CSC HOLDINGS INC - 10-Q Quarterly Report

Back to GetFilings.com

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 September 30, 2002

OR

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

For the transition period from ___________ to ___________

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

Cablevision Systems Corporation Yes /X/ No / /

CSC Holdings, Inc. Yes /X/ No / /

Number of shares of common stock outstanding as of November 1, 2002:

Cablevision NY Group Class A Common Stock - 234,682,716
Cablevision NY Group Class B Common Stock - 67,242,427
CSC Holdings, Inc. Common Stock - 5,000,000

PART I. FINANCIAL INFORMATION

For information required by Item 1 and Item 2, refer to Index to Financial
Statements on page 9.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks from changes in certain equity security
prices and interest rates. The Company's exposure to interest rate movements
results from its use of floating and fixed rate debt to fund its working
capital, capital expenditures, and other operational and investment
requirements. 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 fix the borrowing
rates on floating rate debt to provide an economic hedge against the risk of
rising rates and/or convert fixed rate borrowings to variable rates to provide
an economic hedge against the risk of higher borrowing costs in a declining
interest rate environment. In addition, from time to time the Company may
utilize short-term interest rate lock agreements to hedge the risk that the cost
of a future issuance of fixed rate debt may be adversely affected by changes in
interest rates. The Company does not enter into interest rate swap contracts for
speculative or trading purposes.

The Company's exposure to changes in equity security prices stems primarily from
the AT&T Corp., Charter Communications, Inc., AT&T Wireless Services, Inc., and
Adelphia Communications Corporation common stock held by the Company. The
Company has entered into prepaid forward contracts to hedge its equity price
risk and to monetize the value of these securities. These contracts, at
maturity, are expected to offset negative changes in the fair value of these
securities, while allowing for certain upside appreciation potential. In the
event of an early termination of such contracts, however, the Company would be
obligated to repay the monetization indebtedness less the sum of the fair value
of the underlying stock and the fair value of the equity collar, calculated at
the termination date. The underlying stock and equity collars are carried at
fair market value on the Company's consolidated balance sheet and the
monetization indebtedness is carried at its accreted value.

FAIR VALUE OF DEBT: Based on the level of interest rates prevailing at September
30, 2002, the carrying value of the Company's fixed rate debt and redeemable
preferred stock of $6,001.4 million exceeded its fair value of $4,635.0 million
by approximately $1,366.4 million. The fair value of these financial instruments
is estimated based on reference to quoted market prices for these or comparable
securities. The Company's floating rate borrowings bear interest at current
market rates and thus approximate fair value. The effect of a hypothetical 100
basis point decrease in interest rates prevailing at September 30, 2002 would
increase the estimated fair value of fixed rate debt and redeemable preferred
stock instruments by approximately $249.0 million. This estimate is based on the
assumption of an immediate and parallel shift in interest rates across all
maturities. Changes in the fair value of these securities are expected to be
offset economically by changes in the fair value of the interest rate swap
contracts to the extent these securities are hedged.

2

INTEREST RATE DERIVATIVE CONTRACTS: As of September 30, 2002, the Company had
outstanding interest rate swap contracts to convert fixed rate debt to floating
rate debt covering a total notional principal amount of $600.0 million. As of
September 30, 2002, the fair market value of these interest rate swap contracts
was approximately $14.4 million, a net receivable position, as reflected under
derivative contracts in the Company's consolidated balance sheet. Assuming an
immediate and parallel shift in interest rates across the yield curve, a 100
basis point increase in interest rates from September 30, 2002 prevailing levels
would decrease the fair market value of these contracts by approximately $5.6
million to a net receivable position of $8.8 million.

In addition, the Company had outstanding prepaid interest rate swap contracts
with a notional value of $1,115.0 million entered into in connection with its
monetization transactions. As of September 30, 2002, such contracts had a fair
market value of $119.7 million, a net liability position, reflected as
liabilities under derivative contracts in the Company's consolidated balance
sheet. Assuming an immediate and parallel shift in interest rates across the
yield curve, a 100 basis point increase in interest rates from September 30,
2002 prevailing levels would decrease the fair market value of these contracts
by approximately $34.0 million to a liability of $153.7 million.

EQUITY PRICE RISK: As of September 30, 2002, the fair market value and the
carrying value of the Company's holdings of AT&T, Charter Communications, AT&T
Wireless and Adelphia Communications common stock aggregated $611.0 million.
Assuming a 10% change in price, the potential change in the fair value of these
investments would be approximately $61.1 million. As of September 30, 2002, the
net fair value and the carrying value of the equity collar component of the
prepaid forward contracts entered into to hedge the equity price risk of AT&T,
Charter Communications, AT&T Wireless and Adelphia Communications aggregated
$729.9 million, a net receivable position. The maturities of these prepaid
forward contracts, all of which were entered into in 2001, are summarized in the
following table:

Item 4. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of Cablevision's
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. No significant changes were made in our internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.

3

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

We are party to various lawsuits, some involving substantial amounts. Management
does not believe that the resolution of such lawsuits will have a material
adverse impact on our financial position.

On April 25, 2001, At Home Corporation commenced a lawsuit in the Court of
Chancery of the State of Delaware alleging that Cablevision had breached its
obligations under certain agreements with At Home. The suit seeks a variety of
remedies including: recision of the agreements between At Home and Cablevision
and cancellation of all warrants currently held by Cablevision, damages, and/or
an order prohibiting Cablevision from continuing to offer its Optimum Online
service and requiring it to convert its Optimum Online customers to the
Optimum@Home service and to roll out the Optimum@Home service. Cablevision has
filed an answer to the complaint denying the material allegations and asserting
various affirmative defenses. On September 28, 2001, At Home filed a petition
for reorganization in federal bankruptcy court. In connection with the
liquidation of the At Home Corporation, the claims in this lawsuit, among
others, were assigned to the General Unsecured Creditors Committee, which has
until December 31, 2002 to decide whether to seek the removal of these claims to
the federal bankruptcy court.

On January 8, 2002, At Home terminated its At Home service to all of
Cablevision's Optimum@Home subscribers. In a letter dated January 9, 2002,
Cablevision advised At Home that such termination of service constituted an
election by At Home to terminate the existing master distribution agreement
entered into by and between Cablevision and At Home and all other related
agreements.

On April 29, 2002, Yankees Entertainment & Sports Network, LLC (the "YES
Network") filed a complaint and, on September 24, 2002, an amended complaint
against the Company in the United States District Court, Southern District of
New York. The lawsuit arises from the failure of the YES Network and the Company
to reach agreement on the carriage of programming of the YES Network (primarily
New York Yankees baseball games and New Jersey Nets basketball games) on the
Company's cable television systems. The amended complaint alleges a variety of
anticompetitive acts and seeks declaratory judgments as to violations of laws,
treble damages and injunctive relief, including an injunction requiring the
Company to carry the YES Network on its cable television systems. The Company
believes that the claims set forth in the complaint are without merit and
intends to contest vigorously the lawsuit.

In August 2002, purported class actions naming as defendants the Company and
each of its directors were filed in the Delaware Chancery Court. The actions,
which allege breach of fiduciary duties and breach of contract with respect to
the exchange of the Rainbow Media Group tracking stock for Cablevision NY Group
common stock, were purportedly brought on behalf of all holders of publicly
traded shares of Rainbow Media Group tracking stock. The actions seek to (i)
enjoin the exchange of Rainbow Media Group tracking stock for Cablevision NY
Group common stock, (ii) enjoin any sales of "Rainbow Media Group assets", or,
in the alternative, award rescissory damages, (iii) if the exchange is
completed, rescind it or award rescissory damages, (iv) award compensatory
damages, and (v) award costs and disbursements. The actions were consolidated
into one action on September 17, 2002, and on October 3, 2002,

4

the Company filed a motion to dismiss the consolidated action. The Company
believes the claims are without merit and intends to contest vigorously the
lawsuit.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

None.

(b) Reports on Form 8-K.

Cablevision Systems Corporation filed a Current Report on Form 8-K with
the Commission on August 14, 2002.

CSC Holdings, Inc. has not filed any Current Reports on Form 8-K with
the Commission during the quarter for which this report is filed.

5

SIGNATURES

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, INC

Date: November 14, 2002 /s/ William J. Bell
------------------------------------
By: William J. Bell as Vice Chairman,
Director and Principal Financial
Officer of Cablevision Systems
Corporation and CSC Holdings, Inc.

Date: November 14, 2002 By: /s/ Andrew B. Rosengard
------------------------------------
Andrew B. Rosengard as
Executive Vice President, Finance
and Principal Accounting Officer
of Cablevision Systems Corporation
and CSC Holdings, Inc.

6

I, James L. Dolan, President and Chief Executive Officer of Cablevision Systems
Corporation ("Cablevision"), certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cablevision;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Cablevision as of, and for, the periods presented in this quarterly report;

4. Cablevision's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for Cablevision and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to Cablevision, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of Cablevision's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. Cablevision's other certifying officers and I have disclosed, based on our
most recent evaluation, to Cablevision's auditors and the audit committee of
Cablevision's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Cablevision's ability to record,
process, summarize and report financial data and have identified for
Cablevision's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Cablevision's internal controls; and

6. Cablevision's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 By: /s/ James L. Dolan
----------------------------------
James L. Dolan
President and Chief Executive Officer

7

I, William J. Bell, Vice Chairman of Cablevision Systems Corporation
("Cablevision"), certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cablevision;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of
Cablevision as of, and for, the periods presented in this quarterly report;

4. Cablevision's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for Cablevision and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to Cablevision, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of Cablevision's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. Cablevision's other certifying officers and I have disclosed, based on our
most recent evaluation, to Cablevision's auditors and the audit committee of
Cablevision's board of directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect Cablevision's ability to record,
process, summarize and report financial data and have identified for
Cablevision's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in Cablevision's internal controls; and

6. Cablevision's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002 By: /s/ William J. Bell
------------------------------
William J. Bell
Vice Chairman

8

INDEX TO FINANCIAL STATEMENTS

9

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

See accompanying notes to
condensed consolidated financial statements.

I-1

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(continued)

See accompanying notes
to condensed consolidated financial statements.

I-2

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)

See accompanying notes to
condensed consolidated financial statements.

I-3

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002 and 2001
(Dollars in thousands)
(Unaudited)

See accompanying notes to
condensed consolidated financial statements.

I-4

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Cablevision Systems Corporation and its majority owned subsidiaries (the
"Company" or "Cablevision") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.

NOTE 2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS

The financial statements as of and for the three and nine months ended September
30, 2002 and 2001 presented in this Form 10-Q are unaudited; however, in the
opinion of management, such statements include all adjustments, consisting
solely of normal recurring adjustments, necessary for a fair presentation of the
results for the periods presented.

The interim financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
and CSC Holdings, Inc.'s Annual Report on Form 10-K for the year ended December
31, 2001.

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, 2002.

NOTE 3. RECLASSIFICATIONS

Certain reclassifications have been made to the 2001 financial statements to
conform to the 2002 presentation.

NOTE 4. INCOME (LOSS) PER SHARE

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

Basic net income per share is computed by dividing net income by the weighted
average common stock outstanding during the period. Diluted net income per share
is computed by dividing net income by the total of the weighted average common
stock and common stock equivalents outstanding during the period.

All per share amounts have been adjusted, for all years presented, to reflect
the tracking stock distribution in March 2001 and the subsequent exchange of
each share of Rainbow Media Group ("RMG") tracking stock for 1.19093 shares of
Cablevision NY Group ("CNYG") common stock on August 20, 2002, as if each
occurred on January 1, 2001.

I-5

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

NOTE 5. CASH FLOWS

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

During the nine months ended September 30, 2002 and 2001, the Company's non-cash
investing and financing activities and other supplemental data were as follows:

NOTE 6. EXCHANGE OF RAINBOW MEDIA GROUP COMMON STOCK

In August 2002, Cablevision's board of directors approved the exchange of
Rainbow Media Group common stock for shares of Cablevision NY Group common stock
pursuant to the terms of Cablevision's certificate of incorporation. Each share
of Rainbow Media Group common stock was exchanged for 1.19093 shares of
Cablevision NY Group common stock on August 20, 2002. Fractional shares were
paid in cash. From and after the date of the exchange, all rights of holders of
shares of Rainbow Media Group common stock ceased except for the right, upon
surrender of the certificates representing their shares of Rainbow Media Group
common stock, to receive the shares of Cablevision NY Group common stock for
which their shares of Rainbow Media Group common stock were exchanged, together
with any fractional payment as provided above, without interest.

NOTE 7. NET ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

In connection with the 2002 restructuring discussed in Note 14, the Company
plans to sell its motion picture theater business. The assets and liabilities
attributable to the motion picture theater business have been classified in the
consolidated balance sheets as assets and liabilities held for sale and consist
of the following:

I-6

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

The operations of the motion picture theater business, including a net reversal
of previously recorded restructuring charges of $1,877, have been classified as
discontinued operations, net of taxes, in the consolidated statements of
operations for all periods presented.

In addition, the results of operations of the retail electronics stores
closed or to be closed in the fourth quarter of 2002, including restructuring
charges of $9,479 and the write-off of certain fixed assets of $24,452, have
been reported in discontinued operations, net of taxes in the consolidated
statements of operations for all periods presented.

Operating results of discontinued operations are summarized as follows:

I-7

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

NOTE 8. TRANSACTIONS

In March 2002, Rainbow Media Holdings, Inc., a subsidiary of the Company,
acquired Loral Space and Communications, Ltd.'s 50% interest in R/L DBS Company,
LLC for a purchase price of up to a present value of $33,000 payable only from a
percentage of future revenues of R/L DBS' business, if any, or from any future
sale of all or part of the interests in or assets of R/L DBS. This purchase
increased Rainbow Media Holdings' ownership of R/L DBS to 100%. R/L DBS's
results are consolidated with those of the Company as of the date of
acquisition.

Through June 30, 2002, NBC-Rainbow Holding, Inc. had exchanged a 5.0% interest
in Rainbow Media Holdings equity securities for 9,968,988 shares of Rainbow
Media Group Class A common stock of Cablevision (valued at $98,514). The Rainbow
Media Group common stock was exchanged for 11,872,367 shares of Cablevision NY
Group Class A common stock on August 20, 2002. In September 2002, NBC exchanged
a 0.7% interest in Rainbow Media Holdings equity securities for 1,647,266 shares
of Cablevision NY Group Class A common stock of Cablevision (valued at $16,374).
The acquisitions of the 5.7% and the 3.1% minority interest in 2002 and 2001,
respectively, were accounted for as purchases. The excess of the purchase price
over the net book value of assets acquired of approximately $149,060 was
allocated to the specific assets acquired, in 2002, based upon an independent
appraisal as follows:

NOTE 9. RECENTLY ADOPTED ACCOUNTING STANDARDS

Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Statement 142 requires
that goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually in accordance
with the provisions of Statement 142. Statement 142 requires that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment. In
connection with the adoption of Statement 142, the Company ceased the
amortization of goodwill and intangible assets that were determined to have an
indefinite useful life and that had been acquired in a purchase business
combination. The Company did not record any impairment charges in connection
with the implementation of Statement 142.

I-8

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

Summarized below is pro forma net income and basic and diluted earnings per
share for the three and nine months ended September 30, 2001 as adjusted for
amortization expense that is no longer recorded in accordance with Statement
142.

Effective January 1, 2002, the Company adopted Statement No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which supersedes both
Statement 121 and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions (Opinion 30), for the disposal of a segment
of a business (as previously defined in that Opinion). Statement 144 retains
the fundamental provisions of Statement 121 for recognizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to
be disposed of by sale, while also resolving significant implementation
issues associated with Statement 121. Statement 144 retains the basic
provisions of Opinion 30 on how to present discontinued operations in the
income statement but broadens that presentation to include a component of an
entity (rather than a segment of a business). The provisions of Statement 144
have been applied to the planned sale of the Company's theater business and
the closing of certain retail electronics stores.

Effective January 1, 2002, the Company adopted the provisions of the FASB's
Emerging Issues Task Force, EITF No. 01-09, "Accounting for the Consideration
Given by a Vendor to a Customer or a Reseller of the Vendors' Products." EITF
No. 01-09 stipulates the criteria to be met in determining the financial
statement classification of customer incentives (which includes deferred
carriage fees) as either a reduction of revenue or an operating expense. Upon
adoption, the Company reclassified the amortization of its deferred carriage
fees as a reduction to

I-9

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

revenues, net. This reclassification has been made for the comparable 2001
periods. The amortization of the deferred carriage fees shown on the balance
sheet was previously included in operating expenses, which were correspondingly
reduced.

In April 2002, the FASB issued Statement 145, Rescission of Statements No. 4, 44
and 64, Amendment of Statement No. 13, and Technical Corrections. Statement 145,
among other things, rescinds Statement 4, which required all gain and losses
from the extinguishment of debt to be classified as an extraordinary item and
amends Statement 13 to require that certain lease modifications that have
economic effects similar to sale-leaseback transactions to be accounted for in
the same manner as sale-leaseback transactions. The Company adopted Statement
145 effective July 1, 2002. The adoption of this statement had no impact on the
Company's consolidated financial statements.

In June 2002, Statement 146, Accounting for Costs Associated with Exit or
Disposal Activities, was issued. This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. The provisions of this
Statement are required to be adopted for all exit and disposal activities
initiated after December 31, 2002.

NOTE 10. INTANGIBLE ASSETS

The following table summarizes information relating to the Company's acquired
intangible assets at September 30, 2002.

GROSS CARRYING AMOUNT OF
AMORTIZED INTANGIBLE ASSETS
Franchises...................................................................................... $ 1,706
Affiliation agreements.......................................................................... 350,863
Broadcast rights................................................................................ 102,154
Player contracts................................................................................ 42,926
Other intangibles............................................................................... 195,868
-------------
693,517
-------------

ACCUMULATED AMORTIZATION
Franchises...................................................................................... 1,138
Affiliation agreements.......................................................................... 184,828
Broadcast rights................................................................................ 50,343
Player contracts................................................................................ 35,949
Other intangibles............................................................................... 37,196
-------------
309,454
-------------

UNAMORTIZED INTANGIBLE ASSETS
Franchises...................................................................................... 731,848
Excess costs over the fair value of net assets acquired......................................... 1,353,476
-------------
2,085,324
-------------

Total intangibles............................................................................. $ 2,469,387
=============

I-10

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

AGGREGATE AMORTIZATION EXPENSE
Nine months ended September 30, 2002............................................................ $ 40,388

ESTIMATED AMORTIZATION EXPENSE
Year ending December 31, 2002................................................................... 54,244
Year ending December 31, 2003................................................................... 53,785
Year ending December 31, 2004................................................................... 42,464
Year ending December 31, 2005................................................................... 29,937
Year ending December 31, 2006................................................................... 26,374

The changes in the carrying amount of excess costs over the fair value of net
assets acquired for the nine months ended September 30, 2002 are as follows:

NOTE 11. DEBT

In March 2002, Rainbow Media Group, LLC, a wholly owned subsidiary of Rainbow
Media Holdings, entered into a $400,000 revolving credit facility with a group
of banks which matures on December 31, 2006 (in certain limited circumstances
the maturity date may be accelerated to November 1, 2005). The facility requires
commitment reductions beginning in the third quarter of 2004. This revolving
credit facility contains certain financial covenants that may limit Rainbow
Media Group's ability to utilize all of the undrawn funds available thereunder,
including covenants requiring the maintenance of certain financial ratios and
restricting the permitted uses of borrowed funds. See Note 18.

In March 2002, American Movie Classics Company and Bravo Company, subsidiaries
of Rainbow Media Holdings, entered into a $200,000 revolving credit facility
with a group of banks. The facility matures on December 31, 2006 (in certain
limited circumstances the maturity date may be accelerated to November 1, 2005)
and requires commitment reductions beginning in the third quarter of 2004. The
facility amended and restated the previously existing American Movie Classics
$200,000 revolving credit facility. The American Movie Classics/Bravo revolving
credit facility contains certain financial covenants that may limit the ability
of American Movie Classics/Bravo to utilize all of the undrawn funds available
thereunder, including covenants requiring the maintenance of certain financial
ratios and restricting the permitted uses of borrowed funds. See Note 18.

I-11

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

NOTE 12. COLLATERALIZED INDEBTEDNESS AND DERIVATIVE CONTRACTS

In May 2002, due to certain events relating to Adelphia Communications
Corporation, the Company received early termination notices from its bank
counterparties pursuant to certain monetization contracts covering 9.79 million
shares of Adelphia Communications common stock. As a result, the Company was
required to repay the related collateralized indebtedness prior to maturity, net
of the benefit of the related prepaid equity forward contracts in a significant
gain position. The Company made cash payments aggregating $54,813, representing
the difference between the redemption value of the collateralized indebtedness
and the fair market value of the prepaid equity forward contracts as of the
early termination date, and 9.79 million shares of Adelphia Communications
common stock that were held as collateral were returned to the Company. In
connection with the early termination, the Company recognized a loss of $17,237,
representing the difference between the carrying value and the redemption value
of the collateralized indebtedness, which is reflected as a loss on the early
extinguishment of debt in the accompanying consolidated statement of operations.

NOTE 13. INCOME TAXES

Prior to June 29, 2002, the operations of the Company were included in two
consolidated federal income tax returns; one consolidated return included the
telecommunications and retail operations, and the second consolidated return
included all companies owned by Rainbow Media Holdings.

In connection with the exchange of equity securities by NBC described in Note 8,
the Company recorded a deferred tax liability of approximately $45,000 in
accordance with the purchase method of accounting. Pursuant to such exchange,
the Company will begin to file one consolidated federal income tax return
effective June 29, 2002. As a result of the consolidation of Rainbow Media
Holdings for federal tax purposes, the valuation allowance and excess costs over
fair value of net assets acquired were reduced by approximately $74,900.

Tax rules impose restrictions on the ability of the companies to utilize each
others' tax attributes. Management evaluates the realizability of the deferred
tax assets and the need for additional valuation allowances quarterly.

The income tax benefit attributable to continuing operations for the nine months
ended September 30, 2002 of $75,752 differs from the income tax benefit derived
from applying the statutory rate principally due to an increase in the valuation
allowance of approximately $59,200 and the impact of non-deductible preferred
stock dividends. The Company considers future taxable temporary differences as
positive evidence of the realizability of the deferred tax assets.

I-12

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

NOTE 14. RESTRUCTURING

In December 2001, the Company recorded restructuring charges of $56,442
(including $3,500 for discontinued operations) which included expenses of
approximately $21,018 (including $2,313 for discontinued operations) associated
with the elimination of approximately 600 positions, primarily in corporate,
administrative and infrastructure functions across various business units of the
Company, and estimated expenses of approximately $35,424 (including $1,187 for
discontinued operations) associated with facility realignment and other related
costs. The following table summarizes the accrued restructuring liability at
September 30, 2002 for continuing operations.

In August 2002, the Company announced a new operating plan and restructuring
which includes the disposition of its motion picture theater business, the
closing of 26 retail electronics store locations, the elimination of certain
staff positions, and the reduction of capital expenditures. Additionally, the
Company reached an agreement with its supplier of set top boxes which reduced
the Company's purchase commitments for set top boxes from $378,500 in 2002,
$378,500 in 2003, and $567,750 in 2004 to a total remaining commitment of
$87,500 in 2002 and nothing thereafter and requires the Company to make certain
other cash payments aggregating $50,000 plus interest on a portion of such
amount with respect to, among other things, a license for certain software
(valued at $17,500 based on an independent appraisal). In connection with this
agreement, CSC Holdings received a waiver from the lenders under its $2.4
billion credit facility. In connection with this plan, the Company recorded
restructuring charges, included in accrued liabilities and other long-term
liabilities, of $70,206 which include $18,493 associated with the elimination of
approximately 1,280 positions, $19,213 associated with facility realignment and
other related costs and $32,500 associated with the reduction in required
digital set top box commitments.

The results of operations of the retail electronic stores closed or to be closed
including restructuring charges of $9,479, of which $2,353 is associated with
the elimination of 1,120 positions and $7,126 is associated with the early
termination of facility lease agreements, have been reported in discontinued
operations, net of taxes in the consolidated statements of operations for all
periods presented.

I-13

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

NOTE 15. SEGMENT INFORMATION

The Company's reportable segments are strategic business units that are managed
separately. The Company evaluates segment performance based on several factors,
of which the primary financial measure is business segment adjusted operating
cash flow (defined as operating income or loss before depreciation and
amortization, stock plan income or expense, long-term incentive plan income or
expense and restructuring charges).

I-14

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

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

Substantially all revenues and assets of the Company's reportable segments are
attributed to or located in the United States.

The Company does not have a single external customer which represents 10 percent
or more of its consolidated revenues.

I-15

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

NOTE 16. LEGAL MATTERS

On April 29, 2002, Yankees Entertainment & Sports Network, LLC (the "YES
Network") filed a complaint and, on September 24, 2002, an amended complaint
against the Company in the United States District Court, Southern District of
New York. The lawsuit arises from the failure of the YES Network and the Company
to reach agreement on the carriage of programming of the YES Network (primarily
New York Yankees baseball games and New Jersey Nets basketball games) on the
Company's cable television systems. The amended complaint alleges a variety of
anticompetitive acts and seeks declaratory judgments as to violations of laws,
treble damages and injunctive relief, including an injunction requiring the
Company to carry the YES Network on its cable television systems. The Company
believes that the claims set forth in the complaint are without merit and
intends to contest vigorously the lawsuit.

In August 2002, purported class actions naming as defendants the Company and
each of its directors were filed in the Delaware Chancery Court. The actions,
which allege breach of fiduciary duties and breach of contract with respect to
the exchange of the Rainbow Media Group tracking stock for Cablevision NY Group
common stock, were purportedly brought on behalf of all holders of publicly
traded shares of Rainbow Media Group tracking stock. The actions seek to (i)
enjoin the exchange of Rainbow Media Group tracking stock for Cablevision NY
Group common stock, (ii) enjoin any sales of "Rainbow Media Group" assets, or,
in the alternative, award rescissory damages, (iii) if the exchange is
completed, rescind it or award rescissory damages, (iv) award compensatory
damages, and (v) award costs and disbursements. The actions were consolidated
into one action on September 17, 2002, and on October 3, 2002, the Company filed
a motion to dismiss the consolidated action. The Company believes the claims are
without merit and intends to contest vigorously the lawsuit.

NOTE 17. OTHER MATTERS

In January 2001, the Company completed the sale of its cable television systems
in Boston and eastern Massachusetts to AT&T Corporation in exchange for AT&T's
cable television systems in certain northern New York suburbs, shares of AT&T
common stock and a cash payment. The sales agreements with AT&T provided both
parties with certain post closing adjustments to the purchase price following
agreement on those adjustments between the parties, or, in the event no
agreement was reached, that the post closing adjustment issues would be resolved
by third party experts whose determination would be binding. The Company
believes the amount of any negotiated settlement or expert determination of the
parties' respective claims will not be material to the Company.

As of September 30, 2002, Northcoast Communications, LLC, a 49.9% owned
unconsolidated subsidiary of the Company, had $61,100 in notes payable to the
FCC for the acquisition of the PCS licenses acquired during 1997. In addition, a
wholly owned subsidiary of Northcoast Communications, Cleveland PCS, LLC, had
$68,400 in vendor financing outstanding under a stand-alone $75,000 facility
obtained in connection with the launch of commercial service in Cleveland.
Additional funding for Northcoast Communications has been provided by the
Company through the Restricted Group which as of September 30, 2002 totaled
$217,700

I-16

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)
(continued)

(comprised of contributions directly to Northcoast Communications as well as
loans to Northcoast PCS, LLC, the other member in Northcoast Communications), in
addition to certain unpaid general and administrative charges from the Company
amounting to approximately $4,486 at September 30, 2002.

Vendor financing for Northcoast Communications' Cleveland operation consists of
the $75,000 credit facility at Cleveland PCS, LLC. This facility has no recourse
to Cablevision or to Northcoast Communications, other than pursuant to a pledge
by Northcoast Communications of the stock of Cleveland PCS and a guarantee of
the payment by Northcoast Communications and Cablevision of the FCC indebtedness
of the Cleveland PCS subsidiary which holds the Cleveland license which, as of
September 30, 2002, had an outstanding balance of $2,850. As of September 30,
2002, Cleveland PCS was in default of the terms of this credit facility and had
received notice of commitment termination and acceleration from the lender.
Northcoast Communications has invested $5,814 of the $217,700 invested by
Cablevision in Northcoast Communications in Cleveland PCS at September 30, 2002
and was owed $247 by Cleveland PCS for general and administrative charges at
September 30, 2002.

NOTE 18. SUBSEQUENT EVENTS

In November 2002, the Company reached an agreement with NBC for the sale of
Rainbow Media Holdings' 80% interest in the Bravo programming service for $1.0
billion payable in General Electric Company common stock and 53.2 million shares
of Cablevision NY Group Class A common stock (21.8 million shares of Cablevision
NY Group Class A common stock currently held by NBC and 31.4 million shares of
Cablevision NY Group Class A common stock issuable upon the conversion of shares
of Rainbow Media Holdings common stock held by NBC). The transaction is subject
to receipt of regulatory and other customary approvals. The Company expects to
record a gain in connection with this transaction.

Upon the closing of the sale of the Bravo programming service, the American
Movie Classics/Bravo and Rainbow Media Group, LLC credit facilities will
terminate by their terms and outstanding borrowings will be required to be
repaid. See Note 11.

In November 2002, Quadrangle Capital Partners LP, a private investment firm that
invests in media and communications companies, agreed to invest $75,000, subject
to execution of definitive documentation, in the Company. Quadrangle's
investment will be in the form of preferred stock convertible into Cablevision
NY Group Class A common stock. The transaction is subject to receipt of
regulatory approval.

I-17

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

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

- the level of the Company's revenues;

- subscriber demand and growth, including demand for and growth of our
digital cable service, which are impacted by competition from other
services, such as DBS, and the other factors set forth below;

- the cost of programming and industry conditions;

- the regulatory environment in which the Company operates;

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

- demand for advertising time and space;

- the level of capital expenditures and whether our capital expenditures
increase as expected;

- the level of our expenses, including costs of our new services, such as
expenses related to the introduction of our digital services;

- pending and future acquisitions and dispositions of assets, including
the sale of Bravo;

- market demand for new services;

- whether any pending uncompleted transactions, including the sale of
Bravo, are completed on the terms and at the times set forth (if at
all);

- competition from existing competitors and new competitors entering the
Company's franchise areas;

- other risks and uncertainties inherent in the cable television business,
the programming and entertainment businesses and the Company's other
businesses;

- financial community and rating agency perceptions of the Company's
business, operations, financial condition and the industry in which it
operates; and

- the factors described in Cablevision's filings with the Securities and
Exchange Commission, including the sections entitled "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" contained therein.

The Company disclaims any obligation to update or revise the forward-looking
statements contained or incorporated by reference herein, except as otherwise
required by applicable federal securities laws.

I-18

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

RECENT TRANSACTIONS

2002 TRANSACTION. In March 2002, Rainbow Media Holdings, Inc. acquired Loral
Space and Communications, Ltd.'s 50% interest in R/L DBS Company, LLC increasing
Rainbow Media Holdings' ownership of R/L DBS to 100%.

2001 TRANSACTIONS. In January 2001, CSC Holdings, Inc. completed the sale of its
cable systems in Boston and eastern Massachusetts to AT&T Corp. in exchange for
AT&T's cable television systems in certain northern New York suburbs and for
AT&T common stock and cash.

In April 2001, Metro-Goldwyn-Mayer Inc. ("MGM") acquired a 20% interest in
certain national programming businesses of Rainbow Media Holdings.

The above transactions completed in 2002 and 2001 are collectively referred to
as the "Transactions."

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.

I-19

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS DATA

I-20

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS DATA (CONT'D)

I-21

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

COMPARISON OF THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 2001

CONSOLIDATED RESULTS - CABLEVISION SYSTEMS CORPORATION

REVENUES, NET for the three and nine months ended September 30, 2002 increased
$39.5 million (4%) and $112.4 million (4%), respectively, as compared to
revenues for the same periods in the prior year. The net increases are
attributable to the following:

- ----------
* Amounts exclude the effects of the increase in bad debt expense related to
Adelphia Communications.

TECHNICAL AND OPERATING EXPENSES decreased $15.7 million (4%) and $16.4 million
(1%) for the three and nine months ended September 30, 2002 compared to the same
periods in 2001. The net changes resulted primarily from decreased costs at
Madison Square Garden (see Madison Square Garden discussion below) and a
reduction in accruals for management bonuses of $2.4 million, partially offset
by increased costs directly associated with the growth in revenues referred to
above. As a percentage of revenues, technical and operating expenses decreased
3% during both of the 2002 periods as compared to the 2001 periods.

RETAIL ELECTRONICS COST OF SALES for the three and nine months ended September
30, 2002 amounted to approximately $62.1 million (93% of retail electronics
sales) and $185.2 million (86% of retail electronics sales), respectively,
compared to approximately $70.1 million (82% of retail electronics sales) and
$205.0 million (81% of retail electronics sales) for the comparable 2001
periods. Cost of sales includes the cost of merchandise sold, including freight
costs incurred and certain occupancy and buying costs, for the Company's retail
electronics segment. The increases in cost of sales, as a percentage of
revenues, is primarily attributable to an increase in the provision for repaired
and returned merchandise.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES increased $2.8 million (1%) and
$11.1 million (1%) for the three and nine months ended September 30, 2002,
respectively, as compared to the same periods in 2001. The net increase for the
three months ended September 30, 2002 was comprised

I-22

CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

of increases of $47.4 million in expenses related to the Company's stock plan,
partially offset by decreases of approximately $15.2 million in sales and
marketing, customer service and administrative costs, a decrease of $26.9
million as a result of reductions in accruals for management bonuses and a
decrease of $2.5 million in costs related to a long-term incentive plan. The net
increase for the nine months ended September 30, 2002 was comprised of increases
of $10.9 million in expenses related to the Company's stock plan and
approximately $30.8 million in sales and marketing, customer service and
administrative costs, partially offset by a decrease of $26.9 million as a
result of reductions in accruals for management bonuses and a decrease of $3.7
million in costs related to a long-term incentive plan. As a percentage of
revenues, selling, general and administrative expenses remained relatively
constant for the three and nine months ended September 30, 2002 as compared to
the same periods in 2001. Excluding the effects of the stock plan and the
long-term incentive plan, as a percentage of revenues such costs decreased 5%
and 1%, respectively, during the 2002 periods as compared to the same periods in
2001.

RESTRUCTURING CHARGES of $77.5 million and $81.9 million for the three and nine
months ended September 30, 2002 are comprised of $7.3 million and $11.7 million,
respectively, relating to the 2001 restructuring and $70.2 million in both the
three and nine month periods relating to the 2002 restructuring. Such charges
include expenses associated with the elimination of positions, including
severance, outplacement costs and other related costs, and facility realignment
and for the 2002 restructuring includes $32.5 million associated with the
reduction in required digital set top commitments.

DEPRECIATION AND AMORTIZATION EXPENSE decreased $34.5 million (13%) and $87.5
million (12%) for the three and nine months ended September 30, 2002,
respectively, as compared to the same periods in 2001. Decreases of
approximately $75.1 million and $207.6 million, respectively, resulted from the
Company's adoption of Statement of Financial Accounting Standards No. 142
("Statement 142") as of January 1, 2002 where certain intangible assets are no
longer amortized. Partially offsetting these decreases were net increases of
approximately $40.6 million and $120.1 million, respectively, due primarily to
depreciation of new plant assets and amortization of acquired intangibles.

NET INTEREST EXPENSE decreased $12.9 million (9%) and $31.4 million (8%) during
the three and nine months ended September 30, 2002, respectively, compared to
the same periods in 2001. The net decreases were primarily attributable to lower
interest rates and increases in interest income, partly offset by higher overall
average debt balances.

EQUITY IN NET LOSS OF AFFILIATES decreased to $6.6 million and $28.8 million for
the three and nine months ended September 30, 2002, respectively, from $19.9
million and $31.3 million for the three and nine months ended September 30,
2001, respectively. Such amounts consist of the Company's share of the net
income or loss of certain businesses in which the Company has varying minority
ownership interests.

GAIN ON SALE OF CABLE ASSETS AND PROGRAMMING INTERESTS, NET for nine months
ended September 30, 2001 consists primarily of t