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    March 31, 2008

 

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, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

 

 

 

Large accelerated
filer

 

Accelerated
filer

 

Non-accelerated
filer

 

Smaller
Reporting
Company

Cablevision Systems Corporation

 

Yes x

 

No o

 

Yes o

 

No o

 

Yes o

 

No o

 

Yes o

 

No x

CSC Holdings, Inc.

 

Yes o

 

No o

 

Yes o

 

No o

 

Yes x

 

No o

 

Yes o

 

No x

 

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 May 2, 2008:

 

Cablevision NY Group Class A Common Stock -

 

233,479,892

 

Cablevision NY Group Class B Common Stock -

 

63,265,676

 

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 - March 31, 2008 (unaudited) and December 31, 2007

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2008 and 2007 (unaudited)

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2008 and 2007 (unaudited)

6

 

 

 

 

 

 

 

 

 

 

Financial Statements of CSC Holdings, Inc. and Subsidiaries

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets - March 31, 2008 (unaudited) and December 31, 2007

7

 

 

 

 

 

 

Condensed Consolidated Statements of Operations - Three Months Ended March 31, 2008 and 2007 (unaudited)

9

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2008 and 2007 (unaudited)

10

 

 

 

 

 

 

Combined Notes to Condensed Consolidated Financial Statements (unaudited)

11

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

50

 

 

 

 

Item 4.

 

Controls and Procedures

52

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

53

 

 

 

 

Item 6.

 

Exhibits

58

 

 

 

 

  SIGNATURES

59

 



 

PART I.            FINANCIAL INFORMATION

 

This Quarterly Report on Form 10-Q for the period ended March 31, 2008 is separately filed by Cablevision Systems Corporation (“Cablevision”) and CSC Holdings, Inc. (“CSC Holdings” and collectively with Cablevision and their subsidiaries, the “Company”, “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.  In this Quarterly Report there are statements concerning our future operating and future financial performance.  Words such as “expects”, “anticipates”, “believes”, “estimates”, “may”, “will”, “should”, “could”, “potential”, “continue”, “intends”, “plans” and similar words and terms used in the discussion of future operating and future financial performance identify forward-looking statements.  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:

 

·                 the level of our revenues;

·                 competition from existing competitors (such as direct broadcast satellite (“DBS”) operators and telephone companies) and new competitors (such as 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;

·                 changes in the laws or regulations under 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 Item 3. Legal Proceedings;

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

·                 the state of the market for debt securities and bank loans;

·                 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 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

 

1



 

·                 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)

 

 

 

March 31,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

399,106

 

$

360,662

 

Restricted cash

 

59,015

 

58,416

 

Accounts receivable, trade (less allowance for doubtful accounts of $13,909 and $12,683)

 

507,322

 

543,151

 

Prepaid expenses and other current assets

 

196,230

 

189,306

 

Program rights, net

 

136,142

 

133,146

 

Deferred tax asset

 

327,121

 

232,984

 

Investment securities pledged as collateral

 

207,689

 

196,090

 

Derivative contracts

 

23,126

 

30,532

 

Total current assets

 

1,855,751

 

1,744,287

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $7,158,381 and $6,956,699

 

3,412,582

 

3,472,203

 

Notes and other receivables

 

37,012

 

40,874

 

Investment securities pledged as collateral

 

679,271

 

668,438

 

Derivative contracts

 

39,045

 

43,020

 

Other assets

 

80,143

 

79,740

 

Program rights, net

 

424,961

 

420,923

 

Deferred carriage fees, net

 

145,394

 

151,507

 

Franchises

 

731,848

 

731,848

 

Affiliation, broadcast and other agreements, net of accumulated amortization of $462,799 and $448,392

 

325,207

 

339,614

 

Other intangible assets, net of accumulated amortization of $109,338 and $102,487

 

322,962

 

316,830

 

Excess costs over fair value of net assets acquired

 

1,023,480

 

1,023,480

 

Deferred financing and other costs, net of accumulated amortization of $84,912 and $88,011

 

101,852

 

107,813

 

 

 

$

9,179,508

 

$

9,140,577

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

3



 

 

 

March 31,

 

December 31,

 

 

 

2008

 

2007

 

 

 

(unaudited)

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable

 

$

414,709

 

$

370,044

 

Accrued liabilities

 

773,895

 

834,374

 

Deferred revenue

 

154,381

 

198,658

 

Program rights obligations

 

108,993

 

110,128

 

Liabilities under derivative contracts

 

3,299

 

2,893

 

Bank debt

 

160,000

 

110,000

 

Collateralized indebtedness

 

211,839

 

219,073

 

Capital lease obligations

 

4,754

 

5,351

 

Notes payable

 

 

1,017

 

Senior notes and debentures

 

500,000

 

500,000

 

Total current liabilities

 

2,331,870

 

2,351,538

 

 

 

 

 

 

 

Deferred revenue

 

12,010

 

12,691

 

Program rights obligations

 

301,593

 

307,185

 

Liabilities under derivative contracts

 

223,964

 

132,647

 

Other liabilities

 

301,276

 

322,042

 

Deferred tax liability

 

401,774

 

326,736

 

Bank debt

 

4,701,250

 

4,778,750

 

Collateralized indebtedness

 

642,443

 

628,081

 

Capital lease obligations

 

58,873

 

60,056

 

Senior notes and debentures

 

4,995,434

 

4,995,148

 

Senior subordinated notes

 

323,374

 

323,311

 

Minority interests

 

3,971

 

1,182

 

Total liabilities

 

14,297,832

 

14,239,367

 

 

 

 

 

 

 

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, 258,209,256 and 255,648,391 shares issued and 233,507,414 and 231,007,266 shares outstanding

 

2,582

 

2,556

 

CNYG Class B Common Stock, $.01 par value, 320,000,000 shares authorized, 63,265,676 shares issued and outstanding

 

633

 

633

 

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

 

143,084

 

130,791

 

Accumulated deficit

 

(4,838,149

)

(4,806,543

)

 

 

(4,691,850

)

(4,672,563

)

Treasury stock, at cost (24,701,842 and 24,641,125 shares)

 

(429,085

)

(429,084

)

Accumulated other comprehensive income

 

2,611

 

2,857

 

Total stockholders’ deficiency

 

(5,118,324

)

(5,098,790

)

 

 

$

9,179,508

 

$

9,140,577

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

4



 

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2008 and 2007

(Dollars in thousands, except per share amounts)

(Unaudited)

 

 

 

2008

 

2007

 

Revenues, net

 

$

1,720,692

 

$

1,562,633

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Technical and operating (excluding depreciation, amortization and impairments shown below)

 

792,439

 

734,570

 

Selling, general and administrative

 

421,330

 

371,968

 

Restructuring charges

 

390

 

1,329

 

Depreciation and amortization (including impairments)

 

260,992

 

284,448

 

 

 

1,475,151

 

1,392,315

 

 

 

 

 

 

 

Operating income

 

245,541

 

170,318

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

(211,653

)

(238,648

)

Interest income

 

4,649

 

8,439

 

Equity in net income of affiliates

 

 

1,776

 

Gain (loss) on investments, net

 

21,616

 

(72,985

)

Gain (loss) on derivative contracts, net

 

(104,910

)

65,119

 

Minority interests

 

(2,905

)

714

 

Miscellaneous, net

 

1,166

 

659

 

 

 

(292,037

)

(234,926

)

Loss from continuing operations before income taxes

 

(46,496

)

(64,608

)

Income tax benefit

 

15,363

 

31,178

 

 

 

 

 

 

 

Loss from continuing operations

 

(31,133

)

(33,430

)

Income (loss) from discontinued operations, net of taxes

 

(473

)

7,597

 

 

 

 

 

 

 

Loss before cumulative effect of a change in accounting principle

 

(31,606

)

(25,833

)

Cumulative effect of a change in accounting principle, net of taxes

 

 

(443

)

 

 

 

 

 

 

Net loss

 

$

(31,606

)

$

(26,276

)

 

 

 

 

 

 

Basic and diluted net loss per share:

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(0.11

)

$

(0.12

)

 

 

 

 

 

 

Income (loss) from discontinued operations

 

$

 

$

0.03

 

 

 

 

 

 

 

Cumulative effect of a change in accounting principle

 

$

 

$

 

 

 

 

 

 

 

Net loss

 

$

(0.11

)

$

(0.09

)

 

 

 

 

 

 

Weighted average common shares (in thousands)

 

289,950

 

284,971

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

5



 

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2008 and 2007

(Dollars in thousands)

(Unaudited)

 

 

 

2008

 

2007

 

Cash flows from operating activities:

 

 

 

 

 

Loss from continuing operations

 

$

(31,133

)

$

(33,430

)

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization (including impairments)

 

260,992

 

284,448

 

Equity in net income of affiliates

 

 

(1,776

)

Minority interests

 

2,905

 

(714

)

Investment securities received from a customer bankruptcy settlement

 

 

(456

)

Loss (gain) on investments, net

 

(21,616

)

72,985

 

Unrealized loss (gain) on derivative contracts

 

103,104

 

(65,975

)

Amortization of deferred financing costs and discounts on indebtedness

 

12,363

 

12,640

 

Amortization of other deferred costs

 

7,448

 

7,012

 

Share-based compensation expense related to equity classified awards

 

11,638

 

15,134

 

Deferred income tax

 

(18,591

)

(33,303

)

Amortization and write-off of program rights

 

36,185

 

32,170

 

Provision for doubtful accounts

 

9,610

 

8,844

 

Changes in other assets and liabilities

 

(111,561

)

(75,606

)

Net cash provided by operating activities

 

261,344

 

221,973

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(193,460

)

(156,294

)

Proceeds from sale of equipment, net of costs of disposal

 

820

 

(83

)

Decrease in investment securities and other investments

 

 

51

 

Increase in restricted cash

 

(1,278

)

(4,463

)

Additions to other intangible assets

 

(766

)

(1,228

)

Net cash used in investing activities

 

(194,684

)

(162,017

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from bank debt

 

 

18,000

 

Repayment of bank debt

 

(27,500

)

(13,750

)

Proceeds from stock option exercises

 

1,234

 

5,506

 

Dividend distribution to common stockholders

 

(580

)

(43,820

)

Payments on capital lease obligations

 

(1,780

)

(2,029

)

Deemed repurchase of restricted stock

 

(1

)

(49,693

)

Distributions to minority partners

 

(116

)

(5,933

)

Net cash used in financing activities

 

(28,743

)

(91,719

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents from continuing operations

 

37,917

 

(31,763

)

 

 

 

 

 

 

Cash flows of discontinued operations:

 

 

 

 

 

Net cash provided by (used in) operating activities

 

(152

)

13,977

 

Net cash provided by investing activities

 

679

 

 

Net change in cash classified in assets held for sale

 

 

(1,230

)

Net effect of discontinued operations on cash and cash equivalents

 

527

 

12,747

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

360,662

 

524,401

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

399,106

 

$

505,385

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

6



 

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,
2008

 

December 31,
2007

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

369,909

 

$

331,901

 

Restricted cash

 

59,015

 

58,416

 

Accounts receivable, trade (less allowance for doubtful accounts of $13,909 and $12,683)

 

507,322

 

543,151

 

Prepaid expenses and other current assets

 

196,212

 

189,281

 

Program rights, net

 

136,142

 

133,146

 

Deferred tax asset

 

374,266

 

283,483

 

Advances to affiliates

 

361,471

 

361,770

 

Investment securities pledged as collateral

 

207,689

 

196,090

 

Derivative contracts

 

23,126

 

30,532

 

Total current assets

 

2,235,152

 

2,127,770

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $7,158,381 and $6,956,699

 

3,412,582

 

3,472,203

 

Notes and other receivables

 

37,012

 

40,874

 

Investment securities pledged as collateral

 

679,271

 

668,438

 

Derivative contracts

 

39,045

 

43,020

 

Other assets

 

80,143

 

79,740

 

Program rights, net

 

424,961

 

420,923

 

Deferred carriage fees, net

 

145,394

 

151,507

 

Franchises

 

731,848

 

731,848

 

Affiliation, broadcast and other agreements, net of accumulated amortization of $462,799 and $448,392

 

325,207

 

339,614

 

Other intangible assets, net of accumulated amortization of $109,338 and $102,487

 

322,962

 

316,830

 

Excess costs over fair value of net assets acquired

 

1,023,480

 

1,023,480

 

Deferred financing and other costs, net of accumulated amortization of $65,621 and $69,926

 

89,027

 

93,782

 

 

 

$

9,546,084

 

$

9,510,029

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

7



 

 

 

March 31,
2008

 

December 31,
2007

 

 

 

(unaudited)

 

 

 

LIABILITIES AND STOCKHOLDER’S DEFICIENCY

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

414,709

 

$

370,044

 

Accrued liabilities

 

706,029

 

800,616

 

Deferred revenue

 

154,381

 

198,658

 

Program rights obligations

 

108,993

 

110,128

 

Liabilities under derivative contracts

 

3,299

 

2,893

 

Bank debt

 

160,000

 

110,000

 

Collateralized indebtedness

 

211,839

 

219,073

 

Capital lease obligations

 

4,754

 

5,351

 

Notes payable

 

 

1,017

 

Senior notes and debentures

 

500,000

 

500,000

 

Total current liabilities

 

2,264,004

 

2,317,780

 

 

 

 

 

 

 

Deferred revenue

 

12,010

 

12,691

 

Program rights and other contract obligations

 

301,593

 

307,185

 

Liabilities under derivative contracts

 

223,964

 

132,647

 

Other liabilities

 

297,726

 

315,842

 

Deferred tax liability

 

654,900

 

569,613

 

Bank debt

 

4,701,250

 

4,778,750

 

Collateralized indebtedness

 

642,443

 

628,081

 

Capital lease obligations

 

58,873

 

60,056

 

Senior notes and debentures

 

3,495,434

 

3,495,148

 

Senior subordinated notes

 

323,374

 

323,311

 

Minority interests

 

3,971

 

1,182

 

Total liabilities

 

12,979,542

 

12,942,286

 

 

 

 

 

 

 

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

 

194,486

 

182,721

 

Accumulated deficit

 

(3,630,671

)

(3,617,951

)

 

 

(3,436,069

)

(3,435,114

)

Accumulated other comprehensive income

 

2,611

 

2,857

 

 

 

 

 

 

 

Total stockholder’s deficiency

 

(3,433,458

)

(3,432,257

)

 

 

$

9,546,084

 

$

9,510,029

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

8



 

CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2008 and 2007

(Dollars in thousands)

(Unaudited)

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Revenues, net

 

$

1,720,692

 

$

1,562,633

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Technical and operating (excluding depreciation, amortization and impairments shown below)

 

792,439

 

734,570

 

Selling, general and administrative

 

421,330

 

371,968

 

Restructuring charges

 

390

 

1,329

 

Depreciation and amortization (including impairments)

 

260,992

 

284,448

 

 

 

1,475,151

 

1,392,315

 

 

 

 

 

 

 

Operating income

 

245,541

 

170,318

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest expense

 

(178,258

)

(205,105

)

Interest income

 

4,418

 

6,722

 

Equity in net income of affiliates

 

 

1,776

 

Gain (loss) on investments, net

 

21,616

 

(72,985

)

Gain (loss) on derivative contracts, net

 

(104,910

)

65,119

 

Minority interests

 

(2,905

)

714

 

Miscellaneous, net

 

1,166

 

659

 

 

 

(258,873

)

(203,100

)

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(13,332

)

(32,782

)

 

 

 

 

 

 

Income tax benefit

 

1,085

 

18,126

 

 

 

 

 

 

 

Loss from continuing operations

 

(12,247

)

(14,656

)

Income (loss) from discontinued operations, net of taxes

 

(473

)

7,597

 

 

 

 

 

 

 

Loss before cumulative effect of a change in accounting principle

 

(12,720

)

(7,059

)

Cumulative effect of a change in accounting principle, net of taxes

 

 

(443

)

 

 

 

 

 

 

Net loss

 

$

(12,720

)

$

(7,502

)

 

See accompanying combined notes to condensed consolidated financial statements.

 

9



 

CSC HOLDINGS, INC. AND SUBSIDIARIES

(a wholly-owned subsidiary of Cablevision Systems Corporation)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2008 and 2007

(Dollars in thousands)

(Unaudited)

 

 

 

2008

 

2007

 

Cash flows from operating activities:

 

 

 

 

 

Loss from continuing operations

 

$

(12,247

)

$

(14,656

)

Adjustments to reconcile loss from continuing operations to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization (including impairments)

 

260,992

 

284,448

 

Equity in net income of affiliates

 

 

(1,776

)

Minority interests

 

2,905

 

(714

)

Investment securities received from a customer bankruptcy settlement

 

 

(456

)

Loss (gain) on investments, net

 

(21,616

)

72,985

 

Unrealized loss (gain) on derivative contracts

 

103,104

 

(65,975

)

Amortization of deferred financing costs and discounts on indebtedness

 

11,157

 

11,435

 

Amortization of other deferred costs

 

7,448

 

7,012

 

Share-based compensation expense related to equity classified awards

 

11,638

 

15,134

 

Deferred income tax

 

(4,988

)

(20,251

)

Amortization and write-off of program rights

 

36,185

 

32,170

 

Provision for doubtful accounts

 

9,610

 

8,844

 

Changes in other assets and liabilities

 

(142,754

)

(107,995

)

Net cash provided by operating activities

 

261,434

 

220,205

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(193,460

)

(156,294

)

Proceeds from sale of equipment, net of costs of disposal

 

820

 

(83

)

Decrease in investment securities and other investments

 

 

51

 

Increase in restricted cash

 

(1,278

)

(4,463

)

Additions to other intangible assets

 

(766

)

(1,228

)

Net cash used in investing activities

 

(194,684

)

(162,017

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from bank debt

 

 

18,000

 

Repayment of bank debt

 

(27,500

)

(13,750

)

Capital contribution from Cablevision

 

127

 

881

 

Payments on capital lease obligations

 

(1,780

)

(2,029

)

Distributions to minority partners

 

(116

)

(5,933

)

Net cash used in financing activities

 

(29,269

)

(2,831

)

 

 

 

 

 

 

Net increase in cash and cash equivalents from continuing operations

 

37,481

 

55,357

 

 

 

 

 

 

 

Cash flows of discontinued operations:

 

 

 

 

 

Net cash provided by (used in) operating activities

 

(152

)

13,977

 

Net cash provided by investing activities

 

679

 

 

Net change in cash classified in assets held for sale

 

 

(1,230

)

Net effect of discontinued operations on cash and cash equivalents

 

527

 

12,747

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

331,901

 

390,143

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

369,909

 

$

458,247

 

 

See accompanying combined notes to condensed consolidated financial statements.

 

10



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

 

NOTE 1.       BUSINESS

 

Cablevision Systems Corporation (“Cablevision”) and its wholly-owned subsidiary CSC Holdings, Inc. (“CSC Holdings,” and collectively with Cablevision, the “Company”) own and operate cable television systems and through Rainbow Media Holdings LLC, a wholly-owned subsidiary of CSC Holdings, have ownership interests in companies that produce and distribute national entertainment and regional news 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, News 12 and the VOOM HD Networks; and Madison Square Garden, consisting principally of its professional sports teams, a regional sports programming business and an entertainment business, as well as the operations of Fuse, a national programming network effective January 1, 2008, which prior to January 1, 2008 was included in the Rainbow segment.

 

NOTE 2.       BASIS OF PRESENTATION

 

The accompanying unaudited condensed consolidated financial statements of Cablevision and CSC Holdings 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, 2008 and for the three months ended March 31, 2008 and 2007 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 of Cablevision include the accounts of Cablevision and its majority-owned subsidiaries and the accompanying condensed consolidated financial statements of CSC Holdings include the accounts of CSC Holdings and its majority-owned subsidiaries.  Cablevision has no operations independent of its CSC Holdings subsidiary, whose operating results and financial position are consolidated into Cablevision.  The condensed consolidated balance sheets and condensed statements of operations for Cablevision are essentially identical to the condensed consolidated balance sheets and condensed consolidated statements of operations for CSC Holdings, with the following significant exceptions:  Cablevision has $1.5 billion of senior notes issued in April 2004, cash, deferred financing costs and accrued interest related to its senior notes, certain intercompany payables to CSC Holdings and other subsidiaries, deferred taxes and accrued dividends on its balance sheet.   Differences between Cablevision’s results of operations from those of CSC Holdings primarily include incremental interest expense, interest income and income tax expense or benefit.  The combined notes to the condensed consolidated financial statements relate to the Company, which, except as noted, are identical for Cablevision and CSC Holdings.  All significant intercompany transactions and balances are eliminated in both sets of condensed consolidated financial statements.

 

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, 2008.

 

11



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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, 2007.

 

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.

 

RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

 

Recently Adopted Accounting Pronouncements

 

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“Statement No. 157”).  Statement No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  Under Statement No. 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts.  It also clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability.  This Statement applies under other accounting pronouncements that require or permit fair value measurements.  Accordingly, this Statement does not require any new fair value measurements.  Statement No. 157 became effective for the Company on January 1, 2008 with respect to financial assets and liabilities.  The FASB has deferred the adoption of Statement No. 157 for nonfinancial assets and nonfinancial liabilities to be effective for the Company on January 1, 2009.  See Note 11 for a discussion of the impact of the adoption of Statement No. 157 for certain financial assets and liabilities. The Company has not yet determined the impact of Statement No. 157 as it relates to nonfinancial assets and nonfinancial liabilities on its consolidated financial statements.

 

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement No. 115 (“Statement No. 159”).  Statement No. 159 permits entities to elect, at specified election dates, to measure eligible financial instruments and certain other items at fair value.  An entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date, and recognize upfront costs and fees related to those items in earnings as incurred.  Statement No. 159 became effective as of January 1, 2008 for the Company.  The adoption of Statement No. 159 did not have any impact on the Company’s financial position or results of operations as of and for the three months ended March 31, 2008 as the Company did not elect to measure any eligible financial instruments or certain other items at fair value.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“Statement No. 161”).  Statement No. 161 requires specific disclosures regarding the location and amounts of derivative instruments in the Company’s financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and cash flows.  Statement No. 161 is

 

12



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

effective for the Company on January 1, 2009.  The impact from this standard will be to expand disclosures regarding the Company’s derivative instruments.

 

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP No.  FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, Goodwill and Other Intangible Assets.  FSP No. FAS 142-3 is effective for the Company on January 1, 2009.  The Company has not yet determined the impact FSP No. FAS 142-3 will have on its consolidated financial statements.

 

NOTE 4.       LOSS PER COMMON SHARE

 

Cablevision

 

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.

 

Since Cablevision generated a loss from continuing operations for the three months ended March 31, 2008 and 2007, potential dilutive common shares during the period were excluded from the computation of diluted net loss per share as the impact would have been anti-dilutive.

 

CSC Holdings

 

Net loss per common share for CSC Holdings is not presented since it is a wholly-owned subsidiary of Cablevision.

 

NOTE 5.       COMPREHENSIVE LOSS

 

The following table is a reconciliation of Cablevision’s and CSC Holdings’ net loss to comprehensive loss for the three months ended March 31, 2008:

 

 

 

Cablevision

 

CSC Holdings

 

 

 

 

 

 

 

Net loss

 

$

(31,606

)

$

(12,720

)

Other comprehensive income:

 

 

 

 

 

Amortization of prior service cost and gains included in net periodic benefit cost, net of taxes

 

(246

)

(246

)

Comprehensive loss

 

$

(31,852

)

$

(12,966

)

 

The comprehensive loss, net of tax, for the three months ended March 31, 2007 equals the net loss for the period for Cablevision and CSC Holdings.

 

NOTE 6.       GROSS VERSUS NET REVENUE RECOGNITION

 

In the normal course of business, the Company is assessed non-income related taxes by governmental authorities, including franchising authorities, and collects such taxes from its customers. The Company’s policy is that, in instances where the tax is being assessed directly on the Company, amounts paid to the governmental authorities and amounts received from the customers are recorded on a gross basis.  That is, amounts paid to the governmental authorities are recorded as technical and operating expenses and amounts received from the customer are recorded as revenues. For the three months ended March 31, 2008 and 2007, the amount of franchise fees included as a component of net revenue aggregated $29,940 and $27,066, respectively.  Taxes and fees assessed directly on the customer, but collected and remitted to governmental authorities by the Company, are recorded on a net basis.

 

13



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

NOTE 7.       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, 2008 and 2007, the Company’s non-cash investing and financing activities and other supplemental data were as follows:

 

 

 

Three Months Ended
March 31,

 

 

 

2008

 

2007

 

Non-Cash Investing and Financing Activities of Cablevision and CSC Holdings:

 

 

 

 

 

Continuing Operations:

 

 

 

 

 

Redemption of collateralized indebtedness with related prepaid forward contracts and stock

 

$

 

$

27,744

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

Restricted cash and gain resulting from the FCC bond requirement waiver

 

 

11,250

 

 

 

 

 

 

 

Supplemental Data:

 

 

 

 

 

Cash interest paid - continuing operations (Cablevision and CSC Holdings)

 

204,897

 

221,645

 

Income taxes paid, net (Cablevision and CSC Holdings)

 

3,090

 

1,830

 

 

NOTE 8.       DISCONTINUED OPERATIONS

 

In June 2007, the Company completed the sale of its 60% interest in Fox Sports Net Bay Area, to Comcast Corporation (“Comcast”).  In addition, in April 2005, the operations of 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, 2008 and 2007 are summarized below:

 

 

 

Three Months Ended March 31, 2008

 

 

 

Fox Sports
Net Bay
Area

 

Rainbow
DBS satellite
distribution
business

 

Total

 

 

 

 

 

 

 

 

 

Revenues, net

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

$

(81

)

$

(727

)

$

(808

)

Income tax benefit

 

34

 

301

 

335

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 

$

(47

)

$

(426

)

$

(473

)

 

14



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31, 2007

 

 

 

Fox Sports
Net Bay
Area

 

Rainbow
DBS satellite
distribution
business

 

Total

 

 

 

 

 

 

 

 

 

Revenues, net

 

$

23,583

 

$

 

$

23,583

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

3,584

 

$

9,296

 

$

12,880

 

Income tax expense

 

(1,471

)

(3,812

)

(5,283

)

 

 

 

 

 

 

 

 

Income from discontinued operations, net of taxes

 

$

2,113

 

$

5,484

 

$

7,597

 

 

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 recorded a gain of $6,638, net of taxes, in the quarter ended March 31, 2007.

 

NOTE 9.       INTANGIBLE ASSETS

 

The following table summarizes information relating to the Company’s acquired intangible assets at March 31, 2008 and December 31, 2007:

 

 

 

March 31,
2008

 

December 31,
2007

 

Gross carrying amount of affiliation, broadcast and other agreements

 

 

 

 

 

Affiliation relationships and affiliate agreements

 

$

742,416

 

$

742,416

 

Broadcast rights and other agreements

 

45,590

 

45,590

 

 

 

788,006

 

788,006

 

Accumulated amortization

 

 

 

 

 

Affiliation relationships and affiliate agreements

 

(423,897

)

(409,870

)

Broadcast rights and other agreements

 

(38,902

)

(38,522

)

 

 

(462,799

)

(448,392

)

Affiliation, broadcast and other agreements, net of accumulated amortization

 

$

325,207

 

$

339,614

 

 

 

 

 

 

 

Gross carrying amount of other intangible assets

 

 

 

 

 

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 (a)

 

62,573

 

57,590

 

 

 

262,269

 

257,286

 

Accumulated amortization

 

 

 

 

 

Season ticket holder relationships

 

(16,839

)

(15,476

)

Suite holder contracts and relationships

 

(9,968

)

(9,136

)

Advertiser relationships

 

(56,606

)

(53,745

)

Other intangibles

 

(25,925

)

(24,130

)

 

 

(109,338

)

(102,487

)

 

15



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

Indefinite-lived intangible assets

 

 

 

 

 

Sports franchises

 

96,215

 

96,215

 

FCC licenses and other intangibles

 

11,936

 

11,936

 

Trademarks (a)

 

61,880

 

53,880

 

Other intangible assets, net of accumulated amortization

 

$

322,962

 

$

316,830

 

 

 

 

 

 

 

Affiliation, broadcast and other agreements, net of accumulated amortization

 

$

325,207

 

$

339,614

 

Other intangible assets, net of accumulated amortization

 

322,962

 

316,830

 

Cable television franchises (indefinite-lived intangible)

 

731,848

 

731,848

 

Excess costs over the fair value of net assets acquired (indefinite-lived intangible)

 

1,023,480

 

1,023,480

 

 

 

 

 

 

 

Total intangible assets, net

 

$

2,403,497

 

$

2,411,772

 

 

 

 

 

 

 

Aggregate amortization expense

 

 

 

 

 

Three months ended March 31, 2008

 

$

21,224

 

 

 

 

 

 

 

 

 

Estimated amortization expense

 

 

 

 

 

Year ending December 31, 2008

 

$

83,257

 

 

 

Year ending December 31, 2009

 

76,620

 

 

 

Year ending December 31, 2010

 

73,494

 

 

 

Year ending December 31, 2011

 

72,631

 

 

 

Year ending December 31, 2012

 

64,306

 

 

 

 


(a)         The aggregate increase in the gross carrying amount of intangible assets for the three months ended March 31, 2008 of $12,983 includes a reclassification of $12,217 of acquired assets from property, plant and equipment related to the finalization of certain purchase price allocations.

 

NOTE 10.       DERIVATIVE CONTRACTS

 

In March 2008, the Company entered into several interest rate swap contracts that amended the terms of contracts (specifically maturity date and fixed rate paid by the Company) originally entered into in April 2006 with a notional amount of $3,700,000 to effectively fix borrowing rates on floating rate debt.  These contracts are not designated as hedges for accounting purposes.  As a result of these transactions, the interest rate paid on approximately 84% of the Company’s debt (excluding capital leases and collateralized indebtedness) as of March 31, 2008 is fixed (50% is fixed based on the terms of certain of the Company’s senior and senior subordinated notes and debentures agreements and 34% is effectively fixed through utilization of these interest rate swap contracts).  The table below summarizes certain terms of these interest rate swap contracts as of March 31, 2008:

 

Maturity Date

 

Notional Amount

 

Weighted Average Fixed
Rate Paid by the Company

 

Weighted Average
Effective Floating Rate
Received by the Company
as of March 31, 2008

 

 

 

 

 

 

 

 

 

March 2010

 

$

1,100,000

 

3.65

%

2.94

%

 

 

 

 

 

 

 

 

June 2012

 

$

2,600,000

 

4.86

%

2.94

%

 

16



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

NOTE 11.      FAIR VALUE MEASUREMENT

 

As discussed in Note 3, the Company adopted Statement No. 157 on January 1, 2008 for certain financial assets and liabilities, which among other things, requires enhanced disclosures about assets and liabilities measured at fair value.  The Company’s adoption of Statement No. 157 was limited to certain financial assets and liabilities within the scope of Statement No. 157, which primarily relate to the Company’s investment securities and derivative contracts.

 

The Company determines fair value of investment securities and investment securities pledged as collateral based upon available quoted prices.  The fair value of the Company’s interest rate swap contracts is determined by discounting expected cash flows using market interest rates commensurate with the credit quality and duration of the contracts.  In determining the fair value of the Company’s equity collars related to its prepaid forward contracts, it uses a model-derived valuation approach that considers closing exchange market price quotations, time value and volatility factors underlying the derivative instruments.

 

The fair value hierarchy as outlined in Statement No. 157 is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable.  Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.  The fair value hierarchy consists of the following three levels:

 

·                  Level I – Quoted prices for identical instruments in active markets.

·                  Level II – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

·                  Level III – Instruments whose significant value drivers are unobservable.

 

The following table presents for each of these hierarchy levels, the Company’s financial assets and liabilities that are measured at fair value on a recurring basis at March 31, 2008:

 

 

 

Level I

 

Level II

 

Level III

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment securities

 

$

9,780

 

$

 

$

 

$

9,780

 

Investment securities pledged as collateral

 

886,960

 

 

 

886,960

 

Derivative contracts

 

 

62,171

 

 

62,171

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities under derivatives contracts

 

 

227,263

 

 

227,263

 

 

The Company’s investment securities and investment securities pledged as collateral are classified within Level I of the fair value hierarchy because they are valued using quoted market prices from a listed exchange.  The Company’s derivative contracts and liabilities under derivative contracts are valued using market-based inputs to valuation models.  These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility.  When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations.  Such adjustments are generally based on available market evidence.  Since model inputs can generally be

 

17



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

verified and do not involve significant management judgment, the Company has concluded that these instruments should be classified within Level II of the fair value hierarchy.

 

As a result of the Company’s adoption of Statement No. 157, the Company began to consider the impact of credit risk when measuring the fair value of its derivative liability positions, as applicable.  The effect of making this valuation adjustment was a gain of approximately $2,919, which is included in gain (loss) on derivative contracts, net for the three months ended March 31, 2008.

 

NOTE 12.              INCOME TAXES

 

Cablevision

 

The income tax benefit attributable to continuing operations for the three months ended March 31, 2008 of $15,363 differs from the income tax benefit derived from applying the statutory federal rate to the pretax loss due principally to state taxes, partially offset by an increase to the valuation allowance of $1,933 relating to certain state net operating loss carryforwards, tax expense of $259 relating to unrecognized tax benefits and accrued interest recorded pursuant to FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), and the tax impact of non-deductible officers’ compensation and other non-deductible expenses of $1,367 and $1,542, respectively.

 

The income tax benefit attributable to continuing operations for the three months ended March 31, 2007 of $31,178 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 carryforwards, 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.

 

CSC Holdings

 

The income tax benefit attributable to continuing operations for the three months ended March 31, 2008 of $1,085 differs from the income tax benefit derived from applying the statutory federal rate to the pretax loss due principally to state taxes, offset by an increase to the valuation allowance of $1,933 relating to certain state net operating loss carryforwards, tax expense of $259 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 $1,367 and $1,542, respectively.

 

The income tax benefit attributable to continuing operations for the three months ended March 31, 2007 of $18,126 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 carryforwards, 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.

 

In connection with the tax allocation policy between Cablevision and CSC Holdings, CSC Holdings has recorded a payable due to Cablevision and Cablevision has recorded a receivable due from CSC Holdings, both in the amount of $2,467, representing the estimated federal income tax liability of CSC Holdings for the three months ended March 31, 2008 as determined on a stand-alone basis as if CSC Holdings filed a separate federal consolidated income tax return.

 

18



COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

The Company

 

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.  In addition, certain items included in the loss from continuing operations before income taxes must be treated as discrete items.  The income tax expense or benefit associated with these discrete items is fully recognized in the interim period in which the items occur.

 

NOTE 13.       EQUITY PLANS

 

Cablevision’s Equity Plans

 

The following table summarizes activity for Cablevision’s restricted shares for the three months ended March 31, 2008:

 

 

 

Number of
Restricted
Shares

 

Weighted Average
Fair Value Per Share
at Date of Grant

 

Unvested award balance, December 31, 2007

 

4,446,289

 

$

24.97

 

Granted

 

2,484,790

 

25.51

 

Awards vested

 

 

 

Forfeited

 

(60,717

)

25.48

 

 

 

 

 

 

 

Unvested award balance, March 31, 2008

 

6,870,362

 

25.16

 

 

Cablevision 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.

 

Share-based compensation, including compensation relating to restricted shares, for the three months ended March 31, 2008 and 2007 was $9,023 and $17,637, of which $11,638 and $15,134 related to equity classified awards, respectively.  There were no grants of stock options or stock appreciation rights in the three months ended March 31, 2008.

 

NOTE 14.              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

 

19



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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 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 reached an agreement in principle with respect to the settlement of the Delaware action in the quarter ended June 30, 2007.  In connection with the anticipated settlement, Cablevision expects to seek dismissal of the New York action as well as the Delaware action.  A hearing on the proposed settlement took place in April 2008.  At that hearing, the court ordered that certain discovery may take place and deferred ruling on approval of the settlement.

 

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, Cablevision filed a motion to dismiss several of the claims in the amended complaint.  On October 31, 2005, the bankruptcy court denied the motion to

 

20



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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.  A hearing on solvency issues was held November 29 and 30, 2007.  At that hearing, the court ruled that the Committee had failed to prove that CEI was insolvent at any point before 2003, a ruling that the Company believes will have the effect of significantly limiting many of the Committee’s claims. The Committee has filed a notice of appeal of that ruling.  Cablevision believes that the claims asserted by the Committee are without merit and is contesting them vigorously.

 

Dolan Family Group 2006 Proposal

 

In October 2006, a number of shareholder class action lawsuits (the “Transactions 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.  On May 2, 2007, Cablevision entered into a merger agreement pursuant to which, if the merger contemplated thereby was consummated, the Dolan Family Group would obtain ownership of all of the common stock equity of Cablevision (the “Proposed Merger”).  Lawyers representing shareholders in certain of the Transactions Lawsuits, in consultation with lead counsel for the plaintiffs in the Nassau County Supreme Court options backdating litigations, participated in the negotiations to improve the financial terms of the Proposed Merger as well as to add certain contractual provisions designed to protect the rights of shareholders. Based upon the above events and circumstances, and the role that the lead counsel for the plaintiffs in the Transactions Lawsuits played in connection with the Proposed Merger, the parties subsequently reached a memorandum of understanding for the dismissal of the Transactions Lawsuits (and of the going-private claim in the cases pending in the U.S. District Court for the Eastern District of New York), subject to approval of a settlement by the Nassau County Supreme Court, and for the transfer to Cablevision, if the Proposed Merger were to be consummated, of the options-related derivative claims pending in the Nassau County Supreme Court and in the U.S. District Court for the Eastern District of New York.  Pursuant to the memorandum of understanding, the parties executed a stipulation of settlement as of September 18, 2007.  The stipulation of settlement was conditioned on, among other things, consummation of the Proposed Merger, and provided that the stipulation would become null and void and of no further force and effect in the event that this condition was not satisfied.  This condition was not satisfied.

 

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

 

21



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

stock.  The complaint alleged 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 sought, 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.  This action has been voluntarily dismissed by the plaintiff.

 

Patent Litigation

 

Cablevision is named as a defendant in certain lawsuits claiming infringement of various patents relating to various aspects of the Company’s businesses.  In certain of these cases other industry participants are also defendants.  In certain of these cases the Company expects that any potential liability would be the responsibility of the Company’s equipment vendors pursuant to applicable contractual indemnification provisions.  To the extent that the allegations in these lawsuits have been analyzed by the Company at the current stage of their proceedings, the Company believes 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 the Company’s consolidated financial position.

 

Loral 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 alleged that the sale of the Rainbow-1 satellite and related assets to a subsidiary of EchoStar Communications Corporation (“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 in 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.  The Company has posted a cash collateralized bond in the amount of $52,159, which is reflected as restricted cash in the Company’s consolidated balance sheets at March 31, 2008 and December 31, 2007.  Cablevision and Rainbow DBS filed an appeal with the New York Supreme Court Appellate Division, First Department, which affirmed the judgment on February 19, 2008.  Cablevision and Rainbow DBS have sought leave to appeal the judgment to the New York Court of Appeals.

 

EchoStar Contract Dispute

 

In 2005, subsidiaries of the Company entered into agreements with EchoStar and its affiliates by which EchoStar Media Holdings Corporation acquired a 20% interest in VOOM HD Holdings LLC (“VOOM HD”) and EchoStar Satellite LLC (“EchoStar Satellite”) agreed to distribute VOOM on its DISH Network for a 15-year term.  The affiliation agreement with EchoStar Satellite for such distribution provides that if VOOM HD fails to spend $100,000 per year (subject to reduction to the extent that the number of offered channels is reduced to fewer than 21), up to a maximum of $500,000 in the aggregate, on VOOM, EchoStar Satellite may

 

22



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

seek to terminate the agreement under certain circumstances.  On January 30, 2008, EchoStar Satellite purported to terminate the affiliation agreement, effective February 1, 2008, based on its assertion that VOOM HD had failed to comply with this spending provision in 2006.  On January 31, 2008, VOOM HD sought and obtained a temporary restraining order from New York Supreme Court for New York County prohibiting EchoStar Satellite from terminating the affiliation agreement.  In conjunction with its request for a temporary restraining order, VOOM HD also requested a preliminary injunction and filed a lawsuit against EchoStar Satellite asserting that EchoStar Satellite did not have the right to terminate the affiliation agreement.  Separately, on February 1, 2008, EchoStar Satellite began to distribute VOOM in a manner that the Company believes violates EchoStar Satellite’s obligations under the affiliation agreement.  On February 4, 2008, VOOM HD notified EchoStar Satellite of its position that this new distribution constitutes a material breach of the affiliation agreement and reserved all its rights and remedies.  On March 10, 2008, EchoStar Satellite answered VOOM HD’s complaint and asserted certain counterclaims.  On April 21, 2008, VOOM HD replied to EchoStar Satellite’s counterclaims.  The Company believes that the counterclaims asserted by EchoStar Satellite are without merit.  In a decision filed on May 5, 2008, the court denied VOOM HD’s motion for a preliminary injunction.  The lawsuit remains pending.

 

Accounting Related Investigations

 

In June 2003, the Company reported that it had discovered certain improper expense accruals primarily at the national programming services of the Company’s Rainbow segment.  The improper expense recognition matter 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

 

23



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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 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.  On October 9, 2007, the Appellate Division affirmed the trial court’s denial of the SLC’s motion to stay proceedings. The U.S. District Court for the Eastern District of New York granted the SLC’s motion for a stay and stayed the cases pending in that court.  That stay expired following the determination that the transaction contemplated by the Dolan Family Group 2006 Proposal would not close.  There have been a series of extensions and/or stays in the Nassau County and Eastern District actions, and both actions are currently stayed.

 

The Company has 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.

 

Antitrust Lawsuit

 

On September 20, 2007, an antitrust lawsuit was filed in the U.S. District Court for the Central District of California against Cablevision and several other defendants, including other cable and satellite providers and programming content providers.  The complaint alleges that the defendants have violated Section 1 of the Sherman Antitrust Act by agreeing to the sale and licensing of programming on a “bundled” basis and by offering programming in packaged tiers rather than on an “a la carte” basis.  The plaintiffs, purportedly on behalf of a nationwide class of cable and satellite subscribers, seek unspecified treble monetary damages and injunctive relief to compel the offering of channels to subscribers on an “a la carte” basis.  The Company intends to defend against this lawsuit vigorously.

 

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

 

24



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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 15.       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 cable television programming networks, including AMC, IFC, WE tv, News 12 and the VOOM HD Networks; and Madison Square Garden, consisting principally of its professional sports teams, a regional sports programming business and an entertainment business, as well as the operations of Fuse, a national programming network effective January 1, 2008.  Prior to 2008, Fuse was included in the Rainbow segment.  Prior period segment information has been reported on a comparable basis.

 

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 reportable business segments is set forth below.

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Revenues, net from continuing operations

 

 

 

 

 

Telecommunications Services

 

$

1,261,880

 

$

1,141,306

 

Rainbow

 

225,150

 

194,505

 

Madison Square Garden

 

265,079

 

247,824

 

All other (a)

 

17,009

 

16,497

 

Intersegment eliminations

 

(48,426

)

(37,499

)

 

 

$

1,720,692

 

$

1,562,633

 

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Intersegment revenues

 

 

 

 

 

Telecommunications Services

 

$

479

 

$

288

 

Rainbow

 

17,499

 

10,830

 

Madison Square Garden

 

30,448

 

26,381

 

 

 

$

48,426

 

$

37,499

 

 

25



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

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

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Adjusted operating cash flow from continuing operations

 

 

 

 

 

Telecommunications Services

 

$

485,926

 

$

428,597

 

Rainbow

 

50,709

 

43,132

 

Madison Square Garden

 

(2,526

)

15,559

 

All other (b)

 

(18,163

)

(13,556

)

 

 

$

515,946

 

$

473,732

 

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Depreciation and amortization (including impairments) included in continuing operations

 

 

 

 

 

Telecommunications Services

 

$

(224,548

)

$

(234,981

)

Rainbow

 

(20,253

)

(22,498

)

Madison Square Garden

 

(14,957

)

(16,457

)

All other (c)

 

(1,234

)

(10,512

)

 

 

$

(260,992

)

$

(284,448

)

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Share-based compensation expense included in continuing operations

 

 

 

 

 

Telecommunications Services

 

$

(4,128

)

$

(8,127

)

Rainbow

 

(2,399

)

(5,467

)

Madison Square Garden

 

(2,250

)

(3,657

)

All other (c)

 

(246

)

(386

)

 

 

$

(9,023

)

$

(17,637

)

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Restructuring credits (charges) included in continuing operations

 

 

 

 

 

Telecommunications Services

 

$

 

$

 

Rainbow

 

(361

)

(1,555

)

Madison Square Garden

 

 

(11

)

All other (c)

 

(29

)

237

 

 

 

$

(390

)

$

(1,329

)

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Operating income (loss) from continuing operations

 

 

 

 

 

Telecommunications Services

 

$

257,250

 

$

185,489

 

Rainbow

 

27,696

 

13,612

 

Madison Square Garden

 

(19,733

)

(4,566

)

All other (b)

 

(19,672

)

(24,217

)

 

 

$

245,541

 

$

170,318

 

 

26



 

COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont’d)

(Dollars in thousands, except per share amounts)

(Unaudited)

 

A reconciliation of reportable segment amounts to Cablevision’s and CSC Holdings’ consolidated balances is as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Operating income (loss) from continuing operations before income taxes

 

 

 

 

 

Total operating income for reportable segments

 

$

265,213

 

$

194,535

 

Other operating loss (b)

 

(19,672

)

(24,217

)

Operating income

 

245,541

 

170,318

 

 

 

 

 

 

 

Items excluded from operating income:

 

 

 

 

 

Interest expense

 

(178,258

)

(205,105

)

Interest income

 

4,418

 

6,722

 

Equity in net income of affiliates

 

 

1,776

 

Gain (loss) on investments, net

 

21,616

 

(72,985

)

Gain (loss) on derivative contracts, net

 

(104,910

)

65,119

 

Minority interests

 

(2,905

)

714

 

Miscellaneous, net

 

1,166

 

659

 

CSC Holdings loss from continuing operations before income taxes

 

(13,332

)

(32,782

)

Cablevision interest expense

 

(33,395

)

(33,543

)

Cablevision interest income

 

231

 

1,717

 

Cablevision loss from continuing operations before income taxes

 

$

(46,496

)

$

(64,608

)

 


(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.  It also includes costs allocated to Fox Sports Net Bay Area that were not eliminated as a result of the sale of that business.

(c)         Includes expenses and/or credits relating to Clearview Cinemas, PVI Virtual Media, certain corporate expenses/credits and certain costs allocated to Fox Sports Net Bay Area that were not eliminated as a result of the sale of that business.

 

 

 

Three Months Ended March 31,

 

 

 

2008

 

2007

 

Capital Expenditures

 

 

 

 

 

Telecommunications Services

 

$

175,576

 

$

151,922

 

Rainbow

 

5,429

 

1,992

 

Madison Square Garden

 

8,282

 

857

 

Corporate and other

 

4,173

 

1,523

 

 

 

$

193,460

 

$

156,294

 

 

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 Com