XNYS:CVC Cablevision Systems Corp Class A Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
FORM 10-Q

(Mark One)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2012
 
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
x
 
No
o  
CSC Holdings, LLC
Yes
x
 
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
x
 
No
o
 


 
 

 
 
Indicate by check mark whether each Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

 
Large accelerated
filer
 
Accelerated
filer
 
Non-accelerated
filer
 
Smaller
Reporting
Company
Cablevision Systems Corporation
Yes
x
 
No
o  
Yes
o  
No
x
 
Yes
o  
No
x
 
Yes
o
No
x
CSC Holdings, LLC
Yes
o  
No
x
 
Yes
o  
No
x
 
Yes
x
 
No
o  
Yes
o
No
x

Indicate by check mark whether the Registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act).

Cablevision Systems Corporation
Yes
o  
No
x
 
CSC Holdings, LLC
Yes
o  
No
x
 

Number of shares of common stock outstanding as of April 30, 2012:

Cablevision NY Group Class A Common Stock   -
216,962,246
Cablevision NY Group Class B Common Stock   -
54,137,673
CSC Holdings, LLC Interests of Member  -
14,432,750

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


       
Page
     
PART I.
 
FINANCIAL INFORMATION
   
         
Item 1.
 
Financial Statements of Cablevision Systems Corporation and Subsidiaries
   
         
      2
         
      4
         
      5
         
      6
         
   
Financial Statements of CSC Holdings, LLC and Subsidiaries
   
         
      7
         
      9
         
      10
         
      11
         
      12
         
Item 2.
    33
         
Item 3.
    57
         
Item 4.
    59
         
PART II.
 
OTHER INFORMATION
   
         
Item 1.
    59
         
Item 2.
    60
         
Item 6.
    60
         
  61
 
 

This Quarterly Report on Form 10-Q for the period ended March 31, 2012 is separately filed by Cablevision Systems Corporation ("Cablevision") and CSC Holdings, LLC ("CSC Holdings" and collectively with Cablevision and their subsidiaries, the "Company", "we", "us" or "our").

This Quarterly Report contains statements that constitute forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995.  In this Quarterly Report there are statements concerning our future operating 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 and future financial performance identify forward-looking statements.  Investors are cautioned that such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties and that actual results or developments may differ materially from the forward-looking statements as a result of various factors.  Factors that may cause such differences to occur include, but are not limited to:
 
 
the level of our revenues;
 
competition for subscribers from existing competitors (such as telephone companies and direct broadcast satellite ("DBS") distributors) and new competitors (such as high-speed wireless providers) entering our franchise areas;
 
demand for our video, high-speed data and voice services, which are impacted by competition from other services and the other factors discussed herein;
 
the cost of programming and industry conditions;
 
changes in the laws or regulations under which we operate;
 
the outcome of litigation and other proceedings, including the matters described in Note 12 of the combined notes to our condensed consolidated financial statements;
 
general economic conditions in the areas in which we operate;
 
the state of the market for debt securities and bank loans;
 
demand for advertising in our newspapers along with subscriber and single copy outlet sales demand for our newspapers;
 
the level of our capital expenditures;
 
the level of our expenses;
 
future acquisitions and dispositions of assets;
 
market demand for new services;
 
demand for advertising inventory;
 
the tax-free treatment of the MSG Distribution and the AMC Networks Distribution (each as defined herein);
 
whether pending uncompleted transactions, if any, are completed on the terms and at the times set forth (if at all);
 
other risks and uncertainties inherent in the cable television, newspaper publishing businesses, and our other businesses;
 
financial community and rating agency perceptions of our business, operations, financial condition and the industries in which we operate; and
 
the factors described in our filings with the Securities and Exchange Commission, including under the sections entitled "Risk Factors" and "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.
 
 
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
(In thousands)
(Unaudited)
 
   
March 31,
2012
   
December 31,
 2011
 
ASSETS
           
             
Current Assets:
           
             
Cash and cash equivalents
  $ 493,543     $ 611,947  
Restricted cash
    33,197       29,068  
Accounts receivable, trade (less allowance for doubtful accounts of $15,290 and $14,907)
    251,653       295,277  
Prepaid expenses and other current assets
    149,118       135,579  
Amounts due from affiliates
    1,869       6,818  
Deferred tax asset
    109,712       84,925  
Investment securities pledged as collateral
    322,272       191,338  
Total current assets
    1,361,364       1,354,952  
                 
Property, plant and equipment, net of accumulated depreciation of $9,374,807 and $9,221,694
    3,243,197       3,269,232  
Other receivables
    4,856       3,279  
Investment securities pledged as collateral
    322,272       317,896  
Derivative contracts
    -       18,617  
Other assets
    50,365       53,871  
Amortizable intangible assets, net of accumulated amortization of $128,525 and $115,043
    240,250       252,871  
Indefinite-lived cable television franchises
    1,240,228       1,240,228  
Other indefinite-lived intangible assets
    55,895       55,895  
Goodwill
    442,773       442,773  
Deferred financing and other costs, net of accumulated amortization of $82,471 and $81,269
    127,332       133,711  
    $ 7,088,532     $ 7,143,325  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
   
March 31,
 2012
   
December 31,
2011
 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
           
             
Current Liabilities:
           
             
Accounts payable
  $ 411,203     $ 455,654  
Accrued liabilities
    535,701       604,240  
Amounts due to affiliates
    32,858       32,682  
Deferred revenue
    62,653       61,599  
Liabilities under derivative contracts
    104,999       75,223  
Credit facility debt
    116,816       103,245  
Collateralized indebtedness
    207,178       148,175  
Capital lease obligations
    9,056       9,174  
Notes payable
    11,092       17,614  
Senior notes
    87,822       87,822  
Total current liabilities
    1,579,378       1,595,428  
                 
Deferred revenue
    10,843       10,896  
Liabilities under derivative contracts
    39,200       3,141  
Other liabilities
    228,475       220,865  
Deferred tax liability
    143,187       80,546  
Credit facility debt
    5,046,371       5,080,949  
Collateralized indebtedness
    248,760       307,763  
Capital lease obligations
    31,320       33,589  
Notes payable
    7,695       11,613  
Senior notes and debentures
    5,362,906       5,358,838  
Total liabilities
    12,698,135       12,703,628  
                 
Commitments and contingencies
               
                 
Redeemable noncontrolling interests
    13,368       13,761  
                 
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, 285,073,518 and 281,833,547 shares issued and 217,810,866 and 220,170,261 shares outstanding
    2,851       2,818  
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
    1,024,629       1,051,435  
Accumulated deficit
    (5,188,236 )     (5,245,483 )
      (4,160,215 )     (4,190,689 )
Treasury stock, at cost (67,262,652 and 61,663,286 CNYG Class A common shares)
    (1,442,615 )     (1,363,698 )
Accumulated other comprehensive loss
    (21,419 )     (21,468 )
Total stockholders' deficiency
    (5,624,249 )     (5,575,855 )
Noncontrolling interest
    1,278       1,791  
Total deficiency
    (5,622,971 )     (5,574,064 )
    $ 7,088,532     $ 7,143,325  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Three Months Ended March 31, 2012 and 2011
(In thousands, except per share amounts)
(Unaudited)
 
   
2012
   
2011
 
Revenues, net (including revenues, net from affiliates of $1,957 and $819, respectively)
  $ 1,658,757     $ 1,655,124  
                 
Operating expenses:
               
Technical and operating (excluding depreciation, amortization and impairments shown below and including charges from affiliates of $45,788 and $44,513, respectively)
    784,615       737,988  
Selling, general and administrative (net of charges from (to) affiliates of $74 and $(4,697), respectively)
    371,029       374,184  
Restructuring expense (credits)
    (298 )     171  
Depreciation and amortization (including impairments)
    253,347       245,183  
      1,408,693       1,357,526  
                 
Operating income
    250,064       297,598  
                 
Other income (expense):
               
Interest expense, net
    (181,831 )     (191,084 )
Gain on investments, net
    135,325       59,072  
Loss on equity derivative contracts, net
    (111,194 )     (40,058 )
Loss on interest rate swap contracts, net
    (1,645 )     (4,189 )
Miscellaneous, net
    545       217  
      (158,800 )     (176,042 )
Income from continuing operations before income taxes
    91,264       121,556  
Income tax expense
    (34,160 )     (52,543 )
Income from continuing operations
    57,104       69,013  
Income from discontinued operations, net of income taxes
    -       35,031  
Net income
    57,104       104,044  
Net loss attributable to noncontrolling interests
    143       21  
Net income attributable to Cablevision Systems Corporation stockholders
  $ 57,247     $ 104,065  
                 
Basic net income per share attributable to Cablevision Systems Corporation stockholders:
               
                 
Income from continuing operations
  $ 0.21     $ 0.24  
                 
Income from discontinued operations
  $ -     $ 0.12  
                 
Net income
  $ 0.21     $ 0.37  
                 
Basic weighted average common shares (in thousands)
    267,419       282,123  
                 
Diluted net income per share attributable to Cablevision Systems Corporation stockholders:
               
                 
Income from continuing operations
  $ 0.21     $ 0.24  
                 
Income from discontinued operations
  $ -     $ 0.12  
                 
Net income
  $ 0.21     $ 0.36  
                 
Diluted weighted average common shares (in thousands)
    274,038       291,221  
                 
Amounts attributable to Cablevision Systems Corporation stockholders:
               
Income from continuing operations, net of income taxes
  $ 57,247     $ 69,034  
Income from discontinued operations, net of income taxes
    -       35,031  
Net income
  $ 57,247     $ 104,065  
Cash dividends declared and paid per share of common stock
  $ 0.15     $ 0.125  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Three Months Ended March 31, 2012 and 2011
(In thousands)
(Unaudited)
 
   
2012
   
2011
 
             
Net income
  $ 57,104     $ 104,044  
                 
Other comprehensive income, net of tax:
               
Defined benefit pension plans and postretirement plans:
               
Amortization of actuarial losses, net
    49       318  
Other comprehensive income
    57,153       104,362  
Comprehensive loss attributable to noncontrolling interests
    143       21  
Comprehensive income  attributable to Cablevision Systems Corporation stockholders
  $ 57,296     $ 104,383  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CABLEVISION SYSTEMS CORPORATION AND SUBSIDIARIES
Three Months Ended March 31, 2012 and 2011
(In thousands)
(Unaudited)
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Income from continuing operations
  $ 57,104     $ 69,013  
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
               
Depreciation and amortization (including impairments)
    253,347       245,183  
Gain on investments, net
    (135,325 )     (59,072 )
Loss on equity derivative contracts, net
    111,194       40,058  
Amortization of deferred financing costs and discounts on indebtedness
    10,693       11,545  
Share-based compensation expense related to equity classified awards
    10,344       12,399  
Deferred income taxes
    37,820       40,155  
Provision for doubtful accounts
    10,843       9,627  
Changes in other assets and liabilities
    (121,629 )     (5,573 )
Net cash provided by operating activities
    234,391       363,335  
                 
Cash flows from investing activities:
               
Capital expenditures
    (216,097 )     (131,014 )
Proceeds (payments) related to the sale of equipment, net of costs of disposal
    (520 )     1,162  
Additions to other intangible assets
    (565 )     (478 )
Contributions to AMC Networks
    -       (20,813 )
Decrease in restricted cash
    573       -  
Net cash used in investing activities
    (216,609 )     (151,143 )
                 
Cash flows from financing activities:
               
Proceeds from credit facility debt
    -       325,000  
Repayment of credit facility debt
    (21,258 )     (39,363 )
Proceeds from collateralized indebtedness
    -       125,140  
Repayment of collateralized indebtedness and related derivative contracts
    -       (105,028 )
Proceeds from stock option exercises
    3,195       2,317  
Dividend distributions to common stockholders
    (46,406 )     (37,753 )
Principal payments on capital lease obligations
    (2,387 )     (355 )
Deemed repurchases of restricted stock
    (19,764 )     (32,762 )
Purchase of shares of CNYG Class A common stock, pursuant to a share repurchase program, held as treasury shares
    (48,692 )     (250,658 )
Additions to deferred financing costs
    (738 )     -  
Contributions from (distributions to) noncontrolling partners, net
    (64 )     21  
Net cash used in financing activities
    (136,114 )     (13,441 )
                 
Net increase (decrease) in cash and cash equivalents from continuing operations
    (118,332 )     198,751  
                 
Cash flows of discontinued operations:
               
Net cash provided by (used in) operating activities
    (72 )     61,636  
Net cash used in investing activities
    -       (1,533 )
Net cash used in financing activities
    -       (42,780 )
Effect of change in cash related to discontinued operations
    -       (4,113 )
Net increase (decrease) in cash and cash equivalents from discontinued operations
    (72 )     13,210  
                 
Cash and cash equivalents at beginning of year
    611,947       313,991  
                 
Cash and cash equivalents at end of period
  $ 493,543     $ 525,952  
 
See accompanying combined notes to condensed consolidated financial statements.
 

CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
(In thousands)
(Unaudited)
 
   
March 31,
2012
   
December 31,
2011
 
ASSETS
           
             
Current Assets:
           
             
Cash and cash equivalents
  $ 462,692     $ 611,054  
Restricted cash
    33,197       29,068  
Accounts receivable, trade (less allowance for doubtful accounts of $15,290 and $14,907)
    251,653       295,277  
Prepaid expenses and other current assets
    144,237       129,282  
Amounts due from affiliates (primarily due from Cablevision)
    516,022       503,576  
Deferred tax asset
    38,469       91,372  
Investment securities pledged as collateral
    322,272       191,338  
Total current assets
    1,768,542       1,850,967  
                 
Property, plant and equipment, net of accumulated depreciation of $9,374,807 and $9,221,694
    3,243,197       3,269,232  
Other receivables
    3,078       3,279  
Investment securities pledged as collateral
    322,272       317,896  
Derivative contracts
    -       18,617  
Other assets
    50,365       53,871  
Amortizable intangible assets, net of accumulated amortization of $128,525 and $115,043
    240,250       252,871  
Indefinite-lived cable television franchises
    1,240,228       1,240,228  
Other indefinite-lived intangible assets
    55,895       55,895  
Goodwill
    442,773       442,773  
Deferred financing and other costs, net of accumulated amortization of $72,744 and $72,664
    90,900       96,156  
    $ 7,457,500     $ 7,601,785  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS (cont'd)
(In thousands, except membership unit amounts)
(Unaudited)
 
   
March 31,
2012
   
December 31,
2011
 
LIABILITIES AND MEMBER DEFICIENCY
           
             
Current Liabilities:
           
             
Accounts payable
  $ 411,203     $ 455,654  
Accrued liabilities
    473,097       554,050  
Amounts due to affiliates
    32,484       30,065  
Deferred revenue
    62,653       61,599  
Liabilities under derivative contracts
    104,999       75,223  
Credit facility debt
    116,816       103,245  
Collateralized indebtedness
    207,178       148,175  
Capital lease obligations
    9,056       9,174  
Notes payable
    11,092       17,614  
Senior notes
    60,997       60,997  
Total current liabilities
    1,489,575       1,515,796  
                 
Deferred revenue
    10,843       10,896  
Liabilities under derivative contracts
    39,200       3,141  
Other liabilities
    227,497       218,312  
Deferred tax liability
    600,096       600,420  
Credit facility debt
    5,046,371       5,080,949  
Collateralized indebtedness
    248,760       307,763  
Capital lease obligations
    31,320       33,589  
Notes payable
    7,695       11,613  
Senior notes and debentures
    3,222,430       3,218,697  
Total liabilities
    10,923,787       11,001,176  
                 
Commitments and contingencies
               
                 
Redeemable noncontrolling interests
    13,368       13,761  
                 
Member's Deficiency:
               
Accumulated deficit
    (3,400,714 )     (3,492,409 )
Senior notes due from Cablevision
    (753,717 )     (753,717 )
Other member's equity (14,432,750 membership units issued and outstanding)
    694,917       852,651  
      (3,459,514 )     (3,393,475 )
Accumulated other comprehensive loss
    (21,419 )     (21,468 )
                 
Total member's deficiency
    (3,480,933 )     (3,414,943 )
Noncontrolling interest
    1,278       1,791  
Total deficiency
    (3,479,655 )     (3,413,152 )
    $ 7,457,500     $ 7,601,785  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
Three Months Ended March 31, 2012 and 2011
(In thousands)
(Unaudited)
 
   
2012
   
2011
 
Revenues, net (including revenues, net from affiliates of $1,957 and $819, respectively)
  $ 1,658,757     $ 1,655,124  
                 
Operating expenses:
               
Technical and operating (excluding depreciation, amortization and impairments shown below and including charges from affiliates of $45,788 and $44,513, respectively)
    784,615       737,988  
Selling, general and administrative (net of charges from (to) affiliates of $74 and $(4,697), respectively)
    371,029       374,184  
Restructuring expense (credits)
    (298 )     171  
Depreciation and amortization (including impairments)
    253,347       245,183  
      1,408,693       1,357,526  
                 
Operating income
    250,064       297,598  
                 
Other income (expense):
               
Interest expense
    (136,225 )     (145,340 )
Interest income
    15,086       14,835  
Gain on investments, net
    135,325       59,072  
Loss on equity derivative contracts, net
    (111,194 )     (40,058 )
Loss on interest rate swap contracts, net
    (1,645 )     (4,189 )
Miscellaneous, net
    545       217  
      (98,108 )     (115,463 )
Income from continuing operations before income taxes
    151,956       182,135  
Income tax expense
    (60,404 )     (77,130 )
Income from continuing operations
    91,552       105,005  
Income from discontinued operations, net of income taxes
    -       35,031  
Net income
    91,552       140,036  
Net loss attributable to noncontrolling interests
    143       21  
Net income attributable to CSC Holdings, LLC's sole member
  $ 91,695     $ 140,057  
                 
Amounts attributable to CSC Holdings, LLC's sole member:
               
Income from continuing operations, net of income taxes
  $ 91,695     $ 105,026  
Income from discontinued operations, net of income taxes
    -       35,031  
Net income
  $ 91,695     $ 140,057  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
Three Months Ended March 31, 2012 and 2011
(In thousands)
(Unaudited)
 
   
2012
   
2011
 
             
Net income
  $ 91,552     $ 140,036  
                 
Other comprehensive income, net of tax:
               
Defined benefit pension plans and postretirement plans:
               
Amortization of actuarial losses, net
    49       318  
Other comprehensive income
    91,601       140,354  
Comprehensive loss attributable to noncontrolling interests
    143       21  
Comprehensive income  attributable to CSC Holdings, LLC's sole member
  $ 91,744     $ 140,375  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
CSC HOLDINGS, LLC AND SUBSIDIARIES
(a wholly-owned subsidiary of Cablevision Systems Corporation)
Three Months Ended March 31, 2012 and 2011
(In thousands)
(Unaudited)
 
   
2012
   
2011
 
Cash flows from operating activities:
           
Income from continuing operations
  $ 91,552     $ 105,005  
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
               
Depreciation and amortization (including impairments)
    253,347       245,183  
Gain on investments, net
    (135,325 )     (59,072 )
Loss on equity derivative contracts, net
    111,194       40,058  
Amortization of deferred financing costs and discounts on indebtedness
    9,236       10,204  
Share-based compensation expense related to equity classified awards
    10,344       12,399  
Deferred income taxes
    52,545       64,742  
Provision for doubtful accounts
    10,843       9,627  
Excess tax benefit on share-based awards
    (11,518 )     -  
Changes in other assets and liabilities
    (130,540 )     (29,542 )
Net cash provided by operating activities
    261,678       398,604  
                 
Cash flows from investing activities:
               
Capital expenditures
    (216,097 )     (131,014 )
Proceeds (payments) related to the sale of equipment, net of costs of disposal
    (520 )     1,162  
Additions to other intangible assets
    (565 )     (478 )
Contributions to AMC Networks
    -       (20,813 )
Decrease in restricted cash
    573       -  
Net cash used in investing activities
    (216,609 )     (151,143 )
                 
Cash flows from financing activities:
               
Proceeds from credit facility debt
    -       325,000  
Repayment of credit facility debt
    (21,258 )     (39,363 )
Proceeds from collateralized indebtedness
    -       125,140  
Repayment of collateralized indebtedness and related derivative contracts
    -       (105,028 )
Distributions to Cablevision
    (180,430 )     (307,899 )
Excess tax benefit on share-based awards
    11,518       -  
Principal payments on capital lease obligations
    (2,387 )     (355 )
Additions to deferred financing costs
    (738 )     -  
Contributions from (distributions to) noncontrolling partners, net
    (64 )     21  
Net cash used in financing activities
    (193,359 )     (2,484 )
                 
Net increase (decrease) in cash and cash equivalents from continuing operations
    (148,290 )     244,977  
                 
Cash flows of discontinued operations:
               
Net cash provided by (used in) operating activities
    (72 )     61,636  
Net cash used in investing activities
    -       (1,533 )
Net cash used in financing activities
    -       (42,780 )
Effect of change in cash related to discontinued operations
    -       (4,113 )
Net increase (decrease) in cash and cash equivalents from discontinued operations
    (72 )     13,210  
                 
Cash and cash equivalents at beginning of year
    611,054       266,914  
                 
Cash and cash equivalents at end of period
  $ 462,692     $ 525,101  
 
See accompanying combined notes to condensed consolidated financial statements.
 
 
(In thousands, except share and per share amounts)
(Unaudited)
 
NOTE 1. 
BUSINESS

Cablevision Systems Corporation ("Cablevision"), its wholly-owned subsidiary CSC Holdings, LLC ("CSC Holdings," and collectively with Cablevision, the "Company") and their subsidiaries own and operate cable television systems and own companies that provide regional news, other programming and advertising sales services for the cable television industry, provide commercial data and voice services, operate motion picture theatres and operate a newspaper publishing business.  The Company classifies its operations into two reportable segments:  (1) Telecommunications Services, consisting principally of its video, high-speed data, Voice over Internet Protocol and its commercial data and voice services operations; and (2) Other, consisting principally of (i) Newsday, which includes the Newsday daily newspaper, amNew York, Star Community Publishing Group, and online websites including newsday.com and exploreLI.com, (ii) a motion picture theatre business ("Clearview Cinemas"), (iii) the News 12 Networks, which provide regional news programming services, (iv) the MSG Varsity network, a network dedicated entirely to showcasing high school sports and activities, (v) a cable television advertising company, Cablevision Media Sales Corporation ("Cablevision Media Sales"), and (vi) certain other businesses and unallocated corporate costs.

On June 30, 2011, Cablevision distributed to its stockholders all of the outstanding common stock of AMC Networks Inc., formerly Rainbow Media Holdings LLC, ("AMC Networks"), a company which consists principally of national programming networks, including AMC, WE tv, IFC and Sundance Channel, previously owned and operated by the Company's Rainbow segment (the "AMC Networks Distribution").  The AMC Networks Distribution took the form of a distribution by Cablevision of one share of AMC Networks Class A Common Stock for every four shares of Cablevision NY Group ("CNYG") Class A Common Stock held of record on June 16, 2011 (the "AMC Networks Distribution Record Date") and one share of AMC Networks Class B Common Stock for every four shares of CNYG Class B Common Stock held of record on the AMC Networks Distribution Record Date.  As a result of the AMC Networks Distribution, the Company no longer consolidates the financial results of AMC Networks for the purpose of its own financial reporting and the historical financial results of AMC Networks have been reflected in the Company's condensed consolidated financial statements as discontinued operations for the three months ended March 31, 2011.

Accounts payable to and advances to AMC Networks that were previously eliminated in consolidation are now presented as amounts due to affiliates or amounts due from affiliates on the Company's condensed consolidated balance sheets.
 
NOTE 2. 
BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Cablevision and CSC Holdings have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.  Accordingly, these financial statements do not include all the information and notes required for complete annual financial statements.

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, 2011.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
The financial statements as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 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 for CSC Holdings, with the following significant exceptions:  Cablevision has $2,167,301 of senior notes outstanding at March 31, 2012 (excluding the $753,717 aggregate principal amount of Cablevision notes held by its subsidiary Newsday Holdings LLC) that were issued to third party investors, cash, deferred financing costs and accrued interest related to its senior notes, deferred taxes and accrued dividends on its balance sheet and CSC Holdings and its subsidiaries have certain intercompany receivables from Cablevision.  Differences between Cablevision's results of operations from those of CSC Holdings primarily include incremental interest expense, interest income, and income tax expense.  CSC Holdings' results of operations include incremental interest income from the Cablevision senior notes held by Newsday Holdings LLC, all of which eliminate 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 do not eliminate in the CSC Holdings condensed consolidated financial statements, but do eliminate 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, 2012.

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 September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08, Intangibles - Goodwill and Other (Topic 350):  Testing Goodwill for Impairment.  ASU No. 2011-08 is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary.  Under the amended rule, a company will not be required to calculate the fair value of a business that contains recorded goodwill unless it concludes, based on the qualitative assessment, that it is more likely than not that the fair value of that business is less than its book value. If such a decline in fair value is deemed more likely than not to have occurred, then the quantitative goodwill impairment test that exists under current GAAP must be completed; otherwise, goodwill is deemed to be not impaired and no further testing is required until the next annual test date (or sooner if conditions or events before that date raise concerns of potential impairment in the business).  The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value.  ASU No. 2011-08 was effective for the Company on January 1, 2012 and the Company adopted this guidance in connection with its annual goodwill impairment test performed during the three months ended March 31, 2012.  The adoption of ASU No. 2011-08 had no impact on the financial statements of the Company as of March 31, 2012.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.  ASU No. 2011-04 provides amendments to Topic 820 that change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements.  Provisions of the amendment include a requirement that for recurring Level III fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. In addition, for items not carried at fair value but for which fair value is disclosed, entities are required to disclose the level within the fair value hierarchy that applies to the fair value measurement disclosed.  The adoption of ASU No. 2011-04 by the Company on January 1, 2012 had no impact on the Company's fair value measurements, financial condition, results of operations or cash flows, however additional disclosures are included in Note 9.

NOTE 3. 
DIVIDENDS

During the three months ended March 31, 2012, the Board of Directors of Cablevision declared the following cash dividends to stockholders of record on both its Cablevision NY Group ("CNYG") Class A common stock and CNYG Class B common stock:

Declaration Date
 
Dividend per Share
 
Record Date
 
Payment Date
             
February 22, 2012
  $0.15  
March 9, 2012
 
March 30, 2012

Cablevision paid dividends aggregating $46,406 during the three months ended March 31, 2012, primarily from the proceeds of equity distribution payments from CSC Holdings.  In addition, as of March 31, 2012, up to approximately $3,294 will be paid when, and if, restrictions lapse on restricted shares outstanding.

During the three months ended March 31, 2012, CSC Holdings made equity distribution payments to Cablevision aggregating $180,430.  These distribution payments were funded from cash on hand and cash from operations.  The proceeds were used to fund:
 
 
Cablevision's dividends paid;
 
Cablevision's interest payments on its senior notes;
 
Cablevision's payments for the acquisition of treasury shares related to statutory minimum tax withholding obligations upon the vesting of certain restricted shares; and
 
the repurchase of CNYG Class A common stock under Cablevision's share repurchase program.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
NOTE 4. 
NET INCOME PER SHARE ATTRIBUTABLE TO STOCKHOLDERS

Cablevision

Basic net 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 net income per common share attributable to Cablevision stockholders reflects the dilutive effects of stock options (including those held by AMC Networks and The Madison Square Garden Company ("Madison Square Garden") employees) and restricted stock (including shares held by AMC Networks and Madison Square Garden employees).

A reconciliation of the denominator of the basic and diluted net income per share attributable to Cablevision stockholders calculation for the three months ended March 31, 2012 and 2011 is as follows:

   
2012
   
2011
 
   
(in thousands)
 
             
Basic weighted average shares outstanding
    267,419       282,123  
                 
Effect of dilution:
               
Stock options
    2,901       3,395  
Restricted stock awards
    3,718       5,703  
Diluted weighted average shares outstanding
    274,038       291,221  

Anti-dilutive shares (options whose exercise price exceeds the average market price of Cablevision's common stock during the period and certain restricted shares) totaling approximately 1,274,300 and 15,000 shares, have been excluded from diluted weighted average shares outstanding for the three months ended March 31, 2012 and 2011, respectively.  In addition, approximately 507,000 and 407,000 restricted shares for the three months ended March 31, 2012 and 2011, respectively, and approximately 12,617,000 options for the three months ended March 31, 2012, issued pursuant to the Company's employee stock plan have also been excluded from the diluted weighted average shares outstanding for the respective periods, as the performance criteria on these awards have 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, 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, 2012 and 2011, the amount of franchise fees included as a component of net revenue aggregated $36,452 and $36,822, respectively.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
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, 2012 and 2011, the Company's non-cash investing and financing activities and other supplemental data were as follows:

   
Three Months Ended March 31,
 
   
2012
   
2011
 
Non-Cash Investing and Financing Activities of Cablevision and CSC Holdings:
           
             
Cablevision and CSC Holdings:
           
Continuing Operations:
           
Redemption of collateralized indebtedness with related equity derivative contracts
  $ -     $ 26,008  
                 
Non-Cash Investing and Financing Activities of Cablevision:
               
Dividends payable on unvested restricted share awards
    729       1,110  
Property and equipment accrued but unpaid
    74,630       46,496  
                 
Supplemental Data:
               
Continuing Operations:
               
Cash interest paid (Cablevision)
    175,604       172,198  
Cash interest paid (CSC Holdings)
    136,791       133,384  
Income taxes paid, net (Cablevision and CSC Holdings)
    2,496       7,789  
Discontinued Operations:
               
Cash interest paid (Cablevision and CSC Holdings)
    -       32,421  
Income taxes paid, net (Cablevision and CSC Holdings)
    -       4,171  
 
NOTE 7. 
DISCONTINUED OPERATIONS

On June 30, 2011, the Company completed the AMC Networks Distribution (see Note 1).  As a result, the operating results of the Company's Rainbow segment through the date of the AMC Networks Distribution, as well as transaction costs, have been classified in the condensed consolidated statements of income as discontinued operations through the distribution date, which includes the three months ended March 31, 2011.  Operating results of discontinued operations for the three months ended March 31, 2011 are summarized below:

   
Three Months Ended
March 31, 2011
 
   
AMC Networks
 
       
Revenues, net
  $ 266,430  
         
Income before income taxes
  $ 60,470  
Income tax expense
    (25,439 )
Income from discontinued operations, net of income taxes
  $ 35,031  

AMC Networks' results of operations reported on a stand-alone basis will differ from results presented above due to certain reclassifications and adjustments made for purposes of discontinued operations reporting.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)

NOTE 8. 
DERIVATIVE CONTRACTS AND COLLATERALIZED INDEBTEDNESS
 
To manage interest rate risk, the Company has entered into interest rate swap contracts to adjust the proportion of total debt that is subject to variable interest rates.  Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising rates.  The Company does not enter into interest rate swap contracts for speculative or trading purposes and it has only entered into transactions with counterparties that are rated investment grade.  The Company monitors the financial institutions that are counterparties to its interest rate swap contracts and it diversifies its swap contracts among various counterparties to mitigate exposure to any single financial institution.

As of March 31, 2012, CSC Holdings was party to several interest rate swap contracts with an aggregate notional amount of $2,600,000 that effectively fixed borrowing rates on a portion of the Company's floating rate debt.  These contracts are not designated as hedges for accounting purposes.  As a result of the CSC Holdings interest rate swap transactions, the interest rate paid on approximately 81% of the Company's outstanding debt (excluding capital leases and collateralized indebtedness) is effectively fixed (57% being fixed rate obligations and 24% is effectively fixed through utilization of these interest rate swap contracts) as of March 31, 2012.  The table below summarizes certain terms of these interest rate swap contracts as of March 31, 2012:

Maturity Date
 
Notional Amount
   
Weighted Average
Fixed Rate Paid
by the Company
   
Weighted Average Effective
Floating Rate Received
by the Company
at March 31, 2012*
 
                   
June 2012
  $ 2,600,000       4.86 %     0.47 %
 

*
Represents the weighted average effective floating rate received by the Company under its interest rate swap contracts at March 31, 2012.

The Company has also 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 Corporation through the execution of prepaid forward contracts, collateralized by an equivalent amount of the respective underlying stock.  At maturity, the contracts provide for the option to deliver cash or shares of Comcast stock with a value determined by reference to the applicable stock price at maturity.  These contracts, at maturity, are expected to offset declines in the fair value of these securities below the hedge price per share while allowing the Company to retain upside appreciation from the hedge price per share to the relevant cap price.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and 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, 2012 and December 31, 2011:

Derivatives Not
     
Asset Derivatives
   
Liability Derivatives
 
Designated as
 Hedging
Instruments
 
Balance
Sheet
Location
 
Fair Value at
 March 31,
2012
   
Fair Value at
 December 31,
2011
   
Fair Value at
 March 31,
2012
   
Fair Value at
December 31,
 2011
 
                             
Interest rate swap contracts
 
Current derivative contracts
  $ -     $ -     $ 28,641     $ 55,383  
                                     
Prepaid forward contracts
 
Current derivative contracts
    -       -       76,358       19,840  
                                     
Prepaid forward contracts
 
Long-term derivative contracts
    -       18,617       39,200       3,141  
                                     
Total derivative contracts
  $ -     $ 18,617     $ 144,199     $ 78,364  

The following represents the impact and location of the Company's derivative instruments within the condensed consolidated statements of income for the three months ended March 31, 2012 and 2011:

       
Amount of Loss Recognized
 
Derivatives Not Designated as
     
Three Months Ended March 31,
 
Hedging Instruments
 
Location of Loss Recognized
 
2012
   
2011
 
                 
Interest rate swap contracts
 
Loss on interest rate swap contracts, net
  $ (1,645 )   $ (4,189 )
Prepaid forward contracts
 
Loss on equity derivative contracts, net
    (111,194 )     (40,058 )
Total derivative contracts
  $ (112,839 )   $ (44,247 )

NOTE 9. 
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.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
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, 2012 and December 31, 2011:

At March 31, 2012:
                       
   
Level I
   
Level II
   
Level III
   
Total
 
Assets:
                       
                         
Money market funds
  $ 428,693     $ -     $ -     $ 428,693  
Restricted money market funds
    32,624       -       -       32,624  
Investment securities
    107       -       -       107  
Investment securities pledged as collateral
    644,544       -       -       644,544  
                                 
Liabilities:
                               
                                 
Liabilities under derivative contracts:
                               
Prepaid forward contracts
    -       115,558       -       115,558  
Interest rate swap contracts
    -       28,641       -       28,641  
 
At December 31, 2011:
                       
   
Level I
   
Level II
   
Level III
   
Total
 
Assets:
                       
                         
Money market funds
  $ 556,853     $ -     $ -     $ 556,853  
Restricted money market funds
    27,920       -       -       27,920  
Investment securities
    113       -       -       113  
Investment securities pledged as collateral
    509,234       -       -       509,234  
Prepaid forward contracts
    -       18,617       -       18,617  
                                 
Liabilities:
                               
                                 
Liabilities under derivative contracts:
                               
Prepaid forward contracts
    -       22,981       -       22,981  
Interest rate swap contracts
    -       55,383       -       55,383  

The Company's cash equivalents and restricted cash, 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 derivative contracts and liabilities under derivative contracts are valued using market-based inputs to valuation models.  These valuation models require a variety of inputs, including contractual terms, market prices, yield curves, and measures of volatility.  When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit 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.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
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 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:

     
March 31, 2012
 
 
Fair Value
Hierarchy
 
Carrying
Amount
   
Estimated
Fair Value
 
CSC Holdings notes receivable:
             
Cablevision senior notes held by Newsday Holdings LLC(a)
Level I
  $ 753,717     $ 790,962  
                   
Debt instruments:
                 
Credit facility debt(b)
Level II
  $ 5,163,187     $ 5,182,101  
Collateralized indebtedness
Level II
    455,938       444,098  
Senior notes and debentures
Level I
    3,283,427       3,624,946  
Notes payable
Level II
    18,787       18,787  
CSC Holdings total debt instruments
      8,921,339       9,269,932  
                   
Cablevision senior notes and debentures
Level I
    2,167,301       2,319,280  
Cablevision total debt instruments
    $ 11,088,640     $ 11,589,212  

   
December 31, 2011
 
   
Carrying
Amount
   
Estimated
Fair Value
 
CSC Holdings notes receivable:
           
Cablevision senior notes held by Newsday Holdings LLC(a)
  $ 753,717     $ 802,268  
                 
Debt instruments:
               
Credit facility debt(b)
  $ 5,184,194     $ 5,198,987  
Collateralized indebtedness
    455,938       446,660  
Senior notes and debentures
    3,279,694       3,627,852  
Notes payable
    29,227       29,227  
CSC Holdings total debt instruments
    8,949,053       9,302,726  
                 
Cablevision senior notes and debentures
    2,166,966       2,355,160  
Cablevision total debt instruments
  $ 11,116,019     $ 11,657,886  
 

(a)
These notes are eliminated at the consolidated Cablevision level.
(b)
The carrying value of the Company's credit facility debt, the substantial portion of which bears interest at variable rates, approximates its fair value.

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.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
NOTE 10.
INCOME TAXES

The Company

In general, the Company is required to use an estimated annual effective tax rate to measure the income tax expense recognized in an interim period.  The estimated annual effective tax rate is revised on a quarterly basis and therefore may be different from the rate used in a prior interim period.  In addition, certain items included in income tax expense as well as the tax impact of certain items included in pretax income from continuing operations must be treated as discrete items.  The income tax expense or benefit associated with these discrete items is fully recognized in the interim period in which the items occur.

Cablevision

Cablevision recorded income tax expense of $34,160 for the three months ended March 31, 2012, reflecting an effective tax rate of 37%.  A nontaxable gain at an entity that is consolidated for financial reporting purposes but not for income tax purposes resulted in a tax benefit of $2,889.  Absent this tax benefit, the effective tax rate for the three months ended March 31, 2012 would have been 41%.  Income tax expense for the three-month period included tax expense of $695 relating to nondeductible expenses and tax expense of $880 resulting from an increase in the valuation allowance for certain state net operating loss carry forwards.

Cablevision recorded income tax expense of $52,543 for the three months ended March 31, 2011, reflecting an effective tax rate of 43%.  Income tax expense for the three-month period included tax expense of $1,977 relating to nondeductible expenses and tax expense of $322 resulting from an increase in the valuation allowance for certain state net operating loss carry forwards.

Subsequent to the utilization of Cablevision's net operating loss and tax credit carry forwards, payments for income taxes are expected to increase significantly.  Cablevision's net operating loss carry forward as of March 31, 2012 was approximately $1,700,000.  Approximately $263,000 of Cablevision's net operating loss carry forwards were allocated to AMC Networks in connection with the AMC Networks Distribution (see Note 1).

CSC Holdings

CSC Holdings recorded income tax expense of $60,404 for the three months ended March 31, 2012, reflecting an effective tax rate of 40%.  A nontaxable gain at an entity that is consolidated for financial reporting purposes but not for income tax purposes resulted in a tax benefit of $2,889.  Absent this tax benefit, the effective tax rate for the three months ended March 31, 2012 would have been 42%.  Income tax expense for the three-month period included tax expense of $695 relating to nondeductible expenses and tax expense of $880 resulting from an increase in the valuation allowance for certain state net operating loss carry forwards.

CSC Holdings recorded income tax expense of $77,130 for the three months ended March 31, 2011, reflecting an effective tax rate of 42%.  Income tax expense for the three-month period included tax expense of $1,977 relating to nondeductible expenses and tax expense of $322 resulting from an increase in the valuation allowance for certain state net operating loss carry forwards.
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
As of March 31, 2012, on a stand-alone basis CSC Holdings had consolidated federal net operating loss carry forwards of approximately $281,000.  CSC Holdings has recorded a deferred tax asset related to approximately $64,000 of such federal net operating loss carry forwards.  A deferred tax asset has not been recorded for the remaining federal net operating loss carry forwards as this portion relates to excess tax benefits that have not yet been realized, including 'windfall' deductions on share-based awards and amortization of certain tax deductible goodwill.  However, on a stand-alone basis CSC Holdings realized excess state tax benefit of $11,518 during the three months ending March 31, 2012.  Such excess tax benefit resulted in an increase to additional paid-in capital.  Subsequent to the utilization of CSC Holdings' net operating loss and tax credit carry forwards, including the portion relating to remaining excess tax benefits not yet realized, obligations to Cablevision pursuant to the tax allocation policy will increase significantly.

NOTE 11. 
EQUITY PLANS

Cablevision's Equity Plans

Stock Option Award Activity

During the three months ended March 31, 2012, Cablevision granted options that are scheduled to vest over a two year period in 50% annual increments and expire 10 years from the date of grant.  These options are performance based and will vest based on the achievement of certain performance criteria.  Cablevision calculates the fair value of each option award on the date of grant using the Black-Scholes option pricing model.  Cablevision's computation of expected life was determined based on the simplified method (the average of the vesting period and option term) due to the Company's lack of recent historical data for similar awards.  Cablevision has not, in its recent history, granted options with performance criteria or with similar terms.  Additionally, these options were issued subsequent to a change in Cablevision’s structure in connection with the AMC Networks Distribution and the distribution of Madison Square Garden in February 2010 (the "MSG Distribution").  The interest rate for periods within the contractual life of the stock option is based on interest yields for U.S. Treasury instruments in effect at the time of grant.  Cablevision's computation of expected volatility is based on historical volatility of its common stock.

The following assumptions were used to calculate the fair value of stock option awards granted in the first quarter of 2012:

Risk-free interest rate
    1.14 %
         
Expected life (in years)
    5.75  
         
Dividend yield
    3.52 %
         
Volatility
    43.20 %
         
Grant date fair value
  $ 4.06  
 
 
COMBINED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
(In thousands, except share and per share amounts)
(Unaudited)
 
The following table summarizes activity relating to Company employees who held Cablevision stock options for the three months ended March 31, 2012:

   
Shares Under Option
   
Weighted
Average
   
Weighted
Average
 Remaining
       
   
Time
Vesting
Options
   
Performance
Vesting
Options
   
Exercise
Price Per
 Share
   
Contractual
Term
(in years)
   
Aggregate
 Intrinsic
Value(a)
 
Balance, December 31, 2011
    5,440,662       403,200     $ 8.27       3.37     $ 35,607  
Granted
    -       12,783,000       13.93                  
Exercised
    (449,954 )     -       6.53                  
Forfeited/Expired
    (14,671 )     (165,600 )     14.03                  
                                         
Balance, March 31, 2012
    4,976,037       13,020,600     $ 12.27       7.84     $ 44,004  
                                         
Options exercisable at March 31, 2012
    4,776,037       403,200     $ 8.01       2.77     $ 34,541  
                                         
Options expected to vest in the future
    200,000       11,472,008     $ 14.00       9.88     $ 8,604  
 

(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, 2012 or December 31, 2011, as indicated, and March 31, 2012 in the case of the options exercisable and options expected to vest in the future.

In addition, the following table summarizes activity relating to AMC Networks and Madison Square Garden employees who held Cablevision stock options for the three months ended March 31, 2012:

   
Shares Under Option
   
Weighted
Average
   
Weighted
 Average
Remaining
       
   
Time
Vesting
Options
   
Performance
Vesting
Options
   
Exercise
Price Per
 Share
   
Contractual
Term
(in years)
   
Aggregate
 Intrinsic
Value(a)
 
Balance, December 31, 2011
    753,908       32,400     $ 7.97       3.10     $ 4,933  
Exercised
    (37,187 )     -       6.93