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, 2010
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 |
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Registrant; State of Incorporation; |
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IRS Employer |
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1-14764 |
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Cablevision Systems Corporation |
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11-3415180 |
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Delaware |
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1111 Stewart Avenue |
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Bethpage, New York 11714 |
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(516) 803-2300 |
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1-9046 |
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CSC Holdings, LLC |
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27-0726696 |
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Delaware |
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1111 Stewart Avenue |
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Bethpage, New York 11714 |
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(516) 803-2300 |
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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 |
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Yes x |
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No o |
CSC Holdings, LLC |
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Yes x |
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No o |
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). 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).
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Large accelerated |
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Accelerated |
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Non-accelerated |
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Smaller |
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Cablevision Systems Corporation |
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Yes x |
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No o |
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Yes o |
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No x |
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Yes o |
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No x |
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Yes o |
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No x |
CSC Holdings, LLC |
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Yes o |
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No x |
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Yes o |
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No x |
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Yes x |
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No o |
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Yes o |
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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 |
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Yes o |
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No x |
CSC Holdings, LLC |
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Yes o |
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No x |
Number of shares of common stock outstanding as of July 30, 2010:
Cablevision NY Group Class A Common Stock - |
|
250,452,613 |
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Cablevision NY Group Class B Common Stock - |
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54,354,251 |
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CSC Holdings, LLC Membership Units - |
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14,432,750 |
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CSC Holdings, LLC 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, LLC.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
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Financial Statements of Cablevision Systems Corporation and Subsidiaries |
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Condensed Consolidated Balance Sheets - June 30, 2010 (unaudited) and December 31, 2009 |
3 |
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5 |
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6 |
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Financial Statements of CSC Holdings, LLC and Subsidiaries |
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Condensed Consolidated Balance Sheets - June 30, 2010 (unaudited) and December 31, 2009 |
7 |
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9 |
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10 |
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Combined Notes to Condensed Consolidated Financial Statements (unaudited) |
11 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
39 |
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80 |
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82 |
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This Quarterly Report on Form 10-Q for the period ended June 30, 2010 is separately filed by Cablevision Systems Corporation (Cablevision) and CSC Holdings, LLC (formerly 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 telephone companies and direct broadcast satellite (DBS) operators) 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;
· the outcome of litigation and other proceedings, including the matters described in Note 16 of the combined notes to our condensed consolidated financial statements;
· 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;
· demand for advertising in our newspapers along with subscriber and single copy outlet sales demand for our newspapers;
· 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 operators, DBS operators and telephone companies and our ability to maintain and renew affiliation agreements with cable television system operators, DBS operators and telephone companies;
· market demand for new services;
· the tax-free treatment of Cablevisions distribution to its stockholders on February 9, 2010 of all of the outstanding common stock of Madison Square Garden, Inc., a company which owns the sports, entertainment and media businesses previously owned and operated by the Companys Madison Square Garden segment (the MSG Distribution);
· whether pending uncompleted transactions, including the acquisition of Bresnan Broadband Holdings, LLC and its subsidiaries by our subsidiary BBHI Holdings LLC, are completed on the terms and at the times set forth (if at all);
· other risks and uncertainties inherent in the cable television, programming, entertainment and newspaper publishing businesses, and our other businesses;
· financial community and rating agency perceptions of our business, operations, financial condition and the industries 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 Managements 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.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
|
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June 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
|
$ |
517,458 |
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$ |
245,032 |
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Accounts receivable, trade (less allowance for doubtful accounts of $23,615 and $23,500) |
|
494,886 |
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484,400 |
|
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Prepaid expenses and other current assets |
|
204,927 |
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147,445 |
|
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Program rights, net |
|
173,495 |
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162,741 |
|
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Deferred tax asset |
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353,084 |
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522,799 |
|
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Advances to affiliates |
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5,573 |
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14,278 |
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Investment securities pledged as collateral |
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186,533 |
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136,059 |
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Derivative contracts |
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13,756 |
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37,137 |
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Assets distributed to shareholders in 2010 |
|
|
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530,559 |
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Total current assets |
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1,949,712 |
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2,280,450 |
|
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Property, plant and equipment, net of accumulated depreciation of $8,515,642 and $8,154,738 |
|
2,892,010 |
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2,973,581 |
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Other receivables |
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33,164 |
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29,590 |
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Advances to affiliates |
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4,225 |
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4,920 |
|
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Investment securities pledged as collateral |
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186,533 |
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226,054 |
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Derivative contracts |
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15,079 |
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8,361 |
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Other assets |
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50,293 |
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56,790 |
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Deferred tax asset |
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37,133 |
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Program rights, net |
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569,171 |
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520,565 |
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Deferred carriage fees, net |
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80,404 |
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91,170 |
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Affiliation, broadcast and other agreements, net of accumulated amortization of $562,540 and $526,790 |
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381,214 |
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416,964 |
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Other amortizable intangible assets, net of accumulated amortization of $131,531 and $115,803 |
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117,434 |
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132,132 |
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Indefinite-lived cable television franchises |
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731,848 |
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731,848 |
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Other indefinite-lived intangible assets |
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90,913 |
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90,913 |
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Goodwill |
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358,210 |
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358,210 |
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Deferred financing and other costs, net of accumulated amortization of $76,413 and $79,407 |
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134,252 |
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111,742 |
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Assets distributed to shareholders in 2010 |
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1,522,440 |
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$ |
7,631,595 |
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$ |
9,555,730 |
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See accompanying combined notes to condensed consolidated financial statements.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Contd)
(Dollars in thousands, except per share amounts)
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June 30, |
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December 31, |
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2010 |
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2009 |
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(Unaudited) |
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LIABILITIES AND STOCKHOLDERS DEFICIENCY |
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Current Liabilities: |
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Accounts payable |
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$ |
413,592 |
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$ |
394,243 |
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Accrued liabilities |
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617,547 |
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650,193 |
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Accounts payable to affiliates |
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26,659 |
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21,088 |
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Deferred revenue |
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71,114 |
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66,879 |
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Program rights obligations |
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125,926 |
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118,956 |
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Liabilities under derivative contracts |
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8,813 |
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9,294 |
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Bank debt |
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174,362 |
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360,000 |
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Collateralized indebtedness |
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176,263 |
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171,401 |
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Capital lease obligations |
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5,956 |
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5,745 |
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Senior notes |
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325,719 |
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Notes payable to affiliate |
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190,000 |
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Liabilities distributed to shareholders in 2010 |
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307,526 |
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Total current liabilities |
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1,945,951 |
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2,295,325 |
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Deferred revenue |
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12,606 |
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13,944 |
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Program rights obligations |
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344,376 |
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316,896 |
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Liabilities under derivative contracts |
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201,042 |
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211,696 |
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Other liabilities |
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343,357 |
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331,216 |
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Deferred tax liability |
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47,197 |
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Bank debt |
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5,129,211 |
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4,938,750 |
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Collateralized indebtedness |
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183,823 |
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204,431 |
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Capital lease obligations |
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48,589 |
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50,796 |
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Senior notes and debentures |
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5,282,257 |
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5,321,883 |
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Senior subordinated notes |
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323,944 |
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323,817 |
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Liabilities distributed to shareholders in 2010 |
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643,038 |
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Total liabilities |
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13,815,156 |
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14,698,989 |
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Commitments and contingencies |
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Redeemable noncontrolling interests |
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15,595 |
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12,175 |
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Stockholders Deficiency: |
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Preferred Stock, $.01 par value, 50,000,000 shares authorized, none issued |
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CNYG Class A common stock, $.01 par value, 800,000,000 shares authorized, 278,899,653 and 274,133,498 shares issued and 250,430,144 and 247,668,143 shares outstanding |
|
2,789 |
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2,741 |
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CNYG Class B common stock, $.01 par value, 320,000,000 shares authorized, 54,354,251 shares issued and outstanding |
|
544 |
|
544 |
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RMG Class A common stock, $.01 par value, 600,000,000 shares authorized, none issued |
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RMG Class B common stock, $.01 par value, 160,000,000 shares authorized, none issued |
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Paid-in capital |
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7,057 |
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89,741 |
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Accumulated deficit |
|
(5,678,698 |
) |
(4,749,714 |
) |
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|
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(5,668,308 |
) |
(4,656,688 |
) |
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Treasury stock, at cost (28,469,509 and 26,465,355 CNYG Class A common shares) |
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(494,312 |
) |
(449,507 |
) |
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Accumulated other comprehensive loss |
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(36,934 |
) |
(49,760 |
) |
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Total stockholders deficiency |
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(6,199,554 |
) |
(5,155,955 |
) |
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Noncontrolling interest |
|
398 |
|
521 |
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Total deficiency |
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(6,199,156 |
) |
(5,155,434 |
) |
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|
|
$ |
7,631,595 |
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$ |
9,555,730 |
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See accompanying combined notes to condensed consolidated financial statements.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2010 and 2009
(Dollars in thousands, except per share amounts)
(Unaudited)
|
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Three Months Ended June 30, |
|
Six Months Ended June 30, |
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2010 |
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2009 |
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2010 |
|
2009 |
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Revenues, net (including revenues, net from Madison Square Garden of $2,130 , $2,490, $4,559 and $4,764, respectively) |
|
$ |
1,802,180 |
|
$ |
1,702,857 |
|
$ |
3,554,581 |
|
$ |
3,368,469 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
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Technical and operating (excluding depreciation, amortization and impairments shown below and including charges from Madison Square Garden of $38,051, $29,535, $76,083 and $59,055, respectively) |
|
725,969 |
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695,168 |
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1,463,565 |
|
1,398,882 |
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Selling, general and administrative (net of charges to Madison Square Garden of $2,385, $7,065, $5,583 and $13,030, respectively) |
|
414,667 |
|
406,536 |
|
832,715 |
|
813,386 |
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Restructuring expense (credit) |
|
110 |
|
4,028 |
|
(99 |
) |
3,856 |
|
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Depreciation and amortization (including impairments) |
|
244,651 |
|
258,201 |
|
486,544 |
|
521,464 |
|
||||
|
|
1,385,397 |
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1,363,933 |
|
2,782,725 |
|
2,737,588 |
|
||||
Operating income |
|
416,783 |
|
338,924 |
|
771,856 |
|
630,881 |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
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Interest expense |
|
(207,870 |
) |
(187,992 |
) |
(391,171 |
) |
(382,105 |
) |
||||
Interest income |
|
768 |
|
781 |
|
1,409 |
|
2,739 |
|
||||
Gain on sale of programming interests, net |
|
102 |
|
453 |
|
204 |
|
1,219 |
|
||||
Gain (loss) on investments, net |
|
(31,364 |
) |
18,390 |
|
10,928 |
|
(51,892 |
) |
||||
Gain (loss) on equity derivative contracts, net |
|
32,292 |
|
(15,887 |
) |
(2,741 |
) |
42,738 |
|
||||
Gain (loss) on interest rate swap contracts, net |
|
(21,771 |
) |
13,907 |
|
(56,880 |
) |
(19,829 |
) |
||||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
(110,049 |
) |
(187 |
) |
(110,049 |
) |
(22,044 |
) |
||||
Miscellaneous, net |
|
53 |
|
187 |
|
426 |
|
329 |
|
||||
|
|
(337,839 |
) |
(170,348 |
) |
(547,874 |
) |
(428,845 |
) |
||||
Income from continuing operations before income taxes |
|
78,944 |
|
168,576 |
|
223,982 |
|
202,036 |
|
||||
Income tax expense |
|
(17,863 |
) |
(80,925 |
) |
(84,591 |
) |
(97,494 |
) |
||||
Income from continuing operations |
|
61,081 |
|
87,651 |
|
139,391 |
|
104,542 |
|
||||
Income (loss) from discontinued operations, net of income taxes |
|
|
|
(592 |
) |
(4,122 |
) |
3,535 |
|
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Net income |
|
61,081 |
|
87,059 |
|
135,269 |
|
108,077 |
|
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Net loss (income) attributable to noncontrolling interests |
|
(217 |
) |
(51 |
) |
(245 |
) |
148 |
|
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Net income attributable to Cablevision Systems Corporation shareholders |
|
$ |
60,864 |
|
$ |
87,008 |
|
$ |
135,024 |
|
$ |
108,225 |
|
Basic net income (loss) per share attributable to Cablevision Systems Corporation shareholders: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.21 |
|
$ |
0.30 |
|
$ |
0.47 |
|
$ |
0.36 |
|
Income (loss) from discontinued operations |
|
$ |
|
|
$ |
|
|
$ |
(0.01 |
) |
$ |
0.01 |
|
Net income |
|
$ |
0.21 |
|
$ |
0.30 |
|
$ |
0.46 |
|
$ |
0.37 |
|
Basic weighted average common shares (in thousands) |
|
295,762 |
|
291,121 |
|
294,828 |
|
290,946 |
|
||||
Diluted net income (loss) per share attributable to Cablevision Systems Corporation shareholders: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations |
|
$ |
0.20 |
|
$ |
0.29 |
|
$ |
0.46 |
|
$ |
0.35 |
|
Income (loss) from discontinued operations |
|
$ |
|
|
$ |
|
|
$ |
(0.01 |
) |
$ |
0.01 |
|
Net income |
|
$ |
0.20 |
|
$ |
0.29 |
|
$ |
0.45 |
|
$ |
0.37 |
|
Diluted weighted average common shares (in thousands) |
|
303,914 |
|
297,726 |
|
303,373 |
|
296,079 |
|
||||
Amounts attributable to Cablevision Systems Corporation shareholders: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations, net of income taxes |
|
$ |
60,864 |
|
$ |
87,600 |
|
$ |
139,146 |
|
$ |
104,690 |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
|
(592 |
) |
(4,122 |
) |
3,535 |
|
||||
Net income |
|
$ |
60,864 |
|
$ |
87,008 |
|
$ |
135,024 |
|
$ |
108,225 |
|
Cash dividends declared per share of common stock |
|
$ |
0.125 |
|
$ |
0.10 |
|
$ |
0.225 |
|
$ |
0.20 |
|
See accompanying combined notes to condensed consolidated financial statements.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2010 and 2009
(Dollars in thousands)
(Unaudited)
|
|
2010 |
|
2009 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
139,391 |
|
$ |
104,542 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization (including impairments) |
|
486,544 |
|
521,464 |
|
||
Gain on sale of programming interests, net |
|
(204 |
) |
(1,219 |
) |
||
Loss (gain) on investments, net |
|
(10,928 |
) |
51,892 |
|
||
Loss (gain) on equity derivative contracts, net |
|
2,741 |
|
(42,738 |
) |
||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
110,049 |
|
22,044 |
|
||
Amortization of deferred financing costs, discounts on indebtedness and other costs |
|
21,959 |
|
24,647 |
|
||
Amortization of other deferred costs |
|
12,584 |
|
11,824 |
|
||
Share-based compensation expense related to equity classified awards |
|
28,547 |
|
29,525 |
|
||
Deferred income taxes |
|
71,257 |
|
88,785 |
|
||
Amortization and write-off of program rights |
|
96,927 |
|
86,057 |
|
||
Provision for doubtful accounts |
|
27,208 |
|
33,572 |
|
||
Changes in program rights and program rights obligations |
|
(122,386 |
) |
(105,600 |
) |
||
Changes in other assets and liabilities |
|
(76,786 |
) |
(80,861 |
) |
||
Net cash provided by operating activities |
|
786,903 |
|
743,934 |
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Capital expenditures |
|
(355,241 |
) |
(355,036 |
) |
||
Proceeds from sale of equipment, net of costs of disposal |
|
2,829 |
|
2,549 |
|
||
Payments for acquisitions, net |
|
(135 |
) |
(187 |
) |
||
Proceeds from sale of programming interests |
|
250 |
|
1,425 |
|
||
Decrease in investment securities and other investments |
|
100 |
|
1,120 |
|
||
Decrease in restricted cash |
|
|
|
4,875 |
|
||
Capital contributions to Madison Square Garden |
|
|
|
(148 |
) |
||
Additions to other intangible assets |
|
(1,099 |
) |
(166 |
) |
||
Net cash used in investing activities |
|
(353,296 |
) |
(345,568 |
) |
||
Cash flows from financing activities: |
|
|
|
|
|
||
Proceeds from bank debt |
|
400,000 |
|
|
|
||
Repayment of bank debt |
|
(395,177 |
) |
(195,000 |
) |
||
Proceeds from issuance of senior notes |
|
1,250,000 |
|
1,250,920 |
|
||
Repurchase of senior notes and debentures, including tender premiums and fees |
|
(1,078,212 |
) |
(1,277,598 |
) |
||
Repayment of note payable due to Madison Square Garden |
|
(190,000 |
) |
|
|
||
Proceeds from collateralized indebtedness |
|
97,863 |
|
75,398 |
|
||
Repayment of collateralized indebtedness |
|
(97,863 |
) |
(75,398 |
) |
||
Proceeds from stock option exercises |
|
16,749 |
|
2,360 |
|
||
Dividend distributions to common stockholders |
|
(67,503 |
) |
(59,340 |
) |
||
Principal payments on capital lease obligations |
|
(2,719 |
) |
(2,066 |
) |
||
Deemed repurchases of restricted stock |
|
(17,623 |
) |
(11,801 |
) |
||
Purchase of shares of CNYG Class A common stock held as treasury shares |
|
(27,180 |
) |
|
|
||
Additions to deferred financing costs |
|
(39,866 |
) |
(28,986 |
) |
||
Distributions to noncontrolling interests |
|
(635 |
) |
(698 |
) |
||
Net cash used in financing activities |
|
(152,166 |
) |
(322,209 |
) |
||
Net increase in cash and cash equivalents from continuing operations |
|
281,441 |
|
76,157 |
|
||
Cash flows of discontinued operations: |
|
|
|
|
|
||
Net cash provided by (used in) operating activities |
|
(29,132 |
) |
37,517 |
|
||
Net cash used in investing activities |
|
(5,997 |
) |
(29,066 |
) |
||
Net cash used in financing activities |
|
(8,204 |
) |
(461 |
) |
||
Effect of change in cash related to discontinued operations |
|
34,318 |
|
8,742 |
|
||
Net increase (decrease) in cash and cash equivalents from discontinued operations |
|
(9,015 |
) |
16,732 |
|
||
Cash and cash equivalents at beginning of year |
|
245,032 |
|
252,029 |
|
||
Cash and cash equivalents at end of period |
|
$ |
517,458 |
|
$ |
344,918 |
|
See accompanying combined notes to condensed consolidated financial statements.
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
|
|
June 30, |
|
December 31, |
|
||
|
|
(Unaudited) |
|
|
|
||
ASSETS |
|
|
|
|
|
||
Current Assets: |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
439,119 |
|
$ |
204,040 |
|
Accounts receivable, trade (less allowance for doubtful accounts of $23,615 and $23,500) |
|
494,886 |
|
484,400 |
|
||
Prepaid expenses and other current assets |
|
204,885 |
|
147,426 |
|
||
Program rights, net |
|
173,495 |
|
162,741 |
|
||
Deferred tax asset |
|
194,254 |
|
320,840 |
|
||
Advances to affiliates (primarily due from Cablevision) |
|
485,277 |
|
527,559 |
|
||
Investment securities pledged as collateral |
|
186,533 |
|
136,059 |
|
||
Derivative contracts |
|
13,756 |
|
37,137 |
|
||
Assets distributed to member in 2010 |
|
|
|
530,559 |
|
||
Total current assets |
|
2,192,205 |
|
2,550,761 |
|
||
Property, plant and equipment, net of accumulated depreciation of $8,515,642 and $8,154,738 |
|
2,892,010 |
|
2,973,581 |
|
||
Other receivables |
|
33,164 |
|
29,590 |
|
||
Advances to affiliates |
|
4,225 |
|
4,920 |
|
||
Investment securities pledged as collateral |
|
186,533 |
|
226,054 |
|
||
Derivative contracts |
|
15,079 |
|
8,361 |
|
||
Other assets |
|
50,293 |
|
56,790 |
|
||
Program rights, net |
|
569,171 |
|
520,565 |
|
||
Deferred carriage fees, net |
|
80,404 |
|
91,170 |
|
||
Affiliation, broadcast and other agreements, net of accumulated amortization of $562,540 and $526,790 |
|
381,214 |
|
416,964 |
|
||
Other amortizable intangible assets, net of accumulated amortization of $131,531 and $115,803 |
|
117,434 |
|
132,132 |
|
||
Indefinite-lived cable television franchises |
|
731,848 |
|
731,848 |
|
||
Other indefinite-lived intangible assets |
|
90,913 |
|
90,913 |
|
||
Goodwill |
|
358,210 |
|
358,210 |
|
||
Deferred financing and other costs, net of accumulated amortization of $74,174 and $63,803 |
|
90,422 |
|
87,184 |
|
||
Assets distributed to member in 2010 |
|
|
|
1,522,440 |
|
||
|
|
$ |
7,793,125 |
|
$ |
9,801,483 |
|
See accompanying combined notes to condensed consolidated financial statements.
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS (Contd)
(Dollars in thousands)
|
|
June 30, |
|
December 31, |
|
||
|
|
(Unaudited) |
|
|
|
||
LIABILITIES AND TOTAL DEFICIENCY |
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
||
Accounts payable |
|
$ |
413,592 |
|
$ |
394,243 |
|
Accrued liabilities |
|
569,301 |
|
606,655 |
|
||
Accounts payable to affiliates |
|
26,387 |
|
21,088 |
|
||
Deferred revenue |
|
71,114 |
|
66,879 |
|
||
Program rights obligations |
|
125,926 |
|
118,956 |
|
||
Liabilities under derivative contracts |
|
8,813 |
|
9,294 |
|
||
Bank debt |
|
174,362 |
|
360,000 |
|
||
Collateralized indebtedness |
|
176,263 |
|
171,401 |
|
||
Capital lease obligations |
|
5,956 |
|
5,745 |
|
||
Senior notes |
|
325,719 |
|
|
|
||
Notes payable to affiliate |
|
|
|
190,000 |
|
||
Liabilities distributed to member in 2010 |
|
|
|
307,526 |
|
||
Total current liabilities |
|
1,897,433 |
|
2,251,787 |
|
||
Deferred revenue |
|
12,606 |
|
13,944 |
|
||
Program rights obligations |
|
344,376 |
|
316,896 |
|
||
Liabilities under derivative contracts |
|
201,042 |
|
211,696 |
|
||
Other liabilities |
|
340,039 |
|
327,901 |
|
||
Deferred tax liability |
|
241,824 |
|
161,691 |
|
||
Bank debt |
|
5,129,211 |
|
4,938,750 |
|
||
Collateralized indebtedness |
|
183,823 |
|
204,431 |
|
||
Capital lease obligations |
|
48,589 |
|
50,796 |
|
||
Senior notes and debentures |
|
3,117,168 |
|
3,434,192 |
|
||
Senior subordinated notes |
|
323,944 |
|
323,817 |
|
||
Liabilities distributed to member in 2010 |
|
|
|
643,038 |
|
||
Total liabilities |
|
11,840,055 |
|
12,878,939 |
|
||
Commitments and contingencies |
|
|
|
|
|
||
Redeemable noncontrolling interests |
|
15,595 |
|
12,175 |
|
||
Total Deficiency: |
|
|
|
|
|
||
Senior notes due from Cablevision |
|
(753,717 |
) |
(660,951 |
) |
||
Accumulated deficit |
|
(3,338,329 |
) |
(3,363,682 |
) |
||
Other members equity (14,432,750 membership units issued and outstanding) |
|
66,057 |
|
984,241 |
|
||
|
|
(4,025,989 |
) |
(3,040,392 |
) |
||
Accumulated other comprehensive loss |
|
(36,934 |
) |
(49,760 |
) |
||
Total members deficiency |
|
(4,062,923 |
) |
(3,090,152 |
) |
||
Noncontrolling interest |
|
398 |
|
521 |
|
||
Total deficiency |
|
(4,062,525 |
) |
(3,089,631 |
) |
||
|
|
$ |
7,793,125 |
|
$ |
9,801,483 |
|
See accompanying combined notes to condensed consolidated financial statements.
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2010 and 2009
(Dollars in thousands)
(Unaudited)
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Revenues, net (including revenues, net from Madison Square Garden of $2,130, $2,490, $4,559 and $4,764, respectively) |
|
$ |
1,802,180 |
|
$ |
1,702,857 |
|
$ |
3,554,581 |
|
$ |
3,368,469 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
||||
Technical and operating (excluding depreciation, amortization and impairments shown below and including charges from Madison Square Garden of $38,051, $29,535, $76,083 and $59,055, respectively) |
|
725,969 |
|
695,168 |
|
1,463,565 |
|
1,398,882 |
|
||||
Selling, general and administrative (net of charges to Madison Square Garden of $2,385 , $7,065, $5,583 and $13,030, respectively) |
|
414,667 |
|
406,536 |
|
832,715 |
|
813,386 |
|
||||
Restructuring expense (credit) |
|
110 |
|
4,028 |
|
(99 |
) |
3,856 |
|
||||
Depreciation and amortization (including impairments) |
|
244,651 |
|
258,201 |
|
486,544 |
|
521,464 |
|
||||
|
|
1,385,397 |
|
1,363,933 |
|
2,782,725 |
|
2,737,588 |
|
||||
Operating income |
|
416,783 |
|
338,924 |
|
771,856 |
|
630,881 |
|
||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
(160,230 |
) |
(167,325 |
) |
(302,765 |
) |
(331,249 |
) |
||||
Interest income |
|
15,918 |
|
16,222 |
|
32,255 |
|
33,658 |
|
||||
Gain on sale of programming interests, net |
|
102 |
|
453 |
|
204 |
|
1,219 |
|
||||
Gain (loss) on investments, net |
|
(31,364 |
) |
18,390 |
|
10,928 |
|
(51,892 |
) |
||||
Gain (loss) on equity derivative contracts, net |
|
32,292 |
|
(15,887 |
) |
(2,741 |
) |
42,738 |
|
||||
Gain (loss) on interest rate swap contracts, net |
|
(21,771 |
) |
13,907 |
|
(56,880 |
) |
(19,829 |
) |
||||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
|
|
(170 |
) |
|
|
(21,457 |
) |
||||
Miscellaneous, net |
|
53 |
|
187 |
|
426 |
|
329 |
|
||||
|
|
(165,000 |
) |
(134,223 |
) |
(318,573 |
) |
(346,483 |
) |
||||
Income from continuing operations before income taxes |
|
251,783 |
|
204,701 |
|
453,283 |
|
284,398 |
|
||||
Income tax expense |
|
(88,275 |
) |
(96,025 |
) |
(174,790 |
) |
(131,652 |
) |
||||
Income from continuing operations |
|
163,508 |
|
108,676 |
|
278,493 |
|
152,746 |
|
||||
Income (loss) from discontinued operations, net of income taxes |
|
|
|
(592 |
) |
(4,122 |
) |
3,535 |
|
||||
Net income |
|
163,508 |
|
108,084 |
|
274,371 |
|
156,281 |
|
||||
Net loss (income) attributable to noncontrolling interests |
|
(217 |
) |
(51 |
) |
(245 |
) |
148 |
|
||||
Net income attributable to CSC Holdings, LLCs sole member |
|
$ |
163,291 |
|
$ |
108,033 |
|
$ |
274,126 |
|
$ |
156,429 |
|
Amounts attributable to CSC Holdings, LLCs sole member: |
|
|
|
|
|
|
|
|
|
||||
Income from continuing operations, net of income taxes |
|
$ |
163,291 |
|
$ |
108,625 |
|
$ |
278,248 |
|
$ |
152,894 |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
|
(592 |
) |
(4,122 |
) |
3,535 |
|
||||
Net income |
|
$ |
163,291 |
|
$ |
108,033 |
|
$ |
274,126 |
|
$ |
156,429 |
|
See accompanying combined notes to condensed consolidated financial statements.
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2010 and 2009
(Dollars in thousands)
(Unaudited)
|
|
2010 |
|
2009 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
||
Income from continuing operations |
|
$ |
278,493 |
|
$ |
152,746 |
|
Adjustments to reconcile income from continuing operations to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization (including impairments) |
|
486,544 |
|
521,464 |
|
||
Gain on sale of programming interests, net |
|
(204 |
) |
(1,219 |
) |
||
Loss (gain) on investments, net |
|
(10,928 |
) |
51,892 |
|
||
Loss (gain) on equity derivative contracts, net |
|
2,741 |
|
(42,738 |
) |
||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
|
|
21,457 |
|
||
Amortization of deferred financing costs, discounts on indebtedness and other costs |
|
19,188 |
|
22,854 |
|
||
Accretion of discount on Cablevision senior notes held by Newsday Holdings LLC |
|
(3,131 |
) |
(3,775 |
) |
||
Amortization of other deferred costs |
|
12,584 |
|
11,824 |
|
||
Share-based compensation expense related to equity classified awards |
|
28,547 |
|
29,525 |
|
||
Deferred income taxes |
|
155,077 |
|
121,275 |
|
||
Amortization and write-off of program rights |
|
96,927 |
|
86,057 |
|
||
Provision for doubtful accounts |
|
27,208 |
|
33,572 |
|
||
Changes in program rights and program rights obligations |
|
(122,386 |
) |
(105,600 |
) |
||
Changes in other assets and liabilities |
|
(47,363 |
) |
(69,525 |
) |
||
Net cash provided by operating activities |
|
923,297 |
|
829,809 |
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Capital expenditures |
|
(355,241 |
) |
(355,036 |
) |
||
Proceeds from sale of equipment, net of costs of disposal |
|
2,829 |
|
2,549 |
|
||
Payments for acquisitions, net |
|
(135 |
) |
(187 |
) |
||
Proceeds from sale of programming interests |
|
250 |
|
1,425 |
|
||
Decrease in investment securities and other investments |
|
100 |
|
1,120 |
|
||
Decrease in restricted cash |
|
|
|
4,875 |
|
||
Capital contributions to Madison Square Garden |
|
|
|
(148 |
) |
||
Additions to other intangible assets |
|
(1,099 |
) |
(166 |
) |
||
Net cash used in investing activities |
|
(353,296 |
) |
(345,568 |
) |
||
Cash flows from financing activities: |
|
|
|
|
|
||
Proceeds from bank debt |
|
400,000 |
|
|
|
||
Repayment of bank debt |
|
(395,177 |
) |
(195,000 |
) |
||
Proceeds from issuance of senior notes |
|
|
|
1,250,920 |
|
||
Repurchase of senior notes and debentures, including tender premiums and fees |
|
|
|
(777,083 |
) |
||
Repayment of note payable due to Madison Square Garden |
|
(190,000 |
) |
|
|
||
Proceeds from collateralized indebtedness |
|
97,863 |
|
75,398 |
|
||
Repayment of collateralized indebtedness |
|
(97,863 |
) |
(75,398 |
) |
||
Dividend payments to Cablevision, net |
|
(124,011 |
) |
(662,410 |
) |
||
Principal payments on capital lease obligations |
|
(2,719 |
) |
(2,066 |
) |
||
Additions to deferred financing costs |
|
(13,365 |
) |
(28,986 |
) |
||
Distributions to noncontrolling interests |
|
(635 |
) |
(698 |
) |
||
Net cash used in financing activities |
|
(325,907 |
) |
(415,323 |
) |
||
Net increase in cash and cash equivalents from continuing operations |
|
244,094 |
|
68,918 |
|
||
Cash flows of discontinued operations: |
|
|
|
|
|
||
Net cash provided by (used in) operating activities |
|
(29,132 |
) |
37,517 |
|
||
Net cash used in investing activities |
|
(5,997 |
) |
(29,066 |
) |
||
Net cash used in financing activities |
|
(8,204 |
) |
(461 |
) |
||
Effect of change in cash related to discontinued operations |
|
34,318 |
|
8,742 |
|
||
Net increase (decrease) in cash and cash equivalents from discontinued operations |
|
(9,015 |
) |
16,732 |
|
||
Cash and cash equivalents at beginning of year |
|
204,040 |
|
224,095 |
|
||
Cash and cash equivalents at end of period |
|
$ |
439,119 |
|
$ |
309,745 |
|
See accompanying combined notes to condensed consolidated financial statements.
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, LLC (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. The Company also owns companies that provide advertising sales services for the cable television industry, provide telephone service, operate motion picture theaters and operate a newspaper publishing business. The Company classifies its business interests into three reportable segments: (1) Telecommunications Services, consisting principally of its video, high-speed data, Voice over Internet Protocol and its commercial data and voice services operations; (2) Rainbow, consisting principally of national and regional television programming services, including AMC, WE tv, IFC, Sundance Channel, News 12, and IFC Entertainment; and (3) Newsday, consisting of the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites including newsday.com and exploreLI.com.
On February 9, 2010, Cablevision distributed to its stockholders all of the outstanding common stock of Madison Square Garden, Inc. (Madison Square Garden), a company which owns the sports, entertainment and media businesses previously owned and operated by the Companys Madison Square Garden segment (the MSG Distribution). The MSG Distribution took the form of a distribution by Cablevision of one share of Madison Square Garden Class A Common Stock for every four shares of Cablevision NY Group Class A Common Stock held of record at the close of business in New York City on January 25, 2010 (the Record Date) and one share of Madison Square Garden Class B Common Stock for every four shares of Cablevision NY Group Class B Common Stock held of record on the Record Date. On January 12, 2010, the Company transferred to Madison Square Garden the Companys subsidiaries which owned, directly or indirectly, all of the partnership interests in Madison Square Garden, L.P. As a result of the MSG Distribution on February 9, 2010, the Company no longer consolidates the financial results of Madison Square Garden for the purpose of its own financial reporting and the historical financial results of Madison Square Garden have been reflected in the Companys consolidated financial statements as discontinued operations for all periods presented through the MSG Distribution date.
Assets and liabilities related to the MSG Distribution on the Companys condensed consolidated balance sheet as of December 31, 2009 and related footnotes have been reclassified as assets distributed to shareholders/member in 2010 and liabilities distributed to shareholders/member in 2010. All assets and liabilities distributed to shareholders/member in 2010 are excluded from the footnotes unless otherwise noted. Amounts due to or due from Madison Square Garden that were previously eliminated in consolidation are now being presented as accounts payable to affiliates or advances to affiliates on the Companys condensed consolidated balance sheets.
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.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(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 Companys Annual Report on Form 10-K for the year ended December 31, 2009 and in the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 21, 2010.
The financial statements as of June 30, 2010 and for the three and six months ended June 30, 2010 and 2009 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 business operations independent of its CSC Holdings subsidiary, whose operating results and financial position are consolidated into Cablevision. The condensed consolidated balance sheets and statements of operations of Cablevision are essentially identical to the condensed consolidated balance sheets and statements of operations for CSC Holdings, with the following significant exceptions: Cablevision has $2,165,089 of senior notes outstanding at June 30, 2010 (excluding the $753,717 face amount of Cablevision notes held by its subsidiary Newsday Holdings LLC) that were issued to third party investors, cash, deferred financing costs and accrued interest related to its senior notes, deferred taxes and accrued dividends on its balance sheet and CSC Holdings and its subsidiaries have certain intercompany receivables from Cablevision. Differences between Cablevisions results of operations from those of CSC Holdings primarily include incremental interest expense, interest income, loss on extinguishment of debt, write-off of deferred financing costs, and income tax expense or benefit. CSC Holdings results of operations include incremental interest income from the Cablevision senior notes held by Newsday Holdings LLC and the accretion of the discount on the 8% senior notes due 2012 issued by Cablevision to CSC Holdings that were redeemed during the second quarter of 2010, all of which eliminate in Cablevisions results of operations.
The combined notes to the condensed consolidated financial statements relate to the Company, which, except as noted, are essentially identical for Cablevision and CSC Holdings. All significant intercompany transactions and balances between Cablevision and CSC Holdings and their respective consolidated subsidiaries are eliminated in both sets of consolidated financial statements. Intercompany transactions between Cablevision and CSC Holdings do not eliminate in the CSC Holdings consolidated financial statements, but do eliminate in the Cablevision 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, 2010.
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. DIVIDENDS
On February 24, 2010 and May 5, 2010, the Board of Directors of Cablevision declared a cash dividend of $0.10 and $0.125 per share, respectively, which were paid on March 29, 2010 and June 7, 2010, respectively, to stockholders of record on both its Cablevision NY Group (CNYG) Class A common stock and CNYG Class B common stock as of March 8, 2010 and May 17, 2010, respectively.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
During the six months ended June 30, 2010, CSC Holdings paid cash dividends to Cablevision aggregating $124,011. The proceeds were used to fund (i) Cablevisions dividends paid on March 29, 2010; (ii) Cablevisions interest payments on certain of its senior notes; and (iii) Cablevisions payments of payroll related taxes upon the vesting of certain restricted shares.
NOTE 4. NET INCOME PER SHARE ATTRIBUTABLE TO SHAREHOLDERS
Cablevision
Basic net income per common share attributable to Cablevision shareholders is computed by dividing net income attributable to Cablevision shareholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share attributable to Cablevision shareholders reflects the dilutive effects of stock options (including those held by Madison Square Garden employees), restricted stock (including shares held by Madison Square Garden employees) and restricted stock units.
A reconciliation of the denominator of the basic and diluted net income per share attributable to Cablevision shareholders calculation for the three and six months ended June 30, 2010 and 2009 is as follows:
|
|
Three Months |
|
Six Months |
|
Three Months |
|
Six Months |
|
|
|
Ended June 30, 2010 |
|
Ended June 30, 2009 |
|
||||
|
|
(in thousands) |
|
||||||
Basic weighted average shares outstanding |
|
295,762 |
|
294,828 |
|
291,121 |
|
290,946 |
|
Effect of dilution: |
|
|
|
|
|
|
|
|
|
Stock options |
|
3,106 |
|
3,241 |
|
2,382 |
|
1,748 |
|
Restricted stock awards |
|
5,046 |
|
5,304 |
|
4,223 |
|
3,385 |
|
Diluted weighted average shares outstanding |
|
303,914 |
|
303,373 |
|
297,726 |
|
296,079 |
|
Anti-dilutive shares (options whose exercise price exceeds the average market price of Cablevisions common stock during the period) totaling 330,889 and 360,220 (which include Company options held by Madison Square Garden employees), have been excluded from diluted weighted average shares outstanding for the three and six months ended June 30, 2010, respectively. For the three and six months ended June 30, 2009, anti-dilutive shares of 2,016,235 and 2,857,276 (which include Company options held by Madison Square Garden employees), have been excluded from diluted weighted average shares outstanding, respectively. In addition, 913,400 restricted shares issued pursuant to the Companys employee stock plan have been excluded from the diluted weighted average shares outstanding for the three and six months ended June 30, 2010 as the performance criteria on these awards has not yet been satisfied.
CSC Holdings
Net income per membership unit for CSC Holdings is not presented since CSC Holdings is a limited liability company and a wholly-owned subsidiary of Cablevision.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 5. COMPREHENSIVE INCOME
The following table presents comprehensive income for the three and six months ended June 30, 2010 and 2009:
|
|
Three Months Ended June 30, |
|
||||||||||
|
|
2010 |
|
2009 |
|
||||||||
|
|
Cablevision |
|
CSC |
|
Cablevision |
|
CSC |
|
||||
Net income |
|
$ |
61,081 |
|
$ |
163,508 |
|
$ |
87,059 |
|
$ |
108,084 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
||||
Amortization of prior service cost and gains and losses included in net periodic benefit cost, net of income taxes |
|
746 |
|
746 |
|
663 |
|
663 |
|
||||
Comprehensive income |
|
61,827 |
|
164,254 |
|
87,722 |
|
108,747 |
|
||||
Comprehensive income attributable to noncontrolling interests |
|
(217 |
) |
(217 |
) |
(51 |
) |
(51 |
) |
||||
Comprehensive income attributable to Cablevision shareholders and CSC Holdings member |
|
$ |
61,610 |
|
$ |
164,037 |
|
$ |
87,671 |
|
$ |
108,696 |
|
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2010 |
|
2009 |
|
||||||||
|
|
Cablevision |
|
CSC |
|
Cablevision |
|
CSC |
|
||||
Net income |
|
$ |
135,269 |
|
$ |
274,371 |
|
$ |
108,077 |
|
$ |
156,281 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
||||
Amortization of prior service cost and gains and losses included in net periodic benefit cost, net of income taxes |
|
1,744 |
|
1,744 |
|
1,325 |
|
1,325 |
|
||||
Comprehensive income |
|
137,013 |
|
276,115 |
|
109,402 |
|
157,606 |
|
||||
Comprehensive loss (income) attributable to noncontrolling interests |
|
(245 |
) |
(245 |
) |
148 |
|
148 |
|
||||
Comprehensive income attributable to Cablevision shareholders and CSC Holdings member |
|
$ |
136,768 |
|
$ |
275,870 |
|
$ |
109,550 |
|
$ |
157,754 |
|
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 Companys 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 and six months ended June 30, 2010 and 2009, the amount of franchise fees included as a component of net revenue aggregated $33,864 and $66,905 and $32,064 and $63,393, respectively.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(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 the balance of its investment in funds that substantially hold securities that mature within three months or less from the date the fund purchases these securities to be cash equivalents.
During the six months ended June 30, 2010 and 2009, the Companys non-cash investing and financing activities and other supplemental data were as follows:
|
|
Six Months Ended June 30, |
|
||||
|
|
2010 |
|
2009 |
|
||
Non-Cash Investing and Financing Activities of Cablevision and CSC Holdings: |
|
|
|
|
|
||
Continuing Operations: |
|
|
|
|
|
||
Redemption of collateralized indebtedness with related equity derivative contracts |
|
$ |
15,745 |
|
$ |
29,825 |
|
Capital lease obligations |
|
889 |
|
|
|
||
Distribution of the Madison Square Garden business |
|
1,113,488 |
|
|
|
||
Gain on redemption of Cablevision notes held by Newsday Holdings LLC recognized in equity (CSC Holdings) |
|
87,090 |
|
|
|
||
Supplemental Data: |
|
|
|
|
|
||
Cash interest paid - continuing operations (Cablevision) |
|
364,091 |
|
361,811 |
|
||
Cash interest paid - continuing operations (CSC Holdings) |
|
284,386 |
|
302,099 |
|
||
Cash interest paid - discontinued operations (Cablevision and CSC Holdings) |
|
558 |
|
2,136 |
|
||
Income taxes paid, net (Cablevision and CSC Holdings) |
|
13,598 |
|
14,194 |
|
||
NOTE 8. DISCONTINUED OPERATIONS AND NET ASSETS DISTRIBUTED TO SHAREHOLDERS IN 2010
On February 9, 2010, the Company completed the MSG Distribution (see Note 1). As a result, the operating results of the Companys Madison Square Garden segment through the date of the MSG Distribution, as well as transaction costs, have been classified in the condensed consolidated statements of operations as discontinued operations for all periods presented. No gain or loss was recognized in connection with the MSG Distribution. Operating results of discontinued operations for the period from January 1, 2010 through February 9, 2010 and for the three and six months ended June 30, 2009 are summarized below:
January 1, 2010 through February 9, 2010
|
|
Madison Square |
|
|
Revenues, net |
|
$ |
131,695 |
|
Income before income taxes |
|
$ |
7,090 |
|
Income tax expense(a) |
|
(11,212 |
) |
|
Loss from discontinued operations, net of income taxes |
|
$ |
(4,122 |
) |
(a) Income tax expense includes $7,368 resulting from the non-deductibility of certain transaction costs associated with the MSG Distribution.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30, 2009
|
|
Madison Square |
|
|
Revenues, net |
|
$ |
172,888 |
|
Loss before income taxes |
|
$ |
(867 |
) |
Income tax benefit |
|
275 |
|
|
Loss from discontinued operations, net of income taxes |
|
$ |
(592 |
) |
|
|
Six Months Ended June 30, 2009 |
|
|||||||
|
|
Madison |
|
Other |
|
Total |
|
|||
Revenues, net |
|
$ |
419,948 |
|
$ |
|
|
$ |
419,948 |
|
Income (loss) before income taxes |
|
$ |
6,491 |
|
$ |
(31 |
) |
$ |
6,460 |
|
Income tax benefit (expense) |
|
(2,938 |
) |
13 |
|
(2,925 |
) |
|||
Income (loss) from discontinued operations, net of income taxes |
|
$ |
3,553 |
|
$ |
(18 |
) |
$ |
3,535 |
|
The assets and liabilities of Madison Square Garden have been classified in the condensed consolidated balance sheet as of December 31, 2009 as assets and liabilities distributed to shareholders/member in 2010 and consist of the following:
Cash and cash equivalents |
|
$ |
109,716 |
|
Accounts receivable, prepaid expenses and other current assets |
|
230,843 |
|
|
Advances due from Cablevision |
|
190,000 |
|
|
Property and equipment, net and other long-term assets |
|
473,825 |
|
|
Intangible assets |
|
1,048,615 |
|
|
Total assets distributed in 2010 |
|
$ |
2,052,999 |
|
Accounts payable and accrued expenses |
|
$ |
170,565 |
|
Other current liabilities |
|
136,961 |
|
|
Deferred tax liability |
|
495,233 |
|
|
Other long-term liabilities |
|
147,805 |
|
|
Total liabilities distributed in 2010 |
|
950,564 |
|
|
Net assets distributed in 2010 |
|
$ |
1,102,435 |
|
The following table summarizes the net impact of the MSG Distribution on February 9, 2010 to Cablevisions stockholders deficiency and CSC Holdings members deficiency:
|
|
Cablevision |
|
CSC Holdings |
|
||
Increase in total members deficiency |
|
$ |
|
|
$ |
(1,124,570 |
) |
Decrease in paid-in capital |
|
(87,396 |
) |
|
|
||
Increase in accumulated deficit |
|
(1,037,174 |
) |
|
|
||
Decrease in accumulated other comprehensive loss |
|
11,082 |
|
11,082 |
|
||
Net assets distributed to shareholders/member in 2010 |
|
$ |
(1,113,488 |
) |
$ |
(1,113,488 |
) |
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 9. INTANGIBLE ASSETS
The following table summarizes information relating to the Companys acquired intangible assets at June 30, 2010 and December 31, 2009:
|
|
June 30, |
|
December 31, |
|
||
|
|
2010 |
|
2009 |
|
||
Gross carrying amount of affiliation, broadcast and other agreements |
|
|
|
|
|
||
Affiliation agreements and affiliate relationships |
|
$ |
913,373 |
|
$ |
913,373 |
|
Broadcast rights and other agreements |
|
30,381 |
|
30,381 |
|
||
|
|
943,754 |
|
943,754 |
|
||
Accumulated amortization |
|
|
|
|
|
||
Affiliation agreements and affiliate relationships |
|
(532,159 |
) |
(496,409 |
) |
||
Broadcast rights and other agreements |
|
(30,381 |
) |
(30,381 |
) |
||
|
|
(562,540 |
) |
(526,790 |
) |
||
Affiliation, broadcast and other agreements, net of accumulated amortization |
|
$ |
381,214 |
|
$ |
416,964 |
|
|
|
|
|
|
|
||
Gross carrying amount of other amortizable intangible assets |
|
|
|
|
|
||
Advertiser relationships |
|
$ |
137,017 |
|
$ |
137,017 |
|
Other amortizable intangibles |
|
111,948 |
|
110,918 |
|
||
|
|
248,965 |
|
247,935 |
|
||
Accumulated amortization |
|
|
|
|
|
||
Advertiser relationships |
|
(85,105 |
) |
(75,353 |
) |
||
Other amortizable intangibles |
|
(46,426 |
) |
(40,450 |
) |
||
|
|
(131,531 |
) |
(115,803 |
) |
||
Other amortizable intangible assets, net of accumulated amortization |
|
$ |
117,434 |
|
$ |
132,132 |
|
|
|
|
|
|
|
||
Other Indefinite-lived intangible assets |
|
|
|
|
|
||
FCC licenses and other intangibles |
|
$ |
6,913 |
|
$ |
6,913 |
|
Trademarks |
|
84,000 |
|
84,000 |
|
||
Other indefinite-lived intangible assets |
|
$ |
90,913 |
|
$ |
90,913 |
|
|
|
|
|
|
|
|
|
Affiliation, broadcast and other agreements, net of accumulated amortization |
|
$ |
381,214 |
|
$ |
416,964 |
|
Other amortizable intangible assets, net of accumulated amortization |
|
117,434 |
|
132,132 |
|
||
Other indefinite-lived intangible assets |
|
90,913 |
|
90,913 |
|
||
Indefinite-lived cable television franchises |
|
731,848 |
|
731,848 |
|
||
Goodwill |
|
358,210 |
|
358,210 |
|
||
Total intangible assets, net |
|
$ |
1,679,619 |
|
$ |
1,730,067 |
|
|
|
|
|
|
|
||
Aggregate amortization expense |
|
|
|
|
|
||
Six months ended June 30, 2010 |
|
$ |
51,549 |
|
|
|
Estimated amortization expense |
|
|
|
|
Year ending December 31, 2010 |
|
$ |
102,815 |
|
Year ending December 31, 2011 |
|
94,574 |
|
|
Year ending December 31, 2012 |
|
78,399 |
|
|
Year ending December 31, 2013 |
|
42,279 |
|
|
Year ending December 31, 2014 |
|
17,852 |
|
|
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 10. DEBT
Amendment of Credit Facility
On April 13, 2010, CSC Holdings and certain of its subsidiaries (the Restricted Subsidiaries) entered into an amended credit agreement (the Amended Credit Agreement), providing for (i) an amendment and restatement of the credit agreement, dated as of February 24, 2006, as first amended and restated in its entirety as of May 27, 2009 and further amended and restated in its entirety as of April 13, 2010 (as amended and restated, the Credit Agreement), and (ii) an amendment to the Incremental Term Supplement, dated as of March 29, 2006 and amended as of May 27, 2009.
Among other things, the Amended Credit Agreement provides for the specific mechanics of extending, from time to time, the revolving credit commitments, term A loans, incremental term loans and any additional facility commitments or additional facility loans, as applicable, with the terms of such extended facility to be documented at the time of such extension in an extended facility agreement. Under the terms of the Credit Agreement, CSC Holdings entered into three extended facilities as of April 13, 2010, as follows:
· an extended revolving credit facility agreement (the Extended Revolving Credit Facility) that provided for the extension of the availability period for lenders holding approximately $820,000 of revolving credit commitments under CSC Holdings $1,000,000 Revolving Credit Facility to March 31, 2015. Lenders under the Extended Revolving Credit Facility are entitled to an extension fee payment of between 2.00% and 2.50% per annum of the outstanding loans under the Extended Revolving Credit Facility, based upon the cash flow ratio applicable from time to time. In addition, revolving credit lenders with revolving credit commitments in the aggregate amount of $412,000 executed joinders to the Credit Agreement agreeing to provide increased revolving credit commitments with an availability period expiring on March 31, 2015.
· an extended term A facility agreement (the extended term A facility) that provided for the extension of the maturity date for lenders holding approximately $480,000 of loans under CSC Holdings existing $650,000 Term A facility, at the time of the launch of the transaction, to March 31, 2015, with the principal amount of the extended term A facility to be repaid in quarterly installments through its maturity date in March 2015. Lenders under the extended term A facility are entitled to an extension fee payment of between 2.00% and 2.50% per annum of the outstanding loans under the extended term A facility, based upon the cash flow ratio applicable from time to time.
· an extended incremental term facility agreement (the term B-3 extended loan facility) that provided for the extension of the maturity date for lenders holding approximately $1,678,000 under CSC Holdings existing $2,200,000 incremental term facility, at the time of the launch of the transaction, to March 29, 2016, with the principal amount of the term B-3 extended loan facility to be repaid quarterly in equal installments of approximately $4,196 through December 2015 and a final payment of approximately $1,581,933 upon maturity in March 2016. Lenders under the term B-3 extended loan facility are entitled to an extension fee payment of 1.25% per annum of the outstanding loans under the term B-3 extended loan facility.
In April 2010, the Company utilized $200,000 of its increased revolver commitments to make a $200,000 pre-payment of the unextended term B loan facility.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
On June 30, 2010, the availability period for $20,000 of revolving credit commitments under CSC Holdings Revolving Credit Facility was extended to March 31, 2015 and the maturity date of $4,786 of loans under CSC Holdings existing term A facility was extended to March 31, 2015. Based on this extension and the extension entered into on April 13, 2010 (discussed above), the principal amount of the extended term A facility will be repaid in quarterly installments of approximately $12,142 through March 2012, approximately $18,213 beginning in June 2012 through March 2013, approximately $24,284 beginning in June 2013 through March 2014 and approximately $54,640 beginning in June 2014 through its maturity date in March 2015. In connection with the Amended Credit Agreement, the Company incurred deferred financing costs of $12,740, which are being amortized to interest expense over the term of the credit agreement.
Issuance of Debt Securities
On April 15, 2010, Cablevision issued $750,000 aggregate principal amount of 7-3/4% senior notes due April 15, 2018 and $500,000 aggregate principal amount of 8% senior notes due April 15, 2020 (collectively, the Notes) in a registered public offering. The Notes are Cablevisions senior unsecured obligations and rank equally in right of payment with all of Cablevisions other existing and future unsecured and unsubordinated indebtedness. Cablevision may redeem all or a portion of the Notes at any time at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest to the redemption date plus a make whole premium. The Company used the net proceeds of the offering to repurchase the April Notes (as defined below) in the tender offer Cablevision commenced on April 12, 2010 discussed below and for general corporate purposes. In connection with the issuance of these senior notes, the Company incurred deferred financing costs of $26,481, which are being amortized to interest expense over the term of these senior notes.
Tender Offers for 8% Senior Notes due 2012 (tender prices per note in dollars)
On April 12, 2010, Cablevision announced that it commenced a cash tender offer for its outstanding $1,000,000 aggregate principal amount of 8% senior notes due April 2012 (April Notes) for total consideration of $1,105.00 per $1,000.00 principal amount of notes tendered for purchase, consisting of tender offer consideration of $1,045.00 per $1,000.00 principal amount of notes plus an early tender premium of $60.00 per $1,000.00 principal amount of notes. In connection with the tender offer, the Company repurchased $973,175 aggregate principal amount of the April Notes in the second quarter of 2010. Tender premiums aggregating approximately $102,000, along with other transaction costs of approximately $3,000, have been recorded in loss on extinguishment of debt in the condensed consolidated statements of operations for the three and six months ended June 30, 2010. In addition, unamortized deferred financing costs related to the April Notes aggregating approximately $5,000 were written-off during the quarter ended June 30, 2010.
In connection with the tender offer described above, and in accordance with the Companys agreements with Tribune Company, Cablevision redeemed all of its April Notes held by Newsday Holdings LLC with a face value of $682,000 for $753,717. Newsday Holdings LLC received $487,500 of Cablevision 7-3/4% senior notes due 2018 and $266,217 of Cablevision 8% senior notes due 2020, all in accordance with the terms of the Newsday $650,000 senior secured credit facility. The foregoing transaction was consummated on a cashless basis. As a result of the redemption of the April Notes, CSC Holdings recorded an increase to other members equity of $87,090.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 11. DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
To manage interest rate risk, the Company has entered into interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising rates. The Company does not enter into interest rate swap contracts for speculative or trading purposes and it has only entered into transactions with counterparties that are rated investment grade. The Company monitors the financial institutions that are counterparties to its interest rate swap contracts and it diversifies its swap contracts among various counterparties to mitigate exposure to any single financial institution.
As of June 30, 2010, CSC Holdings was party to several interest rate swap contracts with an aggregate notional amount of $2,600,000 that effectively fixed borrowing rates on a portion of the Companys floating rate debt. Interest rate swap contracts with an aggregate notional amount of $1,100,000 matured in March 2010. These contracts are not designated as hedges for accounting purposes. As a result of the CSC Holdings interest rate swap transactions, the interest rate paid on approximately 81% of the Companys outstanding debt (excluding capital leases and collateralized indebtedness) is effectively fixed (58% being fixed rate obligations and 23% is effectively fixed through utilization of these interest rate swap contracts) as of June 30, 2010. The table below summarizes certain terms of these interest rate swap contracts as of June 30, 2010:
Maturity Date |
|
Notional Amount |
|
Weighted Average |
|
Weighted Average |
|
|
June 2012 |
|
$ |
2,600,000 |
|
4.86 |
% |
0.54 |
% |
* Represents the floating rate received by the Company under its interest rate swap contracts at June 30, 2010 and does not represent the rates to be received by the Company on future payments.
The Company has also entered into various transactions to limit the exposure against equity price risk on its shares of Comcast Corporation common stock. The Company had monetized all of its stock holdings in Comcast Corporation through the execution of prepaid forward contracts, collateralized by an equivalent amount of the respective underlying stock. At maturity, the contracts provide for the option to deliver cash or shares of Comcast stock with a value determined by reference to the applicable stock price at maturity. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing the Company to retain upside appreciation from the hedge price per share to the relevant cap price.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
The following represents the location of the assets and liabilities associated with the Companys derivative instruments within the condensed consolidated balance sheets at June 30, 2010 and December 31, 2009:
Derivatives Not |
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
||||||||
Hedging |
|
Balance
Sheet |
|
Fair Value at |
|
Fair Value at |
|
Fair Value at |
|
Fair Value at |
|
||||
Interest rate swap contracts |
|
Current derivative contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
9,294 |
|
Interest rate swap contracts |
|
Long-term derivative contracts |
|
|
|
|
|
198,504 |
|
202,168 |
|
||||
Prepaid forward contracts |
|
Current derivative contracts |
|
13,756 |
|
37,137 |
|
8,813 |
|
|
|
||||
Prepaid forward contracts |
|
Long-term derivative contracts |
|
15,079 |
|
8,361 |
|
2,538 |
|
9,528 |
|
||||
Total derivative contracts |
|
|
|
$ |
28,835 |
|
$ |
45,498 |
|
$ |
209,855 |
|
$ |
220,990 |
|
The following represents the impact and location of the Companys derivative instruments within the condensed consolidated statements of operations for the three and six months ended June 30, 2010 and 2009:
Derivatives Not |
|
|
|
Amount of Gain (Loss) |
|
Amount of Gain (Loss) |
|
||||||||
Instruments Under |
|
Location of Gain |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
ASC Topic 815: |
|
(Loss) Recognized |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Interest rate swap contracts |
|
Gain (loss) on interest rate swap contracts, net |
|
$ |
(21,771 |
) |
$ |
13,907 |
|
$ |
(56,880 |
) |
$ |
(19,829 |
) |
Prepaid forward contracts |
|
Gain (loss) on equity derivative contracts, net |
|
32,292 |
|
(15,887 |
) |
(2,741 |
) |
42,738 |
|
||||
Total derivative contracts |
|
|
|
$ |
10,521 |
|
$ |
(1,980 |
) |
$ |
(59,621 |
) |
$ |
22,909 |
|
NOTE 12. FAIR VALUE MEASUREMENT
The fair value hierarchy as outlined in ASC Topic 820 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 entitys pricing based upon their own market assumptions. The fair value hierarchy consists of the following three levels:
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
· 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 Companys financial assets and financial liabilities that are measured at fair value on a recurring basis at June 30, 2010 and December 31, 2009:
At June 30, 2010:
|
|
Level I |
|
Level II |
|
Level III |
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents(a) |
|
$ |
482,497 |
|
$ |
|
|
$ |
|
|
$ |
482,497 |
|
Investment securities |
|
83 |
|
|
|
|
|
83 |
|
||||
Investment securities pledged as collateral |
|
373,066 |
|
|
|
|
|
373,066 |
|
||||
Derivative contracts: |
|
|
|
|
|
|
|
|
|
||||
Prepaid forward contracts |
|
|
|
28,835 |
|
|
|
28,835 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Liabilities under derivative contracts: |
|
|
|
|
|
|
|
|
|
||||
Prepaid forward contracts |
|
|
|
11,351 |
|
|
|
11,351 |
|
||||
Interest rate swap contracts |
|
|
|
198,504 |
|
|
|
198,504 |
|
||||
(a) Represents the Companys investment in funds that invest primarily in money market securities.
At December 31, 2009:
|
|
Level I |
|
Level II |
|
Level III |
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
214,267 |
|
$ |
|
|
$ |
|
|
$ |
214,267 |
|
Investment securities |
|
96 |
|
|
|
|
|
96 |
|
||||
Investment securities pledged as collateral |
|
362,113 |
|
|
|
|
|
362,113 |
|
||||
Derivative contracts |
|
|
|
45,498 |
|
|
|
45,498 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Liabilities under derivative contracts |
|
|
|
220,990 |
|
|
|
220,990 |
|
||||
The Companys cash equivalents, 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.
The Companys 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 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.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company considers the impact of credit risk when measuring the fair value of its derivative asset and/or liability positions, as applicable.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate that value:
Bank Debt, Collateralized Indebtedness, Senior Notes and Debentures and Senior Subordinated Notes
The fair values of each of the Companys debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.
The carrying values and estimated fair values of the Companys financial instruments, excluding those that are carried at fair value in the accompanying condensed consolidated balance sheets, are summarized as follows:
|
|
June 30, 2010 |
|
||||
|
|
Carrying |
|
Estimated |
|
||
CSC Holdings notes receivable: |
|
|
|
|
|
||
Cablevision senior notes held by Newsday Holdings LLC(a) |
|
$ |
753,717 |
|
$ |
756,172 |
|
|
|
|
|
|
|
||
Debt instruments: |
|
|
|
|
|
||
Bank debt(b) |
|
$ |
5,303,573 |
|
$ |
5,323,260 |
|
Collateralized indebtedness |
|
360,086 |
|
356,686 |
|
||
Senior notes and debentures |
|
3,442,887 |
|
3,657,008 |
|
||
Senior subordinated notes |
|
323,944 |
|
338,813 |
|
||
CSC Holdings total debt instruments |
|
9,430,490 |
|
9,675,767 |
|
||
|
|
|
|
|
|
||
Cablevision senior notes and debentures |
|
2,165,089 |
|
2,202,905 |
|
||
Cablevision total debt instruments |
|
$ |
11,595,579 |
|
$ |
11,878,672 |
|
|
|
December 31, 2009 |
|
||||
|
|
Carrying |
|
Estimated |
|
||
CSC Holdings notes receivable: |
|
|
|
|
|
||
Cablevision senior notes held by Newsday Holdings LLC(a) |
|
$ |
660,951 |
|
$ |
721,317 |
|
|
|
|
|
|
|
||
Debt instruments: |
|
|
|
|
|
||
Bank debt(b) |
|
$ |
5,298,750 |
|
$ |
5,332,245 |
|
Collateralized indebtedness |
|
375,832 |
|
371,921 |
|
||
Senior notes and debentures |
|
3,434,192 |
|
3,717,585 |
|
||
Senior subordinated notes |
|
323,817 |
|
342,875 |
|
||
CSC Holdings total debt instruments |
|
9,432,591 |
|
9,764,626 |
|
||
|
|
|
|
|
|
||
Cablevision senior notes and debentures |
|
1,887,691 |
|
1,994,670 |
|
||
Cablevision total debt instruments |
|
$ |
11,320,282 |
|
$ |
11,759,296 |
|
(a) These notes are eliminated at the consolidated Cablevision level.
(b) The carrying value of the Companys bank debt which bears interest at variable rates approximates its fair value.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Fair value estimates related to the Companys debt instruments and senior notes receivable presented above are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
NOTE 13. INCOME TAXES
Cablevision
Cablevision recorded income tax expense of $17,863 and $84,591 for the three and six months ended June 30, 2010, respectively, reflecting an effective tax rate of 23% and 38%, respectively. In the second quarter of 2010, Cablevision recorded a nonrecurring tax benefit of $18,951 for an increase in certain state and city net operating loss carry forwards pursuant to the finalization of an examination with a state taxing authority. Absent this tax benefit, the effective tax rate for the three and six months ended June 30, 2010 would have been 47% and 46%, respectively. Cablevision recorded tax expense relating to uncertain tax positions, including accrued interest, of $2,004 and $2,518 for the three and six months ended June 30, 2010, respectively. Cablevision recorded tax expense of $8,654 resulting from a change in the rate used to measure deferred taxes principally due to the impact of the MSG Distribution on February 9, 2010. In the first quarter of 2010, Cablevision recorded a tax benefit of $2,283 resulting from a change in the projected composition of the group of officers for which the tax deduction for compensation may be limited pursuant to Internal Revenue Code Section 162(m). A decrease in the valuation allowance relating to certain state net operating loss carry forwards reduced tax expense by $862 in the six month period ended June 30, 2010.
Cablevision recorded income tax expense of $80,925 and $97,494 for the three and six months ended June 30, 2009, respectively, reflecting an effective tax rate of 48% in both periods. To address state income tax planning considerations, certain subsidiary corporations were converted to limited liability companies during the second quarter of 2009. In connection with such conversions, Cablevision recorded tax expense of $6,362 to eliminate deferred taxes relating to certain state net operating loss and credit carry forwards. Cablevision recorded tax expense relating to uncertain tax positions, including accrued interest, of $372 and $737 for the three and six months ended June 30, 2009, respectively. A decrease in the valuation allowance relating to certain state net operating loss carry forwards reduced tax expense by $896 and $1,020 for the three and six months ended June 30, 2009, respectively.
Subsequent to the utilization of Cablevisions net operating loss and tax credit carry forwards, payments for income taxes are expected to increase significantly.
CSC Holdings
CSC Holdings recorded income tax expense of $88,275 and $174,790 for the three and six months ended June 30, 2010, respectively, reflecting an effective tax rate of 35% and 39%, respectively. In the second quarter of 2010, CSC Holdings recorded a nonrecurring tax benefit of $18,951 for an increase in certain state and city net operating loss carry forwards pursuant to the finalization of an examination with a state taxing authority. Absent this tax benefit, the effective tax rate for the three and six months ended June 30, 2010 would have been 43% in both periods. CSC Holdings recorded tax expense relating to uncertain tax positions, including accrued interest, of $2,004 and $2,518 for the three and six months ended June 30, 2010, respectively. CSC Holdings recorded tax expense of $5,581 resulting from a change in the rate used to
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
measure deferred taxes principally due to the impact of the MSG Distribution on February 9, 2010. In the first quarter of 2010, CSC Holdings recorded tax benefit of $2,283 resulting from a change in the projected composition of the group of officers for which the tax deduction for compensation may be limited pursuant to Internal Revenue Code Section 162(m). A decrease in the valuation allowance relating to certain state net operating loss carry forwards reduced tax expense by $862 in the six month period ended June 30, 2010.
CSC Holdings recorded income tax expense of $96,025 and $131,652 for the three and six months ended June 30, 2009, respectively, reflecting an effective tax rate of 47% and 46%, respectively. To address state income tax planning considerations, certain subsidiary corporations were converted to limited liability companies during the second quarter of 2009. In connection with such conversions, CSC Holdings recorded tax expense of $6,362 to eliminate deferred taxes relating to certain state net operating loss and credit carry forwards. CSC Holdings recorded tax expense relating to uncertain tax positions, including accrued interest, of $372 and $737 for the three and six months ended June 30, 2009, respectively. A decrease in the valuation allowance relating to certain state net operating loss carry forwards reduced tax expense by $896 and $1,020 for the three and six months ended June 30, 2009, 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 $7,422 and $10,409 for the three and six months ended June 30, 2010, respectively, representing the estimated federal income tax liability of CSC Holdings as determined on a stand-alone basis as if CSC Holdings filed a separate federal consolidated income tax return.
Subsequent to the utilization of CSC Holdings net operating loss and tax credit carry forwards, obligations to Cablevision pursuant to the tax allocation policy are expected to increase significantly.
The Company
For the six months ended June 30, 2010 and 2009, the Company has fully offset estimated federal taxable income with a net operating loss deduction. However, the Company is subject to the federal alternative minimum tax and certain state and local income taxes that are payable quarterly. The change in the Companys deferred tax assets and liabilities is primarily due to the utilization of net operating losses and changes in the differences between the carrying amount and tax bases of assets and liabilities.
In general, the Company is required to use an estimated annual effective tax rate to measure the income 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 in a prior interim period. In addition, certain items included in income tax expense as well as the tax impact of certain items included in pretax income from continuing operations 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.
In February 2010, the Internal Revenue Service approved the Companys request to change its tax accounting method for certain installation costs with regard to its Optimum Online and Optimum Voice businesses. As a result, Cablevisions net operating loss carry forward increased by approximately $220,000 with a corresponding reduction in the income tax basis of certain fixed assets. The associated balance sheet deferred income tax reclassification adjustments were recorded in the first quarter of 2010.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 14. BENEFIT PLANS
Components of the estimated net periodic pension cost, recorded in selling, general and administrative expense, for the Companys qualified and non-qualified defined benefit plans for the three and six months ended June 30, 2010 and 2009 are as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009* |
|
2010 |
|
2009* |
|
||||
Service cost |
|
$ |
9,705 |
|
$ |
9,495 |
|
$ |
20,330 |
|
$ |
18,990 |
|
Interest cost |
|
3,475 |
|
3,416 |
|
7,175 |
|
6,832 |
|
||||
Expected return on plan assets, net |
|
(1,793 |
) |
(905 |
) |
(3,018 |
) |
(1,810 |
) |
||||
Recognized prior service cost (credit) |
|
(7 |
) |
7 |
|
|
|
14 |
|
||||
Recognized actuarial loss |
|
1,276 |
|
1,458 |
|
2,744 |
|
2,916 |
|
||||
Net periodic benefit cost |
|
$ |
12,656 |
|
$ |
13,471 |
|
$ |
27,231 |
|
$ |
26,942 |
|
* The table includes net periodic benefit cost of approximately $1,250 and $2,500 for the three and six months ended June 30, 2009, respectively, relating to Madison Square Garden that was reflected in the Companys consolidated financial statements in discontinued operations.
NOTE 15. EQUITY PLANS
Treatment of Share-Based Payment Awards After the MSG Distribution
In connection with the MSG Distribution, and as provided for in the Companys equity plans, each stock option and stock appreciation right (SAR) outstanding at the effective date of the MSG Distribution became two options and SARs, one with respect to Cablevision NY Group Class A Common Stock and one with respect to Madison Square Garden Class A common stock. The existing exercise price of each option/SAR was allocated between the existing Cablevision option/SAR and the Madison Square Garden option/SAR based on the weighted average trading price of Madison Square Gardens and Cablevisions common shares for the ten trading days subsequent to the MSG Distribution and the underlying share amount took into account the 1:4 distribution ratio. As a result of this adjustment, 82.63% of the pre-MSG Distribution exercise price of options/rights was allocated to the Cablevision options/rights and 17.37% was allocated to the new Madison Square Garden options/rights. This modification did not result in any additional compensation expense for the six months ended June 30, 2010.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Cablevisions Equity Plans
Share-Based Payment Award Activity
The following table summarizes activity relating to Company employees who held Cablevision stock options for the six months ended June 30, 2010:
|
|
|
|
|
|
Weighted |
|
|
|
||||
|
|
Shares Under Option |
|
Weighted |
|
Average |
|
|
|
||||
|
|
Time |
|
Performance |
|
Exercise |
|
Contractual |
|
Aggregate |
|
||
Balance, December 31, 2009 |
|
8,820,928 |
|
570,000 |
|
$ |
13.59 |
|
4.94 |
|
$ |
118,755 |
|
Exercised |
|
(1,507,478 |
) |
(134,400 |
) |
$ |
9.66 |
|
|
|
|
|
|
Forfeited/Expired |
|
(159,766 |
) |
|
|
$ |
35.43 |
|
|
|
|
|
|
Transfers(a) |
|
(6,000 |
) |
|
|
$ |
11.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Balance, June 30, 2010 |
|
7,147,684 |
|
435,600 |
|
$ |
11.07 |
|
4.66 |
|
$ |
98,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Options exercisable at June 30, 2010 |
|
3,776,753 |
|
435,600 |
|
$ |
12.15 |
|
4.73 |
|
$ |
50,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Options expected to vest in the future |
|
3,370,931 |
|
|
|
$ |
9.72 |
|
4.58 |
|
$ |
48,481 |
|
Cablevision stock options held by Madison Square Garden employees are not expensed by the Company, however such stock options do have a dilutive effect on net income per share attributable to Cablevision shareholders. The following table summarizes activity relating to Madison Square Garden employees who held Cablevision stock options for the six months ended June 30, 2010:
|
|
|
|
|
|
Weighted |
|
|
|
||||
|
|
Shares Under Option |
|
Weighted |
|
Average |
|
|
|
||||
|
|
Time |
|
Performance |
|
Exercise |
|
Contractual |
|
Aggregate |
|
||
Balance, December 31, 2009 |
|
456,306 |
|
82,200 |
|
$ |
15.65 |
|
5.06 |
|
$ |
5,698 |
|
Exercised |
|
(110,517 |
) |
|
|
$ |
7.82 |
|
|
|
|
|
|
Forfeited/Expired |
|
(13,000 |
) |
|
|
$ |
35.23 |
|
|
|
|
|
|
Transfers(a) |
|
6,000 |
|
|
|
$ |
11.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Balance, June 30, 2010 |
|
338,789 |
|
82,200 |
|
$ |
16.29 |
|
5.29 |
|
$ |
3,249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Options exercisable at June 30, 2010 |
|
338,789 |
|
82,200 |
|
$ |
16.29 |
|
5.29 |
|
$ |
3,249 |
|
(a) Represents the transfer of stock options for employees who transferred from/to Cablevision affiliated entities to/from Madison Square Garden during the period.
(b) Option exercise prices relating to activity occurring after the MSG Distribution date were adjusted to 82.63% of their pre-MSG Distribution exercise prices.
(c) The aggregate intrinsic value is calculated as the difference between (i) the exercise price of the underlying award and (ii) the quoted price of Cablevisions NY Group Class A common stock on June 30, 2010 or December 31, 2009, as indicated, and June 30, 2010 in the case of the options expected to vest in the future.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of Cablevisions common stock for the 7,887,273 options outstanding that were in-the-money (which includes 4,616,342 exercisable options) at June 30, 2010. For the six months ended June 30, 2010, the aggregate intrinsic value of options exercised under Cablevisions stock option plans was $25,375 determined as of the date of option exercise, plus dividends, as applicable. When an option is exercised, Cablevision issues new shares of stock.
The following table summarizes activity relating to Company employees who held Cablevision restricted shares for the six months ended June 30, 2010:
|
|
Number of |
|
Number of |
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
Unvested award balance, December 31, 2009 |
|
7,493,310 |
|
|
|
$ |
18.06 |
|
Granted |
|
2,100,360 |
|
913,400 |
|
$ |
24.00 |
|
Vested |
|
(1,550,020 |
) |
|
|
$ |
23.86 |
|
Awards forfeited |
|
(119,240 |
) |
|
|
$ |
17.67 |
|
Transfers(a) |
|
(122,820 |
) |
|
|
$ |
13.33 |
|
|
|
|
|
|
|
|
|
|
Unvested award balance, June 30, 2010 |
|
7,801,590 |
|
913,400 |
|
$ |
16.47 |
|
Cablevision restricted shares held by Madison Square Garden employees are not expensed by the Company, however such restricted shares do have a dilutive effect on net income per share attributable to Cablevision shareholders. The following table summarizes activity relating to Madison Square Garden employees who held Cablevision restricted shares for the six months ended June 30, 2010:
|
|
Number of |
|
Weighted |
|
|
|
|
|
|
|
|
|
Unvested award balance, December 31, 2009 |
|
1,515,974 |
|
$ |
17.16 |
|
Granted |
|
|
|
$ |
|
|
Vested |
|
(262,544 |
) |
$ |
24.16 |
|
Awards forfeited |
|
(82,690 |
) |
$ |
13.59 |
|
Transfers(a) |
|
122,820 |
|
$ |
13.33 |
|
|
|
|
|
|
|
|
Unvested award balance, June 30, 2010 |
|
1,293,560 |
|
$ |
12.15 |
|
(a) Represents the transfer of unvested restricted stock awards for employees who transferred from/to Cablevision affiliated entities to/from Madison Square Garden during the period.
(b) Restricted share grant date fair value amounts relating to activity occurring after the MSG Distribution date were adjusted to 82.63% of their pre-MSG Distribution grant date fair value per share amount.
During the six months ended June 30, 2010, 1,812,564 Cablevision restricted shares issued to employees of the Company and Madison Square Garden vested. To fulfill the employees statutory minimum tax withholding obligations for the applicable income and other employment taxes, 724,624 of these shares, with an aggregate value of $17,623, were surrendered to the Company. These acquired shares have been classified as treasury stock.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Cablevision recognizes compensation expense for restricted shares issued to its employees using a straight-line amortization method, based on the grant date price of CNYG Class A common stock over the vesting period.
Share-based compensation for continuing operations for the three and six months ended June 30, 2010 was $16,032 and $29,715, respectively, of which $16,089 and $28,547, respectively, related to equity classified awards. For the three and six months ended June 30, 2009, share-based compensation for continuing operations was $20,213 and $32,526, respectively, of which $16,041 and $29,525, respectively, related to equity classified awards. Share-based compensation for the three months ended June 30, 2009 was partially offset by a credit of $57 related to SARs. The Company has recognized stock compensation expense for all options, restricted shares and SARs, including those with respect to Madison Square Garden Class A common stock, granted to the Companys employees.
NOTE 16. LEGAL MATTERS
Programming Litigation
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 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, sought unspecified treble monetary damages and injunctive relief to compel the offering of channels to subscribers on an a la carte basis. On December 3, 2007, the plaintiffs filed an amended complaint containing principally the same allegations as the plaintiffs original complaint. On December 21, 2007, the defendants filed joint motions to dismiss the amended complaint for failure to state a claim and on the ground that the plaintiffs lacked standing to assert the claims in the amended complaint. The district court granted the defendants motions on March 13, 2008, but granted the plaintiffs leave to amend their claims.
On March 20, 2008, the plaintiffs filed a second amended complaint. The second amended complaint contained many of the same allegations as the plaintiffs original complaint, with limited modifications to address certain of the deficiencies identified in the courts March 13 order. Two of the principal modifications were (1) to reform the relief requested from an order requiring programmers and cable providers to offer channels on an a la carte basis, to an order requiring programmers and cable providers to offer the option to purchase on an unbundled basis; and (2) to allege that certain non-defendant programmers have been excluded from the market. On April 22, 2008, the defendants filed joint motions to dismiss the second amended complaint. The court denied those motions on June 26, 2008. On August 1, 2008, Cablevision filed an answer to the second amended complaint. On May 4, 2009, the plaintiffs filed a third amended complaint in order to remove any allegation that non-defendant programmers have been excluded from the market as a result of the practices being challenged in the lawsuit. In conjunction with the filing of the third amended complaint, on May 1, 2009, the plaintiffs filed a motion to adjudicate that foreclosure of the non-defendant programmers is not a necessary element of the plaintiffs antitrust injury. On June 12, 2009, the defendants filed motions to dismiss the third amended complaint. On October 15, 2009, the court granted the defendants motion and dismissed the third amended complaint with prejudice. The plaintiffs have filed an appeal.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Patent Litigation
Cablevision is named as a defendant in certain lawsuits claiming infringement of various patents relating to various aspects of the Companys 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 Companys 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 intends to defend the actions vigorously. The final disposition of these actions is not expected to have a material adverse effect on the Companys consolidated financial position.
EchoStar Contract Dispute
In 2005, subsidiaries of the Company entered into agreements with EchoStar Corporation 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 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. In a decision filed on May 5, 2008, the court denied VOOM HDs motion for a preliminary injunction. On or about May 13, 2008, EchoStar Satellite ceased distribution of VOOM on its DISH Network. On May 27, 2008, VOOM HD amended its complaint to seek damages for EchoStars improper termination of the affiliation agreement. On June 24, 2008, EchoStar Satellite answered VOOM HDs amended complaint and asserted certain counterclaims. On July 14, 2008, VOOM HD replied to EchoStar Satellites counterclaims. The Company believes that the counterclaims asserted by EchoStar Satellite are without merit. The lawsuit filed by VOOM HD remains pending. VOOM HD and EchoStar Satellite each filed cross-motions for summary judgment. A hearing on those motions took place on August 3, 2010. The court has not yet issued a decision on the motions.
Other Legal 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 Companys results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these other lawsuits will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
NOTE 17. SEGMENT INFORMATION
The Company classifies its business interests into three reportable segments: (1) Telecommunications Services, consisting principally of its video, high-speed data, Voice over Internet Protocol and its commercial data and voice services operations; (2) Rainbow, consisting principally of national and regional television programming services, including AMC, WE tv, IFC, Sundance Channel, News 12, and IFC Entertainment; and (3) Newsday, consisting of the Newsday daily newspaper and related assets.
The Companys 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) excluding depreciation and amortization (including impairments), share-based compensation expense or benefit and restructuring expense or credit), 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 Companys reportable business segments is set forth below.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Revenues, net from continuing operations |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
1,437,161 |
|
$ |
1,355,985 |
|
$ |
2,843,166 |
|
$ |
2,684,284 |
|
Rainbow |
|
280,482 |
|
252,338 |
|
545,548 |
|
501,594 |
|
||||
Newsday |
|
80,062 |
|
88,672 |
|
154,794 |
|
172,088 |
|
||||
All other(a) |
|
17,309 |
|
18,384 |
|
35,705 |
|
37,950 |
|
||||
Inter-segment eliminations |
|
(12,834 |
) |
(12,522 |
) |
(24,632 |
) |
(27,447 |
) |
||||
|
|
$ |
1,802,180 |
|
$ |
1,702,857 |
|
$ |
3,554,581 |
|
$ |
3,368,469 |
|
Inter-segment eliminations are primarily affiliate revenues recognized by our Rainbow segment from the sale of cable network programming to our Telecommunication Services segment.
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Inter-segment Revenues |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
1,276 |
|
$ |
1,322 |
|
$ |
2,068 |
|
$ |
2,093 |
|
Rainbow |
|
10,475 |
|
9,636 |
|
20,237 |
|
22,363 |
|
||||
Newsday |
|
881 |
|
1,351 |
|
1,912 |
|
2,572 |
|
||||
All other |
|
202 |
|
213 |
|
415 |
|
419 |
|
||||
|
|
$ |
12,834 |
|
$ |
12,522 |
|
$ |
24,632 |
|
$ |
27,447 |
|
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(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 June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Adjusted operating cash flow from continuing operations |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
620,564 |
|
$ |
553,331 |
|
$ |
1,185,402 |
|
$ |
1,074,413 |
|
Rainbow |
|
91,573 |
|
88,181 |
|
168,283 |
|
159,682 |
|
||||
Newsday |
|
5,224 |
|
5,038 |
|
6,418 |
|
5,111 |
|
||||
All other(b)(d) |
|
(39,785 |
) |
(25,184 |
) |
(72,087 |
) |
(50,479 |
) |
||||
|
|
$ |
677,576 |
|
$ |
621,366 |
|
$ |
1,288,016 |
|
$ |
1,188,727 |
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Depreciation and amortization (including impairments) included in continuing operations |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
(204,358 |
) |
$ |
(215,712 |
) |
$ |
(406,914 |
) |
$ |
(436,417 |
) |
Rainbow |
|
(28,355 |
) |
(28,611 |
) |
(56,778 |
) |
(57,000 |
) |
||||
Newsday |
|
(5,450 |
) |
(7,668 |
) |
(10,609 |
) |
(14,902 |
) |
||||
All other(c) |
|
(6,488 |
) |
(6,210 |
) |
(12,243 |
) |
(13,145 |
) |
||||
|
|
$ |
(244,651 |
) |
$ |
(258,201 |
) |
$ |
(486,544 |
) |
$ |
(521,464 |
) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Share-based compensation expense included in continuing operations |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
(9,003 |
) |
$ |
(10,206 |
) |
$ |
(16,627 |
) |
$ |
(16,566 |
) |
Rainbow |
|
(5,420 |
) |
(6,685 |
) |
(10,369 |
) |
(10,357 |
) |
||||
Newsday |
|
(947 |
) |
(55 |
) |
(1,564 |
) |
(105 |
) |
||||
All other(c) |
|
(662 |
) |
(3,267 |
) |
(1,155 |
) |
(5,498 |
) |
||||
|
|
$ |
(16,032 |
) |
$ |
(20,213 |
) |
$ |
(29,715 |
) |
$ |
(32,526 |
) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Restructuring credit (expense) included in continuing operations |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Rainbow |
|
48 |
|
(4,014 |
) |
260 |
|
(4,764 |
) |
||||
Newsday |
|
(95 |
) |
66 |
|
(216 |
) |
66 |
|
||||
All other(c) |
|
(63 |
) |
(80 |
) |
55 |
|
842 |
|
||||
|
|
$ |
(110 |
) |
$ |
(4,028 |
) |
$ |
99 |
|
$ |
(3,856 |
) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Operating income (loss) from continuing operations |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
407,203 |
|
$ |
327,413 |
|
$ |
761,861 |
|
$ |
621,430 |
|
Rainbow |
|
57,846 |
|
48,871 |
|
101,396 |
|
87,561 |
|
||||
Newsday |
|
(1,268 |
) |
(2,619 |
) |
(5,971 |
) |
(9,830 |
) |
||||
All other(b)(d) |
|
(46,998 |
) |
(34,741 |
) |
(85,430 |
) |
(68,280 |
) |
||||
|
|
$ |
416,783 |
|
$ |
338,924 |
|
$ |
771,856 |
|
$ |
630,881 |
|
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
A reconciliation of reportable segment amounts to Cablevisions and CSC Holdings consolidated balances is as follows:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Operating income from continuing operations before income taxes |
|
|
|
|
|
|
|
|
|
||||
Total operating income for reportable segments |
|
$ |
463,781 |
|
$ |
373,665 |
|
$ |
857,286 |
|
$ |
699,161 |
|
Other operating loss(b) |
|
(46,998 |
) |
(34,741 |
) |
(85,430 |
) |
(68,280 |
) |
||||
Operating income |
|
$ |
416,783 |
|
$ |
338,924 |
|
$ |
771,856 |
|
$ |
630,881 |
|
|
|
|
|
|
|
|
|
|
|
||||
Items excluded from operating income: |
|
|
|
|
|
|
|
|
|
||||
CSC Holdings interest expense |
|
(160,230 |
) |
(167,325 |
) |
(302,765 |
) |
(331,249 |
) |
||||
CSC Holdings interest income |
|
657 |
|
525 |
|
1,288 |
|
2,448 |
|
||||
CSC Holdings intercompany interest income |
|
15,261 |
|
15,697 |
|
30,967 |
|
31,210 |
|
||||
Gain on sale of programming interests, net |
|
102 |
|
453 |
|
204 |
|
1,219 |
|
||||
Gain (loss) on investments, net |
|
(31,364 |
) |
18,390 |
|
10,928 |
|
(51,892 |
) |
||||
Gain (loss) on equity derivative contracts, net |
|
32,292 |
|
(15,887 |
) |
(2,741 |
) |
42,738 |
|
||||
Gain (loss) on interest rate swap contracts, net |
|
(21,771 |
) |
13,907 |
|
(56,880 |
) |
(19,829 |
) |
||||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
|
|
(170 |
) |
|
|
(21,457 |
) |
||||
Miscellaneous, net |
|
53 |
|
187 |
|
426 |
|
329 |
|
||||
CSC Holdings income from continuing operations before income taxes |
|
251,783 |
|
204,701 |
|
453,283 |
|
284,398 |
|
||||
Cablevision interest expense |
|
(47,640 |
) |
(20,667 |
) |
(88,406 |
) |
(50,856 |
) |
||||
Intercompany interest expense |
|
(15,261 |
) |
(15,697 |
) |
(30,967 |
) |
(31,210 |
) |
||||
Cablevision interest income |
|
111 |
|
256 |
|
121 |
|
291 |
|
||||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
(110,049 |
) |
(17 |
) |
(110,049 |
) |
(587 |
) |
||||
Cablevision income from continuing operations before income taxes |
|
$ |
78,944 |
|
$ |
168,576 |
|
$ |
223,982 |
|
$ |
202,036 |
|
(a) Represents net revenues of Clearview Cinemas, PVI Virtual Media and MSG Varsity network (which was launched in September 2009).
(b) Principally includes unallocated corporate general and administrative costs and costs related to the acquisition of Bresnan Cable, in addition to the operating results of MSG Varsity, Clearview Cinemas and PVI Virtual Media. Also includes costs historically allocated to Madison Square Garden that were not eliminated as a result of the MSG Distribution.
(c) Includes expenses and/or credits relating to MSG Varsity, Clearview Cinemas, PVI Virtual Media, and certain corporate expenses/credits.
(d) Includes costs historically allocated to Madison Square Garden that were not eliminated as a result of the MSG Distribution.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table summarizes the Companys capital expenditures by reportable segment for the three and six months ended June 30, 2010 and 2009:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Capital Expenditures |
|
|
|
|
|
|
|
|
|
||||
Telecommunications Services |
|
$ |
194,381 |
|
$ |
176,845 |
|
$ |
337,415 |
|
$ |
339,148 |
|
Rainbow |
|
4,379 |
|
2,760 |
|
5,586 |
|
4,431 |
|
||||
Newsday |
|
1,529 |
|
1,453 |
|
2,317 |
|
3,571 |
|
||||
All other (Corporate, Clearview Cinemas, MSG Varsity and PVI) |
|
8,258 |
|
5,016 |
|
9,923 |
|
7,886 |
|
||||
|
|
$ |
208,547 |
|
$ |
186,074 |
|
$ |
355,241 |
|
$ |
355,036 |
|
Substantially all revenues and assets of the Companys reportable segments are attributed to or located in the United States primarily concentrated in the New York metropolitan area.
Concentrations of Credit Risk
Financial instruments that may potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and trade account receivable. Cash is invested in money market funds and bank time deposits. The Company monitors the financial institutions and money market funds where it invests its cash and cash equivalents with diversification among counterparties to mitigate exposure to any single financial institution. The Companys emphasis is primarily on safety of principal and liquidity and secondarily on maximizing the yield on its investments. The Company did not have a single customer that represented 10% or more of the Companys consolidated net revenues for the three and six months ended June 30, 2010 and 2009, or 10% or more of its consolidated net trade receivables at June 30, 2010 and December 31, 2009.
NOTE 18. RELATED PARTY TRANSACTIONS
In connection with the MSG Distribution, the Company entered into various agreements with Madison Square Garden, including a distribution agreement, a tax disaffiliation agreement, a transition services agreement, an employee matters agreement and certain related party arrangements. These agreements govern the Companys relationship with Madison Square Garden subsequent to the MSG Distribution and provide for the allocation of employee benefits, taxes and certain other liabilities and obligations attributable to periods prior to the MSG Distribution. These agreements also include arrangements with respect to transition services and a number of on-going commercial relationships. The distribution agreement includes an agreement that the Company and Madison Square Garden agree to provide each other with indemnities with respect to liabilities arising out of the businesses the Company transferred to Madison Square Garden. The Company is also party to other arrangements with Madison Square Garden, such as affiliation agreements covering the MSG networks and Fuse.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table summarizes the revenue and charges (credits) related to services provided to or received from Madison Square Garden not discussed elsewhere in the accompanying combined notes to the condensed consolidated financial statements:
|
|
Three Months Ended June 30, |
|
Six Months Ended |
|
||||||||
|
|
2010(a) |
|
2009(a) |
|
2010(a) |
|
2009(a) |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Revenues, net |
|
$ |
2,130 |
|
$ |
2,490 |
|
$ |
4,559 |
|
$ |
4,764 |
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses (credits): |
|
|
|
|
|
|
|
|
|
||||
Technical expenses, net of credits |
|
$ |
38,051 |
|
$ |
29,535 |
|
$ |
76,083 |
|
$ |
59,055 |
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative expenses (credits): |
|
|
|
|
|
|
|
|
|
||||
Corporate general and administrative expense allocations |
|
(2,633 |
) |
(1,219 |
) |
(5,942 |
) |
(2,378 |
) |
||||
Health and welfare plan allocations |
|
|
|
(3,449 |
) |
|
|
(6,351 |
) |
||||
Risk management and general insurance allocations |
|
|
|
(1,595 |
) |
(713 |
) |
(3,190 |
) |
||||
Other |
|
248 |
|
(802 |
) |
1,072 |
|
(1,111 |
) |
||||
Selling, general and administrative expenses (credits), subtotal |
|
(2,385 |
) |
(7,065 |
) |
(5,583 |
) |
(13,030 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses, net |
|
35,666 |
|
22,470 |
|
70,500 |
|
46,025 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net charges |
|
$ |
33,536 |
|
$ |
19,980 |
|
$ |
65,941 |
|
$ |
41,261 |
|
(a) Amounts relating to the Madison Square Garden for the period prior to the MSG Distribution are eliminated in consolidation. Operating results of Madison Square Garden are reported in discontinued operations for all periods presented prior to the MSG Distribution. Corporate overhead costs previously allocated to Madison Square Garden that were not eliminated as a result of the MSG Distribution have been reclassified to continuing operations.
Revenues, net
The Company recognizes revenue in connection with television advertisements and print advertising charged by its subsidiaries to Madison Square Garden. The Company also provides certain programming signal transmission and production services as well as affiliate sales support functions to Madison Square Garden.
The Company and its subsidiaries, together with Madison Square Garden, may enter into agreements with third parties in which the amounts paid/received by Madison Square Garden, its subsidiaries, or the Company may differ from the amounts that would have been paid/received if such arrangements were negotiated separately. Where subsidiaries of the Company have incurred a cost incremental to fair value and Madison Square Garden has received a benefit incremental to fair value from these negotiations, the Company and its subsidiaries will charge Madison Square Garden for the incremental amount.
Technical Expenses, net of Credits
Technical expenses include costs incurred by the Company for the carriage of the MSG networks and Fuse program services on Cablevisions cable systems, net of charges to Madison Square Garden for programming and production services and film library usage.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Selling, General and Administrative Expenses (Credits)
Corporate General and Administrative Expense Allocations
General and administrative costs, including costs of maintaining corporate headquarters, facilities and common support functions (such as executive management, human resources, legal, finance, tax, accounting, audit, treasury, strategic planning, information technology, transportation services, creative and production services, etc.), were allocated to Madison Square Garden through December 31, 2009. Subsequent to January 1, 2010, amounts allocated to Madison Square Garden represent charges pursuant to the transition services agreement. Corporate overhead costs previously allocated to Madison Square Garden that were not eliminated as a result of the MSG Distribution have been reclassified to continuing operations.
Health and Welfare Plan Allocations
Employees of Madison Square Garden participated in health and welfare plans sponsored by the Company through December 31, 2009. Health and welfare benefit costs have generally been charged to Madison Square Garden based upon the proportionate number of participants in the plans.
Risk Management and General Insurance Allocations
The Company provided Madison Square Garden with risk management and general insurance related services through the date of the MSG Distribution.
Other
The Company and Madison Square Garden routinely enter into transactions with each other in the ordinary course of business. Such transactions may include, but are not limited to, production services, film library usage, sponsorship agreements and cross-promotion arrangements.
Notes Payable to Madison Square Garden
At December 31, 2009, a subsidiary of the Company had a $190,000 intercompany payable to Madison Square Garden in the form of a non-interest bearing advance. On January 28, 2010, the intercompany advance was replaced with a promissory note having a principal amount of $190,000, an interest rate of 3.25% and a maturity date of June 30, 2010. This indebtedness was eliminated in consolidation prior to the spin-off of the Madison Square Garden business on February 9, 2010. In March 2010, the $190,000 of indebtedness was repaid, including $914 of interest accrued from January 28, 2010 through the date of repayment, using proceeds from the Restricted Group revolving credit facility.
NOTE 19. OTHER MATTERS
Acquisition of Bresnan Cable
In June 2010, BBHI Holdings LLC (Holdings Sub), BBHI Acquisition LLC (Acquisition Sub) and CSC Holdings, each of which is a wholly-owned subsidiary of Cablevision, entered into an Agreement and Plan of Merger (the Merger Agreement) with Bresnan Broadband Holdings, LLC (Bresnan Cable) and Providence Equity Bresnan Cable LLC. Pursuant to the Merger Agreement, Holdings Sub has agreed to acquire Bresnan Cable and its subsidiaries (collectively, Bresnan), on the terms and subject to the conditions set forth in the Merger Agreement. Pursuant to the Merger Agreement,
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Acquisition Sub will merge with Bresnan Cable (the Merger), with Bresnan Cable being the surviving entity and becoming a direct wholly-owned subsidiary of Holdings Sub and an indirect wholly-owned subsidiary of Cablevision and CSC Holdings. Holdings Sub will pay a cash purchase price for Bresnan of $1,365,000, subject to a working capital adjustment and certain other potential reductions as set forth in the Merger Agreement. For income tax purposes, the Merger will be treated as an asset acquisition with a full step-up in tax basis. Substantially all of the funded indebtedness of Bresnan Cable shall be paid from the sale proceeds at closing, with any remaining amounts counting as a reduction to the purchase price.
The closing of the transaction contemplated by the Merger Agreement is subject to various customary closing conditions, including antitrust clearance and receipt of FCC approvals and franchise approvals covering not less than 80% of Bresnan Cables basic subscribers as of the date of the Merger Agreement.
Subject to certain conditions, the Merger Agreement can be terminated by either Holdings Sub or Bresnan Cable if the closing shall not have occurred by December 13, 2010 (the End Date), provided that if the conditions relating to antitrust clearance, FCC approvals or franchise approvals have not been satisfied by such date, or if such conditions have been satisfied but the marketing period has not yet ended as of such date, either party can extend the End Date to March 13, 2011. In addition, if on March 13, 2011, the conditions relating to FCC approval or antitrust approvals are not satisfied, Holdings Sub can extend the End Date to June 13, 2011. As of the date hereof, the condition relating to antitrust clearance has been satisfied.
CSC Holdings, the direct parent of Holdings Sub, has agreed to pay a termination fee of $50,000 (the Termination Fee) if the closing does not occur solely due to (i) a termination of the Merger Agreement by Bresnan Cable as a result of a material breach by Holdings Sub or (ii) the failure to receive antitrust clearance or FCC approval (subject to the right of the parties to extend the End Date to March 13, 2011 as described above). In addition, if Holdings Sub exercises its right to extend the End Date beyond March 13, 2011, the Termination Fee will be payable by CSC Holdings if the closing does not occur by such date. CSC Holdings has provided to Holdings Sub a commitment to pay $380,000 for equity securities of Holdings Sub, subject to the satisfaction of all closing conditions and funding of the debt financing. The amount of the equity commitment is subject to increase upon any decrease in the amount of the cash proceeds to be received under the debt commitment letter (discussed below) due to the exercise of the market flex provisions applicable thereto. Except as described in this paragraph, neither Cablevision nor any of its subsidiaries other than Holdings Sub or Acquisition Sub have any obligations under the Merger Agreement or with respect to the transactions contemplated thereby.
Holdings Sub entered into the Debt Commitment Letter with Bank of America, N.A., Citigroup Global Markets Inc., Barclays Bank PLC, Credit Suisse Securities LLC and UBS Securities LLC and certain of its affiliates pursuant to which the lenders have committed to provide Holdings Sub with an aggregate of $1,090,000 of debt financing. Neither Cablevision nor any of its subsidiaries other than Holdings Sub, Acquisition Sub and, after the Closing, Bresnan will have any payment obligations or liability with respect to the debt issued in the debt financing. In addition to certain other conditions, the funding of the debt financing is contingent on the closing of the Merger and the prior or simultaneous funding of CSC Holdings equity commitment. The debt financing is also subject to certain market flex provisions that could decrease the amount of cash proceeds received by Holdings Sub under certain circumstances. The funding of the debt financing is not a condition to the Merger or to the obligations of Holdings Sub or Acquisition Sub under the Merger Agreement.
The closing of the transaction is expected to occur during late 2010 or in the first quarter of 2011. However, there can be no assurances that the conditions to closing set forth in the Merger Agreement will be satisfied or waived or that the closing will occur.
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Contd)
(Dollars in thousands, except per share amounts)
(Unaudited)
Common Stock Repurchase
In June 2010, the Companys Board of Directors authorized the repurchase of up to $500,000 of CNYG Class A common stock. Under the repurchase program, shares of CNYG Class A common stock may be purchased from time to time in the open market. Size and timing of these purchases will be determined based on market conditions and other factors. Through June 30, 2010, the Company repurchased an aggregate of 1,077,600 shares for a total cost of $27,180. These acquired shares have been classified as treasury stock in Cablevisions condensed consolidated balance sheet.
Sales Tax Audit
The Company has been under examination by the New York State Department of Taxation and Finance (NYS) for sales tax with regard to the Optimum Voice business for the period June 1, 2006 through November 30, 2007. In March 2009, NYS concluded the audit and issued a proposed assessment (Notice) totaling approximately $16,000, including tax, interest and penalties. The foregoing amount does not include any amounts which could be assessed for periods subsequent to November 2007, including additional interest. The Notice is not a final assessment at this time, because the Company requested, on a timely basis, further review by the Division of Tax Appeals. The principal audit issue is the amount of Optimum Voice revenue that should be subject to tax. The Company collected and remitted sales tax on more than 75% of its VoIP revenue, based in part on the provision of New York state law that specifically excludes interstate and international telephone service from tax and the Companys reasonable calculation of subscriber interstate and international usage. NYS has asserted that all Optimum Voice revenue, less embedded sales tax included in the subscriber fee, bad debts and other customer adjustments, should be subject to sales tax. The Company believes that it has substantial defenses to such claim and will continue to vigorously contest the Notice. No provision has been made for such claim in the accompanying condensed consolidated financial statements.
NOTE 20. SUBSEQUENT EVENTS
On August 4, 2010, the Board of Directors of Cablevision declared a cash dividend of $0.125 per share payable on September 7, 2010 to stockholders of record as of August 16, 2010 on both its CNYG Class A common stock and CNYG Class B common stock.
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
All dollar amounts, except per subscriber, per unit, per share data, and tender prices per note, included in the following discussion under this Item 2 are presented in thousands.
Summary
Our future performance is dependent, to a large extent, on general economic conditions including capital and credit market conditions, the impact of direct competition, our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers. See Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2009.
Continued capital and credit market disruptions could cause broader economic downturns, which may lead to lower demand for our products, such as cable television services and entertainment, as well as lower levels of television and newspaper advertising, and increased incidence of customers inability to pay for the services we provide. We have experienced some of the effects of this economic downturn. Continuation of events such as these may adversely impact our results of operations, cash flows and financial position.
On February 9, 2010, Cablevision distributed to its stockholders all of the outstanding common stock of Madison Square Garden, Inc. (Madison Square Garden), a company which owns the sports, entertainment and media businesses previously owned and operated by the Companys Madison Square Garden segment (the MSG Distribution). The MSG Distribution took the form of a distribution by Cablevision of one share of Madison Square Garden Class A Common Stock for every four shares of Cablevision NY Group Class A Common Stock held of record at the close of business in New York City on January 25, 2010 (the Record Date) and one share of Madison Square Garden Class B Common Stock for every four shares of Cablevision NY Group Class B Common Stock held of record on the Record Date.
As a result of the MSG Distribution, the Company no longer consolidates the financial results of Madison Square Garden for the purpose of its own financial reporting and the historical financial results of Madison Square Garden have been reflected in the Companys consolidated financial statements as discontinued operations for all periods presented through the MSG Distribution date.
Telecommunications Services
Our Telecommunications Services segment, which accounted for 80% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, derives revenues principally through monthly charges to subscribers of our video, high-speed data and Voice over Internet Protocol (VoIP) services and its commercial data and voice services operations (Optimum Lightpath). These monthly charges include fees for cable television programming, high-speed data and voice services, as well as equipment rental, pay-per-view and video-on-demand. Revenue increases are derived from rate increases, increases in the number of subscribers to these services, including additional services sold to our existing subscribers, upgrades by video customers in the level of programming package to which they subscribe, and acquisition transactions that result in the addition of new subscribers. Our ability to increase the number of subscribers to our services is significantly related to our penetration rates (the number of subscribers to our services as a percentage of homes passed). As penetration rates increase, the number of available homes to which we can market our services generally decreases, which may contribute to a slower rate of customer and revenue growth in future periods. We also derive revenues from the sale of advertising time available on the programming carried on our cable television systems.
Programming costs are the most significant part of our operating expenses and are expected to increase primarily as a result of contractual rate increases and additional service offerings.
Our cable television video services, which accounted for 46% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, face competition from incumbent telephone companies and direct broadcast satellite (DBS) service providers. As discussed in greater detail below, we face intense competition from incumbent telephone companies, Verizon Communications, Inc. (Verizon) and AT&T Inc. (AT&T), which offer video programming in addition to their voice and high-speed Internet access services, evidencing their commitment to compete across all of the Companys telecommunications products. To the extent the incumbent telephone companies, who have financial resources that exceed ours, decide to meet our pricing and/or features or reduce their pricing, our future growth may be negatively impacted. There are two major providers of DBS service in the United States, each with significantly higher numbers of subscribers than we have. We compete with these DBS competitors by bundling our service offerings with products that the DBS companies cannot efficiently provide at this time, such as high-speed data service and voice service carried over the cable distribution plant, as well as by providing interactive services that are currently unavailable to a DBS subscriber. Historically, we have made substantial investments in the development of new and innovative programming options and other product enhancements for our customers as a way of differentiating ourselves from our competitors. We likely will continue to do so in order to remain an effective competitor, which could increase our operating expenses and capital expenditures.
Verizon and AT&T offer video programming as well as voice and high-speed Internet access services to residential customers in our service area. Verizon has constructed fiber to the home network plant that passes a significant number of households in our service area (currently slightly more than one-third of the households according to our estimates). Verizon has obtained authority to provide video service for a majority of these homes passed, on a statewide basis in New Jersey, in numerous local franchises in New York State, including all of New York City, and in a small portion of Connecticut. AT&T offers such service in competition with us in most of our Connecticut service area. This competition impacted our video revenue and our video revenue growth rates and may continue to do so in the future.
Our high-speed data services business, which accounted for 17% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, faces intense competition from other providers of high-speed Internet access, including Verizon and AT&T. Our growth rate in high-speed data customers and revenues has slowed from the growth rates we have experienced in the past due to our high penetration (54.3% of homes passed at June 30, 2010). Growth rates have also been impacted, although to a lesser extent, by intense competition. Accordingly, the growth rate of both customers and revenues may continue to slow in the future.
Our VoIP offering, which accounted for 11% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, faces intense competition from other providers of voice services, including carriers such as Verizon and AT&T. We compete primarily on the basis of pricing, where unlimited United States, Canada and Puerto Rico long distance, regional and local calling, together with certain features for which the incumbent providers charge extra, are offered at one low price. Our growth rate in VoIP customers and revenues has slowed from the growth rates we have experienced in the past due to our increasing penetration (43.7% of homes passed at June 30, 2010). Growth rates have also been impacted, although to a lesser extent, by intense competition. Accordingly, the growth rate of both customers and revenues may continue to slow in the future.
The regulatory framework for high-speed data service and voice service is being developed and changes in how we and our competitors are regulated, including increased regulation, may affect our competitive position. In October 2009, the FCC proposed so-called net neutrality rules that could affect the terms
and conditions under which we operate our high-speed data service and manage our broadband network. In June 2010, the FCC proposed to classify high-speed data services as common carrier telecommunications services in order to establish its authority to impose these rules. We cannot predict whether or when the FCC will adopt such rules, the final form of any such rules, or whether they could have a material adverse effect on our high-speed data service or other businesses.
The Telecommunications Services segment advertising and other revenues accounted for 2% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010.
Optimum Lightpath, which accounted for 4% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, operates in the most competitive business telecommunications market in the country and competes against the very largest telecommunications companies - incumbent local exchange companies such as Verizon and AT&T, other competitive local exchange companies and long distance companies. To the extent that dominant market leaders decide to reduce their prices, future success of our Optimum Lightpath business may be negatively impacted. The trend in business communications has been shifting from a wired voice medium to a wireless data medium. This trend could also negatively impact the future growth of Optimum Lightpath if it were to accelerate.
Rainbow
In our Rainbow segment, which accounted for 15% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, we earn revenues in two principal ways. First, we receive affiliation payments from cable television system operators (including our cable television systems), DBS operators and telephone companies (collectively referred to as operators). These revenues are generally earned on a per subscriber basis under multi-year contracts with those operators referred to as affiliation agreements. The specific affiliation fee revenues we earn vary from period to period, operator to operator and also vary among our networks, but are generally based upon the number of each operators subscribers who receive our programming, referred to as viewing subscribers, or are a fixed contractual monthly fee.
The second principal source of revenues in this segment is from advertising. Under our affiliation agreements, we have the right to sell a specific amount of advertising time on our programming networks. Our advertising revenues are more variable than affiliation fee revenues because most of our advertising is sold on a short-term basis, not under long-term contracts. Also, most of our advertising revenues vary based upon the popularity of our programming as measured by rating services.
We seek to grow our revenues in the Rainbow segment by increasing the number of operators that carry our services and the number of viewing subscribers. We refer to this as our penetration. AMC, which is widely distributed, has less ability to increase its penetration than our less penetrated services. Our revenues may also increase over time through contractual rate increases stipulated in certain of our affiliation agreements. In negotiating for increased or extended carriage, we may be subject to requests by operators to make upfront payments in exchange for additional subscribers or extended carriage, which we record as deferred carriage fees and which are amortized as a reduction to revenue over the period of the related affiliation agreements, or to waive for a specified period or accept lower per subscriber fees if certain additional subscribers are provided. We also may help fund the operators efforts to market our channels. As we continue our efforts to add subscribers, our subscriber revenue may be negatively affected by subscriber acquisition fees (deferred carriage), discounted subscriber fees and other payments; however, we believe that these transactions generate a positive return on investment over the contract period. We seek to increase our advertising revenues by increasing the number of minutes of national advertising sold and by increasing the rates we charge for such advertising, but, ultimately, the level of
our advertising revenues, in most cases, is directly related to the overall distribution of our programming, penetration of our services, and the popularity (including within desirable demographic groups) of our services as measured by rating services.
Our principal goals in this segment are to increase our affiliation fee revenues and our advertising revenues by increasing distribution and penetration of our national services. To do this, we must continue to contract for and produce high-quality, attractive programming. One of our greatest challenges arises from the increasing concentration of subscribers in the hands of a few operators, creating disparate bargaining power between the largest operators and us. This increased concentration could adversely affect our ability to increase the penetration of our services or even result in decreased penetration. In addition, this concentration gives those operators greater leverage in negotiating the pricing and other terms of affiliation agreements. Moreover, as a result of this concentration, the potential impact of a loss of any one of our major affiliate relationships would have a significant adverse impact on this segment.
Newsday
Newsday, which accounted for approximately 4% of our consolidated revenues, net of inter-segment eliminations, for the six months ended June 30, 2010, consists of the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites including newsday.com and exploreLI.com.
Since Newsdays acquisition on July 29, 2008, it has experienced a decline in consolidated revenues, as compared to the prior year periods, primarily due to decreased advertising revenues. The decrease in advertising revenues has resulted from the current economic environment and increased competition for advertising dollars from other media, particularly the Internet. This decline has continued into 2010 and is expected to continue beyond the second quarter of 2010.
Newsday Revenue
Newsdays revenue is derived primarily from the sale of advertising and the sale of newspapers (circulation revenue). For the six months ended June 30, 2010, advertising revenues accounted for 73% of the total revenues of Newsday. Newsdays business model is largely dependent on advertising revenue. Advertising revenue is derived from printed ads that run in the newspaper, preprinted advertisements that are inserted into the newspaper, and preprinted sticky notes that are applied to the front of the paper. In addition, advertising revenue also includes online advertising consisting of banner ads, video ads, floating ads, expanding ads, search engine advertising and online classified advertising for auto, recruitment and real estate.
Local economic conditions affect the levels of retail and classified newspaper advertising revenue. General economic conditions, changes in consumer spending, auto sales, housing sales, unemployment rates, job creation, readership and circulation levels and rates all impact demand for advertising. All of these factors, along with the competitive and seasonal factors discussed below, contributed to a challenging advertising sales environment in 2009 and the six months ended June 30, 2010 and have adversely impacted and are expected to adversely impact our ability to maintain our advertising revenues. Newsdays advertising categories most adversely impacted by the current economic downturn include: the home furnishings, home improvement and education categories within retail advertising, the wireless, movies and financial services categories within national advertising; and the real estate, help wanted and automotive classified advertising categories. Additionally, in December 2009, Newsday ceased publishing certain of its unprofitable shopper publications serving the boroughs of New York City, which has also contributed to the decreases observed in the retail and classified advertising categories.
Seasonal variations in consumer spending have historically caused quarterly advertising revenues to fluctuate. Second and fourth quarter advertising revenues have historically been higher than first and third quarter advertising revenues, reflecting the historically slower economic activity in the winter and summer and the stronger fourth quarter holiday season. The level of advertising sales in any period may also be affected by advertisers decisions to increase or decrease their advertising expenditures in response to actual or anticipated consumer demand and general economic conditions.
The economic downturn in the newspaper industry intensified in the fourth quarter of 2008 and has continued through the second quarter of 2010. For the three and six months ended June 30, 2010, Newsday experienced a decline in advertising revenues as compared to the comparable periods in 2009. A continuing economic downturn or continuing decline in advertising and/or circulation revenue would have a material adverse effect on Newsdays future consolidated revenues, earnings and operating cash flows. If Newsdays results deteriorate further, it would adversely affect the Companys consolidated revenues, earnings and operating cash flows causing possible additional impairments of certain of its indefinite-lived trademarks.
For the six months ended June 30, 2010, circulation revenues accounted for approximately 25% of the total revenues of Newsday. Newsdays circulation revenue is derived primarily from home delivery subscriptions of the Newsday daily newspaper, and single copy sales of Newsday at the newsstand or through local retail outlets. Approximately 69% of the circulation revenues were derived from subscription sales for both the six months ended June 30, 2010 and 2009, which provide readers with the convenience of home delivery, and are an important component of Newsdays circulation base. For the six months ended June 30, 2010, single copy rates for Newsday were $1.00 per daily copy and ranged from $2.00 to $2.50 per Sunday copy. These prices reflect Newsdays most recent price increases to $1.00 per daily copy and $2.50 per Sunday copy initiated in the fourth quarter of 2009. These price increases have had a negative impact on Newsdays circulation copy volume. Newsdays single copy sales comprised approximately 31% of circulation revenue for both the six months ended June 30, 2010 and 2009. In the past three years, circulation has generally declined throughout the newspaper industry, and Newsdays newspapers have generally experienced this trend. A prolonged decrease in home delivery subscriptions and single copy sales of newspapers could adversely impact circulation revenue as well as advertising revenue.
In October 2009, Newsday transitioned to a subscriber access model for a substantial portion of its newsday.com websites content. The website is available for no additional charge to Newsday subscribers and to Optimum Online customers and for a fee for anyone else.
Newsday Expenses
The basic material used in publishing newspapers is newsprint. Management believes Newsdays source of newsprint, along with available alternate sources, is adequate for its current needs. Newsdays largest categories of operating expenses relate to the production and distribution of its print products. These costs are driven by volume (number of newspapers printed and number of pages printed) and the number of pages printed are impacted by the volume of advertising and editorial page counts. Certain other Newsday expenses fluctuate directly with advertising sales. The expense that is most directly linked to advertising sales is sales commissions, which represents a relatively small percentage of Newsdays operating expenses.
The majority of Newsdays other costs, such as editorial content creation, rent and general and administrative expenses do not directly fluctuate with changes in advertising and circulation revenue. Accordingly, when advertising sales decline, there is a significant and immediate adverse impact on revenue and operating cash flows, which Newsday, and the newspaper industry in general, has experienced in the recent economic downturn.
Results of Operations - Cablevision Systems Corporation
The following table sets forth on a historical basis certain items related to operations as a percentage of net revenues for the periods indicated:
STATEMENT OF OPERATIONS DATA
|
|
Three Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
|
|
% of Net |
|
|
|
% of Net |
|
Favorable |
|
|||
|
|
Amount |
|
Revenues |
|
Amount |
|
Revenues |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
1,802,180 |
|
100 |
% |
$ |
1,702,857 |
|
100 |
% |
$ |
99,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
Technical and operating (excluding depreciation, amortization and impairments shown below) |
|
725,969 |
|
40 |
|
695,168 |
|
41 |
|
(30,801 |
) |
|||
Selling, general and administrative |
|
414,667 |
|
23 |
|
406,536 |
|
24 |
|
(8,131 |
) |
|||
Restructuring expense |
|
110 |
|
|
|
4,028 |
|
|
|
3,918 |
|
|||
Depreciation and amortization (including impairments) |
|
244,651 |
|
14 |
|
258,201 |
|
15 |
|
13,550 |
|
|||
Operating income |
|
416,783 |
|
23 |
|
338,924 |
|
20 |
|
77,859 |
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
(207,102 |
) |
(11 |
) |
(187,211 |
) |
(11 |
) |
(19,891 |
) |
|||
Gain on sale of programming interests, net |
|
102 |
|
|
|
453 |
|
|
|
(351 |
) |
|||
Gain (loss) on investments, net |
|
(31,364 |
) |
(2 |
) |
18,390 |
|
1 |
|
(49,754 |
) |
|||
Gain (loss) on equity derivative contracts, net |
|
32,292 |
|
2 |
|
(15,887 |
) |
(1 |
) |
48,179 |
|
|||
Gain (loss) on interest rate swap contracts, net |
|
(21,771 |
) |
(1 |
) |
13,907 |
|
1 |
|
(35,678 |
) |
|||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
(110,049 |
) |
(6 |
) |
(187 |
) |
|
|
(109,862 |
) |
|||
Miscellaneous, net |
|
53 |
|
|
|
187 |
|
|
|
(134 |
) |
|||
Income from continuing operations before income taxes |
|
78,944 |
|
4 |
|
168,576 |
|
10 |
|
(89,632 |
) |
|||
Income tax expense |
|
(17,863 |
) |
(1 |
) |
(80,925 |
) |
(5 |
) |
63,062 |
|
|||
Income from continuing operations |
|
61,081 |
|
3 |
|
87,651 |
|
5 |
|
(26,570 |
) |
|||
Loss from discontinued operations, net of income taxes |
|
|
|
|
|
(592 |
) |
|
|
592 |
|
|||
Net income |
|
61,081 |
|
3 |
|
87,059 |
|
5 |
|
(25,978 |
) |
|||
Net income attributable to noncontrolling interests |
|
(217 |
) |
|
|
(51 |
) |
|
|
(166 |
) |
|||
Net income attributable to Cablevision Systems Corporation shareholders |
|
$ |
60,864 |
|
3 |
% |
$ |
87,008 |
|
5 |
% |
$ |
(26,144 |
) |
|
|
Six Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
|
|
% of Net |
|
|
|
% of Net |
|
Favorable |
|
|||
|
|
Amount |
|
Revenues |
|
Amount |
|
Revenues |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
3,554,581 |
|
100 |
% |
$ |
3,368,469 |
|
100 |
% |
$ |
186,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||
Technical and operating (excluding depreciation, amortization and impairments shown below) |
|
1,463,565 |
|
41 |
|
1,398,882 |
|
42 |
|
(64,683 |
) |
|||
Selling, general and administrative |
|
832,715 |
|
23 |
|
813,386 |
|
24 |
|
(19,329 |
) |
|||
Restructuring expense (credit) |
|
(99 |
) |
|
|
3,856 |
|
|
|
3,955 |
|
|||
Depreciation and amortization (including impairments) |
|
486,544 |
|
14 |
|
521,464 |
|
15 |
|
34,920 |
|
|||
Operating income |
|
771,856 |
|
22 |
|
630,881 |
|
19 |
|
140,975 |
|
|||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest expense, net |
|
(389,762 |
) |
(11 |
) |
(379,366 |
) |
(11 |
) |
(10,396 |
) |
|||
Gain on sale of programming interests, net |
|
204 |
|
|
|
1,219 |
|
|
|
(1,015 |
) |
|||
Gain (loss) on investments, net |
|
10,928 |
|
|
|
(51,892 |
) |
(2 |
) |
62,820 |
|
|||
Gain (loss) on equity derivative contracts, net |
|
(2,741 |
) |
|
|
42,738 |
|
1 |
|
(45,479 |
) |
|||
Loss on interest rate swap contracts, net |
|
(56,880 |
) |
(2 |
) |
(19,829 |
) |
(1 |
) |
(37,051 |
) |
|||
Loss on extinguishment of debt and write-off of deferred financing costs |
|
(110,049 |
) |
(3 |
) |
(22,044 |
) |
(1 |
) |
(88,005 |
) |
|||
Miscellaneous, net |
|
426 |
|
|
|
329 |
|
|
|
97 |
|
|||
Income from continuing operations before income taxes |
|
223,982 |
|
6 |
|
202,036 |
|
6 |
|
21,946 |
|
|||
Income tax expense |
|
(84,591 |
) |
(2 |
) |
(97,494 |
) |
(3 |
) |
12,903 |
|
|||
Income from continuing operations |
|
139,391 |
|
4 |
|
104,542 |
|
3 |
|
34,849 |
|
|||
Income (loss) from discontinued operations, net of income taxes |
|
(4,122 |
) |
|
|
3,535 |
|
|
|
(7,657 |
) |
|||
Net income |
|
135,269 |
|
4 |
|
108,077 |
|
3 |
|
27,192 |
|
|||
Net loss (income) attributable to noncontrolling interests |
|
(245 |
) |
|
|
148 |
|
|
|
(393 |
) |
|||
Net income attributable to Cablevision Systems Corporation shareholders |
|
$ |
135,024 |
|
4 |
% |
$ |
108,225 |
|
3 |
% |
$ |
26,799 |
|
The following is a reconciliation of operating income to Adjusted Operating Cash Flow (AOCF):
|
|
Three Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating income |
|
$ |
416,783 |
|
$ |
338,924 |
|
$ |
77,859 |
|
Share-based compensation |
|
16,032 |
|
20,213 |
|
(4,181 |
) |
|||
Depreciation and amortization (including impairments) |
|
244,651 |
|
258,201 |
|
(13,550 |
) |
|||
Restructuring expense |
|
110 |
|
4,028 |
|
(3,918 |
) |
|||
AOCF |
|
$ |
677,576 |
|
$ |
621,366 |
|
$ |
56,210 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating income |
|
$ |
771,856 |
|
$ |
630,881 |
|
$ |
140,975 |
|
Share-based compensation |
|
29,715 |
|
32,526 |
|
(2,811 |
) |
|||
Depreciation and amortization (including impairments) |
|
486,544 |
|
521,464 |
|
(34,920 |
) |
|||
Restructuring expense (credit) |
|
(99 |
) |
3,856 |
|
(3,955 |
) |
|||
AOCF |
|
$ |
1,288,016 |
|
$ |
1,188,727 |
|
$ |
99,289 |
|
Comparison of Three and Six Months Ended June 30, 2010 Versus Three and Six Months Ended June 30, 2009
Consolidated Results Cablevision Systems Corporation
We classify our business interests into three reportable segments:
· Telecommunications Services, consisting principally of our video, high-speed data, VoIP services and the commercial data and voice services operations of Optimum Lightpath;
· Rainbow, consisting principally of national and regional television programming services, including AMC, WE tv, IFC, Sundance Channel, News 12, and IFC Entertainment; and
· Newsday, consisting of the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites including newsday.com and exploreLI.com.
We allocate certain amounts of our corporate overhead to each segment based upon their proportionate estimated usage of services, except for Newsday as to which we allocated the incremental costs incurred in providing these services through September 30, 2009. Subsequent to September 30, 2009, we allocated certain amounts of our corporate overhead to Newsday based upon its proportionate estimated usage of such services. Subsequent to January 1, 2010, amounts allocated to Madison Square Garden represent charges pursuant to the transition services agreement. Corporate overhead costs previously allocated to Madison Square Garden that were not eliminated as a result of the MSG Distribution have been reclassified to continuing operations. The segment financial information set forth below, including the discussion related to individual line items, does not reflect inter-segment eliminations unless specifically indicated.
See Business Segments Results for a discussion relating to the operating results of our segments.
Revenues, net for the three and six months ended June 30, 2010 increased $99,323 (6%) and $186,112 (6%), respectively, as compared to revenues for the three and six months ended June 30, 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
|
|
|
|
|
|
||
Increase in revenues of the Telecommunications Services segment |
|
$ |
81,176 |
|
$ |
158,882 |
|
Increase in revenues of the Rainbow segment |
|
28,144 |
|
43,954 |
|
||
Decrease in revenues of the Newsday segment |
|
(8,610 |
) |
(17,294 |
) |
||
Other net decreases |
|
(1,075 |
) |
(2,245 |
) |
||
Inter-segment eliminations |
|
(312 |
) |
2,815 |
|
||
|
|
$ |
99,323 |
|
$ |
186,112 |
|
Technical and operating expenses (excluding depreciation, amortization and impairments shown below) include primarily:
· cable programming costs which are costs paid to programmers, net of amortization of any launch support received, for cable content and are generally paid on a per-subscriber basis;
· network management and field service costs which represent costs associated with the maintenance of our broadband network, including costs of certain customer connections;
· amortization of costs to license programming, including program rights, and distribution and production related costs of our Rainbow segment;
· interconnection, call completion and circuit fees relating to our telephone and VoIP businesses which represent the transport and termination of calls with other telecommunications carriers; and
· publication production and distribution costs of our Newsday segment.
Technical and operating expenses (excluding depreciation, amortization and impairments shown below) increased $30,801 (4%) and $64,683 (5%), respectively, for the three and six months ended June 30, 2010, as compared to the three and six months ended June 30, 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
|
|
|
|
|
|
||
Increase in expenses of the Telecommunications Services segment |
|
$ |
15,817 |
|
$ |
40,504 |
|
Increase in expenses of the Rainbow segment |
|
16,382 |
|
22,738 |
|
||
Decrease in expenses of the Newsday segment |
|
(7,828 |
) |
(16,693 |
) |
||
Other net increases, primarily costs associated with the MSG Varsity network launched in 2009 |
|
6,473 |
|
14,923 |
|
||
Inter-segment eliminations |
|
(43 |
) |
3,211 |
|
||
|
|
$ |
30,801 |
|
$ |
64,683 |
|
Selling, general and administrative expenses include primarily sales, marketing and advertising expenses, administrative costs, and costs of customer call centers. Selling, general and administrative expenses increased $8,131 (2%) and $19,329 (2%), respectively, for the three and six months ended June 30, 2010, respectively, as compared to the same periods in 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
|
|
|
|
|
|
||
Increase (decrease) in expenses of the Telecommunications Services segment |
|
$ |
(3,077 |
) |
$ |
7,450 |
|
Increase in expenses of the Rainbow segment |
|
7,105 |
|
12,627 |
|
||
Decrease in expenses of the Newsday segment |
|
(76 |
) |
(449 |
) |
||
Other net increases |
|
4,451 |
|
98 |
|
||
Inter-segment eliminations |
|
(272 |
) |
(397 |
) |
||
|
|
$ |
8,131 |
|
$ |
19,329 |
|
The net increases in other selling, general and administrative expenses of $4,451 and $98 are primarily due to costs of approximately $7,800 associated with the pending acquisition of Bresnan Cable and costs associated with the MSG Varsity network, which was launched in September 2009. These increases were partially offset by an increase in corporate overhead allocations to Newsday, charges to Madison Square Garden in the 2010 periods for transition services, and the net effect of costs allocated to Madison Square Garden in 2009 that were not eliminated as a result of the MSG Distribution that were reclassified to continuing operations.
Depreciation and amortization (including impairments) decreased $13,550 (5%) and $34,920 (7%), respectively, for the three and six months ended June 30, 2010, as compared to the same periods in 2009. The net decreases resulted primarily from certain assets becoming fully depreciated, partially offset by depreciation of new asset purchases.
Interest expense, net increased $19,891 (11%) and $10,396 (3%) for the three and six months ended June 30, 2010, as compared to the same periods in 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
|
|
|
|
|
|
||
Increase due to higher average interest rates on our indebtedness, including extension fees to lenders |
|
$ |
11,051 |
|
$ |
17,462 |
|
Net increase (decrease) due to change in average debt balances |
|
3,486 |
|
(14,157 |
) |
||
Lower interest income |
|
13 |
|
1,330 |
|
||
Other net increases (including an increase in term loan extension fees to $11,229 in the 2010 periods from $6,093 in the 2009 periods) |
|
5,341 |
|
5,761 |
|
||
|
|
$ |
19,891 |
|
$ |
10,396 |
|
See Liquidity and Capital Resources discussion below for details regarding our borrower groups.
Gain (loss) on investments, net of $(31,364) and $10,928 for the three and six months ended June 30, 2010, respectively, and $18,390 and $(51,892), for the three and six months ended June 30, 2009 consists primarily of the increase or decrease in the fair value of Comcast common stock owned by the Company. The effects of these gains and losses are partially offset by the losses and gains on the related equity derivative contracts, net described below.
Gain (loss) on equity derivative contracts, net of $32,292 and $(2,741) for the three and six months ended June 30, 2010, respectively, and $(15,887) and $42,738 for the three and six months ended June 30, 2009, respectively, consists of unrealized and realized gains due to the change in fair value of the Companys
equity derivative contracts relating to the Comcast common stock owned by the Company. The effects of these gains and losses are partially offset by the losses and gains on investment securities pledged as collateral, which are included in gain (loss) on investments, net discussed above.
Gain (loss) on interest rate swap contracts, net amounted to $(21,771) and $(56,880) for the three and six months ended June 30, 2010, respectively, and $13,907 and $(19,829) for the three and six months ended June 30, 2009, respectively. These interest rate swap contracts effectively fix the borrowing rates on a portion of the Companys floating rate debt to limit the exposure against the risk of rising rates. The gain (loss) on interest rate swap contracts are a result of shifts in the yield curve over the life of the swap contracts.
Loss on extinguishment of debt and write-off of deferred financing costs amounted to $110,049 for the three and six months ended June 30, 2010 and $187 and $22,044 for the three and six months ended June 30, 2009, respectively. The 2010 amount represents premiums paid to repurchase a portion of Cablevision senior notes due April 2012 and related fees associated with the tender offer and the write-off of unamortized deferred financing costs related to such repurchases. The 2009 amounts represent the premiums paid to repurchase a portion of Cablevision senior notes due April 2009, CSC Holdings senior notes due July 2009, senior debentures due August 2009 and related fees associated with the tender offers. They also included the write-off of unamortized deferred financing costs related to such repurchases.
Income tax expense: The Company recorded income tax expense of $17,863 and $84,591 for the three and six months ended June 30, 2010, respectively, reflecting an effective tax rate of 23% and 38%, respectively. In the second quarter of 2010, the Company recorded a nonrecurring tax benefit of $18,951 for an increase in certain state and city net operating loss carry forwards pursuant to the finalization of an examination with a state taxing authority. Absent this tax benefit the effective tax rate for the three and six months ended June 30, 2010 would have been 47% and 46%, respectively. The Company recorded tax expense relating to uncertain tax positions, including accrued interest, of $2,004 and $2,518 for the three and six months ended June 30, 2010, respectively. The Company recorded tax expense of $8,654 resulting from a change in the rate used to measure deferred taxes principally due to the impact of the MSG Distribution on February 9, 2010. In the first quarter of 2010, the Company recorded tax benefit of $2,283 resulting from a change in the projected composition of the group of officers for which the tax deduction for compensation may be limited pursuant to Internal Revenue Code Section 162(m). A decrease in the valuation allowance relating to certain state net operating loss carry forwards reduced tax expense by $862 in the six month period ended June 30, 2010.
The Company recorded income tax expense of $80,925 and $97,494 for the three and six months ended June 30, 2009, respectively, reflecting an effective tax rate of 48% in both periods. To address state income tax planning considerations, certain subsidiary corporations were converted to limited liability companies during the second quarter of 2009. In connection with such conversions, the Company recorded tax expense of $6,362 to eliminate deferred taxes relating to certain state net operating loss and credit carry forwards. The Company recorded tax expense relating to uncertain tax positions, including accrued interest, of $372 and $737 for the three and six months ended June 30, 2009, respectively. A decrease in the valuation allowance relating to certain state net operating loss carry forwards reduced tax expense by $896 and $1,020 for the three and six months ended June 30, 2009, respectively.
In general, the Company is required to use an estimated annual effective tax rate to measure the income 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 in a prior interim period. In addition, certain items included in income tax expense as well as the tax impact of certain items included in pretax
income from continuing operations 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.
Income (loss) from discontinued operations
Income (loss) from discontinued operations, net of income taxes, for the three and six months ended June 30, 2010 and 2009 reflects the following items:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010* |
|
2009 |
|
||||
Net operating results of Madison Square Garden, including transaction costs, net of income taxes |
|
$ |
|
|
$ |
(592 |
) |
$ |
(4,122 |
) |
$ |
3,553 |
|
Net operating results of the Rainbow DBS distribution business, net of income taxes |
|
|
|
|
|
|
|
(18 |
) |
||||
|
|
$ |
|
|
$ |
(592 |
) |
$ |
(4,122 |
) |
$ |
3,535 |
|
* Includes operating results of the Madison Square Garden segment from January 1, 2010 through the date of the MSG Distribution.
Business Segments Results Cablevision Systems Corporation
Telecommunications Services
The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues, net for the Companys Telecommunications Services segment:
|
|
Three Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
1,437,161 |
|
100 |
% |
$ |
1,355,985 |
|
100 |
% |
$ |
81,176 |
|
Technical and operating expenses (excluding depreciation and amortization shown below) |
|
565,466 |
|
39 |
|
549,649 |
|
41 |
|
(15,817 |
) |
|||
Selling, general and administrative expenses |
|
260,134 |
|
18 |
|
263,211 |
|
19 |
|
3,077 |
|
|||
Depreciation and amortization |
|
204,358 |
|
14 |
|
215,712 |
|
16 |
|
11,354 |
|
|||
Operating income |
|
$ |
407,203 |
|
28 |
% |
$ |
327,413 |
|
24 |
% |
$ |
79,790 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
2,843,166 |
|
100 |
% |
$ |
2,684,284 |
|
100 |
% |
$ |
158,882 |
|
Technical and operating expenses (excluding depreciation and amortization shown below) |
|
1,144,093 |
|
40 |
|
1,103,589 |
|
41 |
|
(40,504 |
) |
|||
Selling, general and administrative expenses |
|
530,298 |
|
19 |
|
522,848 |
|
19 |
|
(7,450 |
) |
|||
Depreciation and amortization |
|
406,914 |
|
14 |
|
436,417 |
|
16 |
|
29,503 |
|
|||
Operating income |
|
$ |
761,861 |
|
27 |
% |
$ |
621,430 |
|
23 |
% |
$ |
140,431 |
|
The following is a reconciliation of operating income to AOCF:
|
|
Three Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating income |
|
$ |
407,203 |
|
$ |
327,413 |
|
$ |
79,790 |
|
Share-based compensation |
|
9,003 |
|
10,206 |
|
(1,203 |
) |
|||
Depreciation and amortization |
|
204,358 |
|
215,712 |
|
(11,354 |
) |
|||
AOCF |
|
$ |
620,564 |
|
$ |
553,331 |
|
$ |
67,233 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating income |
|
$ |
761,861 |
|
$ |
621,430 |
|
$ |
140,431 |
|
Share-based compensation |
|
16,627 |
|
16,566 |
|
61 |
|
|||
Depreciation and amortization |
|
406,914 |
|
436,417 |
|
(29,503 |
) |
|||
AOCF |
|
$ |
1,185,402 |
|
$ |
1,074,413 |
|
$ |
110,989 |
|
Revenues, net for the three and six months ended June 30, 2010 increased $81,176 (6%) and $158,882 (6%), respectively, as compared to revenues, net for the same periods in the prior year. The net increases are attributable to the following:
|
|
|
|
|
|
|
|
Percent |
|
|||
|
|
Three Months Ended June 30, |
|
Increase |
|
Increase |
|
|||||
|
|
2010 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
|
|||
Video (including analog, digital, pay-per-view, video-on-demand and digital video recorder) |
|
$ |
813,922 |
|
$ |
769,107 |
|
$ |
44,815 |
|
6 |
% |
High-speed data |
|
299,751 |
|
287,682 |
|
12,069 |
|
4 |
|
|||
Voice |
|
201,617 |
|
191,931 |
|
9,686 |
|
5 |
|
|||
Advertising |
|
32,894 |
|
25,963 |
|
6,931 |
|
27 |
|
|||
Other (including installation, home shopping, advertising sales commissions, and other products) |
|
23,349 |
|
23,565 |
|
(216 |
) |
(1 |
) |
|||
Total Cable Television |
|
1,371,533 |
|
1,298,248 |
|
73,285 |
|
6 |
|
|||
Optimum Lightpath |
|
70,763 |
|
59,943 |
|
10,820 |
|
18 |
|
|||
Intra-segment eliminations |
|
(5,135 |
) |
(2,206 |
) |
(2,929 |
) |
(133 |
) |
|||
Total Telecommunications Services |
|
$ |
1,437,161 |
|
$ |
1,355,985 |
|
$ |
81,176 |
|
6 |
% |
|
|
|
|
|
|
|
|
Percent |
|
|||
|
|
Six Months Ended June 30, |
|
Increase |
|
Increase |
|
|||||
|
|
2010 |
|
2009 |
|
(Decrease) |
|
(Decrease) |
|
|||
Video (including analog, digital, pay-per-view, video-on-demand and digital video recorder) |
|
$ |
1,616,979 |
|
$ |
1,530,921 |
|
$ |
86,058 |
|
6 |
% |
High-speed data |
|
593,851 |
|
569,504 |
|
24,347 |
|
4 |
|
|||
Voice |
|
399,211 |
|
378,693 |
|
20,518 |
|
5 |
|
|||
Advertising |
|
58,998 |
|
45,281 |
|
13,717 |
|
30 |
|
|||
Other (including installation, home shopping, advertising sales commissions, and other products) |
|
45,866 |
|
46,004 |
|
(138 |
) |
|
|
|||
Total Cable Television |
|
2,714,905 |
|
2,570,403 |
|
144,502 |
|
6 |
|
|||
Optimum Lightpath |
|
138,911 |
|
124,157 |
|
14,754 |
|
12 |
|
|||
Intra-segment eliminations |
|
(10,650 |
) |
(10,276 |
) |
(374 |
) |
(4 |
) |
|||
Total Telecommunications Services |
|
$ |
2,843,166 |
|
$ |
2,684,284 |
|
$ |
158,882 |
|
6 |
% |
Revenue increases reflected above are primarily derived from higher rates (primarily due to an increase in video rates of 3.7% on average, which was implemented beginning in December 2009), increases in the number of subscribers to our high-speed data and voice services as set forth in the table below, including additional services sold to our existing video subscribers, upgrades by video customers from the level of the programming package to which they subscribe, and acquisition transactions that result in the addition of new subscribers, offset in part by offer discounts and other rate changes. As a result, our average monthly revenue per basic video subscriber for the three months ended June 30, 2010 was $149.12 as
compared to $146.15 and $139.69 for the three months ended March 31, 2010 and June 30, 2009, respectively.
We believe the increase in advertising revenue is primarily due to a general improvement in the cable television advertising market as compared to the same periods in the prior year. The increase in Optimum Lightpath net revenues is primarily attributable to growth in Ethernet data services and higher intra-segment revenue, partially offset by reduced traditional data services. The increase in intra-segment eliminations for the three and six months ended June 30, 2010 as compared to the same periods in the prior year is primarily a result of a reduction of interconnection costs charged to Optimum Lightpath and passed through to Optimum Voice of $5,465 and $5,008 in the three and six months ended June 30, 2009, respectively, resulting from the resolution of certain disputed amounts between Optimum Lightpath and a third party vendor in the second quarter of 2009. This increase was partially offset by a reduction in intra-segment eliminations because Optimum Voice is purchasing fewer services from Optimum Lightpath due to certain operational functions now being performed directly within cable operations.
The following table presents certain subscriber and revenue generating units (RGUs) information as of June 30, 2010, March 31, 2010, and June 30, 2009 for the Companys cable television systems (excluding Optimum Lightpath):
|
|
As of |
|
As of |
|
As of |
|
|
|
(in thousands) |
|
||||
|
|
|
|
|
|
|
|
Basic video customers |
|
3,067 |
|
3,064 |
|
3,093 |
|
iO digital video customers |
|
2,926 |
|
2,905 |
|
2,902 |
|
Optimum Online high-speed data customers |
|
2,637 |
|
2,610 |
|
2,503 |
|
Optimum Voice customers |
|
2,120 |
|
2,095 |
|
1,967 |
|
Total revenue generating units |
|
10,750 |
|
10,674 |
|
10,465 |
|
The Company had a net gain of 2,900 and 3,900 basic video customers in the three and six months ended June 30, 2010, compared to a loss of 8,700 and 15,000 in the same periods in 2009.
For the three and six months ended June 30, 2010, the Company added 75,900 and 173,800 RGUs, respectively, as compared to 102,800 and 187,000 added in the same periods in 2009. The additions for the three and six months ended June 30, 2010 include increases in iO digital video customers of approximately 10,600 and 15,000 resulting from the migration from analog to full digital across certain regions of our service area. The additions in both the three and six months ended June 30, 2009 also include the impact of digital migration initiatives which resulted in an increase of approximately 48,100 iO digital video customers. Adjusted for the digital migrations, RGU additions in 2010 increased compared to the same periods in 2009. The length of the current economic downturn, along with intense competition, could impact our ability to maintain or increase our existing customers and revenue in the future.
Technical and operating expenses (excluding depreciation and amortization shown below) for the three and six months ended June 30, 2010 increased $15,817 (3%) and $40,504 (4%), respectively, as compared to the same periods in 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
Increase in programming costs (including costs of on-demand services) due primarily to rate increases (see discussion of MSG networks below) and new program offerings, partially offset by the termination of carriage of VOOM in January 2009 and lower subscribers to certain tiers of service |
|
$ |
24,188 |
|
$ |
38,859 |
|
Nonrecurring settlement of a contractual fee matter related to years prior to 2009 |
|
(23,000 |
) |
(23,000 |
) |
||
Increase in field operations and network related costs primarily due to lower capitalizable activities, general cost increases and growth in RGUs |
|
10,083 |
|
18,486 |
|
||
Increase in franchise fees due to increase in video revenues and higher rates in certain regions |
|
1,741 |
|
3,683 |
|
||
Increase in call completion and interconnection costs, taxes and fees (net of related intra-segment eliminations) primarily due to the favorable resolution of certain disputed interconnection costs in the second quarter of 2009 of approximately $6,970 and $6,458 for the three and six months ended and higher fees, partially offset by lower termination and interconnection charges |
|
2,901 |
|
2,579 |
|
||
Intra-segment eliminations |
|
(96 |
) |
(103 |
) |
||
|
|
$ |
15,817 |
|
$ |
40,504 |
|
Technical and operating expenses consist primarily of programming costs and direct costs associated with providing and maintaining services to our customers. These costs typically rise as the number of RGUs grow and also due to general inflationary cost increases for employees, contractors, programming rates and other various expenses. Costs of field operations also increase as the portion of our expenses that we are able to capitalize decreases due to lower new customer installations and lower new service upgrades. Network related costs also fluctuate as capitalizable network upgrade and enhancement activity changes. Franchise fees are payable to the state governments and local municipalities where we operate and are based on a percentage of certain categories of revenue, primarily video revenue which vary by state and municipality. These costs change in relation to changes in such categories of revenues or rate changes. We expect that our technical and operating expenses will continue to increase in the future. However, as a percentage of revenues, we expect these costs to remain relatively constant.
Effective January 1, 2010, a new long-term affiliation agreement was entered into between Cablevision and the MSG networks, which are owned by Madison Square Garden. This new long-term affiliation agreement resulted in incremental programming costs to the Company of approximately $8,000 and $15,000 for the three and six months ended June 30, 2010, as compared to the amount of programming costs recognized by the Company pursuant to the Companys arrangement with Madison Square Garden for the same periods in 2009. This new affiliation agreement provides for the carriage of the MSG Network and MSG Plus program services on the Companys cable systems in the tri-state area. This agreement has a term of 10 years, obligates the Company to carry the MSG networks program services on its cable systems and provides for the payment by the Company to the MSG networks of a per subscriber license fee, which fee is increased each year during the term of the agreement.
Selling, general and administrative expenses for the three months ended June 30, 2010 decreased $3,077 (1%) compared to the same period in 2009 and for the six months ended June 30, 2010 increased $7,450 (1%) compared to the same period in 2009. These net changes are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
Decrease in sales and marketing costs primarily due to lower marketing activity, partially offset by increased customer promotions and higher employee related costs |
|
$ |
(1,044 |
) |
$ |
|
|
Increase in sales and marketing costs primarily due to increased customer promotions, increased advertising costs, including costs related to program carriage disputes, and higher employee related costs |
|
|
|
7,755 |
|
||
Decrease in customer related costs primarily due to a reduction in call center labor costs due to fewer calls handled, partially offset by increased RGUs and general cost increases |
|
(1,564 |
) |
(1,454 |
) |
||
Other net increases (decreases) |
|
(388 |
) |
1,233 |
|
||
Intra-segment eliminations |
|
(81 |
) |
(84 |
) |
||
|
|
$ |
(3,077 |
) |
$ |
7,450 |
|
Selling, general and administrative expenses include customer related costs, principally from the operation and maintenance of our call center facilities that handle customer inquiries and billing and collection activities. These costs generally rise as the number of RGUs grow and also as a result of general inflationary cost increases for employees and other various expenses. Sales and marketing costs primarily consist of employee costs and advertising production and placement costs associated with acquiring and retaining customers. These costs may increase with intense competition.
Depreciation and amortization decreased $11,354 (5%) and $29,503 (7%), respectively, for the three and six months ended June 30, 2010, as compared to the same periods in 2009. The net decrease resulted primarily from certain assets becoming fully depreciated, partially offset by depreciation of new asset purchases.
Adjusted operating cash flow increased $67,233 (12%) and $110,989 (10%), respectively, for the three and six months ended June 30, 2010 as compared to the same periods in 2009. The increase was due to an increase in revenue, partially offset by an increase in operating expenses excluding depreciation and amortization and share-based compensation, as discussed above. This increase includes the $23,000 nonrecurring settlement of a contractual fee matter related to years prior to 2009.
Rainbow
The table below sets forth, for the periods presented, certain historical financial information and the percentage that those items bear to revenues, net for the Companys Rainbow segment.
|
|
Three Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
280,482 |
|
100 |
% |
$ |
252,338 |
|
100 |
% |
$ |
28,144 |
|
Technical and operating expenses (excluding depreciation, amortization and impairments shown below) |
|
95,931 |
|
34 |
|
79,549 |
|
32 |
|
(16,382 |
) |
|||
Selling, general and administrative expenses |
|
98,398 |
|
35 |
|
91,293 |
|
36 |
|
(7,105 |
) |
|||
Restructuring expense (credit) |
|
(48 |
) |
|
|
4,014 |
|
2 |
|
4,062 |
|
|||
Depreciation and amortization (including impairments) |
|
28,355 |
|
10 |
|
28,611 |
|
11 |
|
256 |
|
|||
Operating income |
|
$ |
57,846 |
|
21 |
% |
$ |
48,871 |
|
19 |
% |
$ |
8,975 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
545,548 |
|
100 |
% |
$ |
501,594 |
|
100 |
% |
$ |
43,954 |
|
Technical and operating expenses (excluding depreciation, amortization and impairments shown below) |
|
189,905 |
|
35 |
|
167,167 |
|
33 |
|
(22,738 |
) |
|||
Selling, general and administrative expenses |
|
197,729 |
|
36 |
|
185,102 |
|
37 |
|
(12,627 |
) |
|||
Restructuring expense (credit) |
|
(260 |
) |
|
|
4,764 |
|
1 |
|
5,024 |
|
|||
Depreciation and amortization (including impairments) |
|
56,778 |
|
10 |
|
57,000 |
|
11 |
|
222 |
|
|||
Operating income |
|
$ |
101,396 |
|
19 |
% |
$ |
87,561 |
|
17 |
% |
$ |
13,835 |
|
The following is a reconciliation of operating income to AOCF:
|
|
Three Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating income |
|
$ |
57,846 |
|
$ |
48,871 |
|
$ |
8,975 |
|
Share-based compensation |
|
5,420 |
|
6,685 |
|
(1,265 |
) |
|||
Restructuring expense (credit) |
|
(48 |
) |
4,014 |
|
(4,062 |
) |
|||
Depreciation and amortization |
|
28,355 |
|
28,611 |
|
(256 |
) |
|||
AOCF |
|
$ |
91,573 |
|
$ |
88,181 |
|
$ |
3,392 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating income |
|
$ |
101,396 |
|
$ |
87,561 |
|
$ |
13,835 |
|
Share-based compensation |
|
10,369 |
|
10,357 |
|
12 |
|
|||
Restructuring expense (credit) |
|
(260 |
) |
4,764 |
|
(5,024 |
) |
|||
Depreciation and amortization |
|
56,778 |
|
57,000 |
|
(222 |
) |
|||
AOCF |
|
$ |
168,283 |
|
$ |
159,682 |
|
$ |
8,601 |
|
The Rainbow segments operating income is comprised of the following:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
||||
AMC, WE tv and IFC |
|
$ |
86,385 |
|
$ |
77,470 |
|
$ |
168,967 |
|
$ |
145,572 |
|
Other services |
|
(28,539 |
) |
(28,599 |
) |
(67,571 |
) |
(58,011 |
) |
||||
|
|
$ |
57,846 |
|
$ |
48,871 |
|
$ |
101,396 |
|
$ |
87,561 |
|
Other services primarily consist of Sundance Channel, News 12 Networks, IFC Entertainment, Rainbow Advertising Sales Corporation (RASCO), Rainbow Network Communications (RNC), VOOM (the domestic programming of which ceased in January 2009) and certain Rainbow services which we began distributing internationally in July 2009. The operating losses from Rainbows other services for the three and six months ended June 30, 2010 were attributable primarily to News 12 Networks, IFC Entertainment, RASCO, VOOM, and, to a lesser extent, Sundance Channel (only for the six month period of 2010), certain internationally distributed Rainbow services and RNC. Operating losses from Rainbows other services for the three and six months ended June 30, 2009 were attributable primarily to News 12 Networks, IFC Entertainment, VOOM, and RASCO.
Revenues, net for the three and six months ended June 30, 2010 increased $28,144 (11%) and $43,954 (9%), respectively, as compared to revenues for the same periods in 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
Increase in advertising/sponsorship revenues at AMC, WE tv and IFC resulting primarily from higher pricing at AMC and WE tv |
|
$ |
14,097 |
|
$ |
22,788 |
|
Increase in affiliation fee revenues and other revenues at AMC, WE tv and IFC resulting primarily from increases in affiliation rates and viewing subscribers (see table below) |
|
9,528 |
|
19,357 |
|
||
Increase in advertising/sponsorship revenues at Rainbows other services (excluding VOOM) including News 12 Networks, RASCO and Sundance (for the three month period) |
|
4,732 |
|
5,769 |
|
||
Net decrease in affiliation fee revenues and other revenues of Rainbows other services due primarily to lower other revenues, partially offset by an increase in affiliation fee revenues at Sundance Channel and certain internationally distributed Rainbow services |
|
(492 |
) |
(1,572 |
) |
||
Increase (decrease) in revenues, net at VOOM. Decrease for the six month period is due to the Companys decision to discontinue funding the domestic programming of VOOM in January 2009 |
|
279 |
|
(2,388 |
) |
||
|
|
$ |
28,144 |
|
$ |
43,954 |
|
The decrease in revenues of VOOM for the six month period was due primarily to the loss of carriage by Cablevision effective January 20, 2009.
Revenue increases discussed above are primarily derived from increases in affiliation fee revenues derived from affiliation rates charged for our services and in the number of viewing subscribers and increases in the level of advertising on our networks. The following table presents certain viewing subscriber information as of June 30, 2010, March 31, 2010 and June 30, 2009:
|
|
As of |
|
As of |
|
As of |
|
Viewing Subscribers: |
|
|
|
|
|
|
|
AMC |
|
88,500 |
|
88,000 |
|
86,600 |
|
WE tv |
|
63,700 |
|
63,000 |
|
62,200 |
|
IFC |
|
51,200 |
|
50,500 |
|
49,800 |
|
Sundance |
|
39,000 |
|
39,000 |
|
33,100 |
|
Technical and operating expenses (excluding depreciation, amortization and impairments shown below) for the three and six months ended June 30, 2010 increased $16,382 (21%) and $22,738 (14%), respectively, as compared to the same periods in 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
Increase in programming costs at AMC, WE tv and IFC primarily due to increased amortization of film and non-film content primarily at AMC |
|
$ |
11,315 |
|
$ |
17,407 |
|
Net increase in programming costs at Rainbows other services (excluding VOOM) resulting primarily from the programming costs of certain internationally distributed Rainbow services, increased content acquisition costs at IFC Entertainment and, to a lesser extent, Sundance Channel |
|
5,425 |
|
9,328 |
|
||
Decrease in programming costs at VOOM due to the Companys decision to discontinue funding the domestic programming of VOOM in January 2009 |
|
(358 |
) |
(3,997 |
) |
||
|
|
$ |
16,382 |
|
$ |
22,738 |
|
There may be significant changes in the level of our technical and operating expenses from quarter to quarter and/or changes year to year due to content acquisition and/or original programming costs. As additional competition for content increases from programming services and alternate distribution technologies continue to develop in the industry, costs for content acquisition and/or original programming may increase.
Selling, general and administrative expenses for the three months and six months ended June 30, 2010 increased $7,105 (8%) and $12,627 (7%), respectively, as compared to the same periods in 2009. The net increases are attributable to the following:
|
|
Three Months |
|
Six Months |
|
||
|
|
Ended June 30, 2010 |
|
||||
Increase in selling, marketing and advertising costs at Rainbows other programming services (excluding VOOM) primarily related to IFC Entertainment, certain internationally distributed Rainbow services and start up costs at Rainbows other services |
|
$ |
4,553 |
|
$ |
7,476 |
|
Increase in selling, marketing and advertising costs at AMC, WE tv and IFC primarily related to an increase in marketing expense due to the timing of promotion and marketing of original programming at AMC and WE tv, partially offset by a decrease in such costs at IFC |
|
3,183 |
|
1,068 |
|
||
Increase (decrease) in selling, general and administrative expenses at VOOM due primarily to legal expenses in connection with the EchoStar contract dispute |
|
(431 |
) |
2,924 |
|
||
Net increase (decrease) in share-based compensation expense and expenses relating to Cablevisions long-term incentive plans |
|
(200 |
) |
1,159 |
|
||
|
|
$ |
7,105 |
|
$ |
12,627 |
|
There may be significant changes in the level of our selling, general and administrative expenses from quarter to quarter and year to year due to the timing of promotion and marketing of original programming and the number of premieres that occur during a quarter.
Restructuring expense of $4,014 and $4,764 for the three and six months ended June 30, 2009 represents primarily the impairment of program rights due to the Companys decision to discontinue funding the U.S. domestic programming of VOOM.
Newsday
The tables below set forth certain financial information and the percentage that those items bear to revenues, net for the Newsday segment.
|
|
Three Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
80,062 |
|
100 |
% |
$ |
88,672 |
|
100 |
% |
$ |
(8,610 |
) |
Technical and operating expenses (excluding depreciation and amortization shown below) |
|
47,241 |
|
59 |
|
55,069 |
|
62 |
|
7,828 |
|
|||
Selling, general and administrative expenses |
|
28,544 |
|
36 |
|
28,620 |
|
32 |
|
76 |
|
|||
Restructuring expense (credit) |
|
95 |
|
|
|
(66 |
) |
|
|
(161 |
) |
|||
Depreciation and amortization (including impairments) |
|
5,450 |
|
7 |
|
7,668 |
|
9 |
|
2,218 |
|
|||
Operating loss |
|
$ |
(1,268 |
) |
(2 |
)% |
$ |
(2,619 |
) |
(3 |
)% |
$ |
1,351 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenues, net |
|
$ |
154,794 |
|
100 |
% |
$ |
172,088 |
|
100 |
% |
$ |
(17,294 |
) |
Technical and operating expenses (excluding depreciation and amortization shown below) |
|
94,070 |
|
61 |
|
110,763 |
|
64 |
|
16,693 |
|
|||
Selling, general and administrative expenses |
|
55,870 |
|
36 |
|
56,319 |
|
33 |
|
449 |
|
|||
Restructuring expense (credit) |
|
216 |
|
|
|
(66 |
) |
|
|
(282 |
) |
|||
Depreciation and amortization (including impairments) |
|
10,609 |
|
7 |
|
14,902 |
|
9 |
|
4,293 |
|
|||
Operating loss |
|
$ |
(5,971 |
) |
(4 |
)% |
$ |
(9,830 |
) |
(6 |
)% |
$ |
3,859 |
|
The following is a reconciliation of operating loss to AOCF:
|
|
Three Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating loss |
|
$ |
(1,268 |
) |
$ |
(2,619 |
) |
$ |
1,351 |
|
Share-based compensation |
|
947 |
|
55 |
|
892 |
|
|||
Restructuring expense (credit) |
|
95 |
|
(66 |
) |
161 |
|
|||
Depreciation and amortization |
|
5,450 |
|
7,668 |
|
(2,218 |
) |
|||
AOCF |
|
$ |
5,224 |
|
$ |
5,038 |
|
$ |
186 |
|
|
|
Six Months Ended June 30, |
|
|
|
|||||
|
|
2010 |
|
2009 |
|
Favorable |
|
|||
|
|
Amount |
|
Amount |
|
(Unfavorable) |
|
|||
|
|
|
|
|
|
|
|
|||
Operating loss |
|
$ |
(5,971 |
) |
$ |
(9,830 |
) |
$ |
3,859 |
|
Share-based compensation |
|
1,564 |
|
105 |
|
1,459 |
|
|||
Restructuring expense (credit) |
|
216 |
|
(66 |
) |
282 |
|
|||
Depreciation and amortization |
|
10,609 |
|
14,902 |
|
(4,293 |
) |
|||
AOCF |
|
$ |
6,418 |
|
$ |
5,111 |
|
$ |
1,307 |
|
Revenues, net for the three and six months ended June 30, 2010 decreased $8,610 (10%) and $17,294 (10%), respectively, as compared to revenues, net for the same periods in 2009. The net decreases are attributable to the following:
|
|
Three Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Advertising revenue, net |
|
$ |
59,200 |
|
74 |
% |
$ |
67,729 |
|
76 |
% |
$ |
(8,529 |
) |
Circulation revenue, net |
|
19,676 |
|
25 |
|
19,316 |
|
22 |
|
360 |
|
|||
Other revenue, net |
|
1,186 |
|
1 |
|
1,627 |
|
2 |
|
(441 |
) |
|||
Revenues, net |
|
$ |
80,062 |
|
100 |
% |
$ |
88,672 |
|
100 |
% |
$ |
(8,610 |
) |
|
|
Six Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of Net |
|
Amount |
|
% of Net |
|
Favorable |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|||
Advertising revenue, net |
|
$ |
113,697 |
|
73 |
% |
$ |
130,172 |
|
76 |
% |
$ |
(16,475 |
) |
Circulation revenue, net |
|
38,642 |
|
25 |
|
38,765 |
|
22 |
|
(123 |
) |
|||
Other revenue, net |
|
2,455 |
|
2 |
|
3,151 |
|
2 |
|
(696 |
) |
|||
Revenues, net |
|
$ |
154,794 |
|
100 |
% |
$ |
172,088 |
|
100 |
% |
$ |
(17,294 |
) |
Advertising revenues, net by category are comprised of the following:
|
|
Three Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of net |
|
Amount |
|
% of net |
|
Favorable |
|
|||
Retail |
|
$ |
31,844 |
|
54 |
% |
$ |
35,325 |
|
52 |
% |
$ |
(3,481 |
) |
National |
|
10,085 |
|
17 |
|
12,674 |
|
19 |
|
(2,589 |
) |
|||
Classified |
|
17,271 |
|
29 |
|
19,730 |
|
29 |
|
(2,459 |
) |
|||
Advertising revenues, net |
|
$ |
59,200 |
|
100 |
% |
$ |
67,729 |
|
100 |
% |
$ |
(8,529 |
) |
|
|
Six Months Ended June 30, |
|
|
|
|||||||||
|
|
2010 |
|
2009 |
|
|
|
|||||||
|
|
Amount |
|
% of net |
|
Amount |
|
% of net |
|
Favorable |
|
|||
Retail |
|
$ |
59,424 |
|
52 |
% |
$ |
64,302 |
|
49 |
% |
$ |
(4,878 |
) |
National |
|
21,599 |
|
19 |
|
27,862 |
|
22 |
|
(6,263 |
) |
|||
Classified |
|
32,674 |
|
29 |
|
38,008 |
|
29 |
|
(5,334 |
) |
|||
Advertising revenues, net |
|
$ |
113,697 |
|
100 |
% |
$ |
130,172 |
|
100 |
% |
$ |
(16,475 |
) |
The net decreases in advertising revenue in the three and six months ended June 30, 2010 over the same periods in 2009 are due primarily to the continuing economic environment and are being driven primarily by the home furnishings, home improvements and education categories of retail advertising; wireless, movies and financial categories of national advertising; and real estate, help wanted and automotive categories of classified advertising.
A newspapers circulation is the number of copies it distributes on an average day. Circulation revenue is comprised of home delivery subscriptions, single copy sales at the newsstand or local retail outlets and a small amount associated with Newspaper in Education programs whereby newspapers are delivered to local schools for education programs. On April 15, 2010, Newsday filed its most recent Publishers statement with the Audit Bureau of Circulation which indicated total paid circulation for the six months ended March 28, 2010 of approximately 335,000 on weekdays, approximately 306,000 on Saturdays and approximately 395,000 on Sundays. Newsdays paid circulation for weekdays, Saturdays and Sundays declined 9.1%, 6.8% and 7.4%, respectively, as compared to the same period in the prior year. The net increase in circulation revenue for the three months ended June 30, 2010 over the prior year is primarily due to the impact of single copy and subscription price increases. The net decrease in circulation revenue for the six months ended June 30, 2010 over the prior year is primarily due to lower single copy sales volume driven by the elimination of low margin outlets, partially offset by the impact of price increases.
Technical and operating expenses (excluding depreciation and amortization shown below) for the three and six months ended June 30, 2010 decreased $7,828 (14%) and $16,693 (15%), respectively, as compared to the same periods in 2009. Technical and operating expenses (excluding depreciation and amortization) are comprised primarily of production, distribution, editorial and newsprint expenses. The net decreases for the three and six months ended June 30, 2010 as compared to the same periods in 2009 are primarily attributable to:
· a decrease in newsprint and ink expenses of $3,893 and $9,021, respectively, due to the decline in consumption due to savings from Newsdays web-width reduction (completed in the second quarter of 2009), a decline in advertising page counts, lower circulation volumes, the exiting of certain shopper publications serving the boroughs of New York City, as well as lower newsprint and ink prices for the six months ended June 30, 2010;
· a decrease in distribution expenses of $2,188 and $4,654, respectively driven primarily by declines in circulation and preprint advertising sales volume;
· a decrease in production expenses of $1,201 and $1,851, respectively, driven primarily by the cost savings related to headcount reductions and the exiting of certain shopper publications serving the boroughs of New York City associated with the 2009 restructuring plan; and
· for the six month period ended June 30, 2010, a decrease of $111 in severance costs.
Selling, general, and administrative expenses for the three and six months ended June 30, 2010 decreased $76 and $449 (1%), respectively, as compared to the same periods in 2009. Selling, general, and administrative expenses include primarily direct sales and marketing expenses and costs of facilities, information systems, finance, and research and promotion. The net decreases for both the three and six months ended June 30, 2010 are primarily attributable to a decrease in direct selling expenses driven by advertising revenue declines, as well as decreases in rent and utility expenses due to the exiting of certain leased properties during the fourth quarter of 2009 in conjunction with the 2009 restructuring plan. These decreases were offset by increases in corporate overhead expenses, as well as increases in share-based compensation expenses and expenses related to Cablevisions long-term incentive plans.
Depreciation and amortization (including impairments) for the three and six months ended June 30, 2010 decreased $2,218 (29%) and $4,293 (29%), respectively, as compared to the same periods in 2009, primarily due to depreciation expense of $2,013 and $4,025 incurred during the three and six months ended June 30, 2009, respectively, related to two printing presses that were phased out of service in mid-year 2009. Also included in depreciation expense for the three months ended June 30, 2010 are impairment charges of $260 on fixed assets no longer used in the ordinary course of business, as compared to $740 in the same period in 2009.
Adjusted operating cash flow for the three and six months ended June 30, 2010 increased $186 (4%) and $1,307 (26%), respectively, as compared to the same periods in 2009. This increase is driven primarily by expense savings initiatives exceeding the pace of advertising revenue declines.
CSC HOLDINGS, LLC
The consolidated statements of operations of CSC Holdings are essentially identical to the consolidated statements of operations of Cablevision, except for the following:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Net income attributable to Cablevision Systems Corporation shareholders |
|
$ |
60,864 |
|
$ |
87,008 |
|
$ |
135,024 |
|
$ |
108,225 |
|
Interest expense relating to Cablevision senior notes issued in April 2004, September 2009 and April 2010 included in Cablevisions consolidated statements of operations |
|
47,640 |
|
20,667 |
|
88,406 |
|
50,856 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income related to cash held at Cablevision |
|
(111 |
) |
(256 |
) |
(121 |
) |
(291 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
Interest income included in CSC Holdings consolidated statements of operations related to interest on Cablevisions senior notes held by Newsday Holdings, LLC (this interest income is eliminated in the condensed consolidated statements of operations of Cablevision) |
|
15,261 |
|
15,697 |
|
30,967 |
|
31,210 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Loss on extinguishment of debt and write-off of deferred financing costs related to the repurchase of a portion of Cablevisions senior notes due April 2012 pursuant to a tender offer |
|
110,049 |
|
17 |
|
110,049 |
|
587 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Income tax benefit included in Cablevisions consolidated statements of operations related to the items listed above |
|
(70,412 |
) |
(15,100 |
) |
(90,199 |
) |
(34,158 |
) |
||||
Net income attributable to CSC Holdings LLCs sole member |
|
$ |
163,291 |
|
$ |
108,033 |
|
$ |
274,126 |
|
$ |
156,429 |
|
Refer to Cablevisions Managements Discussion and Analysis of Financial Condition and Results of Operations herein.
CASH FLOW DISCUSSION - CABLEVISION
Continuing Operations
Operating Activities
Net cash provided by operating activities amounted to $786,903 for the six months ended June 30, 2010 compared to $743,934 for the six months ended June 30, 2009. The 2010 cash provided by operating activities resulted from $625,935 of income before depreciation and amortization (including impairments), $360,140 of non-cash items, and a $7,723 increase in accounts payable and other liabilities. Partially offsetting these increases was an increase of $84,509 in current and other assets and a $122,386 decrease in cash resulting from the acquisition of and payment of obligations relating to program rights.
Net cash provided by operating activities amounted to $743,934 for the six months ended June 30, 2009. The 2009 cash provided by operating activities resulted from $626,006 of income before depreciation and amortization (including impairments), $304,389 of non-cash items, a $6,832 increase in deferred revenue and a $1,486 decrease in current and other assets. Partially offsetting these increases was a decrease of
$89,179 in accounts payable and accrued liabilities and a $105,600 decrease in cash resulting from the acquisition of and payment of obligations relating to program rights,
The increase in cash provided by operating activities of $42,969 for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 resulted from an increase in income from continuing operations before depreciation and amortization and other non-cash items of $55,680, partially offset by a decrease of $12,711 resulting from changes in working capital, including the timing of payments and collections of accounts receivable, among other items.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2010 was $353,296 compared to $345,568 for the six months ended June 30, 2009. The 2010 investing activities consisted primarily of $355,241 of capital expenditures ($337,415 of which relate to our Telecommunications Services segment), partially offset by other net cash receipts of $1,945.
Net cash used in investing activities for the six months ended June 30, 2009 was $345,568. The 2009 investing activities consisted primarily of $355,036 of capital expenditures ($339,148 of which relate to our Telecommunications Services segment) partially offset by other net cash receipts of $9,468.
Financing Activities
Net cash used in financing activities amounted to $152,166 for the six months ended June 30, 2010 compared to $322,209 for the six months ended June 30, 2009. In 2010, CSC Holdings financing activities consisted primarily of $1,078,212 used for the repurchase of senior notes and debentures pursuant to a tender offer, the repayment of the note payable to Madison Square Garden of $190,000, dividend payments to common shareholders of $67,503, additions to deferred financing costs of $39,866 and other net cash payments of $31,408, partially offset by proceeds of $1,250,000 from the issuance of senior notes and net proceeds from bank borrowings of $4,823.
Net cash used in financing activities amounted to $322,209 for the six months ended June 30, 2009. In 2009, CSC Holdings financing activities consisted primarily of $1,277,598 used for the repurchase of senior notes and debentures pursuant to tender offers, net repayments of bank debt of $195,000, dividend payments to common shareholders of $59,340, additions to deferred financing costs of $28,986 and other net cash payments of $12,205, partially offset by proceeds of $1,250,920 from the issuance of senior notes.
CASH FLOW DISCUSSION - CSC HOLDINGS
Continuing Operations
Operating Activities
Net cash provided by operating activities amounted to $923,297 for the six months ended June 30, 2010 compared to $829,809 for the six months ended June 30, 2009. The 2010 cash provided by operating activities resulted from $765,037 of income before depreciation and amortization (including impairments), $328,009 of non-cash items, and an increase of $3,546 in accounts payable and other liabilities. Partially offsetting these increases was a $122,386 decrease in cash resulting from the acquisition of and payment of obligations relating to program rights and a $50,909 increase in current and other assets.
Net cash provided by operating activities amounted to $829,809 for the six months ended June 30, 2009. The 2009 cash provided by operating activities resulted from $674,210 of income before depreciation and amortization (including impairments), $330,724 of non-cash items, a $6,832 increase in deferred revenue and a $1,350 decrease in current and other assets. Partially offsetting these increases was a $105,600 decrease in cash resulting from the acquisition of and payment of obligations relating to program rights and a decrease of $77,707 in accounts payable and accrued liabilities.
The increase in cash provided by operating activities of $93,488 for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 resulted from an increase in income from continuing operations before depreciation and amortization and other non-cash items of $88,112 and an increase of $5,376 resulting from changes in working capital, including the timing of payments and collections of accounts receivable, among other items.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2010 was $353,296 compared to $345,568 for the six months ended June 30, 2009. The 2010 investing activities consisted primarily of $355,241 of capital expenditures ($337,415 of which relate to our Telecommunications Services segment), partially offset by other net cash receipts of $1,945.
Net cash used in investing activities for the six months ended June 30, 2009 was $345,568. The 2009 investing activities consisted primarily of $355,036 of capital expenditures ($339,148 of which relate to our Telecommunications Services segment) partially offset by other net cash receipts of $9,468.
Financing Activities
Net cash used in financing activities amounted to $325,907 for the six months ended June 30, 2010 compared to $415,323 for the six months ended June 30, 2009. In 2010, CSC Holdings financing activities consisted primarily of the repayment of the note payable due to Madison Square Garden of $190,000, net dividend payments to Cablevision of $124,011, additions to deferred financing costs of $13,365 and other net cash payments of $3,354, partially offset by net proceeds from bank borrowings of $4,823.
Net cash used in financing activities amounted to $415,323 for the six months ended June 30, 2009. In 2009, CSC Holdings financing activities consisted primarily of $777,083 used for the repurchase of senior notes and debentures pursuant to tender offers, net repayments of bank debt of $195,000, dividend payments to Cablevision of $662,410, additions to deferred financing costs of $28,986 and other net cash payments of $2,764, partially offset by proceeds of $1,250,920 from the issuance of senior notes.
Discontinued Operations
The net effect of discontinued operations on cash and cash equivalents amounted to a cash outflow of $9,015 for the six months ended June 30, 2010 and a cash inflow of $16,732 for the six months ended June 30, 2009.
Operating Activities
Net cash used in operating activities of discontinued operations amounted to $29,132 for the six months ended June 30, 2010 and resulted from a decrease in accounts payable and other liabilities of $37,778, an increase in current and other assets of $4,452 and an increase in program rights of $3,470. Partially
offsetting these decreases was net income of $2,477 before depreciation and amortization and non-cash items of $14,091.
Net cash provided by operating activities of discontinued operations amounted to $37,517 for the six months ended June 30, 2009 and resulted from net income of $34,031 before depreciation and amortization, non-cash items of $15,170 and a $30,798 decrease in current and other assets. Offsetting these increases was a decrease in accounts payable and other liabilities of $24,379, a decrease in deferred revenues of $13,463, and a $4,640 decrease in cash resulting from the acquisition of and payment of obligations relating to program rights.
Investing Activities
Net cash used in investing activities of discontinued operations for the six months ended June 30, 2010 was $5,997 and represents capital expenditures.
Net cash used in investing activities of discontinued operations for the six months ended June 30, 2009 was $29,066 and represents capital expenditures of $23,810 and an increase in restricted cash of $5,256.
Financing Activities
Net cash used in financing activities of discontinued operations for the six months ended June 30, 2010 of $8,204 resulted from additions to deferred financing costs of $8,069 and payments on capital lease obligations of $135.
Net cash used in financing activities of discontinued operations for the six months ended June 30, 2009 of $461 resulted primarily from payments on capital lease obligations.
Liquidity and Capital Resources
Overview
Cablevision has no operations independent of its subsidiaries. Cablevisions outstanding securities consist of Cablevision NY Group (CNYG) Class A common stock, CNYG Class B common stock and approximately $2,931,000 of debt securities, including approximately $2,177,000 face value of debt securities held by third party investors and approximately $754,000 held by Newsday Holdings LLC. The $754,000 of notes are eliminated in Cablevisions consolidated financial statements and are shown as notes due from Cablevision in the consolidated equity of CSC Holdings.
Issuance of Debt Securities
On April 15, 2010, Cablevision issued $750,000 aggregate principal amount of 7-3/4% senior notes due April 15, 2018 and $500,000 aggregate principal amount of 8% senior notes due April 15, 2020 (collectively, the Notes) in a registered public offering. The Notes are Cablevisions senior unsecured obligations and rank equally in right of payment with all of Cablevisions other existing and future unsecured and unsubordinated indebtedness. Cablevision may redeem all or a portion of the Notes at any time at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest to the redemption date plus a make whole premium. The Company used the net proceeds of the offering to repurchase the April Notes (as defined below) in the tender offer Cablevision commenced on April 12, 2010 discussed below and for general corporate purposes.
Tender Offer for 8% Senior Notes due 2012 Debt
On April 12, 2010, Cablevision announced that it commenced a cash tender offer for its outstanding $1,000,000 aggregate principal amount of 8% senior notes due April 2012 (April Notes) for total consideration of $1,105.00 per $1,000.00 principal amount of notes tendered for purchase, consisting of tender offer consideration of $1,045.00 per $1,000.00 principal amount of notes plus an early tender premium of $60.00 per $1,000.00 principal amount of notes. In connection with the tender offer, Cablevision repurchased $973,175 aggregate principal amount of the April Notes in the second quarter of 2010. Tender premiums aggregating approximately $102,000, along with other transaction costs, have been recorded in loss on extinguishment of debt in the condensed consolidated statements of operations for the three and six months ended June 30, 2010. In addition, unamortized deferred financing costs related to the April Notes aggregating approximately $5,000 were written-off during the quarter ending June 30, 2010.
In connection with the tender offer described above, and in accordance with the Companys agreements with Tribune Company, Cablevision redeemed all of its April Notes held by Newsday Holdings LLC with a face value of $682,000 for approximately $753,717. Newsday Holdings LLC received $487,500 of Cablevision 7-3/4% senior notes due 2018 and $266,217 of Cablevision 8% senior notes due 2020, all in accordance with the terms of the Newsday $650,000 senior secured credit facility. The foregoing transaction was consummated on a cashless basis. As a result of the redemption of the April Notes, CSC Holdings recorded an increase to other members equity of $87,090.
Funding for the debt service requirements of our debt securities is provided by our subsidiaries operations, principally CSC Holdings, as permitted by the covenants governing CSC Holdings credit agreements and indentures. Funding for our subsidiaries is generally provided by cash flow from operations, cash on hand, and borrowings under bank credit facilities made available to the Restricted Group (as later defined) and to Rainbow National Services LLC (RNS) and the proceeds from the issuance of securities in the capital markets. Our decision as to the use of cash on hand, cash generated from operating activities and borrowings under bank credit facilities of the Restricted Group and RNS will be based upon an ongoing review of the funding needs of the business, the optimal allocation of cash resources, the timing of cash flow generation and the cost of borrowing under each respective credit agreement. Moreover, we will monitor the credit markets and may seek opportunities to issue debt, the proceeds of which could be used to meet our future cash funding requirements. The Company has accessed the debt markets for significant amounts of capital in the past and may do so in the future.
We have assessed the implications of the recent volatility in the capital and credit markets on our ability to repay our scheduled debt maturities over the next 12 months and we currently believe that a combination of cash-on-hand, cash generated from operating activities and availability under our revolving credit facilities should provide us with sufficient liquidity to repay such scheduled current debt maturities in the next 12 months totaling approximately $500,158 under our credit facilities and senior notes as of June 30, 2010. However, additional market disruptions could cause broader economic downturns, which may lead to lower demand for our products, such as cable television services, as well as lower levels of television and newspaper advertising, and increased incidence of customers inability to pay for the services we provide. These events would adversely impact our results of operations, cash flows and financial position. Although we currently believe that amounts available under our CSC Holdings and RNS revolving credit facilities will be available when, and if needed, we can provide no assurance that access to such funds will not be impacted by adverse conditions in the financial markets. The obligations of the financial institutions under our revolving credit facilities are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.
In the longer term, we do not expect to be able to generate sufficient cash from operations to fund anticipated capital expenditures, meet all existing future contractual payment obligations and repay our debt at maturity. As a result, we will be dependent upon our ability to access the capital and credit markets. We will need to raise significant amounts of funding over the next several years to fund capital expenditures, repay existing obligations and meet other obligations, and the failure to do so successfully could adversely affect our business. If we are unable to do so, we will need to take other actions including deferring capital expenditures, selling assets, seeking strategic investments from third parties or reducing or eliminating dividend payments or other discretionary uses of cash.
The following table summarizes our outstanding debt, including capital lease obligations, as well as interest expense and capital expenditures as of and for the six months ended June 30, 2010:
|
|
Restricted |
|
Rainbow |
|
Newsday |
|
Other |
|
Eliminations(b) |
|
Total |
|
Cablevision |
|
Eliminations(c) |
|
Total |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Bank debt |
|
$ |
4,116,073 |
|
$ |
537,500 |
|
$ |
650,000 |
|
$ |
|
|
$ |
|
|
$ |
5,303,573 |
|
$ |
|
|
$ |
|
|
$ |
5,303,573 |
|
Capital lease obligations |
|
|
|
15,397 |
|
1,919 |
|
43,238 |
|
(6,009 |
) |
54,545 |
|
|
|
|
|
54,545 |
|
|||||||||
Senior notes and debentures |
|
3,143,470 |
|
299,417 |
|
|
|
|
|
|
|
3,442,887 |
|
2,918,806 |
|
(753,717 |
) |
5,607,976 |
|
|||||||||
Senior subordinated notes |
|
|
|
323,944 |
|
|
|
|
|
|
|
323,944 |
|
|
|
|
|
323,944 |
|
|||||||||
Collateralized indebtedness relating to stock monetizations |
|
|
|
|
|
|
|
360,086 |
|
|
|
360,086 |
|
|
|
|
|
360,086 |
|
|||||||||
Total debt |
|
$ |
7,259,543 |
|
$ |
1,176,258 |
|
$ |
651,919 |
|
$ |
403,324 |
|
$ |
(6,009 |
) |
$ |
9,485,035 |
|
$ |
2,918,806 |
|
$ |
(753,717 |
) |
$ |
11,650,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Interest expense |
|
$ |
214,430 |
|
$ |
37,177 |
|
$ |
34,447 |
|
$ |
16,711 |
|
$ |
|
|
$ |
302,765 |
|
$ |
119,373 |
|
$ |
(30,967 |
) |
$ |
391,171 |
|
Capital expenditures |
|
$ |
333,672 |
|
$ |
420 |
|
$ |
2,317 |
|
$ |
18,832 |
|
$ |
|
|
$ |
355,241 |
|
$ |
|
|
$ |
|
|
$ |
355,241 |
|
(a) |
CSC Holdings has guaranteed Newsday LLCs obligation under its $650,000 senior secured credit facility. For purposes of the Restricted Group credit facility and indentures, guarantees are treated as indebtedness. The total debt for the Restricted Group reflected in the table above does not include the $650,000 guarantee. |
(b) |
Represents capital lease obligations between subsidiaries of the Company that are eliminated in consolidation. |
(c) |
Represents the elimination of the senior notes issued by Cablevision and held by Newsday Holdings LLC. |
The following table provides details of the Companys capital expenditures for the three and six months ended June 30, 2010 and 2009:
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Capital Expenditures |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Consumer premise equipment |
|
$ |
88,224 |
|
$ |
76,814 |
|
$ |
166,922 |
|
$ |
177,847 |
|
Scalable infrastructure |
|
36,045 |
|
42,066 |
|
51,273 |
|
64,154 |
|
||||
Line extensions |
|
8,325 |
|
7,540 |
|
16,685 |
|
14,445 |
|
||||
Upgrade/rebuild |
|
4,938 |
|
5,190 |
|
8,588 |
|
8,640 |
|
||||
Support |
|
33,349 |
|
23,311 |
|
49,496 |
|
37,445 |
|
||||
Total Cable Television |
|
170,881 |
|
154,921 |
|
292,964 |
|
302,531 |
|
||||
Optimum Lightpath |
|
23,500 |
|
21,924 |
|
44,451 |
|
36,617 |
|
||||
Total Telecommunications |
|
194,381 |
|
176,845 |
|
337,415 |
|
339,148 |
|
||||
Rainbow |
|
4,379 |
|
2,760 |
|
5,586 |
|
4,431 |
|
||||
Newsday |
|
1,529 |
|
1,453 |
|
2,317 |
|
3,571 |
|
||||
All other (Corporate, Clearview Cinemas, MSG Varsity and PVI) |
|
8,258 |
|
5,016 |
|
9,923 |
|
7,886 |
|
||||
Total Cablevision |
|
$ |
208,547 |
|
$ |
186,074 |
|
$ |
355,241 |
|
$ |
355,036 |
|
Restricted Group
As of June 30, 2010, CSC Holdings and those of its subsidiaries which conduct our cable television video operations (including approximately 3.1 million basic video customers, of which approximately 2.9 million subscribe to our digital video service), and high-speed data service (approximately 2.6 million customers), and our VoIP services operations (approximately 2.1 million customers), as well as Optimum Lightpath, our commercial data and voice service business, comprise the Restricted Group as they are subject to the covenants and restrictions of the credit facility and indentures governing the notes and debentures securities issued by CSC Holdings. In addition, the Restricted Group is also subject to the covenants of the debt issued by Cablevision.
Sources of cash for the Restricted Group include primarily cash flow from the operations of the businesses in the Restricted Group, borrowings under its credit facility and issuance of securities in the capital markets and, from time to time, distributions or loans from its subsidiaries. The Restricted Groups principal uses of cash include: capital spending, in particular, the capital requirements associated with the growth of its services such as digital video, high-speed data and voice (including enhancements to its service offerings such as a broadband wireless network (WiFi)); debt service, including distributions made to Cablevision to service interest expense on its debt securities; distributions to Cablevision to fund dividends payable to stockholders of CNYG Class A and CNYG Class B common stock; distributions to Cablevision to fund share repurchases; other corporate expenses and changes in working capital; and investments that it may fund from time to time. We currently expect that the net funding and investment requirements of the Restricted Group for the next 12 months will be met with one or more of the following: cash on hand, cash generated by operating activities and available borrowings under the Restricted Groups credit facility.
Amendment and Restatement of Credit Facility
On April 13, 2010, CSC Holdings and certain of its subsidiaries (the Restricted Subsidiaries) entered into an amended credit agreement (the Amended Credit Agreement), providing for (i) an amendment and restatement of the credit agreement, dated as of February 24, 2006, as first amended and restated in its entirety as of May 27, 2009 and further amended and restated in its entirety as of April 13, 2010 (as
amended and restated, the Credit Agreement), and (ii) an amendment to the Incremental Term Supplement, dated as of March 29, 2006 and amended as of May 27, 2009.
Among other things, the Amended Credit Agreement provides for the specific mechanics of extending, from time to time, the revolving credit commitments, term A loans, incremental term loans and any additional facility commitments or additional facility loans, as applicable, with the terms of such extended facility to be documented at the time of such extension in an extended facility agreement. Under the terms of the Credit Agreement, CSC Holdings entered into three extended facilities as of April 13, 2010, as follows:
· an extended revolving credit facility agreement (the Extended Revolving Credit Facility) that provided for the extension of the availability period for lenders holding approximately $820,000 of revolving credit commitments under CSC Holdings $1,000,000 Revolving Credit Facility to March 31, 2015. Lenders under the Extended Revolving Credit Facility are entitled to an extension fee payment of between 2.00% and 2.50% per annum of the outstanding loans under the Extended Revolving Credit Facility, based upon the cash flow ratio applicable from time to time. In addition, revolving credit lenders with revolving credit commitments in the aggregate amount of $412,000 executed joinders to the Credit Agreement agreeing to provide increased revolving credit commitments with an availability period expiring on March 31, 2015.
· an extended term A facility agreement (the extended term A facility) that provided for the extension of the maturity date for lenders holding approximately $480,000 of loans under CSC Holdings existing $650,000 Term A facility, at the time of the launch of the transaction, to March 31, 2015. Lenders under the extended term A facility are entitled to an extension fee payment of between 2.00% and 2.50% per annum of the outstanding loans under the extended term A facility, based upon the cash flow ratio applicable from time to time.
· an extended incremental term facility agreement (the term B-3 extended loan facility) that provided for the extension of the maturity date for lenders holding approximately $1,678,000 under CSC Holdings existing $2,200,000 incremental term facility, at the time of the launch of the transaction, to March 29, 2016. Lenders under the term B-3 extended loan facility are entitled to an extension fee payment of 1.25% per annum of the outstanding loans under the term B-3 extended loan facility.
The revolving credit facility and the term A-1 loan facility mature in February 2012, the Extended Revolving Credit Facility and the extended term A facility mature in March 2015, the term B loan facility matures in March 2013, the term B-2 extended loan facility and the term B-3 extended loan facility mature in March 2016.
On June 30, 2010, the availability period for $20,000 of revolving credit commitments under CSC Holdings Revolving Credit Facility was extended to March 31, 2015 and the maturity date of $4,786 of loans under CSC Holdings existing Term A facility was extended to March 31, 2015.
The revolver has no required interim repayments. The term A-1 loan facility requires quarterly repayments of approximately $10,784 through the remainder of 2010 and approximately $17,254 in 2011. The extended term A facility is subject to quarterly repayments of approximately $12,142 through March 2012, approximately $18,213 beginning in June 2012 through March 2013, approximately $24,284 beginning in June 2013 through March 2014 and approximately $54,640 beginning in June 2014 through its maturity date in March 2015. The term B loan facility is subject to quarterly repayments of approximately $851 through March 2012 and approximately $80,000 beginning on June 30, 2012 through its maturity date in March 2013. The term B-2 extended loan facility is subject to quarterly repayments of
approximately $3,007 through December 2015 and a final payment of approximately $1,085,585 upon maturity in March 2016. The term B-3 extended loan facility is subject to quarterly repayments of approximately $4,196 through December 2015 and a final payment of approximately $1,581,933 upon maturity in March 2016. The borrowings under the Restricted Group credit facility may be repaid without penalty at any time.
In April 2010, the Company utilized $200,000 of its increased revolver commitments to make a $200,000 pre-payment of the unextended term B loan facility.
Loans under the Restricted Group credit facility are direct obligations of CSC Holdings, guaranteed by most Restricted Group subsidiaries and secured by the pledge of the stock of most Restricted Group subsidiaries. Outstanding borrowings under the revolving credit facility, revolving extended credit facility, term A-1 loan facility, extended term A loan facility, term B-1 loan facility, term B-2 extended loan facility and term B-3 extended loan facility were $44,886, $355,114, $90,584, $473,543, $325,957, $1,151,742 and $1,674,247, respectively, at June 30, 2010. The weighted average interest rates as of June 30, 2010 on borrowings under the revolving credit facility, revolving extended credit facility, term A-1 loan facility, extended term A loan facility, term B-1 loan facility, term B-2 extended loan facility and term B-3 extended loan facility were 1.10%, 2.60%, 1.10%, 2.60%, 2.10%, 3.60% and 3.35%, respectively. As of June 30, 2010, $400,000 was drawn and an additional $58,337 of the $1,412,453 revolving credit facility (after giving effect to the amendment and restatement of the Restricted Group credit facility discussed above) was restricted for certain letters of credit issued on behalf of CSC Holdings and $954,116 of the revolver was undrawn and was available to be drawn to meet the net funding and investment requirements of the Restricted Group.
The principal financial covenants, which are not identical for the revolving credit facility, the term A-1 loan facility and the extended term A facility, on the one hand, and the term B loan facility, term B-2 extended loan facility and the term B-3 extended loan facility, on the other, include (i) under the revolving credit facility, the term A-1 loan facility and the extended term A facility, maximum total leverage (as defined in the term A-1 loan facility) of 4.50 times cash flow for periods beginning on and after January 1, 2010, (ii) under the revolving credit facility, the term A-1 loan facility and the extended term A facility, maximum senior secured leverage (as defined in the term A-1 loan facility) of 3.00 times cash flow for periods beginning on and after January 1, 2010, (iii) under the revolving credit facility, the term A-1 loan facility and the extended term A facility, a minimum ratio of cash flow to interest expense (as defined in the term A-1 loan facility) of 2.00 to 1, and (iv) under the revolving credit facility, the term A-1 loan facility and the extended term A facility, a minimum ratio of cash flow less cash taxes to total debt expense (as defined in the term A-1 loan facility to include interest expense, certain payments of principal and dividends paid by CSC Holdings to Cablevision to permit Cablevision to pay interest and certain principal payments on its debt) of 1.50 to 1. These covenants and restrictions on the permitted use of borrowed funds in the revolving credit facility may limit CSC Holdings ability to utilize all of the undrawn revolver funds. Additional covenants include limitations on liens and the issuance of additional debt.
Under the term B loan facility, term B-2 extended loan facility and the term B-3 extended loan facility, CSC Holdings is limited in its ability to incur additional indebtedness based on 5.00 times cash flow for periods beginning on and after January 1, 2010 and a maximum senior secured leverage ratio (as defined in the term B loan facility, term B-2 extended loan facility and the term B-3 extended loan facility) of 4.50 times cash flow.
Under the revolving credit facility, the term A-1 loan facility, the extended term A loan facility, the term B loan facility, the term B-2 extended loan facility, and the term B-3 extended loan facility, there are generally no restrictions on investments that the Restricted Group may make, provided it is not in default;
however, CSC Holdings must also remain in compliance with the maximum ratio of total indebtedness to cash flow and the maximum senior secured leverage ratio (each as defined in the term A-1 loan facility). CSC Holdings ability to make restricted payments is also limited by provisions in the term B loan facility, term B-2 extended loan facility, term B-3 extended loan facility, and the indentures covering CSC Holdings notes and debentures.
The Restricted Group was in compliance with all of its financial covenants under its various credit agreements as of June 30, 2010.
Cablevisions and CSC Holdings future access to the debt markets and the cost of any future debt issuances are also influenced by their credit ratings, which are provided by Moodys Investors Service and Standard & Poors. Key factors in the assessment of Cablevisions and CSC Holdings credit ratings include Cablevisions and CSC Holdings financial strength and flexibility, operating capabilities, management risk tolerance and ability to respond to changes in the competitive landscape. The corporate credit rating for Cablevision and CSC Holdings is Ba2 by Moodys with a positive outlook and BB by Standard & Poors with a stable outlook. Any future downgrade to the Cablevision and/or CSC Holdings credit ratings by either rating agency could increase the interest rate on future debt issuances and could adversely impact our ability to raise additional funds.
As of June 30, 2010, CSC Holdings was party to several interest rate swap contracts with an aggregate notional amount of $2,600,000 that effectively fixed borrowing rates on a portion of the Companys floating rate debt. Interest rate swap contracts with an aggregate notional amount of $1,100,000 matured in March 2010. These contracts are not designated as hedges for accounting purposes. As a result of the CSC Holdings interest rate swap transactions, the interest rate paid on approximately 81% of the Companys outstanding debt (excluding capital leases and collateralized indebtedness) is effectively fixed (58% being fixed rate obligations and 23% is effectively fixed through utilization of these interest rate swap contracts) as of June 30, 2010. The table below summarizes certain terms of these interest rate swap contracts as of June 30, 2010:
Maturity Date |
|
Notional Amount |
|
Weighted Average Fixed |
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
June 2012 |
|
$ |
2,600,000 |
|
4.86 |
% |
0.54 |
% |
* Represents the floating rate received by the Company under its interest rate swap contracts at June 30, 2010 and does not represent the rates to be received by the Company on future payments.
Rainbow and Rainbow National Services
RNS, an indirect wholly-owned subsidiary of the Company, owns the Companys AMC, WE tv and IFC programming operations. Sources of cash for RNS include primarily cash flow from the operations of the businesses in RNS and borrowings under its revolving credit facilities. RNS principal uses of cash include: the debt service of RNS and the net funding and investment requirements of other Rainbow programming entities including News 12 Networks, MSG Varsity and the net costs of VOOM HD. We currently expect that the net funding and investment requirements of RNS for the next 12 months including term loan repayments aggregating $37,500 will be met with one or more of the following: cash on hand, cash generated by operating activities and available borrowings under RNS bank credit facilities.
RNS has an $800,000 senior secured credit facility (the RNS Credit Facility), which consists of a $500,000 term A loan facility and a $300,000 revolving credit facility. The term A loan facility matures
June 30, 2013 and the revolving credit facility matures June 30, 2012. The RNS Credit Facility allows RNS to utilize up to $50,000 of the revolving credit facility for letters of credit and up to $5,000 for a swing loan. Further, the RNS Credit Facility provides for an incremental facility of up to $925,000, provided that it be for a minimum amount of $100,000. On June 3, 2008, RNS entered into an Incremental Revolver Supplement (Incremental Revolver) whereby RNS received commitments from lenders in the amount of $280,000. The interest rate under the Incremental Revolver is 2.0% over the Eurodollar rate for Eurodollar-based borrowings and 1.0% over the Base Rate for Base Rate borrowings (as defined in the Incremental Revolver). The Incremental Revolver matures on June 30, 2012 and the terms and conditions of the Incremental Revolver are no more restrictive than those of the RNS Credit Facility. Borrowings under the Incremental Revolver may be repaid without penalty at any time. There were no borrowings outstanding under the Incremental Revolver facility at June 30, 2010.
Outstanding borrowings under the term A loan facility and the original revolving credit facility were $437,500 and $100,000, respectively, at June 30, 2010. At June 30, 2010, the weighted average interest rate on both the term A loan facility and amounts drawn under the original revolving credit facility was 1.35%. As of June 30, 2010, $100,000 of the RNS revolving credit facility was drawn and RNS had $480,000 in total undrawn revolver commitments consisting of $200,000 under its original revolver and $280,000 under the Incremental Revolver, which undrawn amounts were available to be drawn to meet the net funding and investment requirements of RNS.
Borrowings under the RNS Credit Facility are direct obligations of RNS which are guaranteed jointly and severally by substantially all of its subsidiaries and by Rainbow Programming Holdings LLC (RPH), the direct parent of RNS, and are secured by the pledge of the stock of RNS and substantially all of its subsidiaries, and all of the other assets of RNS and substantially all of its subsidiaries (subject to certain limited exceptions). The term A loan requires quarterly repayments of $6,250 in 2010, $12,500 in 2011 and 2012, and $162,500 on March 31, 2013 and June 30, 2013, the maturity of the term A loan. Any amounts outstanding under the revolving credit facility are due at maturity on June 30, 2012.
The RNS Credit Facility contains various financial and other covenants. As defined in the RNS Credit Facility, the financial covenants consist of (i) a minimum ratio of operating cash flow to total interest expense for each quarter of 1.75 to 1, (ii) a maximum cash flow ratio of total indebtedness to operating cash flow of 6.25 to 1, and (iii) a maximum senior secured leverage ratio of senior secured debt to operating cash flow of 5.50 to 1. Additional covenants include restrictions on indebtedness, guarantees, liens, investments, dividends and distributions and transactions with affiliates.
RNS was in compliance with all of its financial covenants under its credit agreement as of June 30, 2010. In addition, RNS is also subject to covenants of the senior and senior subordinated notes it has issued, which are generally less restrictive than those contained in the credit agreement.
RNS future access to the debt markets and the cost of any future debt issuances are also influenced by its credit ratings, which are provided by Moodys Investors Service and Standard & Poors. Key factors in the assessment of RNS credit ratings include its free cash flow generating capacity, fiscal strategy, enterprise value and industry risk. The corporate credit rating for RNS is Ba2 by Moodys with a positive outlook and BB by Standard & Poors with a stable outlook. Any future downgrade to the RNS credit ratings by either rating agency could increase the interest rate on future debt issuances and could adversely impact its ability to raise additional funds.
Newsday LLC
We currently expect that net funding and investment requirements for Newsday LLC for the next 12 months will be met with one or more of the following: cash on hand, cash generated by operating activities, interest income from the Cablevision senior notes held by Newsday Holdings LLC, capital contributions and intercompany advances.
Newsday LLC has a $650,000 senior secured credit facility that is rated Ba3 with a positive outlook by Moodys and BB by Standard & Poors, and is comprised of two components: a $525,000 10.50% fixed rate term loan facility and a $125,000 floating rate term loan facility. The senior secured credit facility matures on August 1, 2013 and, subject to certain exceptions, requires mandatory prepayments out of the proceeds of certain sales of property or assets, insurance proceeds and debt and equity issuances. No mandatory prepayments are required prior to July 29, 2011, and the amount of prepayments thereafter are limited to $105,000 in the aggregate prior to July 29, 2012 and $140,000 in the aggregate prior to the maturity date. Optional prepayments are also permitted, subject to specified prepayment premiums. The interest rate on the floating rate term loan facility at June 30, 2010 was approximately 6.55%, representing the Eurodollar rate (as defined) plus 6.25%.
The principal financial covenant for the senior secured credit facility is a minimum liquidity test of $25,000, which is tested bi-annually on June 30 and December 31. The senior secured credit facility also contains other affirmative and negative covenants, subject to certain exceptions, including limitations on indebtedness (other than permitted senior indebtedness (as defined) not exceeding $50,000 and permitted subordinated indebtedness (as defined) to be used for investments not to exceed $100,000), investments (other than investments out of excess cash flow and out of the proceeds of the Cablevision senior notes in excess of the outstanding borrowings and out of a $40,000 basket), and dividends and other restricted payments (other than in respect of management and guarantee fees and restricted payments out of excess cash flow and out of the proceeds of the Cablevision senior notes in excess of the outstanding borrowings). Certain of the covenants applicable to CSC Holdings under the Newsday LLC senior secured credit facility are similar to the covenants applicable to CSC Holdings under its outstanding senior notes.
Newsday LLC was in compliance with all of its financial covenants under its credit agreement as of June 30, 2010.
Borrowings by Newsday LLC under its senior secured credit facility are guaranteed by Newsday Holdings LLC, NMG Holdings, Inc. and CSC Holdings on a senior unsecured basis and secured by a lien on the assets of Newsday LLC, and the Cablevision senior notes receivable held by Newsday Holdings LLC.
Rainbow Media Holdings
At December 31, 2009, Rainbow Media Holdings, an unrestricted indirect wholly-owned subsidiary of Cablevision had a $190,000 intercompany payable to Madison Square Garden in the form of a non-interest bearing advance. On January 28, 2010, the intercompany advance was replaced with a promissory note having a principal amount of $190,000, an interest rate of 3.25% and a maturity date of June 30, 2010. In March 2010, the $190,000 of indebtedness was repaid, including $914 of interest accrued from January 28, 2010 through the date of repayment, using proceeds from the Restricted Group revolving credit facility.
Monetization Contract Maturities
In April and June 2010 monetization contracts covering 2,732,184 and 2,668,875 shares, respectively, of our Comcast stock matured. We settled our obligations under the related Comcast collateralized indebtedness by delivering cash from the net proceeds of a new monetization transaction maturing in April and June 2012, respectively.
During the next 12 months, monetization contracts covering 10,738,809 shares of Comcast mature. The Company intends to either settle such transactions by delivering shares of the applicable stock and the related equity derivative contracts or by delivering cash from the net proceeds of new monetization transactions.
Managing our Interest Rate and Equity Price Risk
Interest Rate Risk
To manage interest rate risk, we have entered into various interest rate swap contracts to adjust the proportion of total debt that is subject to variable interest rates. Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising rates. We do not enter into interest rate swap contracts for speculative or trading purposes. We monitor the financial institutions that are counterparties to our interest rate swap contracts and we only enter into interest rate swap contracts with financial institutions that are rated investment grade. We diversify our swap contracts among various counterparties to mitigate exposure to any single financial institution.
Interest rate risk is primarily a result of exposures to changes in the level, slope and curvature of the yield curve, the volatility of interest rates and credit spreads.
All interest rate swap contracts are carried at their fair values on our condensed consolidated balance sheets, with changes in value reflected in our condensed consolidated statements of operations.
Equity Price Risk
We have entered into derivative contracts to hedge our equity price risk and monetize the value of our shares of common stock of Comcast Corporation. These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing us to retain upside appreciation from the hedge price per share to the relevant cap price. If any one of these contracts is terminated prior to its scheduled maturity date due to the occurrence of an event specified in the contract, we 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, 2010, we did not have an early termination shortfall relating to any of these contracts. The underlying stock and the equity collars are carried at fair value on our condensed consolidated balance sheets and the collateralized indebtedness is carried at its accreted value.
See Quantitative and Qualitative Disclosures About Market Risk for information on how we participate in changes in the market price of the stocks underlying these derivative contracts.
All of our monetization transactions are obligations of our wholly-owned subsidiaries that are not part of the Restricted Group; however, in certain of the Comcast transactions, CSC Holdings provided guarantees of the subsidiaries ongoing contract payment expense obligations and potential payments that could be due as a result of an early termination event (as defined in the agreements). The guarantee exposure approximates the net sum of the fair value of the collateralized indebtedness less the sum of the fair
values of the underlying stock and the equity collar. All of our equity derivative contracts are carried at their current fair value on our consolidated balance sheets with changes in value reflected in our consolidated statements of operations, and all of the counterparties to such transactions currently carry investment grade credit ratings.
Other Events
MSG Distribution
On February 9, 2010, Cablevision completed the MSG Distribution, which took the form of a distribution by Cablevision of one share of Madison Square Garden Class A Common Stock for every four shares of CNYG Class A Common Stock held of record on the Record Date and one share of Madison Square Garden Class B Common Stock for every four shares of CNYG Class B Common Stock held of record on the Record Date. On January 12, 2010, the Company transferred to Madison Square Garden the Companys subsidiaries which owned directly or indirectly, all of the partnership interests in Madison Square Garden, L.P. As a result of the MSG Distribution, on February 9, 2010, the Company no longer consolidates the financial results of Madison Square Garden for the purpose of its own financial reporting and the historical financial results of Madison Square Garden have been reflected in the Companys consolidated financial statements as discontinued operations for all periods presented through the MSG Distribution date.
Dividends
On February 24, 2010 and May 5, 2010, the Board of Directors of Cablevision declared a cash dividend of $0.10 and $0.125 per share payable on March 29, 2010 and June 7, 2010 to stockholders of record on both its CNYG Class A common stock and CNYG Class B common stock as of March 8, 2010 and May 17, 2010, respectively.
During the six months ended June 30, 2010, CSC Holdings paid cash dividends to Cablevision aggregating $124,011. The proceeds were used to fund (i) Cablevisions dividends paid on March 29, 2010; (ii) Cablevisions interest payments on certain of its senior notes; and (iii) Cablevisions payments of payroll related taxes upon the vesting of certain restricted shares.
On August 4, 2010, the Board of Directors of Cablevision declared a cash dividend of $0.125 per share payable on September 7, 2010 to stockholders of record as of August 16, 2010 on both its CNYG Class A common stock and Class B common stock.
Acquisition of Bresnan Cable
In June 2010, BBHI Holdings LLC (Holdings Sub), BBHI Acquisition LLC (Acquisition Sub) and CSC Holdings, each of which is a wholly-owned subsidiary of Cablevision, entered into an Agreement and Plan of Merger (the Merger Agreement) with Bresnan Broadband Holdings, LLC (Bresnan Cable) and Providence Equity Bresnan Cable LLC. Pursuant to the Merger Agreement, Holdings Sub has agreed to acquire Bresnan Cable and its subsidiaries (collectively, Bresnan), on the terms and subject to the conditions set forth in the Merger Agreement. Pursuant to the Merger Agreement, Acquisition Sub will merge with Bresnan Cable (the Merger), with Bresnan Cable being the surviving entity and becoming a direct wholly-owned subsidiary of Holdings Sub and an indirect wholly-owned subsidiary of Cablevision and CSC Holdings. Holdings Sub will pay a cash purchase price for Bresnan of $1,365,000, subject to a working capital adjustment and certain other potential reductions as set forth in the Merger Agreement. For income tax purposes, the Merger will be treated as an asset acquisition with a
full step-up in tax basis. Substantially all of the funded indebtedness of Bresnan Cable shall be paid from the sale proceeds at closing, with any remaining amounts counting as a reduction to the purchase price.
The closing of the transactions contemplated by the Merger Agreement is subject to various customary closing conditions, including antitrust clearance and receipt of FCC approvals and franchise approvals covering not less than 80% of Bresnan Cables basic subscribers as of the date of the Merger Agreement.
Subject to certain conditions, the Merger Agreement can be terminated by either Holdings Sub or Bresnan Cable if the closing shall not have occurred by December 13, 2010 (the End Date), provided that if the conditions relating to antitrust clearance, FCC approvals or franchise approvals have not been satisfied by such date, or if such conditions have been satisfied but the marketing period has not yet ended as of such date, either party can extend the End Date to March 13, 2011. In addition, if on March 13, 2011, the conditions relating to FCC approval or antitrust approvals are not satisfied, Holdings Sub can extend the End Date to June 13, 2011. As of the date hereof, the condition relating to antitrust clearance has been satisfied.
CSC Holdings, the direct parent of Holdings Sub, has agreed to pay a termination fee of $50,000 (the Termination Fee) if the closing does not occur solely due to (i) a termination of the Merger Agreement by Bresnan Cable as a result of a material breach by Holdings Sub or (ii) the failure to receive antitrust clearance or FCC approval (subject to the right of the parties to extend the End Date to March 13, 2011 as described above). In addition, if Holdings Sub exercises its right to extend the End Date beyond March 13, 2011, the Termination Fee will be payable by CSC Holdings if the closing does not occur by such date. CSC Holdings has provided to Holdings Sub a commitment to pay $380,000 for equity securities of Holdings Sub, subject to the satisfaction of all closing conditions and funding of the debt financing. The amount of the equity commitment is subject to increase upon any decrease in the amount of the cash proceeds to be received under the debt commitment letter (discussed below) due to the exercise of the market flex provisions applicable thereto. Except as described in this paragraph, neither Cablevision nor any of its subsidiaries other than Holdings Sub or Acquisition Sub have any obligations under the Merger Agreement or with respect to the transactions contemplated thereby.
Holdings Sub entered into the Debt Commitment Letter with Bank of America, N.A., Citigroup Global Markets Inc., Barclays Bank PLC, Credit Suisse Securities LLC and UBS Securities LLC and certain of its affiliates, pursuant to which the lenders have committed to provide Holdings Sub with an aggregate of $1,090,000 of debt financing. Neither Cablevision nor any of its subsidiaries other than Holdings Sub, Acquisition Sub and, after the Closing, Bresnan will have any payment obligations or liability with respect to the debt issued in the debt financing. In addition to certain other conditions, the funding of the debt financing is contingent on the closing of the Merger and the prior or simultaneous funding of CSC Holdings equity commitment. The debt financing is also subject to certain market flex provisions that could decrease the amount of cash proceeds received by Holdings Sub under certain circumstances. The funding of the debt financing is not a condition to the Merger or to the obligations of Holdings Sub or Acquisition Sub under the Merger Agreement.
The closing of the transaction is expected to occur during late 2010 or in the first quarter of 2011. However, there can be no assurances that the conditions to closing set forth in the Merger Agreement will be satisfied or waived or that the closing will occur.
Common Stock Repurchase
In June 2010, the Companys Board of Directors authorized the repurchase of up to $500,000 of CNYG Class A common stock. Under the repurchase program, shares of CNYG Class A common stock may be purchased from time to time in the open market. Size and timing of these purchases will be determined
based on market conditions and other factors. Through June 30, 2010, the Company repurchased an aggregate of 1,077,600 shares for a total cost of $27,180. These acquired shares have been classified as treasury stock in the Companys condensed consolidated balance sheet.
Recently Issued Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 outlines certain new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in ASC Topic 820-10. ASU No. 2010-06 amends ASC Topic 820-10 to now require that (a) a reporting entity disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and (b) in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements. In addition, ASU No. 2010-06 clarifies existing disclosures on (a) how a reporting entity should provide fair value measurement disclosures for each class of assets and liabilities, and (b) how a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. ASU No. 2010-06 became effective for the Company in 2010, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. These disclosures will be effective for the Company in the first quarter of 2011. Early adoption is permitted. The Company will provide the required disclosures pursuant to the guidance under ASU No. 2010-06 when applicable.
In October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, which provides amendments that (a) update the criteria for separating consideration in multiple-deliverable arrangements, (b) establish a selling price hierarchy for determining the selling price of a deliverable, and (c) replace the term fair value in the revenue allocation guidance with the term selling price to clarify that the allocation of revenue is based on entity-specific assumptions. ASU No. 2009-13 eliminates the residual method of allocating arrangement consideration to deliverables, requires the use of the relative selling price method and requires that a vendor determine its best estimate of selling price in a manner consistent with that used to determine the price to sell the deliverable on a standalone basis. ASU No. 2009-13 requires a vendor to significantly expand the disclosures related to multiple-deliverable revenue arrangements with the objective to provide information about the significant judgments made and changes to those judgments and how the application of the relative selling-price method affects the timing or amount of revenue recognition. ASU No. 2009-13 is required to be adopted by the Company on a prospective basis to revenue arrangements entered into or materially modified on or after January 1, 2011. Early adoption is permitted. The Company has not yet determined the impact that the adoption of ASU No. 2009-13 will have on its financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
All dollar amounts, except per subscriber, per unit and per share data, included in the following discussion under this Item 3 are presented in thousands.
Equity Price Risk
The Company is exposed to market risks from changes in certain equity security prices. Our exposure to changes in equity security prices stems primarily from the shares of Comcast Corporation common stock held by us. We have entered into equity derivative contracts consisting of a collateralized loan and an equity collar to hedge our equity price risk and to monetize the value of these securities. These contracts,
at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing us to retain upside appreciation from the hedge price per share to the relevant cap price. The contracts actual hedge prices per share vary depending on average stock prices in effect at the time the contracts were executed. The contracts actual cap prices vary depending on the maturity and terms of each contract, among other factors. If any one of these contracts is terminated prior to its scheduled maturity date due to the occurrence of an event specified in the contract, we 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, 2010, we did not have an early termination shortfall relating to any of these contracts.
The underlying stock and the equity collars are carried at fair value on our consolidated balance sheets and the collateralized indebtedness is carried at its accreted value. The carrying value of our collateralized indebtedness amounted to $360,086 at June 30, 2010. At maturity, the contracts provide for the option to deliver cash or shares of Comcast common stock, with a value determined by reference to the applicable stock price at maturity.
As of June 30, 2010, the fair value and the carrying value of our holdings of Comcast common stock aggregated $373,066. Assuming a 10% change in price, the potential change in the fair value of these investments would be approximately $37,307. As of June 30, 2010, the net fair value and the carrying value of the equity collar component of the equity derivative contracts entered into to partially hedge the equity price risk of our holdings of Comcast common stock aggregated $17,484 a net receivable position. For the six months ended June 30, 2010, we recorded a net loss on our outstanding equity derivative contracts of $2,741 and recorded unrealized and realized gains of $10,953 on our holdings of Comcast common stock that we held during the period.
Fair Value of Equity Derivative Contracts
Fair value as of December 31, 2009, net receivable position |
|
$ |
35,970 |
|
Change in fair value, net |
|
(2,741 |
) |
|
Settlement of contracts |
|
(15,745 |
) |
|
Fair value as of June 30, 2010, net receivable position |
|
$ |
17,484 |
|
The maturity, number of shares deliverable at the relevant maturity, hedge price per share, and the lowest and highest cap prices received for each security monetized via an equity derivative prepaid forward contract as of June 30, 2010 are summarized in the following table:
|
|
# of Shares |
|
|
|
Hedge Price |
|
Cap Price(b) |
|
||||
Security |
|
Deliverable |
|
Maturity |
|
per Share(a) |
|
Low |
|
High |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
Comcast: |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
2,668,875 |
|
2010 |
|
$21.65 |
|
$ |
32.48 |
|
$ |
32.48 |
|
|
|
13,407,684 |
|
2011 |
|
$13.16 - $17.45 |
|
$ |
15.79 |
|
$ |
22.68 |
|
|
|
5,401,059 |
|
2012 |
|
$17.57 - $18.65 |
|
$ |
21.09 |
|
$ |
22.38 |
|
(a) Represents the price below which we are provided with downside protection and above which we retain upside appreciation. Also represents the price used in determining the cash proceeds payable to us at inception of the contracts.
(b) Represents the price up to which we receive the benefit of stock price appreciation.
Fair Value of Debt: Based on the level of interest rates prevailing at June 30, 2010, the fair value of our fixed rate debt of $7,100,099 was more than its carrying value of $6,817,007 by $283,092. The fair value of these financial instruments is estimated based on reference to quoted market prices for these or comparable securities. Our floating rate borrowings bear interest in reference to current LIBOR-based
market rates and thus their carrying values approximate fair value. The effect of a hypothetical 100 basis point decrease in interest rates prevailing at June 30, 2010 would increase the estimated fair value of our fixed rate debt by $297,987 to $7,398,086. This estimate is based on the assumption of an immediate and parallel shift in interest rates across all maturities.
Interest Rate Swap Contracts: Our exposure to interest rate movements results from our use of floating and fixed rate debt to fund the approximately $3 billion special dividend paid in 2006, our working capital, capital expenditures, and other operational and investment requirements. To manage interest rate risk, from time to time we have entered into interest rate swap contracts to adjust the proportion of total debt that is subject to variable and fixed interest rates. Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising rates and/or effectively convert fixed rate borrowings to variable rates to permit the Company to realize lower interest expense in a declining interest rate environment. We do not enter into interest rate swap contracts for speculative or trading purposes. The Company monitors the financial institutions that are counterparties to our interest rate swap contracts and we only enter into interest rate swap contracts with financial institutions that are rated investment grade. We diversify our swap contracts among various counterparties to mitigate exposure to any single financial institution. All such contracts are carried at their fair values on our condensed consolidated balance sheets, with changes in fair value reflected in our condensed consolidated statements of operations.
As of June 30, 2010, CSC Holdings was party to several interest rate swap contracts with an aggregate notional amount of $2,600,000 that effectively fixed borrowing rates on a portion of the Companys floating rate debt. Interest rate swap contracts with an aggregate notional amount of $1,100,000 matured in March 2010. As of June 30, 2010, our outstanding interest rate swap contracts had a fair value and carrying value of $198,504 a net liability position, as reflected under derivative contracts in our consolidated balance sheet. Assuming an immediate and parallel shift in interest rates across the yield curve, a 50 basis point decrease in interest rates prevailing at June 30, 2010 would increase our liability under these derivative contracts by approximately $23,064 to a liability of $221,568.
For the six months ended June 30, 2010, we recorded a net loss on interest rate swap contracts of $56,880, as detailed in the table below:
Fair Value of Interest Rate Swap Contracts
Fair value as of December 31, 2009, a net liability position |
|
$ |
(211,462 |
) |
Cash payments, net |
|
69,838 |
|
|
Change in fair value, net |
|
(56,880 |
) |
|
Fair value as of June 30, 2010, a net liability position |
|
$ |
(198,504 |
) |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of Cablevisions management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined under Securities and Exchange Commission rules). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of June 30, 2010.
Changes in Internal Control
During the six months ended June 30, 2010, there were no changes in the Companys internal control over financial reporting that materially affected or are reasonably likely to materially affect the Companys internal control over financial reporting.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
(a) |
|
(b) |
|
(c) |
|
(d) |
|
||
|
|
|
|
|
|
|
|
|
|
||
June 1 - 30, 2010 |
|
1,077,600 |
|
$ |
25.21 |
|
1,077,600 |
|
$ |
472,830,349 |
|
(1) |
On June 14, 2010, the Companys Board of Directors authorized the repurchase of up to $500 million of CNYG Class A common stock. Under the repurchase program, shares of CNYG Class A common stock may be purchased from time to time in the open market. The program does not have an expiration date and may be suspended at any time at the discretion of the Board of Directors. |
(2) |
Excludes brokerage commissions paid by the Company. |
The table above does not include any shares received in connection with participant forfeitures of awards pursuant to the Companys employee stock plan.
(a) Index to Exhibits.
|
31.1 |
Section 302 Certification of the CEO |
|
|
|
|
31.2 |
Section 302 Certification of the CFO |
|
|
|
|
32 |
Section 906 Certifications of the CEO and CFO |
|
|
|
|
101 |
The following financial statements from Cablevision Systems Corporations and CSC Holdings LLCs Quarterly Report on Form 10-Q for the six months ended June 30, 2010, filed with the Securities and Exchange Commission on August 5, 2010, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Cash Flows; and (iv) the Combined Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
|
|
|
CABLEVISION SYSTEMS CORPORATION |
|
|
|
|
CSC HOLDINGS, LLC |
|
|
|
|
|
|
|
|
|
|
|
Date: |
August 5, 2010 |
|
|
/s/ Michael P. Huseby |
|
|
|
By: |
Michael P. Huseby as Executive Vice President and Chief Financial Officer of Cablevision Systems Corporation and CSC Holdings, LLC. |