Cablevision doldrums

Company sees so-so results; shares down

This article was corrected on March 4, 2004.

Cablevision turned in a ho-hum assortment of full-year and fourth-quarter 2003 financial results Tuesday, sending shares of the Dolan family cabler down 3.5% despite prospects that the company may finally be nearing the end of its accounting investigation.

Company shares, which perennially trade up in anticipation of a possible takeover play, were under some pressure Tuesday by investors left underwhelmed by the cabler’s 2003 results, as well as a still-murky picture for 2004, given the heavy expense burden of Cablevision’s Voom high-definition satcasting experiment.

The Gotham-area cable operator and programmer served up a net loss of $197.4 million for the last three months of 2003, compared with a $530 million net profit in the same period a year ago. The 2002 quarter included a gain from the sale of Bravo to NBC. Fourth-quarter net revenues rose 12% to $1.2 billion on strong telecom results and Rainbow Media sales.

For the full year, company posted a loss of $297 million, reversing a net profit of $93 million in 2002. Total net revenues for the full year were up 10% to $4.2 billion.

Voom nips profits

The profit falloff was largely due to startup costs for Voom and higher depreciation and amortization costs. Among the other profit-denting expenses were some $34 million worth of cash bonuses to execs, which the company said represented a “catch up.” Company had withheld all bonus payments in the two previous years.

Voom, meanwhile, so far signed up a mere 1,627 customers since its launch last October, with the unit racking up an operating loss of $54.9 million in the fourth quarter, since it has yet to start charging customers.

Among the bright spots for the country’s sixth-largest operator: its telecommunications services business, where consumer video, data and telephony sales grew 16% to $679 million, compared with the same period a year ago, with 24,000 new voice customers added in the last quarter. Company said it added 2,500 new residential voice subs a week in the month of December, a rate it expects to exceed this quarter.

On the video side, however, Cablevision shed 11,000 basic subs last quarter — most of them in New York City, where the company has been slow to upgrade its network.

CEO James Dolan told analysts on the Tuesday morning conference call that the company intends to file documents for the spinoff of its Rainbow DBS unit as early as April. The tax-free stock spinoff of the nascent DBS platform — along with the Rainbow cable nets AMC, IFC and WE — is intended to provide the bulk of financing for the startup satcasting operation, run by patriarch and Cablevision chair Chuck Dolan.

Filing put off

The filing however, has been delayed by the ongoing investigation into Cablevision accounting practices, under way since June. Company says its own external audit, led by the law firm Wilmer Cutler Pickering, should be completed before March 15. Company confirmed Securities and Exchange Commission and U.S. Attorney’s Office investigations are continuing.

Cablevision also revealed that, due to accounting errors it discovered, it will be restating financial results for 2000 to 2002 in addition to its previously announced quarterly restatement of results in 2002 and 2003.

Fulcrum analyst Rich Greenfield, who was disappointed by virtually all of Cablevision’s divisional results, was nevertheless encouraged that the investigation into the programming group’s accounting transgression may be nearing completion.

That could signal the start of financial restructuring that should reduce the cost of Cablevision debt and clear the path for spinning of the satellite group.

Greenfield’s preferred simplification of the business would include shutting down the Voom high-definition DBS platform altogether, selling the Rainbow cable networks to a larger cable network company, shutting down its Clearview Cinema chain, exiting the Madison Square Garden “trophy assets” and focusing all attention on the underlying cable business.

Growth predicted

Cablevision was bullish about 2004 prospects, predicting top line growth of 12%-14% and operating income growth of up to 15%.

Voom remains the big question mark, and besides telling analysts it was confident of getting financing to support the business, Cablevision vice chairman Bill Bell declined to make any predictions about satcaster performance prior to the release of its prospectus later this spring. Company said that with recent improvements in programming and technical performance, it would set up marketing efforts and is currently testing various pricing alternatives.

Sales from AMC, the Independent Film Channel and WE: Women’s Entertainment rose a healthy 26% in the quarter, though operating income fell 42% to $24.5 million, due to a $17.9 million writedown on certain film and programming contracts and legal expenses associated with its external accounting audit. For the full year, the so-called Rainbow Media “core networks” saw sales and operating profits up.

Cablevision’s Clearview Cinema chain recorded total revenues down 4% to $22.7 million in the last quarter, with an operating loss of $700,000.

Investment bank Stifel Nicolaus downgraded Cablevision shares, to “market perform,” citing concerns about Voom, hefty bonus payouts and concerns that the Dolan family stand to benefit much more than other common shareholders in the event of a buyout.

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