Cablevision Results Ease Shortfall Fear


Cablevision Systems Corp. may have finally put to rest investor uncertainty surrounding a perceived $500 million funding shortfall this year.

The New York-centric MSO reported strong fourth-quarter results and progress on its restructuring efforts.

Last August, Bethpage, N.Y.-based Cablevision said it planned to trim capital spending, pare its work force by 1,500 staffers, close 26 of its The Wiz electronics stores, and look for strategic alternatives for its Northcoast Communications and Clearview Cinemas assets.

Last Tuesday, Cablevision showed that those moves are largely done. It already has closed the 26 The Wiz stores and laid off 1,500 workers, agreed to sell Northcoast to Verizon Wireless for $750 million and hired investment bank JP Morgan to shop Clearview.

Selling the Bravo cable network to General Electric Co.'s NBC television unit for $1.25 billion has helped pay down debt, now at 6.4 times adjusted operating cash flow.

On Feb. 10, after market close, Cablevision said it would either sell or shut down its remaining 17 The Wiz locations, bolstering its finances.

Cablevision's share price closed at $17.07 last Monday, falling to $16.30 by market close last Wednesday.

Digital on rise

"These steps, plus an outside equity investment, have ended concerns regarding the company's liquidity position," CEO James Dolan told analysts during a conference call. That outside investment was announced in November: $75 million from private-equity firm Quadrangle Partners.

On the cable side, strong digital subscriber growth helped fuel a 17 percent cash flow increase, to $234.5 million. Revenue rose 8 percent year over year, to $583.4 million.

Cablevision added 136,000 digital customers, ending the period with 216,000. It had expected to end the year with 150,000 to 175,000 subscribers taking its digital iO: Interactive Optimum platform.

The high-speed-data customer count rose by more than 90,000 in the quarter, to 770,100.

The MSO lost about 5,300 basic subscribers, raising the total subscriber losses to 45,000 for the year. Tom Rutledge, president of the New York Metropolitan Area operation, said on the call about 30,000 of the losses were due to the MSO's failure to reach a carriage deal with the Yankees Entertainment & Sports Network.

"The effects of YES will be less impactful in 2003 regardless of whether we end up doing a deal with YES or not," Rutledge added.

Bird delayed

At Rainbow Media Holdings Inc. — which includes AMC, Independent Film Channel, WE: Women's Entertainment and MuchMusic USA — cash flow rose 64 percent and revenue was up 27 percent, mainly because of the addition of advertising on AMC and WE in the period.

Dolan said that its planned launch of a satellite for direct-broadcast satellite service, expected in March, would be delayed until May. Cablevision remains fully committed to launching the service, he said.

The DBS service would require another $80-million investment, Dolan said. Cablevision already has committed about $140 million to the DBS project.

That continued commitment disappointed analysts as well as investors, who hoped for some indication that Cablevision was leaning toward shutting down or selling the DBS venture.

"Although we, like just about everybody else, would have liked to have heard management commit to abandon or sell the satellite (or at least just stay close-lipped altogether) we weren't surprised it refused to rule out any options," Banc of America Securities cable analyst Doug Shapiro wrote in a research note.

"Nevertheless, we continue to believe that the company will ultimately have little choice but to launch the service with a minimal capital commitment or sell it outright."

Growth forecast

The DBS issue clouded an otherwise stellar performance. Growth is forecast to continue in 2003, with cable revenue rising 12 percent to 14 percent; cash flow rising 18 percent to 20 percent; and capital expenditures declining by $725 million, or about $345 million below the 2002 levels.

Basic subscribers are expected to rise by 0.5 percent in 2003.

Cablevision also estimated it would end 2003 with between 1 million and 1.05 million high-speed data customers and between 800,000 and 825,000 digital-cable subscribers.