UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

(Mark One)

 

For the transition period from                            to                           

Commission File Number		Registrant; State of Incorporation; Address and Telephone Number		IRS Employer Identification No.
1-14764		Cablevision Systems Corporation		11-3415180
		Delaware
		1111 Stewart Avenue
		Bethpage, New York 11714
		(516) 803-2300
1-9046		CSC Holdings, Inc.		11-2776686
		Delaware
		1111 Stewart Avenue
		Bethpage, New York 11714
		(516) 803-2300

 

Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

Cablevision Systems Corporation		Yes		x		No		o
CSC Holdings, Inc.		Yes		x		No		o

 

Indicate by check mark whether each Registrant is a large accelerated filer, accelerated filer or non-accelerated filer (as defined in Exchange Act Rule 12b-2).

Large accelerated filer

Accelerated filer

Non-accelerated filer

Cablevision Systems Corporation

Yes

x

No

o

Yes

o

No

o

Yes

o

No

o

CSC Holdings, Inc.

Yes

o

No

o

Yes

o

No

o

Yes

x

No

o

 

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Cablevision Systems Corporation		Yes	o			No		x
CSC Holdings, Inc.		Yes	o			No		x

 

Number of shares of common stock outstanding as of April 30, 2007:

Cablevision NY Group Class A Common Stock  -		229,905,864
Cablevision NY Group Class B Common Stock  -		63,327,303
CSC Holdings, Inc. Common Stock  -		11,595,635

 

CSC Holdings, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format applicable to CSC Holdings, Inc.

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

				Page
PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements of Cablevision Systems Corporation and Subsidiaries
		Condensed Consolidated Balance Sheets - March 31, 2007 (unaudited) and December 31, 2006		3
		Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2007 and 2006 (unaudited)		5
		Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2007 and 2006 (unaudited)		6
		Notes to Condensed Consolidated Financial Statements (unaudited)		7
		Financial Statements of CSC Holdings, Inc. and Subsidiaries
		Condensed Consolidated Balance Sheets - March 31, 2007 (unaudited) and December 31, 2006		25
		Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2007 and 2006 (unaudited)		27
		Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2007 and 2006 (unaudited)		28
		Notes to Condensed Consolidated Financial Statements (unaudited)		29
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		46
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		69
	Item 4.	Controls and Procedures		73
PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings		74
	Item 1A.	Risk Factors		74
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		78
	Item 6.	Exhibits		78
	SIGNATURES			79

 

PART I.  FINANCIAL INFORMATION

This Quarterly Report on Form 10-Q for the period ended March 31, 2007 is separately filed by Cablevision Systems Corporation (“Cablevision”) and CSC Holdings, Inc. (“CSC Holdings” and collectively with Cablevision and their subsidiaries, the “Company” or “we”, “us” or “our”).

This Quarterly Report contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995, including disclosures relating to the Proposed merger (as defined herein), restructuring charges, availability under credit facilities, levels of capital expenditures, sources of funds and funding requirements, among others.  Investors are cautioned that such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors.  Factors that may cause such differences to occur include, but are not limited to:

·                  With respect to the proposed merger (“Proposed Merger”) of Cablevision Systems Corporation into an entity owned by the members of the Dolan Family Group in which all of the outstanding shares of the Company’s common stock, except for the shares held by the Dolan Family Group, will be converted into $36.26 per share in cash: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; (2) the outcome of any legal proceedings that have been or may be instituted against the Company and others, including following announcement of the Proposed Merger; (3) the inability to obtain shareholder approval or the failure to satisfy other conditions to completion of the Proposed Merger, including the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the receipt of other regulatory approvals; (4) the failure to obtain the necessary debt financing; (5) risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the Proposed Merger; (6) the ability to recognize the benefits of the Proposed Merger; (7) the amount of the costs, fees, expenses and charges related to the Proposed Merger and the actual terms of certain financings that will be obtained for the Proposed Merger; and (8) the impact of the substantial indebtedness incurred to finance the consummation of the Proposed Merger;

·      the level of our revenues;

·                  competition from existing competitors (such as direct broadcast satellite (“DBS”) providers) and new competitors (such as telephone companies and high-speed wireless providers) entering our franchise areas;

·                  demand for and growth of our digital video, high-speed data and voice services, which are impacted by competition from other services and the other factors discussed herein;

·                  the cost of programming and industry conditions;

·                  the regulatory environment in which we operate;

·                  developments in the government investigations and litigation related to past practices of the Company in connection with grants of stock options and stock appreciation rights (“SARs”);

·                  developments in the government investigations relating to improper expense recognition and the timing of recognition of launch support, marketing and other payments under affiliation agreements;

·                  the outcome of litigation and other proceedings, including the matters described under “Legal Matters” in the notes to our condensed consolidated financial statements;

·                  general economic conditions in the areas in which we operate;

·                  demand for advertising inventory;

·                  our ability to obtain or produce content for our programming businesses;

·                  the level of our capital expenditures;

·                  the level of our expenses;

·                  future acquisitions and dispositions of assets;

·                  the demand for our programming among other cable television and DBS operators and telephone companies and our ability to maintain and renew affiliation agreements with cable television and DBS operators and telephone companies;

·                  market demand for new services;

·                  whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all);

·                  other risks and uncertainties inherent in the cable television business, the programming and entertainment businesses and our other businesses;

·                  financial community and rating agency perceptions of our business, operations, financial condition and the industry in which we operate; and

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·                  the factors described in our filings with the Securities and Exchange Commission, including under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein.

We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.

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Item 1.     Financial Statements

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

		March 31,			December 31,
		2007			2006
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	531,076		$	548,862
Restricted cash		27,103			11,390
Accounts receivable, trade (less allowance for doubtful accounts of $16,587 and $17,345)		476,985			536,057
Prepaid expenses and other current assets		185,743			181,188
Feature film inventory, net		123,229			124,778
Deferred tax asset		286,199			184,032
Derivative contracts		58,174			81,140
Total current assets		1,688,509			1,667,447
Property, plant and equipment, net of accumulated depreciation of $6,474,195 and $6,257,078		3,608,121			3,714,842
Investments in affiliates		51,075			49,950
Notes and other receivables		32,794			29,659
Investment securities pledged as collateral		1,007,902			1,080,229
Other assets		82,868			80,273
Feature film inventory, net		370,356			375,700
Deferred carriage fees, net		168,147			174,377
Cable television franchises		731,848			731,848
Affiliation, broadcast and other agreements, net of accumulated amortization of $434,593 and $417,634		435,929			452,888
Other intangible assets, net of accumulated amortization of $84,087 and $77,795		320,234			325,298
Excess costs over fair value of net assets acquired		1,032,117			1,032,117
Deferred financing and other costs, net of accumulated amortization of $73,899 and $68,705		123,716			130,229
		$	9,653,616		$	9,844,857

 

See accompanying notes to
condensed consolidated financial statements.

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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (cont’d)

(Dollars in thousands, except per share amounts)

		March 31,			December 31,
		2007			2006
		(unaudited)
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable		$	401,647		$	392,605
Accrued liabilities		956,547			1,025,342
Deferred revenue		140,104			162,956
Feature film and other contract obligations		120,558			122,362
Liabilities under derivative contracts		6,395			6,568
Bank debt		112,500			93,750
Collateralized indebtedness		74,695			102,268
Capital lease obligations		6,587			7,069
Notes payable		7,467			17,826
Senior notes and debentures		499,965			499,952
Total current liabilities		2,326,465			2,430,698
Feature film and other contract obligations		301,009			312,344
Deferred revenue		14,047			14,337
Deferred tax liability		148,102			73,724
Liabilities under derivative contracts		141,173			204,887
Other liabilities		317,122			333,973
Bank debt		4,884,250			4,898,750
Collateralized indebtedness		826,186			819,306
Senior notes and debentures		5,494,290			5,494,004
Senior subordinated notes and debentures		497,108			497,011
Notes payable		—			1,017
Capital lease obligations		52,842			54,389
Minority interests		45,410			49,670
Total liabilities		15,048,004			15,184,110
Commitments and contingencies
Stockholders’ Deficiency:
Preferred Stock, $.01 par value, 50,000,000 shares authorized, none issued		—			—
CNYG Class A Common Stock, $.01 par value, 800,000,000 shares authorized, 253,431,595 and 250,927,804 shares issued and 229,485,882 and 228,643,568 shares outstanding		2,534			2,509
CNYG Class B Common Stock, $.01 par value, 320,000,000 shares authorized, 63,327,303 and 63,736,814 shares issued and outstanding		633			637
RMG Class A Common Stock, $.01 par value, 600,000,000 shares authorized, none issued		—			—
RMG Class B Common Stock, $.01 par value, 160,000,000 shares authorized, none issued		—			—
Paid-in capital		75,605			57,083
Accumulated deficit		(5,051,458		)	(5,027,473		)
		(4,972,686		)	(4,967,244		)
Treasury stock, at cost (23,945,713 and 22,284,236 shares)		(409,752		)	(360,059		)
Accumulated other comprehensive loss		(11,950		)	(11,950		)
Total stockholders’ deficiency		(5,394,388		)	(5,339,253		)
		$	9,653,616		$	9,844,857

 

See accompanying notes to
condensed consolidated financial statements.

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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands, except per share amounts)

(Unaudited)

		2007			2006
Revenues, net		$	1,586,216		$	1,409,358
Operating expenses:
Technical and operating (excluding depreciation, amortization and impairments shown below)		748,398			670,207
Selling, general and administrative		373,802			358,704
Restructuring charges (credits)		1,329			(685		)
Depreciation and amortization (including impairments)		286,686			277,405
		1,410,215			1,305,631
Operating income		176,001			103,727
Other income (expense):
Interest expense		(238,648		)	(193,132		)
Interest income		8,731			5,900
Equity in net income of affiliates		1,776			1,408
Write-off of deferred financing costs		—			(4,587		)
Gain (loss) on investments, net		(72,986		)	7,238
Gain (loss) on derivative contracts, net		65,119			(6,780		)
Minority interests		(1,673		)	(1,337		)
Miscellaneous, net		656			183
		(237,025		)	(191,107		)
Loss from continuing operations before income taxes		(61,024		)	(87,380		)
Income tax benefit		29,707			32,658
Loss from continuing operations		(31,317		)	(54,722		)
Income (loss) from discontinued operations, net of taxes		5,484			(2,386		)
Loss before cumulative effect of a change in accounting principle		(25,833		)	(57,108		)
Cumulative effect of a change in accounting principle, net of taxes		(443		)	(862		)
Net loss		$	(26,276	)	$	(57,970	)
Basic and diluted net loss per share:
Loss from continuing operations		$	(0.11	)	$	(0.19	)
Income (loss) from discontinued operations		$	0.02		$	(0.01	)
Cumulative effect of a change in accounting principle		$	—		$	—
Net loss		$	(0.09	)	$	(0.20	)
Weighted average common shares (in thousands)		284,971			282,950

 

See accompanying notes to
condensed consolidated financial statements.

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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands)

(Unaudited)

		2007			2006
Cash flows from operating activities:
Loss from continuing operations		$	(31,317	)	$	(54,722	)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization (including impairments)		286,686			277,405
Equity in net income of affiliates		(1,776		)	(1,408		)
Minority interests		1,673			1,337
Investment securities received from a customer bankruptcy settlement		(466		)	—
Unrealized loss (gain) on investments, net		72,986			(7,238		)
Write-off of deferred financing costs		—			4,587
Unrealized gain on derivative contracts		(65,975		)	(3,187		)
Amortization of deferred financing costs, discounts on indebtedness and other deferred costs		20,295			19,957
Share-based compensation expense related to equity classified awards		15,115			13,529
Deferred income tax benefit		(31,832		)	(36,378		)
Amortization and write-off of feature film inventory		32,170			30,328
Provision for doubtful accounts		8,979			4,873
Changes in assets and liabilities		(69,668		)	(81,767		)
Net cash provided by operating activities		236,870			167,316
Cash flows from investing activities:
Capital expenditures		(156,294		)	(272,396		)
Proceeds from sale of equipment, net of costs of disposal		(83		)	1,382
Decrease in investment securities and other investments		51			538
Decrease (increase) in restricted cash		(4,463		)	1,508
Additions to other intangible assets		(1,228		)	(975		)
Net cash used in investing activities		(162,017		)	(269,943		)
Cash flows from financing activities:
Proceeds from bank debt		18,000			4,900,000
Repayment of bank debt		(13,750		)	(1,657,500		)
Proceeds from exercise of stock options		5,506			1,381
Proceeds from collateralized indebtedness		—			42,124
Repayment of collateralized indebtedness		—			(48,620		)
Deemed repurchase of restricted stock		(49,693		)	—
Dividend distribution related to exercise and vesting of equity based awards		(43,820		)	—
Proceeds from derivative contracts		—			6,496
Payments on capital lease obligations and other debt		(2,029		)	(2,175		)
Additions to deferred financing and other costs		—			(40,517		)
Distributions to minority partners		(5,933		)	(7,436		)
Net cash provided by (used in) financing activities		(91,719		)	3,193,753
Net increase (decrease) in cash and cash equivalents from continuing operations		(16,866		)	3,091,126
Cash flows of discontinued operations:
Net cash used in operating activities		(920		)	(854		)
Net cash provided by investing activities		—			3,912
Net effect of discontinued operations on cash and cash equivalents		(920		)	3,058
Cash and cash equivalents at beginning of year		548,862			397,496
Cash and cash equivalents at end of period		$	531,076		$	3,491,680

 

See accompanying notes to
condensed consolidated financial statements.

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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

NOTE 1.                BUSINESS

Cablevision Systems Corporation and its majority-owned subsidiaries (“Cablevision” or the “Company”) own and operate cable television systems and through its wholly-owned subsidiary, Rainbow Media Holdings, LLC, have ownership interests in companies that produce and distribute national and regional entertainment and sports programming services, including Madison Square Garden, L.P.  The Company also owns companies that provide advertising sales services for the television industry, provide telephone service, and operate motion picture theaters.  The Company classifies its business interests into three reportable segments:  Telecommunications Services, consisting principally of its video, high-speed data, Voice over Internet Protocol and its commercial data and voice services operations; Rainbow, consisting principally of interests in national and regional cable television programming networks, including AMC, IFC, WE tv, fuse and the VOOM HD Networks; and Madison Square Garden, which owns and operates professional sports teams, regional television sports programming networks and an entertainment business.

NOTE 2.                BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.  Accordingly, these financial statements do not include all the information and notes required for complete annual financial statements.

The financial statements as of March 31, 2007 and for the three months ended March 31, 2007 and 2006 presented in this Form 10-Q are unaudited; however, in the opinion of management, such financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.

The accompanying condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries.  All significant intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2007.

The interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The preparation of financial statements in conformity with GAAP 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 3.                LOSS PER COMMON SHARE

Basic and diluted net loss per common share are computed by dividing net loss by the weighted average number of common shares outstanding during the period.  Potential dilutive common shares are not included in the diluted computation as their effect would be antidilutive.

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NOTE 4.                COMPREHENSIVE LOSS

The comprehensive loss, net of tax, for the three months ended March 31, 2007 and 2006 equals the net loss for the respective periods.

NOTE 5.                RECLASSIFICATIONS

The operating results of Fox Sports Net Chicago have been classified as discontinued operations in the condensed consolidated statements of operations and cash flows for the three months ended March 31, 2006.

NOTE 6.                CASH FLOWS

For purposes of the condensed consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents.

During the three months ended March 31, 2007 and 2006, the Company’s non-cash investing and financing activities and other supplemental data were as follows:

		Three Months Ended March 31,
		2007			2006
Non-Cash Investing and Financing Activities:
Continuing Operations
Capital lease obligations		$	—		$	11,751
Redemption of collateralized indebtedness with related prepaid forward contracts and stock		27,744			109,141
Redemption of collateralized indebtedness with related prepaid forward contracts		—			16,771
Discontinued Operations
Interest accrued on make whole payment obligation to Loral		1,034			—
Restricted cash and gain resulting from the FCC bond requirement waiver		11,250			—
Supplemental Data:
Cash interest paid - continuing operations		221,645			169,620
Income taxes paid, net		1,830			4,479

 

NOTE 7.                RECENTLY ADOPTED ACCOUNTING STANDARDS

In December 2006, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements (“FSP 00-19-2”). FSP 00-19-2 provides guidance related to the accounting for registration payment arrangements and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate arrangement or included as a provision of a financial instrument or arrangement, should be separately recognized and measured in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies (“Statement No. 5”).  FSP 00-19-2 requires that if the transfer of consideration under a registration payment arrangement is probable and can be reasonably estimated at inception, the contingent liability under such arrangement shall be included in the allocation of proceeds from the related financing transaction using the measurement guidance in Statement No. 5.  FSP 00-19-2 applies immediately to any registration payment arrangement entered into subsequent to the issuance of FSP 00-19-2.  For such arrangements entered into prior to the issuance of FSP 00-19-2, the guidance is effective for the Company as of January 1, 2007.  As

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a condition to the initial sale of CSC Holdings’ 6-3/4% Senior Notes due 2012, the Company entered into a registration rights agreement with the initial purchasers under which the Company agreed that it would file an exchange offer registration statement under the Securities Act with the Securities and Exchange Commission (“SEC”) and use its commercially reasonable best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act.  If the exchange offer was not completed by May 11, 2005, the agreement provided for an increase of 1/4% per annum in the interest rate for the first 90 days after May 11, 2005 and an additional 1/4% per annum, up to a maximum of 1/2% per annum, at the beginning of each subsequent 90 day period that the exchange offer was not completed. Upon the completion of the exchange, the interest rate would revert to 6-3/4%.  In March 2007, the Company offered to exchange these notes for substantially identical publicly registered 6-3/4% Series B Senior Notes due 2012.  This exchange was completed on April 26, 2007.  In connection with the adoption of FSP 00-19-2 as of January 1, 2007, the Company recorded a charge of $443, net of tax, as a cumulative effect of a change in accounting principle representing the estimated fair value of the 1/2% penalty interest expected to be incurred under the registration rights agreement subsequent to January 1, 2007.

On January 1, 2007, the Company adopted FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes - an interpretation of SFAS No. 109.  This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in an income tax return.  The change in the net assets and liabilities recognized as a result of adopting the provisions of FIN 48 has been recorded as a charge of $442 to the opening balance of accumulated deficit.  See Note 11 for a discussion of the impact of the Company’s adoption of FIN 48.

In June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF No. 06-3”), which addresses the income statement disclosures for taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and may include, but are not limited to, sales, use, value added, and some excise taxes.  The presentation of taxes on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22.  In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant and can be done on an aggregate basis.  EITF No. 06-3 was effective January 1, 2007 for the Company.  For the three months ended March 31, 2007 and 2006, the amount of franchise fees included as a component of net revenue aggregated $27,066 and $24,128, respectively.

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NOTE 8.                                                 DISCONTINUED OPERATIONS

In June 2006 and April 2005, respectively, the operations of the Fox Sports Net Chicago programming business and the Rainbow DBS satellite distribution business were shut down.  As a result, the operating results of these businesses, net of taxes, have been classified in the condensed consolidated statements of operations as discontinued operations for all periods presented.  Operating results of discontinued operations for the three months ended March 31, 2007 and 2006 are summarized below:

		Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
		Rainbow DBS distribution business			Fox Sports Net Chicago			Rainbow DBS distribution business			Total
Revenues, net		$	—		$	340		$	—		$	340
Income (loss) before income taxes		$	9,296		(362		)	$	(3,677	)	(4,039		)
Income tax benefit (expense)		(3,812		)	148			1,505			1,653
Net income (loss)		$	5,484		$	(214	)	$	(2,172	)	$	(2,386	)

 

In March 2007, the Federal Communications Commission (“FCC”) waived the bond requirement previously submitted by Rainbow DBS Company LLC with respect to five Ka-band licenses.  These bonds were originally cash collateralized by the Company.  In connection with the shut down of the Rainbow DBS satellite distribution business in 2005, the Company recorded a loss related to the outstanding bonds since the Company believed it was not probable that Rainbow DBS would meet the required FCC milestones.  As a result of the waiver from the FCC, the Company has recorded a gain of $6,638, net of taxes, for the three months ended March 31, 2007.  The Company expects to receive the cash collateral of $11,250 in the second quarter of 2007.

For the three months ended March 31, 2006, the Company recorded losses, net of taxes, of $2,386, representing primarily adjustments related to the Rainbow DBS satellite distribution business.

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NOTE 9.                INTANGIBLE ASSETS

The following table summarizes information relating to the Company’s acquired intangible assets at March 31, 2007 and December 31, 2006:

		March 31, 2007			December 31, 2006
Gross carrying amount of amortizable intangible assets
Affiliation relationships and affiliate agreements		$	783,774		$	783,774
Broadcast rights and other agreements		86,748			86,748
Season ticket holder relationships		75,005			75,005
Suite holder contracts and relationships		21,167			21,167
Advertiser relationships		104,071			104,071
Other intangibles		42,047			40,819
		1,112,812			1,111,584
Accumulated amortization
Affiliation relationships and affiliate agreements		382,180			366,888
Broadcast rights and other agreements		52,413			50,746
Season ticket holder relationships		11,390			10,027
Suite holder contracts and relationships		6,645			5,815
Advertiser relationships		45,688			42,814
Other intangibles		20,364			19,139
		518,680			495,429
Indefinite-lived intangible assets
Cable television franchises		731,848			731,848
Sports franchises		96,215			96,215
FCC licenses and other intangibles		11,936			11,936
Trademarks		53,880			53,880
Excess costs over the fair value of net assets acquired		1,032,117			1,032,117
		1,925,996			1,925,996
Total intangible assets, net		$	2,520,128		$	2,542,151

 

NOTE 10.              COLLATERALIZED INDEBTEDNESS

The following table summarizes the settlement of the Company’s collateralized indebtedness for the three months ended March 31, 2007.  The Company’s collateralized indebtedness obligations relating to shares of Charter Communications, Inc. were settled by delivering the underlying securities and the related equity derivative contracts.

 

At March 31, 2007, the Company had collateralized indebtedness obligations of $74,695 that will mature during the next twelve months.  The Company intends to settle such obligations by delivering shares of the applicable stock and the related equity derivative contracts.

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In the event of an early termination of any of these contracts, the Company would be obligated to repay the fair value of the collateralized indebtedness less the sum of the fair values of the underlying stock and equity collar, calculated at the termination date.  As of March 31, 2007, this early termination settlement amount totaled $1,142.

NOTE 11.              INCOME TAXES

The income tax benefit attributable to continuing operations for the three months ended March 31, 2007 of $29,707 differs from the income tax benefit derived from applying the statutory federal rate to the pretax loss due principally to state taxes, a decrease in the valuation allowance of $2,518 relating to certain state net operating loss carry forwards, partially offset by tax expense of $2,122 relating to unrecognized tax benefits and accrued interest recorded pursuant to FIN 48, and the tax impact of non-deductible officers’ compensation and other non-deductible expenses of $1,592 and $1,988, respectively.

The income tax benefit attributable to continuing operations for the three months ended March 31, 2006 of $32,658 differs from the income tax benefit derived from applying the statutory federal rate to the pretax loss due principally to state taxes, a decrease in the valuation allowance of $7,144 relating to certain state net operating loss carry forwards, partially offset by the tax impact of non-deductible officers’ compensation and other non-deductible expenses of $726 and $2,544, respectively.

In general, the Company is required to use an estimated annual effective tax rate to measure the tax benefit or tax expense recognized in an interim period.  The estimated annual effective tax rate is revised on a quarterly basis and therefore may be different from the rate used for a prior interim period.

Deferred tax assets have resulted primarily from the Company’s future deductible temporary differences and net operating loss carry forwards.  In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized.  The Company’s ability to realize its deferred tax assets depends upon the generation of sufficient future taxable income and tax planning strategies to allow for the utilization of its net operating loss carry forwards and deductible temporary differences.  If such estimates and related assumptions change in the future, the Company may be required to record additional valuation allowances against certain of its deferred tax assets resulting in additional income tax expense in the Company’s consolidated statement of operations.  Management evaluates the realizability of the deferred tax assets and the need for additional valuation allowances quarterly. Management believes that it is more likely than not that the Company will realize benefit for its gross deferred tax assets, except for certain of its deferred tax assets against which a valuation allowance has been recorded which relate to certain state net operating loss carry forwards.

The Company takes certain positions on its tax returns that may be challenged by various taxing authorities.  These tax positions arise in connection with certain transactions or operations.

The Company adopted the provisions of FIN 48 on January 1, 2007.  The cumulative effect of applying the provisions of FIN 48 resulted in a charge of $442 to the opening balance of the accumulated deficit.

As of January 1, 2007, the aggregate amount of unrecognized tax benefit was $10,353.  Such amount excludes deferred tax benefits and accrued interest.  The unrecognized tax benefit includes liabilities recognized as well as reductions in the deferred tax asset for net operating loss carry forwards for tax positions which either do not meet the more-likely-than-not recognition threshold or where the tax benefit

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is measured at an amount less than the tax benefit claimed or expected to be claimed on an income tax return.

The total amount of unrecognized tax benefit that, if recognized, would affect the effective tax rate is approximately $7,000 as of January 1, 2007.  In other words, if the unrecognized tax benefit, net of deferred tax benefits, were recognized, it would result in an income tax benefit of $7,000 in the Company’s condensed consolidated statement of operations.  Such amount reflects deferred tax benefit of $3,353 that would result from settlement of the uncertain tax positions at the amount of unrecognized tax benefit recorded, but excludes accrued interest.

Interest expense related to income tax liabilities recognized in accordance with the provisions of FIN 48 is included in income tax expense, consistent with the Company’s historical policy.  Interest expense of $922, net of deferred tax benefit of $378, has been recognized in the three month period ended March 31, 2007 and is included in the income tax benefit in the Company’s consolidated statement of operations.  At January 1, 2007, accrued interest on uncertain tax positions was $2,617 and was included in other current liabilities in the consolidated balance sheet.

As of January 1, 2007, the Company had a liability recorded with regard to the Ohio income tax audit for the year ended December 31, 2000 of $10,937, including accrued interest.  During the three month period ended March 31, 2007, the liability, including accrued interest, was increased by $3,327, resulting in additional income tax expense in the Company’s condensed consolidated statement of operations.  Such amount excludes the associated deferred tax benefit.  As of March 31, 2007, the liability relating to the Ohio income tax audit, including interest, was $14,264, reflecting management’s best judgment given the facts, circumstances, and information available at the balance sheet date.  In April 2007, the Company and representatives from the Ohio Department of Taxation agreed to settle the Ohio income tax audit for the tax year ended December 31, 2000 for $18,000, inclusive of interest.  Therefore, the Company will recognize additional income tax expense of $3,736, excluding deferred tax benefit, in the three month period ending June 30, 2007.

FIN 48 provides that subsequent changes in judgment should be based on new facts and circumstances and any resulting change in the amount of unrecognized tax benefit should be accounted for in the interim period in which the change occurs.

The Internal Revenue Service (“IRS”) is currently auditing the Company’s federal consolidated income tax returns for 2002 and 2003.  Management expects that the 2002-2003 audit will be completed during 2007.  In addition, management expects that the effect of the completion of this audit on the Company’s consolidated financial statements will not be significant.  The Company also expects that the IRS will begin its audit of its federal consolidated income tax returns for 2004 and 2005 later in 2007.

With a few exceptions, the Company is no longer subject to state and local income tax audits by taxing authorities for years before 2002.  The most significant jurisdictions in which the Company is required to file income tax returns include the state of New York, New Jersey and Connecticut and the city of New York.  The Company is currently under audit by the state of New York for 1999 through 2001.

Management does not believe that the resolution of the ongoing income tax examinations described above will have a material adverse impact on the financial position of the Company.  Settlement of tax uncertainties will be recognized in the interim period of settlement.

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NOTE 12.              BENEFIT PLANS

Components of the net periodic pension cost, recorded primarily in selling, general and administrative expenses, for the Company’s qualified and non-qualified defined benefit and other postretirement plans for the three months ended March 31, 2007 and 2006, are as follows:

		Cablevision Qualified and Non-qualified Defined Benefit Plans						Madison Square Garden Qualified and Non-qualified Defined Benefit Plans						Madison Square Garden Postretirement Benefit Plan
		Three Months Ended March 31,
		2007			2006			2007			2006			2007			2006
Service cost		$	8,078		$	7,344		$	1,252		$	1,247		$	104		$	100
Interest cost		2,561			2,053			1,578			1,360			103			90
Expected return on plan assets		(2,914		)	(2,471		)	(1,103		)	(921		)	—			—
Recognized prior service cost (credit)		—			3			6			6			(33		)	(33		)
Recognized actuarial (gain) loss		—			—			65			157			(2		)	(1		)
Recognized transition (asset) obligation		—			—			(1		)	(1		)	—			—
Net periodic benefit cost		$	7,725		$	6,929		$	1,797		$	1,848		$	172		$	156

 

For the three months ended March 31, 2007, the Company contributed $43 to two non-contributory qualified defined benefit pension plans covering certain MSG union employees (“MSG Union Plans”), and currently expects to contribute $24,000 to the Cablevision Cash Balance Retirement Plan, $4,800 to the MSG non-contributory qualified defined benefit pension plan and an additional $277 to the MSG Union Plans in 2007.

NOTE 13.              LEGAL MATTERS

Tracking Stock Litigation

In August 2002, purported class actions naming as defendants Cablevision and each of its directors were filed in the Delaware Chancery Court.  The actions, which allege breach of fiduciary duties and breach of contract with respect to the exchange of the Rainbow Media Group tracking stock for Cablevision NY Group common stock, were purportedly brought on behalf of all holders of publicly traded shares of Rainbow Media Group tracking stock.  The actions sought to (i) enjoin the exchange of Rainbow Media Group tracking stock for Cablevision NY Group common stock, (ii) enjoin any sales of “Rainbow Media Group assets,” or, in the alternative, award rescissory damages, (iii) if the exchange is completed, rescind it or award rescissory damages, (iv) award compensatory damages, and (v) award costs and disbursements.  The actions were consolidated into one action on September 17, 2002, and on October 3, 2002, Cablevision filed a motion to dismiss the consolidated action.  The action was stayed by agreement of the parties pending resolution of a related action brought by one of the plaintiffs to compel the inspection of certain books and records of Cablevision.  On October 26, 2004, the parties entered into a stipulation dismissing the related action, and providing for Cablevision’s production of certain documents. On December 13, 2004, plaintiffs filed a consolidated amended complaint.  Cablevision filed a motion to

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dismiss the amended complaint.  On April 19, 2005, the court granted that motion in part, dismissing the breach of contract claim but declining to dismiss the breach of fiduciary duty claim on the pleadings.

In August 2003, a purported class action naming as defendants Cablevision, directors and officers of Cablevision and certain current and former officers and employees of the Company’s Rainbow Media Holdings and American Movie Classics subsidiaries was filed in New York Supreme Court by the Teachers Retirement System of Louisiana (“TRSL”).  The actions relate to the August 2002 Rainbow Media Group tracking stock exchange and allege, among other things, that the exchange ratio was based upon a price of the Rainbow Media Group tracking stock that was artificially deflated as a result of the improper recognition of certain expenses at the national services division of Rainbow Media Holdings.  The complaint alleges breaches by the individual defendants of fiduciary duties.  The complaint also alleges breaches of contract and unjust enrichment by Cablevision.  The complaint seeks monetary damages and such other relief as the court deems just and proper.  On October 31, 2003, Cablevision and other defendants moved to stay the action in favor of the previously filed actions pending in Delaware or, in the alternative, to dismiss for failure to state a claim.  On June 10, 2004, the court stayed the action on the basis of the previously filed action in Delaware.  TRSL subsequently filed a motion to vacate the stay in the New York action, and simultaneously filed a motion to intervene in the Delaware action and to stay that action.  Cablevision opposed both motions.  On April 19, 2005, the court in the Delaware action denied the motion to stay the Delaware action and granted TRSL’s motion to intervene in that action.  On June 22, 2005, the court in the New York action denied TRSL’s motion to vacate the stay in that action.

Cablevision believes the claims in both the Delaware action and the New York action are without merit and is contesting the lawsuits vigorously.

The Wiz Bankruptcy

TW, Inc. (“TW”), a former subsidiary of the Company and operator of The Wiz consumer retail electronics business, is the subject of a Chapter 11 bankruptcy proceeding in the U.S. Bankruptcy Court for the District of Delaware.  In February 2005, TW filed a complaint in the bankruptcy proceeding against Cablevision and certain of its affiliates seeking recovery of alleged preferential transfers in the aggregate amount of $193,457.  Also in February 2005, the Official Committee of Unsecured Creditors of TW (the “Committee”) filed a motion seeking authority to assume the prosecution of TW’s alleged preference claims and to prosecute certain other causes of action.  The bankruptcy court granted the Committee’s motion on or about March 10, 2005, thereby authorizing the Committee, on behalf of TW, to continue the preference suit and to assert other claims.  On March 12, 2005, the Committee filed a complaint in the bankruptcy court against Cablevision, certain of its affiliates, and certain present and former officers and directors of Cablevision and of its former subsidiary Cablevision Electronics Investments, Inc. (“CEI”).  The Committee’s complaint, as amended, asserts preferential transfer claims allegedly totaling $193,858, breach of contract, promissory estoppel, and misrepresentation claims allegedly totaling $310,000, and fraudulent conveyance, breach of fiduciary duty, and other claims seeking unspecified damages.  On June 30, 2005, the defendants filed a motion to dismiss several of the claims in the amended complaint.  On October 31, 2005, the bankruptcy court denied the motion to dismiss.  The bankruptcy court’s ruling on the motion to dismiss allowed the Committee to proceed with its claims against Cablevision and the other defendants.  Cablevision believes that the claims asserted by the Committee are without merit and is contesting them vigorously.

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Dolan Family Group 2005 Proposal and Special Dividend Litigation

In June and July 2005, a number of shareholder class action lawsuits were filed against Cablevision and its individual directors in the Delaware Chancery Court and the New York State Supreme Court for Nassau County relating to the Dolan Family Group proposal to acquire the outstanding, publicly held interests in Cablevision following a pro rata distribution of Rainbow Media Holdings.  On October 24, 2005, Cablevision received a letter from the Dolan Family Group withdrawing its June 19, 2005 proposal and recommending the consideration of a special dividend.  On November 17, 2005, the plaintiffs filed a consolidated amended complaint in the New York Supreme Court action to relate to the special dividend proposed by the Dolan Family Group.  On February 9, 2006, the plaintiffs filed a second amended complaint adding allegations related to the December 19, 2005 announcement that the Board had decided not to proceed with the proposed special dividend, and the January 31, 2006 announcement that the Board was expected to begin reconsideration of a possible special dividend at its regularly scheduled meeting in March 2006.  The amended complaint sought, among other things, to enjoin the payment of the special dividend proposed by the Dolan Family Group.  As set forth below, the Nassau County actions were subsequently dismissed following settlement by the parties.  The Delaware Chancery Court action is pending.

On December 28, 2005, a purported shareholder derivative complaint was filed in the U.S. District Court for the Eastern District of New York alleging that certain events during 2005, including those relating to the proposed special dividend, constituted breaches of fiduciary duty.  The action was brought derivatively on behalf of Cablevision and named as defendants each member of the Board of Directors.  The complaint sought unspecified damages and contribution and indemnification by the defendants for any claims asserted against Cablevision as a result of the alleged breaches.  The Eastern District of New York action was dismissed following settlement of the Nassau County actions, as set forth below.

On March 27, 2006, Cablevision entered into a memorandum of understanding with respect to the settlement of the actions pending in the New York Supreme Court for Nassau County relating to a proposed special dividend.  On April 7, 2006, Cablevision’s Board of Directors declared a special cash dividend of $10.00 per share which was paid on April 24, 2006 to holders of record at the close of business on April 18, 2006.  A hearing on the proposed settlement was held on September 25, 2006.  On January 5, 2007, the court signed an order approving the settlement and terminating the Nassau County actions.

Dolan Family Group 2006 Proposal

In October 2006, a number of shareholder class action lawsuits were filed against Cablevision and its individual directors in New York Supreme Court, Nassau County, relating to the October 8, 2006 offer by the Dolan Family Group to acquire all of the outstanding shares of Cablevision’s common stock, except for the shares held by the Dolan Family Group.  These lawsuits allege breaches of fiduciary duty and seek injunctive relief to prevent consummation of the proposed transaction and compensatory damages. (In addition, a similar claim was added to a shareholder derivative action involving claims for alleged options backdating that was pending in the District Court for the Eastern District of New York, which is described below under "Stock Option Related Matters.")  The New York Supreme Court ordered expedited discovery, which began in November 2006.  On January 12, 2007, the Special Transaction Committee of the Board (“Special Transaction Committee”) received a revised proposal from the Dolan Family Group to acquire all of the outstanding shares of common stock of Cablevision, except for the shares held by the Dolan Family Group.  On January 16, 2007, the Special Transaction Committee delivered a letter to Charles F. Dolan and James L. Dolan, rejecting as inadequate the revised proposal.  As discussed in Note 16, on May 2, 2007, Cablevision entered into a merger agreement pursuant to which the Dolan Family Group will obtain ownership of all of the common stock equity of Cablevision.  Lawyers representing shareholders in these lawsuits and in an action involving claims for alleged options backdating (that is also pending in the Nassau County Supreme Court) actively participated in the negotiations, which led to improvements to the financial terms of the transaction as well as significant contractual protections for shareholders.  The parties have agreed in principle to the dismissal of the pending going private litigation, subject to approval of a settlement by the Nassau County Supreme Court.

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Director Litigation

Cablevision was named as a nominal defendant in a purported shareholder derivative complaint filed in the Court of Chancery of the State of Delaware.  The action was brought derivatively on behalf of Cablevision and named as additional defendants Charles F. Dolan, the Chairman of Cablevision, and Rand Araskog, Frank Biondi, John Malone and Leonard Tow, each of whom was appointed as a director on March 2, 2005 by Mr. Dolan and certain other holders of the Company’s NY Group Class B common stock.  The complaint alleges that Charles F. Dolan, as the controlling Class B shareholder of Cablevision, by purporting to remove three Cablevision Board members (William J. Bell, Sheila Mahony and Steven Rattner) and replace them with the four new directors, wrongfully interfered with the Board’s role in managing the affairs of Cablevision and sought to substitute his judgment of how to proceed with the VOOM service of Cablevision’s Rainbow DBS subsidiary above that of the Board.  The action seeks, among other things, to preliminarily and permanently enjoin Charles F. Dolan from interfering with the managerial prerogatives of Cablevision’s Board; rescinding the purported appointment of the new directors; rescinding the removal of Mr. Bell, Ms. Mahony and Mr. Rattner as directors and restoring them to their positions as directors and directing Charles F. Dolan to account to Cablevision for its damages.  There have been no developments in the case since May 2005, when the parties agreed that defendants need not respond to the complaint until further notice from the plaintiff.

Patent Litigation

Cablevision is named as a defendant in certain lawsuits claiming infringement of various patents relating to various aspects of our businesses.  In certain of these cases other industry participants are also defendants.  In certain of these cases we expect that any potential liability would be the responsibility of our equipment vendors pursuant to applicable contractual indemnification provisions.  To the extent that the allegations in these lawsuits have been analyzed by us at the current stage of their proceedings, we believe that the claims are without merit and intend to defend the actions vigorously.  The final disposition of these actions is not expected to have a material adverse effect on our consolidated financial position.

Contract Dispute

In September 2005, Loral filed an action against Cablevision and Rainbow DBS for breach of contract based on a letter agreement dated March 23, 2001 (“the Letter Agreement”) between Loral and Rainbow DBS.  Loral alleges that the sale of the Rainbow-1 satellite and related assets to EchoStar constituted a sale of “substantially all of the assets of Rainbow DBS” triggering a “Make Whole Payment” under the Letter Agreement of $33,000 plus interest.  A trial in this matter took place in January 2007 in New York Supreme Court for New York County.  On January 24, 2007, the jury returned a verdict finding that the EchoStar sale had triggered a Make Whole Payment under the Letter Agreement, requiring a payment to Loral of $50,898, including interest, which was accrued for as of December 31, 2006 and reflected as an expense in discontinued operations.  On March 12, 2007, judgment was entered against Cablevision and Rainbow DBS in the amount of $52,159.  Cablevision and Rainbow DBS filed a motion for judgment as a matter of law, or in the alternative for a new trial, which was denied by the court on March 30, 2007.  On April 27, 2007, the Company posted a cash collateralized bond in the amount of $52,159 and intends to appeal the judgment.

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Accounting Related Investigations

The improper expense recognition matter previously reported by the Company has been the subject of investigations by the SEC and the U.S. Attorney’s Office for the Eastern District of New York.  The SEC is continuing to investigate the improper expense recognition matter and the Company’s timing of recognition of launch support, marketing and other payments under affiliation agreements.  The Company continues to fully cooperate with such investigations.

Stock Option Related Matters

The Company announced on August 8, 2006 that, based on a voluntary review of its past practices in connection with grants of stock options and stock appreciation rights (“SARs”), it had determined that the grant date and exercise price assigned to a number of its stock option and SAR grants during the 1997-2002 period did not correspond to the actual grant date and the fair market value of Cablevision’s common stock on the actual grant date.  The review was conducted with a law firm that was not previously involved with the Company’s stock option plans.  The Company has advised the SEC and the U.S. Attorney’s Office for the Eastern District of New York of these matters and each has commenced an investigation.  The Company received a grand jury subpoena from the U.S. Attorney’s Office for the Eastern District of New York seeking documents related to the stock options issues.  The Company received a document request from the SEC relating to its informal investigation into these matters.  The Company continues to fully cooperate with such investigations.

In addition, in August, September and October 2006, purported derivative lawsuits (including one purported combined derivative and class action lawsuit) relating to the Company’s past stock option and SAR grants were filed in New York State Supreme Court for Nassau County, the United States District Court for the Eastern District of New York, and Delaware Chancery Court for New Castle County, by parties identifying themselves as shareholders of Cablevision purporting to act on behalf of Cablevision.  These lawsuits named as defendants certain present and former members of Cablevision’s Board of Directors and certain present and former executive officers, alleging breaches of fiduciary duty and unjust enrichment relating to practices with respect to the dating of stock options, recordation and accounting for stock options, financial statements and SEC filings, and alleged violation of IRC 162(m).  In addition, certain of these lawsuits asserted claims under Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 and Section 304 of the Sarbanes-Oxley Act.  The lawsuits sought damages from all defendants, disgorgement from the officer defendants, declaratory relief, and equitable relief, including rescission of the 2006 Employee Stock Plan and voiding of the election of the director defendants.  On October 27, 2006, the Board of Directors of Cablevision appointed Grover C. Brown and Zachary W. Carter as directors and, on the same date, appointed Messrs. Brown and Carter to a newly formed special litigation committee (“SLC”) of the Board.  The SLC was directed by the Board to review and analyze the facts and circumstances surrounding these claims, which purport to have been brought derivatively on behalf of the Company, and to consider and determine whether or not prosecution of such claims is in the best interests of the Company and its shareholders, and what actions the Company should take with respect to the cases.  The SLC, through its counsel, filed motions in all three courts to intervene and to stay all proceedings until completion of the SLC’s independent investigation of the claims raised in these actions.  The Delaware action subsequently was voluntarily dismissed without prejudice by the plaintiff.  The actions pending in Nassau County have been consolidated and a single amended complaint has been filed in that jurisdiction. Similarly, the actions pending in the Eastern District of New York have been consolidated and a single amended complaint has been filed in that jurisdiction.  Both the Nassau County action and the Eastern District of New York action assert derivative claims on behalf of the Company as well as direct claims on behalf of Cablevision shareholders relating to the Company’s past stock option

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and SAR grants.  On November 14, 2006, the trial court in the Nassau County action denied the SLC’s motion for a stay of proceedings and ordered expedited discovery.  The Appellate Division of the New York State Supreme Court subsequently stayed all proceedings in the Nassau County action (including all discovery) pending the SLC’s appeal of the denial of its stay motion.  The SLC’s appeal has been fully submitted but has not been scheduled for oral argument.  In the Eastern District of New York action, the trial court has issued a stay of all proceedings until June 12, 2007.

As discussed in Note 16, on May 2, 2007, Cablevision entered into a merger agreement pursuant to which the Dolan Family Group will obtain ownership of all of the common stock equity of Cablevision.  Included in the $36.26 merger consideration to be provided to shareholders in the Proposed Merger is merger consideration payable in exchange for the surviving corporation's succeeding to Cablevision's and shareholders' rights in connection with claims involving alleged options backdating.

We have continued to incur substantial expenses for legal services in connection with the Company’s stock option related litigation and the investigations by the SEC and the U.S. Attorney’s Office for the Eastern District of New York.

Other Matters

In addition to the matters discussed above, the Company is party to various lawsuits, some involving claims for substantial damages.  Although the outcome of these other matters cannot be predicted with certainty and the impact of the final resolution of these other matters on the Company’s results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these other lawsuits will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due.

NOTE 14.              SEGMENT INFORMATION

The Company classifies its business interests into three reportable segments: Telecommunications Services, consisting principally of its video, high-speed data, Voice over Internet Protocol and its commercial data and voice services operations; Rainbow, consisting principally of interests in national and regional television programming networks, including AMC, IFC, WE tv, fuse and the VOOM HD Networks; and Madison Square Garden, which owns and operates professional sports teams, regional television sports programming networks and an entertainment business.

The Company’s reportable segments are strategic business units that are managed separately.  The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow (defined as operating income (loss) before depreciation and amortization (including impairments), share-based compensation expense or benefit and restructuring charges or credits), a non-GAAP measure.  The Company has presented the components that reconcile adjusted operating cash flow to operating income (loss), an accepted GAAP measure.  Information as to the operations of the Company’s business segments is set forth below.

		Three Months Ended March 31,
		2007			2006
Revenues, net from continuing operations
Telecommunications Services		$	1,141,306		$	993,283
Rainbow		230,050			206,417
Madison Square Garden		235,576			223,842
All other (a)		16,497			18,501
Intersegment eliminations		(37,213		)	(32,685		)
		$	1,586,216		$	1,409,358

 

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Intersegment eliminations are primarily affiliate revenues recognized by our Rainbow and MSG segments from the sale of cable network programming to our Telecommunication Services segment.

		Three Months Ended March 31,
		2007			2006
Intersegment revenues
Telecommunications Services		$	288		$	434
Rainbow		10,599			8,928
Madison Square Garden		26,326			23,323
		$	37,213		$	32,685

 

Reconciliation (by Segment and in Total) of Adjusted Operating Cash Flow to Operating Income (Loss) from Continuing Operations

		Three Months Ended March 31,
		2007			2006
Adjusted operating cash flow from continuing operations
Telecommunications Services		$	428,597		$	381,642
Rainbow		49,022			27,776
Madison Square Garden		17,586			6,859
All other (b)		(13,556		)	(19,399		)
		$	481,649		$	396,878

 

		Three Months Ended March 31,
		2007			2006
Depreciation and amortization (including impairments) included in continuing operations
Telecommunications Services		$	234,981		$	222,728
Rainbow		25,924			26,496
Madison Square Garden		15,269			16,073
All other (b)		10,512			12,108
		$	286,686		$	277,405

 

		Three Months Ended March 31,
		2007			2006
Share-based compensation expense included in continuing operations
Telecommunications Services		$	8,127		$	7,661
Rainbow		5,753			5,263
Madison Square Garden		3,367			3,095
All other (b)		386			412
		$	17,633		$	16,431

 

		Three Months Ended March 31,
		2007			2006
Restructuring charges (credits) included in continuing operations
Telecommunications Services		$	—		$	—
Rainbow		1,566			—
Madison Square Garden		—			—
All other (b)		(237		)	(685		)
		$	1,329		$	(685	)

 

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		Three Months Ended March 31,
		2007			2006
Operating income (loss) from continuing operations
Telecommunications Services		$	185,489		$	151,253
Rainbow		15,779			(3,983		)
Madison Square Garden		(1,050		)	(12,309		)
All other (b)		(24,217		)	(31,234		)
		$	176,001		$	103,727

 

A reconciliation of reportable segment amounts to the Company’s consolidated balances is as follows:

		Three Months Ended March 31,
		2007			2006
Operating income (loss) from continuing operations before income taxes
Total operating income for reportable segments		$	200,218		$	134,961
Other operating loss (b)		(24,217		)	(31,234		)
Operating income		176,001			103,727
Items excluded from operating income:
Interest expense		(238,648		)	(193,132		)
Interest income		8,731			5,900
Equity in net income of affiliates		1,776			1,408
Write-off of deferred financing costs		—			(4,587		)
Gain (loss) on investments, net		(72,986		)	7,238
Gain (loss) on derivative contracts, net		65,119			(6,780		)
Minority interests		(1,673		)	(1,337		)
Miscellaneous, net		656			183
Loss from continuing operations before income taxes		$	(61,024	)	$	(87,380	)

 

(a)                      Represents net revenues of Clearview Cinemas and PVI Virtual Media.

(b)                     Principally includes unallocated corporate general and administrative costs, in addition to the operating results of Clearview Cinemas and PVI Virtual Media.  The 2006 period also includes costs allocated to Fox Sports Net Chicago that were not eliminated as a result of the shut down of that business.

		Three Months Ended March 31,
		2007			2006
Capital Expenditures
Telecommunications Services		$	151,922		$	266,756
Rainbow		2,025			847
Madison Square Garden		824			1,668
Corporate and other		1,523			3,125
		$	156,294		$	272,396

 

Substantially all revenues and assets of the Company’s reportable segments are attributed to or located in the United States primarily concentrated in the New York metropolitan area.

Concentrations of Credit Risk

Financial instruments that may potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and trade receivables.  Cash is invested in money market funds and bank time deposits.  The Company’s cash investments are placed with money market funds or financial institutions that have received the highest rating awarded by Standard & Poor’s and Moody’s Investors Service.  The Company selects money market funds that predominately invest in marketable, direct

21

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obligations issued or guaranteed by the United States government or its agencies, commercial paper, fully collateralized repurchase agreements, certificates of deposit, banker’s acceptances and time deposits.  The Company did not have any customers that accounted for 10% or more of the Company’s consolidated net trade receivable balances or 10% or more of the Company’s consolidated net revenues at or for the three months ended March 31, 2007.

NOTE 15.              EQUITY PLANS

The following table summarizes activity for the Company’s restricted shares for the three months ended March 31, 2007:

		Number of Restricted Shares		Weighted Average Fair Value Per Share at Date of Grant
Unvested award balance, December 31, 2006		8,108,639		$	19.26
Granted		2,002,454		29.23
Awards vested		(4,123,805	)	17.57
Forfeited		(258,224	)	17.91
Unvested award balance, March 31, 2007		5,729,064		$	24.03

 

The Company recognizes compensation expense for restricted shares and restricted stock units using a straight-line amortization method, based on the grant date price of Cablevision NY Group Class A common stock over the vesting period, except for restricted stock units granted to non-employee directors which vest 100% and are expensed at the date of grant.

In March 2007, 4,116,499 restricted shares issued to employees of the Company during 2003 vested.  To fulfill the employees’ statutory minimum tax withholding obligations for the applicable income and other employment taxes of $49,693, 1,609,749 of these shares were surrendered to the Company.  The 1,609,749 acquired shares have been classified as treasury stock at a cost of $49,693.  This net share settlement had no impact on the amount of compensation cost recognized in respect of these awards.  Additionally, in connection with the vesting of these shares, the Company paid the special dividend related to such shares that was declared and accrued in 2006 aggregating $41,165.

Share-based compensation, including compensation relating to restricted shares, for the three months ended March 31, 2007 and 2006 was $17,633 and $16,431, respectively.

NOTE 16.              SUBSEQUENT EVENTS

Sale of Fox Sports Net Bay Area and Fox Sports Net New England

On April 30, 2007, Rainbow Media Holdings entered into a purchase agreement with Comcast Corporation for the sale of (i) its subsidiary owning a 60% interest in SportsChannel Pacific Associates, which owns Fox Sports Net Bay Area, for a purchase price of $366,750 (the “Bay Area Sale”) and (ii) its subsidiaries owning a 50% interest in SportsChannel New England Limited Partnership, which owns Fox Sports Net New England, for a purchase price of $203,250 (the “New England Sale”), for an aggregate purchase price of $570,000, subject to certain additional payments to Rainbow Media Holdings and customary working capital adjustments.

22

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Upon consummation of the transactions, Comcast will own 100% of SportsChannel New England Limited Partnership and 60% of SportsChannel Pacific Associates.  The remaining 40% interest in SportsChannel Pacific Associates is indirectly owned by a subsidiary of Fox Sports Net, Inc. The Company expects to recognize a substantial gain upon the completion of these transactions, a portion of which will be reflected in discontinued operations.

Consummation of the transactions is subject to customary closing conditions, including the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act for the Bay Area Sale.

Contemporaneously with the execution of the agreement relating to the Bay Area Sale and the New England Sale, subsidiaries of the Company and Comcast entered into or extended affiliation agreements relating to (i) the carriage of the Versus and Golf Channel programming services on the Company’s cable television systems and (ii) the carriage of AMC, fuse, IFC, WE tv, Lifeskool, Sportskool, MSG and Fox Sports Net New York on Comcast’s cable television systems.

Dolan Family Group Transaction

On May 2, 2007, Cablevision entered into a merger agreement with Central Park Holding Company, LLC (“Dolan Family Acquisition Company”), which will be owned by the Dolan Family Group, and Central Park Merger Sub, Inc.  Pursuant to the terms of the merger agreement, Merger Sub will be merged with and into Cablevision and, as a result, Cablevision will continue as the surviving corporation and a wholly-owned subsidiary of Dolan Family Acquisition Company (the “Proposed Merger”).

At the effective time of the Proposed Merger, each outstanding share of Cablevision NY Group Class A common stock, other than shares owned directly or indirectly by Cablevision or the Dolan Family Group, by any shareholders who are entitled to and who properly exercise appraisal rights under Delaware law, and by the holders of restricted stock issued under Cablevision’s employee stock plans, will be cancelled and converted into the right to receive $36.26 in cash, without interest.

The outstanding Cablevision NY Group Class B common stock, approximately 55 million shares of which is owned by members of Dolan Family Group, and all shares of Cablevision NY Group Class A common stock owned by members of the Dolan Family Group will be cancelled in the Proposed Merger.  Each outstanding share of Merger Sub will be exchanged for common equity of the surviving corporation in the Proposed Merger.

The merger agreement was approved by the Special Transaction Committee.  The merger agreement was also approved by the Board of Directors (excluding directors who are members of the Dolan Family Group, who did not participate in the Board’s consideration of the matter).

The merger agreement and the transactions contemplated thereby will be submitted to a vote of Cablevision’s shareholders.  The closing of the Proposed Merger is conditioned upon the approval of holders representing a majority of the voting power of the outstanding Class A common stock and Class B common stock voting together as one class.  The members of the Dolan Family Group have entered into a voting agreement with Cablevision in which they have agreed to vote their shares in favor of the transaction.  This agreement will assure the satisfaction of this voting requirement.  The closing of the Proposed Merger is also conditioned on the separate approval of holders representing a majority of the outstanding shares of Class A common stock not owned by members of the Dolan Family Group or the executive officers and directors of Cablevision and its subsidiaries.

23

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The closing of the Proposed Merger is conditioned upon the receipt of financing necessary to fund the merger consideration and related fees and expenses and to refinance certain indebtedness of CSC Holdings and Rainbow National Services LLC (“RNS”).  The Dolan Family Group delivered to Cablevision a commitment letter (the “Commitment Letter”) from Merrill Lynch Capital Corporation, Bear Stearns & Co. Inc. and Bank of America N.A., together, in each case, with certain affiliated entities covering approximately $15,455,000 of debt financing.  The Commitment Letter contemplates the following:

 

1.               Cablevision will form a new subsidiary (“Super Holdco”) to which it will transfer all of the common stock of CSC Holdings.  Super Holdco will also assume all of Cablevision's obligations on its outstanding senior notes and debentures.

2.               Super Holdco will form a new subsidiary (“Intermediate Holdco”) to which it will transfer all of the common stock of CSC Holdings.  Intermediate Holdco will assume all of Super Holdco's obligations on its outstanding senior notes and debentures, which will remain outstanding.

3.               Super Holdco is expected to incur an additional $4,425,000 of indebtedness.

4.               Intermediate Holdco is expected to incur an additional $800,000 of indebtedness.

5.               CSC Holdings will enter into a credit facility in replacement of its existing credit facility.  This new credit facility, which is expected to be in the amount of $7,250,000 (including a $1,000,000 revolving credit facility) will be used in part to repay borrowings under CSC Holdings' existing credit facility.

6.               RNS will enter into a credit facility in replacement of its existing credit facility.  This new credit facility, which is expected to be in the amount of $1,030,000 (including a $300,000 revolving credit facility), will be used in part to repay borrowings under its existing credit facility.

7.               Rainbow Programming Partners (“RPP”), an indirect wholly owned subsidiary of Cablevision and CSC Holdings, will enter into a credit facility which is expected to be in the amount of $950,000 (including a $50,000 revolving credit facility).  RPP, whose principal asset is Madison Square Garden, does not currently have any long-term debt.

8.               Rainbow Programming Holdings LLC (“RPH”), an indirect wholly owned subsidiary of Cablevision and CSC Holdings, is expected to incur $1,000,000 of indebtedness.  RPH, which is a holding company for the Company's interests in RNS and certain other programming operations, does not currently have any long-term debt.

Dolan Family Acquisition Company is a newly formed company. Charles F. Dolan and James L. Dolan have entered into a guarantee pursuant to which they will guarantee payment to Cablevision of up to $300,000 of damages to Cablevision resulting from any material breach of the merger agreement by Dolan Family Acquisition Company.

24

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CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

		March 31, 2007			December 31, 2006
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	483,938		$	414,604
Restricted cash		27,103			11,390
Accounts receivable, trade (less allowance for doubtful accounts of $16,587 and $17,345)		476,985			536,057
Prepaid expenses and other current assets		185,383			180,991
Feature film inventory, net		123,229			124,778
Deferred tax asset		338,347			236,037
Advances to affiliates		229,838			229,677
Derivative contracts		58,174			81,140
Total current assets		1,922,997			1,814,674
Property, plant and equipment, net of accumulated depreciation of $6,474,195 and $6,257,078		3,608,121			3,714,842
Investments in affiliates		51,075			49,950
Notes and other receivables		32,794			29,659
Investment securities pledged as collateral		1,007,902			1,080,229
Other assets		82,868			80,273
Feature film inventory, net		370,356			375,700
Deferred carriage fees, net		168,147			174,377
Cable television franchises		731,848			731,848
Affiliation, broadcast and other agreements, net of accumulated amortization of $434,593 and $417,634		435,929			452,888
Other intangible assets, net of accumulated amortization of $84,087 and $77,795		320,234			325,298
Excess costs over fair value of net assets acquired		1,032,117			1,032,117
Deferred financing and other costs, net of accumulated amortization of $59,433 and $55,445		106,066			111,373
		$	9,870,454		$	9,973,228

 

See accompanying notes to
condensed consolidated financial statements.

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CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

CONDENSED CONSOLIDATED BALANCE SHEETS (cont’d)

(Dollars in thousands, except per share amounts)

		March 31, 2007			December 31, 2006
		(unaudited)
LIABILITIES AND STOCKHOLDER’S DEFICIENCY
Current Liabilities:
Accounts payable		$	401,647		$	392,605
Accrued liabilities		879,052			936,316
Deferred revenue		140,104			162,956
Feature film and other contract obligations		120,558			122,362
Liabilities under derivative contracts		6,395			6,568
Bank debt		112,500			93,750
Collateralized indebtedness		74,695			102,268
Capital lease obligations		6,587			7,069
Notes payable		7,467			17,826
Senior notes and debentures		499,965			499,952
Total current liabilities		2,248,970			2,341,672
Feature film and other contract obligations		301,009			312,344
Deferred revenue		14,047			14,337
Deferred tax liability		350,416			262,843
Liabilities under derivative contracts		141,173			204,887
Other liabilities		309,722			326,325
Bank debt		4,884,250			4,898,750
Collateralized indebtedness		826,186			819,306
Senior notes and debentures		3,994,290			3,994,004
Senior subordinated notes and debentures		497,108			497,011
Notes payable		—			1,017
Capital lease obligations		52,842			54,389
Minority interests		45,410			49,670
Total liabilities		13,665,423			13,776,555
Commitments and contingencies
Stockholder’s deficiency:
Series A Cumulative Convertible Preferred Stock, 200,000 shares authorized, none issued		—			—
Series B Cumulative Convertible Preferred Stock, 200,000 shares authorized, none issued		—			—
8% Series D Cumulative Preferred Stock, $.01 par value, 112,500 shares authorized, none issued ($100 per share liquidation preference)		—			—
Preferred Stock, $.01 par value, 9,487,500 shares authorized, none issued		—			—
Common Stock, $.01 par value, 20,000,000 shares authorized, 11,595,635 shares issued and outstanding		116			116
Paid-in capital		136,319			120,017
Accumulated deficit		(3,919,454)			(3,911,510)
		(3,783,019)			(3,791,377)
Accumulated other comprehensive loss		(11,950)			(11,950)
Total stockholder’s deficiency		(3,794,969)			(3,803,327)
		$	9,870,454		$9,973,228

 

See accompanying notes to
condensed consolidated financial statements

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CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands)

(Unaudited)

		2007			2006
Revenues, net		$	1,586,216		$	1,409,358
Operating expenses:
Technical and operating (excluding depreciation, amortization and impairments shown below)		748,398			670,207
Selling, general and administrative		373,802			358,704
Restructuring charges (credits)		1,329			(685		)
Depreciation and amortization (including impairments)		286,686			277,405
		1,410,215			1,305,631
Operating income		176,001			103,727
Other income (expense):
Interest expense		(205,105		)	(161,045		)
Interest income		7,014			5,900
Equity in net income of affiliates		1,776			1,408
Write-off of deferred financing costs		—			(4,587		)
Gain (loss) on investments, net		(72,986		)	6,917
Gain (loss) on derivative contracts, net		65,119			(6,780		)
Minority interests		(1,673		)	(1,337		)
Miscellaneous, net		656			183
		(205,199		)	(159,341		)
Loss from continuing operations before income taxes		(29,198		)	(55,614		)
Income tax benefit		16,655			19,656
Loss from continuing operations		(12,543		)	(35,958		)
Income (loss) from discontinued operations, net of taxes		5,484			(2,386		)
Loss before cumulative effect of a change in accounting principle		(7,059		)	(38,344		)
Cumulative effect of a change in accounting principle, net of taxes		(443		)	(862		)
Net loss		$	(7,502	)	$	(39,206	)

 

See accompanying notes to
condensed consolidated financial statements.

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CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2007 and 2006

(Dollars in thousands)

(Unaudited)

		2007			2006
Cash flows from operating activities:
Loss from continuing operations		$	(12,543	)	$	(35,958	)
Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization (including impairments)		286,686			277,405
Equity in net income of affiliates		(1,776		)	(1,408		)
Minority interests		1,673			1,337
Investment securities received from a customer bankruptcy settlement		(466		)	—
Unrealized loss (gain) on investments, net		72,986			(6,917		)
Write-off of deferred financing costs		—			4,587
Unrealized gain on derivative contracts		(65,975		)	(3,187		)
Amortization of deferred financing costs, discounts on indebtedness and other deferred costs		19,090			18,751
Share-based compensation expense related to equity classified awards		15,115			13,529
Deferred income tax benefit		(18,780		)	(23,376		)
Amortization and write-off of feature film inventory		32,170			30,328
Provision for doubtful accounts		8,979			4,873
Changes in assets and liabilities		(102,057		)	(110,706		)
Net cash provided by operating activities		235,102			169,258
Cash flows from investing activities:
Capital expenditures		(156,294		)	(272,396		)
Proceeds from sale of equipment, net of costs of disposal		(83		)	1,382
Decrease in investment securities and other investments		51			176
Decrease (increase) in restricted cash		(4,463		)	1,508
Additions to other intangible assets		(1,228		)	(975		)
Net cash used in investing activities		(162,017		)	(270,305		)
Cash flows from financing activities:
Proceeds from bank debt		18,000			4,900,000
Repayment of bank debt		(13,750		)	(1,657,500		)
Proceeds from collateralized indebtedness		—			42,124
Repayment of collateralized indebtedness		—			(48,620		)
Capital distribution to Cablevision		881			—
Proceeds from derivative contracts		—			6,496
Payments on capital lease obligations and other debt		(2,029		)	(2,175		)
Additions to deferred financing and other costs		—			(40,517		)
Distributions to minority partners		(5,933		)	(7,436		)
Net cash provided by (used in) financing activities		(2,831		)	3,192,372
Net increase (decrease) in cash and cash equivalents from continuing operations		70,254			3,091,325
Cash flows of discontinued operations:
Net cash used in operating activities		(920		)	(854		)
Net cash provided by investing activities		—			3,912
Net effect of discontinued operations on cash and cash equivalents		(920		)	3,058
Cash and cash equivalents at beginning of year		414,604			394,969
Cash and cash equivalents at end of period		$	483,938		$	3,489,352

 

See accompanying notes to
condensed consolidated financial statements.

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CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

NOTE 1.                BUSINESS

CSC Holdings, Inc. (“CSC Holdings” or the “Company”), is a wholly-owned subsidiary of Cablevision Systems Corporation (“Cablevision”).  The Company and its majority-owned subsidiaries own and operate cable television systems and through the Company’s wholly-owned subsidiary, Rainbow Media Holdings, LLC, have ownership interests in companies that produce and distribute national and regional entertainment and sports programming services, including Madison Square Garden, L.P.  The Company also owns companies that provide advertising sales services for the cable television industry, provide telephone service, and operate motion picture theaters.  The Company classifies its business interests into three reportable segments:  Telecommunications Services, consisting principally of its video, high-speed data, Voice over Internet Protocol and its commercial data and voice services operations; Rainbow, consisting principally of interests in national and regional television programming networks, including AMC, IFC, WE tv, fuse and the VOOM HD Networks; and Madison Square Garden, which owns and operates professional sports teams, regional television sports programming networks and an entertainment business.

NOTE 2.                BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.  Accordingly, these financial statements do not include all the information and notes required for complete annual financial statements.

The financial statements as of March 31, 2007 and for the three months ended March 31, 2007 and 2006 presented in this Form 10-Q are unaudited; however, in the opinion of management, such financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.

The accompanying condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries.  All significant intercompany transactions and balances have been eliminated in consolidation.

The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2007.

The interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

The preparation of financial statements in conformity with GAAP 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 3.                LOSS PER COMMON SHARE

Net loss per common share is not presented since the Company is a wholly-owned subsidiary of Cablevision.

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NOTE 4.                COMPREHENSIVE LOSS

The comprehensive loss, net of tax, for the three months ended March 31, 2007 and 2006 equals the net loss for the respective periods.

NOTE 5.                RECLASSIFICATIONS

The operating results of Fox Sports Net Chicago have been classified as discontinued operations in the condensed consolidated statements of operations and cash flows for the three months ended March 31, 2006.

NOTE 6.                CASH FLOWS

For purposes of the condensed consolidated statements of cash flows, the Company considers short-term investments with a maturity at date of purchase of three months or less to be cash equivalents.

During the three months ended March 31, 2007 and 2006, the Company’s non-cash investing and financing activities and other supplemental data were as follows:

		Three Months Ended March 31,
		2007			2006
Non-Cash Investing and Financing Activities:
Continuing Operations
Capital lease obligations		$	—		$	11,751
Redemption of collateralized indebtedness with related prepaid forward contracts and stock		27,744			109,141
Redemption of collateralized indebtedness with related prepaid forward contracts		—			16,771
Discontinued Operations
Interest accrued on make whole payment obligation to Loral		1,034			—
Restricted cash and gain resulting from the FCC bond requirement waiver		11,250			—
Supplemental Data:
Cash interest paid - continuing operations		221,645			169,620
Income taxes paid, net		1,830			4,479

 

NOTE 7.                RECENTLY ADOPTED ACCOUNTING STANDARDS

In December 2006, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements (“FSP 00-19-2”).  FSP 00-19-2 provides guidance related to the accounting for registration payment arrangements and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate arrangement or included as a provision of a financial instrument or arrangement, should be separately recognized and measured in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, Accounting for Contingencies (“Statement No. 5”).  FSP 00-19-2 requires that if the transfer of consideration under a registration payment arrangement is probable and can be reasonably estimated at inception, the contingent liability under such arrangement shall be included in the allocation of proceeds from the related financing transaction using the measurement guidance in Statement No. 5.  FSP 00-19-2 applies immediately to any registration payment arrangement entered into subsequent to the issuance of FSP 00-19-2.  For such arrangements entered into

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prior to the issuance of FSP 00-19-2, the guidance is effective for the Company as of January 1, 2007.  As a condition to the initial sale of CSC Holdings’ 6-3/4% Senior Notes due 2012, the Company entered into a registration rights agreement with the initial purchasers under which the Company agreed that it would file an exchange offer registration statement under the Securities Act with the Securities and Exchange Commission (“SEC”) and use its commercially reasonable best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act.  If the exchange offer was not completed by May 11, 2005, the agreement provided for an increase of 1/4% per annum in the interest rate for the first 90 days after May 11, 2005 and an additional 1/4% per annum, up to a maximum of 1/2% per annum, at the beginning of each subsequent 90 day period that the exchange offer was not completed.  Upon the completion of the exchange, the interest rate would revert to 6-3/4%.  In March 2007, the Company offered to exchange these notes for substantially identical publicly registered 6-3/4% Series B Senior Notes due 2012.  This exchange was completed on April 26, 2007.  In connection with the adoption of FSP 00-19-2 as of January 1, 2007, the Company recorded a charge of $443, net of tax, as a cumulative effect of a change in accounting principle representing the estimated fair value of the 1/2% penalty interest expected to be incurred under the registration rights agreement subsequent to January 1, 2007.

On January 1, 2007, the Company adopted FASB Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes - an interpretation of SFAS No. 109.  This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.  FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in an income tax return.  The change in the net assets and liabilities recognized as a result of adopting the provisions of FIN 48 has been recorded as a charge of $442 to the opening balance of accumulated deficit.  See Note 11 for a discussion of the impact of the Company’s adoption of FIN 48.

In June 2006, the Emerging Issues Task Force reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation) (“EITF No. 06-3”), which addresses the income statement disclosures for taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer, and may include, but are not limited to, sales, use, value added, and some excise taxes.  The presentation of taxes on either a gross (included in revenues and costs) or a net (excluded from revenues) basis is an accounting policy decision that should be disclosed pursuant to Accounting Principles Board Opinion No. 22.  In addition, for any such taxes that are reported on a gross basis, a company should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant and can be done on an aggregate basis.  EITF No. 06-3 was effective January 1, 2007 for the Company.  For the three months ended March 31, 2007 and 2006, the amount of franchise fees included as a component of net revenue aggregated $27,066 and $24,128, respectively.

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NOTE 8.                                                 DISCONTINUED OPERATIONS

In June 2006 and April 2005, respectively, the operations of the Fox Sports Net Chicago programming business and the Rainbow DBS satellite distribution business were shut down.  As a result, the operating results of these businesses, net of taxes, have been classified in the condensed consolidated statements of operations as discontinued operations for all periods presented.  Operating results of discontinued operations for the three months ended March 31, 2007 and 2006 are summarized below:

		Three Months Ended March 31, 2007			Three Months Ended March 31, 2006
		Rainbow DBS distribution business			Fox Sports Net Chicago			Rainbow DBS distribution business			Total
Revenues, net		$	—		$	340		$	—		$	340
Income (loss) before income taxes		$	9,296		(362		)	$	(3,677	)	(4,039		)
Income tax benefit (expense)		(3,812		)	148			1,505			1,653
Net income (loss)		$	5,484		$	(214	)	$	(2,172	)	$	(2,386	)

 

In March 2007, the Federal Communications Commission (“FCC”) waived the bond requirement previously submitted by Rainbow DBS Company LLC with respect to five Ka-band licenses.  These bonds were originally cash collateralized by the Company.  In connection with the shut down of the Rainbow DBS satellite distribution business in 2005, the Company recorded a loss related to the outstanding bonds since the Company believed it was not probable that Rainbow DBS would meet the required FCC milestones.  As a result of the waiver from the FCC, the Company has recorded a gain of $6,638, net of taxes, for the three months ended March 31, 2007.  The Company expects to receive the cash collateral of $11,250 in the second quarter of 2007.

For the three months ended March 31, 2006, the Company recorded losses, net of taxes, of $2,386, representing primarily adjustments related to the Rainbow DBS satellite distribution business.

32

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NOTE 9.                INTANGIBLE ASSETS

The following table summarizes information relating to the Company’s acquired intangible assets at March 31, 2007 and December 31, 2006:

		March 31, 2007			December 31, 2006
Gross carrying amount of amortizable intangible assets
Affiliation relationships and affiliate agreements		$	783,774		$	783,774
Broadcast rights and other agreements		86,748			86,748
Season ticket holder relationships		75,005			75,005
Suite holder contracts and relationships		21,167			21,167
Advertiser relationships		104,071			104,071
Other intangibles		42,047			40,819
		1,112,812			1,111,584
Accumulated amortization
Affiliation relationships and affiliate agreements		382,180			366,888
Broadcast rights and other agreements		52,413			50,746
Season ticket holder relationships		11,390			10,027
Suite holder contracts and relationships		6,645			5,815
Advertiser relationships		45,688			42,814
Other intangibles		20,364			19,139
		518,680			495,429
Indefinite-lived intangible assets
Cable television franchises		731,848			731,848
Sports franchises		96,215			96,215
FCC licenses and other intangibles		11,936			11,936
Trademarks		53,880			53,880
Excess costs over the fair value of net assets acquired		1,032,117			1,032,117
		1,925,996			1,925,996
Total intangible assets, net		$	2,520,128		$	2,542,151