-----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, VacYUc9mrBlg6r3vprr9H4pEavvV4Ep0+qN1NaLL+U3HbxMXP9Z6BLm6uWb8jApl rTvMqv9jUUzs4qu2+eBhCg== 0001005477-99-005347.txt : 19991117 0001005477-99-005347.hdr.sgml : 19991117 ACCESSION NUMBER: 0001005477-99-005347 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLEVISION SYSTEMS CORP /NY CENTRAL INDEX KEY: 0001053112 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: SEC FILE NUMBER: 001-14764 FILM NUMBER: 99756433 BUSINESS ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAGE STATE: NY ZIP: 11714 BUSINESS PHONE: 51638062300 MAIL ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAGE STATE: NY ZIP: 11714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSC HOLDINGS INC 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: SEC FILE NUMBER: 001-09046 FILM NUMBER: 99756434 BUSINESS ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAGE STATE: NY ZIP: 11714 BUSINESS PHONE: 5138032300 MAIL ADDRESS: STREET 1: 1111 STEWART AVENUE CITY: BETHPAHE STATE: NY ZIP: 11714 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _________________ Commission File Registrant; State of Incorporation; IRS Employer Number Address and Telephone Number Identification No. - ------ ---------------------------- ------------------ 1-14764 Cablevision Systems Corporation 11-3415180 Delaware 1111 Stewart Avenue Bethpage, New York 11714 (516) 803-2300 1-9046 CSC Holdings, Inc. 11-2776686 Delaware 1111 Stewart Avenue Bethpage, New York 11714 (516) 803-2300 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Cablevision Systems Corporation Yes |X| No |_| CSC Holdings, Inc. Yes |X| No |_| Number of shares of common stock outstanding as of November 2, 1999: Cablevision Systems Corporation Class A Common Stock - 129,808,421 Cablevision Systems Corporation Class B Common Stock - 43,126,836 CSC Holdings, Inc. Common Stock - 1,000 ================================================================================ TABLE OF CONTENTS CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 1999 and 1998 (unaudited)..........................................3 Condensed Consolidated Balance Sheets - September 30, 1999 (unaudited) and December 31, 1998..........4 Condensed Consolidated Statements of Cash Flows - Nine Months ended September 30, 1999 and 1998 (unaudited).....6 Notes to Condensed Consolidated Financial Statements (unaudited)...................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................12 PART II - OTHER INFORMATION...................................................33 CSC HOLDINGS, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Statements of Operations - Three and Nine Months ended September 30, 1999 and 1998 (unaudited)..................................................34 Condensed Consolidated Balance Sheets - September 30, 1999 (unaudited) and December 31, 1998.........35 Condensed Consolidated Statements of Cash Flows - Nine Months ended September 30, 1999 and 1998 (unaudited)....37 Notes to Condensed Consolidated Financial Statements (unaudited)..................................................38 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................43 PART II - OTHER INFORMATION...................................................44 -2- PART I - FINANCIAL INFORMATION Item 1. Financial Statements CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues .................................. $ 2,782,327 $ 2,287,789 $ 902,310 $ 806,871 ----------- ----------- ----------- ----------- Operating expenses: Technical and operating ................ 1,074,503 926,038 317,372 297,234 Cost of sales .......................... 336,863 226,329 118,667 109,811 Selling, general and administrative ....................... 878,734 613,410 273,898 204,855 Depreciation and amortization .......... 627,909 497,868 212,737 178,922 ----------- ----------- ----------- ----------- 2,918,009 2,263,645 922,674 790,822 ----------- ----------- ----------- ----------- Operating profit (loss) .......... (135,682) 24,144 (20,364) 16,049 ----------- ----------- ----------- ----------- Other income (expense): Interest expense ....................... (344,075) (317,969) (120,517) (106,438) Interest income ........................ 6,937 20,016 2,077 6,754 Equity in net loss of affiliates ....... (8,857) (19,324) (4,497) (4,431) Gain on sale of programming interests and cable assets, net ............... -- 152,683 -- 11,195 Write off of deferred financing costs .. (4,425) (4,717) (19) (3,101) Provision for preferential payment to related party ........................ -- (980) -- -- Minority interests ..................... (88,796) (94,570) (32,521) (24,578) Miscellaneous, net ..................... (9,659) (23,052) (2,222) (9,064) ----------- ----------- ----------- ----------- (448,875) (287,913) (157,699) (129,663) ----------- ----------- ----------- ----------- Net loss .................................. $ (584,557) $ (263,769) $ (178,063) $ (113,614) =========== =========== =========== =========== Basic and diluted net loss per common share $ (3.84) $ (1.90) $ (1.17) $ (.75) =========== =========== =========== =========== Average number of common shares outstanding (in thousands) ............. 152,081 139,030 152,461 150,609 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. -3- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
September 30, December 31, 1999 1998 ---- ---- ASSETS (unaudited) Cash and cash equivalents .................................... $ 65,443 $ 173,826 Accounts receivable trade (less allowance for doubtful accounts of $40,363 and $34,377) .......................... 204,834 197,726 Notes and other receivables .................................. 168,262 188,455 Inventory, prepaid expenses and other assets ................. 243,596 206,073 Property, plant and equipment, net ........................... 2,800,716 2,506,834 Investments in affiliates .................................... 284,380 276,231 Advances to affiliates ....................................... 46,654 36,964 Feature film inventory ....................................... 298,017 293,310 Net assets held for sale ..................................... 13,949 11,006 Franchises, net of accumulated amortization of $779,352 and $640,735 ..................................... 712,037 850,653 Affiliation and other agreements, net of accumulated amortization of $221,689 and $181,928 ..................... 169,889 206,456 Excess costs over fair value of net assets acquired and other intangible assets, net of accumulated amortization of $869,891 and $775,557 ..................................... 1,958,870 2,003,128 Deferred financing, acquisition and other costs, net of accumulated amortization of $47,921 and $41,882 ........... 116,656 110,400 ---------- ---------- $7,083,303 $7,061,062 ========== ==========
See accompanying notes to condensed consolidated financial statements. -4- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (continued)
September 30, December 31, 1999 1998 ---- ---- LIABILITIES AND STOCKHOLDERS' DEFICIENCY (unaudited) Accounts payable ............................................ $ 399,092 $ 423,039 Accrued liabilities ......................................... 1,004,392 885,488 Feature film and contract obligations ....................... 332,521 373,722 Deferred revenue ............................................ 348,453 334,213 Bank debt ................................................... 2,047,111 2,051,549 Senior notes and debentures ................................. 2,692,430 2,194,443 Subordinated notes and debentures ........................... 1,048,476 1,048,375 Capital lease obligations and other debt .................... 93,585 63,241 ----------- ----------- Total liabilities ........................................ 7,966,060 7,374,070 ----------- ----------- Minority interests .......................................... 613,724 719,007 ----------- ----------- Preferred stock of CSC Holdings, Inc. ....................... 1,684,958 1,579,670 ----------- ----------- Commitments and contingencies Stockholders' deficiency: Preferred Stock, $.01 par value, 10,000,000 shares authorized, none issued ............................. -- -- Class A Common Stock, $.01 par value, 200,000,000 shares authorized, 109,611,552 and 108,267,606 shares issued 1,096 1,083 Class B Common Stock, $.01 par value, 80,000,000 shares authorized, 43,126,836 and 43,226,836 shares issued . 431 432 Paid-in capital .......................................... 401,785 386,495 Accumulated deficit ...................................... (3,584,252) (2,999,695) ----------- ----------- (3,180,940) (2,611,685) Treasury stock, at cost (7,118 shares) ................... (499) -- ----------- ----------- Total stockholders' deficiency ........................... (3,181,439) (2,611,685) ----------- ----------- $ 7,083,303 $ 7,061,062 =========== ===========
See accompanying notes to condensed consolidated financial statements. -5- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Dollars in thousands) (Unaudited)
1999 1998 ----------- ----------- Cash flows from operating activities: Net loss ....................................................... $ (584,557) $ (263,769) ----------- ----------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................................ 627,909 497,868 Equity in net loss of affiliates ............................. 8,857 19,324 Minority interests ........................................... 66,886 72,563 Gain on sale of programming interests and cable assets ....... -- (152,683) Gain on sale of marketable securities ........................ (10,861) -- Write off of investment in affiliate ......................... 15,100 -- Write off of deferred financing costs ........................ 4,425 4,717 Amortization of deferred financing costs ..................... 6,212 5,875 Amortization of debenture discount ........................... 418 347 (Gain) loss on sale of equipment ............................. 3,269 (1,136) Changes in assets and liabilities, net of effects of acquisitions and dispositions ............................ 23,197 98,020 ----------- ----------- Net cash provided by operating activities .................... 160,855 281,126 ----------- ----------- Cash flows from investing activities: Net proceeds from sale of programming interests and cable assets -- 437,543 Payments for acquisitions, net of cash acquired ................ (114,447) (165,980) Proceeds from sale of marketable securities .................... 10,861 -- Capital expenditures ........................................... (595,429) (387,013) Proceeds from sale of plant and equipment ...................... 722 8,579 Additions to intangible assets ................................. (7,740) (14,822) Increase in investments in affiliates, net ..................... (32,106) (21,668) ----------- ----------- Net cash used in investing activities ........................ (738,139) (143,361) ----------- ----------- Cash flows from financing activities: Proceeds from bank debt ........................................ 3,033,291 4,445,647 Repayment of bank debt ......................................... (3,037,729) (5,651,865) Repayment of senior debt ....................................... -- (112,500) Repayment of subordinated notes payable ........................ -- (151,000) Issuance of senior notes and debentures ........................ 497,670 1,296,076 Issuance of common stock ....................................... 11,024 10,699 Purchase of treasury stock ..................................... (499) -- Decrease in obligation to related party ........................ -- (197,183) Payments of capital lease obligations and other debt ........... (15,407) (8,913) Additions to deferred financing and other costs ................ (19,449) (19,690) Redemption of preferred stock of CSC Holdings, Inc. ............ -- (9,410) ----------- ----------- Net cash provided by (used in) financing activities .......... 468,901 (398,139) ----------- ----------- Net decrease in cash and cash equivalents ......................... (108,383) (260,374) Cash and cash equivalents at beginning of year .................... 173,826 410,141 ----------- ----------- Cash and cash equivalents at end of period ........................ $ 65,443 $ 149,767 =========== ===========
See accompanying notes to condensed consolidated financial statements. -6- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) Note 1. The Company and Nature of Operations CSC Parent Corporation ("CSC Parent") was formed on November 21, 1997 as a wholly-owned subsidiary of Cablevision Systems Corporation ("Cablevision"). CSC Parent did not conduct any business activities prior to March 4, 1998, other than those incident to its formation and the execution of certain documents in connection with contributions to CSC Parent of certain partnership interests and assets of Tele-Communications, Inc. (the "TCI Transaction"). In connection with the TCI Transaction, a wholly-owned subsidiary of CSC Parent was merged with and into Cablevision and Cablevision became a wholly-owned subsidiary of CSC Parent (the "Merger"). In the Merger, each outstanding share of Cablevision Class A Common Stock and Cablevision Class B Common Stock was converted into one share of CSC Parent Class A Common Stock and CSC Parent Class B Common Stock, respectively. Subsequent to the Merger, Cablevision changed its name to CSC Holdings, Inc. ("CSC Holdings") and CSC Parent changed its name to Cablevision Systems Corporation. The Merger was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of CSC Holdings have been recorded at historical book value. All share and per share information has been adjusted for two-for-one stock splits effected on each of March 30, 1998 and August 21, 1998. Note 2. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Cablevision Systems Corporation and its majority owned subsidiaries (the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. Note 3. Responsibility for Interim Financial Statements The financial statements as of and for the three and nine month periods ended September 30, 1999 and 1998 presented in this Form 10-Q are unaudited; however, in the opinion of management, such statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's and CSC Holdings' Annual Reports on Form 10-K for the year ended December 31, 1998. The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 1999. -7- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) Note 4. Reclassifications Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. Note 5. Loss Per Common Share Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Potential dilutive common shares were not included in the computation as their effect would be antidilutive. Loss per share amounts have been adjusted to reflect the two-for-one stock splits of the Company's common stock effective March 30, 1998 and August 21, 1998. Note 6. Cash Flows For purposes of the condensed consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $325,220 and $274,359 for the nine months ended September 30, 1999 and 1998, respectively. The Company's noncash financing and investing activities for the nine months ended September 30, 1999 and 1998 included capital lease obligations of $45,751 and $25,610, respectively, incurred when the Company entered into leases for new equipment, the issuance of common stock valued at $497,987 in connection with the TCI Transaction in 1998, the issuance of common stock valued at $4,848 to redeem certain limited partnership interests in a subsidiary of the Company in 1998, and the receipt of warrants from At Home Corporation valued at $74,788 in 1998. Note 7. Acquisition At various times in 1999, the Company acquired interests in the real property and assets specifically related to certain movie theaters for an aggregate purchase price of approximately $27,600. The acquisitions were accounted for as a purchase with the operations of the acquired theaters being consolidated with those of the Company as of the acquisition dates. The purchase price will be allocated to the specific assets acquired when an independent appraisal is obtained. In April 1999, ITT Corporation ("ITT") exercised its second put for the remainder of its minority interest in Madison Square Garden and settled certain matters between the parties for a payment of approximately $87,000. Note 8. At Home As of September 30, 1999 and 1998, deferred revenue derived from the receipt of At Home warrants, net of amortization taken, amounted to approximately $174,567 and $224,400, -8- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) respectively. For the nine and three months ended September 30, 1999 and 1998, the Company recognized approximately $37,602 and $12,534 and $23,734 and $10,257, respectively, of this deferred revenue. Note 9. Segment Information The Company's reportable segments are strategic business units that are managed separately. The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization and excluding incentive stock plan expense and the costs of year 2000 remediation).
Nine Months Ended September 30, Three Months Ended September 30, ------------------------------- -------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Revenues Telecommunication Services............... $1,601,118 $1,382,392 $ 543,154 $ 497,038 Rainbow Media............................ 815,896 707,177 228,246 205,097 Retail Electronics....................... 396,853 264,771 137,505 130,051 All Other................................ 64,648 230 25,563 66 Intersegment Eliminations................ (96,188) (66,781) (32,158) (25,381) ---------- ---------- ----------- ----------- Total........................... $2,782,327 $2,287,789 $ 902,310 $ 806,871 ========== ========== =========== =========== Nine Months Ended September 30, Three Months Ended September 30, ------------------------------- -------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Adjusted Operating Cash Flow Telecommunication Services............... $ 679,320 $ 557,772 $ 232,172 $ 206,323 Rainbow Media............................ 119,451 77,977 44,604 16,435 Retail Electronics....................... (27,005) (16,356) (10,203) (2,876) All Other................................ (35,193) (1,245) (13,224) (128) ---------- ---------- ----------- ----------- Total........................... $ 736,573 $ 618,148 $ 253,349 $ 219,754 ========== ========== =========== ===========
-9- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) A reconciliation of reportable segment amounts to the Company's consolidated balances is as follows:
Nine Months Ended Three Months Ended ----------------- ------------------ September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenue Total revenue for reportable segments ........... $ 2,813,867 $ 2,354,340 $ 908,905 $ 832,186 Other revenue and intersegment eliminations ..... (31,540) (66,551) (6,595) (25,315) ----------- ----------- ----------- ----------- Total consolidated revenue ................ $ 2,782,327 $ 2,287,789 $ 902,310 $ 806,871 =========== =========== =========== =========== Adjusted Operating Cash Flow to Net Loss Total adjusted operating cash flow for reportable segments .................................. $ 771,766 $ 619,393 $ 266,573 $ 219,882 Other adjusted operating cash flow deficit ...... (35,193) (1,245) (13,224) (128) Items excluded from adjusted operating cash flow: Depreciation and amortization ............. (627,909) (497,868) (212,737) (178,922) Incentive stock plan expense .............. (216,388) (96,136) (49,391) (24,783) Year 2000 remediation ..................... (27,958) -- (11,585) -- Interest expense .......................... (344,075) (317,969) (120,517) (106,438) Interest income ........................... 6,937 20,016 2,077 6,754 Equity in net loss of affiliates .......... (8,857) (19,324) (4,497) (4,431) Gain on sale of programming interests and cable assets, net .................... -- 152,683 -- 11,195 Write off of deferred financing costs ..... (4,425) (4,717) (19) (3,101) Provision for preferential payment to related party ........................ -- (980) -- -- Minority interests ........................ (88,796) (94,570) (32,521) (24,578) Miscellaneous, net ........................ (9,659) (23,052) (2,222) (9,064) ----------- ----------- ----------- ----------- Net loss ........................ $ (584,557) $ (263,769) $ (178,063) $ (113,614) =========== =========== =========== ===========
Substantially all revenues and assets of the Company's reportable segments are attributed to or located in the United States. The Company does not have a single external customer which represents 10 percent or more of its consolidated revenues. Note 10. Financial Instruments In July 1999, the Company entered into a $100 million facility with a third party for the Company to acquire a beneficial interest in shares of its Class A common stock through a forward swap contract facility that is available through June 2000 with a final maturity date for all executed swaps of February 2001. The terms of the facility provide for the settlement of any obligations of the Company thereunder either in cash or the Company's Class A common stock. The Company's obligation is guaranteed by CSC Holdings. Currently, there are no outstanding contracts under this facility. -10- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) Note 11. Recent Developments In September 1999, CSC Holdings exercised its right to redeem all of its outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable Preferred Stock ("Series I Preferred"). The redemption occurred on November 2, 1999, at a price equal to 102.8% of the liquidation preference, plus accrued dividends. Investors held the Series I Preferred through interests in depositary shares (each of which represented a 1/10th interest in a share of the Series I Preferred) which were redeemable simultaneously. Each depositary share was convertible into approximately 1.4828 shares of the Company's Class A Common Stock. As of November 8, 1999, 13,797,625 depositary shares out of 13,800,000 depositary shares outstanding had been converted into 20,458,925 shares of the Company's Class A Common Stock, with the remaining 2,375 depositary shares being redeemed for cash. In September 1999, the Company announced that it was pursuing strategic alternatives for operation of its cable television systems in the greater Boston, Massachusetts and Cleveland, Ohio metropolitan areas, as well as in Kalamazoo, Michigan. -11- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report contains or incorporates by reference statements that constitute forward looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward looking statements as a result of various factors. Factors that may cause such differences to occur include but are not limited to: (i) the level of growth in the Company's revenues; (ii) subscriber demand, competition, the cost of programming and industry conditions; (iii) whether expenses of the Company continue to increase or increase at a rate faster than expected; (iv) whether any unconsummated transactions are consummated on the terms and at the times set forth (if at all); (v) new competitors entering the Company's franchise areas; (vi) other risks and uncertainties inherent in the cable television business; (vii) financial community and rating agency perceptions of the Company and its business, operations, financial condition and the industry in which it operates; and (viii) the factors described in the Company's registration statement on Form S-3, including the section entitled "Risk Factors" contained therein. The information contained herein concerning Year 2000 issues ("Y2K") constitutes forward looking information. The identification and remediation of Y2K issues is a technological effort that has never been undertaken before and estimates of the outcome, time and expense of this endeavor are, for that reason, particularly hard to make with any certainty. As a result, the Company's estimates may prove to be materially inaccurate. More specifically, the Company's forecasts may prove to be wrong for the following reasons, among others: (i) the Company's forecasts are dependent upon the representations of third parties which may be inaccurate or mistaken; (ii) the nature of the Y2K issue is such that detection of all issues is difficult and cannot be assured and, as a result, problems may exist which have not been, and are not, identified in a timely manner; (iii) because of the lack of experience with problems of this nature and magnitude, it is difficult to estimate remediation costs with accuracy; (iv) remediation requires the efforts of third parties whose performance is beyond the control of the Company; and (v) because the Y2K issues are so widespread and because the number of third parties who can provide meaningful remediation services is limited, the Company may have difficulty obtaining the timely assistance of such third parties, particularly as such services are needed closer to January 1, 2000. The Company disclaims any obligation to update the forward-looking statements contained or incorporated by reference herein. -12- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Recent Transactions 1999 Acquisitions. In April 1999, CSC Holdings purchased ITT's remaining minority interest in Madison Square Garden. In February 1999, the Company purchased certain theater assets from Loews Cineplex Entertainment Corporation ("Loews"). 1998 Acquisitions and Dispositions. In December 1998, the net assets of Clearview Cinema Group, Inc. ("Clearview") and certain assets of Loews were acquired. In June 1998, CSC Holdings purchased 50% of ITT's then remaining minority interest in Madison Square Garden. In March 1998, the Company acquired certain cable television systems in New York and New Jersey from Tele-Communications, Inc. (the "TCI Systems"). In addition, in February 1998, Cablevision Electronics Investments, Inc. ("Cablevision Electronics") acquired substantially all of the assets associated with 40 The Wiz consumer electronics store locations (the "Wiz Transaction"). In 1998, CSC Holdings completed the sale of substantially all of the assets of U.S. Cable Television Group, L.P. ("U.S. Cable") and the sale of several smaller cable television systems. In October 1998, CSC Holdings transferred its cable television system in Rensselaer, New York plus approximately $16 million in cash to Time Warner in exchange for Time Warner's Litchfield, Connecticut system. In addition, in January 1998, Rainbow Media Holdings, Inc. ("Rainbow Media") completed the sale of an interest in a regional sports programming business. The above transactions completed in 1999 and 1998 are collectively referred to as the "Net Acquisitions." -13- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Results of Operations The following tables set forth on an unaudited historical basis certain items related to operations as a percentage of net revenues for the periods indicated. STATEMENT OF OPERATIONS DATA
Three Months Ended September 30, -------------------------------------------------- 1999 1998 ------------------------- ----------------------- (Increase) % of Net % of Net Decrease Amount Revenues Amount Revenues in Net Loss ------ -------- ------ -------- ----------- (Dollars in thousands) Revenues ................................. $ 902,310 100% $ 806,871 100% $ 95,439 Operating expenses: Technical and operating .............. 317,372 35 297,234 37 (20,138) Cost of sales ........................ 118,667 13 109,811 14 (8,856) Selling, general and administrative .. 273,898 30 204,855 25 (69,043) Depreciation and amortization ........ 212,737 24 178,922 22 (33,815) --------- --------- --------- Operating profit (loss) .................. (20,364) (2) 16,049 2 (36,413) Other income (expense): Interest expense, net ................ (118,440) (13) (99,684) (12) (18,756) Equity in net loss of affiliates ..... (4,497) (1) (4,431) (1) (66) Gain on sale of programming interests and cable assets, net .............. -- -- 11,195 1 (11,195) Write off of deferred financing costs (19) -- (3,101) -- 3,082 Minority interests ................... (32,521) (4) (24,578) (3) (7,943) Miscellaneous, net ................... (2,222) -- (9,064) (1) 6,842 --------- --------- --------- Net loss ................................. $(178,063) (20)% $(113,614) (14)% $ (64,449) ========= ========= ========= Nine Months Ended September 30, -------------------------------------------------- 1999 1998 ------------------------- ----------------------- (Increase) % of Net % of Net Decrease Amount Revenues Amount Revenues in Net Loss ------ -------- ------ -------- ----------- (Dollars in thousands) Revenues ................................. $ 2,782,327 100% $ 2,287,789 100% $ 494,538 Operating expenses: Technical and operating .............. 1,074,503 38 926,038 40 (148,465) Cost of sales ........................ 336,863 12 226,329 10 (110,534) Selling, general and administrative .. 878,734 32 613,410 27 (265,324) Depreciation and amortization ........ 627,909 23 497,868 22 (130,041) ----------- ----------- ----------- Operating profit (loss) .................. (135,682) (5) 24,144 1 (159,826) Other income (expense): Interest expense, net ................ (337,138) (12) (297,953) (13) (39,185) Equity in net loss of affiliates ..... (8,857) (1) (19,324) (1) 10,467 Gain on sale of programming interests and cable assets, net .............. -- -- 152,683 7 (152,683) Write off of deferred financing costs (4,425) -- (4,717) -- 292 Provision for preferential payment to related party ...................... -- -- (980) -- 980 Minority interests ................... (88,796) (3) (94,570) (4) 5,774 Miscellaneous, net ................... (9,659) -- (23,052) (1) 13,393 ----------- ----------- ----------- Net loss ................................. $ (584,557) (21)% $ (263,769) (11)% $ (320,788) =========== =========== ===========
-14- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Comparison of Three and Nine Months ended September 30, 1999 versus Three and Nine Months ended September 30, 1998. Consolidated Results Revenues for the three and nine months ended September 30, 1999 increased $95.4 million (12%) and $494.5 million (22%), respectively, as compared to revenues for the same periods in the prior year. Approximately $38.2 million (5%) and $274.2 million (12%), respectively, of the increase was attributable to the Net Acquisitions; approximately $34.9 million (4%) and $151.8 million (7%), respectively, was from increases in other revenue sources such as Rainbow Media's programming services, revenue derived from the developing telephone and modem businesses, revenue recognized in connection with the At Home transaction and revenue from advertising on the Company's cable television systems; and approximately $13.6 million (2%) and $42.8 million (2%), respectively, resulted from higher revenue per subscriber. The remaining increase of $8.7 million (1%) and $25.7 million (1%), respectively, was attributable to internal growth in the average number of subscribers during the periods. Technical and operating expenses for the three and nine months ended September 30, 1999 increased $20.1 million (7%) and $148.5 million (16%), respectively, compared to the same periods in 1998. Approximately $19.3 million (7%) and $75.4 million (8%), respectively, was attributable to the Net Acquisitions, with the remaining $.8 million and $73.1 million (8%), respectively, attributable to increased costs directly associated with the growth in subscribers and revenues discussed above, as well as to increases in programming costs for cable television services, partially offset by lower expenses attributable to the closing of Radio City Music Hall for restoration and fewer events at Madison Square Garden. As a percentage of revenues, technical and operating expenses decreased 2% during both of the 1999 periods as compared to the 1998 periods. Cost of sales for the three and nine months ended September 30, 1999 amounted to approximately $118.7 million and $336.9 million, respectively, (86% and 85%, respectively, of retail electronics sales) compared to approximately $109.8 million and $226.3 million (84% and 85%, respectively, of retail electronics sales) for the three months ended September 30, 1998 and from the date of the Wiz Transaction through September 30, 1998, respectively. Cost of sales include the cost of merchandise sold, including freight costs incurred, as well as store occupancy and buying costs for the Company's retail electronics segment. Selling, general and administrative expenses increased $69.0 million (34%) and $265.3 million (43%), respectively, for the three and nine months ended September 30, 1999 over the comparable periods in 1998. Approximately $9.8 million (5%) and $50.6 million (8%), respectively, was directly attributable to the Net Acquisitions and approximately $24.0 million (12%) and $117.4 million (19%), respectively, was due to a higher level of charges related to an incentive stock plan. Approximately $24.4 million (12%) and $72.0 million (12%), respectively, resulted from additional sales and marketing and administrative costs and approximately $10.8 million (5%) and $25.3 million (4%), respectively, was due to year 2000 remediation costs. As a percentage of revenues, selling, general and administrative expenses increased 5% in both of the 1999 periods compared to the 1998 periods. Excluding the effects of the incentive stock plan and the year 2000 remediation costs, as a percentage of revenues such costs increased 2% for the three months ended -15- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES September 30, 1999 and remained relatively constant for the nine months ended September 30, 1999 compared to the same periods in 1998. Operating profit before depreciation and amortization decreased $2.6 million (1%) for the three months ended September 30, 1999 and $29.8 million (6%) for the nine months ended September 30, 1999 as compared to the same periods in 1998. The decrease for the three months ended September 30, 1999 was comprised of an increase of $24.0 million (12%) in charges related to an incentive stock plan, partially offset by an increase of $12.3 million (6%) resulting from the combined effect of the revenue and other expense changes discussed above and an increase of approximately $9.1 million (5%) attributable to the Net Acquisitions. The decrease for the nine months ended September 30, 1999 resulted from the $117.4 million (22%) increase in charges related to an incentive stock plan, partially offset by an increase of $49.9 million (9%) resulting from the combined effect of the revenue and other expense changes discussed above and an increase of approximately $37.7 million (7%) attributable to the Net Acquisitions. On a pro forma basis, giving effect to the Net Acquisitions as if they had occurred on January 1, 1998 and excluding the incentive stock plan charges referred to above and the costs of year 2000 remediation, operating profit before depreciation and amortization would have increased 11.8% and 12.1% for the three and nine months ended September 30, 1999 over the comparable 1998 periods. Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income (loss) and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles. Depreciation and amortization expense increased $33.8 million (19%) and $130.0 million (26%), respectively, for the three and nine months ended September 30, 1999 as compared to the same periods in 1998. Approximately $14.8 million (8%) and $74.8 million (15%), respectively, of the increase was directly attributable to the Net Acquisitions. The remaining increase of $19.0 million (11%) and $55.2 million (11%), respectively, resulted primarily from depreciation on new plant assets. Net interest expense increased $18.8 million (19%) and $39.2 million (13%), respectively, for the three and nine months ended September 30, 1999 compared to the same periods in 1998. The net increase is primarily attributable to debt incurred to fund acquisitions and capital expenditures, partly offset by lower interest rates. Equity in net loss of affiliates remained relatively constant for the three months ended September 30, 1999 and 1998 and decreased to $8.9 million from $19.3 million for the nine months ended September 30, 1999 compared to the same period in 1998. Such amounts consist of the Company's share of the net losses of certain programming businesses in which the Company has varying minority ownership interests. Gain on sale of programming interests and cable assets for the three and nine months ended September 30, 1998 consisted primarily of a gain of approximately $11.2 million and $135.0 million, respectively, which resulted from the sale of certain cable television systems. Additionally, the gain for the nine months ended September 30, 1998 includes a gain of -16- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES approximately $17.7 million from the sale of an interest in a regional sports programming business in the first quarter of 1998. Provision for preferential payment to related party for the three and nine months ended September 30, 1998 consisted of the expensing of the amount due with respect to an annual payment to Charles F. Dolan made in connection with the acquisition of Cablevision of New York City. Effective March 4, 1998, these preferential payments were terminated upon the retirement of Mr. Dolan's preferred interest. Minority interests for the three and nine months ended September 30, 1999 and 1998 include CSC Holdings' preferred stock dividend requirements, Fox Liberty's 40% share of the net income (loss) of Regional Programming Partners, ITT's share of the net loss of Madison Square Garden through April 8, 1999 and NBC's 25% share of the net loss of Rainbow Media. Net miscellaneous expense decreased to $2.2 million and $9.7 million, respectively, for the three and nine months ended September 30, 1999 compared to $9.1 million and $23.1 million, respectively, for the same periods in the prior year. For the three and nine months ended September 30, 1999, miscellaneous expense included $1.1 million and $4.4 million, respectively, relating to federal, state and local income taxes and approximately $1.1 million, in each period, relating to various other items. Additionally, the nine month period in 1999 included a charge of approximately $15.1 million resulting from the write off of an investment held by Rainbow Media and a gain of approximately $10.9 million resulting from the sale of certain marketable securities. For the three and nine months ended September 30, 1998, miscellaneous expense included $9.8 million and $19.0 million, respectively, relating to federal alternative minimum and state income taxes and approximately $.7 million miscellaneous income and $4.1 million miscellaneous expense, respectively, relating to various other items. -17- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Business Segments Results The Company classifies its business interests into three fundamental areas: Telecommunication Services, consisting principally of its cable television, telephone and modem services operations; Rainbow Media, consisting principally of interests in cable television programming networks and MSG, which owns and operates professional sports teams, regional cable television networks, live productions and entertainment venues; and Retail Electronics, which consists of the operations of Cablevision Electronics' retail electronics stores. The Company allocates certain costs to each segment based upon its proportionate estimated usage of services. Telecommunication Services The tables below set forth, for the periods presented, certain unaudited historical financial information and the percentage that those items bear to revenues for the Company's telecommunication services segment.
Three Months Ended September 30, ----------------------------------------------------- 1999 1998 ------------------------ ----------------------- % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- (dollars in thousands) Revenues............................................... $ 543,154 100% $ 497,038 100% Technical and operating expenses....................... 218,150 40 203,809 41 Selling, general and administrative expenses........... 117,814 22 99,266 20 Depreciation and amortization.......................... 152,410 28 133,911 27 ----------- ----------- Operating profit............................... $ 54,780 10% $ 60,052 12% =========== =========== Nine Months Ended September 30, ----------------------------------------------------- 1999 1998 ------------------------ ----------------------- % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- (dollars in thousands) Revenues.............................................. $ 1,601,118 100% $ 1,382,392 100% Technical and operating expenses...................... 645,471 40 562,505 41 Selling, general and administrative expenses.......... 396,049 25 311,049 23 Depreciation and amortization......................... 455,199 28 373,895 27 ----------- ----------- Operating profit............................... $ 104,399 7% $ 134,943 10% =========== ===========
Revenues for the three and nine months ended September 30, 1999 increased $46.1 million (9%) and $218.7 million (16%), respectively, as compared to revenues for the same periods in the prior year. Approximately $8.0 million (2%) and $92.9 million (7%), respectively, was attributable to the Net Acquisitions; approximately $13.6 million (3%) and $42.8 million (3%), respectively, resulted from higher revenue per subscriber and approximately $8.7 million (2%) and $25.7 million (2%), respectively, was attributable to internal growth in the average number of subscribers during the periods. In addition, approximately $9.9 million (2%) and $34.6 million (3%), respectively, was attributable to revenues from the Company's developing telephone and modem businesses and -18- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES revenue recognized in connection with the At Home transaction. The remaining increase of approximately $5.9 million and $22.7 million (1%), respectively, resulted from increases in other revenue sources, including advertising. Technical and operating expenses for the three and nine months ended September 30, 1999 increased $14.3 million (7%) and $83.0 million (15%), respectively, over the same periods in 1998. Approximately $12.3 million (6%) and $45.1 million (8%), respectively, was attributable to increased costs directly associated with the growth in subscribers and revenues discussed above, as well as to increases in programming costs for cable television services, with the remaining $2.0 million (1%) and $37.9 million (7%), respectively, attributable to the Net Acquisitions. As a percentage of revenues, technical and operating expenses decreased 1% during the three and nine months ended September 30, 1999, as compared to the same periods in the prior year. Selling, general and administrative expenses increased $18.5 million (19%) and $85.0 million (27%), respectively, for the three and nine months ended September 30, 1999 as compared to the same periods in 1998. Approximately $10.5 million (11%) and $64.2 million (21%), respectively, was due to higher charges related to an incentive stock plan; approximately $5.9 million (6%) and $8.2 million (2%), respectively, resulted from increased customer service, subscriber billing and sales and marketing costs; and approximately $1.6 million (2%) and $4.2 million (1%) was due to year 2000 remediation costs. The remaining increase of $0.5 million and $8.4 million (3%), respectively, was directly attributable to the Net Acquisitions. As a percentage of revenues, selling, general and administrative expenses increased 2% in both the three and nine months ended September 30, 1999 compared to the same 1998 periods. Excluding the effects of the incentive stock plan and the year 2000 remediation costs, such costs remained relatively constant as a percentage of revenues during the three months ended September 30, 1999 and decreased 2% in the nine months ended September 30, 1999, as compared to the same periods in the prior year. Depreciation and amortization expense increased $18.5 million (14%) and $81.3 million (22%), respectively, for the three and nine months ended September 30, 1999 over the comparable 1998 periods. Approximately $10.6 million (8%) and $59.1 million (16%), respectively, of the increase was directly attributable to the Net Acquisitions. The remaining increase of $7.9 million (6%) and $22.2 million (6%), respectively, resulted primarily from depreciation on new plant assets. -19- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Rainbow Media The tables below set forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for Rainbow Media.
Three Months Ended September 30, ----------------------------------------------------- 1999 1998 ------------------------ ----------------------- % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- (dollars in thousands) Revenues............................................. $ 228,246 100% $ 205,097 100% Technical and operating expenses..................... 111,053 49 117,686 57 Selling, general and administrative expenses......... 102,621 45 83,399 41 Depreciation and amortization........................ 40,228 18 37,404 18 --------- --------- Operating loss................................ $ (25,656) (11) $ (33,392) (16)% ========= ========= Nine Months Ended September 30, ----------------------------------------------------- 1999 1998 ------------------------ ----------------------- % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- (dollars in thousands) Revenues............................................. $ 815,896 100% $ 707,177 100% Technical and operating expenses..................... 471,255 58 426,291 60 Selling, general and administrative expenses......... 335,678 41 250,111 35 Depreciation and amortization........................ 119,592 15 109,761 16 --------- --------- Operating loss................................ $(110,629) (14) $ (78,986) (11)% ========= =========
Revenues for the three and nine months ended September 30, 1999 increased $23.1 million (11%) and $108.7 million (15%), respectively, as compared to revenues for the same periods in the prior year. Approximately $25.7 million (12%) and $71.4 million (10%), respectively, of the increase was attributable to internal growth in programming network subscribers, rate increases and new channel launches. Approximately $8.4 million (4%) and $22.6 million (3%), respectively, of the net increase was attributable to an increase in advertising revenues. The increase for the three month period was partially offset by an $11.0 million (5%) decrease resulting primarily from the temporary closing of Radio City Music Hall for restoration and fewer events at Madison Square Garden. For the nine month period, revenues increased $14.7 million (2%) primarily attributable to a greater number of events at Madison Square Garden, including the Knicks advancing to the NBA finals and special events during the 1999 period, partially offset by a decrease in revenues as a result of fewer performances at Radio City Music Hall due to its closing for restoration. Technical and operating expenses decreased $6.6 million (6%) for the three months and increased $45.0 million (11%) for the nine months ended September 30, 1999 over the comparable 1998 periods. The three month decrease consists of lower expenses of approximately $12.3 million (11%) attributable primarily to the closing of Radio City Music Hall for restoration and fewer events at Madison Square Garden. This decrease was partially offset by -20- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES an increase of $3.3 million (3%) associated with new programming service launches and an increase of $2.4 million (2%) attributable to other cost increases directly associated with the increase in revenues, discussed above. The nine month increase consisted of approximately $18.0 million (5%) which resulted from a greater number of sporting events, including the Knicks advancing to the NBA finals, partially offset by fewer concerts and other events at Madison Square Garden. Increases of approximately $14.1 million (3%) were due to new programming service launches with the remaining $12.9 million (3%) increase attributable to those costs directly associated with the increase in revenues discussed above. As of percentage of revenues, technical and operating expenses decreased 8% and 2%, respectively, for the three and nine months ended September 30, 1999 over the comparable periods in 1998. Selling, general and administrative expenses increased $19.2 million (23%) and $85.6 million (34%), respectively, for the three and nine months ended September 30, 1999 as compared to the same periods in 1998. Approximately $13.4 million (16%) and $53.2 million (21%), respectively, of the increase for the three and nine months was directly attributable to charges for an incentive stock plan. Approximately $1.6 million (2%) and $22.3 million (9%), respectively, was attributable to increases in sales and marketing initiatives including the promotion of new channel launches, advertising related expenses and other general cost increases. Approximately $4.2 million (5%) and $10.1 million (4%), respectively, was attributable to year 2000 remediation costs. As a percentage of revenues, selling, general and administrative expenses increased 4% and 6%, respectively, for the three and nine month periods. Excluding the effects of the incentive stock plan and the year 2000 remediation costs, as a percentage of revenues such costs decreased 3% and 1%, respectively, for the three and nine months ended September 30, 1999 as compared to the same periods in the prior year. Depreciation and amortization expense increased $2.8 million (8%) and $9.8 million (9%), respectively, for the three and nine months ended September 30, 1999 over the comparable periods in 1998 primarily due to depreciation on additional fixed assets. -21- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Retail Electronics The tables below set forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues for the Company's retail electronics segment, Cablevision Electronics. The information presented is for the three months ended September 30, 1999 and 1998 and for the nine months ended September 30, 1999 and the period from the date of the Wiz Transaction, February 9, 1998 through September 30, 1998.
Three Months Ended --------------------------------------------------------- September 30, 1999 September 30, 1998 ------------------------- ------------------------ % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- (dollars in thousands) Revenues............................................ $ 137,505 100% $ 130,051 100% Cost of sales....................................... 118,667 86 109,811 84 Selling, general and administrative expenses........ 29,766 22 23,116 18 Depreciation and amortization....................... 1,713 1 2,425 2 --------- --------- Operating loss................................. $ (12,641) (9) $ (5,301) (4)% ========= ========= Nine Months Ended Period Ended September 30, 1999 September 30, 1998 ------------------------- ------------------------ % of % of Amount Revenues Amount Revenues ------ -------- ------ -------- (dollars in thousands) Revenues............................................ $ 396,853 100% $ 264,771 100% Cost of sales....................................... 336,863 85 226,329 85 Selling, general and administrative expenses........ 89,442 23 54,798 21 Depreciation and amortization....................... 4,667 1 3,627 1 --------- --------- Operating loss................................. $ (34,119) (9) $ (19,983) (8)% ========= =========
Revenues for the three and nine months ended September 30, 1999 amounted to approximately $137.5 million and $396.9 million, respectively, compared to revenues of approximately $130.1 million for the three months ended September 30, 1998 and approximately $264.8 million for the period ended September 30, 1998. The revenues for the period ended September 30, 1998 include operations of Cablevision Electronics from the date of the Wiz Transaction, February 9, 1998, through September 30, 1998. Cost of sales for the three and nine months ended September 30, 1999 amounted to approximately $118.7 million and $336.9 million (86% and 85% of revenues), respectively. For the three months ended September 30, 1998 and for the period ended September 30, 1998, costs of sales amounted to $109.8 million and $226.3 million (84% and 85% of revenues), respectively. Such costs include the cost of merchandise sold, including freight costs incurred, as well as store occupancy and buying costs. Selling, general and administrative expenses amounted to approximately $29.8 million and $89.4 million (22% and 23% of revenues) for the three and nine months ended September 30, 1999, respectively and $23.1 million and $54.8 million (18% and 21% of revenues) for the three months ended September 30, 1998 and from the date of the Wiz Transaction through September 30, 1998, respectively. Selling, general and administrative expenses consist of retail -22- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES store expenses (excluding store occupancy costs), the salaries and commissions of sales personnel, the costs of advertising, the costs of operating the distribution center and corporate support functions other than buying. Depreciation and amortization expense amounted to approximately $1.7 million and $4.7 million for the three and nine months ended September 30, 1999, respectively and $2.4 million and $3.6 million for the three months ended September 30, 1998 and from the date of the Wiz Transaction through September 30, 1998, respectively. Depreciation and amortization expense includes the depreciation of all property and equipment and the amortization of intangible assets which resulted from the Wiz Transaction. Liquidity and Capital Resources Cablevision Systems Corporation does not have any operations independent of its subsidiaries. In addition, Cablevision Systems Corporation has no borrowings and does not have outstanding any securities other than its Class A Common Stock and Class B Common Stock, on which it does not intend to pay any dividends in the foreseeable future. Accordingly, Cablevision Systems Corporation does not have cash needs independent of the needs of its subsidiaries. Cablevision Systems Corporation is structured as a restricted group and an unrestricted group of subsidiaries. The Restricted Group includes all of CSC Holdings' cable operations in and around the greater New York City Metropolitan area, in and around the greater Cleveland, Ohio Metropolitan area and in and around the Boston, Massachusetts Metropolitan area and the commercial telephone operations of the Company's subsidiary, Cablevision Lightpath, Inc. on Long Island, New York. As of April 4, 1999, the cable television subscribers of the TCI Systems (847,432 at March 31, 1999) became part of the Restricted Group upon the transfer of the TCI Systems from Cablevision Systems Corporation to CSC Holdings, Inc. The Unrestricted Group principally includes Rainbow Media, including Madison Square Garden, other companies engaged in certain development activities ("New Media"), Cablevision Electronics which acquired substantially all of the assets associated with 40 The Wiz consumer electronics store locations on February 9, 1998 and Cablevision Cinemas, LLC which owns the Company's motion picture theater assets. -23- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES The following table presents selected historical results of operations and other financial information related to the captioned groups or entities as of and for the nine months ended September 30, 1999.
Interest Capital Revenues AOCF* Expense Expenditures -------- ----- ------- ------------ (dollars in thousands) Restricted Group**....................... $1,549,955 $ 678,142 $ 290,534 $ 453,173 New Media................................ 51,163 1,178 99 63,917 Rainbow Media (including MSG and AMC).... 815,896 119,451 41,062 51,783 Retail Electronics....................... 396,853 (27,005) 6,348 14,708 Other (including eliminations)........... (31,540) (35,193) 6,032 11,848 ---------- ---------- ---------- ---------- Total ............................... $2,782,327 $ 736,573 $ 344,075 $ 595,429 ========== ========== ========== ==========
- ---------- * Defined as operating income (loss) before depreciation and amortization and excluding incentive stock plan expense of $216,388 and the costs of year 2000 remediation of $27,958. ** Includes the TCI Systems.
Restricted Unrestricted Group Group Total ----- ----- ----- (dollars in thousands) Debt and Redeemable Preferred Stock Senior debt ................................... $1,314,306 $ -- $1,314,306 Senior notes and debentures ................... 2,692,430 -- 2,692,430 Subordinated notes and debentures ............. 1,048,476 -- 1,048,476 ---------- ---------- ---------- 5,055,212 -- 5,055,212 ---------- ---------- ---------- Redeemable preferred stock of CSC Holdings .... 1,365,905 -- 1,365,905 Rainbow Media: RMHI senior debt .......................... -- 76,403 76,403 AMC senior debt ........................... -- 277,688 277,688 MSG senior debt ........................... -- 359,852 359,852 ---------- ---------- ---------- Total Rainbow Media debt ................ -- 713,943 713,943 ---------- ---------- ---------- Retail Electronics debt ....................... -- 87,080 87,080 Other debt .................................... -- 25,367 25,367 ---------- ---------- ---------- Total debt and redeemable preferred stock $6,421,117 $ 826,390 $7,247,507 ========== ========== ==========
-24- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Restricted Group The Company believes that, for the Restricted Group, internally generated funds, together with funds available under the Restricted Group's Credit Agreement, will be sufficient through 2000 to fund its required spending. Planned acceleration of the Company's plant upgrade, combined with additional amounts in respect of the start up and operation of new businesses, such as high speed internet access and digital video services, the expansion of residential telephone services and the roll out of non-Long Island based commercial telephone services, as well as additional investments or acquisitions, will require raising additional capital. The Company may obtain the requisite funds through assets sales, the monetization of certain investments, the issuance of trust preferred securities and/or the incurrence of additional indebtedness. However, it is the Company's intent to obtain any such additional capital in a manner that does not adversely affect its debt ratings. In July 1999, the Company issued $500 million face amount of 8 1/8% Senior Notes due 2009. The net proceeds of $491 million were used to repay outstanding borrowings under CSC Holdings' credit facility. In September 1999, the Company announced that it was pursuing strategic alternatives for operation of its cable television systems in the greater Boston, Massachusetts and Cleveland, Ohio metropolitan areas, as well as in Kalamazoo, Michigan. In September 1999, the Company announced the redemption of CSC Holdings' Series I Cumulative Convertible Exchangeable Preferred Stock. A total of 13,797,625 depositary shares (out of 13,800,000 outstanding) have been converted to 20,458,925 shares of the Company's Class A Common Stock, with the remaining 2,375 depositary shares being redeemed for cash. CSC Holdings and certain other subsidiaries of the Company have a $2.2 billion revolving credit facility maturing in March 2007 consisting of a $1 billion CSC Holdings credit facility and a $1.2 billion MFR credit facility for its New Jersey cable operations. On November 1, 1999, the Restricted Group had total usage under its existing credit agreement (including the MFR credit facility) of $1.3 billion and letters of credit of $39.4 million issued on behalf of CSC Holdings. Unrestricted and undrawn funds available to the Restricted Group amounted to approximately $847.1 million as of November 1, 1999. ---------------------------------------------- As of November 1, 1999 (in thousands) ---------------------------------------------- CSC Holdings MFR Total -------- --- ----- Total facility $1,000,000 $1,200,000 $2,200,000 Outstanding debt 424,000 889,500 1,313,500 Outstanding letters of credit 39,420 -- 39,420 ---------- ---------- ---------- Availability $ 536,580 $ 310,500 $ 847,080 ========== ========== ========== -25- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES The Credit Agreement contains certain financial covenants that may limit the Restricted Group's ability to utilize all of the undrawn funds available thereunder, including covenants requiring the Restricted Group to maintain certain financial ratios and restricting the permitted uses of borrowed funds. As of November 1, 1999, CSC Holdings had outstanding interest exchange (swap) agreements with several of its banks with a total notional value of $475 million. Swaps in the aggregate amount of $250 million require CSC Holdings to pay a floating rate of interest and have a maturity of two to three years. The remainder of the swaps require payment of a fixed rate of interest by CSC Holdings and have a maturity of less than 30 days to nine months. The average effective annual interest rate as of November 1, 1999, on all Restricted Group bank debt, including the interest exchange agreements, was approximately 6.5%. TCI Systems In May 1998, the TCI Systems entered into an $800 million credit facility which was reduced by $100 million in July 1998. On April 4, 1999, the TCI Systems were transferred to CSC Holdings. The commitments under the TCI facility were terminated and the balance outstanding was repaid on April 5, 1999 with borrowings under the MFR credit facility. Rainbow Media RMHI/AMC Rainbow Media has a $300 million non-amortizing revolving credit facility maturing on December 31, 2000, of which $20 million is restricted for specific purposes. Of the $280 million balance of the facility, a further $180 million is restricted to provide for repayment of a like amount of inter-company borrowings from Regional Programming Partners ("RPP") as described below. As of November 1, 1999, there were outstanding borrowings of $51 million, leaving a balance of $49 million available to Rainbow Media under the credit facility as of that date. On May 12, 1999, American Movie Classics, a wholly-owned subsidiary of Rainbow Media, closed on a new $425 million credit facility consisting of a $200 million reducing revolving credit facility and a $225 million amortizing term loan, both of which mature on March 31, 2006. The amount of the available commitment under the revolver will not begin to be reduced until June 2004. On May 12, 1999, American Movie Classics distributed to its parent, Rainbow Media, approximately $97 million, which Rainbow Media used to repay outstanding borrowings plus interest and fees under its credit facility. As of November 1, 1999, American Movie Classics had outstanding borrowings of $254 million, leaving unrestricted funds available of $171 million. Both credit facilities contain certain financial covenants that may limit the ability to utilize all of the undrawn funds available, including covenants requiring that certain financial ratios be maintained. -26- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES The Company believes that for Rainbow Media and its wholly-owned subsidiaries, which includes American Movie Classics, internally generated funds, together with funds available under their credit agreements, will be sufficient through 2000 to meet its projected funding requirements. Repayment of Rainbow Media's credit facility at maturity may be met by refinancing the facility or funds provided by other sources, including, without limitation, the Company. There can be no assurance that Rainbow Media will be able to obtain refinancing or funds from other sources on acceptable terms or at all. RPP In June 1998, Regional Programming Partners ("RPP"), a partnership which is 60% owned by Rainbow Media and 40% owned by Fox/Liberty Networks, LLC, made an inter-company loan to Rainbow Media of $180 million, which Rainbow Media used to repay bank debt. RPP funded this loan from cash on hand. The inter-company loan is a four year demand note maturing March 31, 2002, which requires quarterly interest payments at LIBOR plus 7/8% per annum, is subordinated to Rainbow Media's bank debt and requires that Rainbow Media maintain sufficient availability under its revolving credit to permit the repayment in full to RPP if RPP requires the funds for its own operating needs. MSG MSG has a $500 million revolving credit facility maturing on December 31, 2004 (the "MSG Credit Facility"). As of November 1, 1999, outstanding debt under the MSG Credit Facility was $330 million. In addition, MSG had outstanding letters of credit of $3.3 million resulting in unrestricted and undrawn funds available of $166.7 million. The MSG Credit Facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring MSG to maintain certain financial ratios. The Company believes that for MSG, internally generated funds, together with funds available under its existing credit agreement, will be sufficient to meet its projected funding requirements through 2000. Garden Programming, LLC, an unrestricted subsidiary of MSG, has a $20 million term loan maturing on July 11, 2002. Garden Programming, LLC has in turn made a $40 million loan to an unrelated entity, maturing on November 1, 2011. Retail Electronics Cablevision Electronics has a $130 million stand alone revolving credit facility. Under the terms of the credit facility, the total amount of borrowings available to Cablevision Electronics is subject to an availability calculation based on a percentage of eligible inventory. On November 1, 1999, total outstanding debt under the credit facility was $104.7 million with $2.0 million in additional availability, based on the level of inventory as of that date. CSC Holdings' investment in Cablevision Electronics was approximately $87.9 million at September 30, 1999. Cablevision Electronics has received other financial support of approximately $92.3 million through November 1, 1999 in the form of letters of credit, guarantees and intercompany loans and receivables primarily in respect of Cablevision Electronics' inventory purchases. -27- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES The Company believes that Cablevision Electronics will require additional financial support from CSC Holdings in respect of planned increases in inventory purchases and other requirements through 2000 and that funds available under Cablevision Electronics' credit agreement, together with this additional financial support, will be sufficient to meet its projected funding requirements through 2000. Cablevision Cinemas, LLC Cablevision Cinemas, LLC has a $15 million revolving credit bank facility maturing on June 30, 2003. As of November 1, 1999, there was $10 million outstanding under this bank facility. In February 1999, Cablevision Cinemas, LLC completed the previously announced acquisition of a motion picture theater from Loews for an aggregate purchase price of approximately $21.8 million funded by an equity contribution from CSC Holdings. In addition, Cablevision Cinemas, LLC acquired certain other movie theaters for an additional $5.8 million from its available funds under its bank facility. The Company believes that for Cablevision Cinemas, LLC, internally generated funds, together with funds available under the existing credit agreement, will be sufficient to meet its projected funding requirements through 2000. Operating Activities Net cash provided by operating activities amounted to $160.9 million for the nine months ended September 30, 1999 compared to $281.1 million for the nine months ended September 30, 1998. The 1999 cash provided by operating activities consisted primarily of $137.7 million of income before depreciation, amortization and other non-cash items and changes in assets and liabilities of $23.2 million. The 1998 cash provided by operating activities of $281.1 million consisted primarily of approximately $183.1 million of income before depreciation, amortization and other non-cash items and changes in assets and liabilities of $98.0 million. Investing Activities Net cash used in investing activities for the nine months ended September 30, 1999 was $738.1 million compared to $143.4 million for the nine months ended September 30, 1998. The 1999 investing activities consisted of $595.4 million of capital expenditures, $114.4 million of payments for acquisitions and other items of $39.2 million, partially offset by proceeds from the sale of marketable securities of $10.9 million. Net cash used in investing activities for the nine months ended September 30, 1998 of $143.4 million consisted of $387.0 million of capital expenditures, $166.0 million of payments for acquisitions and other items of $27.9 million, partially offset by the net proceeds of $437.5 million from the sale of programming interests and cable assets. -28- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Financing Activities Net cash provided by financing activities amounted to $468.9 million for the nine months ended September 30, 1999 compared to net cash used in financing activities of $398.1 million for the nine months ended September 30, 1998. In 1999, the Company's financing activities consisted primarily of $497.7 million derived from the issuance of senior notes and debentures, partially offset by the net repayment of bank debt of $4.4 million and by other cash payments aggregating $24.4 million. Net cash used in financing activities of $398.1 million for the nine months ended September 30, 1998 consisted primarily of the net repayment of bank debt, subordinated notes and senior debt of $1,469.7 million, the repayment of an obligation to a related party of $197.2 million, the redemption of preferred stock of subsidiary of $9.4 million and other net cash payments aggregating $17.9 million, partially offset by $1,296.1 million derived from the issuance of senior notes and debentures. Year 2000 The year 2000 issue ("Y2K") refers to the inability of certain computerized systems and technologies to recognize and/or correctly process dates beyond December 31, 1999. As a result of these issues, the potential exists for computer system failure or miscalculations by computer programs, which could cause disruption of the Company's operations. The Company recognizes the need to ensure that any disruption of its operations resulting from the Y2K issue is minimized. Accordingly, the Company developed a plan to identify and address Y2K issues. The Company retained an independent consulting firm to assist in the development and implementation of this plan. Pursuant to the Y2K plan, each of the Company's business units has designated a team (including a Y2K coordinator assisted by a member of the consulting firm) which is responsible for the Y2K compliance of the systems used by that business unit. The efforts of each of these business unit teams is coordinated through, and directed by, a Central Program Management Office (the "CPMO"), consisting of representatives of the Company's information systems, internal audit, controllers, legal and finance departments. The CPMO operates under the direction of the Company's Chief Information Officer, Mr. Thomas Dolan. Y2K issues that cross business unit lines and cannot be resolved between the CPMO and the business unit teams, are referred to an Operations Steering Committee (the "Steering Committee") consisting of the most senior officers of each of the Company's principal business units. The Steering Committee meets periodically to review the progress of the Company's Y2K compliance efforts. The Board of Directors has designated a committee of the Board, consisting of Messrs. James Dolan, Thomas Dolan and Richard Hochman, to monitor the Company's progress and report to the full Board. Y2K Program - Phases The Company has developed a six phase program to assess and address the Y2K issue. These phases consist of the following: -29- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Phase One - Awareness - The Company maintains an ongoing program of communications with its management and employee base to ensure that all employees are aware of the Y2K issue and the importance of the Company's efforts to address the issue. This is accomplished, among other means, through the distribution of memoranda, the establishment and maintenance of an intranet web site, and meetings and seminars. This phase will continue into 2000 to cover awareness of potential Y2K issues after January 1, 2000. Phase Two - Inventory and Assessment - This phase consisted of the Company's efforts to identify all of the information technology ("IT") and non-IT systems used in each area of its businesses. Each identified system has been assessed for its criticality to the Company's businesses and assigned a criticality rating on a five point scale. We continue to assess the criticality of these systems to reflect changes in the business environment and greater understanding of potential Y2K impacts. The scale consists of (1) "Critical" (required for continued operation); (2) "High" (major business impact); (3) "Medium" (significant business impact); (4) "Low" (minor business impact); and (5) "Minimal" (insignificant or no business impact). Additionally, during this phase the Company contacted the vendors of each of its systems to determine which systems are Y2K compliant or non-compliant. Based upon its Phase Two review, which has been completed, the Company believes that approximately 35% of its IT and non-IT systems may be non-compliant and that approximately 65% of these non-compliant systems are of a criticality rating of (3) "Medium" (significant business impact) or above. Following completion of the initial inventory and assessment, the Company developed procedures to assess compliance of products and services purchased after completion of the initial inventory. These procedures include seeking agreements in contracts and purchase orders requiring vendors to deliver compliant products, as well as testing of all new technology installations. Phase Three - Strategy and Planning - During this phase, the Company developed a testing plan for all compliant systems and developed a strategy for remediating and testing non-compliant systems. Remediation strategies range from software upgrades to replacement, discontinuance or bypass of non-compliant systems. The Company has substantially completed the strategy and planning stage for all of its systems and continues to develop plans as necessary to address Y2K issues found in new systems through the ongoing inventory and assessment phases described above. Phase Four - Portfolio Transformation/Remediation - During this phase, the Company executed the remediation strategies for non-compliant systems as identified during Phase Three. Upon completion of any remediation, inventory items are tested as described below as part of Phase Five. Phase Five - Testing - During this phase, which is running concurrently with the remediation phase, the Company is testing all of its compliant systems (of Level 4 or above), and, in conjunction with its Phase Four remediation efforts, its non-compliant systems. -30- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Phase Six - Implementation - During this phase, all of the Company's remediated and tested systems will be redeployed. Evidence of successful implementation is required for completion of Phase Six. As of November 8, 1999, the six phases of approximately 97% of the Company's plans were essentially complete, with the remainder expected to be completed by mid-December 1999. The completion of phases across the Company's businesses is not expected to occur sequentially. As the Company will focus initially on its most critical systems, it is likely that a number of critical systems will be in Phases Four and Five, while less critical systems are in Phase Three. It is the Company's expectation that substantially all IT and non-IT systems with a criticality rating of 1, 2, 3 and 4 will be tested and implemented by November 30, 1999 with the remainder expected to be completed by mid-December 1999. However, there can be no assurance that the Company's expectation will be met. Costs of Compliance - Because the Company has not completed testing of compliant or non-compliant systems, it is not possible to predict with certainty the costs that will be incurred in connection with the Y2K program. Further, in many cases, the Company planned to replace or upgrade certain non-compliant systems irrespective of Y2K compliance issues. In such cases the portion of such expenditure attributable to Y2K issues is often not reasonably determinable. Based on its review to date, the Company believes that the costs associated with its Y2K program, including costs of replacing or upgrading non-compliant systems that were not already scheduled to be replaced or upgraded, accelerating programs that were already contemplated specifically for the purpose of addressing Y2K issues, and including both internal and external resources, will range between $50 to $60 million for its existing businesses. This estimate includes amounts for the Company's telecommunications systems, including cable, modem and telephone, for Rainbow Media's programming operations, for Madison Square Garden including the arena, its professional sports teams, its cable television networks, and for Radio City Entertainment, for The Wiz, for Cablevision Cinemas and for corporate and company-wide needs. For the nine months ended September 30, 1999, the Company recorded approximately $28.0 million of expenses relating to Y2K remediation. Additionally, through September 30, 1999, the Company incurred $6.6 million of capital expenditures. In 1998, the Company recorded approximately $7.6 million of expenses relating to Y2K remediation. There can be no assurance that actual expenditures will not deviate from these estimates and that the amount of such deviation will not be material. Such expenditures are expected to be funded from cash flow from operations and borrowings. Risks of the Company's Y2K Issues - Many of the IT and non-IT systems that are necessary for the continued operation of the Company's businesses are dependent upon components that may not be Y2K compliant. While the Company's Y2K compliance program is designed to identify and remediate these systems in order to avoid interruption of its operations, there can be no assurance that it will be able to identify all non-compliant systems or successfully remediate all those that are identified. Failure of IT or non-IT systems that are necessary for the operation of the Company's businesses, including, without limitation, its billing systems, addressable controller and converter systems, purchasing, finance and inventory systems, marketing databases and point of sale systems, could have a material adverse effect on the Company. The Company is dependent upon third-party products and services, such as utility services and programming uplinks, for the operation of its businesses. While, as part of the Inventory and -31- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Assessment phase of its Y2K program, the Company has contacted third party product and service providers to ascertain whether Y2K compliance issues may exist, it has in many cases not received assurances from such suppliers. Moreover, in most cases, the Company does not have the ability to verify any assurances it does receive from third party suppliers. If critical IT or non-IT systems used by such third party suppliers fail as a result of a Y2K compliance issue, and as a result of such failure the ability of such supplier to continue to provide such product or service to the Company is interrupted, the Company's ability to continue to provide services to its customers may be interrupted. Such an interruption could have a material adverse effect on the Company. The Company has developed contingency plans to address those risks, with major risk areas identified and plans substantially completed. Refinement of those contingency plans will continue throughout 1999, as information about the potential risks is received. There can be no assurance that any such plan would resolve such problems in a satisfactory manner. In addition to the risks associated with failure of IT systems due to Y2K problems, the failure of non-IT systems would pose significant risks to the Company. For example, the Company and its subsidiaries operate facilities for both employees and the public. Failure of the non-IT systems at such facilities could result in health and safety risks that could lead to the closure or unavailability of such facilities. This could result in lost revenues to the Company and the risk of actions against the Company if the businesses of others are disrupted. Also, the failure of such non-IT systems could result in injury to individuals which could expose the Company to actions on, by, or on behalf of such individuals. Subject to the risks and uncertainties referred to herein, the Company is not aware of any existing Y2K issue that could reasonably be expected to have a material adverse effect on the Company. Accounting Standards Issued But Not Yet Adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), requires that all derivative financial instruments, such as interest rate swap contracts, be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or stockholders' equity (as a component of comprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows. FAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. The Company does not expect that the adoption of FAS 133 will have a material effect on the Company's financial condition or results of operations. -32- CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES Part II. Other Information Item 1. Legal Proceedings The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that such lawsuits will have a material adverse impact on the financial position of the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The index to exhibits is on page 46. (b) The Company has not filed any Current Reports on Form 8-K with the Commission during the quarter for which this report is filed. -33- PART I - FINANCIAL INFORMATION Item 1. Financial Statements CSC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in thousands, except per share data) (Unaudited)
Nine Months Ended Three Months Ended September 30, September 30, -------------------------- -------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues ................................ $ 2,782,327 $ 2,287,789 $ 902,310 $ 806,871 ----------- ----------- ----------- ----------- Operating expenses: Technical and operating .............. 1,074,503 926,038 317,372 297,234 Cost of sales ........................ 336,863 226,329 118,667 109,811 Selling, general and administrative ..................... 878,734 613,410 273,898 204,855 Depreciation and amortization ........ 627,909 497,868 212,737 178,922 ----------- ----------- ----------- ----------- 2,918,009 2,263,645 922,674 790,822 ----------- ----------- ----------- ----------- Operating profit (loss) ........ (135,682) 24,144 (20,364) 16,049 ----------- ----------- ----------- ----------- Other income (expense): Interest expense ..................... (344,075) (317,969) (120,517) (106,438) Interest income ...................... 6,937 20,016 2,077 6,754 Equity in net loss of affiliates ..... (8,857) (19,324) (4,497) (4,431) Gain on sale of programming interests and cable assets, net ............. -- 152,683 -- 11,195 Write off of deferred financing costs (4,425) (4,717) (19) (3,101) Provision for preferential payment to related party ...................... -- (980) -- -- Minority interests ................... 42,680 25,435 12,265 16,339 Miscellaneous, net ................... (9,659) (23,052) (2,222) (9,064) ----------- ----------- ----------- ----------- (317,399) (167,908) (112,913) (88,746) ----------- ----------- ----------- ----------- Net loss ................................ (453,081) (143,764) (133,277) (72,697) Dividend requirements applicable to preferred stock ...................... (131,476) (120,005) (44,786) (40,917) ----------- ----------- ----------- ----------- Net loss applicable to common shareholder $ (584,557) $ (263,769) $ (178,063) $ (113,614) =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. -34- CSC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
September 30, December 31, 1999 1998 ---- ---- ASSETS (unaudited) Cash and cash equivalents ...................................................... $ 65,443 $ 173,826 Accounts receivable trade (less allowance for doubtful accounts of $40,363 and $34,377) ........................................................ 204,834 197,726 Notes and other receivables .................................................... 168,262 188,455 Inventory, prepaid expenses and other assets ................................... 243,596 206,073 Property, plant and equipment, net ............................................. 2,800,716 2,506,834 Investments in affiliates ...................................................... 284,380 276,231 Advances to affiliates ......................................................... 46,654 36,927 Feature film inventory ......................................................... 298,017 293,310 Net assets held for sale ....................................................... 13,949 11,006 Franchises, net of accumulated amortization of $779,352 and $640,735 ....................................................... 712,037 850,653 Affiliation and other agreements, net of accumulated amortization of $221,689 and $181,928 ....................................................... 169,889 206,456 Excess costs over fair value of net assets acquired and other intangible assets, net of accumulated amortization of $869,891 and $775,557 ............ 1,958,870 2,003,128 Deferred financing, acquisition and other costs, net of accumulated amortization of $47,921 and $41,882 ............................. 116,656 110,400 ---------- ---------- $7,083,303 $7,061,025 ========== ==========
See accompanying notes to condensed consolidated financial statements. -35- CSC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (continued)
September 30, December 31, 1999 1998 ---- ---- LIABILITIES AND STOCKHOLDER'S DEFICIENCY (unaudited) Accounts payable ............................................................... $ 406,374 $ 423,039 Accrued liabilities ............................................................ 1,004,392 883,841 Feature film and contract obligations .......................................... 332,521 373,722 Deferred revenue ............................................................... 348,453 334,213 Bank debt ...................................................................... 2,047,111 2,051,549 Senior notes and debentures .................................................... 2,692,430 2,194,443 Subordinated notes and debentures .............................................. 1,048,476 1,048,375 Capital lease obligations and other debt ....................................... 93,585 63,241 ----------- ----------- Total liabilities ........................................................... 7,973,342 7,372,423 ----------- ----------- Minority interests ............................................................. 613,724 719,007 ----------- ----------- Series H Redeemable Exchangeable Preferred Stock ............................... 398,065 364,953 ----------- ----------- Series M Redeemable Exchangeable Preferred Stock ............................... 967,840 891,386 ----------- ----------- Commitments and contingencies Stockholder's deficiency: Series A Cumulative Convertible Preferred Stock, 200,000 shares authorized, none issued ................................. -- -- Series B Cumulative Convertible Preferred Stock, 200,000 shares authorized, none issued ................................. -- -- 8% Series D Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized, none issued ($100 per share liquidation preference) ................................................ -- -- 8-1/2% Series I Cumulative Convertible Exchangeable Preferred Stock, $.01 par value, 1,380,000 shares authorized, 1,361,742 and 1,380,000 shares issued and outstanding ($250 per share liquidation preference) .. 14 14 Common Stock, $1.00 par value, 1,000 shares authorized, 1,000 shares issued .................................................... 1 1 Paid-in capital ............................................................. 756,628 754,995 Accumulated deficit ......................................................... (3,626,311) (3,041,754) ----------- ----------- Total stockholder's deficiency .............................................. (2,869,668) (2,286,744) ----------- ----------- $ 7,083,303 $ 7,061,025 =========== ===========
See accompanying notes to condensed consolidated financial statements. -36- CSC HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (Dollars in thousands) (Unaudited)
1999 1998 ----------- ----------- Cash flows from operating activities: Net loss ....................................................... $ (453,081) $ (143,764) ----------- ----------- Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ................................ 627,909 497,868 Equity in net loss of affiliates ............................. 8,857 19,324 Minority interests ........................................... (42,680) (25,435) Gain on sale of programming interests and cable assets ....... -- (152,683) Gain on sale of marketable securities ........................ (10,861) -- Write off of investment in affiliate ......................... 15,100 -- Write off of deferred financing costs ........................ 4,425 4,717 Amortization of deferred financing costs ..................... 6,212 5,875 Amortization of debenture discount ........................... 418 347 (Gain) loss on sale of equipment ............................. 3,269 (1,136) Changes in assets and liabilities, net of effects of acquisitions and dispositions ............................ 32,089 94,681 ----------- ----------- Net cash provided by operating activities ...................... 191,657 299,794 ----------- ----------- Cash flows from investing activities: Net proceeds from sale of programming interests and cable assets -- 437,543 Payments for acquisitions, net of cash acquired ................ (114,447) (154,387) Proceeds from sale of marketable securities .................... 10,861 -- Capital expenditures ........................................... (595,429) (387,013) Proceeds from sale of plant and equipment ...................... 722 8,579 Additions to intangible assets ................................. (6,107) (14,822) Increase in investments in affiliates, net ..................... (32,106) (21,668) ----------- ----------- Net cash used in investing activities ........................ (736,506) (131,768) ----------- ----------- Cash flows from financing activities: Proceeds from bank debt ........................................ 3,033,291 4,445,647 Repayment of bank debt ......................................... (3,037,729) (5,651,865) Repayment of senior debt ....................................... -- (112,500) Repayment of subordinated notes payable ........................ -- (151,000) Issuance of senior notes and debentures ........................ 497,670 1,296,076 Dividends applicable to preferred stock ........................ (21,910) (22,007) Issuance of common stock ....................................... -- 2,444 Decrease in obligation to related party ........................ -- (197,183) Payments of capital lease obligations and other debt ........... (15,407) (8,913) Additions to deferred financing and other costs ................ (19,449) (19,690) Redemption of preferred stock .................................. -- (9,409) ----------- ----------- Net cash provided by (used in) financing activities .......... 436,466 (428,400) ----------- ----------- Net decrease in cash and cash equivalents ......................... (108,383) (260,374) Cash and cash equivalents at beginning of year .................... 173,826 410,141 ----------- ----------- Cash and cash equivalents at end of period ........................ $ 65,443 $ 149,767 =========== ===========
See accompanying notes to condensed consolidated financial statements. -37- CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) Note 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of CSC Holdings, Inc. and its majority owned subsidiaries (the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In April 1999, Cablevision Systems Corporation contributed certain cable television systems acquired from Tele-Communications, Inc. (the "TCI Systems") on March 4, 1998 to the Company. This transaction was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of the TCI Systems were recorded at historical book value (net assets of $509,574). Prior period consolidated financial statements of the Company have been restated to include the financial position and results of operations of the TCI Systems from March 4, 1998. Note 2. Responsibility for Interim Financial Statements The financial statements as of and for the three and nine month periods ended September 30, 1999 and 1998 presented in this Form 10-Q are unaudited; however, in the opinion of management, such statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 1999. Note 3. Reclassifications Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. Note 4. Loss Per Common Share Net loss per common share for the three and nine months ended September 30, 1999 and 1998 is not presented since the Company is a wholly owned subsidiary of Cablevision Systems Corporation. -38- CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) Note 5. Cash Flows For purposes of the condensed consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $325,220 and $274,359 for the nine months ended September 30, 1999 and 1998, respectively. The Company's noncash financing and investing activities for the nine months ended September 30, 1999 and 1998 included capital lease obligations of $45,751 and $25,610, respectively, incurred when the Company entered into leases for new equipment, preferred stock dividend requirements of $109,566 and $97,998, respectively, the issuance of common stock valued at $4,848 to redeem certain limited partnership interests in a subsidiary of the Company in 1998, and the receipt of warrants from At Home Corporation valued at $74,788 in 1998. Note 6. Acquisitions At various times in 1999, the Company acquired interests in the real property and assets specifically related to certain movie theaters for an aggregate purchase price of approximately $27,600. The acquisitions were accounted for as a purchase with the operations of the acquired theaters being consolidated with those of the Company as of the acquisition dates. The purchase price will be allocated to the specific assets acquired when an independent appraisal is obtained. In April 1999, ITT Corporation ("ITT") exercised its second put for the remainder of its minority interest in Madison Square Garden and settled certain matters between the parties for a payment of approximately $87,000. Note 7. At Home As of September 30, 1999 and 1998, deferred revenue derived from the receipt of At Home warrants, net of amortization taken, amounted to approximately $174,567 and $224,400, respectively. For the nine and three months ended September 30, 1999 and 1998, the Company recognized approximately $37,602 and $12,534 and $23,734 and $10,257, respectively, of this deferred revenue. Note 8. Segment Information The Company's reportable segments are strategic business units that are managed separately. The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization and excluding incentive stock plan expense and the costs of year 2000 remediation). -39- CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued)
Nine Months Ended September 30, Three Months Ended September 30, ------------------------------- -------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Revenues Telecommunication Services............. $1,601,118 $1,382,392 $ 543,154 $ 497,038 Rainbow Media.......................... 815,896 707,177 228,246 205,097 Retail Electronics..................... 396,853 264,771 137,505 130,051 All Other.............................. 64,648 230 25,563 66 Intersegment Eliminations.............. (96,188) (66,781) (32,158) (25,381) ---------- ---------- ----------- ----------- Total......................... $2,782,327 $2,287,789 $ 902,310 $ 806,871 ========== ========== =========== =========== Nine Months Ended September 30, Three Months Ended September 30, ------------------------------- -------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Adjusted Operating Cash Flow Telecommunication Services............. $ 679,320 $ 557,772 $ 232,172 $ 206,323 Rainbow Media.......................... 119,451 77,977 44,604 16,435 Retail Electronics..................... (27,005) (16,356) (10,203) (2,876) All Other.............................. (35,193) (1,245) (13,224) (128) ---------- ---------- ----------- ----------- Total......................... $ 736,573 $ 618,148 $ 253,349 $ 219,754 ========== ========== =========== ===========
-40- CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) A reconciliation of reportable segment amounts to the Company's consolidated balances is as follows:
Nine Months Ended Three Months Ended ----------------- ------------------ September 30, September 30, ------------- ------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenue Total revenue for reportable segments ........... $ 2,813,867 $ 2,354,340 $ 908,905 $ 832,186 Other revenue and intersegment eliminations ..... (31,540) (66,551) (6,595) (25,315) ----------- ----------- ----------- ----------- Total consolidated revenue ................ $ 2,782,327 $ 2,287,789 $ 902,310 $ 806,871 =========== =========== =========== =========== Adjusted Operating Cash Flow to Net Loss Total adjusted operating cash flow for reportable segments .................................. $ 771,766 $ 619,393 $ 266,573 $ 219,882 Other adjusted operating cash flow deficit ...... (35,193) (1,245) (13,224) (128) Items excluded from adjusted operating cash flow: Depreciation and amortization ............. (627,909) (497,868) (212,737) (178,922) Incentive stock plan expense .............. (216,388) (96,136) (49,391) (24,783) Year 2000 remediation ..................... (27,958) -- (11,585) -- Interest expense .......................... (344,075) (317,969) (120,517) (106,438) Interest income ........................... 6,937 20,016 2,077 6,754 Equity in net loss of affiliates .......... (8,857) (19,324) (4,497) (4,431) Gain on sale of programming interests and cable assets, net .................... -- 152,683 -- 11,195 Write off of deferred financing costs ..... (4,425) (4,717) (19) (3,101) Provision for preferential payment to related party ........................ -- (980) -- -- Minority interests ........................ 42,680 25,435 12,265 16,339 Miscellaneous, net ........................ (9,659) (23,052) (2,222) (9,064) ----------- ----------- ----------- ----------- Net loss ........................ $ (453,081) $ (143,764) $ (133,277) $ (72,697) =========== =========== =========== ===========
Substantially all revenues and assets of the Company's reportable segments are attributed to or located in the United States. The Company does not have a single external customer which represents 10 percent or more of its consolidated revenues. Note 9. Financial Instruments In July 1999, Cablevision Systems Corporation ("Cablevision") entered into a $100 million facility with a third party for Cablevision to acquire a beneficial interest in shares of its Class A common stock through a forward swap contract facility that is available through June 2000 with a final maturity date for all executed swaps of February 2001. The terms of the facility provide for the settlement of any obligations of Cablevision thereunder either in cash or Cablevision's -41- CSC HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (Unaudited) (continued) Class A common stock. Cablevision's obligation is guaranteed by the Company. Currently, there are no outstanding contracts under this facility. Note 10. Recent Developments In September 1999, the Company exercised its right to redeem all of its outstanding shares of 8 1/2% Series I Cumulative Convertible Exchangeable Preferred Stock ("Series I Preferred"). The redemption occurred on November 2, 1999, at a price equal to 102.8% of the liquidation preference, plus accrued dividends. Investors held the Series I Preferred through interests in depositary shares (each of which represented a 1/10th interest in a share of the Series I Preferred) which were redeemable simultaneously. Each depositary share was convertible into approximately 1.4828 shares of Cablevision System Corporation's Class A Common Stock. As of November 8, 1999, 13,797,625 depositary shares out of 13,800,000 depositary shares outstanding had been converted into 20,458,925 shares of Cablevision System Corporation's Class A Common Stock, with the remaining 2,375 depositary shares being redeemed for cash. In September 1999, the Company announced that it was pursuing strategic alternatives for operation of its cable television systems in the greater Boston, Massachusetts and Cleveland, Ohio metropolitan areas, as well as in Kalamazoo, Michigan. -42- CSC HOLDINGS, INC. AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations In April 1999, Cablevision Systems Corporation contributed certain cable television systems acquired from Tele-Communications, Inc. (the "TCI Systems") on March 4, 1998 to the Company. This transaction was accounted for in a manner similar to a pooling of interests, whereby the assets and liabilities of the TCI Systems were recorded at historical book value. Prior period consolidated financial statements of the Company have been restated to include the financial position and results of operations of the TCI Systems from March 4, 1998. As a result, the operations of CSC Holdings, Inc. are identical to the operations of Cablevision Systems Corporation, except for dividends attributable to the preferred stock of CSC Holdings, Inc. which have been reported in minority interests in the consolidated financial statements of Cablevision Systems Corporation. Refer to Cablevision Systems Corporation's Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 12 through 32 of this Form 10-Q. -43- CSC HOLDINGS, INC. AND SUBSIDIARIES Part II. Other Information Item 1. Legal Proceedings The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that such lawsuits will have a material adverse impact on the financial position of the Company. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The index to exhibits is on page 46. (b) The Company has not filed any Current Reports on Form 8-K with the Commission during the quarter for which this report is filed. -44- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. CABLEVISION SYSTEMS CORPORATION CSC HOLDINGS, INC. Date: November 12, 1999 /s/ William J. Bell ---------------------- ---------------------------------------- By: William J. Bell, as Vice Chairman, Director and Principal Financial Officer of Cablevision Systems Corporation and CSC Holdings, Inc. Date: November 12, 1999 /s/ Andrew B. Rosengard ----------------------- ---------------------------------------- By: Andrew B. Rosengard, as Executive Vice President, Finance and Controller and Principal Accounting Officer of Cablevision Systems Corporation and CSC Holdings, Inc. -45- INDEX TO EXHIBITS EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ---- 3.5 Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Cablevision Systems Corporation 27 Financial Data Schedule - Cablevision Systems Corporation and Subsidiaries 27.1 Financial Data Schedule - CSC Holdings, Inc. and Subsidiaries -46- EX-3.5 2 CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CABLEVISION SYSTEMS CORPORATION Pursuant to Section 242 of the General Corporation Law of the State of Delaware It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is Cablevision Systems Corporation. 2. The Certificate of Incorporation of the Corporation is hereby amended by striking out the first paragraph of Article FOURTH thereof and by substituting in lieu thereof the following paragraph: The aggregate number of shares which the Corporation shall have authority to issue shall be 570,000,000 shares: (a) 400,000,000 shares of Class A Common Stock, par value $.01 per share ("Class A Common Stock"), (b) 160,000,000 shares of Class B Common Stock, par value $.01 per share ("Class B Common Stock"), and (c) 10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred Stock"). 3. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provision of Section 242 of the General Corporate Law of the State of Delaware. In Witness Whereof, Cablevision Systems Corporation has caused this certificate to be signed by William J. Bell, its Vice Chairman on the 5th day of October 1999. Cablevision Systems Corporation By: /s/ William J. Bell -------------------------------------- William J. Bell, Vice Chairman Attest: /s/ Robert S. Lemle - -------------------------- Robert S. Lemle, Secretary EX-27 3 FDS
5 0001053112 CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES 1,000 9-MOS DEC-31-1998 SEP-30-1999 65,443 0 245,197 (40,363) 298,017 0 4,875,176 (2,074,460) 7,083,303 0 5,881,602 0 0 1,527 (3,182,966) 7,083,303 0 2,804,381 336,863 1,074,503 627,909 (22,054) 344,075 (584,557) 0 (584,557) 0 0 0 (584,557) (3.84) 0 Not presented as the resultant computation would be a decrease in net loss per share and therefore not meaningful.
EX-27.1 4 FDS
5 0000784681 CSC HOLDINGS, INC. AND SUBSIDIARIES 1,000 9-MOS DEC-31-1998 SEP-30-1999 65,443 0 245,197 (40,363) 298,017 0 4,875,176 (2,074,460) 7,083,303 0 5,881,602 1,365,905 14 1 (2,869,683) 7,083,303 0 2,804,381 336,863 1,074,503 627,909 (22,054) 344,075 (453,081) 0 (453,081) 0 0 0 (453,081) (0) 0 Not presented as the resultant computation would be a decrease in net loss per share and therefore not meaningful.
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