UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended
March 31, 2016
 
 
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from
 
to
 
 
 
Commission File Number
 
Registrant; State of Incorporation; Address and Telephone Number
 
IRS Employer Identification No.
 
 
 
 
 
1-14764
 
Cablevision Systems Corporation
 
11-3415180
 
 
Delaware
 
 
 
 
1111 Stewart Avenue
 
 
 
 
Bethpage, New York  11714
 
 
 
 
(516) 803-2300
 
 
 
 
 
 
 
1-9046
 
CSC Holdings, LLC
 
27-0726696
 
 
Delaware
 
 
 
 
1111 Stewart Avenue
 
 
 
 
Bethpage, New York  11714
 
 
 
 
(516) 803-2300
 
 
Indicate by check mark whether the Registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
Cablevision Systems Corporation
Yes
ý
No
o
CSC Holdings, LLC
Yes
ý
No
o
Indicate by check mark whether the Registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrants were required to submit and post such files). Yes   ý    No o

 
 
 
 
 
 
 
 
 
 



Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
 
Large accelerated
filer
 
Accelerated
filer
 
Non-accelerated
filer
 
Smaller Reporting Company
Cablevision Systems Corporation
Yes
ý
 
No
o
 
Yes
o
 
No
ý
 
Yes
o
 
No
ý
 
Yes
o
No
ý
CSC Holdings, LLC
Yes
o
 
No
ý
 
Yes
o
 
No
ý
 
Yes
ý
 
No
o
 
Yes
o
No
ý
Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).
Cablevision Systems Corporation
Yes
o
No
ý
CSC Holdings, LLC
Yes
o
No
ý
Number of shares of common stock outstanding as of April 29, 2016:
Cablevision NY Group Class A Common Stock   -
222,188,952

Cablevision NY Group Class B Common Stock   -
54,137,673

CSC Holdings, LLC Interests of Member  -
17,631,479

CSC Holdings, LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format applicable to CSC Holdings, LLC.



CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
 
 
Page
 
 
 
PART I.
FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.
Financial Statements of Cablevision Systems Corporation and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statements of CSC Holdings, LLC and Subsidiaries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 6.
 
 
 
 
 





PART I.
FINANCIAL INFORMATION

This Quarterly Report on Form 10-Q for the period ended March 31, 2016 is separately filed by Cablevision Systems Corporation ("Cablevision") and CSC Holdings, LLC ("CSC Holdings" and collectively with Cablevision, the "Company", "we", "us" or "our").
This Quarterly Report contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995.  In this Quarterly Report there are statements concerning our future operating results and future financial performance.  Words such as "expects", "anticipates", "believes", "estimates", "may", "will", "should", "could", "potential", "continue", "intends", "plans" and similar words and terms used in the discussion of future operating results, future financial performance and future events identify forward-looking statements.  Investors are cautioned that such forward-looking statements are not guarantees of future performance, results or events and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors.  Factors that may cause such differences to occur include, but are not limited to:
the level of our revenues;
competition for subscribers from existing competitors (such as telephone companies, direct broadcast satellite ("DBS") distributors, and Internet-based providers) and new competitors entering our franchise areas;
demand for our video, high-speed data and voice services, which is impacted by competition from other services and changes in technology and consumer expectations and behavior;
the level of our expenses, including the cost of programming;
the level of our capital expenditures;
changes in the laws or regulations under which we operate;
general economic conditions in the areas in which we operate;
the state of the market for debt securities and bank loans;
demand for advertising in our newspapers along with subscriber and single copy outlet sales demand for our newspapers;
market demand for new services;
demand for advertising on our cable television systems;
industry conditions;
the outcome of litigation and other proceedings, including the matters described in Note 12 of the combined notes to our condensed consolidated financial statements;
future acquisitions and dispositions of assets;
the tax-free treatment of the MSG Distribution (whereby Cablevision distributed to its stockholders all of the outstanding common stock of The Madison Square Garden Company) and the AMC Networks Distribution (whereby Cablevision distributed to its stockholders all of the outstanding common stock of AMC Networks Inc.);
whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all);
other risks and uncertainties inherent in our cable and other telecommunications services businesses, our newspaper publishing business, and our other businesses;
financial community and rating agency perceptions of our business, operations, financial condition and the industries in which we operate;
the expected timing and likelihood of consummation of the pending Merger (as defined herein), including the timing, receipt and terms and conditions of any required governmental approvals; the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement (as defined herein); the risk that the parties may not be able to satisfy the conditions to the proposed Merger in a timely manner or at all; risks related to the disruption of management’s time from ongoing business operations due to the proposed Merger; the risk that any announcements relating to the proposed Merger could have adverse effects on the price of Cablevision's shares of common stock and our debt securities; and the risk that the proposed Merger and its announcement could have an adverse effect on our ability to retain and hire key personnel and maintain relationships with our suppliers and customers, and on our operating results and businesses generally; and
the factors described in our filings with the Securities and Exchange Commission, including under the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein.
We disclaim any obligation to update or revise the forward-looking statements contained herein, except as otherwise required by applicable federal securities laws.


1


Item 1.
Financial Statements
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
933,457

 
$
1,003,279

Accounts receivable, trade (less allowance for doubtful accounts of $5,604 and $6,039)
260,979

 
266,383

Prepaid expenses and other current assets
144,007

 
124,842

Amounts due from affiliates
2,066

 
767

Deferred tax asset

 
14,596

Investment securities pledged as collateral
489,045

 
455,386

Derivative contracts
7,307

 
10,333

Total current assets
1,836,861

 
1,875,586

Property, plant and equipment, net of accumulated depreciation of $9,559,157 and $9,625,348
2,957,893

 
3,017,015

Investment securities pledged as collateral
822,808

 
756,596

Derivative contracts
31,461

 
72,075

Other assets
39,631

 
32,920

Amortizable intangible assets, net of accumulated amortization of $62,045 and $60,310
35,481

 
36,951

Indefinite-lived cable television franchises
731,848

 
731,848

Trademarks and other indefinite-lived intangible assets
7,250

 
7,250

Goodwill
262,345

 
262,345

Deferred financing costs, net of accumulated amortization of $8,930 and $8,150
6,808

 
7,588

 
$
6,732,386

 
$
6,800,174



See accompanying combined notes to condensed consolidated financial statements.


2


CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Cont'd)
(In thousands, except share amounts)
(Unaudited)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
452,984

 
$
453,653

Accrued liabilities
479,383

 
632,995

Amounts due to affiliates
30,129

 
29,729

Deferred tax liability
23,674

 

Deferred revenue
63,246

 
55,545

Liabilities under derivative contracts
7,078

 
2,706

Credit facility debt
575,150

 
562,898

Collateralized indebtedness
433,014

 
416,621

Capital lease obligations
19,185

 
20,350

Notes payable
10,170

 
13,267

Total current liabilities
2,094,013

 
2,187,764

Deferred revenue
4,026

 
4,244

Other liabilities
228,726

 
260,752

Deferred tax liability
727,947

 
704,835

Credit facility debt
1,925,303

 
1,951,556

Collateralized indebtedness
758,310

 
774,703

Capital lease obligations
21,547

 
25,616

Notes payable

 
1,277

Senior notes and debentures
5,805,397

 
5,801,011

Total liabilities
11,565,269

 
11,711,758

Commitments and contingencies


 


Stockholders' Deficiency:
 

 
 

Preferred Stock, $.01 par value, 50,000,000 shares authorized, none issued

 

CNYG Class A common stock, $.01 par value, 800,000,000 shares authorized, 305,148,220 and 304,196,703 shares issued and 222,188,952 and 222,572,210 shares outstanding
3,051

 
3,042

CNYG Class B common stock, $.01 par value, 320,000,000 shares authorized, 54,137,673 shares issued and outstanding
541

 
541

RMG Class A common stock, $.01 par value, 600,000,000 shares authorized, none issued

 

RMG Class B common stock, $.01 par value, 160,000,000 shares authorized, none issued

 

Paid-in capital
821,112

 
792,351

Accumulated deficit
(3,965,034
)
 
(4,059,411
)
 
(3,140,330
)
 
(3,263,477
)
Treasury stock, at cost (82,959,268 and 81,624,493 CNYG Class A common shares)
(1,651,637
)
 
(1,610,167
)
Accumulated other comprehensive loss
(40,582
)
 
(37,672
)
Total stockholders' deficiency
(4,832,549
)
 
(4,911,316
)
Noncontrolling interest
(334
)
 
(268
)
Total deficiency
(4,832,883
)
 
(4,911,584
)
 
$
6,732,386

 
$
6,800,174

 
See accompanying combined notes to condensed consolidated financial statements.


3




CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Revenues, net (including revenues, net from affiliates of $1,139 and $1,191, respectively) (See Note 14)
$
1,640,757

 
$
1,614,771

Operating expenses:
 

 
 

Technical and operating (excluding depreciation and amortization and including net charges from affiliates of $44,892 and $44,937, respectively) (See Note 14)
810,961

 
795,888

Selling, general and administrative (including net charges from affiliates of $1,942 and $1,928, respectively) (See Note 14)
365,051

 
376,764

Restructuring expense (credits)
1,037

 
(532
)
Depreciation and amortization
212,453

 
218,900

 
1,389,502

 
1,391,020

Operating income
251,255

 
223,751

Other income (expense):
 

 
 

Interest expense, net
(148,482
)
 
(145,012
)
Gain (loss) on investments, net
100,365

 
(33,071
)
Gain (loss) on equity derivative contracts, net
(48,012
)
 
46,166

Miscellaneous, net
1,971

 
1,007

 
(94,158
)
 
(130,910
)
Income from continuing operations before income taxes
157,097

 
92,841

Income tax expense
(62,786
)
 
(37,940
)
Income from continuing operations, net of income taxes
94,311

 
54,901

Loss from discontinued operations, net of income taxes

 
(10,502
)
Net income
94,311

 
44,399

Net loss attributable to noncontrolling interests
66

 
234

Net income attributable to Cablevision Systems Corporation stockholders
$
94,377

 
$
44,633

Basic income (loss) per share attributable to Cablevision Systems Corporation stockholders:
 

 
 

Income from continuing operations, net of income taxes
$
0.35

 
$
0.21

Loss from discontinued operations, net of income taxes
$

 
$
(0.04
)
Net income
$
0.35

 
$
0.17

Basic weighted average common shares (in thousands)
271,092

 
267,919

Diluted income (loss) per share attributable to Cablevision Systems Corporation stockholders:
 

 
 

Income from continuing operations, net of income taxes
$
0.34

 
$
0.20

Loss from discontinued operations, net of income taxes
$

 
$
(0.04
)
Net income
$
0.34

 
$
0.16

Diluted weighted average common shares (in thousands)
279,013

 
274,370

Amounts attributable to Cablevision Systems Corporation stockholders:
 

 
 

Income from continuing operations, net of income taxes
$
94,377

 
$
55,135

Loss from discontinued operations, net of income taxes

 
(10,502
)
Net income
$
94,377

 
$
44,633

Cash dividends declared per share of common stock
$

 
$
0.15




See accompanying combined notes to condensed consolidated financial statements.


4


CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Net income
$
94,311

 
$
44,399

Other comprehensive income (loss):
 

 
 

Defined benefit pension plans and postretirement plans:
 

 
 

Unrecognized actuarial gain (loss)
(6,025
)
 
15,408

Applicable income taxes
2,473

 
(6,317
)
Unrecognized income (loss) arising during period, net of income taxes
(3,552
)
 
9,091

Amortization of actuarial losses, net included in net periodic benefit cost
470

 
565

Applicable income taxes
(193
)
 
(232
)
Amortization of actuarial losses, net included in net periodic benefit cost, net of income taxes
277

 
333

Settlement loss included in net periodic benefit cost
619

 
954

Applicable income taxes
(254
)
 
(391
)
Settlement loss included in net periodic benefit cost, net of income taxes
365

 
563

Other comprehensive income (loss)
(2,910
)
 
9,987

Comprehensive income
91,401

 
54,386

Comprehensive loss attributable to noncontrolling interests
66

 
234

Comprehensive income attributable to Cablevision Systems Corporation stockholders
$
91,467

 
$
54,620


See accompanying combined notes to condensed consolidated financial statements.


5


CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2016 and 2015
(In thousands)
(Unaudited)
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
94,311

 
$
44,399

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Loss from discontinued operations, net of income taxes

 
10,502

Depreciation and amortization
212,453

 
218,900

Loss (gain) on investments, net
(100,365
)
 
33,071

Loss (gain) on equity derivative contracts, net
48,012

 
(46,166
)
Amortization of deferred financing costs and discounts on indebtedness
6,118

 
5,858

Share-based compensation expense related to equity classified awards
14,522

 
11,911

Settlement loss and amortization of actuarial losses related to pension and postretirement plans
1,089

 
1,519

Deferred income taxes
55,065

 
36,759

Provision for doubtful accounts
5,133

 
7,581

Excess tax benefit related to share-based awards

 
(275
)
Changes in other assets and liabilities
(183,784
)
 
(108,725
)
Net cash provided by operating activities
152,554

 
215,334

Cash flows from investing activities:
 

 
 

Capital expenditures
(148,652
)
 
(166,631
)
Proceeds related to sale of equipment, including costs of disposal
722

 
595

Decrease (increase) in other investments
472

 
(207
)
Additions to other intangible assets
(570
)
 
(6,622
)
Net cash used in investing activities
(148,028
)
 
(172,865
)
Cash flows from financing activities:
 

 
 

Repayment of credit facility debt
(14,953
)
 
(15,462
)
Repayment of notes payable
(1,291
)
 

Proceeds from collateralized indebtedness

 
150,084

Repayment of collateralized indebtedness and related derivative contracts

 
(119,116
)
Proceeds from stock option exercises
13,665

 
2,552

Dividend distributions to common stockholders
(4,066
)
 
(3,925
)
Principal payments on capital lease obligations
(5,234
)
 
(4,484
)
Deemed repurchases of restricted stock
(41,469
)
 
(18,101
)
Distributions to noncontrolling interests, net

 
(258
)
Excess tax benefit related to share-based awards

 
275

Net cash used in financing activities
(53,348
)
 
(8,435
)
Net increase (decrease) in cash and cash equivalents from continuing operations
(48,822
)
 
34,034

Cash flows of discontinued operations:
 

 
 

Net cash provided by (used in) operating activities
(21,000
)
 
5

Net cash used in investing activities

 
(30
)
Net decrease in cash and cash equivalents from discontinued operations
(21,000
)
 
(25
)
Cash and cash equivalents at beginning of year
1,003,279

 
850,413

Cash and cash equivalents at end of period
$
933,457

 
$
884,422


See accompanying combined notes to condensed consolidated financial statements.


6





CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
ASSETS
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
898,973

 
$
995,827

Accounts receivable, trade (less allowance for doubtful accounts of $5,604 and $6,039)
260,979

 
266,383

Prepaid expenses and other current assets
140,631

 
122,176

Amounts due from affiliates
1,187

 
748

Investment securities pledged as collateral
489,045

 
455,386

Derivative contracts
7,307

 
10,333

Total current assets
1,798,122

 
1,850,853

Property, plant and equipment, net of accumulated depreciation of $9,559,157 and $9,625,348
2,957,893

 
3,017,015

Investment securities pledged as collateral
822,808

 
756,596

Derivative contracts
31,461

 
72,075

Other assets
39,631

 
32,920

Amortizable intangible assets, net of accumulated amortization of $62,045 and $60,310
35,481

 
36,951

Indefinite-lived cable television franchises
731,848

 
731,848

Trademarks and other indefinite-lived intangible assets
7,250

 
7,250

Goodwill
262,345

 
262,345

Deferred financing costs, net of accumulated amortization of $8,930 and $8,150
6,808

 
7,588

 
$
6,693,647

 
$
6,775,441


See accompanying combined notes to condensed consolidated financial statements.


7




CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS (Cont'd)
(In thousands, except membership unit amounts)
 
March 31, 2016
 
December 31, 2015
 
(Unaudited)
 
 
LIABILITIES AND MEMBER DEFICIENCY
 
 
 
Current Liabilities:
 
 
 
Accounts payable
$
452,984

 
$
453,653

Accrued liabilities
426,304

 
573,931

Amounts due to affiliates
253,540

 
287,093

Deferred tax liability
103,096

 
60,963

Deferred revenue
63,246

 
55,545

Liabilities under derivative contracts
7,078

 
2,706

Credit facility debt
575,150

 
562,898

Collateralized indebtedness
433,014

 
416,621

Capital lease obligations
19,185

 
20,350

Notes payable
10,170

 
13,267

Total current liabilities
2,343,767

 
2,447,027

Deferred revenue
4,026

 
4,244

Other liabilities
227,647

 
256,946

Deferred tax liability
755,974

 
733,312

Credit facility debt
1,925,303

 
1,951,556

Collateralized indebtedness
758,310

 
774,703

Capital lease obligations
21,547

 
25,616

Notes payable

 
1,277

Senior notes and debentures
3,034,301

 
3,032,252

Total liabilities
9,070,875

 
9,226,933

Commitments and contingencies


 


Member's Deficiency:
 

 
 

Accumulated deficit
(1,761,640
)
 
(1,817,831
)
Senior notes due from Cablevision
(611,455
)
 
(611,455
)
Other member's equity (17,631,479 membership units issued and outstanding)
36,783

 
15,734

 
(2,336,312
)
 
(2,413,552
)
Accumulated other comprehensive loss
(40,582
)
 
(37,672
)
Total member's deficiency
(2,376,894
)
 
(2,451,224
)
Noncontrolling interest
(334
)
 
(268
)
Total deficiency
(2,377,228
)
 
(2,451,492
)
 
$
6,693,647

 
$
6,775,441

See accompanying combined notes to condensed consolidated financial statements.


8


CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Revenues, net (including revenues, net from affiliates of $1,139 and $1,191, respectively) (See Note 14)
$
1,640,757

 
$
1,614,771

Operating expenses:
 

 
 

Technical and operating (excluding depreciation and amortization and including net charges from affiliates of $44,892 and $44,937, respectively) (See Note 14)
810,961

 
795,888

Selling, general and administrative (including net charges from affiliates of $1,942 and $1,928, respectively) (See Note 14)
365,051

 
376,764

Restructuring expense (credits)
1,037

 
(532
)
Depreciation and amortization
212,453

 
218,900

 
1,389,502

 
1,391,020

Operating income
251,255

 
223,751

Other income (expense):
 

 
 

Interest expense
(93,560
)
 
(89,552
)
Interest income
12,887

 
12,177

Gain (loss) on investments, net
100,365

 
(33,071
)
Gain (loss) on equity derivative contracts, net
(48,012
)
 
46,166

Miscellaneous, net
1,971

 
1,007

 
(26,349
)
 
(63,273
)
Income from continuing operations before income taxes
224,906

 
160,478

Income tax expense
(92,156
)
 
(67,542
)
Income from continuing operations, net of income taxes
132,750

 
92,936

Loss from discontinued operations, net of income taxes

 
(10,502
)
Net income
132,750

 
82,434

Net loss attributable to noncontrolling interests
66

 
234

Net income attributable to CSC Holdings, LLC's sole member
$
132,816

 
$
82,668

Amounts attributable to CSC Holdings, LLC's sole member:
 

 
 

Income from continuing operations, net of income taxes
$
132,816

 
$
93,170

Loss from discontinued operations, net of income taxes

 
(10,502
)
Net income
$
132,816

 
$
82,668


See accompanying combined notes to condensed consolidated financial statements.


9


CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended March 31,
 
2016
 
2015
Net income
$
132,750

 
$
82,434

Other comprehensive income (loss):
 

 
 

Defined benefit pension plans and postretirement plans:
 

 
 

Unrecognized actuarial gain (loss)
(6,025
)
 
15,408

Applicable income taxes
2,473

 
(6,317
)
Unrecognized income (loss) arising during period, net of income taxes
(3,552
)
 
9,091

Amortization of actuarial losses, net included in net periodic benefit cost
470

 
565

Applicable income taxes
(193
)
 
(232
)
Amortization of actuarial losses, net included in net periodic benefit cost, net of income taxes
277

 
333

Settlement loss included in net periodic benefit cost
619

 
954

Applicable income taxes
(254
)
 
(391
)
Settlement loss included in net periodic benefit cost, net of income taxes
365

 
563

Other comprehensive income (loss)
(2,910
)
 
9,987

Comprehensive income
129,840

 
92,421

Comprehensive loss attributable to noncontrolling interests
66

 
234

Comprehensive income attributable to CSC Holdings, LLC's sole member
$
129,906

 
$
92,655


See accompanying combined notes to condensed consolidated financial statements.


10




CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2016 and 2015
(In thousands)
(Unaudited)
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
132,750

 
$
82,434

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Loss from discontinued operations, net of income taxes

 
10,502

Depreciation and amortization
212,453

 
218,900

Loss (gain) on investments, net
(100,365
)
 
33,071

Loss (gain) on equity derivative contracts, net
48,012

 
(46,166
)
Amortization of deferred financing costs and discounts on indebtedness
3,781

 
3,704

Share-based compensation expense related to Cablevision equity classified awards
14,522

 
11,911

Settlement loss and amortization of actuarial losses related to pension and postretirement plans
1,089

 
1,519

Deferred income taxes
57,887

 
15,270

Provision for doubtful accounts
5,133

 
7,581

Excess tax benefit related to share-based awards
(31,653
)
 
(5,641
)
Changes in other assets and liabilities
(179,732
)
 
(66,774
)
Net cash provided by operating activities
163,877

 
266,311

Cash flows from investing activities:
 

 
 

Capital expenditures
(148,652
)
 
(166,631
)
Proceeds related to sale of equipment, including costs of disposal
722

 
595

Decrease (increase) in other investments
472

 
(207
)
Additions to other intangible assets
(570
)
 
(6,622
)
Net cash used in investing activities
(148,028
)
 
(172,865
)
Cash flows from financing activities:
 

 
 

Repayment of credit facility debt
(14,953
)
 
(15,462
)
Repayment of notes payable
(1,291
)
 

Proceeds from collateralized indebtedness

 
150,084

Repayment of collateralized indebtedness and related derivative contracts

 
(119,116
)
Distributions to Cablevision
(101,878
)
 
(60,312
)
Principal payments on capital lease obligations
(5,234
)
 
(4,484
)
Distributions to noncontrolling interests, net

 
(258
)
Excess tax benefit related to share-based awards
31,653

 
5,641

Net cash used in financing activities
(91,703
)
 
(43,907
)
Net increase (decrease) in cash and cash equivalents from continuing operations
(75,854
)
 
49,539

Cash flows of discontinued operations:
 

 
 

Net cash provided by (used in) operating activities
(21,000
)
 
5

Net cash used in investing activities

 
(30
)
Net decrease in cash and cash equivalents from discontinued operations
(21,000
)
 
(25
)
Cash and cash equivalents at beginning of year
995,827

 
813,396

Cash and cash equivalents at end of period
$
898,973

 
$
862,910


See accompanying combined notes to condensed consolidated financial statements.


11


COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
(Unaudited)


NOTE 1.    BUSINESS
Cablevision Systems Corporation ("Cablevision"), through its wholly-owned subsidiary CSC Holdings, LLC ("CSC Holdings," and collectively with Cablevision, the "Company"), owns and operates cable systems and owns companies that provide regional news, local programming and advertising sales services for the cable television industry, provide Ethernet-based data, Internet, voice and video transport and managed services to the business market, and operate a newspaper publishing business.  The Company classifies its operations into three reportable segments: (1) Cable, consisting principally of its video, high-speed data, and Voice over Internet Protocol ("VoIP") operations, (2) Lightpath, which provides Ethernet-based data, Internet, voice and video transport and managed services to the business market in the New York metropolitan area; and (3) Other, consisting principally of (i) Newsday, which includes the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites, (ii) the News 12 Networks, which provide regional news programming services, (iii) Cablevision Media Sales Corporation ("Cablevision Media Sales"), a cable television advertising company, and (iv) certain other businesses and unallocated corporate costs.
Altice Merger
On September 16, 2015, Cablevision entered into an Agreement and Plan of Merger (the "Merger Agreement"), by and among Altice N.V. (“Altice”), Neptune Merger Sub Corp., a wholly-owned subsidiary of Altice ("Merger Sub"), and Cablevision. Pursuant to the Merger Agreement, Merger Sub will be merged with and into Cablevision (the "Merger"), with Cablevision surviving as a subsidiary of Altice.
In connection with the Merger, each outstanding share of the Cablevision NY Group Class A common stock, par value $0.01 per share ("CNYG Class A Shares"), and Cablevision NY Group Class B common stock, par value $0.01 per share ("CNYG Class B Shares", and together with the CNYG Class A Shares, the "Shares") (other than (i) Shares owned by Cablevision, Altice or any of their respective wholly-owned subsidiaries, in each case not held on behalf of third parties in a fiduciary capacity, and (ii) Shares that are owned by stockholders who have perfected and not withdrawn a demand for appraisal rights) will be converted into the right to receive $34.90 in cash, without interest, less applicable tax withholdings.
Also in connection with the Merger, outstanding equity-based awards granted under Cablevision’s equity plans will be cancelled and converted into a right to receive cash based upon the $34.90 per Share merger price in accordance with the original terms of the awards. As of March 31, 2016, the Company had 12,434,700 stock options, 3,769,485 restricted shares, 1,724,940 restricted stock units issued to employees and 466,283 restricted stock units issued to non-employee directors outstanding.
On September 16, 2015, the holders of Shares representing a majority of all votes entitled to be cast in the matter executed and delivered to Cablevision and Altice a written consent adopting the Merger Agreement (the "Written Consent"). As a result, the stockholder approval required to consummate the Merger has been obtained and no further action by Cablevision’s stockholders in connection with the Merger is required.
The completion of the Merger is subject to certain customary conditions and approvals set forth in the Merger Agreement, including, among others, (i) the adoption of the Merger Agreement by the holders of Shares representing a majority of all votes entitled to be cast in the matter (which condition has been satisfied as described above), (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (which condition has been satisfied as of November 4, 2015), (iii) adoption and release of an order by the Federal Communications Commission granting any required consent to the transfer of control of Cablevision’s licenses (which condition has been satisfied as of May 3, 2016), (iv) the conclusion of a review by the Committee on Foreign Investment in the United States pursuant to Section 721 of Title VII of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (which condition has been satisfied as of February 17, 2016), (v) the receipt of certain approvals from state public utility commissions and under certain local franchise ordinances and agreements, (vi) the absence of any applicable law or order prohibiting consummation of the Merger, and (vii) other customary closing conditions, including (a) the accuracy of Cablevision’s and Altice’s respective representations and warranties (subject to customary materiality qualifiers) and (b) Cablevision’s and Altice’s compliance with their respective obligations and covenants contained in the Merger Agreement. Assuming timely satisfaction of the necessary closing conditions, the Company currently expects the closing of the Merger to occur in the second quarter of 2016. The Merger is not subject to a financing condition.


12


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

The Merger Agreement contains certain customary termination rights, including the right for each of Cablevision and Altice to terminate the Merger Agreement if the Merger is not consummated by September 16, 2016 (subject to extension to December 16, 2016 if either Cablevision or Altice determines additional time is necessary to obtain certain government approvals) or in the event of an uncured material breach of any representation, warranty, covenant or agreement such that the conditions to closing would not be satisfied. The Merger Agreement also gives Altice the right to terminate the Merger Agreement in certain circumstances associated with Cablevision’s failure to deliver the Written Consent or Cablevision’s entry into an alternative transaction with respect to an alternative acquisition proposal, among others, and gives Cablevision the right to terminate the Merger Agreement in certain circumstances associated with a failure of Altice’s financing of the Merger, among others. If the Merger Agreement is terminated in certain circumstances associated with Cablevision’s failure to deliver the Written Consent or with respect to an alternative acquisition proposal, among others, Cablevision agreed to pay a termination fee of $280,000 to Altice. Following execution and delivery of the Written Consent on September 16, 2015, no provisions in the Merger Agreement remain in effect pursuant to which the Merger Agreement can be terminated that would require Cablevision to pay the termination fee. If the Merger Agreement is terminated by Cablevision in connection with Altice’s failure to consummate the Merger due to a failure of Altice’s financing of the Merger, then Altice has agreed to pay to Cablevision a termination fee of $560,000.
The Company has expensed $1,416 in the first quarter of 2016 in connection with the Merger and it expects to incur additional costs prior to and upon consummation of the Merger, including $32,500 in transaction advisory fees.
In October 2015, Neptune Finco Corp. ("Finco"), a wholly-owned subsidiary of Altice formed to complete the financing described herein and the merger with CSC Holdings, borrowed an aggregate principal amount of $3,800,000 under a term loan facility (the "Term Loans") and entered into revolving loan commitments in an aggregate principal amount of $2,000,000 (the "Revolving Credit Facility" and, together with the Term Loans, the "Senior Secured Credit Facilities"). The Term Loans will mature on October 9, 2022. Quarterly amortization payments each equal to 0.25% of the original principal amount of the Term Loans will be required to be made beginning with the first full fiscal quarter after the Closing Date. The Revolving Credit Facility will mature on October 9, 2020. The Revolving Credit Facility will include a financial maintenance covenant solely for the benefit of the lenders under the Revolving Credit Facility consisting of a maximum consolidated net senior secured leverage ratio of 5.0 to 1.0, which will be tested on the last day of each fiscal quarter (commencing with the last day of the first full fiscal quarter ended after the Closing Date) but only if on such day there are outstanding borrowings under the Revolving Credit Facility (including swingline loans but excluding any cash collateralized letters of credit and undrawn letters of credit not to exceed $15,000).
Finco also issued $1,800,000 aggregate principal amount of 10.125% senior notes due 2023, $2,000,000 aggregate principal amount of 10.875% senior notes due 2025 and $1,000,000 aggregate principal amount of 6.625% senior guaranteed notes due 2025 (the "Senior Guaranteed Notes") (collectively the "Notes").
Altice intends to use the proceeds from the Term Loans and the Notes, together with an equity contribution from Altice and its co-investors and existing cash at Cablevision, to (a) finance the Merger, (b) refinance (i) the credit agreement, dated as of April 17, 2013 (the "Existing Credit Facility"), among CSC Holdings, certain subsidiaries of CSC Holdings and the lenders party thereto and (ii) the senior secured credit agreement, dated as of October 12, 2012, among Newsday LLC, CSC Holdings, and the lenders party thereto (the "Existing Newsday Credit Facility"), and (c) pay related fees and expenses.
Prior to the Merger, CSC Holdings is not responsible for the obligations under the Senior Secured Credit Facilities or the Notes. Following the consummation of the Merger of Merger Sub into Cablevision (the "Closing Date"), Finco will be merged with and into CSC Holdings. As the surviving entity in such merger, CSC Holdings will assume all of the rights and obligations of the borrower under the Senior Secured Credit Facilities and the issuer under the Notes. Within two business days following the Closing Date, (a) the Senior Guaranteed Notes will be guaranteed on a senior basis by each restricted subsidiary of CSC Holdings (other than CSC TKR, LLC and its subsidiaries, which own and operate the New Jersey cable television systems, Cablevision Lightpath, Inc. and any subsidiaries of CSC Holdings that are "Excluded Subsidiaries" under the indenture governing the Senior Guaranteed Notes) (such subsidiaries, the "Initial Guarantors") and (b) the obligations under the Senior Secured Credit Facilities will be (i) guaranteed on a senior basis by each Initial Guarantor and (ii) secured on a first priority basis by capital stock held by CSC Holdings and the guarantors in certain subsidiaries of CSC Holdings, subject to certain exclusions and limitations.



13


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

NOTE 2.    BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Cablevision and CSC Holdings have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.  Accordingly, these financial statements do not include all the information and notes required for complete annual financial statements.
The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.
The financial statements as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 presented in this Form 10-Q are unaudited; however, in the opinion of management, such financial statements include all adjustments, consisting solely of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented.
The accompanying condensed consolidated financial statements of Cablevision include the accounts of Cablevision and its majority-owned subsidiaries and the accompanying condensed consolidated financial statements of CSC Holdings include the accounts of CSC Holdings and its majority-owned subsidiaries. Cablevision has no business operations independent of its CSC Holdings subsidiary, whose operating results and financial position are consolidated into Cablevision.  The condensed consolidated balance sheets and statements of income of Cablevision are essentially identical to the condensed consolidated balance sheets and statements of income of CSC Holdings, with the following significant exceptions: Cablevision has $2,771,096 carrying value of senior notes outstanding at March 31, 2016 (excluding the $611,455 aggregate principal amount of Cablevision notes held by Newsday Holdings) that were issued to third party investors, cash, deferred financing costs and accrued interest related to its senior notes, deferred taxes and accrued dividends on its balance sheet.  In addition, CSC Holdings and its subsidiaries have certain intercompany receivables from and payables to Cablevision.  Differences between Cablevision's results of operations and those of CSC Holdings primarily include incremental interest expense, interest income, and income tax expense or benefit.  CSC Holdings' results of operations include incremental interest income from the Cablevision senior notes held by Newsday Holdings, which is eliminated in Cablevision's results of operations.
The combined notes to the condensed consolidated financial statements relate to the Company, which, except as noted, are essentially identical for Cablevision and CSC Holdings.  All significant intercompany transactions and balances between Cablevision and CSC Holdings and their respective consolidated subsidiaries are eliminated in both sets of condensed consolidated financial statements.  Intercompany transactions between Cablevision and CSC Holdings are not eliminated in the CSC Holdings condensed consolidated financial statements, but are eliminated in the Cablevision condensed consolidated financial statements.
The results of operations for the interim periods are not necessarily indicative of the results that might be expected for future interim periods or for the full year ending December 31, 2016.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, which clarifies the treatment of debt issuance costs from line-of-credit arrangements after adoption of ASU No. 2015-03. ASU No. 2015-15 clarifies that the Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. ASU No. 2015-03 was adopted by the Company on January 1, 2016 representing a change in accounting principle and was applied retrospectively to all periods presented. Debt issuance costs, net for Cablevision and CSC Holdings of $67,119 and $40,328, respectively, as


14


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

of December 31, 2015 were reclassified from deferred financing costs and presented as a reduction to debt in the consolidated balance sheets.
Cablevision's long-term debt on its consolidated balance sheet as of March 31, 2016 is net of $16,626 of unamortized debt discounts and $63,248 of unamortized deferred financing costs. CSC Holdings' long-term debt on its consolidated balance sheet as of March 31, 2016 is net of $13,626 of unamortized debt discounts and $38,320 of unamortized deferred financing costs.
Debt issuance costs, net for Cablevision and CSC Holdings of $7,588 as of December 31, 2015 relating to the Company’s revolving credit facility were not impacted by the adoption of ASU No. 2015-03 and continue to be recorded as long-term assets.
In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU No. 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU No. 2015-05 was adopted by the Company on January 1, 2016 and did not have any impact on the Company's condensed consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. ASU No. 2014-12 requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. ASU No. 2014-12 was adopted by the Company on January 1, 2016 and did not have any impact on the Company’s condensed consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting, which provides simplification of income tax accounting for share-based payment awards. The new guidance becomes effective for the Company on January 1, 2017 with early adoption permitted. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures, and intrinsic value will be applied using the modified retrospective transition method. Amendments requiring recognition of excess tax benefits and tax deficiencies in the income statement and the practical expedient for estimating expected term will be applied prospectively. The Company may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. The Company has not yet completed the evaluation of the effect that ASU No. 2016-09 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leaseswhich increases transparency and comparability by recognizing a lessee’s rights and obligations resulting from leases by recording them on the balance sheet as lease assets and lease liabilities. The new guidance becomes effective for the Company on January 1, 2019 with early adoption permitted and will be applied using the modified retrospective method. The Company has not yet completed the evaluation of the effect that ASU No. 2016-02 will have on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17 (Topic 740), Balance Sheet Classification of Deferred Taxes. This ASU amends existing guidance to require the presentation of deferred tax liabilities and assets as noncurrent within a classified statement of financial position. ASU No. 2015-17 may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This new standard would be effective for the Company beginning January 1, 2017 with early adoption permitted.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective and allows the use of either the retrospective or cumulative effect transition method. In August 2015, the FASB issued ASU No. 2015-14 that approved deferring the effective date by one year so that ASU No. 2014-09 would become effective for the Company


15


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

on January 1, 2018. The FASB also approved, in July 2015, permitting the early adoption of ASU No. 2014-09, but not before the original effective date for the Company as of January 1, 2017. The Company has not yet completed the evaluation of the effect that ASU No. 2014-09 will have on its consolidated financial statements.
Reclassification
In connection with the adoption of ASU 2015-03 discussed above, certain reclassifications have been made to the 2015 financial statements to conform to the 2016 presentation.
NOTE 3.    DIVIDENDS
During the three months ended March 31, 2016, Cablevision paid $4,066 related to restricted shares that vested during the period in respect of dividends declared and accrued on the CNYG common stock in prior periods.  In addition, as of March 31, 2016, approximately $3,773 was payable when, and if, restricted shares and restricted stock units outstanding on that date vest.
Pursuant to the terms of the Merger Agreement, Cablevision is not permitted to declare and pay dividends or repurchase stock, in each case, without the prior written consent of Altice. In accordance with these terms, Cablevision did not declare or pay dividends during the three months ended March 31, 2016.
During the three months ended March 31, 2016, CSC Holdings made cash equity distribution payments to Cablevision aggregating $101,878.  These distribution payments were funded from cash on hand.  The proceeds were used to fund:
Cablevision's payments in respect of dividends declared and accrued in prior periods related to restricted shares that vested;
Cablevision's interest payments on its senior notes; and
Cablevision's payments for the acquisition of treasury shares related to statutory minimum tax withholding obligations upon the vesting of certain restricted shares.
Cablevision's and CSC Holdings' indentures and CSC Holdings' credit agreement restrict the amount of dividends and distributions in respect of any equity interest that can be made.
NOTE 4.    INCOME PER SHARE ATTRIBUTABLE TO STOCKHOLDERS
Cablevision
Basic income per common share attributable to Cablevision stockholders is computed by dividing net income attributable to Cablevision stockholders by the weighted average number of common shares outstanding during the period.  Diluted income per common share attributable to Cablevision stockholders reflects the dilutive effects of stock options, restricted stock and restricted stock units. For such awards that are performance based, the diluted effect is reflected upon the achievement of the performance criteria.
The following table presents a reconciliation of weighted average shares used in the calculations of the basic and diluted income per share attributable to Cablevision stockholders for the three months ended March 31, 2016 and 2015:
 
2016
 
2015
 
(in thousands)
Basic weighted average shares outstanding
271,092

 
267,919

Effect of dilution:
 

 
 

Stock options
4,396

 
2,703

Restricted stock
3,525

 
3,748

Diluted weighted average shares outstanding
279,013

 
274,370

Approximately 1,725,000 restricted stock units for the three months ended March 31, 2016 have been excluded from the diluted weighted average shares outstanding as the performance criteria on these awards had not yet been satisfied.
For the three months ended March 31, 2015, anti-dilutive shares totaling approximately 2,678,000 shares have been excluded from diluted weighted average shares outstanding.  Approximately 630,000 restricted shares and 1,817,000


16


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

restricted stock units for the three months ended March 31, 2015 have also been excluded from the diluted weighted average shares outstanding as the performance criteria on these awards had not yet been satisfied.
CSC Holdings
Net income per membership unit for CSC Holdings is not presented since CSC Holdings is a limited liability company and a wholly-owned subsidiary of Cablevision.
NOTE 5.    GROSS VERSUS NET REVENUE RECOGNITION
In the normal course of business, the Company is assessed non-income related taxes by governmental authorities, including franchising authorities (generally under multi-year agreements), and collects such taxes from its customers.  The Company's policy is that, in instances where the tax is being assessed directly on the Company, amounts paid to the governmental authorities and amounts received from the customers are recorded on a gross basis.  That is, amounts paid to the governmental authorities are recorded as technical and operating expenses and amounts received from the customer are recorded as revenues.  For the three months ended March 31, 2016 and 2015, the amount of franchise fees and certain other taxes and fees included as a component of net revenue aggregated $50,422 and $49,570, respectively.
NOTE 6.    SUPPLEMENTAL CASH FLOW INFORMATION
The Company considers the balance of its investment in funds that substantially hold securities that mature within three months or less from the date the fund purchases these securities to be cash equivalents.  The carrying amount of cash and cash equivalents either approximates fair value due to the short-term maturity of these instruments or are at fair value.
During the three months ended March 31, 2016 and 2015, the Company's non-cash investing and financing activities and other supplemental data were as follows:
 
Three Months Ended March 31,
 
2016
 
2015
Non-Cash Investing and Financing Activities of Cablevision and CSC Holdings:
 
 
 
Continuing Operations:
 
 
 
Property and equipment accrued but unpaid
$
67,383

 
$
26,785

Capital lease obligations

 
990

Intangible asset obligations
182

 
302

Non-Cash Investing and Financing Activities of Cablevision:
 

 
 

Dividends payable on unvested restricted share awards
(62
)
 
1,079

Supplemental Data:
 

 
 

Continuing Operations - Cablevision:
 

 
 

Cash interest paid
147,751

 
143,446

Income taxes paid (refunded), net
7,082

 
(382
)
Continuing Operations - CSC Holdings:
 

 
 

Cash interest paid
89,874

 
85,564

Income taxes paid (refunded), net
7,082

 
(382
)
NOTE 7.    DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
The Company has entered into various transactions to limit the exposure against equity price risk on its shares of Comcast Corporation ("Comcast") common stock.  The Company has monetized all of its stock holdings in Comcast through the execution of prepaid forward contracts, collateralized by an equivalent amount of the respective underlying stock.  At maturity, the contracts provide for the option to deliver cash or shares of Comcast stock with a value determined by reference to the applicable stock price at maturity.  These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing the Company to retain upside appreciation from the hedge price per share to the relevant cap price.


17


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

The following represents the location of the assets and liabilities associated with the Company's derivative instruments within the condensed consolidated balance sheets at March 31, 2016 and December 31, 2015:
Derivatives Not Designated as
Hedging
Instruments
 
 
 
Asset Derivatives
 
Liability Derivatives
 
Balance
Sheet
Location
 
Fair Value at March 31,
2016
 
Fair Value at December 31, 2015
 
Fair Value at March 31,
2016
 
Fair Value at December 31, 2015
Prepaid forward contracts
 
Current derivative contracts
 
$
7,307

 
$
10,333

 
$
7,078

 
$
2,706

Prepaid forward contracts
 
Long-term derivative contracts
 
31,461

 
72,075

 

 

Total derivative contracts
 
$
38,768

 
$
82,408

 
$
7,078

 
$
2,706

These prepaid forward contracts are not designated as hedging instruments for accounting purposes and the related gain (loss) of $(48,012) and $46,166, respectively, for the three months ended March 31, 2016 and 2015, has been reflected in gain (loss) on equity derivative contracts, net in the accompanying condensed consolidated statements of income.
Settlements of Collateralized Indebtedness
In April 2016, the Company settled collateralized indebtedness relating to 2,732,184 Comcast shares by delivering cash equal to the collateralized loan value obtained from the proceeds of a new monetization contract covering an equivalent number of Comcast shares. Accordingly, the consolidated balance sheets of Cablevision and CSC Holdings as of March 31, 2016 reflect the reclassification of $166,882 of investment securities pledged as collateral from a current asset to a long-term asset and $133,691 of collateralized indebtedness from a current liability to a long-term liability.
In the Merger Agreement, Cablevision agreed that it would not share settle any collateralized indebtedness prior to the Merger.
NOTE 8.    FAIR VALUE MEASUREMENT
The fair value hierarchy is based on inputs to valuation techniques that are used to measure fair value that are either observable or unobservable.  Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon their own market assumptions.  The fair value hierarchy consists of the following three levels:
Level I - Quoted prices for identical instruments in active markets.
Level II - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level III - Instruments whose significant value drivers are unobservable.
The following table presents for each of these hierarchy levels, the Company's financial assets and financial liabilities that are measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015:


18


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

 
 
At March 31, 2016
 
 
Level I
 
Level II
 
Level III
 
Total
Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
853,138

 
$

 
$

 
$
853,138

Investment securities
 
152

 

 

 
152

Investment securities pledged as collateral
 
1,311,853

 

 

 
1,311,853

Prepaid forward contracts
 

 
38,768

 

 
38,768

Liabilities:
 
 

 
 

 
 

 
 

Prepaid forward contracts
 

 
7,078

 

 
7,078

 
 
At December 31, 2015
 
 
Level I
 
Level II
 
Level III
 
Total
Assets:
 
 
 
 
 
 
 
 
Money market funds
 
$
922,765

 
$

 
$

 
$
922,765

Investment securities
 
130

 

 

 
130

Investment securities pledged as collateral
 
1,211,982

 

 

 
1,211,982

Prepaid forward contracts
 

 
82,408

 

 
82,408

Liabilities:
 
 

 
 

 
 

 
 

Prepaid forward contracts
 

 
2,706

 

 
2,706

The Company's cash equivalents, investment securities and investment securities pledged as collateral are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.
The Company's prepaid forward contracts reflected as derivative contracts and liabilities under derivative contracts in the Company's balance sheets are valued using market-based inputs to valuation models.  These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility.  When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit risk considerations.  Such adjustments are generally based on available market evidence.  Since model inputs can generally be verified and do not involve significant management judgment, the Company has concluded that these instruments should be classified within Level II of the fair value hierarchy.
The Company considers the impact of credit risk when measuring the fair value of its derivative asset and/or liability positions, as applicable.
The Company's assets measured at fair value on a nonrecurring basis include long-lived assets, indefinite-lived cable television franchises, trademarks, other indefinite-lived intangible assets and goodwill.  During the quarter ended March 31, 2016, the Company performed its annual impairment test of goodwill, indefinite-lived cable television franchises, trademarks and other indefinite-lived intangible assets and there were no impairment charges recorded.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair value of each class of financial instruments for which it is practicable to estimate:
Credit Facility Debt, Collateralized Indebtedness, Senior Notes and Debentures and Notes Payable
The fair values of each of the Company's debt instruments are based on quoted market prices for the same or similar issues or on the current rates offered to the Company for instruments of the same remaining maturities.  The fair value of notes payable is based primarily on the present value of the remaining payments discounted at the borrowing cost.
The carrying values, estimated fair values, and classification under the fair value hierarchy of the Company's financial instruments, excluding those that are carried at fair value in the accompanying condensed consolidated balance sheets, are summarized as follows:


19


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

 
 
  
 
March 31, 2016
 
 
Fair Value Hierarchy
 
Carrying
Amount (c)
 
Estimated
Fair Value
CSC Holdings notes receivable:
 
 
 
 
 
 
Cablevision senior notes held by Newsday Holdings LLC (a)
 
Level II
 
$
611,455

 
$
616,020

Debt instruments:
 
 
 
 

 
 

Credit facility debt (b)
 
Level II
 
$
2,500,453

 
$
2,510,701

Collateralized indebtedness
 
Level II
 
1,191,324

 
1,175,291

Senior notes and debentures
 
Level II
 
3,034,301

 
2,996,440

Notes payable
 
Level II
 
10,170

 
10,130

CSC Holdings total debt instruments
 
 
 
6,736,248

 
6,692,562

Cablevision senior notes
 
Level II
 
2,771,096

 
2,760,168

Cablevision total debt instruments
 
 
 
$
9,507,344

 
$
9,452,730

 
 
  
 
December 31, 2015
 
 
Fair Value Hierarchy
 
Carrying
Amount (c)
 
Estimated
Fair Value
CSC Holdings notes receivable:
 
 
 
 
 
 
Cablevision senior notes held by Newsday Holdings LLC (a)
 
Level II
 
$
611,455

 
$
616,020

Debt instruments:
 
 
 
 

 
 

Credit facility debt (b)
 
Level II
 
$
2,514,454

 
$
2,525,654

Collateralized indebtedness
 
Level II
 
1,191,324

 
1,176,396

Senior notes and debentures
 
Level II
 
3,032,252

 
2,996,440

Notes payable
 
Level II
 
14,544

 
14,483

CSC Holdings total debt instruments
 
 
 
6,752,574

 
6,712,973

Cablevision senior notes
 
Level II
 
2,768,759

 
2,760,168

Cablevision total debt instruments
 
 
 
$
9,521,333

 
$
9,473,141

 
(a)
These notes are eliminated at the consolidated Cablevision level.
(b)
The principal amount of the Company's credit facility debt, which bears interest at variable rates, approximates its fair value.
(c)
Amounts are net of unamortized deferred financing costs and discounts.
Fair value estimates related to the Company's debt instruments and senior notes receivable presented above are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.
NOTE 9.    DISCONTINUED OPERATIONS
For the three months ended March 31, 2015, the Company recorded an expense of $9,400 plus statutory interest of $8,400 (an aggregate of $10,502, net of income taxes) with respect to the decision in a case relating to Rainbow Media Holdings LLC, a business whose operations were previously discontinued (see Note 12).



20


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

NOTE 10.    INCOME TAXES
Cablevision
Cablevision recorded income tax expense of $62,786 for the three months ended March 31, 2016, reflecting an effective tax rate of 40%. During the three months ended March 31, 2016, Cablevision recorded tax benefit of $1,172 relating to an increase in tax credits. Absent this item, the effective tax rate for the three months ended March 31, 2016 would have been 41%. Cablevision recorded income tax expense of $37,940 for the three months ended March 31, 2015, reflecting an effective tax rate of 41%.
As of March 31, 2016, Cablevision's federal net operating loss and tax credit carryforwards were approximately $511,000 and $61,000, respectively. Subsequent to the full utilization of such carryforwards, payments for income taxes are expected to increase significantly.
CSC Holdings
CSC Holdings recorded income tax expense of $92,156 for the three months ended March 31, 2016, reflecting an effective tax rate of 41%. CSC Holdings recorded income tax expense of $67,542 for the three months ended March 31, 2015, reflecting an effective tax rate of 42%.
NOTE 11.    EQUITY PLANS
Cablevision's Equity Plans
The following table summarizes activity relating to Company employees who held Cablevision stock options for the three months ended March 31, 2016:
 
Shares
Under Option
 
Weighted Average
Exercise
Price Per Share
 
Weighted Average Remaining
Contractual Term
(in years)
 
 
 
Time
Vesting Options
 
Performance
Based Vesting Options
 
 
 
Aggregate Intrinsic
Value (a)
Balance, December 31, 2015
6,744,000

 
6,609,217

 
$
15.28

 
6.80
 
$
221,900

Granted

 

 

 
 
 
 

Exercised
(200,000
)
 
(718,517
)
 
14.86

 
 
 
 

Balance, March 31, 2016
6,544,000

 
5,890,700

 
$
15.31

 
6.65
 
$
219,925

Options exercisable at March 31, 2016
3,210,666

 
5,890,700

 
$
14.24

 
6.03
 
$
170,765

Options expected to vest in the future
3,333,334

 

 
$
18.25

 
8.33
 
$
49,160

 
(a)
The aggregate intrinsic value is calculated as the difference between (i) the exercise price of the underlying award and (ii) the quoted price of CNYG Class A common stock on March 31, 2016 or December 31, 2015, as indicated, and March 31, 2016 in the case of options exercisable and options expected to vest in the future.
Restricted Stock Award Activity
The following table summarizes activity relating to Company employees who held Cablevision restricted shares and restricted stock units for the three months ended March 31, 2016:


21


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Number of Restricted Shares
 
Number of Performance Restricted Shares
 
Number of Performance Based Restricted Stock Units ("PSU") (a)
 
Weighted Average Fair Value Per Share at Date of Grant
Unvested award balance, December 31, 2015
4,967,748

 
1,880,100

 
1,772,430

 
$
17.53

Granted

 

 

 

Vested
(2,239,167
)
 
(753,296
)
 

 
15.35

Awards forfeited
(85,900
)
 

 
(47,490
)
 
18.38

Unvested award balance, March 31, 2016
2,642,681

 
1,126,804

 
1,724,940

 
18.69

 
(a)
The PSUs entitle the employee to shares of CNYG common stock up to 150% of the number of PSUs granted depending on the level of achievement of the specified performance criteria. If the minimum performance threshold is not met, no shares will be issued. Accrued dividends are paid to the extent that a PSU vests and the related stock is issued.
During the three months ended March 31, 2016, 2,992,463 Cablevision restricted shares issued to employees of the Company vested.  To fulfill the employees' statutory minimum tax withholding obligations for the applicable income and other employment taxes, 1,248,875 of these shares, with an aggregate value of $41,469, were surrendered to the Company.  These acquired shares have been classified as treasury stock.
NOTE 12.    COMMITMENTS AND CONTINGENCIES
Legal Matters
Cable Operations Litigation
Marchese, et al. v. Cablevision Systems Corporation and CSC Holdings, LLC: The Company is a defendant in a lawsuit filed in the U.S. District Court for the District of New Jersey by several present and former Cablevision subscribers, purportedly on behalf of a class of iO video subscribers in New Jersey, Connecticut and New York.  After three versions of the complaint were dismissed without prejudice by the District Court, plaintiffs filed their third amended complaint on August 22, 2011, alleging that the Company violated Section 1 of the Sherman Antitrust Act by allegedly tying the sale of interactive services offered as part of iO television packages to the rental and use of set-top boxes distributed by Cablevision, and violated Section 2 of the Sherman Antitrust Act by allegedly seeking to monopolize the distribution of Cablevision compatible set-top boxes.  Plaintiffs seek unspecified treble monetary damages, attorney's fees, as well as injunctive and declaratory relief.  On September 23, 2011, the Company filed a motion to dismiss the third amended complaint.  On January 10, 2012, the District Court issued a decision dismissing with prejudice the Section 2 monopolization claim, but allowing the Section 1 tying claim and related state common law claims to proceed.  Cablevision's answer to the third amended complaint was filed on February 13, 2012. On December 7, 2015, the parties entered into a settlement agreement, which is subject to approval by the Court. On December 11, 2015, plaintiffs filed a motion for preliminary approval of the settlement, conditional certification of the settlement class, and approval of a class notice distribution plan. On March 10, 2016 the Court granted preliminary approval of the settlement and approved the class notice distribution plan. Distribution of class notice is proceeding. The final approval hearing on the settlement is scheduled for September 12, 2016. In the quarter ended September 30, 2015, the Company recorded estimated charges associated with the settlement totaling $12,800, of which $9,500 is reflected in selling, general and administrative expense, and $3,300, representing the cost of benefits to class members that are reasonably expected to be provided, is reflected as a reduction to revenue, net. It is possible that the amount ultimately paid in connection with the settlement could exceed the amount recorded.
In re Cablevision Consumer Litigation: Following expiration of the affiliation agreements for carriage of certain Fox broadcast stations and cable networks on October 16, 2010, News Corporation terminated delivery of the programming feeds to the Company, and as a result, those stations and networks were unavailable on the Company's cable television systems. On October 30, 2010, the Company and Fox reached an agreement on new affiliation agreements for these stations and networks, and carriage was restored. Several purported class action lawsuits were subsequently filed on behalf of the Company's customers seeking recovery for the lack of Fox programming. Those lawsuits were consolidated


22


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

in an action before the U. S. District Court for the Eastern District of New York, and a consolidated complaint was filed in that court on February 22, 2011. Plaintiffs asserted claims for breach of contract, unjust enrichment, and consumer fraud, seeking unspecified compensatory damages, punitive damages and attorneys' fees. On March 28, 2012, the Court ruled on the Company's motion to dismiss, denying the motion with regard to plaintiffs' breach of contract claim, but granting it with regard to the remaining claims, which were dismissed. On April 16, 2012, plaintiffs filed a second consolidated amended complaint, which asserts a claim only for breach of contract. The Company's answer was filed on May 2, 2012. On October 10, 2012, plaintiffs filed a motion for class certification and on December 13, 2012, a motion for partial summary judgment. On March 31, 2014, the Court granted plaintiffs' motion for class certification, and denied without prejudice plaintiffs' motion for summary judgment. On May 30, 2014, the Court approved the form of class notice, and on October 7, 2014, approved the class notice distribution plan. The class notice distribution has been completed, and the opt-out period expired on February 27, 2015. Expert discovery commenced on May 5, 2014, and concluded on December 8 and 28, 2015, when the Court ruled on the pending expert discovery motions. On January 26, 2016, the Court approved a schedule for filing of summary judgment motions. Pursuant to the Court’s order, plaintiffs filed a motion for summary judgment on March 31, 2016, and the Company sought leave of Court to file its own summary judgment motion. The Company believes that this claim is without merit and intends to defend these lawsuits vigorously, but is unable to predict the outcome of these lawsuits or reasonably estimate a range of possible loss.
Patent Litigation
Cablevision is named as a defendant in certain lawsuits claiming infringement of various patents relating to various aspects of the Company's businesses.  In certain of these cases other industry participants are also defendants.  In certain of these cases the Company expects that any potential liability would be the responsibility of the Company's equipment vendors pursuant to applicable contractual indemnification provisions.  The Company believes that the claims are without merit and intends to defend the actions vigorously, but is unable to predict the outcome of these lawsuits or reasonably estimate a range of possible loss.
Other Litigation
In April 2011, Thomas C. Dolan, a director and Executive Vice President, Strategy and Development, in the Office of the Chairman at Cablevision, filed a lawsuit against Cablevision and Rainbow Media Holdings LLC (which was subsequently dismissed as a party) in New York State Supreme Court.  The lawsuit raises compensation-related claims related to events largely from 2005 to 2008.  The matter was handled under the direction of an independent committee of the Board of Directors of Cablevision. In April 2015, the Court granted summary judgment in favor of the plaintiff on liability, with damages to be determined.  On June 18, 2015, the Company filed a notice of appeal. As previously disclosed, on February 8, 2016, Cablevision and Thomas C. Dolan entered into a settlement pursuant to which the Company agreed to pay plaintiff $21,000 and plaintiff released all claims. A stipulation of dismissal with prejudice was approved and entered by the Court on February 8, 2016, and payment was made the same day. The appeal has also been withdrawn. As previously disclosed, in connection with the settlement, Charles F. Dolan and James L. Dolan have entered into an agreement to pay the Company, in the aggregate, $6,000 in partial reimbursement of the Company's settlement payment to Thomas C. Dolan if the Company's pending merger with Altice is not consummated.
In addition to the matters discussed above, the Company is party to various lawsuits, some involving claims for substantial damages.  Although the outcome of these other matters cannot be predicted and the impact of the final resolution of these other matters on the Company's results of operations in a particular subsequent reporting period is not known, management does not believe that the resolution of these other lawsuits will have a material adverse effect on the financial position of the Company or the ability of the Company to meet its financial obligations as they become due.
NOTE 13.    SEGMENT INFORMATION
The Company classifies its operations into three reportable segments: (1) Cable, (2) Lightpath, and (3) Other, consisting principally of (i) Newsday, (ii) the News 12 Networks, (iii) Cablevision Media Sales, and (iv) certain other businesses and unallocated corporate costs.
The Company's reportable segments are strategic business units that are managed separately.  The Company evaluates segment performance based on several factors, of which the primary financial measure is business segment adjusted operating cash flow ("AOCF") (defined as operating income (loss) excluding depreciation and amortization (including impairments), share-based compensation expense or benefit and restructuring expense or credits), a non-GAAP measure.  The Company has presented the components that reconcile AOCF to operating income (loss), an accepted GAAP measure.


23


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

 
Three Months Ended March 31,
 
2016
 
2015
Revenues, net from continuing operations
 
 
 
Cable
$
1,480,119

 
$
1,451,538

Lightpath
91,804

 
91,124

Other
78,097

 
81,780

Inter-segment eliminations (a)
(9,263
)
 
(9,671
)
 
$
1,640,757

 
$
1,614,771

Inter-segment revenues
 

 
 

Cable
$
(131
)
 
$
(280
)
Lightpath
(4,555
)
 
(4,745
)
Other
(4,577
)
 
(4,646
)
 
$
(9,263
)
 
$
(9,671
)
Adjusted operating cash flow (deficit) from continuing operations
 

 
 

Cable
$
472,199

 
$
446,555

Lightpath
43,387

 
43,395

Other
(36,144
)
 
(35,920
)
 
$
479,442

 
$
454,030

Depreciation and amortization included in continuing operations
 

 
 

Cable (b)
$
(180,694
)
 
$
(186,245
)
Lightpath (b)
(21,524
)
 
(22,738
)
Other
(10,235
)
 
(9,917
)
 
$
(212,453
)
 
$
(218,900
)
 
 
 
 
Share-based compensation expense included in continuing operations
 
 
 
Cable
$
(10,083
)
 
$
(8,211
)
Lightpath
(1,629
)
 
(1,382
)
Other
(2,985
)
 
(2,318
)
 
$
(14,697
)
 
$
(11,911
)
Restructuring credits (expense) included in continuing operations
 

 
 

Cable
$

 
$

Lightpath

 

Other
(1,037
)
 
532

 
$
(1,037
)
 
$
532

Operating income (loss) from continuing operations
 

 
 

Cable
$
281,422

 
$
252,099

Lightpath
20,234

 
19,275

Other
(50,401
)
 
(47,623
)
 
$
251,255

 
$
223,751



24


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)


(a)
Inter-segment eliminations relate primarily to revenues recognized from the sale of local programming and voice services to the Company's Cable segment.
(b)
The Cable and Lightpath segments share portions of each other's network infrastructure.  Depreciation charges are recorded by the segment that acquired the respective asset.
For the three months ended March 31, 2016 and 2015, Cable segment revenue was derived from the following sources:
 
Three Months Ended March 31,
 
2016
 
2015
Video (including equipment rental, DVR, franchise fees, video-on-demand and pay-per-view)
$
785,255

 
$
800,968

High-speed data
401,536

 
362,872

Voice
223,710

 
231,593

Advertising
30,189

 
30,777

Other (including installation, advertising sales commissions, home shopping, and other products)
39,429

 
25,328

 
$
1,480,119

 
$
1,451,538

A reconciliation of reportable segment amounts to Cablevision's and CSC Holdings' consolidated balances is as follows:
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
Operating income for reportable segments
$
251,255

 
$
223,751

Items excluded from operating income:
 

 
 

CSC Holdings interest expense
(93,560
)
 
(89,552
)
CSC Holdings interest income
874

 
164

CSC Holdings intercompany interest income
12,013

 
12,013

Gain (loss) on investments, net
100,365

 
(33,071
)
Gain (loss) on equity derivative contracts, net
(48,012
)
 
46,166

Miscellaneous, net
1,971

 
1,007

CSC Holdings income from continuing operations before income taxes
224,906

 
160,478

Cablevision interest expense
(55,807
)
 
(55,629
)
Intercompany interest expense
(12,013
)
 
(12,013
)
Cablevision interest income
11

 
5

Cablevision income from continuing operations before income taxes
$
157,097

 
$
92,841



25


  
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(Dollars in thousands, except per share amounts)
(Unaudited)

The following table summarizes the Company's capital expenditures by reportable segment for the three months ended March 31, 2016 and 2015:
 
Three Months Ended March 31,
 
2016
 
2015
Capital expenditures
 
 
 
Cable
$
119,591

 
$
133,571

Lightpath
21,157

 
23,732

Other
7,904

 
9,328

 
$
148,652

 
$
166,631

All revenues and assets of the Company's reportable segments are attributed to or located in the United States primarily concentrated in the New York metropolitan area.
NOTE 14.    RELATED PARTY TRANSACTIONS
The following table summarizes the revenue and charges related to services provided to or received from AMC Networks Inc., The Madison Square Garden Company and MSG Networks Inc. not discussed elsewhere in the accompanying combined notes to the condensed consolidated financial statements:
 
Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
Revenues, net
$
1,139

 
$
1,191

Operating expenses:
 

 
 

Technical expenses (a)
$
44,892

 
$
44,937

Selling, general and administrative expenses, net
1,942

 
1,928

Operating expenses, net
46,834

 
46,865

Net charges
$
45,695

 
$
45,674

 

(a)
Technical expenses include primarily costs incurred by the Company for the carriage of the MSG networks, as well as for AMC, WE tv, IFC, Sundance Channel and BBC America on the Company's cable systems.  The Company also purchases certain programming signal transmission and production services from AMC Networks.



26



CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
All dollar amounts, except per customer and per share data, included in the following discussion under this Item 2, are presented in thousands.
Altice Merger
On September 16, 2015, Cablevision entered into an Agreement and Plan of Merger (the "Merger Agreement"), by and among Altice N.V. ("Altice"), Neptune Merger Sub Corp., a wholly-owned subsidiary of Altice ("Merger Sub"), and Cablevision. Pursuant to the Merger Agreement, Merger Sub will be merged with and into Cablevision (the "Merger"), with Cablevision surviving as a subsidiary of Altice.
In connection with the Merger, each outstanding share of the Cablevision NY Group Class A common stock, par value $0.01 per share ("CNYG Class A Shares"), and Cablevision NY Group Class B common stock, par value $0.01 per share ("CNYG Class B Shares", and together with the CNYG Class A Shares, the "Shares") (other than (i) Shares owned by Cablevision, Altice or any of their respective wholly-owned subsidiaries, in each case not held on behalf of third parties in a fiduciary capacity, and (ii) Shares that are owned by stockholders who have perfected and not withdrawn a demand for appraisal rights) will be converted into the right to receive $34.90 in cash, without interest, less applicable tax withholdings.
Also in connection with the Merger, outstanding equity-based awards granted under Cablevision’s equity plans will be cancelled and converted into a right to receive cash based upon the $34.90 per Share merger price in accordance with the original terms of the awards.
On September 16, 2015, the holders of Shares representing a majority of all votes entitled to be cast in the matter executed and delivered to Cablevision and Altice a written consent adopting the Merger Agreement. As a result, the stockholder approval required to consummate the Merger has been obtained and no further action by Cablevision’s stockholders in connection with the Merger is required.
The completion of the Merger is subject to certain customary conditions and approvals set forth in the Merger Agreement, including, among others, (i) the adoption of the Merger Agreement by the holders of Shares representing a majority of all votes entitled to be cast in the matter (which condition has been satisfied as described above), (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (which condition has been satisfied as of November 4, 2015), (iii) adoption and release of an order by the Federal Communications Commission granting any required consent to the transfer of control of Cablevision’s licenses (which condition has been satisfied as of May 3, 2016), (iv) the conclusion of a review by the Committee on Foreign Investment in the United States pursuant to Section 721 of Title VII of the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007 (which condition has been satisfied as of February 17, 2016), (v) the receipt of certain approvals from state public utility commissions and under certain local franchise ordinances and agreements, (vi) the absence of any applicable law or order prohibiting consummation of the Merger, and (vii) other customary closing conditions, including (a) the accuracy of Cablevision’s and Altice’s respective representations and warranties (subject to customary materiality qualifiers) and (b) Cablevision’s and Altice’s compliance with their respective obligations and covenants contained in the Merger Agreement. Assuming timely satisfaction of the necessary closing conditions, the Company currently expects the closing of the Merger to occur in the second quarter of 2016. The Merger is not subject to a financing condition.
The Merger Agreement contains certain customary termination rights, including the right for each of Cablevision and Altice to terminate the Merger Agreement if the Merger is not consummated by September 16, 2016 (subject to extension to December 16, 2016 if either Cablevision or Altice determines additional time is necessary to obtain certain government approvals) or in the event of an uncured material breach of any representation, warranty, covenant or agreement such that the conditions to closing would not be satisfied. The Merger Agreement also gives Altice the right to terminate the Merger Agreement in certain circumstances associated with Cablevision’s failure to deliver the Written Consent or Cablevision’s entry into an alternative transaction with respect to an alternative acquisition proposal, among others, and gives Cablevision the right to terminate the Merger Agreement in certain circumstances associated with a failure of Altice’s financing of the Merger, among others. If the Merger Agreement is terminated in certain circumstances associated with Cablevision’s failure to deliver the Written Consent or with respect to an alternative acquisition proposal, among others, Cablevision agreed to pay a termination fee of $280,000 to Altice. Following execution and delivery of the Written Consent on September 16, 2015, no provisions in the Merger Agreement remain in effect pursuant to which the Merger Agreement


27



CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

can be terminated that would require Cablevision to pay the termination fee. If the Merger Agreement is terminated by Cablevision in connection with Altice’s failure to consummate the Merger due to a failure of Altice’s financing of the Merger, then Altice has agreed to pay to Cablevision a termination fee of $560,000.
In October 2015, Neptune Finco Corp. ("Finco"), a wholly-owned subsidiary of Altice formed to complete the financing described herein and the merger with CSC Holdings, issued an aggregate principal amount of $3,800,000 (the "Term Loans") and revolving loan commitments in an aggregate principal amount of $2,000,000 (the “Revolving Credit Facility” and, together with the Term Loans, the "Senior Secured Credit Facilities"). The Term Loans will mature on October 9, 2022. Quarterly amortization payments each equal to 0.25% of the original principal amount of the Term Loans will be required to be made beginning with the first full fiscal quarter after the Closing Date. The Revolving Credit Facility will mature on October 9, 2020. The Revolving Credit Facility will include a financial maintenance covenant solely for the benefit of the lenders under the Revolving Credit Facility consisting of a maximum consolidated net senior secured leverage ratio of 5.0 to 1.0, which will be tested on the last day of each fiscal quarter (commencing with the last day of the first full fiscal quarter ended after the Closing Date) but only if on such day there are outstanding borrowings under the Revolving Credit Facility (including swingline loans but excluding any cash collateralized letters of credit and undrawn letters of credit not to exceed $15,000).
Finco also completed an offering of $1,800,000 aggregate principal amount of 10.125% senior notes due 2023, $2,000,000 aggregate principal amount of 10.875% senior notes due 2025 and $1,000,000 aggregate principal amount of 6.625% senior guaranteed notes due 2025 (the Senior Guaranteed Notes") (collectively the "Notes").
Altice intends to use the proceeds from the Term Loans and the Notes, together with an equity contribution from Altice and its co-investors and existing cash at Cablevision, to (a) finance the Merger, (b) refinance (i) the credit agreement, dated as of April 17, 2013 (the "Existing Credit Facility"), among CSC Holdings, certain subsidiaries of CSC Holdings and the lenders party thereto and (ii) the senior secured credit agreement, dated as of October 12, 2012, among Newsday LLC, CSC Holdings, and the lenders party thereto, (the "Existing Newsday Credit Facility"), and (c) pay related fees and expenses.
Prior to the Merger, CSC Holdings is not responsible for the obligations under the Senior Secured Credit Facilities or the Notes. Following the consummation of the Merger of Merger Sub into Cablevision (the "Closing Date"), Finco will be merged with and into CSC Holdings. As the surviving entity in such merger, CSC Holdings will assume all of the rights and obligations of the borrower under the Senior Secured Credit Facilities and the issuer under the Notes. Within two business days following the Closing Date, (a) the Senior Guaranteed Notes will be guaranteed on a senior basis by each restricted subsidiary of CSC Holdings (other than CSC TKR, LLC and its subsidiaries, which own and operate the New Jersey cable television systems, Cablevision Lightpath, Inc. and any subsidiaries of CSC Holdings that are "Excluded Subsidiaries" under the indenture governing the Senior Guaranteed Notes) (such subsidiaries, the "Initial Guarantors") and (b) the obligations under the Senior Secured Credit Facilities will be (i) guaranteed on a senior basis by each Initial Guarantor and (ii) secured on a first priority basis by capital stock held by CSC Holdings and the guarantors in certain subsidiaries of CSC Holdings, subject to certain exclusions and limitations.
Summary
Our future performance is dependent, to a large extent, on the impact of direct competition, general economic conditions (including capital and credit market conditions), our ability to manage our businesses effectively, and our relative strength and leverage in the marketplace, both with suppliers and customers.  See "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2015.
Cable 
Our Cable segment, which accounted for 90% of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2016, derives revenues principally through monthly charges to subscribers of our video, high-speed data and Voice over Internet Protocol ("VoIP") services.  These monthly charges include fees for video programming, high-speed data and VoIP services, as well as equipment rental, digital video recorder ("DVR"), video-on-demand, pay-per-view, installation and home shopping commissions.  We also derive revenues from the sale of advertising time available on the programming carried on our cable television systems. Our video, high-speed data and Voice over Internet Protocol ("VoIP") services (including advertising and other revenue) accounted for 51%, 25%, and 14%, respectively, of our consolidated revenues, net of inter-segment eliminations. See further details of our Cable segment revenues in "Business Segment Results - Cable" below.


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Revenue increases are derived from rate increases, increases in the number of subscribers to our services, including additional services sold to our existing subscribers, programming package upgrades by our video customers, speed tier upgrades by our high-speed data customers, and acquisition transactions that result in the addition of new subscribers. 
Our ability to increase the number of subscribers to our services is significantly related to our penetration rates (the number of subscribers to our services as a percentage of serviceable passings, which represent the estimated number of single residence homes, apartment and condominium units passed by the cable distribution network in areas serviceable without further extending the transmission lines, including commercial establishments that have connected to our cable distribution network). As penetration rates increase, the number of available homes to which we can market our services generally decreases. Due to the high penetration of our video, high-speed data and VoIP services (50.7%, 55.6%, and 42.9%, respectively, of serviceable passings at March 31, 2016), our ability to maintain or increase our existing customers and revenue in the future will continue to be negatively impacted.
We face competition from telephone companies, DBS service providers, and others, including the delivery of video content over the Internet directly to subscribers.  As discussed in greater detail under “Competition” in our Annual Report on Form 10-K for the year ended December 31, 2015, we face intense competition from Verizon Communications Inc. ("Verizon") and Frontier Communications Corporation ("Frontier"). Verizon has constructed a fiber to the home network plant that passes a significant number of households in our service area.  Verizon does not publicly report the extent of their build-out or penetration by area. Our estimate of Verizon's build-out and sales activity in our service area is difficult to assess because it is based upon visual inspections and other limited estimating techniques, and therefore serves only as an approximation.  We estimate that Verizon is currently able to sell a fiber-based video service, as well as high-speed data and VoIP services, to at least half of the households in our service area.  In certain other portions of our service area, Verizon has also built its fiber network where we believe it is not currently able to sell its fiber-based video service, but is able to sell its high-speed data and VoIP services.  In these areas (as well as other parts of our service area) Verizon markets DBS services along with its high-speed data and VoIP services. Verizon’s fiber network also passes areas where we believe it is not currently able to sell its video, high-speed data or VoIP services. Accordingly, Verizon may increase the number of customers in our service area to whom it is able to sell video, high-speed data and VoIP services in the future.
Frontier offers video service, as well as high-speed data and VoIP services, in competition with us in most of our Connecticut service area.  Frontier also markets DBS services in this service area. Verizon and Frontier have made and may continue to make promotional offers at prices lower than ours. This competition affects our ability to add or retain customers and creates pressure upon the pricing of our services. Competition, particularly from Verizon, which has significantly greater financial resources than we do, has negatively impacted our revenues and caused subscriber declines in our service areas. To the extent Verizon and Frontier continue to offer competitive and promotional packages, our ability to maintain or increase our existing customers and revenue will continue to be negatively impacted. 
The two major DBS services, DISH Network Corporation and DIRECTV, are available to the vast majority of our customers.  These companies each offer video programming that is substantially similar to the video service that we offer, at competitive prices. Each of these competitors has significantly greater financial resources than we do. 
Our revenues have also been negatively impacted by the prolonged weak economic conditions as customers with less disposable income may have been more willing to obtain services from our competitors or other sources.  Our revenues may continue to be negatively impacted by the prolonged weak economic conditions in certain portions of our service area.  In addition, new and existing customers are able to obtain video content from a wide variety of sources, including Internet-delivered content. Also, new and existing customers may choose to use a mobile device as their sole source of voice services.  Consumers' selection of an alternate source of service, whether due to economic constraints, technological advances or preference, negatively impacts the demand for our services.
Historically, we have made substantial investments in our network and the development of new and innovative products and other service offerings for our customers as a way of differentiating ourselves from our competitors and we may continue to do so in the future.  For example, we have deployed WiFi access points throughout our footprint and in the first quarter of 2015, we launched Freewheel, a new all-WiFi phone service providing unlimited data, talk and text that works anywhere in the world where WiFi is accessible and operates only when the device is connected to a WiFi signal. During the pendency of the Merger, investments in our network and the development of new and innovative products and other service offerings for our customers will be subject to our covenant in favor of Altice regarding the conduct of interim operations, including our covenant regarding our level of capital expenditures that may be committed to such projects without Altice's consent.


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Our programming costs, which are the most significant component of our Cable segment's operating expenses, have increased and are expected to continue to increase primarily as a result of contractual rate increases and new channel launches. See "Business Segments Results - Cable" below for a further discussion of revenues and operating expenses.
Lightpath
Lightpath accounted for 5% of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2016.  Lightpath derives revenues from the sale of fiber-based telecommunications services to the business market. Lightpath operates in a highly competitive business telecommunications market and competes against the very largest telecommunications companies - including incumbent local exchange carriers and competitive local exchange carriers, and long distance voice service companies. More specifically, Lightpath faces substantial competition from Verizon and Frontier which are the dominant providers of local telephone and broadband services in their respective service areas.  To the extent our competitors reduce their prices, future success of our Lightpath business may be negatively impacted.
Other
Our Other segment, which accounted for 5% of our consolidated revenues, net of inter-segment eliminations, for the three months ended March 31, 2016, includes the operations of (i) Newsday, which includes the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites, (ii) the News 12 Networks, our regional news programming services, (iii) Cablevision Media Sales Corporation ("Cablevision Media Sales"), a cable television advertising company, and (iv) certain other businesses and unallocated corporate costs.
Newsday
Newsday's revenue is derived primarily from the sale of advertising and the sale of the Newsday daily newspaper, including home delivery, digital subscriptions, and single copy sales through local retail outlets ("circulation revenue").  For the three months ended March 31, 2016, advertising revenues accounted for 56% and circulation revenues accounted for 43% of the total revenues of Newsday. 
The newspaper industry generally has experienced significant declines in circulation and readership levels due to competition from new media news formats and less reliance on newspapers by consumers. Readership and circulation levels, as well as economic conditions and the existence of other advertising outlets, impact the demand for and level of our advertising.  These factors will continue to negatively impact Newsday’s revenues.
Newsday's largest categories of operating expenses relate to the production and distribution of its print products.  These costs are driven by volume (number of newspapers printed and number of pages printed) and the number of pages printed are impacted by the volume of advertising and editorial pages.  The majority of Newsday's other costs, such as editorial content creation, rent and general and administrative expenses do not directly fluctuate with changes in advertising and circulation revenue.
News 12 Networks
Our News 12 Networks, which include seven 24-hour local news channels and five traffic and weather services dedicated to covering areas within the New York metropolitan area, derives its revenues from the sale of advertising on its networks and affiliation fees paid by cable operators, principally Cablevision.
Cablevision Media Sales
Cablevision Media Sales is a cable television advertising company that derives its revenues primarily from the sale of local and regional commercial advertising time on cable television networks in the New York metropolitan area, which offers advertisers the opportunity to target specific geographic and demographic audiences.
Non-GAAP Financial Measures
We define adjusted operating cash flow ("AOCF"), which is a non-GAAP financial measure, as operating income (loss) before depreciation and amortization (including impairments), excluding share-based compensation expense or benefit and restructuring expense or credits.  Because it is based upon operating income (loss), AOCF also excludes interest expense (including cash interest expense) and other non-operating income and expense items.  We believe that the exclusion of share-based compensation expense allows investors to better track the performance of the various operating units of our business without regard to expense associated with awards that are not expected to be made in cash, in the


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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

case of restricted shares, restricted stock units, and stock options, and the distortive effects of fluctuating stock prices in the case of equity classified awards that will be settled in cash.
We present AOCF as a measure of our ability to service our debt and make continuing investments, including in our capital infrastructure.  We believe AOCF is an appropriate measure for evaluating the operating performance of our business segments and the Company on a consolidated basis.  AOCF and similar measures with similar titles are common performance measures used by investors, analysts and peers to compare performance in our industry.  Internally, we use net revenues and AOCF measures as the most important indicators of our business performance, and evaluate management's effectiveness with specific reference to these indicators.  AOCF should be viewed as a supplement to and not a substitute for operating income (loss), net income (loss), cash flows from operating activities, and other measures of performance and/or liquidity presented in accordance with U.S. generally accepted accounting principles ("GAAP").  Since AOCF is not a measure of performance calculated in accordance with GAAP, this measure may not be comparable to similar measures with similar titles used by other companies.  Each presentation of AOCF in this Quarterly Report on Form 10-Q includes a reconciliation of AOCF to operating income (loss).



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CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES

Results of Operations - Cablevision Systems Corporation
The following table sets forth on a historical basis certain items related to operations as a percentage of net revenues for the periods indicated:
STATEMENT OF OPERATIONS DATA
 
 
Three Months Ended March 31,
 
 
 
 
2016
 
2015
 
 
 
 
Amount
 
% of Net
Revenues
 
Amount
 
% of Net
Revenues
 
Favorable
(Unfavorable)
Revenues, net
 
$
1,640,757

 
100
 %
 
$
1,614,771

 
100
 %
 
$
25,986

Operating expenses:
 
 

 
 

 
 

 
 

 
 

Technical and operating (excluding depreciation and amortization)
 
810,961

 
49

 
795,888

 
49

 
(15,073
)
Selling, general and administrative
 
365,051

 
22

 
376,764

 
23

 
11,713

Restructuring expense (credits)
 
1,037

 

 
(532
)
 

 
(1,569
)
Depreciation and amortization
 
212,453

 
13

 
218,900

 
14

 
6,447

Operating income
 
251,255

 
15

 
223,751

 
14

 
27,504

Other income (expense):
 
 

 
 

 
 

 
 

 
 

Interest expense, net
 
(148,482
)
 
(9
)
 
(145,012
)
 
(9
)
 
(3,470
)
Gain (loss) on investments, net
 
100,365

 
6

 
(33,071
)
 
(2
)
 
133,436

Gain (loss) on equity derivative contracts, net
 
(48,012
)
 
(3
)
 
46,166

 
3

 
(94,178
)
Miscellaneous, net
 
1,971

 

 
1,007

 

 
964

Income from continuing operations before income taxes
 
157,097

 
10