UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

 

FORM 10-Q

 

(Mark One)

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

o                                 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to                

Commission File Number		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 August 3, 2007:

Cablevision NY Group Class A Common Stock — 230,894,204

Cablevision NY Group Class B Common Stock — 63,266,676

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—June 30, 2007 (unaudited) and December 31, 2006			3
		Condensed Consolidated Statements of Operations—Three and Six Months Ended June 30, 2007 and 2006 (unaudited)			5
		Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 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—June 30, 2007 (unaudited) and December 31, 2006			31
		Condensed Consolidated Statements of Operations—Three and Six Months Ended June 30, 2007 and 2006 (unaudited)			33
		Condensed Consolidated Statements of Cash Flows—Six Months Ended June 30, 2007 and 2006 (unaudited)			34
		Notes to Condensed Consolidated Financial Statements (unaudited)			35
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			58
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			88
Item 4.		Controls and Procedures			91
PART II. OTHER INFORMATION
Item 1.		Legal Proceedings			91
Item 1A.		Risk Factors			91
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			92
Item 4.		Submission of Matters to a Vote of Security Holders			92
Item 6.		Exhibits			93
SIGNATURES					94

 

 

PART I.  FINANCIAL INFORMATION

This Quarterly Report on Form 10-Q for the period ended June 30, 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, funding requirements, expected changes in basic video customers and revenue generating units growth, 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 members of 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 receipt of certain 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 the potential impact on those actual terms of a continuation of current unsettled conditions in the credit markets; 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 our basic video, 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;

1

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·                  the level of our capital expenditures;

·                  the level of our expenses;

·                  future acquisitions and dispositions of assets;

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

·                  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.

2

Item 1.     Financial Statements

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

		June 30,			December 31,
		2007			2006
		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	1,041,571		$	524,401
Restricted cash		68,155			11,390
Accounts receivable, trade (less allowance for doubtful accounts of $14,492 and $17,257)		487,506			516,533
Prepaid expenses and other current assets		201,084			157,003
Feature film inventory, net		121,241			124,778
Deferred tax asset		280,923			184,032
Investment securities pledged as collateral		156,905			18,981
Derivative contracts		22,798			81,140
Assets held for sale		—			49,189
Total current assets		2,380,183			1,667,447
Property, plant and equipment, net of accumulated depreciation of $6,653,946 and $6,254,510		3,521,189			3,713,030
Investments in affiliates		1,294			49,950
Notes and other receivables		40,441			29,659
Investment securities pledged as collateral		939,838			1,080,229
Other assets		80,539			80,273
Feature film inventory, net		399,191			375,700
Deferred carriage fees, net		163,992			173,059
Cable television franchises		731,848			731,848
Affiliation, broadcast and other agreements, net of accumulated amortization of $419,577 and $390,324		368,429			397,682
Other intangible assets, net of accumulated amortization of $89,805 and $77,255		313,803			325,291
Excess costs over fair value of net assets acquired		1,023,860			1,024,168
Deferred financing and other costs, net of accumulated amortization of $79,097 and $68,705		107,353			117,409
Assets held for sale		—			79,112
		$	10,071,960		$	9,844,857

 

See accompanying notes to
condensed consolidated financial statements.

3

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		June 30,			December 31,
		2007			2006
		(unaudited)
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Accounts payable		$	376,061		$	389,400
Accrued liabilities		912,936			1,023,488
Deferred revenue		165,217			162,463
Feature film and other contract obligations		112,579			121,890
Liabilities under derivative contracts		21,184			6,568
Bank debt		118,750			93,750
Collateralized indebtedness		146,140			102,268
Capital lease obligations		6,062			7,069
Notes payable		3,902			17,826
Senior notes and debentures		499,978			499,952
Liabilities held for sale		—			6,024
Total current liabilities		2,362,809			2,430,698
Feature film and other contract obligations		322,662			312,344
Deferred revenue		13,771			14,337
Deferred tax liability		353,443			73,724
Liabilities under derivative contracts		147,586			204,887
Other liabilities		343,534			333,954
Bank debt		4,833,750			4,898,750
Collateralized indebtedness		714,710			819,306
Senior notes and debentures		5,494,576			5,494,004
Senior subordinated notes and debentures		497,206			497,011
Notes payable		—			1,017
Capital lease obligations		51,711			54,389
Minority interests		515			49,670
Liabilities held for sale		—			19
Total liabilities		15,136,273			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, 255,403,872 and 250,927,804 shares issued and 230,866,549 and 228,643,568 shares outstanding		2,554			2,509
CNYG Class B Common Stock, $.01 par value, 320,000,000 shares authorized, 63,266,676 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		106,928			57,083
Accumulated deficit		(4,733,933		)	(5,027,473		)
		(4,623,818		)	(4,967,244		)
Treasury stock, at cost (24,537,323 and 22,284,236 shares)		(428,537		)	(360,059		)
Accumulated other comprehensive loss		(11,958		)	(11,950		)
Total stockholders’ deficiency		(5,064,313		)	(5,339,253		)
		$	10,071,960		$	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 and Six Months Ended June 30, 2007 and 2006

(Dollars in thousands, except per share amounts)
(Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Revenues, net		$	1,567,984		$	1,396,789		$	3,130,617		$	2,784,457
Operating expenses:
Technical and operating (excluding depreciation, amortization and impairments shown below)		681,355			587,090			1,415,925			1,244,182
Selling, general and administrative		399,264			371,631			771,232			728,286
Restructuring charges (credits)		126			(2,069		)	1,455			(2,754		)
Depreciation and amortization (including impairments)		278,850			280,416			563,298			555,575
		1,359,595			1,237,068			2,751,910			2,525,289
Operating income		208,389			159,721			378,707			259,168
Other income (expense):
Interest expense		(238,202		)	(249,580		)	(476,850		)	(442,710		)
Interest income		6,525			16,875			14,964			22,537
Equity in net income of affiliates		2,601			1,787			4,377			3,195
Gain on sale of affiliate interests		183,888			—			183,888			—
Gain on investments, net		87,616			70,953			14,631			78,191
Gain (loss) on derivative contracts, net		(29,217		)	(35,835		)	35,902			(42,615		)
Write-off of deferred financing costs		—			(3,412		)	—			(7,999		)
Loss on extinguishment of debt		—			(13,125		)	—			(13,125		)
Minority interests		501			382			1,215			898
Miscellaneous, net		792			(175		)	1,451			27
		14,504			(212,130		)	(220,422		)	(401,601		)
Income (loss) from continuing operations before income taxes		222,893			(52,409		)	158,285			(142,433		)
Income tax benefit (expense)		(95,479		)	23,882			(64,301		)	57,622
Income (loss) from continuing operations		127,414			(28,527		)	93,984			(84,811		)
Income from discontinued operations, including gain on sale of Fox Sports Net Bay Area of $187,853, net of taxes		190,018			43,113			197,615			42,289
Income (loss) before cumulative effect of a change in accounting principle		317,432			14,586			291,599			(42,522		)
Cumulative effect of a change in accounting principle, net of taxes		—			—			(443		)	(862		)
Net income (loss)		$	317,432		$	14,586		$	291,156		$	(43,384	)
Basic net income (loss) per share:
Income (loss) from continuing operations		$	0.44		$	(0.10	)	$	0.33		$	(0.30	)
Income from discontinued operations		$	0.66		$	0.15		$	0.69		$	0.15
Cumulative effect of a change in accounting principle		$	—		$	—		$	—		$	—
Net income (loss)		$	1.10		$	0.05		$	1.02		$	(0.15	)
Basic weighted average common shares (in thousands)		288,286			283,592			286,638			283,273
Diluted net income (loss) per share:
Income (loss) from continuing operations		$	0.43		$	(0.10	)	$	0.32		$	(0.30	)
Income from discontinued operations		$	0.65		$	0.15		$	0.67		$	0.15
Cumulative effect of a change in accounting principle		$	—		$	—		$	—		$	—
Net income (loss)		$	1.08		$	0.05		$	0.99		$	(0.15	)
Diluted weighted average common shares (in thousands)		294,394			283,592			293,901			283,273

 

See accompanying notes to
condensed consolidated financial statements.

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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

\CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2007 and 2006
(Dollars in thousands)
(Unaudited)

		2007			2006
Cash flows from operating activities:
Income (loss) from continuing operations		$	93,984		$	(84,811	)
Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities:
Depreciation and amortization (including impairments)		563,298			555,575
Equity in net income of affiliates		(4,377		)	(3,195		)
Minority interests		(1,215		)	(898		)
Gain on sale of affiliate interests		(183,888		)	—
Unrealized gain on investments, net		(14,638		)	(78,191		)
Write-off of deferred financing costs		—			7,999
Unrealized loss (gain) on derivative contracts		(41,830		)	21,102
Loss on extinguishment of debt		—			13,125
Amortization of deferred financing, discounts on indebtedness and other deferred costs		39,024			37,273
Share-based compensation expense related to equity classified awards		29,942			30,025
Deferred income tax		45,729			(63,020		)
Amortization and write-off of feature film inventory		64,718			61,853
Provision for doubtful accounts		22,281			14,311
Change in accrued interest		(72,867		)	26,940
Changes in other assets and liabilities		(112,515		)	(95,477		)
Net cash provided by operating activities		427,646			442,611
Cash flows from investing activities:
Capital expenditures		(333,165		)	(488,345		)
Proceeds from sale of equipment, net of costs of disposal		1,628			8,000
Decrease in investment securities and other investments		369			716
Increase in restricted cash		(3,137		)	(1,332		)
Additions to other intangible assets		(1,062		)	(1,249		)
Proceeds from sale of affiliate interests		208,375			—
Distributions from equity method investees, net		24,506			—
Net cash used in investing activities		(102,486		)	(482,210		)
Cash flows from financing activities:
Proceeds from bank debt		73,000			4,900,000
Repayment of bank debt		(113,000		)	(1,667,750		)
Redemption of senior subordinated debentures		—			(263,125		)
Proceeds from stock option exercises		29,479			10,580
Proceeds from collateralized indebtedness		—			223,005
Repayment of collateralized indebtedness		—			(228,862		)
Dividend distribution to common stockholders		(66,461		)	(2,837,967		)
Proceeds from derivative contracts		—			6,496
Payments on capital lease obligations and other debt		(3,685		)	(4,420		)
Deemed repurchase of restricted stock		(68,478		)	—
Additions to deferred financing and other costs		(1,648		)	(42,004		)
Distributions to minority partners		(13,322		)	(13,263		)
Net cash provided by (used in) financing activities		(164,115		)	82,690
Net increase in cash and cash equivalents from continuing operations		161,045			43,091
Cash flows of discontinued operations:
Net cash provided by operating activities		18,109			90,520
Net cash provided by investing activities		313,555			4,286
Net change in cash classified in assets held for sale		24,461			19,749
Net effect of discontinued operations on cash and cash equivalents		356,125			114,555
Cash and cash equivalents at beginning of year		524,401			369,375
Cash and cash equivalents at end of period		$	1,041,571		$	527,021

 

See accompanying notes to
condensed consolidated financial statements.

6

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 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, News 12 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 June 30, 2007 and for the three and six months ended June 30, 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.

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NOTE 3.                INCOME (LOSS) PER COMMON SHARE

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period.  Diluted net income per common share reflects the dilutive effects of stock options, restricted stock, restricted stock units and other potentially dilutive financial instruments.

A reconciliation of the denominator of the basic and diluted net income per share calculation for the three and six months ended June 30, 2007 is as follows:

		Three Months Ended		Six Months Ended
		June 30, 2007
Basic weighted average shares outstanding		288,286		286,638
Effect of dilution:
Stock options		3,186		3,146
Restricted stock awards		2,922		4,117
Diluted weighted average shares outstanding		294,394		293,901

 

Anti-dilutive shares totaling 484 and 533 have been excluded from diluted weighted average shares outstanding for the three and six months ended June 30, 2007, respectively.

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 anti-dilutive.

The Company generated a loss from continuing operations for the three and six months ended June 30, 2006, therefore, the outstanding common stock equivalents during each respective period were excluded from the computation of net loss per share as the impact would have been anti-dilutive.

NOTE 4.                COMPREHENSIVE INCOME (LOSS)

The following table is a reconciliation of the Company’s net income (loss) to comprehensive income (loss) for the three and six months ended June 30, 2007 and 2006:

		Three Months Ended June 30,						Six Months Ended June 30,
		2007			2006			2007			2006
Net income (loss)		$	317,432		$	14,586		$	291,156		$	(43,384	)
Other comprehensive income (loss):
Amortization of prior service cost and gains and losses included in net periodic benefit cost, net of taxes		(8		)	—			(8		)	—
Comprehensive income (loss)		$	317,424		$	14,586		$	291,148		$	(43,384	)

 

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NOTE 5.                RECLASSIFICATIONS

As a result of the sale of the Company’s 60% interest in Fox Sports Net Bay Area in June 2007, the net operating results of Fox Sports Net Bay Area, have been classified as discontinued operations in the condensed consolidated statements of operations and cash flows for all periods presented.  The net assets and liabilities of Fox Sports Net Bay Area as of December 31, 2006 have been classified as assets and liabilities held for sale in the condensed consolidated balance sheet.  See Note 8 and Note 16.

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 six months ended June 30, 2007 and 2006, the Company’s non-cash investing and financing activities and other supplemental data were as follows:

		Six Months Ended June 30,
		2007			2006
Non-Cash Investing and Financing Activities:
Continuing Operations:
Capital lease obligations		$	—		$	11,751
Deferred financing costs		—			294
Dividends payable on equity classified share-based awards		—			68,586
Redemption of collateralized indebtedness with related prepaid forward contracts and stock		74,726			9,964
Redemption of collateralized indebtedness with related prepaid forward contracts		—			176,385
Receivable related to sale of interest in equity method investee		4,737			—
Discontinued Operations:
Interest accrued on make whole payment obligation to Loral		1,712			—
Receivable related to sale of affiliate interest		15,801			—
Supplemental Data:
Cash interest paid—continuing operations		484,536			391,704
Cash interest paid—discontinued operations		—			13
Income taxes paid, net		21,399			9,374

 

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 was 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

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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.

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 and six months ended June 30, 2007 and 2006, the amount of franchise fees included as a component of net revenue aggregated $28,114 and $55,180, and $25,378 and $49,506, respectively.

NOTE 8.                DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE

In June 2007, the Company completed the sale of its 60% interest in Fox Sports Net Bay Area, to Comcast Corporation (“Comcast”) (Note 16).  In addition, 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 and six months ended June 30, 2007 and 2006 are summarized below:

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		Three Months Ended June 30, 2007
		Fox Sports Net Bay Area			Rainbow DBS distribution business			Total
Revenues, net		$	30,311		$	—		$	30,311
Income (loss) before income taxes		$	322,551		$	(943	)	$	321,608
Income tax benefit (expense)		(131,984		)	394			(131,590		)
Net income (loss), including gain on sale of Fox Sports Net Bay Area of $187,853, net of taxes		$	190,567		$	(549	)	$	190,018

 

		Three Months Ended June 30, 2006
		Fox Sports Net Bay Area			Fox Sports Net Chicago(a)			Rainbow DBS distribution business			Total
Revenues, net		$	27,560		$	78,634		$	—		$	106,194
Income (loss) before income taxes		$	4,084		$	72,652		$	(173	)	$	76,563
Income tax benefit (expense)		(1,673		)	(31,848		)	71			(33,450		)
Net income (loss)		$	2,411		$	40,804		$	(102	)	$	43,113

 

		Six Months Ended June 30, 2007
		Fox Sports Net Bay Area			Rainbow DBS distribution business			Total
Revenues, net		$	53,894		$	—		$	53,894
Income before income taxes		$	326,135		$	8,353		$	334,488
Income tax expense		(133,455		)	(3,418		)	(136,873		)
Net income, including gain on sale of Fox Sports Net Bay Area of $187,853, net of taxes		$	192,680		$	4,935		$	197,615

 

		Six Months Ended June 30, 2006
		Fox Sports Net Bay Area			Fox Sports Net Chicago(a)			Rainbow DBS distribution business			Total
Revenues, net		$	48,824		$	78,974		$	—		$	127,798
Income (loss) before income taxes		$	6,728		$	72,290		$	(3,850	)	$	75,168
Income tax benefit (expense)		(2,755		)	(31,700		)	1,576			(32,879		)
Net income (loss)		$	3,973		$	40,590		$	(2,274	)	$	42,289

(a)                   Revenues, net includes $77,996 representing the collection in June 2006 of affiliate revenue from a cable affiliate, including $74,696 relating to periods prior to the second quarter of 2006, that had not been previously recognized due to a contractual dispute.  The underlying contract was terminated in June 2006 and no further payments will be received under this contract.

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

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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 recorded a gain of $6,638, net of taxes, in the quarter ended March 31, 2007.  The Company received the cash collateral of $11,250 in the quarter ended June 30, 2007.

The assets and liabilities of Fox Sports Net Bay Area have been classified in the consolidated balance sheet as of December 31, 2006 as assets and liabilities held for sale and consist of the following:

		December 31, 2006
Cash and cash equivalents		$	24,461
Accounts receivable, prepaid expenses and other current assets		24,728
Property and equipment, net and other long-term assets		15,950
Intangible assets, net		63,162
Total assets held for sale		$	128,301
Accounts payable and accrued expenses		$	5,059
Other current liabilities		965
Other long-term liabilities		19
Total liabilities held for sale		$	6,043

 

NOTE 9.                                                 INTANGIBLE ASSETS

The following table summarizes information relating to the Company’s acquired intangible assets at June 30, 2007 and December 31, 2006:

		June 30, 2007			December 31 2006
Gross carrying amount of amortizable intangible assets
Affiliation relationships and affiliate agreements		$	742,416		$	742,416
Broadcast rights and other agreements		45,590			45,590
Season ticket holder relationships		75,005			75,005
Suite holder contracts and relationships		21,167			21,167
Advertiser relationships		103,524			103,524
Other intangibles		41,881			40,819
		1,029,583			1,028,521
Accumulated amortization
Affiliation relationships and affiliate agreements		381,816			353,518
Broadcast rights and other agreements		37,761			36,806
Season ticket holder relationships		12,752			10,027
Suite holder contracts and relationships		7,477			5,815
Advertiser relationships		48,010			42,274
Other intangibles		21,566			19,139
		509,382			467,579

 

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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		1,023,860			1,024,168
		1,917,739			1,918,047
Total intangible assets, net		$	2,437,940		$	2,478,989
Aggregate amortization expense
Six months ended June 30, 2007 and year ended December 31, 2006 (excluding impairment charges of $899 for the year ended December 31, 2006)		$	41,962		$	84,803
Estimated amortization expense
Year ending December 31, 2007		$	83,131
Year ending December 31, 2008		80,668
Year ending December 31, 2009		74,259
Year ending December 31, 2010		71,253
Year ending December 31, 2011		70,505

 

NOTE 10.                                          COLLATERALIZED INDEBTEDNESS

The following table summarizes the settlement of the Company’s collateralized indebtedness for the six months ended June 30, 2007.  The Company’s collateralized indebtedness obligations relating to shares of Charter Communications, Inc. and Leapfrog Enterprises, Inc. were settled by delivering the underlying securities and the related equity derivative contracts.

		Charter			Leapfrog			Total
Number of shares		2,482,974			800,000
Collateralized indebtedness settled		$	(55,488	)	$	(19,238	)	$	(74,726	)
Prepaid forward contracts		46,698			10,638			57,336
Fair value of underlying securities delivered		8,790			8,600			17,390
Net cash payment		$	—		$	—		$	—

 

At June 30, 2007, the Company had collateralized indebtedness obligations of $146,140 that will mature during the next twelve months.  The Company intends to settle such obligations either by delivering shares of the applicable stock and the related equity derivative contracts or by delivering cash from the net proceeds of a new monetization transaction.  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 June 30, 2007, the Company had an early termination shortfall of $414 related to one of these contracts.

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NOTE 11.              INCOME TAXES

The income tax expense attributable to continuing operations for the six months ended June 30, 2007 of $64,301 differs from the income tax expense derived from applying the statutory federal rate to pretax income due principally to state taxes, tax expense of $5,148, including accrued interest, recorded pursuant to FIN 48, tax expense of $2,085 resulting from a change in the deferred tax rate, and the tax impact of non-deductible officers’ compensation and other non-deductible expenses of $3,039 and $3,155, respectively, partially offset by a decrease in the valuation allowance of $2,010 relating to certain state net operating loss carry forwards.

The income tax benefit attributable to continuing operations for the six months ended June 30, 2006 of $57,622 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 $6,279 relating to certain state net operating loss carry forwards and a tax benefit of $5,013 resulting from the favorable settlement of an issue with a taxing authority, partially offset by the tax impact of non-deductible officers’ compensation and other non-deductible expenses of $2,558 and $3,826, 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 relating 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 Company had a gross liability of $10,353 for uncertain income tax positions, excluding accrued interest.  After considering associated deferred tax benefits of $3,353, the net amount

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of liability for uncertain tax positions was $7,000 as of January 1, 2007.  Therefore, if all uncertain tax positions were sustained at the amounts reported or expected to be reported in the Company’s tax returns, the Company’s income tax expense would decrease by $7,000.

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 $2,089, net of deferred tax benefit of $855, has been recognized in the six month period ended June 30, 2007 and is included in the income tax expense 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, to $14,264, resulting in additional income tax expense in the Company’s condensed consolidated statement of operations.  Such amount excludes the associated deferred tax benefit.  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 has recognized additional income tax expense of $3,736, excluding deferred tax benefit, in the three month period ended June 30, 2007.

As of June 30, 2007, the Company had a liability of $1,957 for uncertain income tax positions, excluding accrued interest, net of deferred tax benefits of $637.

In July 2007, the Internal Revenue Service (“IRS”) completed its audit of the Company’s consolidated federal income tax returns for 2002 and 2003.  The completion of this audit did not have a significant effect on the Company’s consolidated financial statements.  The IRS has notified the Company of its intent to audit the Company’s consolidated federal income tax returns for 2004 and 2005.

With a few exceptions, the Company is no longer subject to state and local income tax audits by taxing authorities for years prior to 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.  In addition, the state of New York has notified the Company of their intent to audit 2003 through 2005.

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.  Changes in the liabilities for uncertain tax positions will be recognized in the interim period in which they are effectively settled.

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