Item 1. Business. 3
2. Properties. 27
3. Legal Proceedings. 27
4. Submission of Matters to a Vote of Security Holders. 27
Part II 5. Market for the Registrant's Common Equity and Related Stockholder Matters. 28
6. Selected Financial Data. 30
7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 32
8. Consolidated Financial Statements. 45
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 82
Part III* 10. Directors and Executive Officers of the Registrant. *
11. Executive Compensation. *
12. Security Ownership of Certain Beneficial Owners and Management. *
13. Certain Relationships and Related Transactions. *
Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 82
* These items are omitted because the registrant intends to file with the Securities and Exchange Commission, not later than 120 days after the close of its fiscal year, a definitive proxy statement or an amendment on Form 8 to this report containing the information required to be disclosed under Part III of Form 10-K.
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PART I
Item 1. Business
The Company
Cablevision Systems Corporation, a Delaware corporation and its majority owned subsidiaries (the "Company") own and operate cable television systems in sixteen states with approximately 2,445,000 subscribers at December 31, 1996. The Company also has ownership interests in and/or manages other cable television systems which served an aggregate of approximately 381,000 subscribers at December 31, 1996. Through Rainbow Media Holdings, Inc. (successor to Rainbow Programming Holdings, Inc.), a company owned 75% by the Company and 25% by NBC Cable Holdings, Inc. ("NBC Cable") a subsidiary of National Broadcasting Company, Inc. ("NBC") and its majority owned subsidiaries ("Rainbow Media" or "Rainbow Programming"), the Company owns interests in and manages four nationally distributed 24 hour entertainment pay television networks, eight regional sports networks (one of which is not managed by Rainbow Media), two national sports networks, and four regional news networks. Rainbow Media also owns and operates Rainbow Advertising Sales Corporation, a cable advertising sales organization. In addition, Rainbow Media currently co-manages and has a 50% ownership interest in Madison Square Garden, L.P. ("MSG"), a sports entertainment company which owns and operates the Madison Square Garden Network, two New York based professional sports teams, the Madison Square Garden Arena and the adjoining Theater at MSG. The Company was formed in 1985 to effect a reorganization of its predecessors.
Cable
Cable television is a service that delivers multiple channels of television programming to subscribers who pay a monthly fee for the services they receive. Television and radio signals are received over-the-air or via satellite delivery by antennas, microwave relay stations and satellite earth stations and are modulated, amplified and distributed over a network of coaxial and fiber optic cable to the subscribers' television sets. Cable television systems typically are constructed and operated pursuant to non-exclusive franchises awarded by local governmental authorities for specified periods of time.
The Company's cable television systems offer varying levels of service which may include, among other programming, local broadcast network affiliates and independent television stations, satellite-delivered "superstations" such as WTBS (Atlanta), certain other news, information and entertainment channels such as CNN, CNBC, ESPN, MTV, and certain premium services such as HBO, Showtime, The Movie Channel and Cinemax.
The Company's cable television revenues are derived principally from monthly fees paid by subscribers. In addition to recurring subscriber revenues, the Company derives revenues from installation charges, from the sales of pay-per-view movies and events, and from the sale of advertising time on advertiser supported programming. Certain services and equipment provided by substantially all of the Company's cable television systems are subject to regulation. See "Business - Cable Television Operations - Regulation - 1992 Cable Act."
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The Company's consolidated cable television systems are concentrated in the New York City greater metropolitan area (69.1% of the Company's total subscribers) and the greater Cleveland metropolitan area (12.6% of total subscribers). The Company believes that its cable systems on Long Island comprise the largest group of contiguous cable television systems under common ownership in the United States (measured by number of subscribers).
Programming
Rainbow Media develops and provides nationally distributed programming networks that each serve a defined niche of the pay television viewing audience. Rainbow Media's owned and operated national networks are American Movie Classics ("AMCC"), Bravo, The Independent Film Channel and Much Music.
Rainbow Media produces and distributes regional and local programming. Under the SportsChannel brand name, the Company owns interests in and operates regional sports networks in New York, Chicago, New England, San Francisco, Cleveland, Cincinnati, Florida and Philadelphia. These services have obtained rights to distribute the games of various professional baseball, hockey and/or basketball games as well as local collegiate and high school events in their respective regions. In addition, the Company produces and distributes four regional news networks serving the surburban areas surrounding New York City.
Rainbow Media owns a 50% interest in, and together with ITT jointly manages, MSG, which owns the Madison Square Garden Network, the New York Knickerbockers, the New York Rangers, the Madison Square Garden Arena and the Theater at MSG (formerly known as the Paramount Theater).
Rainbow Media also owns and operates Rainbow Advertising Sales Corporation ("Rainbow Advertising"), a cable advertising sales organization, that serves as a national spot cable sales representative, the national and regional sales representative for various regional sports networks and the regional cable advertising representative for cable systems in the Cleveland and New York metropolitan areas.
Financing Structure
For financing purposes, the Company is structured as a restricted group and an unrestricted group of subsidiaries.
The restricted group consists of Cablevision Systems Corporation and certain of its subsidiaries, including Cablevision of New York City ("CNYC"), a subsidiary holding the cable television assets previously a part of Cablevision of Boston Limited Partnership ("Cablevision of Boston"), Cablevision of Newark as of September 27, 1996, and Cablevision MFR, Inc. ("Cablevision MFR") as of November 20, 1996 (collectively, the "Restricted Group").
The unrestricted group of subsidiaries consists primarily of Cablevision of Ohio as of April 17, 1996 (consisting of Telerama, Inc., Cablevision of the Midwest, Inc., and Cablevision of Cleveland L.P.), U.S. Cable Television Group, L.P. ("U.S. Cable") as of August 13, 1996, CSC Technology, Inc. and Rainbow Media. In addition, the Company has an unrestricted
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group of investments, consisting of investments in A-R Cable Services, Inc. ("A-R Cable"), Cablevision of Framingham Holdings, Inc. ("CFHI"), and A-R Cable Partners.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for a discussion of the financing of the Company including a discussion of restrictions on investments by the Restricted Group.
Recent Developments
On March 6, 1997, two wholly-owned subsidiaries of Rainbow Media entered into an agreement in principle (the "March 1997 Letter") with ITT Corporation ("ITT") to acquire a majority stake in the equity of MSG.
As discussed below, on February 18, 1997, Rainbow Media, on behalf of two of its wholly-owned subsidiaries, Rainbow Garden Corporation and Garden LP Holding Corp., made a payment of $168.75 million (plus accrued interest) to ITT, increasing its partnership interest in MSG from approximately 26.6% to 50% and thus equalizing its interest in MSG.
Under the March 1997 Letter, Rainbow Media would increase its equity interest in MSG from 50% to 88.5%. ITT would receive $500 million and maintain an 11.5% equity interest in MSG, with the right to require the Company to purchase ITT's remaining 11.5% equity interest in MSG for an aggregate of $150 million in the two years following the closing. The Company can satisfy the put in cash or the Company's Class A Common Stock. In three years, the Company also would have the right to purchase ITT's remaining equity interest in MSG if ITT chooses not to exercise its "put" option.
The Company has received a commitment letter from the Chase Manhattan Bank and Chase Securities Inc., for the provision to MSG of an $850 million stand alone senior secured credit facility. The facility would consist of a $650 million, seven and one-half year term loan and a $200 million revolving credit facility. The proceeds of the term loan would be used to redeem 77% of ITT's remaining 50% interest in MSG, as described above, and to refinance MSG's existing indebtedness. The proceeds of the revolving facility would be used to finance a portion of the above described transaction, and to finance MSG's working capital requirements and general corporate needs. The commitment letter is subject to a number of conditions precedent, including the execution of definitive loan documentation.
The transactions contemplated by the March 1997 Letter would close upon satisfaction of the conditions thereto, including the execution of a definitive acquisition agreement, the approval of the National Basketball Association and the National Hockey League and other customary conditions.
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On April 1, 1997, Rainbow Media consummated a transaction (the "NBC" Transaction") in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC received a 25% equity interest (which interest may be increased up to 27% under certain circumstances) in non-voting Class C common stock of Rainbow Media. The Company owns the remaining 75% equity interest in Rainbow Media. The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC are now owned by subsidiaries of Rainbow Media.
On August 13, 1996, the Company acquired the partnership interests in U.S. Cable that it did not already own for approximately $4 million and repaid the debt owed to GECC of approximately $154 million with proceeds from a new $175 million U.S. Cable credit facility.
During 1996, Rainbow Media invested approximately $5.8 million in a joint venture formed with a subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting certain direct broadcast satellite ("DBS") frequencies. Rainbow Media also contributed to the joint venture its interest in certain agreements with the licensee of such frequencies. In the first quarter of 1997, Rainbow Media invested an additional $3.7 million in the joint venture.
In May 1996, the Company entered into an agreement (the "Warburg Agreement") with Warburg, Pincus Investors, L.P. ("Warburg") to acquire from Warburg interests that the Company does not already own in A-R Cable Services, Inc. ("A-R Cable"), A-R Cable Partners, Cablevision of Newark and Cablevision of Framingham Holdings, Inc. for $183 million subject to certain adjustments and regulatory approval. On September 27, 1996, the Company acquired from Warburg the equity interests that Warburg owned in Cablevision of Newark for approximately $37 million, giving the Company full ownership of Cablevision of Newark. In connection with the acquisition of the remaining Warburg Companies, the Company agreed to assume the outstanding debt of the respective entities (approximately $470 million as of December 31, 1996). These systems served approximately 381,000 subscribers as of December 31, 1996. On February 3, 1997, the Company made a non-refundable deposit of $30 million in partial payment of the purchase price under the Warburg Agreement. The transaction is expected to close in July 1997.
On August 23, 1996, the Company entered into an agreement with Northcoast Operating Co., Inc. ("Northcoast") and certain of its affiliates, to form a limited liability company (the "LLC") to participate in the auctions conducted by the Federal Communications Commission ("FCC") for certain licenses to conduct a personal communications service ("PCS") business. The Company has contributed an aggregate of approximately $31 million to the LLC (either directly or through a loan to Northcoast) and holds a 49.9% interest in the LLC and certain preferential distribution rights. Northcoast is a Delaware corporation controlled by John Dolan. John Dolan is a nephew of Charles F. Dolan and a cousin of James Dolan.
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Cable Television Operations
General.
As of December 31, 1996, the Company's consolidated cable television systems served approximately 2,445,000 subscribers in sixteen states, primarily in the metropolitan areas of New York, Ohio, Connecticut, New Jersey, Michigan, and Massachusetts.
The following table sets forth certain statistical data regarding the Company's cable television operations (1). During 1996, Cablevision of Newark and U.S. Cable, formerly unconsolidated affiliates, became part of the Restricted and Unrestricted Groups, respectively. North Coast Cable was transferred to the Unrestricted Group in exchange for V Cable's Long Island cable television system. Cable television systems in Lynbrook and Portchester, N.Y., formerly unconsolidated affiliates, became part of the Restricted Group in exchange for a cable television system located in Haverhill, MA. formerly owned by the Restricted Group. During 1995 Cablevision of Boston, formerly an unconsolidated affiliate, became part of the Restricted Group and Cablevision of Chicago was sold. During 1994 CNYC and North Coast Cable became part of the Restricted Group. As of December 31, ---------------------------- 1996 1995 1994 ---- ---- ---- Homes passed (2): Restricted group 2,982,000 2,796,000 2,370,000 Unrestricted group 876,000 532,000 529,000 --------- --------- --------- Company consolidated 3,858,000 3,328,000 2,899,000 ========= ========= ========= Managed unconsolidated cable 539,000 988,000 1,427,000 affiliates ========= ========= =========
Basic service subscribers: Restricted group 1,888,000 1,756,000 1,477,000 Unrestricted group 557,000 305,000 291,000 --------- --------- --------- Company consolidated 2,445,000 2,061,000 1,768,000 ========= ========= ========= Managed unconsolidated cable 381,000 662,000 861,000 affiliates ========= ========= =========
Average number of premium units per basic subscriber: Restricted group 1.7 2.0 1.9 Unrestricted group 1.3 1.3 1.1 Company consolidated 1.6 1.9 1.8 Managed unconsolidated cable affiliates 0.9 1.1 1.2
Average revenue per basic subscriber (3): Restricted group $38.84 $38.08 $37.48 Unrestricted group $29.54 $31.43 $30.52 Company consolidated $36.71 $37.07 $36.33 Managed unconsolidated cable $29.89 $28.68 $29.71 affiliates - ---------- (1) No information is provided in this table for any period in which an entity was not a consolidated subsidiary of the Company. (2) Homes passed is based upon homes actually marketed and does not include multiple dwelling units passed by the cable plant that are not connected to it. (3) Based on recurring service revenues for the last month of the period, excluding installation charges and certain other non-recurring revenues such as pay-per-view, advertising and home shopping revenues. See "Business - Cable Television Operations - Subscriber Rates and Services; Marketing and Sales."
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Subscriber Rates and Services; Marketing and Sales.
The Company's cable television systems offer a package of services, generally marketed as "Family Cable", which includes, among other programming, broadcast network local affiliates and independent television stations, satellite-delivered "superstations" and certain other news, information and entertainment channels such as CNN, CNBC, ESPN and MTV. For additional charges, the Company's cable television systems provide certain premium services such as HBO, Showtime, The Movie Channel and Cinemax, which may be purchased either individually (in conjunction with Family Cable) or in combinations or in tiers.
In addition, the Company's cable television systems offer a basic package which includes broadcast network local affiliates and public, educational or governmental channels and certain public leased access channels.
The Company offers premium services on an individual basis and as components of different "tiers". Successive tiers include additional premium services for additional charges that reflect discounts from the charges for such services if purchased individually. For example, in most of the Company's cable systems, subscribers may elect to purchase Family Cable plus one, two or three premium services with declining incremental costs for each successive tier. In addition, most systems offer a "Rainbow" package consisting of between five and seven premium services, and a "Rainbow Gold" package consisting of between eight and ten premium services.
In certain areas with sufficient system capacity, the Company has branded a new product offering called OptimumTV. OptimumTV, which includes a minimum of 77 analog channels, offers the basic and Family packages noted above, as well as premium services, and a group of three new packages containing premium networks and ad-supported news, information and entertainment channels. Depending upon the market, OptimumTV offers customers anywhere from 20 to 30 new cable channels, including additional pay-per-view channels that offer new films and sporting events on a transactional basis.
Since its existing cable television systems are substantially fully built, the Company's sales efforts are primarily directed toward increasing penetration and revenues in its franchise areas. The Company sells its cable television services through door-to-door selling supported by telemarketing, direct mail advertising, promotional campaigns and local media and newspaper advertising.
Certain services and equipment (converters which are leased to subscribers) provided by substantially all of the Company's cable television systems are subject to regulation. See "Business - Cable Television Operations - Regulation - - 1992 Cable Act."
System Capacity.
The Company is engaged in an ongoing effort to upgrade the technical capabilities of its cable plant and to increase channel capacity for the delivery of additional programming and new services. The Company's cable television systems have a minimum capacity of 35 channels and 86% of its
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subscribers are currently served by systems having a capacity of at least 52 channels. As a result of currently ongoing upgrades, the Company expects that by December 1997 approximately 79% (85% excluding U.S. Cable) of its subscribers will be served by systems having a capacity of at least 77 channels. A substantial portion of the system upgrades either completed or underway will utilize fiber optic cable.
Programming.
Adequate programming is available to the Company from a variety of sources. Program suppliers' compensation is typically a fixed, per subscriber monthly fee based, in most cases, either on the total number of subscribers of the cable systems of the Company and certain of its affiliates, or on the number of subscribers subscribing to the particular service. The Company's programming contracts are generally for a fixed period of time and are subject to negotiated renewal. The Company's cable programming costs have increased in recent years and are expected to continue to increase due to additional programming being provided to most subscribers, increased costs to produce or purchase cable programming and other factors. Management believes that the Company will continue to have access to programming services at reasonable price levels.
Franchises.
The Company's cable television systems are operated primarily under nonexclusive franchise agreements with local governmental franchising authorities, in some cases with the approval of state cable television authorities. Franchising authorities generally charge a fee of up to 5% based on a percentage of certain revenues of the franchisee. In 1996 franchise fee payments made by the Company aggregated approximately 4% of total revenues.
The Company's franchise agreements are generally for a term of ten to fifteen years from the date of grant, although recently renewals have often been for five to ten year terms. Some of the franchises grant the Company an option to renew. Except for the Company's franchises for the Town of Brookhaven, New York which expired in 1991, the town of Islip which expired in 1994 and the City of Norwalk which expired in 1996, the expiration dates for the Company's ten largest franchises range from 1997 to 2001. In certain cases, including the Town of Brookhaven, the Company is operating under temporary licenses while negotiating renewal terms with the franchising authorities. Franchises usually require the consent of the franchising authority prior to the sale, assignment, transfer or change in ownership or operating control of the franchisee.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") provide significant procedural protections for cable operators seeking renewal of their franchises. See "Business - Cable Television Operations - Regulation". In connection with a renewal, a franchising authority may impose different and more stringent terms. The Company has never lost a franchise as a result of a failure to obtain a renewal.
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Competition.
The Company's cable television systems generally compete with the direct reception of broadcast television signals by antenna and with other methods of delivering television signals to the home for a fee. The extent of such competition depends upon the number and quality of the signals available by direct antenna reception as compared to the number and quality of signals distributed by the cable system. The Company's cable television systems also compete to varying degrees with other communications and entertainment media, including movies, theater and other entertainment activities.
The Telecommunications Act of 1996 ("1996 Telecom Act") repealed the 1984 Act prohibition against telco-cable cross-ownership and provides that a local exchange telephone company may provide video programming directly to subscribers through a variety of means, including (1) as a radio-based (MMDS or DBS) multichannel video programming distributor; (2) as a cable operator, fully subject to the franchising, rate regulation and other provisions of the 1984 and 1992 Cable Acts; and (3) through an "open video system" that is certified by the FCC to be offering nondiscriminatory access to a portion of its channel capacity for unaffiliated program distributors, subject only to selected portions of the regulations applicable to cable operators. Non-telephone companies may also become "open video systems" and provide video competition to cable systems without obtaining a franchise. A local telephone company also may provide the "transmission of video programming" on a common carrier basis. As noted below, telephone companies in several of the Company's franchise areas have applied for franchises to offer cable service fully subject to the 1984 and 1992 Cable Acts. Several companies have sought to become "open video systems" in areas in which the company operates cable systems in Boston, New York City and Westchester County, New York.
The 1996 Telecom Act also prohibits a telephone company or a cable system operator in the same market from acquiring each other, except in limited circumstances, such as areas of smaller population.
Cable television also competes with the home video industry. Owners of videocassette recorders are able to rent many of the same movies, special events and music videos that are available on certain premium services. The availability of videocassettes has affected the degree to which the Company is able to sell premium service units and pay-per-view offerings to some of its subscribers.
Multipoint distribution services ("MDS"), which deliver premium television programming over microwave superhigh frequency channels received by subscribers with a special antenna, and multichannel multipoint distribution service ("MMDS"), which is capable of carrying four channels of television programming, also compete with certain services provided by the Company's cable television systems. By acquiring several MMDS licenses or subleasing from several MMDS operators and holders of other types of microwave licenses, a single entity can increase channel capacity to a level more competitive with cable systems. MDS and MMDS systems are not required to obtain a municipal franchise, are less capital intensive, require lower up-front capital
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expenditures and are subject to fewer local and FCC regulatory requirements than cable systems. The ability of MDS and MMDS systems to serve homes and to appeal to consumers is affected by their less extensive channel capacity and the need for unobstructed line of sight over-the-air transmission. The Company competes with MDS and MMDS operators generally in its metropolitan service areas.
Satellite master antenna systems ("SMATV") generally serve large multiple dwelling units. The FCC has preempted all state and local regulation of SMATV operations. SMATV is limited to the buildings within which the operator has received permission from the building owner to provide service. The FCC has recently streamlined its MDS regulations and opened substantially more microwave channels to MDS and SMATV operators, which could increase the strength of their competition with cable television systems. The Company competes with SMATV operators primarily in the New York City metropolitan service area. The 1996 Telecom Act amends the definition of cable system to exclude facilities that do not use public rights-of-way (e.g., SMATV operators serving multiple buildings not under common ownership or control), thus exempting such facilities from franchise and other requirements applicable to cable operators.
The FCC has proposed establishing a new local multipoint distribution service ("LMDS", sometimes referred to as "cellular cable") in the higher bands of the electromagnetic spectrum that could be used to offer multichannel video in competition with cable systems, as well as two-way communications services. The FCC has proposed using auctions to select licensees. Suite 12 Group, the originator of this service, currently holds an experimental license and has constructed a video transmission service using the 28 Ghz band in a portion of the Company's New York City service area. The FCC has proposed barring both telephone and cable companies from bidding for LMDS frequencies in their own service areas.
The 1984 Cable Act specifically legalized, under certain circumstances, reception by private home earth stations of satellite-delivered cable programming services. By law, dish owners have the right to receive broadcast superstations and network affiliate transmissions in return for a compulsory copyright fee. Cable programmers have developed new marketing efforts to reach these viewers. Direct broadcast satellite ("DBS") systems permit satellite transmissions from the low-power C-Band to be received by antennae approximately 60 to 72 inches in diameter at the viewer's home. Higher power DBS systems providing transmissions over the Ku-Band permit the use of smaller receiver antennae and thus are more appealing to customers. Four DBS systems are now operational in the United States, some with investment by companies with substantial resources such as Hughes Electronics Corp., AT&T Corp., News Corporation and MCI. Both C-Band and Ku-Band DBS delivery of television signals are competitive alternatives to cable television.
Other technologies supply services that may compete with certain services provided by cable television. These technologies include translator stations (which rebroadcast signals at different frequencies at lower power to improve reception) and low-power television stations (which operate on a single channel at power levels substantially below those of most conventional broadcasters and, therefore, reach a smaller service area).
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The full extent to which developing media will compete with cable television systems may not be known for several years. There can be no assurance that existing, proposed or as yet undeveloped technologies will not become dominant in the future and render cable television systems less profitable or even obsolete.
Although substantially all the Company's cable television franchises are non-exclusive, most franchising authorities have granted only one franchise in an area. Other cable television operators could receive franchises for areas in which the Company operates or a municipality could build a competing cable system. SNET, the dominant telephone company in Connecticut has obtained a statewide franchise to build and operate a competing cable television system in the communities in Connecticut in which the Company currently holds a cable franchise. Ameritech has applied for franchises to offer cable service in certain of the Company's franchise areas in the Midwest. The 1992 Cable Act described below prohibits municipalities from unreasonably refusing to grant competitive franchises and facilitates the franchising of second cable systems or municipally-owned cable systems. See "Regulation - 1992 Cable Act," below.
Regulation.
1984 Cable Act. The 1984 Cable Act set uniform national guidelines for cable regulation under the Communications Act of 1934. While several of the provisions of the 1984 Cable Act have been amended or superseded by the 1992 Cable Act and/or the 1996 Telecom Act, each described below, other provisions of the 1984 Act, including the principal provisions relating to the franchising of cable television systems, remain in place. The 1984 Cable Act authorizes states or localities to franchise cable television systems but sets limits on their franchising powers. It sets a ceiling on cable franchise fees of 5% of gross revenues and prohibits localities from requiring cable operators to carry specific programming services. The 1984 Cable Act protects cable operators seeking franchise renewals by limiting the factors a locality may consider and requiring a due process hearing before denial. The 1984 Cable Act does not, however, prevent another cable operator from being authorized to build a competing system. The 1992 Cable Act prohibits franchising authorities from granting exclusive cable franchises and from unreasonably refusing to award an additional competitive franchise.
The 1984 Cable Act allows localities to require free access to public, educational or governmental channels, but sets limits on the number of commercial leased access channels cable television operators must make available for potentially competitive services. The 1984 Cable Act prohibits obscene programming and requires the sale or lease of devices to block programming considered offensive.
1992 Cable Act. The 1992 Cable Act represented a significant change in the regulatory framework under which cable television systems operate.
After the effective date of the 1984 Cable Act, and prior to the enactment of the 1992 Cable Act, rates for cable services were unregulated for substantially all of the Company's systems. The 1992 Cable Act reintroduced rate regulation for certain services and equipment provided by most cable systems in the United States, including substantially all of the Company's systems. While several
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of the provisions of the 1992 Cable Act have been amended or superseded by the 1996 Telecom Act, other provisions remain in place.
The 1992 Cable Act requires each cable system to establish a basic service package consisting, at a minimum, of all local broadcast signals and all non-satellite delivered distant broadcast signals that the cable system wishes to carry, and all public, educational and governmental access programming. The rates for the basic service package are subject to regulation by local franchising authorities. Under the FCC's 1993 rate regulation rules, a cable operator whose per channel rates as of September 30, 1992 exceeded an FCC established benchmark was required to reduce its per channel rates for the basic service package by up to 10% unless it could justify higher rates on the basis of its costs. In 1994, after reconsideration, the FCC ordered a further reduction of 7% in rates for the basic service tier in effect on September 30, 1992, for an overall reduction of 17% from those rates. Franchise authorities (local municipalities or state cable television regulators) are also empowered to regulate the rates charged for the installation and lease of the equipment used by subscribers to receive the basic service package (including a converter box, a remote control unit and, if requested by a subscriber, an addressable converter box or other equipment required to access programming offered on a per channel or per program basis), including equipment that may also be used to receive other packages of programming, and the installation and monthly use of connections for additional television sets. The FCC's rules require franchise authorities to regulate rates for equipment and connections for additional television sets on the basis of an actual cost formula developed by the FCC, plus a return of 11.25%. No additional charge is permitted for the delivery of regulated services to additional sets unless the operator incurs additional programming costs in connection with the delivery of such services to multiple sets.
The FCC may, in response to complaints by a subscriber, municipality or other governmental entity, reduce the rates for service packages other than the basic service package if it finds that such rates are unreasonable. The FCC will in response to complaints also regulate, on the basis of actual cost, the rates for equipment used only to receive these higher packages. Services offered on a per channel or per program basis or packages comprised only of services that are also available on a per channel or per program basis are not subject to rate regulation by either municipalities or the FCC.
The FCC's rules provide that, unless a cable operator can justify higher rates on the basis of its costs, increases in the rates charged by the operator for the basic service package or any other regulated package of service may not exceed an inflation indexed amount, plus increases in certain costs beyond the cable operator's control, such as taxes, franchise fees and increased programming costs that exceed the inflation index. Increases in fees paid to broadcast stations for the retransmission of their signals above those in effect on October 6, 1994 may be passed through to subscribers.
In 1994 the FCC also adopted guidelines for cost-of-service showings that establish a regulatory framework pursuant to which a cable television operator may attempt to justify rates in excess of the benchmarks. Such justification would be based upon (i) the operator's costs in operating a cable television system (including certain operating expenses, depreciation and taxes) and (ii) a return on the investment the operator has made to provide regulated cable television services in such system (such investment being referred to as its "ratebase", which includes working capital and certain
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costs associated with the construction of such system). The guidelines (1) create a rebuttable presumption that excludes from a cable television operator's ratebase any "excess acquisition costs" (equal to the excess of the purchase price for a cable television system over the original construction cost of such system, or its book value at the time of acquisition), (2) include in the rate base the costs associated with certain intangibles such as franchise rights and customer lists, and (3) set a uniform rate of return for regulated cable television service of 11.25% after taxes.
In 1994 the FCC also reversed its prior policy regarding rate regulation of packages of a la carte services. A la carte services that are offered in a package are now subject to rate regulation by the FCC. In light of the uncertainty created by the various criteria that the FCC previously applied to a la carte packages, the FCC, in those cases in which it was not clear how the FCC's previous criteria should have been applied to the package at issue, and where only a "small number" of channels were moved from a previously regulated tier to the package, allowed cable operators to treat existing packages as new product tiers ("NPT") as discussed below.
The FCC, in addition to revising its rules governing a la carte channels, also revised its regulations governing the manner in which cable operators may charge subscribers for new cable programming services. The FCC instituted a three-year flat fee mark-up plan for charges relating to new channels of cable programming services in addition to the present formula for calculating the permissible rate for new services. Commencing on January 1, 1995, operators could charge for new channels of cable programming services added after May 14, 1994 at a markup of up to 20 cents per channel over actual programming costs, but may not make adjustments to monthly rates for these new services totaling more than $1.20, plus an additional 30 cents solely for programming license fees, per subscriber over the first two years of the three-year period. Cable operators could charge an additional 20 cents in the third year, 1997, only for channels added in that year. Cable operators electing to use the 20 cent per channel adjustment may not take a 7.5% mark-up on programming cost increases, which was permitted under the FCC's prior rate regulations. The FCC requested further comment on whether cable operators should continue to receive the 7.5% mark-up on increases in license fees on existing programming services.
Additionally, the FCC permitted cable operators to offer NPTs at rates that they elect so long as, among other conditions, other service tiers that are subject to rate regulation are priced in conformity with applicable FCC regulations and cable operators do not remove programming services from existing service tiers and offer them on the NPT.
Under the 1992 Cable Act, systems may not require subscribers to purchase any service package other than the basic service package as a condition of access to video programming offered on a per channel or per program basis. Cable systems are allowed up to ten years to the extent necessary to implement the necessary technology to facilitate this access. Substantially all of the Company's systems are currently capable of implementing the technology mandated by the 1992 Cable Act.
In addition, the 1992 Cable Act (i) requires cable programmers under certain circumstances to offer their programming to present and future competitors of cable television such as MMDS, SMATV and DBS, and prohibits new exclusive contracts with program suppliers without FCC approval, (ii) directs the FCC to set standards for limiting the number of channels that a cable television system
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operator could program with programming services controlled by such operator, (iii) bars municipalities from unreasonably refusing to grant additional competitive franchises, (iv) requires cable television operators to carry ("Must Carry") all local broadcast stations (including home shopping broadcast stations), or, at the option of a local broadcaster, to obtain the broadcaster's prior consent for retransmission of its signal ("Retransmission Consent"), (v) requires cable television operators to obtain the consent of any non-local broadcast station prior to retransmitting its signal, and (vi) regulates the ownership by cable operators of other media such as MMDS and SMATV. In connection with clause (ii) above concerning limitations on affiliated programming, the FCC has established a 40% limit on the number of channels of a cable television system that can be occupied by programming services in which the system operator has an attributable interest and a national limit of 30% on the number of households that any cable company can serve. In connection with clause (iv) above concerning retransmission of a local broadcaster's signals, a substantial number of local broadcast stations are currently carried by the Company's cable television systems and have elected to negotiate with the Company for Retransmission Consent. The Company has obtained Retransmission Consent agreements with most broadcast stations it currently carries, but a number of these agreements are temporary in nature and the potential remains for discontinuation of carriage if an agreement is not renewed following their expiration. The Company has had to drop a few local stations because of failure to reach retransmission consent agreements.
The FCC has imposed new regulations under the 1992 Cable Act in the areas of customer service, technical standards, equal employment opportunity, privacy, rates for leased access channels, obscenity and indecency, disposition of a customer's home wiring and compatibility between cable systems and other consumer electronic equipment such as "cable ready" television sets and videocassette recorders.
A number of lawsuits have been filed in federal court challenging the constitutionality of various provisions of the 1992 Cable Act. A challenge to the constitutionality of the 1992 Cable Act's Must Carry rules was denied by a federal court in April 1993. On appeal, the United States Supreme Court returned this decision to the lower court for further proceedings. The lower court again upheld the Must Carry rules, but this decision is on appeal to the Supreme Court. Most other challenged provisions of the 1992 Cable Act have been upheld at the federal district court and federal Court of Appeals level, including provisions governing rate regulation and retransmission consent, and appeal of the rate regulation decision was unsuccessful. The Company cannot predict the outcome of any of the foregoing litigation affecting the 1992 Cable Act.
1996 Telecom Act. The 1996 Telecom Act deregulates the rates for non-basic tiers of service provided by all cable operators after March 31, 1999 and immediately deregulates the upper tier rates of entities that operate small cable systems as defined under the statute. It permits regulated equipment rates to be computed by aggregating costs of broad categories of equipment at the franchise, system, regional or company level. The 1996 Telecom act eliminates the right of individual subscribers to file rate complaints with the FCC concerning certain nonbasic cable programming service tiers, and requires such complaints to be filed by municipalities.
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The 1992 Cable Act provided that all rate regulation, for both the upper tiers and for basic service, is eliminated when a cable system is subject to "effective competition" from another multichannel video programming provider such as MMDS, DBS, a telephone company, or a combination of all of these. The 1996 Telecom Act expanded the definition of "effective competition" to include instances in which a local telephone company or its affiliate (or a multichannel video programming distributor using the facilities of a telephone company or its affiliates) offers comparable video programming directly to subscribers by any means (other than DBS) in the cable operator's franchise area. Since telephone companies are providing or planning to provide video services in several of the Company's franchise areas, this provision will allow the Company greater flexibility in packaging and pricing its product in those markets.
The 1996 Telecom Act also eliminates the uniform rate structure requirements of the 1992 Cable Act for cable operators in areas subject to effective competition or to video programming offered on a per channel or per program basis, and allows non-uniform bulk discount rates to be offered to multiple dwelling units.
Other FCC Regulation. In addition to the rules and regulations promulgated by the FCC under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act, the FCC has promulgated other rules affecting the Company. FCC rules require that cable systems black out certain network and sports programming on imported distant broadcast signals upon request. The FCC also requires that cable systems delete syndicated programming carried on distant signals upon the request of any local station holding the exclusive right to broadcast the same program within the local television market and, in certain cases, upon the request of the copyright owner of such programs. These rules affect the diversity and cost of the Company's programming options for its cable systems.
FCC regulation also includes matters regarding restrictions on origination and cablecasting by cable system operators; application of the rules governing political broadcasts; customer service; home wiring and limitations on advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC has adopted requirements for payment of annual "regulatory fees" which may be passed on to subscribers as "external cost" adjustments to basic cable service. Fees are also assessed for other licenses, including licenses for business radio, cable television relay systems (CARS) and earth stations, which, however, may not be collected directly from subscribers.
The FCC has the authority to regulate utility company rates for cable rental of pole and conduit space. States can establish preemptive regulations in this area, and the states in which the Company's cable television systems operate have done so. The 1996 Telecom Act modifies the pole attachment provisions of the Communications Act by requiring that utilities provide cable systems and telecommunications carriers with nondiscriminatory access to any pole, conduit or right-of-way controlled by the utility. The FCC is required to adopt new regulations to govern the charges for pole attachments used by companies providing telecommunications services, including cable operators. These regulations are likely to increase the rates charged to cable companies providing voice and data, in addition to video services. These new pole attachment regulations will not become effective, however, until five years after enactment of the 1996 Telecom Act, and any
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subsequent increase in attachment rates resulting from the FCC's new regulations will be phased in equal annual increments over a period of five years.
The FCC's technical guidelines for signal leakage became substantially more stringent in 1990, requiring upgrading expenditures by the Company. Two-way radio stations, microwave-relay stations and satellite earth stations used by the Company's cable television systems are licensed by the FCC.
Federal Copyright Regulation. There are no restrictions on the number of distant broadcast television signals that cable television systems can import, but cable systems are required to pay copyright royalty fees to receive a compulsory license to carry them. The United States Copyright Office has increased the royalty fee from time to time. The FCC has recommended to Congress the abolition of the compulsory licenses for cable television carriage of broadcast signals. Any such action by Congress could adversely affect the Company's ability to obtain such programming and could increase the cost of such programming.
Cable Television Cross-Media Ownership Limitations. In addition to the prohibition on telephone company-cable cross-ownership, now removed by the 1996 Telecom Act, the 1984 Cable Act prohibited any person or entity from owning broadcast television and cable properties in the same market. The 1992 Cable Act imposed limits on new acquisitions of SMATV or MMDS systems by cable operators in their franchise areas. The 1996 Telecom Act repeals the statutory ban on cable-broadcast station cross-ownership to permit common ownership or control of a television station and a cable system with overlapping service areas. The 1996 Telecom Act leaves in place, however, the cable system-television station cross-ownership restriction contained in the FCC's rules and does not prejudge the Commission's review of the regulation. The 1996 Telecom Act also directed the FCC to revise its existing regulations concerning broadcast network-cable cross-ownership to permit common control of both a television network and a cable system, which the FCC has done. The 1996 Telecom Act removes the statutory ban on cable-MMDS cross-ownership on any cable operator in a franchise area where one cable operator is subject to effective competition.
State and Municipal Regulation of Cable Television. Regulatory responsibility for essentially local aspects of the cable business such as franchisee selection, system design and construction, safety, and consumer services remains with either state or local officials and, in some jurisdictions, with both. The 1992 Cable Act expanded the factors that a franchising authority can consider in deciding whether to renew a franchise and limits the damages for certain constitutional claims against franchising authorities for their franchising activities. New York law provides for comprehensive state-wide regulation, including approval of transfers of cable franchises and consumer protection legislation. State and local franchising jurisdiction is not unlimited, however, and must be exercised consistently with the provisions of the 1984 Cable Act and the 1992 Cable Act. Among the more significant restrictions that the 1984 Cable Act imposes on the regulatory jurisdiction of local franchising authorities is a 5% ceiling on franchise fees and mandatory renegotiation of certain franchise requirements if warranted by changed circumstances.
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Telecommunications Regulation. The 1996 Telecom Act removes barriers to entry in the local telephone market that is now monopolized by the BOCs and other local exchange carriers by preempting state and local laws that restrict competition and by requiring incumbent local exchange telephone companies to provide nondiscriminatory access and interconnection to potential competitors, such as cable operators and long distance companies. At the same time, the new law eliminates the Modified Final Judgment and permits the BOCs to enter the market for long distance service (through a separate subsidiary) after they satisfy a "competitive checklist." The 1996 Telecom Act also permits interstate utility companies to enter the telecommunications market for the first time.
The 1996 Telecom Act also eliminates or streamlines many of the requirements applicable to local exchange carriers, and requires the FCC and states to review universal service programs and encourage access to advanced telecommunications services provided by all entities, including cable companies, by schools, libraries and other public institutions. The FCC and, in some cases, states are required to conduct numerous rulemaking proceedings to implement these provisions.
Consolidated Cable Affiliates
Cablevision of New York City. In July 1992, the Company acquired (the "CNYC Acquisition") substantially all of the remaining interests in Cablevision of New York City - Phase I through Phase V ("CNYC"), the operator of a cable television system that was under development in The Bronx and parts of Brooklyn, New York. Prior to the CNYC Acquisition, the Company had a 15% interest in CNYC and Mr. Dolan owned the remaining interests. Mr. Dolan remains a partner in CNYC, with a 1% interest and the right to certain preferential payments. CNYC holds franchises that permit construction of the franchised areas in specified phases. Construction of the systems in the Brooklyn and The Bronx franchises has been substantially completed.
Under the agreement between the Company and Mr. Dolan, a new limited partnership ("CNYC LP") was formed and holds 99% of the partnership interests in CNYC. The remaining 1% interest in CNYC is owned by the existing corporate general partner, Cablevision Systems New York City Corporation, which is a wholly-owned subsidiary of the Company. Subsidiaries of the Company own a 1% general partnership interest and a 98% limited partnership interest in CNYC LP and Mr. Dolan retains a 1% limited partnership interest in CNYC LP plus certain preferential rights. Mr. Dolan's preferential rights entitle him to an annual cash payment (the "Annual Payment") of 14% multiplied by the outstanding balance of his "Minimum Payment". The Minimum Payment is $40.0 million and is to be paid to Mr. Dolan prior to any distributions from CNYC LP to partners other than Mr. Dolan. In addition, Mr. Dolan has the right, exercisable on December 31, 1997, and as of the earlier of (1) December 31, 2000 and (2) December 31 of the first year after 1997 during which CNYC achieves an aggregate of 400,000 subscribers, to require the Company to purchase (Mr. Dolan's "put") his interest in CNYC LP. The Company has the right to require Mr. Dolan to sell his interest in CNYC LP to the Company (the Company's "call") during the three-year period commencing one year after the expiration of Mr. Dolan's second put. In the event of a put, Mr. Dolan will be entitled to receive from the Company the Minimum Payment, any accrued but unpaid Annual Payments, a guaranteed return on certain of his investments in CNYC LP and a Preferred Payment defined as a payment (not exceeding $150.0 million) equal to 40% of the
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Appraised Equity Value (as defined) of CNYC LP after making certain deductions including a deduction of a 25% compound annual return on approximately 85% of the Company's investments with respect to the construction of Phases III, IV and V of CNYC and 100% of certain of the Company's other investments in CNYC, including Mr. Dolan's Annual Payment. In the event the Company exercises its call, the purchase price will be computed on the same basis as for a put except that there will be no payment in respect of the Appraised Equity Value amount.
The Company has the right to make payment of the put or call exercise price in the form of shares of the Company's Class B Common Stock or, if Mr. Dolan so elects, Class A Common Stock, except that all Annual Payments must be paid in cash to the extent permitted under the Company's Credit Agreement (as defined below). Under the Credit Agreement, the Company is currently prohibited from paying the Preferred Payment in cash and, accordingly, without the consent of the bank lenders, would be required to pay it in shares of the Company's Common Stock.
The Company has agreed to invest in CNYC LP sufficient funds to permit CNYC LP to make the required Annual Payments to Mr. Dolan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Restricted Group."
Cablevision of Boston. On December 15, 1995, the Company acquired the interests in Cablevision of Boston that it did not previously own pursuant to an agreement entered into by the Company and Cablevision of Boston. In connection with the acquisition, the limited partners (other than the Company) of Cablevision of Boston received 682,454 shares (of which 680,266 shares were issued by December 31, 1995) of the Company's Class A Common Stock and the Company paid approximately $83 million, (including fees and expenses) primarily with funds borrowed under the Company's Credit Agreement, to repay existing Cablevision of Boston indebtedness and to make certain payments to Charles F. Dolan, ("Mr. Dolan") referred to below. Upon consummation of the acquisition, Cablevision of Boston became a member of the Restricted Group and all outstanding subordinated advances made by the Company to Cablevision of Boston became intercompany indebtedness. Mr. Dolan, a former general partner of Cablevision of Boston and the Chairman of the Board of the Company, received 7,357 shares of the Company's Class A Common Stock and approximately $20.8 million in cash to repay a portion of Cablevision of Boston's indebtedness to him in connection with the acquisition. The Company and its affiliates (other than Cablevision of Boston's former general partners and their affiliates) received 1,041,553 shares of the Company's Class A Common Stock (such shares are reflected as treasury shares at December 31, 1995) and assumed approximately $42.9 million of intercompany indebtedness referred to above. As part of the acquisition of Cablevision of Boston, the Company entered into an agreement with Mr. Dolan with respect to his 0.5% general partnership interest in Cablevision of Brookline Limited Partnership ("Cablevision of Brookline"), a partnership affiliated with Cablevision of Boston. The Company acquired the remaining 99.5% of the partnership interests in Cablevision of Brookline in the acquisition of Cablevision of Boston. Under the agreement, the Company has a right of first refusal to acquire Mr. Dolan's general partnership interest and a right to acquire such interest on the earlier to occur of Mr. Dolan's death or January 1, 2002 at the greater of $10,000 or the book value of such interest. Mr. Dolan's estate has the right to put the interest to the Company at the same price. Additionally, in the event of a change of control of the Company or Cablevision of Brookline, Mr. Dolan will have the right to put his general partnership interest in
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Cablevision of Brookline to the Company at the greater of (i) prices declining from $3.9 million for the year ended December 15, 1996 to $10,000 for the year ended December 15, 2002 and (ii) the book value of such interest.
Cablevision MFR. In August 1994, Cablevision MFR, Inc. ("Cablevision MFR"), a wholly-owned subsidiary of the Company, acquired substantially all of the assets of Monmouth Cablevision Associates, L.P. ("Monmouth Cablevision") and Riverview Cablevision Associates, L.P. ("Riverview Cablevision") (collectively, "Monmouth/Riverview") consisting of cable television systems in New Jersey. The operations of Monmouth Cablevision and Riverview Cablevision are consolidated with those of the Company as of the date of acquisition. The aggregate purchase price for the two New Jersey systems was $391.2 million. Approximately $237.8 million of such purchase price was financed by a senior credit facility of newly formed subsidiaries of Cablevision MFR secured solely by the assets of the systems. The remaining $153.4 million of such purchase price was paid with cash of approximately $12.1 million and the issuance, by Cablevision MFR, of subordinated promissory notes (the "MFR Notes") totalling $141.3 million due in 1998 and bearing interest at 6% until the third anniversary and 8% thereafter increasing to 8% and 10%, respectively, if the Company exercises its option to pay interest in shares of the Company's Class A common stock.
Principal and interest on the Cablevision MFR promissory notes, which may be paid in cash or, under certain circumstances at the Company's option, in shares of the Company's Class A common stock, are guaranteed by the Company. The Company's obligations under the guarantees rank pari passu with the Company's public subordinated debt. In certain circumstances, Cablevision MFR may extend the maturity date of the promissory notes until 2003 for certain additional consideration. In the event the maturity is so extended, the interest and principal of such notes may thereafter be paid only in cash.
V Cable, Inc. In February 1996, the Company entered into an agreement with General Electric Capital Corporation ("GECC") pursuant to which the Company effected a reorganization and recapitalization of V Cable whereby all existing indebtedness of V Cable was repaid and V Cable's Cleveland area cable operations became part of Cablevision of Ohio and its remaining cable operations in the New York area became part of the Company's Restricted Group. V Cable's debt was repaid with $500 million from the Company's issuance of its 11 1/8% Series M Preferred Stock and borrowings under the Company's Credit Agreement.
Cablevision of Ohio. In March and April, 1996, Cablevision of Ohio was formed to hold the Company's interests in cable television systems in the Cleveland, Ohio metropolitan area. Cablevision of Ohio is comprised of Telerama Inc., (formerly a subsidiary of V Cable, Inc.), Cablevision of the Midwest, Inc. and Cablevision of Cleveland, L.P. For a description of the financing of Cablevision of Ohio, see Item 7. - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Cablevision of Ohio."
U.S. Cable. In March and August, 1996, U.S. Cable was refinanced and the Company purchased the partnership interests therein that it did not already own, with the result that U.S. Cable is now a
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wholly-owned and separately financed subsidiary of the Company. For a description of the financing of U.S. Cable, see Item 7. - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - U.S. Cable."
Other Cable Affiliates
A-R Cable. A-R Cable comprises a group of cable television systems in which the Company holds a minority equity interest and Warburg holds the remaining equity interest. The Company expects to purchase the Warburg interests in July, 1997. For a description of the proposed transaction, see "Recent Developments."
A-R Cable Partners. In June 1994, A-R Cable Partners, a partnership comprised of subsidiaries of the Company and Warburg completed the purchase of certain assets of Nashoba Communications, a group of three limited partnerships, for a purchase price of approximately $90.5 million. The Company provided $11.9 million for its 30% interest in A-R Cable Partners and $1.5 million in loans. The Company manages the operations of A-R Cable Partners pursuant to a management agreement which provides for a fee equal to 3-1/2% of gross receipts, as defined, plus reimbursement of certain costs and an allocation of certain selling, general and administrative expenses. The Company expects to complete the purchase of Warburg's interests in A-R Cable Partners in July, 1997. See "Recent Developments."
Cablevision of Framingham. In August 1994, Cablevision of Framingham Holdings, Inc. ("CFHI"), a corporation 30% owned by the Company and 70% owned by Warburg, acquired substantially all of the assets of Framingham Cablevision Associates, L.P. ("Framingham Cablevision") consisting of cable television systems in Massachusetts. The aggregate purchase price, including fees and expenses, for Framingham Cablevision's assets was $37.5 million. Approximately $9.7 million of such purchase price was paid by the issuance by CFHI of a promissory note, guaranteed by the Company, (the "CFHI Note") due in 1998 and bearing interest at 6% until the third anniversary and 8% thereafter (increasing to 8% and 10%, respectively, if interest is paid in shares of the Company's Class A Common Stock). The Company manages the operations of CFHI pursuant to a management agreement which provides for a fee equal to 3-1/2% of gross receipts, as defined, plus reimbursement of certain costs and an allocation of certain selling, general and administrative expenses. The Company intends to complete the purchase of Warburg's interests in CFHI in July, 1997. See "Recent Developments."
Programming Operations
General.
The Company conducts its programming activities through Rainbow Media and through subsidiaries of Rainbow Media in partnership with certain unaffiliated entities, including Liberty Media Corporation. Rainbow Media's businesses include eight regional SportsChannel services, four national
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entertainment services (AMCC, Bravo Network ("Bravo") Much Music ("MM") and the Independent Film Channel ("IFC")), Rainbow News 12 (regional news services serving the suburban areas surrounding New York City), and the national sports services of Prime SportsChannel Networks (Prime Network and NewSport). Rainbow Media also owns a 50% interest in MSG. See "The Company - Recent Developments".
Rainbow Media acts as managing partner for each of these programming businesses, other than MSG (which is managed jointly with ITT) and SportsChannel Florida Associates (which is managed by Front Row Communications, Inc.), and has reflected its share of the profits or losses in these businesses using the equity method of accounting except for AMCC, SportsChannel New York and News12 Long Island, Connecticut, and Westchester, whose operations were consolidated with those of the Company. Certain of Rainbow Media's programming interests are held through Rainbow Program Enterprises ("RPE"), which is substantially wholly owned by Rainbow Media. Effective with the closing of the NBC Transaction, all majority owned companies will be consolidated with the Company. See "Recent Developments".
The following table sets forth subscriber information as of December 31, 1996 and ownership information as of April 1, 1997 for each of the Company's programming businesses:
(1) Front Row has the option to acquire an additional 20% from the Company.
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In March 1995, MSG Holdings, L.P. ("MSG Holdings"), a partnership among subsidiaries of Rainbow Programming and subsidiaries of ITT acquired the business and assets of MSG in a transaction in which MSG merged with and into MSG Holdings. MSG owns the Madison Square Garden Arena and the adjoining Paramount Theater, the New York Rangers professional hockey team, the New York Knicks professional basketball team and the Madison Square Garden Network, a sports programming network with over five million subscribers. The purchase price paid by MSG Holdings for MSG was $1,009.1 million. The name of MSG Holdings has been changed to Madison Square Garden, L.P.
MSG Holdings funded the purchase price of the acquisition through (i) borrowings of $289.1 million under a $450 million credit agreement among MSG Holdings, various lending institutions and Chemical Bank as administrative agent, (ii) an equity contribution from Rainbow Programming of $110 million, and (iii) an equity contribution from ITT of $610 million. ITT, Rainbow Programming and the Company are parties to an agreement made as of August 15, 1994 as amended, (the "Bid Agreement") that, as amended, provided Rainbow Programming the right to acquire interests in MSG Holdings from ITT sufficient to equalize the interests of ITT and Rainbow Programming in MSG Holdings by making certain scheduled payments totalling $250 million (plus interest on any unpaid portion thereof) on specified dates up to and including March 17, 1997. As of February 18, 1997, the Company has made all such scheduled payments and has equalized the interests of ITT and Rainbow Programming in MSG Holdings from funds available from the Company's Restricted Group principal bank credit agreement. In addition, the Company, through Rainbow Programming, funded the periodic interest payments, aggregating approximately $47.7 million, on unpaid portions of the $250 million amount that was required to equalize the interests of ITT and Rainbow Programming in MSG Holdings. These payments were also made from funds available under the Company's Restricted Group principal bank credit agreement. MSG Holdings is managed on a 50-50 basis by Rainbow Programming and ITT.
In connection with obtaining the consent of the National Hockey League (the "NHL") and the National Basketball Association ("NBA") to the indirect transfers of the New York Rangers and the New York Knickerbockers, respectively, resulting from the merger, the Company and Rainbow Programming entered into agreements with the NHL and the NBA, agreeing, among other things, to conduct themselves in accordance with the relevant rules of each league.
As described under "Recent Developments," subsidiaries of Rainbow Programming have entered into an agreement in principle with ITT to acquire a majority state in the equity of MSG Holdings.
On April 1, 1997, Rainbow Media consummated the NBC Transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC received a 25% equity interest (which interest may be increased up to 27% under certain circumstances) in non-voting Class C common stock of Rainbow Media. The Company owns the remaining 75% equity interest in Rainbow Media. The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC are now owned by subsidiaries of Rainbow Media.
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In July 1995 Rainbow Media consummated the purchase of NBC's interests in SportsChannel New York and Rainbow News 12 Company for approximately $95.5 million, giving Rainbow Media a 100% interest in SportsChannel New York and Rainbow News 12 Company. The purchase was financed by an additional drawdown of $94 million under Rainbow Media's $202 million amended and restated credit facility and by a $2.5 million equity contribution from the Company for the balance of the purchase price and related fees.
In July 1994, the proceeds of the initial $105 million loan under the original Rainbow Media facility plus $76 million of equity from the Company were used to purchase Liberty Media Corporation's 50% interest in AMCC giving Rainbow Media a 75% ownership interest in AMCC.
Rainbow Media's financing needs have been funded by the Restricted Group's investments in and advances to Rainbow Media, by sales of equity interests in the programming businesses and, through separate, external debt financing. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources".
Competition.
There are numerous programming services with which Rainbow Media competes for cable television system distribution and for subscribers, including network television, other national and regional cable services, independent broadcast television stations, television superstations, the home videocassette industry, and developing pay-per-view services. Rainbow Media and the other programming services are competing for limited channel capacity and for inclusion in the basic service tier of the systems offering their programming services. Many of these program distributors are large, publicly-held companies which have greater financial resources than Rainbow Media.
Rainbow Media also competes for the availability of programming, through competition for telecast rights to films and competition for rights agreements with sports teams. The Company anticipates that such competition will increase as the number of programming distributors increases.
In general, the programming services offered by Rainbow Media compete with other forms of television-related services and entertainment media on the basis of the price of services, the variety and quality of programming offered and the effectiveness of Rainbow Media's marketing efforts.
Regulation.
Cable television program distributors such as Rainbow Media are not regulated by the FCC under the Communications Act of 1934. To the extent that regulations and laws, either presently in force or proposed, hinder or stimulate the growth of the cable television and satellite industries, the business of Rainbow Media will be directly affected. As discussed above under "Business - Cable Television Operations Regulation", the 1992 Cable Act limits in certain ways the
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Company's ability to freely manage the Rainbow Media services or carry the Rainbow Media services on their affiliates' systems and imposes or could impose other regulations on the Rainbow Media companies. The "program access" provisions of the 1992 Cable Act require that Rainbow Media services be sold, under certain circumstances, to multichannel video programming providers that compete with the Company's local cable systems. The 1996 Telecom Act extends the program access requirements of the 1992 Cable Act to a telephone company that provides video programming by any means directly to subscribers, and to programming in which such a company holds an attributable ownership interest, thus allowing the Company's cable systems similar access to programming developed by their telephone company competitors.
The 1984 Cable Act prohibits localities from requiring carriage of specific programming services, providing a more open market for Rainbow Media and other cable program distributors. The 1984 Cable Act limits the number of commercial leased access channels that a cable television operator must make available for potentially competitive services but the 1992 Cable Act empowers the FCC to set the rates and conditions for such leased access channels. The reimposition of the FCC's rules requiring blackout of syndicated programming on distant broadcast signals for which a local broadcasting station has an exclusive contract opened new channels for Rainbow Media's services.
Satellite common carriers, from whom Rainbow Media and its affiliates obtain transponder channel time to distribute their programming, are directly regulated by the FCC. All common carriers must obtain from the FCC a certificate for the construction and operation of their interstate communications facilities. Satellite common carriers must also obtain FCC authorization to utilize satellite orbital slots assigned to the United States by the World Administrative Radio Conference. Such slots are finite in number, thus limiting the number of carriers that can provide satellite service and the number of channels available for program producers and distributors such as Rainbow Media and its affiliates. Nevertheless, there are at present numerous competing satellite services that provide transponders for video services to the cable industry.
All common carriers must offer their communications service to Rainbow Media and others on a nondiscriminatory basis (including by means of a lottery). A satellite carrier cannot unreasonably discriminate against any customer in its charges or conditions of carriage.
Advertising Services
Rainbow Advertising sells advertising time to national, regional and local advertisers on behalf of the Company's cable television systems and SportsChannel and Rainbow News 12 programming services, as well as on behalf of unaffiliated cable television systems.
Other Affiliates
Atlantic Publishing. Atlantic Cable Television Publishing Corporation ("Atlantic Publishing") holds a minority equity interest and a debt interest in a company that publishes a weekly cable television guide which is offered to the Company's subscribers and to other unaffiliated cable
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television operators. As of December 31, 1996, the Company had advanced an aggregate of approximately $16.6 million to Atlantic Publishing, reflecting approximately $0.1 million, $1.0 million and $0.6 million, net, paid back during 1996, 1995 and 1994, respectively. The Company has written off all of its advances to Atlantic Publishing other than $2.4 million. Atlantic Publishing is owned by a trust for certain Dolan family members; however, the Company has the option to purchase Atlantic Publishing for an amount equal to the owner's net investment therein plus interest. The current owner has made only a nominal investment in Atlantic Publishing to date.
Radio Station WKNR. The Company is the owner of Cleveland Radio Associates ("WKNR"), an AM radio station serving the Cleveland metropolitan area with an all-sports format.
Employees and Labor Relations
As of December 31, 1996, the Company had 5,928 full-time, 704 part-time and 486 temporary employees. There are no collective bargaining agreements with employees of the Company. The Company believes that its relations with its employees are satisfactory.
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Item 2.
Item 2. Properties
The Company generally leases the real estate where its business offices, microwave receiving antennae, earth stations, transponders, microwave towers, warehouses, headend equipment, hub sites, program production studios and access studios are located. Significant leasehold properties include fourteen business offices, comprising the Company's headquarters located in Woodbury, New York with approximately 329,000 square feet of space, and the headend sites. The Company believes its properties are adequate for its use.
The Company generally owns all assets (other than real property) related to its cable television operations, including its program production equipment, headend equipment (towers, antennae, electronic equipment and satellite earth stations), cable system plant (distribution equipment, amplifiers, subscriber drops and hardware), converters, test equipment, tools and maintenance equipment. Similarly, the unconsolidated entities managed by the Company generally own such assets related to their cable television operations. The Company generally leases its service and other vehicles.
Substantially all of the assets of Cablevision of Ohio, U.S. Cable, Rainbow Media and AMCC are pledged to secure borrowings under their respective credit agreements.
Item 3.
Item 3. Legal Proceedings
The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that such lawsuits will have a material adverse impact on the financial position of the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The Company's Class A Common Stock, par value $.01 per share ("Class A Common Stock"), is traded on the American Stock Exchange under the symbol "CVC". The following table sets forth the high and low sales prices for the last two years of Class A Common Stock as reported by the American Stock Exchange for the periods indicated.
1996 1995 -------------------- --------------------- Quarter High Low High Low ------- ---- --- ---- --- First 60-3/8 52-3/4 58-3/4 48-7/8 Second 58 44 63-3/4 52-1/4 Third 46-1/4 38-7/8 69-3/4 58 Fourth 43-3/8 25 61 49-3/4
As of March 18, 1997, there were 883 holders of record of Class A Common Stock.
There is no public trading market for the Company's Class B Common Stock, par value $.01 per share ("Class B Common Stock"). As of March 18, 1997, there were 23 holders of record of Class B Common Stock.
Dividends. The Company has not paid any dividends on shares of Class A or Class B Common Stock. The Company intends to retain earnings to fund the growth of its business and does not anticipate paying any cash dividends on shares of Class A or Class B Common Stock in the foreseeable future.
The Company may pay cash dividends on its capital stock only from surplus as determined under Delaware law. Holders of Class A and Class B Common Stock are entitled to receive dividends equally on a per share basis if and when such dividends are declared by the Board of Directors of the Company from funds legally available therefor. No dividend may be declared or paid in cash or property on shares of either Class A or Class B Common Stock unless the same dividend is paid simultaneously on each share of the other class of common stock. In the case of any stock dividend, holders of Class A Common Stock are entitled to receive the same percentage dividend (payable in shares of Class A Common Stock) as the holders of Class B Common Stock receive (payable in shares of Class B Common Stock). The Company paid $29.3 million of cash dividends on the Series I Preferred Stock and $97.5 million of dividends in additional shares of Series H and M Preferred Stock. The Company is restricted from paying dividends on its preferred stock (other than on the Company's 8% Series C Cumulative Preferred Stock) under the provisions of its senior credit agreement if a default has occurred and is continuing under such agreement. Additionally, the Company's senior subordinated debt instruments may restrict the payment of dividends in respect of any shares of capital stock in certain circumstances.
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Dividends may not be paid in respect of shares of Class A or Class B Common Stock unless all dividends due and payable in respect of the preferred stock of the Company have been paid or provided for. Further, dividends may not be paid in respect of shares of Class A or Class B Common Stock under the Company's senior credit agreement. See Item 7.-"Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources-Restricted Group."
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Item 6.
Item 6. Selected Financial Data
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected financial data have been derived from the consolidated financial statements of the Company. Acquisitions made by the Company were accounted for under the purchase method of accounting and, accordingly, the acquisition costs were allocated to the net assets acquired based on their fair value, except for assets previously owned by Mr. Dolan or affiliates of Mr. Dolan which were recorded at historical cost. Acquisitions are reflected in operating, balance sheet and statistical data from the time of acquisition. The selected financial data presented below should be read in conjunction with the financial statements of the Company and notes thereto included in Item 8 of this Report.
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Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Recent Acquisitions
The Company's high levels of interest expense and depreciation and amortization, largely associated with acquisitions made by the Company in the past, have had and will continue to have a negative impact on the reported results of the Company. Consequently, the Company expects to report substantial net losses for at least the next several years.
1996 acquisitions. In September 1996, the Company acquired from Warburg the equity interests that Warburg owned in Cablevision of Newark giving the Company full ownership of Cablevision of Newark. In August 1996, the Company acquired the partnership interests in U.S. Cable that it did not already own.
1995 acquisitions. In July 1995, the Company, through Rainbow Programming, purchased NBC's interests in SportsChannel New York and Rainbow News 12 Company, giving Rainbow Programming a 100% interest in these companies. In December 1995, the Company acquired the interests in Cablevision of Boston that it did not previously own and upon consummation of the acquisition, Cablevision of Boston became a member of the Restricted Group. The foregoing acquisitions will be referred to as the "1995 Acquisitions".
1994 acquisitions. In March 1994, the Company completed the North Coast Cable Acquisition. In July 1994, the Company through Rainbow Programming, purchased an additional 50% interest in AMCC giving Rainbow Programming a 75% ownership interest in AMCC and in August 1994, the Company consummated the acquisition of Monmouth Cablevision and Riverview Cablevision. The foregoing acquisitions will collectively be referred to as the "1994 Acquisitions".
The 1996 Acquisitions and the 1995 Acquisitions will collectively be referred to as the "Acquisitions".
For a description of the Company's recent acquisitions, see Item 1 - "Business - Recent Developments."
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Results of Operations
The following table sets forth on a historical basis certain items related to operations as a percentage of net revenues for the periods indicated.
STATEMENT OF OPERATIONS DATA
(1) Operating profit before depreciation and amortization is presented here to provide additional information about the Company's ability to meet future debt service, capital expenditures and working capital requirements. Operating profit before depreciation and amortization should be considered in addition to and not as a substitute for net income and cash flows as indicators of financial performance and liquidity as reported in accordance with generally accepted accounting principles.
(2) See Item 8.
Item 8. Consolidated Financial Statements.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report .................................. 46
Consolidated Balance Sheets - December 31, 1996 and 1995 ....... 47
Consolidated Statements of Operations - years ended December 31, 1996, 1995 and 1994 .................... 49
Consolidated Statements of Stockholders' Deficiency - years ended December 31, 1996, 1995 and 1994 .................... 50
Consolidated Statements of Cash Flows - years ended December 31, 1996, 1995 and 1994 .......................... 51
Notes to Consolidated Financial Statements ..................... 53
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INDEPENDENT AUDITORS' REPORT ----------------------------
The Board of Directors Cablevision Systems Corporation
We have audited the accompanying consolidated balance sheets of Cablevision Systems Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' deficiency and cash flows for each of the years in the three-year period ended December 31, 1996. In connection with our audits of the consolidated financial statements, we also audited the financial statement schedule listed in Item 14(a)(2). These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cablevision Systems Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP -------------------------- KPMG Peat Marwick LLP Jericho, New York April 1, 1997
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 (Dollars in thousands)
ASSETS 1996 1995 ---- ----
Cash and cash equivalents .............................. $ 11,612 $ 15,332
Accounts receivable trade (less allowance for doubtful accounts of $12,955 and $12,678) ........... 105,406 100,506
Notes and other receivables ............................ 19,368 16,762
Prepaid expenses and other assets ...................... 23,053 19,353
Property, plant and equipment, net ..................... 1,390,971 1,026,355
Investments in affiliates .............................. 311,865 141,345
Advances to affiliates ................................. 7,855 6,909
Feature film inventory ................................. 134,258 143,916
Franchises, net of accumulated amortization of $389,791 and $314,218 ............... 379,466 363,077
Affiliation agreements, net of accumulated amortization of $44,385 and $20,598 ................. 162,388 124,848
Excess costs over fair value of net assets acquired and other intangible assets, net of accumulated amortization of $549,256 and $518,178 ............... 436,606 468,133
Deferred financing, acquisition and other costs, net of accumulated amortization of $29,755 and $23,899 .. 51,877 47,673
Deferred interest expense, net of accumulated amortization of $42,142 ............................. - 28,096 ---------- ---------- $3,034,725 $2,502,305 ========== ========== See accompanying notes to consolidated financial statements.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 (Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
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See accompanying notes to consolidated financial statements.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 (Dollars in thousands)
See accompanying notes to consolidated financial statements.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 (Dollars in thousands) (continued)
See accompanying notes to consolidated financial statements.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
Cablevision Systems Corporation and its majority-owned subsidiaries (the "Company") own and operate cable television systems. The Company also has ownership interests in and manages other cable television systems and has interests in companies that produce and distribute national and regional programming services and that provide advertising sales services for the cable television industry. The Company's revenues are derived principally from the provision of cable television and programming services, which include recurring monthly fees paid by subscribers. For financing purposes, Cablevision Systems Corporation and certain of its subsidiaries are structured as a restricted group and an unrestricted group (see Note 4).
Principles of Consolidation
The consolidated financial statements include the accounts of Cablevision Systems Corporation and its majority-owned subsidiaries. The Company's interests in less than majority-owned entities and its 100% common stock interest in A-R Cable Services, Inc. (see Note 2) are carried on the equity method. Advances to affiliates are recorded at cost, adjusted when recoverability is doubtful. All significant intercompany transactions and balances are eliminated in consolidation.
Revenue Recognition
The Company recognizes cable television and programming revenues as services are provided to subscribers. Advertising revenues are recognized when commercials are telecast.
Long-Lived Assets
Property, plant and equipment, including construction materials, are carried at cost, which includes all direct costs and certain indirect costs associated with the construction of cable television transmission and distribution systems, and the costs of new subscriber installations.
Franchises are amortized on the straight-line basis over the average remaining terms (7 to 11 years) of the franchises at the time of acquisition. Affiliation agreements are amortized on a straight-line basis over an average life of approximately 10 years. Other intangible assets are amortized on the straight-line basis over the periods benefited (2 to 10 years), except that excess costs over fair value of net assets acquired are being amortized on the straight-line basis over periods ranging from 5 to 20 years.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
The Company implemented the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. The Company reviews its long-lived assets (property, plant and equipment, and related intangible assets that arose from business combinations accounted for under the purchase method) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The adoption of Statement No. 121 had no impact on the Company's financial position or results of operations.
Feature Film Inventory
Rights to feature film inventory acquired under license agreements along with the related obligations are recorded at the contract value. Costs are amortized on the straight-line method over either the contract period or the intended number of days to be aired. Amounts payable during the five years subsequent to December 31, 1996 related to feature film telecast rights amount to $24,369 in 1997, $18,464 in 1998, $16,790 in 1999, $6,067 in 2000 and $12,395 in 2001.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized, on the straight-line basis, over the life of the related debt.
Income Taxes
Income taxes are provided based upon the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires the liability method of accounting for deferred income taxes and permits the recognition of deferred tax assets, subject to an ongoing assessment of realizability.
Loss Per Share
Net loss per common share is computed based on the average number of common shares outstanding after giving effect to dividend requirements on the Company's preferred stock. Common stock equivalents were not included in the computation as their effect would be to decrease net loss per share.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $252,120, $252,344 and $198,535 during 1996, 1995 and 1994, respectively. During 1996, 1995 and 1994, the Company's noncash investing and financing activities included capital lease obligations of $2,571, $1,086 and $4,020, respectively, incurred when the Company entered into leases for new equipment; obligation to related party of $101,460 in 1994 (see Note 8); Series H preferred stock dividend requirements of $31,755 and $7,751 in 1996 and 1995, respectively, and Series M preferred stock dividend requirements of $65,759 in 1996 (See Note 5); and the issuance in 1995 of 687,623 shares of the Company's Class A Common Stock (fair value of $37,733) for the acquisition of Cablevision of Boston (See Note 2).
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
NOTE 2. ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS
1996 Acquisitions:
In August, 1996, the Company acquired the remaining approximate 80% partnership interest in U.S. Cable that it did not already own for approximately $4,010 and repaid the debt owed by U.S. Cable to General Electric Capital Corporation ("GECC") of approximately $154,000 with proceeds from a new $175,000 credit facility (see Note 4).
See Note 8 - "Affiliate Transactions" for a discussion of the Company's investment in Northcoast Operating Co., Inc.
In May 1996, the Company entered into an agreement (the "Warburg Agreement") with Warburg, Pincus Investors, L.P. ("Warburg") to acquire from Warburg the interests that the Company does not already own in A-R Cable Services, Inc. ("A-R Cable"), A-R Cable Partners, Cablevision of Newark and Cablevision of Framingham (each a "Warburg Company") for an aggregate purchase
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
price of $183,000 subject to certain adjustments and regulatory approval. In September, 1996, the Company acquired the 75% equity interest that Warburg owned in Cablevision of Newark for approximately $37,000, giving the Company full ownership of Cablevision of Newark. At December 31, 1996, acquisition of the other Warburg Companies have not been completed (see Note 14).
The acquisitions of U.S. Cable and Cablevision of Newark were accounted for as purchases with the operations of these companies being consolidated with those of the Company as of the acquisition dates. The excess of the purchase price over the net book value of assets acquired approximates $211,707 ($148,439 for the acquisition of U.S. Cable and $63,268 for the acquisition of Cablevision of Newark) and will be allocated to the specific assets acquired when independent appraisals are completed. For purposes of the 1996 consolidated financial statements, the excess purchase price has been recorded as excess costs over fair value of net assets acquired and is being amortized over 7 years.
In October, 1996, Rainbow Programming Holdings, Inc., a wholly-owned subsidiary of the Company, ("Rainbow Programming") made a payment of $81.25 million to ITT Corporation, a Delaware Corporation ("ITT"), increasing its partnership interest in MSG Holdings, L.P. ("MSG Holdings") from approximately 15.2% to approximately 26.6%. See Note 14 for a description of the transaction in which Rainbow Programming equalized its interests in MSG Holdings and a discussion of plans to acquire a majority interest in MSG Holdings.
During 1996, Rainbow Programming invested approximately $5,756 in a joint venture formed with a subsidiary of Loral Space and Communications, Ltd. for the purpose of exploiting certain direct broadcast satellite ("DBS") frequencies. Rainbow Programming also contributed to the joint venture its interest in certain agreements with the licensee of such frequencies.
1995 Acquisitions:
In March 1995, MSG Holdings, a partnership among subsidiaries of Rainbow Programming and subsidiaries of ITT acquired the business and assets of Madison Square Garden Corporation ("MSG") in a transaction in which MSG merged with and into MSG Holdings. The purchase price paid by MSG Holdings for MSG was $1,009,100. MSG Holdings funded the purchase price of the acquisition through (i) borrowings of $289,100 under a $450,000 credit agreement among MSG Holdings, various lending institutions and Chemical Bank as administrative agent, (ii) an equity contribution from Rainbow Programming of $110,000, and (iii) an equity contribution from ITT of $610,000. ITT, Rainbow Programming and the Company were parties to an agreement made as of August 15, 1994, as amended, (the "Bid Agreement") that provided Rainbow Programming the right to acquire interests in MSG Holdings from ITT sufficient to equalize the interests of ITT and Rainbow Programming in MSG Holdings by making certain scheduled payments totalling
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
$250,000 (plus interest on any unpaid portion thereof) on specified dates up to and including March 17, 1997 (see Note 14).
In July 1995, Rainbow Programming consummated the purchase from National Broadcasting Company ("NBC") of the approximate 50% interests in each of SportsChannel Associates (New York) ("SportsChannel New York") and Rainbow News 12 Company ("Rainbow News 12") that NBC owned for approximately $95,500, giving Rainbow Programming a 100% interest in SportsChannel New York and Rainbow News 12. The purchase was financed by an additional drawdown of $94,000 under Rainbow Programming's $202,000 amended and restated credit facility and by a $2,500 equity contribution from the Company for the balance of the purchase price and related fees.
In December 1995, the Company acquired the interests in Cablevision of Boston Limited Partnership ("Cablevision of Boston") that it did not previously own pursuant to an agreement entered into by the Company and Cablevision of Boston. In connection with the acquisition, the limited partners (other than the Company) of Cablevision of Boston received approximately 680,266 shares of the Company's Class A Common Stock valued at $37,329 and the Company paid approximately $83,456 for the repayment of bank debt, fees and expenses and to fund payments to Charles F. Dolan ("Mr. Dolan"), as described below, primarily with funds borrowed under the Company's Credit Agreement. Upon consummation of the acquisition, Cablevision of Boston became a member of the Restricted Group (see Note 4). Mr. Dolan, a former general partner of Cablevision of Boston and the Chairman of the Board of the Company, received 7,357 shares of the Company's Class A Common Stock valued at $404 and approximately $20,782 in cash to repay a portion of Cablevision of Boston's indebtedness to him. In connection with the acquisition, the Company received 1,041,553 shares of its Class A Common Stock valued at $57,155 (such shares are reflected as treasury shares at December 31, 1995). As part of the acquisition of Cablevision of Boston, the Company acquired 99.5% of the partnership interests in Cablevision of Brookline Limited Partnership ("Cablevision of Brookline"), a partnership affiliated with Cablevision of Boston, and entered into an agreement with Mr. Dolan with respect to his remaining 0.5% general partnership interest in Cablevision of Brookline, whereby the Company has a right of first refusal to acquire such interest through January 1, 2002.
The acquisition of Cablevision of Boston and the purchase of interests in SportsChannel New York and Rainbow News 12 were accounted for as purchases with the operations of these companies being consolidated with those of the Company as of the acquisition dates. The excess of the purchase price over the book value of assets acquired approximated $210,426 ($115,759 for the acquisition of Cablevision of Boston and $94,667 for the acquisition of SportsChannel New York and Rainbow News 12) and was allocated to the specific assets acquired when independent appraisals were completed in 1996. For purposes of the 1995 consolidated financial statements, the excess purchase price was recorded as excess costs over fair value of net assets acquired and amortization was calculated based on an average period of approximately 10 years.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
For 1996, these excess costs have been allocated based upon independent appraisals as follows:
Plant and equipment $ 23,181 Affiliation agreements 61,327 Franchises 93,889 Excess cost over fair value of assets acquired 32,029 ---------- $210,426 ========== 1994 Acquisitions:
In March 1994, Cablevision of Cleveland, L.P. ("Cablevision Cleveland"), a partnership whose partners are subsidiaries of the Company, purchased substantially all of the assets and assumed certain liabilities of North Coast Cable Limited Partnership, which operates a cable television system in Cleveland, Ohio (the "North Coast Cable Acquisition"). The operations of North Coast Cable are consolidated with those of the Company as of the date of acquisition. The net cash purchase price for interests not previously owned by the Company (and excluding excess liabilities assumed by the Company) aggregated approximately $103,359 including expenses. The cost of the acquisition was financed principally by borrowings under the Company's credit agreement.
In June 1994, A-R Cable Partners, a partnership comprised of subsidiaries of the Company and E.M. Warburg, Pincus & Co., Inc. completed the purchase of certain assets of Nashoba Communications, a group of three limited partnerships, for a purchase price of approximately $90,500, of which approximately $47,000 was provided by a senior credit facility secured by the assets of such systems. The remainder of the purchase price was provided by equity contributions and subordinated loans from the partners in A-R Cable Partners. The Company provided approximately $12,000 for its 30% interest in A-R Cable Partners and $1,500 in loans.
In July 1994, Rainbow Programming purchased an additional 50% interest in American Movie Classics Company ("AMCC") for a purchase price of approximately $181,000, increasing Rainbow Programming's interest in AMCC to approximately 75%. The results of AMCC's operations are consolidated with those of the Company as of the date of acquisition. The acquisition was financed with a separate $105,000 credit facility entered into by Rainbow Programming and by borrowings under the Company's credit agreement of approximately $76,000 which was contributed to Rainbow Programming.
In August 1994, Cablevision MFR, Inc. ("Cablevision MFR"), a wholly-owned subsidiary of the Company, acquired substantially all of the assets of Monmouth Cablevision Associates, L.P. ("Monmouth Cablevision") and Riverview Cablevision Associates, L.P. ("Riverview Cablevision") consisting of cable television systems in New Jersey. The operations of Monmouth Cablevision and Riverview Cablevision are consolidated with those of the Company as of the date of acquisition. The aggregate purchase price for the two New Jersey systems was $391,215.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Approximately $237,800 of such purchase price was financed by a senior credit facility of newly formed subsidiaries of Cablevision MFR secured solely by the assets of the systems. The remaining $153,415 of such purchase price was paid with cash of approximately $12,147 and the issuance, by Cablevision MFR, of subordinated promissory notes (the "MFR Notes") totalling $141,268 due in 1998.
Also in August 1994, Cablevision of Framingham Holdings, Inc. ("CFHI"), a corporation owned 30% by the Company and 70% by E.M. Warburg, Pincus Investors, L.P., acquired substantially all of the assets of Framingham Cablevision Associates, L.P. ("Framingham Cablevision") consisting of cable television systems in Massachusetts. The aggregate purchase price, including fees and expenses, for Framingham Cablevision's assets was $37,517. Approximately $22,700 of the purchase price was financed by a senior credit facility of a wholly-owned subsidiary of CFHI secured by the assets of Framingham Cablevision; approximately $9,732 was paid by the issuance by CFHI of a promissory note, guaranteed by the Company, due in 1998 and the remaining amount was financed by capital contributions and loans to CFHI from its stockholders. The Company provided a capital contribution of approximately $1,320 and $300 as a loan for its 30% interest in CFHI.
The acquisitions of North Coast Cable, AMCC, Monmouth Cablevision and Riverview Cablevision were accounted for as purchases whereby the acquisition costs were allocated to the various assets acquired and liabilities assumed based upon their respective fair values. The excess of the purchase price over the book value of net assets acquired of these entities, aggregating $625,946, has been allocated to the specific assets acquired based on independent appraisals as follows:
Plant and equipment $ 31,200 Affiliation agreements 145,150 Franchises 362,301 Excess cost over fair value of net assets acquired 87,295 --------- $ 625,946 =========
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Pro Forma Results of Operations
The following unaudited pro forma condensed results of operations are presented for the years ended December 31, 1996 and 1995 as if the acquisitions of U.S. Cable and Cablevision of Newark had occurred on January 1, 1996 and 1995, respectively, and as if the acquisition of Cablevision of Boston had occurred on January 1, 1995.
Years Ended December 31, --------------------------------- 1996 1995 ---- ---- Net revenues $1,382,571 $1,236,987 ========== ==========
Net loss $ (356,953) $ (365,875) =========== ==========
Net loss per common share $ (19.52) $ (15.77) ============= =============
The proforma information presented above gives effect to certain adjustments, including the amortization of acquired intangible assets and increased interest expense on acquisition debt. The proforma information has been prepared for comparative purposes only and does not purport to indicate the results of operations which would actually have occurred had the acquisitions been made at the beginning of the periods indicated, or which may occur in the future.
DISPOSITIONS
In July 1995, Rainbow Programming sold a minority general partnership interest in Courtroom Television Network to NBC for cash totalling $5,000. The Company recognized a net gain of $20,662 on the sale.
In August 1995, Cablevision of Chicago ("Cablevision of Chicago"), an affiliate of the Company, sold its cable television systems to Continental Cablevision, Inc. The Company did not have a material ownership interest in Cablevision of Chicago but had loans and advances outstanding to Cablevision of Chicago in the amount of $12,346 (plus accrued interest which the Company had fully reserved). The Company recognized a net gain of approximately $15,327 on the sale, representing the accrued interest which the Company had reserved.
RESTRUCTURING
A-R Cable. In 1992 the Company and A-R Cable consummated a restructuring and refinancing transaction (the "A-R Cable Restructuring"). Among other things, this transaction involved an
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
additional $45,000 investment in A-R Cable by the Company to purchase a new Series B Preferred Stock and the purchase of a new Series A Preferred Stock in A-R Cable by Warburg for $105,000. As a result of the A-R Cable Restructuring, the Company no longer has financial or voting control over A-R Cable's operations. For reporting purposes, the Company accounts for its investment in A-R Cable using the equity method of accounting whereby the Company records 100% of the net losses of A-R Cable since it continues to own 100% of A-R Cable's outstanding common stock.
Included in share of affiliates' net loss in the accompanying consolidated statements of operations for the years ended December 31, 1996, 1995 and 1994 is $68,492, $72,257 and $67,092, respectively, representing A-R Cable's net loss plus dividend requirements for the Series A Preferred Stock of A-R Cable, which is not owned by the Company. Included in deficit investment in affiliates is $504,496 and $442,940 at December 31, 1996 and 1995, respectively, representing A-R Cable losses and external dividend requirements recorded by the Company in excess of amounts invested by the Company therein. At December 31, 1996 and 1995 and for the years then ended, A-R Cable's total assets, liabilities (including preferred stock) and net revenues amounted to $204,072 and $222,831; $792,564 and $738,581; $120,355 and $113,292, respectively.
The Company continues to guarantee the debt of A-R Cable to GECC under a limited recourse guarantee wherein recourse to the Company is limited solely to the common and Series B Preferred Stock of A-R Cable owned by the Company.
The Company manages A-R Cable under a management agreement that provides for cost reimbursement, an allocation of overhead charges and a management fee of 3-1/2% of gross receipts, as defined, with interest on unpaid amounts thereon at a rate of 10% per annum. The 3-1/2% fee and interest thereon is payable by A-R Cable only after repayment in full of its senior debt and certain other obligations. Under certain circumstances, the fee is subject to reduction to 2-1/2% of gross receipts.
During 1996 and 1995 CSC purchased additional shares of the new Series B Preferred Stock for a cash investment of $2,025 and $3,740, respectively, and during 1995 Warburg Pincus purchased additional shares of the new Series A Preferred Stock for a cash investment of $210.
As described in the "Acquisitions - 1996 Acquisitions" section of this Note 2, in May 1996, the Company entered into an agreement with Warburg to acquire from Warburg the interests that the Company does not own in certain companies, including A-R Cable. The A-R Cable acquisition had not been completed at December 31, 1996 (see Note 14). After July 2, 1997, if the Company has not completed the A-R Cable acquisition, Warburg may irrevocably cause the sale of A-R Cable.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items, which are depreciated or amortized primarily on a straight-line basis over the estimated useful lives shown below:
December 31, --------------- Estimated Communication transmission 1996 1995 Useful Lives ---- ---- ------------ and distribution systems: Converters ......................... $ 430,028 $ 329,091 3 to 5 years Headends ........................... 88,386 59,320 6 to 9 years Central office equipment ........... 35,992 26,443 10 years Distribution systems ............... 1,416,468 1,127,836 10 to 15 years Program, service and test equipment ........................ 150,433 105,759 4 to 7 years Microwave equipment ................ 6,082 5,442 7 1/2 years Construction in progress (including materials and supplies) .......... 124,993 74,499 -- Furniture and fixtures ................. 34,556 26,038 5 to 12 years Transportation equipment ............... 53,854 41,352 2 to 12 years Building and building improvements ..... 34,076 23,033 22 to 39 years Leasehold improvements ................. 48,671 41,939 Term of lease Land and land improvements ............. 10,458 9,118 -- ---------- --------- 2,433,997 1,869,870 Less accumulated depreciation and amortization ......................... 1,043,026 843,515 ---------- --------- $1,390,971 $1,026,355 ========== ==========
NOTE 4. DEBT
Bank Debt
Restricted Group
For financing purposes, Cablevision Systems Corporation and certain of its subsidiaries (including Cablevision of Boston as of December 15, 1995, the Long Island system formerly included as part of V Cable, as of April 17, 1996, Cablevision of Newark as well as Cablevision of Monmouth, Cablevision of Hudson and Cablevision MFR as of November 20, 1996) are collectively referred to as the "Restricted Group". On September 5, 1996, the Restricted Group entered into a new $1.7
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
billion reducing revolver credit facility (the "Credit Agreement") with a group of banks led by Toronto-Dominion (Texas), Inc. ("Toronto-Dominion"), as administrative and arranging agent. This Credit Agreement replaced a $1.5 billion facility that was also with a group of banks led by Toronto-Dominion.
The Credit Agreement consists of a $1.3 billion facility ("Parent Facility") and a $400 million facility available to the Restricted Group's New Jersey systems. Both facilities start reducing on September 30, 1999, with a final maturity of September 30, 2005. The total amount of bank debt outstanding under the Credit Agreement at December 31, 1996 was $977,566 ($559,244 was outstanding at December 31, 1995 under the previous $1.5 billion credit facility). As of December 31, 1996, approximately $16,900 was restricted for certain letters of credit issued for the Company.
Unrestricted and undrawn funds available to the Restricted Group under the Credit Agreement amounted to approximately $705,500 at December 31, 1996. The Credit Agreement contains certain financial covenants that may limit the Restricted Group's ability to utilize all of the undrawn funds available thereunder. The Credit Agreement contains various restrictive covenants, among which are the maintenance of various financial ratios and tests, and limitations on various payments, including preferred dividends. The Company is restricted from paying any dividends on its common stock. The Company was in compliance with the covenants of its Credit Agreement at December 31, 1996.
Interest on outstanding amounts may be paid, at the option of the Company, based on various formulas which relate to the prime rate, rates for certificates of deposit or other prescribed rates. The Company has entered into interest rate swap agreements with several banks on a notional amount of $160,000 as of December 31, 1996 whereby the Company pays a fixed rate of interest and receives a variable rate. In addition, the Company has entered into interest rate cap agreements on a notional amount of $65,000 which limits the interest rate the Company will pay to 8%. Interest rates and terms vary in accordance with each of the agreements. The Company enters into interest rate swap agreements to hedge against interest rate risk, as required by its Credit Agreement, and therefore accounts for these agreements as hedges of floating rate debt, whereby interest expense is recorded using the revised rate, with any fees or other payments amortized as yield adjustments. As of December 31, 1996, the interest rate agreements expire at various times through the year 2000 and have a weighted average life of approximately one and one-third years. The Company is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements; however, the Company does not anticipate nonperformance by the counterparties. The weighted average interest rate on all bank indebtedness was 7.2% and 8.6% on December 31, 1996 and 1995, respectively. The Company is also obligated to pay fees of 3/8 of 1% per annum on the unused loan commitment and from 1-3/8% to 1-5/8% per annum on letters of credit issued under the Credit Agreement.
Substantially all of the assets of the Restricted Group, amounting to approximately $2,278,246 at December 31, 1996, support borrowings under the Credit Agreement.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Cablevision MFR
Cablevision MFR and its subsidiaries, Monmouth Cablevision and Riverview Cablevision, were party to a credit facility with a group of banks led by Nations Bank of Texas, N.A., as agent (the "MFR Credit Facility"). The maximum amount available to Cablevision MFR under the MFR Credit Facility was $285,000 with a final maturity at June 30, 2003. The facility was a reducing revolving loan, with scheduled facility reductions beginning on March 31, 1996 resulting in a 15% reduction by December 31, 1998. As of December 31, 1995, Cablevision MFR had outstanding bank borrowings of $195,200. On November 26, 1996, the outstanding balance of $207,800 under the MFR credit facility was repaid from funds borrowed under the new restricted group facility and the MFR facility was terminated.
Unrestricted Cable
Cablevision of Ohio
The Company's subsidiaries Telerama, Inc., Cablevision of the Midwest, Inc. and Cablevision of Cleveland L.P., (collectively "Cablevision of Ohio") are party to a credit facility entered into during 1996 with a group of banks led by NationsBank of Texas, N.A., as agent, which consists of a nine year $425,000 reducing revolving credit facility which matures on June 30, 2005 and a nine and one half year $75,000 term loan facility which matures on December 31, 2005. The reducing revolving facility has scheduled facility reductions beginning in 1999. The term loan facility requires repayments of $375 per year from 1997 through 2003 with the balance to be repaid in the final two years. As of December 31, 1996, Cablevision of Ohio had outstanding borrowings under its reducing revolving facility of $237,189 and approximately $1,100 of outstanding letters of credit, leaving unrestricted and undrawn funds available amounting to approximately $186,700. Amounts outstanding under the facility bear interest at varying rates based upon the banks base rate or LIBOR rate, as defined in the facility. Cablevision of Ohio has entered into interest rate swap agreements with several banks on a notional amount of $175,000 as of December 31, 1996 whereby the Company pays a fixed rate of interest and receives a variable rate. Interest rates and terms vary in accordance with each of the agreements. Cablevision of Ohio enters into interest rate swap agreements to hedge against interest rate risk, and therefore accounts for these agreements as hedges of floating rate debt, whereby interest expense is recorded using the revised rate, with any fees or other payments amortized as yield adjustments. The interest rate agreements expire in November 1999. Cablevision of Ohio is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreements, however, Cablevision of Ohio does not anticipate nonperformance by the counterparties. The weighted average interest rate was 7.9% on December 31, 1996.
Substantially all of the equity interests held by the Company in Cablevision of Ohio have been pledged to secure borrowings under the credit facility.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
The Cablevision of Ohio Credit Facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring Cablevision of Ohio to maintain certain financial ratios. Cablevision of Ohio was in compliance with all restrictive covenants of the credit facility at December 31, 1996.
U.S. Cable
In August 1996, the Company repaid the balance of the debt owed to GECC of approximately $154,000. The repayment of the GECC debt was financed under a new $175,000 U.S. Cable credit facility. The credit facility is with a group of banks led by the Bank of New York, as agent, and consists of a three year $175,000 revolving credit facility maturing on August 13, 1999. The revolving credit facility is payable in full upon maturity. As of December 31, 1996 U.S. Cable had outstanding borrowings under its revolving credit facility of approximately $159,500, leaving unrestricted and undrawn funds available amounting to $15,500. Amounts outstanding under the facility bear interest at varying rates based upon the banks base rate or LIBOR rate, as defined in the loan agreement. The weighted average interest rate was 7.6 % on December 31, 1996.
Substantially all of the partnership interests held by the Company in U.S. Cable are pledged to secure borrowings under the credit facility.
The U.S. Cable facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring U.S. Cable to maintain certain financial ratios. U.S. Cable was in compliance with all restrictive covenants of the credit facility at December 31, 1996.
Rainbow Programming
In January 1995, Rainbow Programming entered into an amended and restated credit facility for $202,000, the entire amount of which was outstanding on December 31, 1996 and 1995. The credit facility is payable in full on March 31, 1997 and can be extended to June 30, 1997 at Rainbow Programming's option and bears interest at varying rates based upon the banks' Base Rate or Eurodollar Rate, as defined in the credit agreement. The loan is secured by a pledge of the Company's stock in Rainbow Programming and is guaranteed by the subsidiaries of Rainbow Programming as permitted. The weighted average interest rate during 1996 and 1995 was 8.9% and 8.7%, respectively. The credit agreement contains various restrictive covenants with which Rainbow Programming was in compliance at December 31, 1996. See Note 14.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
American Movie Classics Company
AMCC is party to a loan agreement (the "AMCC Loan Agreement") with a group of banks (with the Toronto Dominion Bank as Lead Bank). The AMCC Loan Agreement, which permits maximum borrowings of $34,030 and matures on June 30, 1998, is comprised of a $19,030 term loan and a $15,000 revolver. At December 31, 1996 and 1995, there were no borrowings under the revolver and an outstanding balance of $19,030 and $36,025, respectively under the term loan. Borrowings under the AMCC Loan Agreement bear interest at varying rates above the Lead Bank's Base, CD or LIBOR rate depending on the ratio of debt to cash flow, as defined in the Loan Agreement. AMCC has entered into an interest rate swap agreement on a notional amount of $20,000 under which AMCC pays a fixed rate and receives a variable rate. The interest rate swap agreement expires on October 6, 1997. AMCC is exposed to credit loss in the event of nonperformance by the other parties to the interest rate swap agreement; however, it does not anticipate nonperformance by the counterparties. At December 31, 1996 and 1995 the weighted average interest rate on bank indebtedness approximated 7.0% and 6.8%, respectively. Substantially all of the assets of AMCC, amounting to $161,931 at December 31, 1996, have been pledged to secure the borrowings under the AMCC Loan Agreement. The AMCC Loan Agreement contains various restrictive covenants with which AMCC was in compliance at December 31, 1996. See Note 14.
Senior Debt
Under the credit agreement between V Cable, Inc. ("V Cable"), a subsidiary of the Company, and GECC (the "V Cable Credit Agreement"), GECC had provided a term loan (the "V Cable Term Loan") in the amount of $20,000 to V Cable. In addition, GECC had extended to VC Holding, a subsidiary of V Cable, a $505,000 term loan (the "Series A Term Loan), a $25,000 revolving line of credit (the "Revolving Line") and a $202,554 term loan (the "Series B Term Loan"), all of which comprised the VC Holding Credit Agreement. At December 31, 1995, amounts outstanding under the V Cable Term Loan, the Series A Term Loan and the Series B Term Loan were $801,444.
V Cable had agreed to assume, on December 31, 1997, approximately $121,000 of debt of U.S. Cable, which amount was subject to adjustment, upward or downward, depending on U.S. Cable's ratio of debt to cash flow (as defined) in 1997 and thereafter. Included in Senior Debt at December 31, 1995 was $97,359, representing the present value of debt of U.S. Cable that would have been assumed in 1997. The effective interest rate on this debt was approximately 11%. Amortization of deferred interest expense in connection with the assumption of U.S. Cable's debt amounted to $4,684 in 1996, $14,047 in 1995 and $14,048 in 1994.
In February 1996, the Company entered into the GECC Agreement, as amended, which provided for, among other things, the payment of all existing indebtedness of V Cable and the formation of Cablevision of Ohio, which entered into a separate $500,000 credit facility with a group of banks
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
(see section titled "Bank Debt - Unrestricted Cable - Cablevision of Ohio" of this Note 4). In March 1996, approximately $500,000 of V Cable indebtedness (which includes accrued interest) was paid with funds made available from the proceeds of the Company's issuance of Series M Preferred Stock (see Note 5), $209,000 was repaid from borrowings under the Cablevision of Ohio credit facility and the remaining indebtedness of V Cable was paid from borrowings under the Credit Agreement.
Subordinated Debentures
On May 16, 1996, the Company issued $150,000 principal amount ($149,422 amortized amount at December 31, 1996) of 9 7/8% Senior Subordinated Notes due 2006 (the "2006 Notes") and $250,000 principal amount of 10 1/2% Senior Subordinated Debentures due 2016 (the "2016 Debentures"). The 2006 Notes are redeemable at the Company's option, in whole or in part, on May 15, 2001, May 15, 2002 and May 15, 2003 at the redemption price of 104.938%, 103.292% and 101.646%, respectively, of the principal amount and thereafter at 100% of the aggregate principal amount, in each case together with accrued interest to the redemption date. The 2016 Debentures are redeemable at the Company's option, in whole or in part, on May 15, 2006, May 15, 2007, May 15, 2008 and May 15, 2009, at the redemption price of 105.25%, 103.938%, 102.625% and 101.313%, respectively, of the principal amount and thereafter at 100% of the aggregate principal amount, in each case together with accrued interest to the redemption date. The indentures under which the 2006 Notes and 2016 Debentures were issued contain various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1996. The net proceeds of approximately $389,000 were used to repay borrowings under the Company's Credit Agreement.
In November 1995, the Company issued $300,000 principal amount of 9-1/4% Senior Subordinated Notes due 2005 (the "2005 Notes"). The 2005 Notes are redeemable at the Company's option, in whole or in part, on November 1, 2000, November 1, 2001 and November 1, 2002 at the redemption price of 104.625%, 103.1% and 101.5%, respectively, of the principal amount and thereafter at 100% of the principal amount, in each case together with accrued interest to the redemption date. The indenture under which the 2005 Notes were issued contains various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1996. The net proceeds of approximately $292,500 were used to reduce bank borrowings.
In February 1993, the Company issued $200,000 face amount ($198,993 and $198,930 amortized amounts at December 31, 1996 and 1995, respectively) of its 9-7/8% Senior Subordinated Debentures due 2013 (the "2013 Debentures"). The 2013 Debentures are redeemable, at the Company's option, on February 15, 2003, February 15, 2004, February 15, 2005 and February 15, 2006 at the redemption price of 104.80%, 103.60%, 102.40% and 101.20%, respectively, of the principal amount and thereafter at the redemption price of 100% of the principal amount, in each
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case together with accrued interest to the redemption date. The indenture under which the 2013 Debentures were issued contains various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1996.
Also in 1993, the Company issued $150,000 face amount ($149,690 and $149,678 amortized amounts at December 31, 1996 and 1995, respectively) of its 9-7/8% Senior Subordinated Debentures due 2023 (the "2023 Debentures"). The 2023 Debentures are redeemable, at the Company's option, on and after April 1, 2003 at the redemption price of 104.938% reducing ratably to 100% of the principal amount on and after April 1, 2010, in each case together with accrued interest to the redemption date. The indenture under which the 2023 Debentures were issued contains various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1996.
In April 1992, the Company issued $275,000 of its 10-3/4% Senior Subordinated Debentures due 2004 (the "2004 Debentures"). The 2004 Debentures are redeemable, at the Company's option, on April 1, 1997 and April 1, 1998 at the redemption price of 103.071% and 101.536%, respectively, of the principal amount, and on April 1, 1999 and thereafter at the redemption price of 100% of the principal amount, in each case together with accrued interest to the redemption date. The Indenture under which the 2004 Debentures were issued contains various covenants, which are generally less restrictive than those contained in the Company's Credit Agreement, with which the Company was in compliance at December 31, 1996. The Indenture requires a sinking fund providing for the redemption on April 1, 2002 and April 1, 2003 of $68,750 principal amount of the 2004 Debentures, at a redemption price equal to 100% of the principal amount, plus accrued interest to the redemption date.
Subordinated Notes Payable
In connection with the acquisition of Monmouth Cablevision and Riverview Cablevision, in August 1994, Cablevision MFR issued promissory notes totalling $141,268, due in 1998, which bear interest at 6% until the third anniversary and 8% thereafter (increasing to 8% and 10% respectively, if interest is paid in shares of the Company's Class A Common Stock). Principal and interest on the notes is payable, at Cablevision MFR's election, in cash or in shares of the Company's Class A Common Stock. The promissory notes are guaranteed by the Company and the obligations under the guarantee rank pari passu with the Company's subordinated debentures. In certain circumstances, Cablevision MFR may extend the maturity date of the promissory notes until 2003 for certain additional consideration.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Summary of Five Year Debt Maturities
Total amounts payable by the Company and its subsidiaries under its various debt obligations, including capital leases, during the five years subsequent to December 31, 1996 are as follows:
Restricted Cablevision U.S. Rainbow Group Ohio Cable Programming AMCC Total ----------- ----------- --------- ----------- -------- ------- 1997 $ 3,691 $451 $ - $202,008 $12,980 $219,130 1998 143,935 451 - - 6,050 150,436 1999 996 451 159,460 - - 160,907 2000 270 400 - - - 670 2001 40,550 375 - - - 40,925
NOTE 5. PREFERRED STOCK
In February 1996, the Company issued 6,500,000 depositary shares, representing 65,000 shares of 11-1/8% Series L Redeemable Exchangeable Preferred Stock (the "Series L Preferred Stock") with a liquidation preference of $650,000, which were subsequently exchanged for Series M Redeemable Exchangeable Preferred Stock on August 2, 1996 with terms identical to the Series L Preferred. Net proceeds were approximately $626,000. The depositary shares are exchangeable, in whole but not in part, at the option of the Company, on or after April 1, 1996, for the Company's 11-1/8% Senior Subordinated Debentures due 2008. The Company is required to redeem the Series M Preferred Stock on April 1, 2008 at a redemption price equal to the liquidation preference of $10,000 per share plus accumulated and unpaid dividends. The Series M Preferred Stock is redeemable at various redemption prices beginning at 105.563% at any time on or after April 1, 2003, at the option of the Company, with accumulated and unpaid dividends thereon to the date of redemption. Before April 1, 2001, dividends may, at the option of the Company, be paid in cash or by issuing fully paid and nonassessable shares of Series M Preferred stock with an aggregate liquidation preference equal to the amount of such dividends. On and after April 1, 2001, dividends must be paid in cash. The Company satisfied its dividend requirements by issuing 6,576 additional shares of Series M Preferred Stock in 1996.
In November 1995, the Company issued 13,800,000 depositary shares representing 1,380,000 shares of 8-1/2% Series I Cumulative Convertible Exchangeable Preferred Stock (the "Series I Preferred Stock") with an aggregate liquidation preference of $345,000. The depositary shares are convertible into shares of the Company's Class A Common Stock, at any time after January 8, 1996 at the option of the holder, at an initial conversion price of $67.44 per share of Class A Common Stock subject to adjustment under certain conditions. The Series I Preferred Stock is exchangeable into 8-1/2% Convertible Subordinated Debentures due 2007, at the option of the Company, in whole but not in part, on or after January 1, 1998 at a rate of $25.00 principal amount of exchange
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
debentures for each depositary share. The Series I Preferred Stock is redeemable at the option of the Company, in whole or in part, on November 1, 1999, November 1, 2000, and November 1, 2001 and thereafter at 102.8%, 101.4% and 100.0%, respectively, of the principal amount plus accrued and unpaid dividends thereon. The net proceeds of the Series I Preferred Stock of approximately $334,200 were used to repay bank borrowings. The Company paid a cash dividend of approximately $29,325 in 1996 and $4,399 in 1995.
In September 1995, the Company issued 2,500,000 shares of its $.01 par value 11-3/4% Series H Redeemable Exchangeable Preferred Stock (the "Series H Preferred Stock") with an aggregate liquidation preference of $100 per share. The Company is required to redeem the Series H Preferred Stock on October 1, 2007 at a redemption price per share equal to the liquidation preference of $100 per share, plus accrued and unpaid dividends thereon. Before October 1, 2000, dividends may, at the option of the Company, be paid in cash or by issuing fully paid and nonassessable shares of Series H Preferred Stock with an aggregate liquidation preference equal to the amount of such dividends. On and after October 1, 2000, dividends must be paid in cash. The terms of the Series H Preferred Stock permit the Company, at its option, after January 1, 1996, to exchange the Series H Preferred Stock for the Company's 11-3/4% Senior Subordinated Debentures due 2007 in an aggregate principal amount equal to the aggregate liquidation preference of the shares of Series H Preferred Stock. The net proceeds of approximately $239,300 were used to repay bank debt. The Company satisfied its dividend requirements by issuing 317,549 and 77,510 additional shares of Series H Preferred Stock in 1996 and 1995, respectively.
The holders of the Company's 8% Series C Cumulative Preferred Stock ("Series C Preferred Stock") may require the Company to redeem for cash at any time commencing December 31, 1997 all or a portion of the outstanding shares of the Series C Preferred Stock. The Company has the right, upon notice to the holders requesting redemption, to convert all or a part of such shares into shares of Class B Common Stock. If, in the future, holders require the Company to redeem their Series C Preferred Stock, it is the Company's intention to convert such shares into Class B Common Stock. The Company paid cash dividends on the Series C Preferred Stock during each of 1996 and 1995 of $885.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
NOTE 6. INCOME TAXES
The Company and its majority-owned subsidiaries file consolidated federal income tax returns. At December 31, 1996 the Company had consolidated net operating loss carry forwards for tax purposes of approximately $1,222,876 , which expire between 2002 and 2011.
The tax effects of temporary differences which give rise to significant portions of deferred tax assets or liabilities and the corresponding valuation allowance at December 31, 1996 and 1995 are as follows:
1996 1995 -------- ------- Deferred Asset (Liability)
Depreciation and amortization $ (3,154) $ (45,358) Receivables from affiliates (8,221) 19,179 Benefit plans 11,951 11,025 Allowance for doubtful accounts 5,228 5,202 Deficit investment in affiliate 251,639 226,662 Benefits of tax loss carry forwards 513,608 429,906 Other 2,462 2,180 --------- --------- Net deferred tax assets 773,513 648,796 Valuation allowance (773,513) (648,796) --------- --------- $ - $ - ========= =========
The Company has provided a valuation allowance for the total amount of net deferred tax assets since realization of these assets was not assured due principally to the Company's history of operating losses.
NOTE 7. OPERATING LEASES
The Company leases certain office, production and transmission facilities under terms of leases expiring at various dates through 2012. The leases generally provide for fixed annual rentals plus certain real estate taxes and other costs. Rent expense for the years ended December 31, 1996, 1995 and 1994 amounted to $22,195, $16,823 and $12,036, respectively.
In addition, the Company rents space on utility poles for its operations. The Company's pole rental agreements are for varying terms, and management anticipates renewals as they expire. Pole rental expense for the years ended December 31, 1996, 1995 and 1994 amounted to approximately $8,585, $7,790 and $6,947, respectively. The minimum future annual rentals for all operating
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
leases during the next five years, including pole rentals from January 1, 1997 through December 31, 2001, and thereafter, at rates now in force are approximately: 1997, $24,466; 1998, $20,636; 1999, $19,149; 2000, $17,709; 2001, $14,302; thereafter, $18,871.
NOTE 8. AFFILIATE TRANSACTIONS
The Company has affiliation agreements with certain cable television programming companies, including MSG Holdings, varying ownership interests in which were held, directly or indirectly, by Rainbow Programming during the three years ended December 31, 1996. Rainbow Programming's investment in these programming companies is accounted for on the equity method of accounting. Accordingly, the Company recorded losses of approximately $(8,018), $(9,930) and $(1,007) in 1996, 1995 and 1994, respectively, representing its percentage interests in the results of operations of these programming companies. Such amounts include $4,304 for 1994 of the Company's share of the net income of AMCC prior to its consolidation with the Company in July 1994. In addition, such amounts include $(3,293) and $(175) for 1995 and 1994, respectively, of the Company's share of net losses in SportsChannel New York and Rainbow News 12 prior to their consolidation with the Company in July 1995. At December 31, 1996 and 1995, the Company's investment in these programming companies amounted to approximately $277,241 and $134,969, respectively. Costs incurred by the Company for programming services provided by these non-consolidated affiliates and included in technical expense for the years ended December 31, 1996, 1995 and 1994 amounted to approximately $37,610, $37,756 and $20,232, respectively. At December 31, 1996 and 1995, amounts due from certain of these programming affiliates aggregated $63 and $584, respectively, and are included in advances to affiliates. Also, at December 31, 1996 and 1995 amounts due to certain of these affiliates, primarily for programming services provided to the Company, aggregated $14,012 and $12,607, respectively, and are included in accounts payable to affiliates.
Summarized combined financial information relating to these programming companies at December 31, 1996, 1995 and 1994 and for the years then ended is as follows:
1996 1995 1994 --------- --------- -------
Current assets $ 101,901 $ 73,232 $ 97,184 ========= ========= ======== Noncurrent assets $ 54,116 $ 47,387 $ 33,815 ========= ========= ======== Current liabilities $ 77,793 $ 59,451 $ 64,000 ========= ========= ======== Noncurrent liabilities $ 23,984 $ 16,490 $ 6,257 ========= ========= ======== Net revenues $ 269,542 $ 240,518 $270,676 ========= ========= ======== Net income (loss) $ (13,943) $ (5,490) $ 3,473 ========= ========= ========
In 1992 the Company acquired from Mr. Dolan substantially all of the interests in Cablevision of New York City ("CNYC") that it did not previously own. Mr. Dolan remains a 1% partner in
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CNYC and is entitled to certain preferential payments. Mr. Dolan's preferential rights entitle him to an annual cash payment (the "Annual Payment") of 14% multiplied by the outstanding balance of his "Minimum Payment". The Minimum Payment is $40,000 and is to be paid to Mr. Dolan prior to any distributions to partners other than Mr. Dolan. In addition, Mr. Dolan has the right, exercisable beginning on December 31, 1997, to require the Company to purchase his interest. Mr. Dolan would be entitled to receive from the Company the Minimum Payment, any accrued but unpaid Annual Payments, a guaranteed return on certain of his investments in CNYC and a Preferred Payment defined as a payment (not exceeding $150,000) equal to 40% of the Appraised Equity Value (as defined) of CNYC after making certain deductions. Based upon estimates for accounting purposes of the Appraised Equity Value of CNYC made by the Company, the maximum amount of the Preferred Payment was accrued during 1992 through 1994 as an additional obligation to Mr. Dolan relating to the Company's purchase of CNYC, which has also been charged to par value in excess of capital contributed. The total amount owed to Mr. Dolan at December 31, 1996 of approximately $192,819 in respect of the Preferred Payment, the Minimum Payment and the Annual Payment reflects a reduction of approximately $4,081 at December 31, 1996 representing Mr. Dolan's obligation to reimburse the Company in connection with certain claims paid or owed by CNYC.
During 1996, 1995 and 1994, the Company made advances to or incurred costs on behalf of other affiliates engaged in providing cable television, cable television programming, and related services. Amounts due from these affiliates amounted to $7,792 and $6,325 at December 31, 1996 and 1995, respectively and are included in advances to affiliates.
In September 1996, the Company acquired the interests in Cablevision of Newark that it did not previously own from an affiliate of Warburg. The Company's share of the net losses of Cablevision of Newark prior to its consolidation amounted to $844, $2,957 and $3,631 in 1996, 1995 and 1994, respectively.
In connection with its 30% interest in A-R Cable Partners (see note 2), the Company recorded its share of the losses of A-R Cable Partners amounting to $3,184 and $3,505 for 1996 and 1995 and $1,886 for the period from acquisition through December 31, 1994.
Also, in connection with its 30% interest in CFHI (see note 2), the Company recorded its share of the losses of CFHI amounting to $1,490 and $1,535 for 1996 and 1995 and $654 from the date of acquisition through December 31, 1994.
The Company manages the operations of A-R Cable, A-R Cable Partners, CFHI (and the operations of Cablevision of Newark through September 1996) for a fee equal to 3-1/2% of gross receipts, as defined, plus reimbursement of certain costs and an allocation of certain selling, general and administrative expenses. In certain cases, interest is charged on unpaid amounts. For 1996, 1995 and 1994, such management fees, expenses and interest amounted to approximately $12,436,
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$11,531 and $9,457, respectively, of which $7,724, $6,918 and $5,536, respectively, were reserved by the Company.
The Company managed the properties of U.S. Cable, until its acquisition in August 1996, under management agreements that provided for cost reimbursement, including an allocation of overhead charges. For 1996, 1995 and 1994, such cost reimbursement amounted to $2,396, $3,538 and $3,344, respectively, which included an allocation of overhead charges of $1,829, $2,881 and $2,720, respectively.
On August 23, 1996, the Company entered into an agreement with Northcoast Operating Co., Inc. ("Northcoast") and certain of its affiliates, to form a limited liability company (the "LLC") to participate in the auctions conducted by the Federal Communications Commission ("FCC") for certain licenses to conduct a personal communications service ("PCS") business. The Company has contributed an aggregate of approximately $31,000 to the LLC (either directly or through a loan to Northcoast) and holds a 49.9% interest in the LLC and certain preferential distribution rights. Northcoast is a Delaware corporation controlled by John Dolan. John Dolan is a nephew of Charles F. Dolan and a cousin of James Dolan.
NOTE 9. BENEFIT PLANS
The Company maintains the CSSC Supplemental Benefit Plan (the "Benefit Plan") for the benefit of certain officers and employees of the Company. As part of the Benefit Plan, the Company established a nonqualified defined benefit pension plan, which provides that, upon attaining normal retirement age, a participant will receive a benefit equal to a specified percentage of the participant's average compensation, as defined. All participants are 100% vested in the Benefit Plan. Net periodic pension cost for the years ended December 31, 1996, 1995 and 1994 amounted to $(25), $(9) and $103, respectively. At December 31, 1996 and 1995, the fair value of Benefit Plan assets exceeded the projected benefit obligation by approximately $2,537 and $2,119, respectively.
In addition, the Company accrues a liability in the amount of 7% of certain officers' and employees' compensation, as defined. Each year the Company also accrues for the benefit of these officers and employees interest on such amounts. The officer or employee will receive such amounts upon termination of employment. All participants are 100% vested in this plan. The cost associated with this plan for the years ended December 31, 1996, 1995 and 1994 was approximately $400, $495 and $337, respectively.
The Company also maintains a pension plan and a 401(k) savings plan (collectively, the "Plan"), pursuant to which the Company contributes 1-1/2% of eligible employees' annual compensation, as defined, to the defined contribution pension portion of the Plan and an equivalent amount to the Section 401(k) portion of the Plan. The Company also makes matching contributions for employee
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
voluntary contributions to the 401(k) portion of the Plan. The cost associated with the Plan was approximately $5,565 and $4,287 and $3,125 for the years ended December 31, 1996, 1995 and 1994, respectively.
NOTE 10. STOCK BENEFIT PLANS
On June 19, 1996 the Company's shareholders approved the First Amended and Restated 1996 Employee Stock Plan, as amended, (the "1996 Plan"), under which the Company is authorized to issue a maximum of 1,500,000 shares. Under the 1996 Plan, the Company is able to grant incentive stock options, nonqualified stock options, restricted stock, conjunctive and alternative stock appreciation rights, stock grants and stock bonus awards. The other terms of the 1996 Plan are substantially identical to those of the Company's Employee Stock Plan (described below) except that under the 1996 Plan the Compensation Committee has the authority, in its discretion, to add performance criteria as a condition to any employee's exercise of an award granted under the 1996 Plan.
Under the 1996 Plan the Company issued options to purchase 548,555 shares of Class A Common Stock, stock appreciation rights related to 548,555 shares under option and 92,100 bonus award shares. The options and related conjunctive stock appreciation rights are exercisable at various prices ranging from $47.875 to $49.50 per share and vest in either 25% or 33 1/3% annual increments beginning from the date of the grant. The bonus awards vest primarily over a four year period.
Previously, the Company maintained an Employee Stock Plan (the "Stock Plan") under which the Company was authorized to issue a maximum of 3,500,000 shares. Pursuant to its terms, no awards could be granted under the Stock Plan after December 5, 1995. The Company granted under the Stock Plan incentive stock options, nonqualified stock options, restricted stock, conjunctive stock appreciation rights, stock grants and stock bonus awards. The exercise price of stock options could not be less than the fair market value per share of class A common stock on the date the option was granted and the options could expire no longer than ten years from date of grant. Conjunctive stock appreciation rights permit the employee to elect to receive payment in cash, either in lieu of the right to exercise such option or in addition to the stock received upon the exercise of such option, equal to the difference between the fair market value of the stock as of the date the right is exercised, and the exercise price.
Under the Stock Plan, during 1995 the Company issued options to purchase 56,950 shares of Class A common stock, stock appreciation rights related to 56,950 shares under option and stock awards of 11,350 common shares. The options and related conjunctive stock appreciation rights are exercisable at prices ranging from $50.00 to $56.50 per share and vest in 25% and 33-1/3% annual increments beginning from the date of grant. The stock awards vest 100% in May 1999.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Under the Stock Plan, during 1994 the Company issued options to purchase 525,400 shares of Class A common stock, stock appreciation rights related to 525,400 shares under option and stock awards of 68,400 common shares. Of the options and related conjunctive stock appreciation rights, 95,400 are exercisable at $42.00 per share and vest in 25% annual increments beginning from the date of grant and 430,000 options and conjunctive rights are exercisable at $56.50 per share and are currently vested. The stock awards vest 100% in May 1998.
In January 1996, three employees exercised stock appreciation rights on 213,750 shares. The closing market price on December 29, 1995 of $54.25 with an exercise price of $16.625 resulted in a total cash payment of approximately $8,042,000. Two-thirds was paid at the time of exercise and the balance in October 1996.
In November 1994, the Company entered into agreements with three employees to pay the value, as of that date, of options exercised with respect to 405,000 shares of the Company's Class A Common Stock, and to replace those options with a combination of stock appreciation rights and newly issued options, with the exercise price set at the market price of such stock on that date. In accordance with the agreement, one-third of the value of the exercised options was paid in cash with the remaining portion paid in November, 1995. Accordingly, the Company recorded expense related to the purchase of these options amounting to $13,215 in 1994, representing the cash payment of approximately $4,673 and a liability for future payments.
At December 31, 1996, options for approximately 668,907 shares were exercisable. As a result of stock awards, bonus awards, stock appreciation rights and the expensing of the cash payment made for certain executive stock options, the Company recorded (income)/expense of approximately $(8,558), $7,757 and $6,814 in 1996, 1995 and 1994, respectively. The yearly amounts reflect vesting schedules for applicable grants as well as fluctuations in the market price of the Company's Class A Common Stock.
The Company applies APB 25 and related interpretations in accounting for its various stock option plans. Had compensation cost been recognized consistent with Statement of Financial Accounting Standards No. 123, for options granted in 1995 and 1996, net loss would have increased by $4,191 in 1996 and by an insignificant amount in 1995. There was no material impact on net loss per share.
The per share weighted average value of stock options issued by the Company during 1996 and 1995, as determined by the Black-Scholes option pricing model, was $19.41 and $21.55, respectively, on the date of grant. In 1996 and 1995, the assumptions of no dividends, expected volatility of 34%, and an expected life of five years were used by the Company in determining the value of stock options granted by the Company. In addition, the calculations assumed a risk free interest rate of approximately 6.7% in each period.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Pro forma net loss reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS 123 is not reflected in the pro forma net loss amounts discussed above because compensation cost is calculated over the options' vesting periods and compensation costs for options granted prior to January 1, 1995 are not considered. Stock transactions under the Stock Plan and the 1996 Plan are as follows:
The following table summarizes significant ranges of outstanding and exercisable options at December 31, 1996:
Options Outstanding Options Exercisable ------------------------------------- ----------------------- Weighted Weighted Weighted Average Average Average Ranges of Remaining Exercise Exercise Exercise Prices Shares Life in Years Price Shares Price ================================================================================
$ 21.25 - 29.875 275,660 4.4 $25.94 275,660 $25.94 32.75 - 42.00 345,889 7.5 40.46 162,939 41.11 47.875 - 52.125 536,605 9.4 49.68 15,308 51.55 56.50 215,000 7.8 56.50 215,000 56.50
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
NOTE 11. COMMITMENTS AND CONTINGENCIES
The Company, through Rainbow Programming, has entered into several contracts with professional and other sports teams relating to cable television programming including rights agreements. Amounts payable under these contracts during the five years subsequent to December 31, 1996 amount to $50,687 in 1997, $50,724 in 1998, $50,476 in 1999, $53,112 in 2000 and $55,018 in 2001.
In addition, Rainbow Programming has guaranteed rights payments to several professional sports teams relating to certain affiliated sports programming companies. Amounts guaranteed on behalf of such affiliated sports programming companies during the five years subsequent to December 31, 1996 amount to $9,133 in 1997, $3,681 in 1998, $2,846 in 1999, $340 in 2000 and $340 in 2001.
The Company and its cable television affiliates have an affiliation agreement with a program supplier whereby the Company is obligated to make Base Rate Annual Payments, as defined and subject to certain adjustments pursuant to the agreement, through 2004. The Company would be contingently liable for its proportionate share of Base Rate Annual Payments, based on subscriber usage, of approximately $12,714 in 1997; $13,158 in 1998; $13,617 in 1999 and for the years 2000 through 2004. Such payments would increase by percentage increases in the Consumer Price Index, or five percent, whichever is less, over the prior year's Base Rate Annual Payment.
The Company does not provide post-retirement benefits to any of its employees.
NOTE 12. OTHER MATTERS
The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that the resolution of these lawsuits will have a material adverse impact on the financial position of the Company.
The Company recorded a one time charge of $4,306 during 1994 to provide for severance and related costs, attributable entirely to terminated employees, resulting from a restructuring of its operations. Substantially all of such amounts were paid during 1994.
NOTE 13. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Trade Accounts Receivable, Notes and Other Receivables, Prepaid Expenses and Other Assets, Accounts Payable, Accrued Liabilities, Accounts Payable to Affiliates, Feature Film Rights Payable and Obligation to Related Party
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
The carrying amount approximates fair value due to the short maturity of these instruments.
Bank Debt, Senior Debt, Subordinated Debentures, Subordinated Notes Payable and Redeemable Exchangeable Preferred Stock
The fair values of each of the Company's long-term debt instruments and redeemable preferred stock are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.
Interest Rate Swap and Cap Agreements
The fair values of interest rate swap and cap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate agreements, taking into consideration current interest rates and the current creditworthiness of the counterparties.
The fair value of the Company's financial instruments are summarized as follows:
December 31, 1996 ---------------------------- Carrying Estimated Amount Fair Value -------- ---------- Long term debt instruments: Bank debt $1,670,245 $1,670,245 Subordinated debentures 1,323,105 1,330,438 Subordinated notes payable 141,268 136,000 Redeemable exchangeable preferred stock 1,005,265 1,195,981 ---------- ---------- $4,139,883 $4,332,664 ========== ========== Interest rate swap and cap agreements: In a net payable position $ - $ 4,238 ========== ==========
December 31, 1995 --------------------------- Carrying Estimated Amount Fair Value --------- ---------- Long term debt instruments: Bank debt $ 992,469 $ 992,469 Senior debt 898,803 898,803 Subordinated debentures 923,608 972,125 Subordinated notes payable 141,268 135,400 Redeemable exchangeable preferred stock 257,751 266,772 ---------- ---------- $3,213,899 $3,265,569 ========== ========== Interest rate swap and cap agreements: In a net payable position $ - $ 11,055 ========== ==========
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
NOTE 14. SUBSEQUENT EVENTS
On February 18, 1997, Rainbow Programming made a payment to ITT of $168,750 plus interest, fully equalizing its interest in MSG Holdings, and bringing the total of such payments to $360,000, plus interest payments aggregating $47,700. On March 6, 1997 Rainbow Programming entered into letter of intent (the "March 1997 Letter") with ITT to acquire a majority interest in the equity of MSG Holdings. The March 1997 Letter is a nonbinding letter of intent and is not an agreement to enter into a formal contract with respect to such transaction.
In February 1997, the Company made a nonrefundable deposit of $30,000 in partial payment of the purchase price under the Warburg Agreement. Acquisition of the remaining interests in the Warburg Companies that the Company does not already own is expected to close in July 1997.
On April 1, 1997, Rainbow Media Holdings, Inc. ("Rainbow Media") consummated a transaction in which Rainbow Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed subsidiary of the Company. In addition, NBC received a 25% equity interest (which interest may be increased up to 27% under certain circumstances) in non-voting Class C common stock of Rainbow Media. The company owns the remaining 75% equity interest in Rainbow Media. The partnership interests in certain of Rainbow Media's programming services formerly owned by NBC are now owned by subsidiaries of Rainbow Media.
Rainbow Media has executed a new $300 million three year credit facility with Canadian Imperial Bank of Commerce and Toronto-Dominion (Texas), Inc. as co-agents, and a group of banks. The actual closing of the credit facility was subject to several conditions having been satisfied. Those conditions have now been satisfied and the closing of the new facility is anticipated shortly. Upon closing, approximately $172 million is expected to be drawn to refinance, in part, the previous $202 million credit facility. The balance of the funds utilized to fully repay the $202 million facility and to repay $169 million to the Restricted Group will come from a distribution by American Movie Classics Company. This distribution will be provided by funds made available under a new $250 million, seven year revolving credit and term loan facility maturing in 2004 and closing concurrently with the Rainbow Media credit facility. The Rainbow Media three year revolving credit facility matures on March 31, 2000 and is payable in full on such date. The funds available under the credit facility will be used to finance working capital requirements and general corporate purposes. The credit facility contains certain financial covenants that may limit its ability to utilize all of the undrawn funds available thereunder, including covenants requiring Rainbow Media to maintain certain financial ratios.
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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (continued)
NOTE 15. INTERIM FINANCIAL INFORMATION (Unaudited)
The following is a summary of selected quarterly financial data for the years ended December 31, 1996 and 1995.
TOTAL --------------------- 1996 1995 -------- ------
Revenues ...............$ 1,315,142 $ 1,078,060 Operating expenses ..... 1,240,730 998,617
Operating profit (loss) ...............$ 74,412 $ 79,443
Net loss applicable to common shareholders ..$ (459,859) $ (337,707)
Net loss per common share ................$ (18.52) $ (14.17) =========== ===========
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Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial disclosure.
None.
PART III
The information called for by Item 401 of Regulation S-K under Item 10, Directors and Executive Officers of the Registrant, Item 11, Executive Compensation, Item 12, Security Ownership of Certain Beneficial Owners and Management and Item 13, Certain Relationships and Related Transactions, is hereby incorporated by reference to the Company's definitive proxy statement for its Annual Meeting of Shareholders anticipated to be held in June, 1997 or if such definitive proxy statement is not filed with the Commission prior to April 30, 1997, to an amendment to this report on Form 10-K filed under cover of Form 10-K/A.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Pursuant to regulations promulgated by the Securities and Exchange Commission, the Company is required to identify, based solely on a review of reports filed under Section 16(a) of the Securities Exchange Act of 1934, each person who, at any time during its fiscal year ended December 31, 1996, was a director, officer or beneficial owner of more than ten percent of the Company's Class A Common Stock that failed to file on a timely basis any such reports. Based on such review, the Company is aware of no such failure other than (i) a report on Form 3 filed by Margaret Albergo on November 18, 1996, with respect to her election as an executive officer of the Company on October 18, 1996, (ii) a report on Form 3 filed by Robert May on November 18, 1996, with respect to his election as an executive officer of the Company on October 18, 1996, and (iii) a report on Form 3 filed by Vincent Tese on October 8, 1996 with respect to his election as a director of the Company on June 19, 1996.
PART IV
Item 14.
Item 14. Exhibits, Financial Statements, Financial Statement Schedule, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. The financial statements as indicated in the index is set forth on page 45.
2. Financial Statement schedule: Page No. ---- Schedule supporting consolidated financial statements: Schedule II - Valuation and Qualifying Accounts.............. 84
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Schedules other than that listed above have been omitted, since they are either not applicable, not required or the information is included elsewhere herein.
3. Independent auditors report and accompanying financial statements of A-R Cable Services, Inc. are filed as part of this report on page 85. 4. The Index to Exhibits is on page 104.
(b) Reports on Form 8-K:
The Company did not file reports on Form 8-K during the last quarter of the fiscal period covered by this report.
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CABLEVISION SYSTEMS CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation)
Consolidated Financial Statements
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
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INDEPENDENT AUDITORS' REPORT
The Board of Directors A-R Cable Services, Inc.
We have audited the accompanying consolidated balance sheets of A-R Cable Services, Inc. (a wholly-owned subsidiary of Cablevision Systems Corporation) and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholder's deficiency and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of A-R Cable Services, Inc. and subsidiaries at December 31, 1996 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP ------------------------- KPMG Peat Marwick LLP Jericho, New York April 1, 1997
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (in thousands)
1996 1995 ---- ---- ASSETS
Cash and cash equivalents .................................. $ 67 $ 25
Accounts receivable trade (less allowance for doubtful accounts of $351 and $376) ............................. 2,516 2,089
Notes and other receivables ................................ 1,170 1,179
Prepaid expenses ........................................... 546 661
Property, plant and equipment, net ......................... 107,776 113,787
Excess costs over fair value of net assets acquired, net of accumulated amortization of $75,222 and $69,290 ........ 91,124 103,226
Deferred financing and other costs, net of accumulated amortization of $8,619 and $7,563 ...................... 873 1,864 -------- --------
$204,072 $222,831 ======== ========
See accompanying notes to consolidated financial statements.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (in thousands)
1996 1995 ---- ---- LIABILITIES AND STOCKHOLDER'S DEFICIENCY
Accounts payable ................................... $ 17,813 $ 15,714 Accrued liabilities: Interest ....................................... 4,354 5,316 Payroll and related benefits ................... 2,901 2,167 Franchise fees ................................. 1,690 1,607 Insurance ...................................... 1,403 1,262 Other .......................................... 5,358 5,338 Amounts payable to affiliates, net ................. 177 293 Due to parent ...................................... 25,108 17,799 Senior term loan ................................... 402,967 410,000 Capital lease obligations .......................... - 10 Subscriber deposits ................................ 421 705 --------- --------- Total liabilities .............................. 462,192 460,211 --------- ---------
Commitments and contingencies
Preferred Stock - Series A ......................... 245,867 205,051 --------- --------- Preferred Stock - Series B ......................... 84,505 73,319 --------- ---------
Stockholder's deficiency: Common stock $.50 par value, 20,000 shares authorized, 19,000 shares issued and outstanding ................................. 9,500 9,500 Paid-in capital ................................ 46,261 41,350 Accumulated deficit ............................ (644,253) (566,600) --------- --------- Total stockholder's deficiency .............. (588,492) (515,750) --------- --------- $ 204,072 $ 222,831 ========= =========
See accompanying notes to consolidated financial statements.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (in thousands)
See accompanying notes to consolidated financial statements.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (in thousands)
See accompanying notes to consolidated financial statements.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (in thousands)
See accompanying notes to consolidated financial statements.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (in thousands) (continued)
See accompanying notes to consolidated financial statements.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
The Company and Related Matters
A-R Cable Services, Inc. ("A-R Cable" or the "Company"), a wholly-owned subsidiary of Cablevision Systems Corporation ("CSC") or ("Parent"), was organized for the purpose of constructing and operating cable television systems. The Company's revenues are derived principally from its cable television operations which include recurring monthly fees paid by subscribers.
In October 1996, the Company agreed to exchange certain of its cable systems in New York for a cable system owned by CSC located in Massachusetts plus $5,883 of cash. The transaction was treated in a manner similar to a pooling of interests for accounting purposes whereby the net assets received were recorded at historical cost and the difference, amounting to $4,911, between the historical value of the assets transferred to CSC and the historical value of the assets received from CSC plus cash was recorded as a capital contribution from CSC.
In May 1992, the Company and CSC consummated a restructuring and refinancing transaction. In connection with this restructuring, Warburg, Pincus Investors, L.P. ("Warburg Pincus") purchased a new Series A Preferred Stock of the Company for a cash investment of $105,000, and CSC purchased a new Series B Preferred Stock of the Company for a cash investment of $45,000.
During 1996 and 1995 CSC purchased additional shares of the new Series B Preferred Stock for a cash investment of $2,025 and $3,740, respectively, and during 1995 Warburg Pincus purchased additional shares of the new Series A Preferred Stock for a cash investment of $210. The Series A Preferred Stock is entitled to a 19% annual dividend. The Series B Preferred Stock is entitled to a 12% annual dividend. Dividends on the Series A and Series B Preferred Stock are not payable until the repayment in full of all outstanding indebtedness to GECC (see Note 3).
In May 1996, CSC entered into an agreement with Warburg Pincus to acquire from Warburg Pincus the approximately 70% of equity interest in the Company that CSC does not already own for $106.7 million. In addition, in connection with the acquisition, CSC agreed to assume the outstanding debt of the Company. On February 3, 1997, CSC made a non-refundable deposit of approximately $22 million in partial payment of the purchase price for Warburg Pincus' interests in the Company. The transaction is expected to close in July 1997.
The balance of the Company's senior term loan, amounting to $402,967 at December 31, 1996, matures on December 30, 1997. The Company has the option, with a significant investment from CSC, to extend the senior term loan to April 1, 1998.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of the Company and its subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation.
Revenue Recognition
The Company recognizes revenues as cable television services are provided to subscribers.
Long-Lived Assets
Property, plant and equipment, including construction materials, are recorded at cost, which includes all direct costs and certain indirect costs associated with the construction of cable television transmission and distribution systems, and the costs of new subscriber installations.
Property, plant and equipment are being depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their useful lives or the term of the related leases.
Excess costs over fair value of net assets acquired are being amortized over 20 years on the straight-line basis.
The Company implemented the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. The Company reviews its long-lived assets (property, plant and equipment, and related intangible assets that arose from business combinations accounted for under the purchase method) for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the expected cash flows, undiscounted and without interest, is less than the carrying amount of the asset, an impairment loss is recognized as the amount by which the carrying amount of the asset exceeds its fair value. The adoption of Statement No. 121 had no impact on the Company's financial positions or results of operations.
Deferred Financing Costs
Costs incurred to obtain debt are deferred and amortized on the straight-line basis over the life of the related debt.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
Income Taxes
The Company is not a member of the CSC consolidated group for federal tax purposes and, accordingly, files a separate federal income tax return on behalf of itself and its consolidated subsidiaries. Income taxes are provided based upon the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which requires the liability method of accounting for deferred income taxes and permits the recognition of deferred tax assets, subject to an ongoing assessment of realizability.
Cash Flows
For purposes of the consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents. The Company paid cash interest expense of approximately $38,149, $40,300 and $26,672 during the years ended December 31, 1996, 1995 and 1994, respectively. The Company's noncash investing and financing activities included preferred stock dividend requirements of $49,977, $41,930 and $34,985 in 1996, 1995 and 1994, respectively.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform to the 1996 presentation.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
NOTE 2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following items which are depreciated over the estimated useful lives shown below:
December 31, Estimated 1996 1995 Useful Lives ---------- --------- ------------
Distribution systems..................$220,242 $220,728 5-15 years Machinery and equipment............... 6,779 6,654 5-7 years Furniture and fixtures................ 1,487 1,472 7 years Vehicles.............................. 8,539 7,816 4 years Buildings............................. 1,930 2,137 25 years Leasehold improvements................ 1,317 1,326 Life of lease Land.................................. 800 920 - -------- --------- 241,094 241,053 Less accumulated depreciation and amortization.................... 133,318 127,266 -------- --------- $107,776 $113,787 ======== ========
NOTE 3. SENIOR TERM LOAN
The Company's outstanding borrowings under its senior term loan and revolving lines of credit (the "Senior Term Loan") with GECC amounted to $402,967 and $410,000 at December 31, 1996 and 1995, respectively. The facility consists of a $279,117 senior term loan, $91,250 in special funding advances and a $45,000 revolving line of credit. The senior term loan and revolving line of credit are non-amortizing and mature on December 30, 1997. The Company has the option, with a significant investment from CSC, to extend the senior term loan to April 1, 1998. The special funding advances require amortization, amounting to $3,750 per quarter, commencing December 31, 1996, with the balance due on December 30, 1997. Aggregate undrawn funds available under the revolving line of credit at December 31, 1996 amounted to approximately $12,400 of which $191 was restricted for certain letters of credit issued on behalf of the Company.
Interest rates on the Senior Term Loan are at floating rates based on either GECC's LIBOR (as defined in the agreement) or Index Rate plus applicable percentages, which vary depending upon certain prescribed financial ratios. The weighted average interest rate approximated 8.9% at December 31, 1996 and 9.2% at December 31, 1995.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
Substantially all of the assets of the Company have been pledged to secure the borrowings under the Senior Term Loan agreement.
The Senior Term Loan agreement contains various restrictive covenants, among which are the maintenance of certain financial ratios, limitations regarding certain transactions by the Company, prohibitions against the transfer of funds to the parent company (except for reimbursement of certain expenses) and limitations on levels of permitted capital expenditures. The Company was in compliance with all of the covenants of its Senior Term Loan agreement at December 31, 1996.
NOTE 4. INCOME TAXES
The Company's tax returns for the years 1984 to 1989 have been examined by the Internal Revenue Service and certain issues related to the amortization of intangible assets are being appealed by the Company. Management believes that any settlement arising out of this examination will not have a material adverse effect on the financial position of the Company.
At December 31, 1996, the Company had a net operating loss carry forward of approximately $242,858, which expires in varying amounts from 2003 to 2011. In 1992, the Company underwent an ownership change within the meaning of Internal Revenue Code Section 382 which limits the amount of net operating loss carry forward from the period prior to the transaction that can be utilized to offset any taxable income in periods subsequent to the transaction. Therefore, of the $242,858 of net operating loss carry forwards for tax purposes, $201,888 is restricted and $40,970 is currently available.
Usage of the $201,888 net operating loss carry forward is limited to a fixed annual amount, calculated using the Federal long-term tax-exempt rate times the value of the Company prior to the ownership change. This amount is increased in any year in which the Company recognizes any built in gain from the sale of assets owned prior to the ownership change. Based on this formula, none of the $201,888 restricted net operating loss carry forward would currently be available to the Company.
The tax effects of temporary differences which give rise to significant portions of deferred tax assets or liabilities and the corresponding valuation allowance at December 31, 1996 and 1995 are as follows:
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
Deferred Asset (Liability) 1996 1995 -------------------------- ---- ----
Depreciation and amortization .................... $(10,829) $(15,534) Benefit plans .................................... 478 340 Allowance for doubtful accounts .................. 169 169 Benefits of tax loss carry forwards .............. 92,286 87,813 Other ............................................ (99) (338) -------- -------- Net deferred tax assets ....................... 82,005 72,450 Valuation allowance .............................. (82,005) (72,450) -------- -------- Net deferred tax liabilities .................. $ - $ - ======== ========
The Company has provided a valuation allowance for the entire amount of the net deferred tax assets in 1996 and 1995 since realization of these assets was not assured due to the Company's history of operating losses. Also, in connection with the acquisition of the Company by CSC in January 1988, the Company recorded certain fair value adjustments net of their tax effects. In accordance with SFAS 109, these assets have been adjusted to their remaining pre tax amounts at January 1, 1993, the date the Company adopted SFAS 109. Amortization of these amounts in 1995 and 1994 resulted in the recognition of income tax benefits of $6,082 and $14,045, respectively. These amounts were fully amortized in 1995.
NOTE 5. AFFILIATE TRANSACTIONS
The Company has an agreement with CSC whereby the Company is managed by CSC in exchange for a management fee of 3-1/2% of gross receipts, as defined. Interest on unpaid amounts accumulates at a rate of 10% per annum. Such management fees amounted to $4,208, $3,963 and $3,738 in 1996, 1995 and 1994, respectively, and interest thereon amounted to $1,634, $1,110 and $659 in 1996, 1995 and 1994, respectively.
The Company is also charged for cost reimbursement and an allocation of certain selling, general and administrative expenses by CSC. For the years ended December 31, 1996, 1995 and 1994 these cost reimbursements and expense allocations approximated $3,897, $3,665 and $3,524, respectively. In accordance with certain restrictive covenants contained in its Senior Term Loan agreement, the Company may not pay in excess of specified amounts, subject to certain escalation provisions, of allocated corporate overhead expenses charged by CSC in any fiscal year. In addition, CSC also provided certain programming services to the Company. At December 31, 1996 and 1995, the total balance due CSC for management fees, interest, cost reimbursement, allocated expenses and certain programming services amounted to $25,108 and $17,799, respectively.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
CSC has interests in several companies engaged in providing cable television services and programming services to the cable television industry, including the Company. During 1996, 1995 and 1994, the Company was charged approximately $3,357, $3,260 and $2,246, respectively, by these companies for these services and the total amount due these companies as of December 31, 1996 and 1995 was $221 and $293, respectively.
NOTE 6. BENEFIT PLANS
CSC maintains a pension and a 401(k) savings plan (collectively, the "Plan") pursuant to which the Company contributes 1-1/2% of eligible employees' annual compensation, as defined, to the defined contribution pension portion of the Plan and an equivalent amount to the section 401(k) portion of the Plan. The Company also makes matching contributions to employee voluntary contributions to the 401(k) portion of the Plan. Total expense related to the Plan for the years ended December 31, 1996, 1995 and 1994 was approximately $387, $375 and $334, respectively.
The Company does not provide any postretirement benefits to its employees.
NOTE 7. OPERATING LEASES
The Company leases certain office, production, satellite transponder, and transmission facilities under terms of operating leases expiring at various dates. The leases generally provide for fixed annual rentals plus certain real estate taxes and other costs. Rent expense for the years ended December 31, 1996, 1995 and 1994 was approximately $1,080, $1,110 and $1,240, respectively.
In addition, the Company rents space on utility poles for its operations. The Company's pole rental agreements are for varying terms, and management anticipates renewals as they expire. Pole rental expense for the years ended December 31, 1996, 1995 and 1994 was approximately $1,894, $2,311 and $1,745, respectively.
The minimum future annual rentals for all operating leases, including pole rentals, from January 1, 1997 through December 31, 2001 at rates now in force are approximately: 1997, $2,699; 1998, $2,424; 1999, $2,243; 2000, $2,214; 2001, $2,167.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
NOTE 8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and Cash Equivalents, Trade Accounts Receivable, Notes and Other Receivables, Accounts Payable, Accrued Liabilities, Accounts Payable to Affiliates and Due to Parent
The carrying amount approximates fair value because of the short maturity of these instruments.
Senior Term Loan
The fair values of the Company's long-term debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.
The fair value of the Company's financial instruments are summarized as follows:
Carrying Estimated Amount Fair Value ------ ---------- Long term debt instruments: Senior term loans, December 31, 1996.......... $402,967 $402,967 ======== ======== Senior term loans, December 31, 1995.......... $410,000 $410,000 ======== ========
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
NOTE 9. COMMITMENTS AND CONTINGENCIES
CSC and its cable television affiliates, including the Company, have an affiliation agreement with a program supplier whereby CSC and its cable television affiliates are obligated to make Base Rate Annual Payments, as defined, through 2004. The Company would be contingently liable for its proportionate share of Base Rate Annual Payments, based on subscriber usage, of approximately $1,099 in 1997; $1,137 in 1998; $1,177 in 1999 and for the years 2000 through 2004. Such payments would increase by percentage increases in the Consumer Price Index or five percent, whichever is less, over the prior year's Base Annual Payment.
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A-R CABLE SERVICES, INC. AND SUBSIDIARIES (a wholly-owned subsidiary of Cablevision Systems Corporation) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (continued)
The Company is party to various lawsuits, some involving substantial amounts. Management does not believe that the resolution of these lawsuits will have a material adverse impact on the financial position of the Company.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 31st day of March, 1997.
Cablevision Systems Corporation
By: /s/ William J. Bell ------------------------------ Name: William J. Bell Title: Vice Chairman
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Francis F. Randolph, Jr., Marc A. Lustgarten and Robert S. Lemle, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him in his name, place and stead, in any and all capacities, to sign this report, and file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date ---- ----- ----
/s/ James L. Dolan Chief Executive Officer March 31, 1997 - ----------------------- and Director James L. Dolan (Principal Executive Officer) /s/ William J. Bell Vice Chairman and Director March 31, 1997 - ----------------------- William J. Bell (Principal Financial Officer)
/s/ Andrew B. Rosengard Senior Vice President March 31, 1997 - ------------------------- and Controller Andrew B. Rosengard (Principal Accounting Officer)
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SIGNATURES (continued)
/s/ Charles F. Dolan Chairman of the Board March 31, 1997 - --------------------------- of Directors Charles F. Dolan
Marc A. Lustgarten Vice Chairman and Director March 31, 1997 - --------------------------- Marc A. Lustgarten
/s/ Robert May Chief Operating Officer March 31, 1997 - --------------------------- Robert May
/s/ Robert S. Lemle Executive Vice President, March 31, 1997 - --------------------------- General Counsel, Secretary Robert S. Lemle and Director
/s/ Sheila A. Mahony Senior Vice President March 31, 1997 - ----------------------------- and Director Sheila A. Mahony
/s/ John Tatta Director and Chairman of March 31, 1997 - ----------------------------- the Executive Committee John Tatta
Patrick F. Dolan Director March 31, 1997 - ----------------------------- Patrick F. Dolan
Francis F. Randolph, Jr. Director March 31, 1997 - ----------------------------- Francis F. Randolph, Jr.
/s/ Daniel T. Sweeney Director March 31, 1997 - ----------------------------- Daniel T. Sweeney
/s/ Charles D. Ferris Director March 31, 1997 - ----------------------------- Charles D. Ferris
/s/ Richard H. Hochman Director March 31, 1997 - ----------------------------- Richard H. Hochman
/s/ Victor Oristano Director March 31, 1997 - ----------------------------- Victor Oristano
/s/ Vincent Tese Director March 31, 1997 - ----------------------------- Vincent Tese
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INDEX TO EXHIBITS EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
3.1 --Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 dated January 17, 1986, File No. 33-1936 (the "S-1")).
3.1A --Amendment to Certificate of Incorporation and complete copy of amended and restated Certificate of Incorporation (incorporated herein by reference to Exhibits 3.1A(i) and 3.1A(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (the "1989 10-K")).
3.1B --Certificate of Designations for the Series E Redeemable Exchangeable Convertible Preferred Stock (incorporated herein by reference to the Company's Annual Report on form 10-K/A for the year ended December 31, 1993, filed on April 13, 1994).
3.1C --Certificate of Designations for the Series F Redeemable Preferred Stock (incorporated herein by reference to the Company's Annual Report on Form 10-K/A for the year ended December 31, 1993, filed on April 13, 1994).
3.1D --Certificate of Designations for the Series G Redeemable Exchangeable Preferred Stock (incorporated herein by reference to Exhibit 3.1D to the Company's Registration Statement on Form S-4, File No. 33-62717).
3.1E --Certificate of Designations for the Series H Redeemable Exchangeable Preferred Stock (incorporated by reference to Exhibit 4.1E to the Company's Registration Statement on Form S-4, File No. 33-63691).
3.1F --Certificate of Designations for the Series I Cumulative Convertible Exchangeable Preferred Stock (incorporated by reference to Exhibit 99.3 to the Company's Current Report on Form 8-K dated November 7, 1995).
3.1G --Certificate of Designations for the Series L Redeemable Exchangeable Preferred Stock (incorporated herein by reference to Exhibit 3.1G of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
3.1H --Certificate of Designations for the Series M Redeemable Exchangeable Preferred Stock (incorporated by reference to Exhibit 4.1(f) to the Company's Registration Statement on Form S-4, File No. 333-00527).
3.2 --By-laws of the Registrant (incorporated hereby by reference to Exhibit 3.2 to the S-1).
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
3.2A --Amendment to By-laws and complete copy of amended and restated By-laws (incorporated herein by reference to Exhibit 3.2 to the 1989 10-K).
3.2B --Amendment to By-laws and complete copy of amended and restated By-laws (incorporated herein by reference to Exhibit 3.2B to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (the "1992 10-K").
3.2C --Amendment to By-laws and complete copy of amended and restated By-laws (incorporated herein by reference to Exhibit 3.2C to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
3.2D --Amendment to By-laws of the Registrant and complete copy of amended and restated By-laws (incorporated herein by reference to Exhibit 3.2D to the Company's Registration Statement on Form S-4, File No. 33-62717).
4.1 --Indenture dated as of April 1, 1992 relating to the Registrant's $275,000,000 10 3/4% Senior Subordinated Debentures due April 1, 2004 (incorporated herein by reference to Exhibit 4.2 to the 1992 10-K).
4.2 --Indenture dated as of February 15, 1993 relating to the Registrant's $200,000,000 9 7/8% Senior Subordinated Debentures due February 15, 2013 (incorporated herein by reference to Exhibit 4.3 to the 1992 10-K).
4.3 --Indenture dated as of April 1, 1993 relating to the Registrant's $150,000,000 9-7/8% Senior Subordinated Debentures due 2023 (incorporated by reference to the Company's Registration Statement on Form S-4, File No. 33-61814).
4.4 --Supplemental indenture dated as of November 1, 1995 between the Company and the Bank of New York, Trustee, to the indenture dated November 1, 1995 (incorporated by reference to Exhibit 99.6 to the Company's Current Report on Form 8-K filed November 1, 1995).
4.5 --Registration Rights Agreement, dated September 26, 1995, between the Registrant and Bear, Stearns & Co., Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Morgan Stanley & Co., Incorporated (incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-4, Registration No. 33-63691).
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
4.6 --Registration Rights Agreement, dated February 15, 1996 between the Registrant and Bear, Stearns & Co., Inc., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Morgan Stanley & Co., Incorporated (incorporated herein by reference to Exhibit 4.6 of the Company's Annual Report on Form 10-K for the year ended December 31, 1995).
10.1 --Registration Rights Agreement between Cablevision Systems Company and the Registrant (incorporated herein by reference to Exhibit 10.1 of the S-1).
10.2 --Registration Rights Agreement between CSC Holdings Company and the Registrant (incorporated herein by reference to Exhibit 10.2 to the S-1)
10.3 --Form of Right of First Refusal Agreement between Dolan and the Registrant (incorporated herein by reference to Exhibit 10.4 to the S-1)
10.4 --Supplemental Benefit Plan of the Registrant (incorporated herein by reference to Exhibit 10.7 to the S-1)
10.5 --Cablevision Money Purchase Pension Plan, and Trust Agreement dated as of December 1, 1983 between Cablevision Systems Development Company and Dolan and Tatta, as Trustees (incorporated herein by reference to Exhibit 10.8 to the S-1)
10.6 --Amendment to the Cablevision Money Purchase Pension Plan adopted November 6, 1992 (incorporated herein by reference to Exhibit 10.6A to the 1992 10-K).
10.7 --Employment Agreement between Charles F. Dolan and the Registrant dated January 27, 1986 (incorporated herein by reference to Exhibit 10.9 to the S-1)
10.8 --Amended and Restated Agreement dated as of June 1, 1983 between SportsChannel Associates and Cablevision Systems Holdings Company (incorporated herein by reference to Exhibit 10.11 to the S-1)
10.9 --Lease Agreement dated as of October 9, 1978 between Cablevision Systems Development Company and Industrial and Research Associates Co. and amendment dated June 21, 1985 between Industrial and Research Associates Co. and Cablevision Company (incorporated herein by reference to Exhibit 10.18 to the S-1)
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
10.10 --Lease Agreement dated May 1, 1982 between Industrial and Research Associates Co. and Cablevision Systems Development Company (incorporated herein by reference to Exhibit 10.19 to the S-1)
10.11 --Agreement of Sublease dated as of July 9, 1982 between Cablevision Systems Development Company and Ontel Corporation (incorporated herein by reference to Exhibit 10.20 to the S-1)
10.12 --Agreement of Sublease dated as of June 21, 1985 between Grumman Data Systems Corporation and Cablevision Company (incorporated herein by reference to Exhibit 10.21 to the S-1)
10.13 --Agreement dated as of June 21, 1985 between Industrial and Research Associates Co., Grumman Data Systems Corporation and Cablevision Company (incorporated herein by reference to Exhibit 10.22 to the S-1)
10.14 --Lease Agreement dated as of June 21, 1985 between Industrial and Research Associates Co. and Cablevision Company (incorporated herein by reference to Exhibit 10.23 to the S-1)
10.15 --Lease Agreement dated as of February 1, 1985 between Cablevision Company and County of Nassau (incorporated herein by reference to Exhibit 10.24 to the S-1)
10.16 --Lease Agreement dated as of January 1, 1981 between Cablevision Systems Development Company and Precision Dynamics Corporation and amendment dated January 15, 1985 between Cablevision Company and Nineteen New York Properties Limited Partnership (incorporated herein by reference to Exhibit 10.25 to the S-1)
10.17 --Option Certificate for 840,000 Shares Issued Pursuant to the 1986 Nonqualified Stock Option Plan of the Registrant (incorporated herein by reference to Exhibit 10.29 to the S-1)
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
10.19 --Purchase and Reorganization Agreement dated as of December 20, 1991 between the Registrant and Charles F. Dolan (incorporated herein by reference to Exhibit 2(c) to the January 1992 8-K).
10.20 --Amendment No. 1 dated as of March 28, 1992 to Purchase and Reorganization Agreement dated as of December 20, 1991 between the Registrant and Charles F. Dolan (incorporated herein by reference to Exhibit 2(g) to the March 1992 Form 8).
10.21 --Letter Agreement dated February 12, 1992, among the Registrant, A-R Cable Services, Inc. and Warburg Pincus Investors, L.P. (incorporated herein by reference to Exhibit 28(a) to the Registrant's Current Report on Form 8-K dated February 21, 1992 (the "February 1992 8-K")).
10.22 --Letter Agreement dated February 12, 1992 among the Registrant, A-R Cable Services, Inc. and General Electric Capital Corporation (incorporated herein by reference to Exhibit 28(b) to the February 1992 8-K).
10.23 --Letter Agreement dated February 12, 1992 among the Registrant and A-R Cable Services, Inc. (incorporated herein by reference to Exhibit 28(b) to the February 1992 8-K).
10.24 --Non-Competition Agreement, dated as of December 31, 1992, among V Cable, Inc., VC Holding, Inc. and the Registrant, for the benefit of V Cable, Inc., VC Holding, Inc. and General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.37 to the 1992 10-K).
10.25 --Non-Competition Agreement, dated as of December 31, 1992, between U.S. Cable Television Group, L.P. and the Registrant, for the benefit of U.S. Cable Television Group, L.P. and General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.38 to the 1992 10-K).
10.26 --CSC Nonrecourse Guaranty and Pledge Agreement, dated as of December 31, 1992, between the Registrant and General Electric Capital Corporation, as Agent for the Lenders (incorporated herein by reference to Exhibit 10.39 to the 1992 10-K).
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
10.27 --U.S. Cable Investment Agreement, dated as of June 30, 1992, among V Cable, Inc., V Cable GP, Inc., U.S. Cable Television Group, L.P. and U.S. Cable Partners (incorporated herein by reference to Exhibit 10.40 to the 1992 10-K).
10.28 --Newco Investment Agreement, dated as of December 31, 1992, among VC Holding, Inc., V Cable, Inc. and U.S. Cable Television Group (incorporated herein by reference to Exhibit 10.41 to the 1992 10-K).
10.29 --Senior Loan Agreement, dated as of December 31, 1992, among V Cable, Inc., the Lenders named therein and General Electric Capital Corporation, as Agent for the Lenders and as Lender (incorporated herein by reference to Exhibit 10.42 to the 1992 10-K).
10.30 --Cablevision Systems Corporation Amended and Restated Employee Stock Plan (incorporated herein by reference to Exhibit 10.46 to the 1992 10-K).
10.31 --Cablevision Systems Corporation 401(K) Savings Plan (incorporated herein by reference to Exhibit 10.47 to the 1992 10-K).
10.32 --Fourth Amended and Restated Credit Agreement, dated as of June 18, 1993, among Cablevision of New York City - Phase I L.P., Cablevision Systems New York City Corporation, Cablevision of New York City- Master L.P., each of the Banks signatory thereto, The Chase Manhattan Bank (National Association) as Agent and The First National Bank of Chicago and CIBC, Inc. each as Co-Agent (incorporated herein by reference to Exhibit 10.49 of the Company's Annual Report on Form 10-K for the year ended December 31, 1993).
10.33 --Asset Purchase Agreement, dated as of July 23, 1993, by and between Cablevision of Cleveland, L.P. and North Coast Cable Limited Partnership (incorporated herein by reference to Exhibit 10.50 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1993).
10.34 --Master Agreement, dated as of October 26, 1993, between Cablevision MFR, Inc., Monmouth Cablevision Associates, Framingham Cablevision Associates and Riverview Cablevision Associates, L.P. (incorporated herein by reference to Exhibit 10.51 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1993 (the "September 1993 10-Q").
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
10.35 --Asset Purchase Agreement, dated as of October 26, 1993, between Monmouth Cablevision Associates and Cablevision MFR, Inc. (incorporated herein by reference to Exhibit 10.52 to the September 1993 10-Q).
10.36 --Asset Purchase Agreement, dated as of October 26, 1993, between Framingham Cablevision Associates, Limited Partnership and Cablevision MFR, Inc. (incorporated herein by reference to Exhibit 10.53 to the September 1993 10-Q).
10.37 --Asset Purchase Agreement, dated as of October 26, 1993 between Riverview Cablevision Associates, L.P. and Cablevision MFR, Inc. (incorporated herein by reference to Exhibit 10.54 to the September 1993 10-Q).
10.38 --Asset Purchase Agreement among A-R Cable Partners, Nashoba Communications Limited Partnership, Nashoba Communications Limited Partnership No. 7 and Nashoba Communications of Belmont Limited Partnership dated as of November 5, 1993 (incorporated herein by reference to Exhibit 10.55 to the September 1993 10-Q).
10.39 --Loan Agreement, dated as of June 30, 1994 among Rainbow Programming Holdings, Inc., the Guarantors as defined therein, Toronto-Dominion Bank, the other banks party thereto and Toronto-Dominion (Texas), Inc., as Agent (incorporated herein by reference to Exhibit 10.58 to the Company's June 30, 1994 10-Q).
10.40 --Acquisition Agreement and Plan of Merger and Reorganization, dated as of June 14, 1994, among Cablevision of Boston Limited Partnership, Cablevision of Boston, Inc., Charles F. Dolan, Cablevision Systems Boston Corporation, Cablevision Systems Corporation, COB, Inc., Cablevision Systems Services Corporation and Cablevision Finance Limited Partnership (incorporated herein by reference to Exhibit 10.59 to the Company's June 30, 1994 10-Q).
10.41 --Credit Agreement, dated as of June 15, 1994, among Cablevision of Framingham, Inc., the several lenders parties thereto, The Chase Manhattan Bank, N.A., as Agent and CIBC Inc., as Co-Agent (incorporated herein by reference to Exhibit 10.60 to the Company's June 30, 1994 10-Q).
10.42 --Amendment No. 1, dated as of August 8, 1994, to the Credit Agreement, dated as of June 15, 1994, among Cablevision of Framingham, Inc., the several lenders
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
parties thereto, the Chase Manhattan Bank, N.A., as Agent and CIBC, Inc., as Co-Agent (incorporated herein by reference to Exhibit 10.61 to the Company's June 30, 1994 10-Q).
10.43 --Asset Purchase Agreement, dated as of October 26, 1993, between Monmouth Cablevision Associates and Cablevision MFR, Inc. as amended by Amendment No. 1 thereto, dated as of April 6, 1994 and Amendment No. 2 thereto, dated as of June 3, 1994 (restated) (incorporated herein by reference to Exhibit 10.62 to the Company's June 30, 1994 10-Q).
10.44 --Asset Purchase Agreement, dated as of October 26, 1993, between Riverview Cablevision Associates, Limited Partnership, and Cablevision MFR, Inc., as amended by Amendment No. 1 thereto, dated as of April 6, 1994 and Amendment No. 2 thereto, dated as of June 3, 1994 (restated) (incorporated herein by reference to Exhibit 10.63 to the Company's June 30, 1994 10-Q).
10.45 --Asset Purchase Agreement, dated as of October 26, 1993, between Framingham Cablevision Associates, Limited Partnership, and Cablevision MFR, Inc., as amended and assigned to Cablevision Framingham Holdings, Inc. by Amendment No. 1 thereto, dated as of April 6, 1994, and as further amended by Amendment No. 2 thereto, dated as of June 3, 1994 (restated) (incorporated herein by reference to Exhibit 10.64 to the Company's June 30, 1994 10-Q).
10.46 --Credit Agreement, dated as of June 15, 1994 (the "Credit Agreement"), by and among Cablevision MFR, Inc., Cablevision of Riverview, Inc. and Cablevision of Monmouth, Inc., the Lenders from time to time party thereto and NationsBank of Texas, N.A., as Administrative Lender (incorporated herein by reference to Exhibit 10.65 to the Company's June 30, 1994 10-Q).
10.47 --Agreement, dated as of August 15, 1994 among ITT Corporation, the Registrant and Rainbow Programming Holdings, Inc. (incorporated herein by reference to Exhibit 10.65 of the Company's Current Report on Form 8-K dated September 21, 1994).
10.48 --Amendment Agreement, dated as of September 12, 1994 among ITT Corporation, the Registrant and Rainbow Programming Holdings, Inc. (incorporated herein by reference to Exhibit 10.66 of the Company's Current Report on Form 8-K dated September 21, 1994).
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
10.49 --Agreement and Plan of Merger, (the "MSG Merger Agreement") dated as of August 27, 1994 among Viacom Inc., Paramount Communications Realty Corporation, ITT Corporation, Rainbow Garden Corporation and MSG Holdings, Inc. (incorporated herein by reference to Exhibit 10.67 of the Company's Current Report on Form 8-K dated September 21, 1994).
10.50 --Fourth Amended and Restated Credit Agreement, dated as of October 14, 1994 (the "Credit Agreement"), among Cablevision Systems Corporation, the Restricted Subsidiaries (as defined therein) banks party thereto, Toronto Dominion (Texas), Inc., as Agent, and Bank of Montreal, Chicago Branch, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce and NationsBank of Texas, N.A., as Co-Agents (incorporated herein by reference to Exhibit 10.68 to the Company's September 30, 1994 10-Q).
10.51 --First Amended and Restated Credit Agreement, dated as of October 14, 1994, among Cablevision of New Jersey, Inc., Cablevision Systems Corporation, the banks party thereto, Toronto Dominion (Texas), Inc., as Agent and Bank of Montreal, Chicago Branch, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce and NationsBank of Texas, N.A., as Co-Agents (incorporated herein by reference to Exhibit 10.69 to the Company's September 30, 1994 10-Q).
10.52 --Amendment No. 1 to the Credit Agreement (incorporated herein by reference to Exhibit 10.61 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.53 --Amendment No. 1 to First Amended and Restated Credit Agreement, dated as of October 14, 1994, among Cablevision of New Jersey, Inc., Cablevision Systems Corporation, the banks party thereto, Toronto Dominion (Texas), Inc., as Agent and Bank of Montreal, Chicago Branch, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce and NationsBank of Texas, N.A., as Co-Agents (incorporated herein by reference to Exhibit 10.62 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.54 --Amended and Restated Loan Agreement, dated as of January 27, 1995 among Rainbow Programming Holdings, Inc., the guarantors (as defined therein), Toronto Dominion (Texas) Inc. and Canadian Imperial Bank of Commerce, as co-agents and Toronto Dominion (Texas), Inc., as administrative agent (incorporated herein
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
by reference to Exhibit 10.63 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.55 --Amendment No. 1 dated as of March 10, 1995 to the MSG Merger Agreement (incorporated herein by reference to Exhibit 10.64 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.56 --Amendment No. 2 dated as of March 10, 1995 to the MSG Merger Agreement (incorporated herein by reference to Exhibit 10.65 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.57 --Agreement and undertaking, dated as of March 10, 1995 from MSG Holdings, LP, MSG Eden Corporation, the Registrant, Rainbow Programming Holdings, Inc., Rainbow Garden Corporation, Garden L.P. Holdings Corp., ITT Corporation, ITT Eden Corp. in favor of the National Basketball Association (the "NBA"), the member terms of the NBA, NBA Properties, Inc., the NBA Market Extension Partnership and Planet Insurance, Ltd. (incorporated herein by reference to Exhibit 10.66 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.58 --Consent Agreement, dated as of March 10, 1995 by and among the National Hockey League, MSG Holdings, L.P., MSG Eden Corporation, ITT Eden Corporation, ITT MSG Inc., ITT Corporation, Garden L.P. Holdings Corp., Rainbow Garden Corporation, Rainbow Programming Holdings Inc. and the Registrant (incorporated herein by reference to Exhibit 10.67 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.59 --Amendment to consulting agreement dated as of November 28, 1994 between the Company and John Tatta (incorporated herein by reference to Exhibit 10.68 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.60 --Employment Agreement, dated as of November 30, 1994, between the Registrant and William J. Bell (incorporated herein by reference to Exhibit 10.69 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.61 --Employment Agreement, dated as of November 30, 1994, between the Registrant and Marc A. Lustgarten (incorporated herein by reference to Exhibit 10.70 to the
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.62 --Employment Agreement, dated as of November 30, 1994, between the Registrant and Robert S. Lemle (incorporated herein by reference to Exhibit 10.71 to the Company's Annual Report on Form 10-K405 for the fiscal year ended December 31, 1994).
10.63 --Amendment No. 2 and Waiver, dated as of September 28, 1995 to the Credit Agreement (incorporated herein by reference to Exhibit 10.63 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.64 --Amendment No. 3 and Waiver, dated as of November 7, 1995, to the Credit Agreement (incorporated herein by reference to Exhibit 10.64 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.65 --Amendment No. 4 and Waiver, dated as of March 4, 1996, to the Credit Agreement (incorporated herein by reference to Exhibit 10.65 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.66 --Amended and Restated Senior Loan Agreement, dated as of March 15, 1996, among U.S. Cable Television Group, L.P., the Lenders named therein and General Electric Capital Corporation, as Agent and Lender (incorporated herein by reference to Exhibit 10.66 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.67 --Amended and Restated Loan Agreement, dated as of March 15, 1996, among VC Holding, Inc., the Lenders named therein and General Electric Capital Corporation, as Agent and Lender (incorporated herein by reference to Exhibit 10.67 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.68 --Partnership interests Redemption Agreement, dated as of March 15, 1996, among U.S. Cable Television Group, L.P., U.S. Cable Partners, Pompadur Trust No. 1, The Rule Trust, dated June 11, 1987, Elliot H. Stein, I. Martin Pompadur and General Electric Capital Corporation (incorporated herein by reference to Exhibit 10.68 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
10.69 --Second Amended and Restated Agreement of Limited Partnership of U.S. Cable Television Group, L.P., dated as of March 15, 1996 (incorporated herein by reference to Exhibit 10.69 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.70 --Cablevision Systems Corporation 1996 Employee Stock Plan (incorporated herein by reference to Exhibit 10.70 of the Company's Annual Report on Form 10 -K for the fiscal year ended December 31, 1995).
10.71 --Credit Agreement, dated as of April 17, 1996, among Cablevision of Cleveland, L.P., Telerama, Inc., Cablevision of the Midwest, Inc., the lenders from time to time party thereto, NationsBank of Texas, N.A., as Administrative Agent, Canadian Imperial Bank of Commerce as Documentation Agent, The Toronto-Dominion Bank as Syndicate Agent, and The First National Bank of Boston, The Bank of Nova Scotia, Corcstatcs Bank, N.A., Credit Lyonnais Cayman Island Branch, PNC Bank, National Association and Royal Bank of Canada, as Co-Agents (incorporated herein by reference to Exhibit 10.71 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 1996).
10.72 --Fifth Amended and Restated Credit Agreement, dated as of September 5, 1996, among Cablevision Systems Corporation, the Restricted Subsidiaries (as defined herein), the banks party thereto, and Toronto Dominion (Texas), Inc., as Arranging Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank of Texas, N.A., and The Chase Manhattan Bank, as Agents, Bank of Montreal, Chicago Branch, Fleet Bank, N.A., Mellon Bank, N.A., and Regal Bank of Canada, as Co-Agents, The Bank of Nova Scotia and The Canadian Imperial Bank of Commerce, as Co-Syndication Agents, and The Bank of New York, as Documentation Agent (incorporated herein by reference to Exhibit 10.72 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996).
10.73 --Credit Agreement, dated as of September 5, 1996, among Cablevision MFR, Inc., Cablevision Systems Corporation, the Guarantors (as defined therein), the banks party thereto, and Toronto Dominion (Texas), Inc. as Arranging Agent, The Bank of New York, The Bank of Nova Scotia, The Canadian Imperial Bank of Commerce, NationsBank of Texas, N.A., and The Chase Manhattan Bank, as Agents, Bank of Montreal, Chicago Branch, Fleet Bank, N.A., Mellon Bank, N.A., and Regal Bank of Canada, as Co-Agents, The Bank of Nova Scotia and The Canadian Imperial Bank of Commerce, as Co-Syndication Agents, and The Bank
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INDEX TO EXHIBITS (continued) EXHIBIT PAGE NO. DESCRIPTION NO. - ------- ----------- ------
of New York, as Documentation Agent (incorporated herein by reference to Exhibit 10.73 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996).
10.74 --Agreement, dated February 4, 1996, among Cablevision Systems Corporation, Rainbow Programming Holdings, Inc. and ITT Corporation (incorporated herein by reference to Exhibit 10.74 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996).
10.75 --Master Stock Purchase Agreement, dated as of May 10, 1996, between Warburg Pincus Investors, L.P., a Delaware limited partnership, and the Company (incorporated by reference to Exhibit 99 to the Company's Current Report on Form 8-K dated May 10, 1996).
10.76 --Letter, dated March 6, 1997, among ITT MSG Inc., ITT Eden Corp., Rainbow Garden Corp. and Garden L.P. Holding Corp. (incorporated by reference to Exhibit 99.2 of the Company's Current Report on Form 8-K dated March 6, 1997).
21 --Subsidiaries of the Registrant
23.1 --Consent of Independent Auditors
27 --Financial Data Schedule
28.1-- --Form of Guarantee and Indemnification Agreement among Dolan, the Registrant and directors and officers of the Registrant (incorporated herein by reference to Exhibit 28 to the S-1)
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