rainbow Media's programming services, advertising and a developing commercial telephony business, and approximately $8.6 million (3%) and $18.3 million (3%) attributable to internal growth of over 76,000 and 81,900 in the average number of subscribers. Technical Expenses increased $60.1 million (47%) and $82.9 million (32%) for the three and six months ended June 30, 1997 compared to the same 1996 periods. Approximately $38.8 million (30%) and $50.7 million (20%) of the increase for the three and six months ended June 30, 1997, respectively, was a direct result of the Acquisitions. The remaining 17% and 12% of the increase was attributable to increases in those costs directly associated with the internal growth in the average number of subscribers and revenues mentioned above. As a percentage of revenues, technical expenses increased 3% and 2%, respectively, for the three and six months ended June 30, 1997 over the same periods in 1996. Selling, General And Administrative Expenses increased $56.2 million (76%) and $68.2 million (47%), respectively, for the three and six months ended June 30, 1997 when compared to the same 1996 periods. Approximately $26.9 million (37%) and $32.6 million (22%) of the increase was related to the Acquisitions. Approximately 37% and 17% of the increase, respectively, was due to adjustments related to an incentive stock plan. The remaining 2% and 8% of the increase resulted from higher administrative, sales and marketing, and customer service costs. As a percentage of revenues, selling, general and administrative expenses increased 7% and 4%, respectively, during the three and six months ended June 30, 1997 compared to the same 1996 periods; excluding the effects of the incentive stock plan, as a percentage of revenues such costs remained constant. Operating Profit Before Depreciation And Amortization increased $1.9 million (2%) and $21.5 million (10%) for the three and six months ended June 30, 1997 over the same periods in 1996. Approximately $12.7 million and $22.5 million, respectively, of the increase is due to the Acquisitions and $15.1 million and $24.1 million, respectively, resulted from the combined effect of the revenue and expense increases discussed above. These increases were offset by a decrease in operating profit before depreciation and amortization of $25.9 million and $25.1 million, respectively, due to the adjustments to an incentive stock plan. On a pro forma basis, giving effect to the Acquisitions as if they had occurred on January 1, 1996 and the exclusion of 13 CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES incentive stock plan adjustments, operating profit before depreciation and amortization would have increased 16% and 13%, respectively, for the three and six months ended June 30, 1997 over the same periods in the prior year. Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. Depreciation and amortization expense increased $24.1 million (27%) and $47.4 million (27%) for the three and six months ended June 30, 1997 over the same periods in 1996. Approximately 22% and 20% of the respective increases were attributable to the Acquisitions. The remaining 5% and 7% of the increases resulted primarily from depreciation on new plant assets. Net interest expense increased $18.7 million (30%) and $23.1 million (18%), respectively, for the three and six months ended June 30, 1997 over the comparable 1996 periods. Approximately 23% and 17% of the increase is attributable to the Acquisitions. The remaining increase of 7% and 1%, respectively, is due to higher bank borrowings partly offset by lower interest rates. Share of affiliates' net losses decreased to $18.9 million and $31.5 million, respectively, for the three and six months ended June 30, 1997 from $19.1 million and $40.1 million for the same 1996 periods. Such amounts consist primarily of the Company's share in the net losses of certain cable affiliates which, for the three and six months ended June 30, 1997 amounted to $19.9 million and $37.9, respectively, and $16.2 million and $34.1 million, respectively, for the same periods in the prior year; and in the net gains/losses of certain programming businesses, in which the Company has varying ownership interests, which amounted to gains of $1 million and $6.4 million for the three and six months ended June 30, 1997 and net losses of $2.9 million and $6.0 million, respectively, for the same periods in the prior year. Provision for preferential payment To Related Party consists of the expensing of the proportionate amount due with respect to an annual payment ($5.6 million) made in connection with the acquisition of Cablevision of New York City ("CNYC") in 1992. MINORITY interest represents NBC's 25% share of the net loss of Rainbow Media, ITT's share of net loss of MSG since the date of acquisition and SportsChannel Associates and Liberty's share of net income of Prism. 14 CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- For financing purposes, the Company is structured as the Restricted Group, consisting of Cablevision Systems Corporation and certain of its subsidiaries and an Unrestricted Group of certain subsidiaries. The Unrestricted Group of subsidiaries consists primarily of Cablevision of Ohio, U.S. Cable, Rainbow Media and CSC Technology, Inc. The Restricted Group has executed limited recourse guarantees with respect to A-R Cable, as described below, and has guaranteed the MFR Inc. notes and the Cablevision of Framingham Holdings, Inc. note that had been issued in connection with the acquisition of interests in those companies. Otherwise, the Restricted Group does not guarantee the indebtedness of any unrestricted subsidiary nor does any unrestricted subsidiary guarantee the indebtedness of the Restricted Group. The following table presents selected unaudited historical results of operations and other financial and statistical information related to the captioned groups or entities as of and for the six months ended June 30, 1997. Unrestricted Cable consists of Cablevision of Ohio, U.S. Cable, A-R Cable Partners and Cablevision of Framingham. "Other Unrestricted Subsidiaries" includes Rainbow Media, CSC Technology, Inc. and other companies engaged in certain development activities.
Other Restricted Unrestricted Unrestricted Total Group Cable Subsidiaries Company ------------ ------------ ------------ --------- (Dollars in thousands) Revenues $ 517,607 $ 111,058 $ 168,400 $ 797,065 Operating expenses: Technical 212,222 48,004 80,204 340,430 Selling, general and administrative 94,492 23,806 96,321 214,619 Depreciation and amortization 148,424 47,778 26,379 222,581 ----------- ----------- ----------- ---------- Operating profit (loss) $ 62,469 $ (8,530) $ (34,504) $ 19,435 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Currently payable interest expense $ 115,152 $ 19,285 $ 16,418 $ 150,855 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Total interest expense $ 117,143 $ 19,924 $ 16,718 $ 153,785 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Bank and other senior debt $ 1,172,154 $ 512,470 $ 1,223,537 $2,908,161 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Subordinated debt $ 1,474,172 $ - $ - $1,474,172 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Obligation to related party $ 189,958 $ - $ - $ 189,958 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Deficit investment in affiliate $ 534,403 $ - $ 16,178 $ 550,581 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Redeemable Exchangeable Preferred Stock $ 1,062,884 $ - $ - $1,062,884 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Capital expenditures $ 159,404 $ 30,302 $ 12,924 $ 202,630 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ---------- Ending Cable subscribers 1,937,348 623,119 - 2,560,467 ----------- ----------- ----------- ---------- ----------- ----------- ----------- ----------
-15- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Restricted Group On July 25, 1997, the Company paid $283 million plus accrued interest to redeem its $275 million 10-3/4% Senior Subordinated Debentures due 2004. The payment included a redemption premium of approximately $8 million. All funds were obtained from borrowings under the Restricted Group's $1.3 billion credit facility. On July 2, 1997, the Restricted Group made a payment of $90 million to Warburg for their remaining interests in A-R Cable Services increasing its ownership to 100%. A-R Cable became part of the Unrestricted Group. On June 11, 1997, the Company made a payment of $33 million to Warburg for their remaining interests in Nashoba and Framingham increasing its ownership to 100%. Nashoba and Framingham became part of the Unrestricted Group. On August 6, 1997, the Restricted Group had total usage under its $1.7 billion Credit Agreement (including the credit facility for MFR, Inc., collectively the "Credit Agreement") of approximately $1.5 billion and letters of credit of $17 million issued on behalf of the Company. Unrestricted and undrawn funds available to the Restricted Group under the Credit Agreement amounted to approximately $136 million at August 6, 1997. The Credit Agreement contains certain financial covenants that may limit the Restricted Group's ability to utilize all of the undrawn funds available thereunder, including covenants requiring the Restricted Group to maintain certain financial ratios and restricting the permitted uses of borrowed funds. As of June 30, 1997, the Company had entered into interest exchange (swap and interest rate cap) agreements with several of their banks on a notional amount of $225 million, on which the Company pays a fixed rate of interest and receives a variable rate of interest for specified periods, with an average maturity of one and one-third years. The average effective annual interest rate on all Restricted Group bank debt outstanding as of June 30, 1997 was approximately 7.6%. The Company believes that, for the Restricted Group, internally generated funds together with funds available under its existing Credit Agreement will be sufficient to meet its debt service and preferred stock dividend requirements and to fund its planned capital expenditures through 1998. The Company intends to incur additional costs to facilitate the startup of such adjunct businesses as high speed data service, digital video service and residential telephony. Depending upon the timing and scope of the roll out of these businesses, the Company may require additional capital. Depending on the scope of the Company's participation in the PCS and DBS ventures, additional capital may also be required. The acquisition of ITT's remaining interest in MSG following an exercise by ITT of its put rights may be made, at the Company's election, in either cash or shares -16- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES of the Company's Class A Common Stock. If such payment is made in cash, the Company would require up to $188 million of additional capital. See Note 5 - "Acquisitions." Unrestricted Cable Cablevision of Ohio - ------------------- The Company's subsidiaries Telerama, Inc., Cablevision of the Midwest, Inc., and Cablevision of Cleveland, L.P., (collectively "Cablevision of Ohio") are party to a credit facility with a group of banks led by NationsBank of Texas, N.A., as agent (the "Cablevision of Ohio Credit Facility") which consists of a nine year $425 million reducing revolving credit facility which matures on June 30, 2005 and a nine and one half year $75 million term loan facility which matures on December 31, 2005. The reducing revolving facility has scheduled facility reductions beginning in 1999. The term loan facility requires repayments of $375,000 per year from 1997 through 2003 with the balance to be repaid in the final two years. As of August 6, 1997, Cablevision of Ohio had outstanding borrowings under its reducing revolving facility of $226 million, and $1 million of outstanding letters of credit leaving unrestricted and undrawn funds available amounting to $198 million. The Restricted Group made a $10 million equity contribution to Cablevision of Ohio in February, 1997 and an additional $6 million in March, 1997, the proceeds of which were used to pay down debt under the reducing revolving credit facility. The funds available under the reducing revolving credit facility will be used to rebuild the Cablevision of Ohio plant and for general corporate purposes. The Cablevision of Ohio Credit Facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring Cablevision of Ohio to maintain certain financial ratios. The Company believes that for Cablevision of Ohio, internally generated funds together with funds available under its existing credit agreement and capital contributions from the Restricted Group, will be sufficient to meet its debt service requirements including amortization requirements under its credit agreement and to fund its capital expenditures through 1998. U.S. Cable - ---------- The U.S. Cable credit facility is led by The Bank of New York and Bank of Montreal, as co-agents, and consists of a three year $175 million revolving credit facility maturing on August 13, 1999. The revolving facility is payable in full upon maturity. The funds available under the credit facility will be used to finance working capital and general corporate purposes. As of August 6, 1997, U.S. Cable had $154 million of outstanding borrowings under its revolving credit facility leaving unrestricted and undrawn funds available amounting to $21 million. The U.S. Cable facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring U.S. Cable to maintain certain financial ratios. -17- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES The Company believes that for U.S. Cable, internally generated funds together with funds available under its existing credit agreement will be sufficient to meet its debt service requirements and to fund its capital expenditures through 1998. A-R Cable Group - --------------- As noted above, the Company acquired the interests in A-R Cable and Nashoba and Framingham it did not already own on July 2 and June 11, 1997, respectively. On August 6, 1997, A-R Cable had outstanding borrowings of $398 million leaving unrestricted and undrawn funds amounting to $10 million. A-R Cable's credit facility remains in place with a maturity date of December 30, 1997 extendable by A-R Cable for one quarter. The Company believes it can refinance the credit facility at maturity but there can be no assurances that it will be able to do so. Nashoba and Framingham's credit facilities remain in place and both have a maturity date of June 30, 2002. As of August 6, 1997, Nashoba and Framingham had outstanding borrowings aggregating $52 million, with unrestricted and undrawn funds aggregating $16 million. The Company believes that for Nashoba and Framingham, internally generated funds together with funds available under their respective credit agreements, will be sufficient to meet their respective debt service and capital expenditure requirements through 1998. Unrestricted - Other Rainbow Media - ------------- Rainbow Media has executed a new $300 million, three year credit facility with Canadian Imperial Bank of Commerce and Toronto-Dominion (Texas), Inc. as co-agents, and a group of banks. On April 2, 1997 approximately $172 million was drawn to refinance, in part, the previous $202 million credit facility. The balance of the funds utilized to fully repay the $202 million facility and to repay $169 million to the Restricted Group came from a $205 million distribution by American Movie Classics Company. This distribution was provided by funds made available under a new AMCC $250 million, seven year revolving credit and term loan facility maturing in 2004 that closed concurrently with the Rainbow Media credit facility. The Rainbow Media three year revolving credit facility matures on March 31, 2000 and is payable in full on such date. The funds available under the credit facility will be used to finance working capital requirements and for general corporate purposes. As of August 6, 1997, Rainbow Media had outstanding borrowings of $157 million and $4 million in outstanding letters of credit, leaving unrestricted and undrawn funds available amounting to $139 million. As of August 6, 1997, AMCC had outstanding borrowings of $212 million leaving unrestricted funds available of $38 million. -18- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Rainbow Media's credit facility contains certain financial covenants that limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring Rainbow Media to maintain certain financial ratios. The Company believes that for Rainbow Media, internally generated funds together with funds available under its credit agreement will be sufficient to meet its debt service requirements and to fund its capital expenditures through 1998. Madison Square Garden - --------------------- On June 6, 1997 Madison Square Garden L.P. ("MSG") entered into an $850 million credit agreement (the "MSG Credit Facility") with a group of banks led by Chase Manhattan Bank, as agent. The MSG Credit Facility expires on December 31, 2004. The Term Loan is due in 26 quarterly installments commencing September 30, 1998, of which $40 million is payable by December 31, 1998. On July 11, 1997 a new unrestricted subsidiary of MSG, Garden Programming, LLC, made a $40 million 14 year loan to a non-related entity. The proceeds for such loan came from a $20 million drawdown by MSG under the MSG Credit Facility, which was then loaned to Garden Programming LLC, and a $20 million five year term loan entered into directly by Garden Programming LLC with a group of banks. As of August 6, 1997, outstanding debt under the MSG Credit Facility consisted of a $650 million term loan and a revolving credit loan of $146 million. In addition, MSG had outstanding letters of credit of $4.7 million as of August 6, 1997, resulting in unrestricted and undrawn funds available amounting to $49.3 million. The funds available will be used for general corporate purposes. The MSG Credit Facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring MSG to maintain certain financial ratios. The Company believes that for MSG, internally generated funds together with funds available under its existing credit agreement will be sufficient to meet its debt service requirements under its credit agreement and to fund capital expenditures through 1998. In connection with the Fox Liberty Transactions discussed in Note 6 to the Consolidated Financial Statements, the Company intends to repay a portion of the MSG Credit Facility. -19- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Part II. Other Information Item 1. Legal Proceedings The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that such lawsuits will have a material adverse impact on the financial position of the Company. Item 4. Submission of Matters to a Vote of Security-Holders The Company's Annual Meeting of Shareholders was held on June 11, 1997. The following matters were voted upon at the Company's Annual Meeting of Shareholders, indicating the number of votes cast for and against as well as the number of abstentions:
Election of Directors: --------------------- Class A Directors: Charles D. Ferris: For: 12,119,713 Votes withheld: 86,042 Richard H. Hochman: For: 12,114,213 Votes withheld: 91,542 Victor Oristano: For: 12,114,288 Votes withheld: 91,467 Vincent Tese: For: 12,119,895 Votes withheld: 85,860 Class B Directors: William J. Bell Mare A. Lustgarten For: 11,216,209 Charles F. Dolan Shelia A. Mahony Against 0 James L. Dolan Francis F. Randolph, Jr. Patrick F. Dolan Daniel T. Sweeney Robert S. Lemle John Tatta Each nominee for election by the Class B common stockholders received the same vote as indicated above. Authorize and approve the Company's 1997 Long-Term Incentive Plan ----------------------------------------------------------------- Class A Common Stock: For: 7,776,128 Against: 1,257,807 Abstain: 51,736 Class B Common Stock: For: 112,162,090 Against: 0 Abstain: 0 Ratification and approval of KPMG Peat Marwick LLP -------------------------------------------------- Class A Common Stock: For: 12,172,055 Against: 24,180 Abstain: 9,520 Class B Common Stock: For: 112,162,090 Against: 0 Abstain: 0
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The index to exhibits is on page 23. (b) The Company filed a Current Report on Form 8-K with the Commission on April 18, 1997, June 6, 1997 and June 22, 1997. -20- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES SIGNATURES 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 Registrant Date: August 12,1997 /s/ William J. Bell ------------------------ ------------------------------------------- By: William J. Bell, as Vice Chairman, Director and Principal Financial Officer of Cablevision Systems Corporation Date: August 12, 1997 /s/ Andrew B. Rosengard ------------------------ -------------------------------------------- By: Andrew B. Rosengard, as Senior Vice President and Controller and Chief Accounting Officer of Cablevision Systems Corporation -21- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 27 Financial Data Schedule -22- EX-27 2 EX-27
5 1,000 6-MOS DEC-31-1997 JUN-30-1997 34,460 0 214,410 (25,434) 159,142 0 2,924,271 (1,225,561) 4,648,324 0 4,572,291 1,062,884 15 249 (2,614,834) 4,648,324 0 808,549 0 340,430 222,581 (11,484) 153,785 (240,697) 0 (240,697) 0 0 0 (240,697) (9.69) 0 NOT PRESENTED AS THE RESULTANT COMPUTATION WOULD BE A DECREASE IN NET LOSS PER SHARE AND THEREFORE NOT MEANINGFUL.
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