June 2, 2006
Mr. Larry M. Spirgel
Assistant Director
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0306
Re: Cablevision Systems Corporation
CSC Holdings, Inc.
Form 10-K for Fiscal Year Ended December 31, 2005
Filed March 2, 2006
Form 10-Q for the Fiscal Quarter Ended March 31, 2006
File Nos. 1-14764 and 1-09046
Dear Mr. Spirgel:
This letter responds to the comment letter (the "Comment Letter") from
the Staff of the Securities and Exchange Commission (the "Commission"), dated
May 19, 2006, concerning the Annual Report on Form 10-K for the fiscal year
ended December 31, 2005 (the "Form 10-K") of Cablevision Systems Corporation and
CSC Holdings, Inc. (collectively, the "Company") and the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31, 2006 (the "Form
10-Q").
To facilitate the Staff's review, the Company has included in this
letter the captions and numbered comments in bold text and has provided the
Company's responses immediately following each numbered comment.
In some of the responses, the Company has agreed to change or
supplement the disclosures in future filings in light of the Staff's views. The
Company continues to believe its prior filings are accurate in all material
respects and are in compliance with applicable disclosure rules and regulations
promulgated by the Commission and U.S. generally accepted accounting principles.
Accordingly, any changes implemented in future
1
filings should not be taken as an admission that prior disclosures were
deficient or inaccurate.
The following are the Company's responses to the Comment Letter:
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 2005
- -------------------------------------------------
Selected Financial Data, pages 43 and 45
- ----------------------------------------
1. PLEASE REFER TO FOOTNOTE (3). TELL US AND DISCLOSE WHY YOU ARE EXCLUDING
THE REVENUES OF LIGHTPATH FOR THE FOURTH QUARTER IN THE PERIOD.
Company Response -- The Company's Telecommunications Services segment
generates revenue principally from (1) its cable system's video, high-speed
data, and Voice over Internet Protocol ("VoIP") services and (2) from
Lightpath, its competitive local exchange carrier providing switched
services, private line and advanced networking features, including
broadband access primarily to medium and large commercial organizations.
The purpose of the "average monthly revenue per basic video subscriber"
measure is to demonstrate the revenues generated per basic video subscriber
by the cable system's video, high-speed data and VoIP services. Revenues of
Lightpath are excluded from this measure because the sources of revenue are
unrelated to the cable system's subscribers.
Footnote 3 defines how the Company calculates "Average monthly revenue per
basic VIDEO subscriber." Average monthly revenue per basic video subscriber
represents the following:
a. Numerator - Total revenue generated from subscribers of the Company's
cable systems for the fourth quarter of each fiscal year presented for
the Telecommunications Services segment less the revenue attributable
to our Lightpath operations divided by
b. Denominator - The average number of basic video subscribers for the
fourth quarter of each fiscal year presented for the
Telecommunications Services segment's cable systems.
Accordingly, both the numerator and denominator exclude any revenues and
subscribers, respectively, related to the Company's Lightpath operations.
The Company believes the footnote could have been written more clearly and
the Company will modify it to read as follows in prospective filings:
2
"Average monthly revenue per basic video subscriber is calculated by
dividing the GAAP revenues for the Telecommunications Services segment,
less the revenue attributable to Lightpath, for the fourth quarter for each
year presented by the average monthly number of basic video subscribers
served by the Company's cable systems for the same period. For purposes of
this calculation, both revenue and average number of basic video
subscribers exclude the Company's Lightpath operations."
Consolidated Statements of Cash Flows, page I-8
- -----------------------------------------------
2. PLEASE PRESENT YOUR PROVISION FOR DOUBTFUL ACCOUNTS AS AN ADJUSTMENT TO NET
CASH PROVIDED BY OPERATING ACTIVITIES.
Company Response -- The Company has historically presented the provision
for doubtful accounts within the "Accounts receivable, trade" line item
within the operating section of the consolidated statements of cash flows.
In acknowledgement of the Staff's request, the Company will present in its
future filings the provision for doubtful accounts as a separate line item
adjustment to net cash provided by operating activities and for
comparability will reclassify in its future filings the provision for
doubtful accounts from the accounts receivable trade line item for all
prior periods.
Note 8. Intangible Assets, page I-31
- -------------------------------------
3. PLEASE TELL US THE FACTORS YOU CONSIDERED IN DETERMINING THAT YOUR SPORTS
FRANCHISES ARE INDEFINITE-LIVED INTANGIBLE ASSETS UNDER PARAGRAPH 11 OF FAS
142.
Company Response -- Madison Square Garden, L.P. ("MSG"), an indirect wholly
owned subsidiary of the Company, owns the New York Knicks ("Knicks") and
New York Rangers ("Rangers") franchises through its membership interests in
the National Basketball Association ("NBA") and National Hockey League
("NHL"), respectively. Each of these franchises are only one of thirty that
operate within each league. In determining that the Company's NBA and NHL
sports franchises are indefinite-lived intangible assets, the Company
considered all pertinent factors, including the following, as required by
paragraph 11 of Financial Accounting Standards Board ("FASB") Statement No.
142, Goodwill and Other Intangible Assets.
3
a. The expected use of the asset by the entity
-------------------------------------------
The Company's MSG subsidiary operates a sports and entertainment
business, which owns and operates professional sports teams, regional
cable television networks, event facilities and an entertainment
business. The Company anticipates exploiting the sports franchises
indefinitely by continuing to generate positive cash flow from MSG's
operations, which primarily include showcasing the Knicks and Rangers
franchises through live presentations that generate ticket sales,
suite revenues, food and merchandise revenues along with the revenues
earned by MSG's sports networks, whose primary programming includes
the presentation of the Knicks and Rangers games along with other
professional sports teams not owned by the Company.
b. The expected useful life of another asset or a group of assets to
which the useful life of the intangible asset may relate
----------------------------------------------------------------------
The presentation of Knicks and Rangers home games takes place at the
Madison Square Garden Arena, and the broadcast of each team's home
games and the sale of food and merchandise at these home games are
accomplished with the use of other assets owned by the Company. These
assets include certain tangible and intangible assets that are
depreciated or amortized over their respective estimated useful lives,
which range from 2 to 30 years. The Company expects to replace its
tangible assets at the end of their useful lives with new assets and
renew the agreements associated with certain of its intangibles such
as affiliate agreements and relationships which will continue to
support the operations of the Company's professional sports
franchises. The Company respectfully advises the Staff that its
continued ownership and operation of its Knicks and Rangers team
operations is not dependent on its continued ownership and operation
of the Madison Square Garden Arena as the Company believes the Knicks
and Rangers games could be played in an alternative venue, if
necessary.
c. Any legal, regulatory, or contractual provisions that may limit the
useful life
----------------------------------------------------------------------
The Company is not aware of any legal, regulatory or contractual
provisions that the Company believes could reasonably be expected to
limit the indefinite useful lives of its NBA or NHL franchises.
4
d. Any legal, regulatory, or contractual provisions that enable renewal
or extension of the asset's legal or contractual life without
substantial cost (provided there is evidence to support renewal or
extension and renewal or extension can be accomplished without
material modifications of the existing terms and conditions)
----------------------------------------------------------------------
As mentioned under "a" above, MSG owns the Knicks and Rangers
franchises through its membership interests in each of the NBA and
NHL. The NBA and NHL are unincorporated associations each governed by
a written Constitution, which is expressly described as a contract
among the members. The New York Knicks and New York Rangers franchises
have been in existence for approximately 60 and 80 years,
respectively.
There is no cost or process required for "renewal" of the league
memberships -- they are perpetual except as described below:
o Membership interests in the NBA and NHL are perpetual unless and
until transferred by the owner or terminated after a hearing and
a finding by a three quarters vote of the respective leagues'
Board of Governors that the member has been guilty of gross
violations of rules and agreements, failure to pay dues, failure
to play games, gambling, game-fixing, or similar serious
misconduct.
o Under the respective Constitutions, either league may be
dissolved by its members -- by a three quarters vote of the Board
of Governors in the NBA and by a unanimous vote of the Board of
Governors in the NHL. No such action is anticipated.
The Company is not aware of any legal, regulatory, or contractual
provisions that the Company believes could reasonably be expected to
limit the indefinite useful life of its NBA or NHL franchises.
e. The effects of obsolescence, demand, competition, and other economic
factors (such as the stability of the industry, known technological
advances, legislative action that results in an uncertain or changing
regulatory environment, and expected changes in distribution channels)
----------------------------------------------------------------------
In the Company's opinion, the strength of the two leagues in ticket
revenue per game is at a very high historical level and further growth
is expected.
5
The Company believes that the strength in attendance and ticket prices
along with increases in broadcast revenue, concession revenue, luxury
boxes and other related revenues together with the stability provided
by the current NBA and NHL collective bargaining agreements continue
to support the positive long-term financial health of each league. The
Company is not aware of any technological advances, legislative or
regulatory actions, or changes in distribution channels that could
significantly impact the teams' operations.
Lastly, franchises in the NBA and NHL that have not performed well
have been allowed to move to different cities with league approval.
The Company is not aware of any NBA or NHL franchise that has been
terminated in the last 30-40 years.
f. The level of maintenance expenditures required to obtain the expected
future cash flows from the asset (for example, a material level of
required maintenance in relation to the carrying amount of the asset
may suggest a very limited useful life)
----------------------------------------------------------------------
Other than normal operating and capital expenditures, no unusual level
of expenditures are anticipated that could significantly impact the
Company's long-term view of the prospects of owning these two valuable
sports franchises.
Overall Conclusion:
-------------------
The Company is not aware of any legal, regulatory, contractual,
competitive, economic, or other provisions or factors known or expected
that the Company believes could reasonably be expected to limit the useful
life of the Company's NBA and NHL franchises which have been classified as
intangible assets with indefinite lives.
Note 17. Contractual Obligations, page I-56
- --------------------------------------------
4. PLEASE TELL US HOW YOU ARE ACCOUNTING FOR THE PUT AND CALL OPTIONS. INCLUDE
IN YOUR RESPONSE REFERENCES TO THE APPROPRIATE ACCOUNTING LITERATURE.
Company Response -- In April 2005 Rainbow Programming Holdings ("RPH"), an
indirect wholly owned subsidiary of the Company, and Rainbow HD Holdings
LLC ("VOOM") entered into an investment agreement with a subsidiary of
EchoStar Communications Corporation ("EchoStar"), a satellite delivered
digital television operator, pursuant to which after the closing in
November 2005, EchoStar owns a
6
20% membership interest in VOOM and RPH owns the other 80%. The agreement
provides that on the fifth or eighth anniversary of the effective date of
the agreement, on the termination of a related affiliation agreement by
EchoStar, or based on other specific events, EchoStar has a put right to
require RPH to purchase all of its equity securities in VOOM at fair value.
On the seventh or tenth anniversary of the effective date, or the second
anniversary date of the termination of the affiliation agreement by
EchoStar, RPH has a call right to purchase all of EchoStar's ownership in
VOOM at fair value. The purchase price under the put or call is payable in
cash, registered Class A Common Stock of the Company or promissory notes,
at the option of the Company.
The Company disclosed the put and call rights in Note 17 but does not
provide accounting recognition for the put and call rights since the rights
provide for an acquisition by RPH of the EchoStar member interest, in the
future, at fair value, to be determined at the time of such purchase. The
Company believes the put and call rights have zero fair value in accordance
with generally accepted valuation methodologies.
Even if the put and call rights were deemed to be (1) derivative financial
instruments that would have to be bifurcated from the host contract (the
VOOM Limited Liability Company Agreement) and, therefore, accounted for
separately in accordance with FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities (as amended), or (2) free
standing financial instruments in accordance with FASB Statement No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, the instruments would be valued at zero since the
put and call rights require the EchoStar 20% interest to be purchased at
fair value to be determined at the time of such purchase. Accordingly,
there would be no resulting accounting impact because the fair value of
such put and call rights would always be zero.
Note 20. Segment Information, page I-61
- ----------------------------------------
5. PLEASE DELETE "UNAUDITED" FROM "ADJUSTED OPERATING CASH FLOW FROM
CONTINUING OPERATIONS."
Company Response -- In acknowledgement of the Staff's request, the Company
will delete "unaudited" from the "Adjusted operating cash flow from
continuing operations" section in the segment footnote disclosure in
prospective filings.
7
Note 22. Other Matters, page I-66
- ----------------------------------
6. PLEASE REFER TO THE LITIGATION SETTLEMENT WITH TIME WARNER ENTERTAINMENT,
L.P. PROVIDE US WITH SPECIFIC DETAILS OF THE SETTLEMENT AGREEMENT. ALSO,
TELL US WHY IT IS APPROPRIATE TO CAPITALIZE THE $74 MILLION SETTLEMENT
PAYMENT AND AMORTIZE IT OVER THE REMAINING 13 YEAR LIFE OF THE EXTENDED AMC
AGREEMENT. INCLUDE IN YOUR RESPONSE REFERENCES TO THE APPROPRIATE
ACCOUNTING LITERATURE.
Company Response -- The specific details of the settlement agreement with
Time Warner Entertainment Company, L.P. ("TWE") and Time Warner Cable Inc.
("TWC") (the material terms of which have been previously disclosed
beginning with the Company's September 30, 2005 Form 10-Q filing) provided
for:
(a) Cash payments totaling $74 million (comprised of $5 million for
TWE's costs and attorneys' fees in connection with the litigation
among the parties payable in 2005 and $69 million payable in
three equal installments in 2005, 2006 and 2007),
(b) Dismissal of the pending litigation between TWE and AMC upon
payment of the first installment of the $69 million and the $5
million for TWE's costs and attorneys' fees,
(c) Comprehensive mutual releases of all claims by and among the
parties to the settlement agreement (TWE, TWC, Rainbow Media
Holdings, LLC ("RMH"), an indirect wholly owned subsidiary of the
Company, and AMC, an indirect wholly owned subsidiary of RMH),
and
(d) The simultaneous execution by AMC and TWC of an amendment to
their existing affiliation ("carriage") agreement. This
amendment, among other things, extended the affiliation contract
term from December 31, 2008 to December 31, 2018, a 10-year
extension, or approximately a 13-year carriage period from the
date of settlement.
Concurrent with the negotiation and execution of the settlement agreement
between TWE/TWC and RMH/AMC and the related amended AMC affiliation
agreement, various other subsidiaries of the Company negotiated and
executed new affiliation agreements and amendments to several existing
affiliation agreements with TWC.
Although Emerging Issues Task Force ("EITF") Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables ("EITF 00-21") is not specifically
applicable
8
to the contractual arrangements set forth above as the arrangements relate
to both revenue and expense elements, the Company believes that the broad
allocation principles included in EITF 00-21 are the most appropriate
accounting guidance by analogy. EITF 00-21 is intended to address how to
allocate fees in arrangements with multiple revenue-generating activities.
The Company believes that EITF 00-21's broad allocation principles are
applicable to other "multiple element arrangements" since several
agreements were entered into at the same time and the presumption is that
the contracts were negotiated as one agreement with multiple elements.
The Company determined the fair values associated with each of the discrete
elements of the arrangements entered into among TWE, TWC, and various
subsidiaries of the Company, including the settlement agreement, the
amended AMC affiliation agreement and the various other affiliation
agreements, some of which were significantly modified in connection with
the contemporaneous negotiation and execution of the settlement agreement.
Certain of these modifications had a negative economic impact on individual
subsidiaries of the Company other than AMC, effectively resulting in
additional consideration being paid to TWE/TWC related to the AMC
settlement and affiliation agreement extension. For example, in the case of
one affiliation agreement, the Company agreed to concessions to an existing
contract as part of this overall settlement. The Company's view was that on
a stand-alone basis (absent the settlement agreement and AMC affiliation
agreement extension) such concessions would not have been agreed to before
the next contract renewal date. All such modifications resulted in
additional net arrangement consideration to TWC totaling approximately $9
million[1].
The total arrangement consideration of approximately $83 million is
comprised of the total cash consideration of $74 million and the
approximate $9 million of additional net arrangement consideration. The $74
million of cash consideration includes $5 million for TWE's costs and
attorneys' fees. In accordance with the EITF's broad principles around
income statement characterization, as discussed in paragraph 9 of EITF
Issue No. 01-9, Accounting for Consideration Given by a Vendor to a
Customer (Including a Reseller of the Vendor's Products) ("EITF 01-9"), the
Company aggregated the $5 million payment for TWE's costs and attorneys'
fees with the $69 million in the determination of the total arrangement
consideration. Since TWE was not required to and did not provide any
supporting documentation for such costs and attorneys' fees, no
identifiable benefit could be separated from the total arrangement
consideration. The total arrangement consideration was then allocated to
settlement damages and AMC deferred carriage fees
- --------
[1] The offsetting effect of the $9 million of additional net arrangement
consideration was principally recognized as deferred credits by certain other
affected subsidiaries of the Company and will be amortized into the consolidated
statement of operations over the remaining lives of the respective amended
affiliation agreements, which will result in amounts that approximate fair
value.
9
based on their estimated relative fair values as described in the next
paragraph. The Company's accounting policy regarding deferred carriage fees
is disclosed in Note 1 of the Company's December 31, 2005 Form 10-K on page
I-13.
The Company prepared the following two-step analysis to ascertain the
portion of the total arrangement consideration paid to TWC that related to
settlement of the AMC litigation matter and the deferred carriage fee
associated with the amended AMC affiliation agreement (which was
contemporaneously executed in connection with the settlement):
1. The total fair value of the settlement damages was determined
based on an analysis of the excess of the historical TWC rate for
carriage of AMC (from TWE's alleged date of AMC's breach of the
AMC affiliation agreement (May 2002) through the settlement date)
over comparable historical rates paid by other AMC affiliates
(customers) and the total fair value of the deferred carriage
fees was determined based on an analysis of the excess of the
rates that TWC agreed to pay to carry AMC through the end of the
10-year extension period over comparable carriage rates for other
AMC affiliates.
2. The total arrangement consideration of approximately $83 million
was then allocated to the settlement damages and deferred
carriage fee based on their estimated relative fair values as set
forth in step one above, resulting in approximately $2 million
being identified as settlement damages and approximately $81
million being identified as deferred AMC carriage fees (the
primary component of deferred carriage fees which was disclosed
in the Operating Activities section of the Cash Flow discussion
of Management's Discussion and Analysis on page 87 of the
Company's December 31, 2005 Form 10-K).
In accordance with Issue 1 of EITF 01-9, the deferred carriage fees are
being amortized as a reduction of revenue over the remaining life of the
amended AMC affiliation agreement of approximately 13 years (October 1,
2005 through December 31, 2018). As a result, the future contractual TWC
net effective rates result in rates that are more reasonable in relation to
fair value as indicated by other future contractual net effective rates for
other AMC affiliates.
* * * * * *
10
In responding to the Staff's comments, the Company acknowledges that:
o the Company is responsible for the adequacy and accuracy of the
disclosure in its filings;
o Staff comments or changes to disclosure in response to Staff
comments do not foreclose the Commission from taking any action
with respect to the Company's filings; and
o the Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
If you have any questions or comments regarding the enclosed materials,
please call the undersigned at (516) 803-1450.
Very truly yours,
/s/ Wm. Keith Harper
Wm. Keith Harper
Senior Vice President, Controller
and Principal Accounting Officer
cc: Kyle Moffatt
Dean Suehiro
Kathleen Krebs
(Securities and Exchange Commission)
Michael P. Huseby
(Executive Vice President and Chief Financial Officer)
Victoria D. Salhus
(Senior Vice President, Deputy General Counsel and Secretary)
11
John P. Mead
(Sullivan & Cromwell LLP)
Rosemary A. DeVito
(KPMG LLP)
12