Sales strong, earnings up, debt down in 4Q

Cablevision seems to be out of the doghouse, financially speaking, turning in better-than-expected earnings figures for the fourth quarter of 2002, good progress on debt reduction, and a healthy sales outlook for 2003.

Beyond its new commitment to boosting its share price through execution and cost management, however, longer-term strategy at the Dolan family media empire remains murky. Question marks still hang over the fate of its Rainbow DBS project and the possibility of future asset sales.

A source close to the company said negotiations continue over a possible sale of American Movie Classics, though the sticking point with likely buyers — thought to be MGM and Viacom — is said to be price.

JPMorgan has been retained to sell the Clearview Cinema chain, but no major buyers are thought to have submitted bids.

Cablevision’s consolidated net income for the last three months of 2002 clocked in at $517.4 million, compared with a net loss of $281.6 million the previous year, partly thanks to asset disposals. Excluding earnings from discontinued operations and the $633 million gain from selling its Bravo cable net to NBC, Cablevision showed a net loss of $155.2 million, still an improvement on last year’s $213.1 million.

Net revenues at Rainbow Media (AMC, Independent Film Channel, Women’s Entertainment and regional sports nets) rose 27% in the quarter to $132.1 million, with adjusted earnings before tax and other charges up 64% to $43.6 million mostly due to strong advertising growth on AMC and WE.

Despite disappointing sales at its New York-area venues, the company made progress on its belated digital cable upgrades, doubling the number of digitally enabled homes to 3.4 million and harvesting more high-speed broadband revenues out of its sub base. Total digital subs stand at 216,000.

Sub standard

The company expects to grow its basic sub base by .5% this year (up from a decline of 1.5% last year). Still, a large chunk of the losses was due to Cablevision’s refusal to carry the YES sports channel, a dispute that shows no signs of settlement.

The famously stubborn company has seen its share price triple in value since late summer, when a future funding gap threatened to bring it to its knees. But in the last few months, the company has laid off over 3,000 workers, sold cable net Bravo to NBC, its Northcoast PCS licenses to Verizon, and finally started showing a healthy uptick in digital cable subscribers.

One large overhang is the future of Cablevision’s planned Rainbow DBS project. The sat is due to launch by early summer, though sources suspect that the Dolans would consider selling the bird and crucial orbital slots to EchoStar. The company apparently has not committed funds in the 2003 budget for developing the service, beyond the $80 million necessary to launch the satellite.

While it’s unlikely Cablevision could mount a national programming service to compete with DirecTV or EchoStar, a regional operation could supplement its grip on the New York-area market along with Time Warner Cable.

CEO James Dolan told analysts on a conference call Tuesday that the company was on track to generate free cash flows by next year and forecast revenue growth from some $4 billion in 2002 to about $4.5 billion in 2003.

Cablevision is getting a $75 million equity boost from an investment by Steve Ratner’s Quadrangle group and the monetization of $314 million in GE stock received from the sale of Bravo.

Ratings agency Moody’s late last week rewarded Cablevision’s restructuring efforts by boosting the company’s liquidity rating.

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