Cablevision 2013 Annual Report Download - page 33

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We have expended, and expect to continue to spend in the future, significant amounts to protect our
network and information systems; however, there can be no assurance that these efforts will prevent any
of the problems identified above.
The MSG Distribution and the AMC Networks Distribution could result in significant tax liability.
We have received private letter rulings from the IRS to the effect that, among other things, the MSG
Distribution and the AMC Networks Distribution and certain related transactions, will qualify for tax-free
treatment under the Internal Revenue Code of 1986, as amended (the "Code").
Although a private letter ruling from the IRS generally is binding on the IRS, if the factual representations
or assumptions made in the letter ruling request are untrue or incomplete in any material respect, we will
not be able to rely on the ruling. Furthermore, the IRS will not rule on whether a distribution satisfies
certain requirements necessary to obtain tax-free treatment under the Code. Rather, the ruling is based
upon our representations that these conditions have been satisfied, and any inaccuracy in such
representations could invalidate the ruling.
If the MSG Distribution or the AMC Networks Distribution does not qualify for tax-free treatment for
U.S. federal income tax purposes, then, in general, we would be subject to tax as if we had sold the
Madison Square Garden common stock or AMC Networks common stock, as the case may be, in a
taxable sale for its fair value. Cablevision stockholders would be subject to tax as if they had received a
distribution equal to the fair value of Madison Square Garden common stock or AMC Networks common
stock, as the case may be, that was distributed to them, which generally would be treated as a taxable
dividend. It is expected that the amount of any such taxes to Cablevision's stockholders and us would be
substantial.
We may not enjoy all of the benefits of scale that we achieved prior to the MSG Distribution and the
AMC Networks Distribution.
Prior to the MSG Distribution and the AMC Networks Distribution, we shared benefits of scope and scale
in costs and expenses resulting from various factors including financial reporting, costs associated with
complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002), tax
administration, legal and human resources related functions. While we entered into agreements with
Madison Square Garden and AMC Networks that govern a number of our commercial and other
relationships after the MSG Distribution and AMC Networks Distribution, those arrangements do not
fully capture the benefits we enjoyed as a result of common ownership prior thereto. In addition, in
connection with the AMC Networks Distribution, we terminated an agreement pursuant to which we
received a management fee that was based upon revenues of the AMC and WE tv networks. This fee,
which amounted to approximately $14.0 million for the six months ended June 30, 2011, was previously
included in the operating income of our Telecommunications Services segment and has been reclassified
to discontinued operations. As a result of the MSG Distribution and the AMC Networks Distribution, we
now carry a relatively larger share of our administrative and other overhead expenses. The loss of these
benefits as a consequence of the MSG Distribution and AMC Networks Distribution could have an
adverse effect on our results of operations and financial condition.
In connection with the MSG Distribution and AMC Networks Distribution, we will rely on Madison
Square Garden's and AMC Networks' performance under various agreements.
In connection with the MSG Distribution and the AMC Networks Distribution, we entered into various
agreements with Madison Square Garden and AMC Networks, respectively, including a distribution
agreement, a tax disaffiliation agreement, a transition services agreement, an employee matters agreement
and certain related party arrangements. These agreements govern our relationship with those entities
subsequent to the distributions and provide for the allocation of employee benefits, taxes and certain other
liabilities and obligations attributable to periods prior to the distributions. These agreements also include