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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Registrant; State of Incorporation; IRS Employer
Number Address and Telephone Number Identification No.
- - ------ ---------------------------- ------------------
1-14764 Cablevision Systems Corporation 11-3415180
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
1-9046 CSC Holdings, Inc. 11-2776686
Delaware
1111 Stewart Avenue
Bethpage, NY 11714
(516) 803-2300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each Exchange on which Registered:
Cablevision Systems Corporation New York Stock Exchange
- - -------------------------------
Class A Common Stock
Securities registered pursuant to Section 12(g) of the Act:
Cablevision Systems Corporation None
CSC Holdings, Inc. None
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) has been subject to
such filing requirements for the past 90 days.
Cablevision Systems Corporation Yes |X| No |_|
CSC Holdings, Inc. Yes |X| No |_|
Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrants' knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Aggregate market value of voting stock held by nonaffiliates of Cablevision
Systems Corporation based on the closing price at which such stock was sold on
the New York Stock Exchange on March 17, 2000: $8,020,730,025.
Number of shares of common stock outstanding as of March 17, 2000:
Cablevision Systems Corporation Class A Common Stock - 130,258,082
Cablevision Systems Corporation Class B Common Stock - 43,126,836
CSC Holdings, Inc. Common Stock - 1,000
Documents incorporated by reference - The Registrants intend to file with the
Securities and Exchange Commission, not later than 120 days after the close of
their fiscal year, a definitive proxy statement or an amendment to this report
containing the information required to be disclosed under Part III of Form 10-K
under cover of Form 10-K/A.
TABLE OF CONTENTS
Page
----
Part I
Item 1. Business. 1
2. Properties. 25
3. Legal Proceedings. 25
4. Submission of Matters to a Vote of
Security Holders. 25
Part II
5. Market for the Registrants' Common Equity
and Related Stockholder Matters. 26
6. Selected Financial Data. 28
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 32
7A. Quantitative and Qualitative Disclosures About
Market Risk. 54
8. Consolidated Financial Statements. 55
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. 131
Part III*
10. Directors and Executive Officers of the
Registrant. *
11. Executive Compensation. *
12. Security Ownership of Certain Beneficial
Owners and Management. *
13. Certain Relationships and Related
Transactions. *
Part IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K. 131
* These items are omitted because the registrant intends to file with the
Securities and Exchange Commission, not later than 120 days after the
close of its fiscal year, a definitive proxy statement or an amendment to
this report containing the information required to be disclosed under Part
III of Form 10-K under cover of Form 10-K/A.
PART I
Item 1. Business
This combined Annual Report on Form 10-K is separately filed by Cablevision
Systems Corporation ("Cablevision Parent" or the "Company") and CSC Holdings,
Inc. ("CSC Holdings").
Cablevision Parent
Cablevision Parent is a Delaware corporation which was organized in 1997.
Cablevision Parent's only asset is all of the common stock of CSC Holdings. All
of the ownership interests Cablevision Parent held in the entities that own
certain cable television systems acquired from Tele-Communications, Inc. in 1998
(the "TCI Systems") and the interest it held in CCG Holdings, Inc., which owns
the Company's motion picture theater assets were contributed to CSC Holdings in
1999. References herein to the "Systems" refer to the cable television systems
owned by CSC Holdings, and, from and after March 4, 1998, such systems and the
TCI Systems.
CSC Holdings
CSC Holdings is a Delaware corporation which was organized in 1985 and owns and
operates cable television systems in 7 states with approximately 3,492,000
subscribers at December 31, 1999. Through Rainbow Media Holdings, Inc. ("Rainbow
Media"), a company owned 74% by CSC Holdings and 26% by a subsidiary of NBC
Cable Holding, Inc. ("NBC Cable"), a subsidiary of National Broadcasting
Company, Inc. ("NBC"), CSC Holdings owns interests in and manages numerous
national and regional programming networks, the Madison Square Garden sports and
entertainment business and cable television advertising sales companies. CSC
Holdings, through Cablevision Lightpath, Inc. ("Lightpath"), a wholly-owned
subsidiary of CSC Holdings, provides switched telephone service. CSC Holdings
also owns Cablevision Electronics Investments, Inc., doing business as The WIZ,
an electronics retailer operating 41 retail locations in the New York
metropolitan area and CCG Holdings, Inc. which owns 64 motion picture theaters
containing a total of 293 screens in the New York metropolitan area.
The Holding Company Reorganization and TCI Transactions
Until March 4, 1998, CSC Holdings was known as Cablevision Systems Corporation.
On that date, CSC Holdings completed a reorganization whereby it formed a
holding company (now named Cablevision Systems Corporation) and CSC Holdings
became a subsidiary of Cablevision Systems Corporation. This transaction is
referred to herein as the "Reorganization".
Prior to the Reorganization, CSC Holdings had two outstanding classes of common
stock. Its Class A Common Stock was publicly traded on the American Stock
Exchange (the "ASE") and its Class B Common Stock was privately held. In the
Reorganization, the Class A Common Stock and Class B Common Stock of CSC
Holdings were converted into identical securities of Cablevision Parent and the
Class A Common Stock of Cablevision Parent became listed on the ASE and traded
under
(1)
the symbol "CVC". On December 7, 1999, the Company's Class A Common Stock began
trading on the New York Stock Exchange. Cablevision Parent owns all of the
common stock of CSC Holdings.
CSC Holdings' outstanding preferred stock and debt was unaffected by the
Reorganization except that CSC Holdings' 8-1/2% Series I Cumulative Convertible
Exchangeable Preferred Stock was convertible into Cablevision Parent's Class A
Common Stock rather than CSC Holdings' Class A Common Stock. As of December 31,
1999, all shares of the Series I Preferred Stock had been converted into
Cablevision Parent's Class A Common Stock or redeemed for cash.
In connection with the Reorganization, Tele-Communications, Inc. ("TCI") caused
to be contributed to Cablevision Parent, and Cablevision Parent acquired, the
TCI Systems. These systems, which are located in New Jersey, on Long Island and
in New York's Rockland and Westchester counties, served approximately 833,000
cable subscribers as of the contribution date. In consideration for those cable
television systems, Cablevision Parent issued to certain TCI entities 48,942,172
shares of Cablevision Parent Class A Common Stock and assumed certain
liabilities related to such systems. See "Cable Television Operations - TCI
Transactions" below for a discussion of these transactions.
Stock Splits
On March 4, 1998, Cablevision Parent's Board of Directors declared a two-for-one
stock split in the form of a stock dividend on the outstanding Class A Common
Stock and Class B Common Stock of Cablevision Parent. The dividend was paid on
March 30, 1998 to stockholders of record on March 19, 1998. Additionally, on
July 22, 1998, Cablevision Parent's Board of Directors declared a two-for-one
stock split that was effected as a special stock distribution of one share of
Class A Common Stock for each share of Class A Common Stock issued and
outstanding as of August 10, 1998 and one share of Class B Common Stock for each
share of Class B Common Stock issued and outstanding as of August 10, 1998. The
stock dividend was paid on August 21, 1998 to stockholders of record on August
10, 1998. All share and per share amounts of Cablevision Parent and CSC Holdings
in this Form 10-K have been restated to reflect the stock splits.
Cable Television Operations
General
Cable television is a service that delivers multiple channels of television
programming to subscribers who pay a monthly fee for the services they receive.
Television signals are received over-the-air or via satellite delivery by
antennas, microwave relay stations and satellite earth stations and are
modulated, amplified and distributed over a network of coaxial and fiber optic
cable to the subscribers' television sets. Cable television systems typically
are constructed and operated pursuant to non-exclusive franchises awarded by
local governmental authorities for specified periods of time.
The Company's cable television systems offer varying levels of service which may
include, among other programming, local broadcast network affiliates and
independent television stations, certain
(2)
other news, information and entertainment channels such as CNN, CNBC, ESPN, and
MTV, and certain premium services such as HBO, Showtime, The Movie Channel,
Starz and Cinemax.
The Company's cable television revenues are derived principally from monthly
fees paid by subscribers. In addition to recurring subscriber revenues, the
Company derives revenues from the sales of pay-per-view movies and events, from
the sale of advertising time on advertiser supported programming and from
installation charges. Certain services and equipment provided by substantially
all of the Company's cable television systems are subject to regulation.
As of December 31, 1999, the Company's cable television systems served
approximately 3,492,000 subscribers, primarily in the greater New York, Boston
and Cleveland metropolitan areas.
The following table sets forth certain statistical data regarding the Company's
cable television operations.
As of December 31,
--------------------------------------------
1999 1998 1997
---------------------------------------------
Homes passed by cable (1)..................................... 5,200,000 5,115,000 4,398,000
Basic service subscribers..................................... 3,492,000 3,412,000 2,844,000
Basic service subscribers as a percentage of
homes passed............................................. 67.2% 66.7% 64.7%
Number of premium television units (3)........................ 7,715,000 6,754,000 4,471,000
Average number of premium units per basic
subscriber at period end (3)............................. 2.2 2.0 1.6
Average monthly revenue per basic subscriber (2).............. $44.38 $42.56 $38.53
- - ----------
(1) Homes passed is based upon homes actually marketed and does not include
multiple dwelling units passed by the cable plant that are not connected
to it.
(2) Based on recurring service revenues for the last month of the period,
excluding installation charges and certain other non-recurring revenues
such as pay-per-view, advertising and home shopping revenues. See
"Subscriber Rates and Services; Marketing and Sales."
(3) Restated for 1998 and 1997 to conform to 1999's definition and reflects in
1997 the operations of certain cable television systems which had
relatively lower premium unit penetration and were sold by December 1998.
The Company's cable television systems are concentrated in the New York City
greater metropolitan area (80% of the Company's total subscribers as of December
31, 1999), the Boston and suburban Massachusetts areas (10% of total subscribers
as of December 31, 1999) and the greater Cleveland metropolitan area (9% of
total subscribers as of December 31, 1999). The Company believes that its cable
systems in the New York City greater metropolitan area comprise the largest
metropolitan cluster of cable television systems under common ownership in the
United States (measured by number of subscribers).
Cable Television System Sales
In 1997 and 1998, the Company completed the sale or transfer of cable television
systems in Alabama, Florida, Illinois, Kentucky, Maine, Missouri, upstate New
York, North Carolina, Toledo, Ohio and neighboring states, representing
approximately 440,000 subscribers for an aggregate sales price of $514.7 million
in cash.
(3)
In addition, in October 1998, the Company transferred its cable television
system in Rensselaer, New York (which served approximately 29,600 subscribers at
September 30, 1998), plus approximately $16 million in cash to Time Warner
Entertainment Company, L.P. in exchange for Time Warner's Litchfield,
Connecticut system (which served approximately 28,400 subscribers at date of
transfer).
In December 1999, the Company entered into definitive agreements with Adelphia
Communications Corporation ("Adelphia") under which the Company will sell its
cable television systems in the greater Cleveland metropolitan area to Adelphia
for total consideration of $1.53 billion ($990 million in cash and $540 million
in Adelphia class A common stock), subject to certain adjustments.
In March 2000, the Company entered into a definitive agreement to sell its
Kalamazoo, Michigan system to Charter Communications, Inc. in exchange for
$172.5 million in Charter Communications, Inc. common stock.
TCI Transactions
On March 4, 1998, Cablevision Parent completed transactions with TCI ("TCI
Transactions") pursuant to which Cablevision Parent acquired certain cable
television systems owned and operated by TCI and located in New Jersey, on Long
Island and in New York's Rockland and Westchester counties. Cablevision Parent
issued to certain TCI entities an aggregate of 48,942,172 shares of Cablevision
Parent's Class A Common Stock (See "The Holding Company Reorganization and TCI
Transactions"). In addition, Cablevision Parent assumed certain related
liabilities, including an aggregate amount of indebtedness for borrowed money
equal to $669 million (the "Assumed Debt"). The Assumed Debt was refinanced
immediately following the closing of the transactions with borrowings under a
new $800 million bridge revolving credit facility entered into by wholly-owned
subsidiaries of Cablevision Parent that were acquired from TCI or that hold
assets contributed by TCI (the "Contributed Business Subsidiaries"), with a
group of banks led by Toronto-Dominion (Texas), Inc., as administrative and
arranging agent. The Contributed Business Subsidiaries were wholly-owned
(directly or indirectly) by Cablevision Parent until April 1999 when Cablevision
Parent contributed these entities to CSC Holdings.
Contemporaneous with the Reorganization, CSC Holdings acquired the remaining 1%
interest in Cablevision of New York City, L.P. of Mr. Charles F. Dolan ("Mr.
Dolan"), the Company's Chairman of the Board of Directors, and satisfied certain
payment obligations for a cash payment of approximately $194 million. This
transaction was effected pursuant to the provisions of agreements entered into
in 1992, as amended in 1997 to delay the exercise date to coincide with the
consummation of the Reorganization and related transactions.
In connection with securing certain regulatory approvals for the TCI
Transactions, the Company agreed to divest certain cable television system
assets of the Contributed Business Subsidiaries that are located in Paramus and
Hillsdale, New Jersey. These systems (which served approximately 5,300
subscribers at November 30, 1998) were sold in December 1998.
(4)
The agreement effecting the TCI Transactions (the "Contribution Agreement")
permitted Cablevision Parent to combine the cable operations of CSC Holdings and
the Contributed Business Subsidiaries.
Cablevision Parent contributed the Contributed Business Subsidiaries to CSC
Holdings in April 1999. In November 1999, Cablevision Parent received a private
letter ruling from the Internal Revenue Service that would permit CSC Holdings
to distribute the stock of its subsidiary, Rainbow Media, to Cablevision Parent.
If such a distribution were made, Rainbow Media would become a direct subsidiary
of Cablevision Parent. The Company has made no decision regarding such a
distribution. Such a distribution is dependent upon compliance with the
Company's covenants under its indentures and bank credit facilities and upon the
receipt of certain other approvals.
In connection with the TCI Transactions, Cablevision Parent, TCI and certain
holders of Cablevision Parent Class B Common Stock entered into a Stockholders
Agreement providing, among other things, for TCI's right to designate two Class
B directors to Cablevision Parent's Board of Directors, limits on TCI's ability
to buy more than an additional 10% of Cablevision Parent Class A Common Stock
and limitations on TCI's ability to transfer Cablevision Parent Class A Common
Stock.
On March 9, 1999, TCI merged with a subsidiary of AT&T Corp. and became a
wholly-owned subsidiary of AT&T Corp.
In April 1999, Cablevision Parent contributed the Contributed Business
Subsidiaries to CSC Holdings in a transaction accounted for in a manner similar
to a pooling of interests, whereby the assets and liabilities of the Contributed
Business Subsidiaries were recorded at historical book value. The Contributed
Business Subsidiaries served an aggregate of approximately 847,000 subscribers
as of March 31, 1999. The total assets and liabilities of the Contributed
Business Subsidiaries at March 31, 1999 amounted to $1.1 billion and $635
million, respectively.
Subscriber Rates and Services; Marketing and Sales.
The Company's cable television systems offer a package of services, generally
marketed as "Family Cable", which includes, among other programming, broadcast
network local affiliates and independent television stations and certain other
news, information and entertainment channels such as CNN, CNBC, ESPN and MTV.
For additional charges, the Company's cable television systems provide certain
premium services such as HBO, Showtime, The Movie Channel, Starz and Cinemax,
which may be purchased either individually (in conjunction with Family Cable) or
in combinations or in tiers.
In addition, the Company's cable television systems offer a basic package which
includes broadcast network local affiliates and public, educational or
governmental channels and certain leased access channels.
The Company has a branded product offering called "OptimumTV", which packages
all of the premium networks available on its cable systems at discounted prices.
Optimum TV includes the Family and basic services noted above, as well as all of
the premium a la carte programming
(5)
available on the cable system, grouped into three premium packages. Optimum TV
also includes additional pay-per-view channels that offer movies and sporting
events on a transactional basis.
In other areas, the Company offers premium services on an individual basis and
as components of different "tiers". Successive tiers include additional premium
services for additional charges that reflect discounts from the charges for such
services if purchased individually. For example, in most of the Company's cable
systems, subscribers may elect to purchase Family Cable plus one, two or three
premium services with declining incremental costs for each successive tier. In
addition, many systems offer a "Rainbow" package consisting of between five and
seven premium services, and a "Rainbow Gold" package consisting of between eight
and ten premium services.
Since its existing cable television systems are substantially fully built, the
Company's sales efforts are primarily directed toward increasing penetration and
revenues in its franchise areas. The Company markets its cable television
services through in person selling, as well as telemarketing, direct mail
advertising, promotional campaigns and local media and newspaper advertising.
Certain services and equipment (converters supplied to subscribers) provided by
substantially all of the Company's cable television systems are subject to
regulation. See "Cable Television Operations - Regulation - 1992 Cable Act."
System Capacity.
The Company is engaged in an ongoing effort to upgrade the technical
capabilities of its cable plant and to increase channel capacity for the
delivery of additional programming and new services. The Company's cable
television systems have a minimum capacity of 42 channels. Currently 87% of its
homes are served by at least 77 channels. As a result of ongoing upgrades, the
Company expects that by December 2000 approximately 96% of its subscribers will
be served by systems having a capacity of at least 77 channels. All of the
system upgrades either completed or underway will utilize fiber optic cable.
Programming.
Adequate programming is available to the Systems from a variety of sources
including that available from Rainbow Media and affiliates of AT&T, Fox
Entertainment Group, Inc. and NBC. Program suppliers' compensation is typically
a fixed, per subscriber monthly fee based, in most cases, either on the total
number of subscribers of the cable systems and certain of its affiliates, or on
the number of subscribers subscribing to the particular service. The programming
contracts are generally for a fixed period of time and are subject to negotiated
renewal. Cable programming costs have increased in recent years and are expected
to continue to increase due to additional programming being provided to most
subscribers, increased costs to produce or purchase cable programming and other
factors. Management believes that the Systems will continue to have access to
programming services at reasonable price levels.
(6)
Franchises.
The Systems are operated primarily under nonexclusive franchise agreements with
local governmental franchising authorities, in some cases with the approval of
state cable television authorities. Franchising authorities generally charge a
fee of up to 5% based on a percentage of certain revenues of the franchisee.
The franchise agreements are generally for a term of ten to fifteen years from
the date of grant, although some recent renewals have been for five to ten year
terms. Some of the franchises grant the cable television system an option to
renew. The expiration dates for the Company's ten largest franchises range from
2001 to 2009. In situations where the Company's franchises have expired or not
been renewed, the Company is operating under temporary operating authority or
without a license while negotiating renewal terms with the franchising
authorities. Franchises usually require the consent of the franchising authority
prior to the sale, assignment, transfer or change in ownership or operating
control of the franchisee.
The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") provide significant procedural protections for cable operators seeking
renewal of their franchises. See "Business - Regulation - Cable Television". In
connection with a renewal, a franchising authority may impose different and more
stringent terms. The Company has never lost a franchise as a result of a failure
to obtain a renewal.
Programming and Entertainment Operations
General.
The Company conducts its programming activities through Rainbow Media, a company
currently 74% owned by CSC Holdings and 26% by NBC Cable (which may be increased
by up to an additional 1% under certain circumstances without additional cash
payment).
Rainbow Media's businesses include national and regional programming networks
and the Madison Square Garden sports and entertainment business. Rainbow Media
also owns interests in cable television advertising businesses.
Rainbow Media's national entertainment networks include American Movie Classics
(which features American theatrically released classic films and original
programming), Bravo (which features films and performing arts programs,
including jazz, dance, classical music and theatrical and original programming),
Romance Classics (which features theatrically released films, mini-series, made
for television movies and original programming having a romantic theme),
MuchMusic (which features a diverse mix of new and established musical artists)
and The Independent Film Channel (which features independent films made outside
the traditional Hollywood system). National Sports Partners is a national sports
network featuring Fox Sports Net, which provides national sports programming to
regional sports networks. National Sports Partners is 50% owned by Rainbow Media
and is managed and 50% owned by Fox Sports Networks, LLC ("Fox").
(7)
Rainbow Media owns a 60% interest in, and manages, Regional Programming
Partners, a partnership with Fox. Regional Programming Partners owns Madison
Square Garden, a sports and entertainment company that owns and operates the
Madison Square Garden Arena and the adjoining Theater at Madison Square Garden,
the New York Knickerbockers professional basketball team, the New York Rangers
professional hockey team, the New York Liberty professional women's basketball
team, the New England Seawolves professional arena football team, the Hartford
Wolf Pack professional hockey team, the Madison Square Garden Network, Fox
Sports Net New York and Radio City Entertainment (which operates Radio City
Music Hall in New York City). Additionally, Madison Square Garden manages and
operates the Hartford Civic Center. Regional Programming Partners also owns
interests in regional sports networks that provide regional sports programming
to the New England, Chicago, Cincinnati, Cleveland, San Francisco and Florida
areas, in addition to Madison Square Garden Network and Fox Sports Net New York
which provide regional sports programming to the New York City metropolitan
area, as well as MetroChannels which provide regional and local sports, news and
educational programming to the New York metropolitan area.
Rainbow Media owns Rainbow News 12 which operates regional news networks
servicing suburban areas surrounding New York City. Rainbow Media also owns and
operates Rainbow Advertising Sales Corporation, a cable television advertising
company and owns a 50% interest in National Advertising Partners, which sells
national advertising for regional sports networks and is managed and 50% owned
by Fox.
(8)
The following table sets forth ownership information and estimated subscriber
information as of December 31, 1999 for each of the programming businesses whose
ownership interest is held directly or indirectly by Rainbow Media and which
Rainbow Media manages. Rainbow Media is currently a 74% owned subsidiary of CSC
Holdings. NBC owns the remaining 26% interest. Regional Programming Partners
("RPP") is a 60% owned subsidiary of Rainbow Media, with the remaining 40%
interest owned by Fox.
Affiliated
Programming Viewing Basic
Businesses Subscribers Subscribers (1) Ownership (2)
- - ---------- ----------- --------------- -------------
(In Millions)
National Entertainment:
American Movie Classics 66.4 71.6 Rainbow Media - 100%
Romance Classics 19.2 31.0 Rainbow Media - 100%
Bravo 38.1 52.1 Rainbow Media - 100%
Bravo Latin America 5.8 7.0 Rainbow Media - 100%
The Independent Film Channel 11.2 34.4 Rainbow Media - 100%
MuchMusic 10.5 14.9 Rainbow Media and Chum, Ltd. - 50% each
Sports:
Madison Square Garden Network/FSNNY 12.2 15.5 RPP - 100%
Fox Sports Net Bay Area 3.0 3.3 RPP and Fox - 50% each
Fox Sports Net Chicago 3.3 3.5 RPP and Fox - 50% each
Fox Sports Net New England 3.4 3.9 RPP and Media One - 50% each
Fox Sports Net Ohio 2.2 2.4 RPP - 100%
Fox Sports Net Cincinnati 2.5 2.7 RPP - 100%
SportsChannel Florida 3.2 3.3 RPP - 30%; Front Row - 70% (3)
News Services:
News12 Long Island .8 .8 Rainbow Media - 100%
News12 Connecticut .2 .2 Rainbow Media - 100%
News12 New Jersey 1.7 1.7 Rainbow Media - 88.6%; Newark Star Ledger - 11.4%
News12 Westchester .2 .3 Rainbow Media - 100%
News12 Bronx .3 .3 Rainbow Media - 100%
Neighborhood News L.I. .2 .2 Rainbow Media - 100%
Other:
Metro Guide 3.8 4.1 RPP - 100%
Metro Traffic and Weather 2.5 2.7 RPP - 100%
Metro Learning 2.5 2.7 RPP - 100%
- - ----------
(1) Represents the total number of basic subscribers available in systems that
carry the service.
(2) Various of these programming businesses, other than those which are
wholly-owned by Rainbow Media, are subject to puts, calls, rights of first
refusal and restrictions on transfer.
(3) In January 2000, RPP acquired Front Row Communications' controlling 70%
interest in SportsChannel Florida.
(9)
Rainbow Media's existing structure reflects three significant transactions that
were consummated in 1997.
NBC Transaction
On April 1, 1997, Rainbow Media consummated a transaction in which Rainbow
Programming Holdings, Inc. merged with and into Rainbow Media, a newly formed
subsidiary of CSC Holdings. In addition, NBC Cable received a 25% equity
interest (which interest has been increased to 26% and may be further increased
by up to an additional 1% under certain circumstances without additional cash
payment) in common stock of Rainbow Media. CSC Holdings owned the remaining 75%
equity interest in Rainbow Media (which interest is currently 74%). The
partnership interests in certain of Rainbow Media's programming services
formerly owned by NBC Cable are now owned by subsidiaries of Rainbow Media.
Fox Transactions
On December 18, 1997, Rainbow Media organized three partnerships with Fox:
Regional Programming Partners (the partnership that owns Madison Square Garden
and interests in the regional sports programming businesses previously owned by
Rainbow Media), National Sports Partners (the partnership that owns and operates
Fox Sports Net) and National Advertising Partners (the partnership that manages
and sells national advertising for certain of the regional sports networks in
which Regional Programming Partners owns interests and certain regional sports
networks owned by Fox) (the "Fox Transactions").
In connection with the formation of Regional Programming Partners, affiliates of
Rainbow Media, through various indirect transfers, contributed to Regional
Programming Partners, in consideration for the issuance of a 60% general
partnership interest, their interests in Madison Square Garden, SportsChannel
Chicago, SportsChannel Pacific, SportsChannel New England, SportsChannel Ohio,
SportsChannel Cincinnati, SportsChannel Florida and Metro Channel LLC. Fox
contributed $850 million in cash to Regional Programming Partners in exchange
for a 40% general partnership interest. A subsidiary of Rainbow Media is the
managing general partner of Regional Programming Partners.
In connection with the formation of National Sports Partners, Rainbow Media
contributed to National Sports Partners, in consideration for the issuance of a
50% general partnership interest, its interests in American Sports Classics LLC,
Prime SportsChannel and SportsChannel Ventures, Inc. Fox contributed, in
consideration for the issuance of a 50% general partnership interest, certain
assets, including the assets pertaining to or used in the business of Fox and
interests in Prime SportsChannel and Fox Watch Productions Inc. A subsidiary of
Fox is the managing partner of National Sports Partners.
In connection with the formation of National Advertising Partners, Rainbow Media
contributed to National Advertising Partners, in consideration for the issuance
of a 50% general partnership interest, certain assets relating to the national
advertising of certain of the regional sports programming services in which
Rainbow Media had an interest. Fox contributed, in consideration for the
issuance of a 50% general partnership interest, certain assets relating to the
national
(10)
advertising of the regional sports programming services in which Fox had an
interest. A subsidiary of Fox is the managing general partner of National
Advertising Partners.
Madison Square Garden
On June 17, 1997, Madison Square Garden redeemed a portion of ITT Corporation's
("ITT's") interest in Madison Square Garden for $500 million and Rainbow Media
contributed its SportsChannel Associates programming company to Madison Square
Garden, which, together with the redemption, increased Rainbow Media's interest
in Madison Square Garden to 89.8% and reduced ITT's interest to 10.2%. In
connection with the Fox Transactions discussed above, Rainbow Media's interest
in Madison Square Garden was contributed to Regional Programming Partners. ITT's
interest in Madison Square Garden was further reduced to 7.8% as a result of the
$450 million capital contribution by Regional Programming Partners to Madison
Square Garden as of December 18, 1997, which was used by Madison Square Garden
to pay down outstanding debt. ITT's interest was further reduced to 3.7% in June
1998, when Madison Square Garden redeemed, for $94 million, a portion of ITT's
interest following ITT's exercise of its first put right. In April 1999, ITT
exercised its second put for the remainder of its interest in Madison Square
Garden and settled certain matters between the parties for a net payment of $87
million.
CSC Holdings and Rainbow Media entered into agreements with the National Hockey
League (the "NHL") and the National Basketball Association ("NBA"), agreeing,
among other things, to conduct themselves in accordance with the relevant rules
of each league. The approvals of the NHL and the NBA are required for certain
transactions involving Cablevision Parent, CSC Holdings, Rainbow Media, Regional
Programming Partners and Madison Square Garden, including certain transfers of
ownership interests.
In December 1997, Madison Square Garden purchased Radio City Productions, LLC,
the production company that operates Radio City Music Hall in New York City and
produces The Radio City Christmas Spectacular and shows featuring the Radio City
Rockettes and simultaneously entered into a 25-year lease for Radio City Music
Hall.
Tracking Stock
In December 1999, the Company announced that its Board of Directors had
authorized the creation of a new tracking stock related to its programming and
entertainment assets, principally residing in its Rainbow Media subsidiary. No
determination has been made of the specific programming and entertainment assets
to be included in the tracking stock or the method of distribution to
shareholders. The tracking stock proposal must be approved by each class of the
Company's shareholders.
SportsChannel Florida
In January 2000, Regional Programming Partners acquired the 70% interest in
SportsChannel Florida held by Front Row Communications for $130.1 million
(including the repayment of $20 million in debt) increasing its ownership to
100%.
(11)
Telephone and Modem Services
The Company, through Lightpath, a Competitive Local Exchange Carrier, provides
basic and advanced local telecommunications services to the business market.
Lightpath provides a full range of local dial tone, switched services, private
line and advanced networking features on the local and long distance levels on
its own facilities and network. As of December 31, 1999, Lightpath serviced over
1,500 industrial, commercial and institutional accounts on Long Island. In
addition, the Company provides residential telephone and cable modem internet
access service in portions of the greater New York City metropolitan area and
parts of southern Connecticut. At December 31, 1999, the Company served
approximately 52,100 modem subscribers.
The WIZ
In February 1998, Cablevision Electronics Investments, Inc. ("Cablevision
Electronics"), a wholly-owned subsidiary of CSC Holdings, acquired substantially
all of the assets associated with 40 The WIZ consumer electronics store
locations from The Wiz, Inc. and certain of its subsidiaries and affiliates
(collectively, "TWI"). TWI had filed for bankruptcy protection on December 16,
1997. Cablevision Electronics paid approximately $93 million, including
transaction costs, for the assets. In addition, prior to closing, Cablevision
Electronics provided approximately $8 million for TWI to meet certain operating
costs. The WIZ is an electronics retailer selling primarily video and audio
equipment, home office equipment, compact disks and other pre-recorded music,
digital video disks, and VHS video and other pre-recorded movies.
Theaters
In December 1998, a subsidiary of the Company acquired all of the outstanding
shares of stock of Clearview Cinema Group, Inc. ("Clearview") pursuant to an
Agreement and Plan of Merger entered into in August 1998. The total purchase
price amounted to approximately $158.7 million (including assumed debt of $80
million) of which approximately $33.4 million was paid in shares of Cablevision
Parent's Class A Common Stock.
From December 1998 through February 1999, a subsidiary of the Company acquired a
total of 16 movie theaters from Loews Cineplex Entertainment Corporation
("Loews"), for an aggregate purchase price of approximately $89.8 million. These
theaters are located in the New York metropolitan area.
Additionally, in 1999, a subsidiary of the Company acquired a total of 7 movie
theaters in New York and New Jersey for an aggregate purchase price of $7.2
million.
At Home Corporation
The Company owns warrants to acquire approximately 20.4 million shares of common
stock of At Home Corporation, which warrants are exercisable at $.25 per share.
At Home Corporation distributes high-speed interactive services to residences
and businesses using its own network architecture and a variety of transport
options, including the cable industry's hybrid fiber coaxial infrastructure and
offers media services through the Excite Network. These warrants were issued to
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the Company in exchange for certain agreements of the Company with respect to
the distribution of the At Home internet access service to cable subscribers.
In certain areas, the Company also agreed to distribute the At Home service
exclusively.
There have been a number of performance issues associated with the At Home
service. The Company is continuing to use its Optimum Online service for new
internet installations in order to take full advantage of the current market
opportunity while these performance issues are addressed by At Home Corporation.
The Company is making payments to At Home Corporation consistent with what would
have applied if the Company had continued to use the At Home service.
PCS
CSC Holdings holds a 49.9% interest, and certain preferential distribution
rights, in NorthCoast Communications, LLC ("NorthCoast"). NorthCoast holds
certain licenses to conduct a personal communications service ("PCS") business.
CSC Holdings has contributed an aggregate of approximately $50.1 million as of
December 31, 1999 to NorthCoast (either directly or through a loan to NorthCoast
Operating Co., Inc., the other member in NorthCoast).
Other Investments
Rainbow Media holds a 50% interest in R/L DBS Company LLC, a joint venture with
Loral Space and Communications, Ltd. ("R/L DBS"). R/L DBS holds certain
frequencies granted by the FCC for the operation of a direct broadcast satellite
business. CSC Holdings has contributed an aggregate of approximately $15.5
million through December 31, 1999 to R/L DBS or its predecessor businesses.
Competition
Cable Television
The Systems generally compete with the direct reception of broadcast television
signals by antenna and with other methods of delivering television signals to
the home for a fee. The extent of such competition depends upon the number and
quality of the signals available by broadcast antenna reception as compared to
the number and quality of signals distributed by the cable system. The Systems
also compete to varying degrees with other communications and entertainment
media, including movies, theater and other entertainment activities. The primary
current competitor to cable television systems is from direct broadcast
satellite ("DBS").
The 1984 Cable Act specifically legalized, under certain circumstances,
reception by private home earth stations of satellite-delivered cable
programming services. DBS systems permit satellite transmissions from the
low-power C-Band to be received by antennae approximately 60 to 72 inches in
diameter at the viewer's home. Higher power DBS systems providing transmissions
over the Ku-Band permit the use of smaller receiver antennae and thus are more
appealing to customers.
Two DBS systems are now operational in the United States, with investments by
companies with substantial resources such as Hughes Electronics Corp. Both
C-Band and Ku-Band DBS delivery of television signals are competitive
alternatives to cable television. Legislation was recently enacted to change the
federal copyright laws to permit DBS systems to retransmit local broadcast
television signals to DBS customers. This has enhanced the competitive position
of DBS systems.
(13)
The Telecommunications Act of 1996 ("1996 Telecom Act") repealed the 1984 Act
prohibition against telco-cable cross-ownership and provides that a local
exchange telephone company may provide video programming directly to subscribers
through a variety of means, including (1) as a radio-based (MMDS or DBS)
multichannel video programming distributor; (2) as a cable operator, fully
subject to the franchising, rate regulation and other provisions of the 1984 and
1992 Cable Acts; and (3) through an "open video system" ("OVS") that is
certified by the Federal Communications Commission ("FCC") to be offering
nondiscriminatory access to a portion of its channel capacity for unaffiliated
program distributors, subject only to selected portions of the regulations
applicable to cable operators. Non-telephone companies may also become an OVS
and provide video competition to cable systems without obtaining a franchise,
although a recent court decision has restored certain municipal franchising
powers over OVS, making OVS a less attractive alternative. A local telephone
company also may provide the "transmission of video programming" on a common
carrier basis. As noted below, telephone companies in several of the Company's
franchise areas have applied for franchises to offer cable service fully subject
to the 1984 and 1992 Cable Acts. Several companies have sought to become an OVS
in areas in which the Company operates cable systems in Boston, New York City,
Westchester County, New York and northern New Jersey. One, RCN Corporation
("RCN") is currently operating an OVS or franchised cable systems in Boston, New
York City, and a number of Massachusetts communities in which the Company
operates cable systems. Additionally, RCN has received local authorization to
commence construction and operation of an OVS in two of the New Jersey
communities in which the Company operates cable systems.
The 1996 Telecom Act also prohibits a telephone company or a cable system
operator in the same market from acquiring each other, except in limited
circumstances, such as in areas of smaller population.
Cable television also competes with the home video industry. Owners of
videocassette recorders are able to rent many of the same movies, special events
and music videos that are available on certain premium services. The
availability of videocassettes has affected the degree to which the Systems are
able to sell premium service units and pay-per-view offerings to some of its
subscribers.
Multipoint distribution services ("MDS"), which deliver premium television
programming over microwave superhigh frequency channels received by subscribers
with a special antenna, and multichannel multipoint distribution service
("MMDS"), which is capable of carrying four channels of television programming,
also compete with certain services provided by the Systems. By acquiring several
MMDS licenses or subleasing from several MMDS operators and holders of other
types of microwave licenses, a single entity can increase channel capacity to a
level more competitive with cable systems. MDS and MMDS systems are not required
to obtain a municipal franchise, are less capital intensive, require lower
up-front capital expenditures and are subject to fewer local and FCC regulatory
requirements than cable systems. The ability of MDS and MMDS systems to serve
homes and to appeal to consumers is affected by their less extensive channel
capacity and the need for unobstructed line of sight over-the-air transmission.
The Systems compete with MDS and MMDS operators generally in its metropolitan
service areas.
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Satellite master antenna systems ("SMATV") generally serve large multiple
dwelling units. The FCC has preempted all state and local regulation of SMATV
operations. SMATV is limited to the buildings within which the operator has
received permission from the building owner to provide service. The Systems
compete with SMATV operators primarily in the New York City metropolitan area.
The 1996 Telecom Act amends the definition of cable system to exclude facilities
that do not use public rights-of-way (e.g., SMATV operators serving multiple
buildings not under common ownership or control), thus exempting such facilities
from franchise and other requirements applicable to cable operators.
The FCC has established a new local multipoint distribution service ("LMDS",
sometimes referred to as "cellular cable") in the higher bands of the
electromagnetic spectrum that could be used to offer multichannel video in
competition with cable systems, as well as two-way communications services. The
FCC has held auctions to select licensees. The FCC barred both telephone and
cable companies from initially bidding for LMDS frequencies in their own service
areas. The legal restriction on cable ownership interests in overlapping LMDS
licenses will sunset in June 2000, unless extended by the FCC.
The full extent to which developing media will compete with cable television
systems may not be known for several years. There can be no assurance that
existing, proposed or as yet undeveloped technologies, including technologies
that provide video over the internet, will not become dominant in the future and
render cable television systems less profitable or even obsolete.
Although substantially all the franchises of the Systems are non-exclusive, most
franchising authorities have granted only one franchise in an area. Other cable
television operators could receive franchises for areas in which the Systems are
operated or a municipality could build a competing cable system. Southern New
England Telephone ("SNET"), the dominant telephone company in Connecticut, has
obtained a statewide franchise to build and operate a competing cable television
system in the communities in Connecticut in which the Systems are operating
pursuant to cable franchises. Ameritech has obtained franchises to offer cable
service in certain of the Company's franchise areas in the Midwest. RCN has
obtained or applied for cable franchises in a number of communities in
Massachusetts in which the Company operates. The 1992 Cable Act described below
prohibits municipalities from unreasonably refusing to grant competitive
franchises and facilitates the franchising of second cable systems or
municipally-owned cable systems. See "Regulation - 1992 Cable Act," below.
Programming and Entertainment
Rainbow Media competes with numerous programming services for cable television
system distribution and for subscribers, including network television, other
national and regional cable services, independent broadcast television stations,
television superstations, the home videocassette industry, and developing
pay-per-view services. Rainbow Media and the other programming services are
competing for limited channel capacity and for inclusion in the most widely
distributed service tier of the systems offering their programming services.
Many of these program distributors are large, publicly-held companies which have
greater financial resources than Rainbow Media.
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Rainbow Media also competes for the availability of programming, through
competition for telecast rights to films and competition for rights agreements
with sports teams. The Company anticipates that such competition will increase
as the number of programming distributors increases.
In general, Rainbow Media's programming services compete with other forms of
television-related services and entertainment media on the basis of the price of
services, the variety and quality of programming offered and the effectiveness
of marketing efforts.
Numerous businesses compete with Madison Square Garden, Radio City Entertainment
and CCG Holdings, Inc. for the entertainment expenditures of consumers.
Telephone and Modem Services
Lightpath faces substantial competition from incumbent local exchange carriers
("ILECs"), such as Bell Atlantic, which are the dominant providers of local
telephone services in their respective service areas. ILECs have significant
advantages over Lightpath, including greater capital resources, an existing
fully operational local network, and long-standing relationships with customers.
While Lightpath and the ILECs are competitors, Lightpath must enter into
interconnection agreements with each ILEC so that Lightpath's customers can make
and receive calls from customers served by the ILEC. Federal and State law and
regulations require ILECs to enter into such agreements and provide such
facilities and services, and establish the methodology for setting the price for
these facilities and services. The specific price, terms and conditions of each
agreement, however, depends on the outcome of negotiations between Lightpath and
an ILEC. Agreements are also subject to approval by the state public service
commission. Lightpath has entered into interconnection agreements with Bell
Atlantic for New York, New Jersey, Connecticut and Massachusetts which have been
approved by the respective state commissions. In addition, it has reached an
agreement with SNET covering SNET's service area in Connecticut, which has been
approved by the Connecticut Department of Public Utility Control.
Lightpath also faces competition from one or more competitive access providers
("CAPs") and other new entrants in the local telecommunications marketplace,
such as Teleport Communications Group, Inc. ("Teleport"), now part of AT&T and
MFS Communications Company, Inc. ("MFS"), now part of MCI/Worldcom. In addition
to the ILECs and competitive service providers, other potential competitors
capable of offering private line and special access services include electric
utilities, long distance carriers, microwave carriers, wireless telephone system
operators (such as cellular, PCS, and specialized mobile radio), and private
networks built by large end users. A continuing trend toward business
combinations and alliances in the telecommunications industry may create
significant new competitors to Lightpath.
Many ILECs and certain of Lightpath's other potential competitors have
financial, personnel and other resources significantly greater than those of
Lightpath. Some of these competitors have existing networks or conduits that
could be adapted to provide local exchange services. There can
(16)
be no assurance that Lightpath will be able to compete effectively against these
competitors. Lightpath may also face competition from new technologies and
services introduced in the future.
Retail Electronics
The consumer retail electronics business is highly competitive. The WIZ competes
with national and regional retail electronics chains which continue to expand in
the New York metropolitan area, as well as with computer, office product and
entertainment superstores, general merchandise retailers, discount stores and
mail order and e-commerce services. Some of these competitors operate on a
significantly larger scale than Cablevision Electronics and are able to
translate their scale to purchasing and pricing advantage in the New York
marketplace. Competition is primarily based on price, service and selection of
merchandise. The WIZ competes on the basis of these factors, with special
emphasis placed on the quality of the customer experience in the stores and on
selling and bundling merchandise that supports the in-home connectivity of the
Company's high speed data, video and telephony services.
Regulation
Cable Television
1984 Cable Act. The 1984 Cable Act set uniform national guidelines for cable
regulation under the Communications Act of 1934. While several of the provisions
of the 1984 Cable Act have been amended or superseded by the 1992 Cable Act
and/or the 1996 Telecom Act, each described below, other provisions of the 1984
Act, including the principal provisions relating to the franchising of cable
television systems, remain in place. The 1984 Cable Act authorizes states or
localities to franchise cable television systems but sets limits on their
franchising powers. It sets a ceiling on cable franchise fees of 5% of gross
revenues and prohibits localities from requiring cable operators to carry
specific programming services. The 1984 Cable Act protects cable operators
seeking franchise renewals by limiting the factors a locality may consider and
requiring a due process hearing before denial. The 1984 Cable Act does not,
however, prevent another cable operator from being authorized to build a
competing system. The 1992 Cable Act prohibits franchising authorities from
granting exclusive cable franchises and from unreasonably refusing to award an
additional competitive franchise.
The 1984 Cable Act allows localities to require free access to public,
educational or governmental channels, but sets limits on the number of
commercial leased access channels cable television operators must make available
for potentially competitive services. The 1984 Cable Act prohibits obscene
programming and requires the sale or lease of devices to block programming
considered offensive.
1992 Cable Act. The 1992 Cable Act represented a significant change in the
regulatory framework under which cable television systems operate.
After the effective date of the 1984 Cable Act, and prior to the enactment of
the 1992 Cable Act, rates for cable services were unregulated for substantially
all of the Systems. The 1992 Cable Act reintroduced rate regulation for certain
services and equipment provided by most cable systems in
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the United States, including substantially all of the Company's systems. While
several of the provisions of the 1992 Cable Act have been amended or superseded
by the 1996 Telecom Act, other provisions remain in place.
The 1992 Cable Act requires each cable system to establish a basic service
package consisting, at a minimum, of all local broadcast signals and all
non-satellite delivered distant broadcast signals that the cable system wishes
to carry, and all public, educational and governmental access programming. The
rates for the basic service package are subject to regulation by local
franchising authorities. Under the FCC's 1993 rate regulation rules, a cable
operator whose per channel rates exceeded an FCC established benchmark was
required to reduce its per channel rates for the basic service package by up to
10% unless it could justify higher rates on the basis of its costs. In 1994,
after reconsideration, the FCC ordered a further reduction of 7% in rates for
the basic service tier, for an overall reduction of 17%. Franchise authorities
(local municipalities or state cable television regulators) are also empowered
to regulate the rates charged for the installation and lease of the equipment
used by subscribers to receive the basic service package (including a converter
box, a remote control unit and, if requested by a subscriber, an addressable
converter box or other equipment required to access programming offered on a per
channel or per program basis), including equipment that may also be used to
receive other packages of programming, and the installation and monthly use of
connections for additional television sets. The FCC's rules require franchise
authorities to regulate rates for equipment and connections for additional
television sets on the basis of an actual cost formula developed by the FCC,
plus a return of 11.25%. No additional charge is permitted for the delivery of
regulated services to additional sets unless the operator incurs additional
programming costs in connection with the delivery of such services to multiple
sets.
The FCC, prior to March 31, 1999, could in response to complaints by a
franchising authority, reduce the rates for service packages other than the
basic service package if it found that such rates were unreasonable. The FCC
would in response to complaints also regulate, on the basis of actual cost, the
rates for equipment used only to receive these higher packages. Services offered
on a per channel or per program basis were never subject to rate regulation by
either municipalities or the FCC.
The FCC's rules provide that, unless a cable operator can justify higher rates
on the basis of its costs, increases in the rates charged by the operator for
the basic service package may not exceed an inflation indexed amount, plus
increases in certain costs beyond the cable operator's control, such as taxes,
franchise fees and increased programming costs that exceed the inflation index.
Increases in fees paid to broadcast stations for the retransmission of their
signals above those in effect on October 6, 1994 may be passed through to
subscribers.
In 1994 the FCC also adopted guidelines for cost-of-service showings that
establish a regulatory framework pursuant to which a cable television operator
may attempt to justify rates in excess of the benchmarks. In addition, the FCC
has adopted guidelines that permit rate adjustments attributed to the cost of a
rebuild or substantial upgrade of a cable system to be added to the operator's
benchmark rate.
(18)
In 1994 the FCC also reversed its prior policy regarding rate regulation of
packages of a la carte services. A la carte services that are offered in a
package were subjected to rate regulation by the FCC.
The FCC, in addition to revising its rules governing a la carte channels, also
revised its regulations governing the manner in which cable operators could
charge subscribers for new cable programming services. The FCC instituted a
three-year flat fee mark-up plan, now lapsed, for charges relating to new
channels of cable programming services in addition to the basic formula for
calculating the permissible rate for new services.
Under the 1992 Cable Act, systems may not require subscribers to purchase any
cable programming service tier other than the basic service package as a
condition of access to video programming offered on a per channel or per program
basis. Cable systems are allowed up to ten years to the extent necessary to
implement the necessary technology to facilitate this access. It is expected
that the Systems will be capable of implementing the technology mandated by the
1992 Cable Act by the Act's deadline.
In addition, the 1992 Cable Act:
(i) requires cable programmers under certain circumstances to offer their
programming to present and future competitors of cable television such as
MMDS, SMATV and DBS, and prohibits new exclusive contracts with program
suppliers without FCC approval,
(ii) directs the FCC to set standards for limiting the number of channels that
a cable television system operator could program with programming services
controlled by such operator,
(iii) bars municipalities from unreasonably refusing to grant additional
competitive franchises,
(iv) requires cable television operators to carry ("Must Carry") all local
broadcast stations (including home shopping broadcast stations), or, at
the option of a local broadcaster, to obtain the broadcaster's prior
consent for retransmission of its signal ("Retransmission Consent"),
(v) requires cable television operators to obtain the consent of any non-local
broadcast station prior to retransmitting its signal, and
(vi) regulates the ownership by cable operators of other media such as MMDS and
SMATV.
In connection with clause (ii) of the immediate preceding paragraph concerning
limitations on affiliated programming, the FCC has established a 40% limit on
the number of channels of a cable television system that can be occupied by
programming services in which the system operator has an attributable interest
and a national limit of 30% on the number of households that any cable company
can serve. This 30% national limit, because of court proceedings, has never been
implemented. The FCC recently revised its rules to consider the presence in the
national market of all multichannel video programming providers rather than
cable operators alone in applying its national percentage limit. The FCC also
modified its cable ownership attribution rules, maintaining its 5% voting stock
benchmark, but attributing cable subscribers if held by a partnership if a
limited partner is involved in the partnership's "video programming" activities.
These rule modifications affect the Company because of AT&T's investment in the
Company.
(19)
In connection with clause (iv) above concerning retransmission of a local
broadcaster's signals, a substantial number of local broadcast stations are
currently carried by the Systems and have elected to negotiate for
Retransmission Consent. The Systems have Retransmission Consent agreements with
most broadcast stations they currently carry, but a number of these agreements
are temporary in nature and the potential remains for discontinuation of
carriage if an agreement is not renewed following their expiration. The Company
has had to drop a few local stations because of failure to reach retransmission
consent agreements. The FCC is currently considering whether to adopt similar
"Must Carry" rules for broadcasters' new digital TV channels.
In connection with clause (i) above the 1992 Cable Act prohibits a cable
programmer that is owned by or affiliated with a cable operator (such as Rainbow
Media) from unreasonably discriminating among or between cable operators and
other multichannel video distribution systems with respect to the price, terms
and conditions of sale or distribution of the programmer's satellite-delivered
services and from unreasonably refusing to sell any such service to any
multichannel video programming distributor. In several instances, Rainbow Media
has been ordered by the FCC to provide satellite-delivered programming to
multi-channel video programmers after such multi-channel video programmers have
filed complaints pursuant to these program-access rules. The FCC has declined to
extend these program-access rules to cover some terrestrial-delivered
programming by programmers such as Rainbow Media, but proposals have been made
to Congress in support of such extensions. It is not possible to predict whether
such an extension might in the future be adopted by the FCC or Congress and, if
so, what effect it might have on the Company.
The FCC adopted or imposed new regulations under the 1992 Cable Act in the areas
of customer service, technical standards, equal employment opportunity, privacy,
rates for leased access channels, obscenity and indecency, disposition of a
customer's home wiring and compatibility between cable systems and other
consumer electronic equipment such as "cable ready" television sets and
videocassette recorders.
1996 Telecom Act. The 1996 Telecom Act deregulated the rates for non-basic tiers
of service provided by all cable operators after March 31, 1999. It permitted
regulated equipment rates to be computed by aggregating costs of broad
categories of equipment at the franchise, system, regional or company level. It
also eliminated the right of individual subscribers to file rate complaints with
the FCC concerning certain non-basic cable programming service tiers, and
required such complaints to be filed by franchising authorities following
receipt of at least two subscriber complaints.
The 1992 Cable Act provided that all rate regulation, for both the upper tiers
and for basic service, is eliminated when a cable system is subject to
"effective competition" from another multichannel video programming provider
such as MMDS, DBS, a telephone company, or a combination of all of these. The
1996 Telecom Act expanded the definition of "effective competition" to include
instances in which a local telephone company or its affiliate (or a multichannel
video programming distributor using the facilities of a telephone company or its
affiliates) offers comparable video programming directly to subscribers by any
means (other than DBS) in the cable operator's franchise area. Since telephone
companies are providing or planning to provide video services in several of the
franchise areas served by the Systems, this provision will allow the Systems
greater flexibility in packaging and pricing in those markets if the FCC makes a
finding of "effective
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competition" in these markets based on telephone company competition. The
Company has been successful in obtaining such an FCC finding in certain markets,
and has filed petitions for such findings in other markets.
The 1996 Telecom Act also eliminated the uniform rate structure requirements of
the 1992 Cable Act for cable operators in areas subject to effective competition
or for video programming offered on a per channel or per program basis, and
allowed non-uniform bulk discount rates to be offered to multiple dwelling
units.
The 1996 Telecom Act also directed the FCC to initiate a process through which
the cable industry would develop standards such that subscribers can use set top
boxes purchased or leased from any distributor.
Other FCC Regulation. In addition to the rules and regulations promulgated by
the FCC under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act,
the FCC has promulgated other rules affecting the Company. FCC rules require
that cable systems black out certain network and sports programming on imported
distant broadcast signals upon request. The FCC also requires that cable systems
delete syndicated programming carried on distant signals upon the request of any
local station holding the exclusive right to broadcast the same program within
the local television market and, in certain cases, upon the request of the
copyright owner of such programs. These rules affect the diversity and cost of
the programming options for the Systems.
FCC regulation also includes matters regarding restrictions on origination and
cablecasting by cable system operators; application of the rules governing
political broadcasts; customer service; ownership and control of cable home
wiring in single family residences and multiple dwelling units and limitations
on advertising contained in nonbroadcast children's programming.
Implementing provisions of the 1993 Budget Act, the FCC has adopted requirements
for payment of annual "regulatory fees" which may be passed on to subscribers as
"external cost" adjustments to basic cable service. Fees are also assessed for
other licenses held by cable operators, including licenses for business radio,
cable television relay systems (CARS) and earth stations, which, however, may
not be collected directly from subscribers.
The FCC has the authority to regulate utility company rates for cable rental of
pole and conduit space. States can establish preemptive regulations in this
area, and the states in which the Systems operate have done so. The 1996 Telecom
Act modified the pole attachment provisions of the Communications Act by
requiring that utilities provide cable systems and telecommunications carriers
with nondiscriminatory access to any pole, conduit or right-of-way controlled by
the utility. The FCC has adopted regulations to govern the charges for pole
attachments used by companies providing telecommunications services, including
cable operators. These regulations are likely to increase significantly the
rates charged to cable companies providing voice and data, in addition to video
services. These new pole attachment regulations do not become effective,
however, until 2001, and subsequent increases in attachment rates resulting from
the FCC's new regulations will be phased in equal annual increments over a
subsequent period of five years, until 2006.
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The FCC's technical guidelines for signal leakage became substantially more
stringent in 1990, requiring upgrading expenditures by the Systems. Two-way
radio stations, microwave-relay stations and satellite earth stations used by
the Systems are licensed by the FCC.
Federal Copyright Regulation. There are no restrictions on the number of distant
broadcast television signals that cable television systems can import, but cable
systems are required to pay copyright royalty fees to receive a compulsory
license to carry them. The United States Copyright Office has increased the
royalty fee from time to time. The FCC and the Copyright offices have, at
different times, recommended to Congress changes in the compulsory licenses for
cable television carriage of broadcast signals. This could adversely affect the
ability of the Systems to obtain such programming and could increase the cost of
such programming. No prediction can be made as to whether Congress will enact
any such changes to the copyright laws.
Cable Television Cross-Media Ownership Limitations. In addition to the
prohibition on telephone company-cable cross-ownership, now removed by the 1996
Telecom Act, the 1984 Cable Act prohibited any person or entity from owning
broadcast television and cable properties in the same market. The 1992 Cable Act
imposed limits on new acquisitions of SMATV or MMDS systems by cable operators
in their franchise areas. The 1996 Telecom Act repealed the statutory ban on
cable-broadcast station cross-ownership to permit common ownership or control of
a television station and a cable system with overlapping service areas, but left
in place the cable system-television station cross-ownership restriction
contained in the FCC's rules and does not prejudge the Commission's review of
the regulation, which was initiated in 1998. The FCC has eliminated its
regulations concerning broadcast network-cable cross-ownership to permit common
control of both a television network and a cable system, as required by the 1996
Telecom Act. The 1996 Telecom Act removes the statutory ban on cable-MMDS
cross-ownership on any cable operator in a franchise area where one cable
operator is subject to effective competition.
State and Municipal Regulation of Cable Television. Regulatory responsibility
for essentially local aspects of the cable business such as franchisee
selection, system design and construction, safety, and consumer services remains
with either state or local officials and, in some jurisdictions, with both. The
1992 Cable Act expanded the factors that a franchising authority can consider in
deciding whether to renew a franchise and limits the damages for certain
constitutional claims against franchising authorities for their franchising
activities. New York law provides for comprehensive state-wide regulation,
including approval of transfers of cable franchises and consumer protection
legislation. Massachusetts, New Jersey and Connecticut also have substantial
cable regulatory authority at the state level. State and local franchising
jurisdiction is not unlimited, however, and must be exercised consistently with
the provisions of the 1984 Cable Act and the 1992 Cable Act. Among the more
significant restrictions that the 1984 Cable Act imposes on the regulatory
jurisdiction of local franchising authorities is a 5% ceiling on franchise fees
and mandatory renegotiation of certain franchise requirements if warranted by
changed circumstances.
Telecommunications Regulation. The 1996 Telecom Act removes barriers to entry in
the local telephone market that is now monopolized by the Bell Operating
Companies ("BOCs") and other incumbent local exchange carriers by preempting
state and local laws that restrict competition and by requiring incumbent local
exchange telephone companies to provide nondiscriminatory access and
interconnection to potential competitors, such as cable operators and long
distance companies.
(22)
At the same time, the law eliminated the Modified Final Judgment and permits the
BOCs to enter the market for long distance service (through a separate
subsidiary), on a state-by-state basis, after they satisfy a "competitive
checklist." The 1996 Telecom Act also facilitates the entry of utility companies
into the telecommunications market. One utility company, Boston Edison, has
teamed with one of the Company's competitors, RCN, to provide bundled
telecommunications and video services in the Boston market.
The 1996 Telecom Act also eliminates or streamlines many of the requirements
applicable to local exchange carriers, and requires the FCC and states to review
universal service programs and encourage access to advanced telecommunications
services provided by all entities, including cable companies, by schools,
libraries and other public institutions. The FCC and, in some cases, states have
conducted numerous rulemaking proceedings to implement these provisions.
Programming and Entertainment
Cable television program distributors such as Rainbow Media are not directly
regulated by the FCC under the Communications Act of 1934. To the extent that
regulations and laws, either presently in force or proposed, hinder or stimulate
the growth of the cable television and satellite industries, the business of
Rainbow Media will be directly affected. As discussed above under "Business -
Regulation - Cable Television," the 1992 Cable Act limits in certain ways the
Company's ability to manage freely the Rainbow Media services or carry the
Rainbow Media services on their affiliates' systems and imposes or could impose
other regulations on the Rainbow Media companies. The "program access"
provisions of the 1992 Cable Act require that Rainbow Media services be sold,
under certain circumstances, to multichannel video programming providers that
compete with the Company's local cable systems. The 1996 Telecom Act extends the
program access requirements of the 1992 Cable Act to a telephone company that
provides video programming by any means directly to subscribers, and to
programming in which such a company holds an attributable ownership interest,
thus allowing the Company's cable systems similar access to programming
developed by their telephone company competitors.
Under a mandate in the 1996 Telecom Act, the FCC has also imposed requirements
on cable operators that, in effect, require certain Rainbow Media services to
provide closed captioning for the hearing-impaired. The FCC is also considering
rules that would force certain Rainbow Media services to provide video
descriptions for the sight-impaired.
The 1984 Cable Act limits the number of commercial leased access channels that a
cable television operator must make available for potentially competitive
services but the 1992 Cable Act empowered the FCC to set the rates and
conditions for such leased access channels, which it has done in a manner
designed to increase use of such channels.
Satellite common carriers, from whom Rainbow Media and its affiliates obtain
transponder channel time to distribute their programming, are directly regulated
by the FCC. All common carriers must obtain from the FCC a certificate for the
construction and operation of their interstate communications facilities.
Satellite common carriers must also obtain FCC authorization to utilize
satellite orbital slots assigned to the United States by the World
Administrative Radio Conference. Such slots are finite in number, thus limiting
the number of carriers that can provide satellite service
(23)
and the number of channels available for program producers and distributors such
as Rainbow Media and its affiliates. Nevertheless, there are at present numerous
competing satellite services that provide transponders for video services to the
cable industry.
All common carriers must offer their communications service to Rainbow Media and
others on a nondiscriminatory basis (including by means of a lottery). A
satellite carrier cannot unreasonably discriminate against any customer in its
charges or conditions of carriage.
The operations of the professional sports franchises owned by Madison Square
Garden, L.P., are regulated by the leagues in which the teams participate. Both
the NBA and the NHL have regulations governing, among other things, player
matters and transfers of ownership interests and licensing matters.
Telephone and Modem Services
As a telecommunications carrier, Lightpath is subject to regulation by the FCC
and by the state public service commission in each state in which it provides
service. In order to provide service, moreover, Lightpath must seek approval
from each such state commission. Lightpath has obtained this approval from the
state commissions in New York, Connecticut, Massachusetts, New Jersey and Ohio.
Lightpath's regulatory obligations vary from state to state and include some or
all of the following requirements: filing tariffs (rates, terms and conditions);
filing operational, financial, and customer service reports; seeking approval to
transfer the assets or capital stock of the telephone company; seeking approval
to issue stocks, bonds, and other forms of indebtedness of the telephone
company; and filing all contracts or other documentation involving transactions
between the telephone company and its affiliates. States may also impose
requirements on competitive carriers to contribute to the funding of discounted
"universal" telecommunications services for educational institutions, low income
persons, and persons in rural areas.
As Lightpath offers interstate long distance services, it is subject to various
FCC requirements, including the payment of regulatory fees, Telecommunication
Relay Services funding, and the contributions to the maintenance of "universal
service" as required by the 1996 Telecom Act. Also under the 1996 Telecom Act,
Lightpath must compensate carriers that terminate calls originating on
Lightpath's network (Lightpath is entitled to compensation from carriers when it
terminates calls); interconnect directly or indirectly with other carriers; make
its telecommunications services available for resale; and provide number
portability, dialing parity, and access-to-rights-of-way.
Employees and Labor Relations
As of December 31, 1999, the Company had 13,666 full-time, 4,037 part-time and
5,710 temporary employees of which 600, 994 and 3,107, respectively, were
covered under collective bargaining agreements. The Company believes that its
relations with its employees are satisfactory.
(24)
Item 2. Properties
The Company generally leases the real estate where its business offices,
microwave receiving antennae, earth stations, transponders, microwave towers,
warehouses, headend equipment, hub sites, program production studios and access
studios are located. The Company occupies a leased headquarters building located
in Bethpage, New York with approximately 536,000 square feet of space and
several business offices in Woodbury, New York with an aggregate of
approximately 173,000 square feet of space. Other significant leasehold
properties include approximately 140,000 square feet housing Madison Square
Garden's office operations and approximately 569,000 square feet comprising
Radio City Music Hall. Cablevision Electronics leases 41 retail store locations,
a warehouse and a corporate office aggregating approximately 1,703,000 square
feet. In addition, in February 2000, the Company entered into a long-term lease
for business offices in Jericho, New York with approximately 311,000 square feet
of space.
The Company generally owns all assets (other than real property) related to its
cable television operations, including its program production equipment, headend
equipment (towers, antennae, electronic equipment and satellite earth stations),
cable system plant (distribution equipment, amplifiers, subscriber drops and
hardware), converters, test equipment, tools and maintenance equipment. The
Company, through Madison Square Garden, also owns the Madison Square Garden
arena and theater complex in New York City comprising approximately 1,016,000
square feet.
CCG Holdings, Inc. leases 51 theaters with approximately 45,800 seats and owns
an additional 13 theaters with approximately 10,900 seats.
The Company generally leases its service and other vehicles.
The Company believes its properties are adequate for its use.
Item 3. Legal Proceedings
The Company is 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 the financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
(25)
PART II
Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters
Cablevision Systems Corporation's Class A Common Stock and CSC Holdings, Inc.'s
Class A Common Stock prior to the consummation of the Holding Company
Reorganization on March 4, 1998, was traded on the American Stock Exchange. On
December 7, 1999, Cablevision Systems Corporation's Class A Common Stock began
trading on the New York Stock Exchange, under the symbol "CVC". The following
table sets forth the high and low sales prices (adjusted for the two-for-one
stock splits) for the last two years of Class A Common Stock as reported by the
American Stock Exchange or the New York Stock Exchange, as applicable, for the
periods indicated.
1999 1998
-------------------------- ----------------------------
Quarter High Low High Low
------- ---- --- ---- ---
First 77-7/16 49-7/8 33-1/2 21-25/32
Second 91-7/8 60-1/2 42 26-9/16
Third 79-3/8 67-1/4 45-15/16 32
Fourth 80-1/8 58-7/8 50-1/4 36-1/2
As of March 17, 2000, there were 892 holders of record of Cablevision Systems
Corporation Class A Common Stock.
There is no public trading market for the Cablevision Systems Corporation Class
B Common Stock, par value $.01 per share ("Class B Common Stock"). As of March
17, 2000, there were 25 holders of record of Class B Common Stock.
All outstanding shares of common stock of CSC Holdings are held by Cablevision
Systems Corporation.
See Item 1. "Business - The Holding Company Reorganization and TCI Transactions"
for a description of the changes to the Company's capitalization as a result of
the Reorganization.
Dividends. Neither CSC Holdings (prior to the Reorganization) nor Cablevision
Systems Corporation (after the Reorganization) have paid any dividends on shares
of Class A or Class B Common Stock. Cablevision Systems Corporation does not
anticipate paying any cash dividends on shares of Cablevision Systems
Corporation Class A or Class B Common Stock in the foreseeable future.
Cablevision Systems Corporation and CSC Holdings may pay cash dividends on their
capital stock only from surplus as determined under Delaware law. Holders of
Cablevision Parent Class A and Cablevision Parent Class B Common Stock are
entitled to receive dividends equally on a per share basis if and when such
dividends are declared by the Board of Directors of Cablevision Parent from
funds legally available therefore. No dividend may be declared or paid in cash
or property on shares of either Cablevision Parent Class A or Cablevision Parent
Class B Common Stock unless the same dividend is paid simultaneously on each
share of the other class of common stock. In the
(26)
case of any stock dividend, holders of Cablevision Parent Class A Common Stock
are entitled to receive the same percentage dividend (payable in shares of
Cablevision Parent Class A Common Stock) as the holders of Cablevision Parent
Class B Common Stock receive (payable in shares of Cablevision Parent Class B
Common Stock). In December 1998, CSC Holdings paid a dividend of $42.1 million
to Cablevision Parent.
CSC Holdings paid $21.9 million of cash dividends on the Series I Preferred
Stock and $148.2 million of dividends in additional shares of Series H and M
Preferred Stock in 1999. CSC Holdings is restricted from paying dividends on its
preferred stock under the provisions of its senior credit agreement if a default
has occurred and is continuing under such agreement. Additionally, CSC Holdings'
senior credit agreement, senior debentures and senior subordinated debt
instruments may restrict the payment of dividends in respect of any shares of
capital stock in certain circumstances.
Dividends may not be paid in respect of shares of the Company's common stock
unless all dividends due and payable in respect of the preferred stock of CSC
Holdings have been paid or provided for. See Item 7. - "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources-Restricted Group."
(27)
Item 6. Selected Financial Data
SELECTED FINANCIAL AND STATISTICAL DATA
The operating and balance sheet data included in the following selected
financial data have been derived from the consolidated financial statements of
Cablevision Systems Corporation and CSC Holdings, Inc. Acquisitions made by
these companies were accounted for under the purchase method of accounting and,
accordingly, the acquisition costs were allocated to the net assets acquired
based on their fair value, except for assets previously owned by Mr. Dolan or
affiliates of Mr. Dolan which were recorded at historical cost. Acquisitions are
reflected in operating, balance sheet and statistical data from the time of
acquisition. CSC Holdings, Inc.'s operating, balance sheet and statistical data
prior to April 5, 1999 has been restated to include the financial position,
results of operations and statistical information of the TCI Systems from March
4, 1998. The selected financial data presented below should be read in
conjunction with the consolidated financial statements of Cablevision Systems
Corporation and CSC Holdings, Inc. and the notes thereto included in Item 8 of
this Report.
Cablevision Systems Corporation
------------------------------------------------------------------
December 31,
------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Operating Data:
Revenues, net .................................................. $ 3,942,985 $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060
Operating expenses:
Technical and operating ................................... 1,535,423 1,268,786 853,800 538,272 412,479
Retail electronics cost of sales .......................... 484,760 367,102 -- -- --
Selling, general and administrative ....................... 1,203,119 906,465 514,574 313,476 266,209
Depreciation and amortization ............................. 893,797 734,107 499,809 388,982 319,929
----------- ----------- ----------- ----------- -----------
Operating profit (loss) ........................................ (174,114) (11,317) 81,175 74,412 79,443
Other income (expense):
Interest expense, net ..................................... (465,740) (402,374) (363,208) (265,015) (311,887)
Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) (82,028) (93,024)
Gain on sale of programming interests and cable assets, net -- 170,912 372,053 -- 35,989
Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 -- --
Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) (37,784) (5,517)
Provision for preferential payment to related party ....... -- (980) (10,083) (5,600) (5,600)
Minority interests ........................................ (120,524) (124,677) (209,461) (137,197) (28,886)
Miscellaneous, net ........................................ (16,570) (19,218) (12,606) (6,647) (8,225)
----------- ----------- ----------- ----------- -----------
Net loss ....................................................... $ (800,607) $ (448,504) $ (12,104) $ (459,859) $ (337,707)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common share .................... $ (5.12) $ (3.16) $ (.12) $ (4.63) $ (3.54)
=========== =========== =========== =========== ===========
Average number of common shares outstanding (in thousands) ..... 156,503 142,016 99,608 99,308 95,304
=========== =========== =========== =========== ===========
Cash dividends declared per common share ....................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
(28)
Cablevision Systems Corporation
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................... $ 7,130,308 $ 7,061,062 $ 5,614,788 $ 3,034,725 $ 2,502,305
Total debt ..................................... 6,094,701 5,357,608 4,694,062 3,334,701 3,157,107
Minority interests ............................. 592,583 719,007 821,782 -- --
Deficit investment in affiliates ............... -- -- -- 512,800 453,935
Preferred stock of CSC Holdings, Inc. .......... 1,404,511 1,579,670 1,456,549 1,338,006 590,492
Stockholders' deficiency ....................... (3,067,083) (2,611,685) (2,711,514) (2,707,026) (2,224,417)
Cablevision Systems Corporation
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Statistical Data:
Homes passed by cable .......................... 5,200,000 5,115,000 4,398,000 3,858,000 3,328,000
Basic service subscribers ...................... 3,492,000 3,412,000 2,844,000 2,445,000 2,061,000
Basic service subscribers as a percentage of
homes passed .............................. 67.2% 66.7% 64.7% 63.4% 61.9%
Number of premium television units (1) ......... 7,715,000 6,754,000 4,471,000 4,221,000 3,734,000
Average number of premium units per basic
subscriber at period end (1) .............. 2.2 2.0 1.6 1.7 1.8
Average monthly revenue per basic subscriber (2) $ 44.38 $ 42.56 $ 38.53 $ 36.71 $ 37.07
- - ----------
(1) Restated for 1995 through 1998 to conform to 1999's definition and
reflects in 1995 through 1997 the operations of certain cable television
systems which had relatively lower premium unit penetration and were sold
by December 1998.
(2) Based on recurring service revenues divided by average subscribers for the
month of December.
(29)
CSC Holdings, Inc.
-------------------------------------------------------------------
December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in thousands, except per share data)
Operating Data:
Revenues, net .................................................. $ 3,942,985 $ 3,265,143 $ 1,949,358 $ 1,315,142 $ 1,078,060
Operating expenses:
Technical and operating ................................... 1,535,423 1,268,786 853,800 538,272 412,479
Retail electronics cost of sales .......................... 484,760 367,102 -- -- --
Selling, general and administrative ....................... 1,203,119 906,465 514,574 313,476 266,209
Depreciation and amortization ............................. 893,797 734,107 499,809 388,982 319,929
----------- ----------- ----------- ----------- -----------
Operating profit (loss) ........................................ (174,114) (11,317) 81,175 74,412 79,443
Other income (expense):
Interest expense, net ..................................... (465,740) (402,374) (363,208) (265,015) (311,887)
Equity in net loss of affiliates .......................... (19,234) (37,368) (27,165) (82,028) (93,024)
Gain on sale of programming interests and cable assets, net -- 170,912 372,053 -- 35,989
Gain on redemption of subsidiary preferred stock .......... -- -- 181,738 -- --
Write off of deferred interest and financing costs ........ (4,425) (23,482) (24,547) (37,784) (5,517)
Provision for preferential payment to related party ....... -- (980) (10,083) (5,600) (5,600)
Minority interests ........................................ 49,563 37,195 (60,694) (9,417) (8,637)
Miscellaneous, net ........................................ (16,570) (19,218) (12,606) (6,647) (8,225)
----------- ----------- ----------- ----------- -----------
Net income (loss) .............................................. (630,520) (286,632) 136,663 (332,079) (317,458)
Dividend requirements applicable to preferred stock ............ (170,087) (161,872) (148,767) (127,780) (20,249)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common shareholder ...................... $ (800,607) $ (448,504) $ (12,104) $ (459,859) $ (337,707)
=========== =========== =========== =========== ===========
Basic and diluted net loss per common share* ................... $ -- $ -- $ (.12) $ (4.63) $ (3.54)
=========== =========== =========== =========== ===========
Average number of common shares outstanding (in thousands)* .... -- -- 99,608 99,308 95,304
=========== =========== =========== =========== ===========
Cash dividends declared per common share* ...................... $ -- $ -- $ -- $ -- $ --
=========== =========== =========== =========== ===========
- - ----------
* Per share information for the years ended December 31, 1999 and 1998 are
not presented since CSC Holdings, Inc. became a wholly-owned subsidiary of
Cablevision Parent in 1998.
(30)
CSC Holding, Inc.
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
(Dollars in thousands)
Balance Sheet Data:
Total assets ................................... $ 7,130,308 $ 7,061,025 $ 5,614,788 $ 3,034,725 $ 2,502,305
Total debt ..................................... 6,094,701 5,357,608 4,694,062 3,334,701 3,157,107
Minority interests ............................. 592,583 719,007 821,782 -- --
Deficit investment in affiliates ............... -- -- -- 512,800 453,935
Redeemable preferred stock ..................... 1,404,511 1,256,339 1,123,808 1,005,265 257,751
Stockholder's deficiency ....................... (3,078,413) (2,286,744) (2,711,514) (2,707,026) (2,224,417)
CSC Holding, Inc.
--------------------------------------------------------------------------------
December 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
Statistical Data:
Homes passed by cable .......................... 5,200,000 5,115,000 4,398,000 3,858,000 3,328,000
Basic service subscribers ...................... 3,492,000 3,412,000 2,844,000 2,445,000 2,061,000
Basic service subscribers as a percentage of
homes passed .............................. 67.2% 66.7% 64.7% 63.4% 61.9%
Number of premium television units (1) ......... 7,715,000 6,754,000 4,471,000 4,221,000 3,734,000
Average number of premium units per basic
subscriber at period end (1) .............. 2.2 2.0 1.6 1.7 1.8
Average monthly revenue per basic subscriber (2) $ 44.38 $ 42.56 $ 38.53 $ 36.71 $ 37.07
- - ----------
(1) Restated for 1995 through 1998 to conform to 1999's definition and
reflects in 1995 through 1997 the operations of certain cable television
systems which had relatively lower premium unit penetration and were sold
by December 1998.
(2) Based on recurring service revenues divided by average subscribers for the
month of December.
(31)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Annual Report contains or incorporates by reference statements that
constitute forward looking information within the meaning of the Private
Securities Litigation Reform Act of 1995. 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:
(i) the level of growth in the Company's revenues;
(ii) subscriber demand, competition, the cost of programming and industry
conditions;
(iii) whether expenses of the Company continue to increase or increase at a rate
faster than expected;
(iv) whether any unconsummated transactions are consummated on the terms and at
the times set forth (if at all);
(v) new competitors entering the Company's franchise areas;
(vi) other risks and uncertainties inherent in the cable television business;
(vii) financial community and rating agency perceptions of the Company and its
business, operations, financial condition and the industry in which it
operates; and
(viii) the factors described in the Company's registration statement on Form
S-3, including the section entitled "Risk Factors" contained therein.
The information contained herein concerning Year 2000 issues ("Y2K") constitutes
forward looking information. The identification and remediation of Y2K issues is
a technological effort that has never been undertaken before and estimates of
the outcome, time and expense of this endeavor are, for that reason,
particularly hard to make with any certainty. As a result, the Company's
estimates may prove to be materially inaccurate.
The Company disclaims any obligation to update the forward-looking statements
contained or incorporated by reference herein.
(32)
Recent Transactions
1999 Acquisitions. In April 1999, CSC Holdings purchased ITT's remaining
minority interest in Madison Square Garden. In 1999, CSC Holdings acquired
interests in the real property and assets related to certain movie theaters.
1998 Acquisitions. In December 1998, CSC Holdings acquired the net assets of
Clearview and certain assets from Loews. In June 1998, CSC Holdings purchased
50% of ITT's then remaining minority interest in Madison Square Garden. In March
1998, Cablevision Parent acquired certain cable television systems in New York
and New Jersey from TCI. In addition, in February 1998, Cablevision Electronics
acquired substantially all of the assets associated with 40 The WIZ consumer
electronics store locations (the "WIZ Transaction").
1998 Dispositions. In 1998, CSC Holdings completed the sale of substantially all
of the assets of U.S. Cable Television Group, L.P. and the sale of several
smaller cable television systems. Also in 1998, CSC Holdings transferred its
cable television system in Rensselaer, New York plus approximately $16 million
in cash to Time Warner in exchange for Time Warner's Litchfield, Connecticut
system. In addition, in January 1998, Rainbow Media completed the sale of an
interest in a regional sports programming business.
1997 Acquisitions and Transactions. In December 1997, Rainbow Media completed
certain transactions with Fox. Also in December 1997, Madison Square Garden
acquired all of the membership interests in Radio City Productions, LLC. In July
1997, CSC Holdings acquired from Warburg Pincus the Series A Preferred Stock of
A-R Cable Services, Inc. ("A-R Cable") which resulted in the consolidation of
A-R Cable's operations from the date of the transaction. In June 1997, CSC
Holdings acquired from Warburg Pincus the equity interest that Warburg Pincus
had in certain cable television systems in Massachusetts giving the Company full
ownership of these systems. In June 1997, CSC Holdings redeemed a portion of
ITT's interest in Madison Square Garden which increased Rainbow Media's interest
in Madison Square Garden from 50% to 89.8%. In April 1997, CSC Holdings
exchanged 25% of its interest in Rainbow Media for NBC's interest in certain of
Rainbow Media's programming entities.
1997 Dispositions. In 1997, CSC Holdings completed the sale of certain cable
television systems and Rainbow Media completed the sale of the assets of a radio
station.
The above transactions completed in 1999, 1998 and 1997 are collectively
referred to as the "Net Acquisitions."
(33)
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
Years Ended December 31,
-----------------------------------------------------
1999 1998
----------------------- ------------------------
(Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net....................................... $3,942,985 100% $3,265,143 100% $677,842
Operating expenses:
Technical and operating.......................... 1,535,423 39 1,268,786 39 (266,637)
Retail electronics cost of sales................. 484,760 12 367,102 11 (117,658)
Selling, general & administrative................ 1,203,119 31 906,465 28 (296,654)
Depreciation and amortization.................... 893,797 23 734,107 22 (159,690)
--------- --------- ---------
Operating loss...................................... (174,114) (4) (11,317) - (162,797)
Other income (expense):
Interest expense, net............................ (465,740) (12) (402,374) (12) (63,366)
Equity in net loss of affiliates................. (19,234) (1) (37,368) (1) 18,134
Gain on sale of programming interests and cable
assets, net.................................. - - 170,912 5 (170,912)
Write off of deferred interest and financing costs (4,425) - (23,482) (1) 19,057
Provision for preferential payment to related party - - (980) - 980
Minority interests............................... (120,524) (3) (124,677) (4) 4,153
Miscellaneous, net............................... (16,570) - (19,218) (1) 2,648
--------- --------- ---------
Net loss............................................ $(800,607) (20)% $(448,504) (14)% $(352,103)
========= ========= =========
Years Ended December 31,
-----------------------------------------------------
1998 1997
----------------------- ------------------------
(Increase)
% of Net % of Net Decrease
Amount Revenues Amount Revenues in Net loss
------ -------- ------ -------- -----------
(Dollars in thousands)
Revenues, net....................................... $3,265,143 100% $1,949,358 100% $1,315,785
Operating expenses:
Technical and operating.......................... 1,268,786 39 853,800 44 (414,986)
Retail electronics cost of sales................. 367,102 11 - - (367,102)
Selling, general & administrative................ 906,465 28 514,574 26 (391,891)
Depreciation and amortization.................... 734,107 22 499,809 26 (234,298)
--------- --------- ---