News

Dolan: Rainbow Spins in 4th Quarter

10/03/2004 8:00 PM Eastern

Cablevision Systems Corp.’s planned spinoff of Rainbow Media Enterprises unit could take a little longer than expected.

Cablevision had hoped to spin-off RME — which consists of its three national programming networks (AMC, Independent Film Channel and WE: Women’s Entertainment), MagRack, its Rainbow DBS satellite-television offering and other national programming interests — by Sept. 30.

Now that date has been pushed back to early in the fourth quarter.

At an industry conference last week, Cablevision CEO James Dolan tried to reassure investors that the spinoff was not on indefinite hold.

“We’ve been talking about it. Yes, it is going to happen,” Dolan said at the Merrill Lynch Media & Entertainment conference in Pasadena, Calif., last Tuesday. “We thought it would be done by the end of the third quarter; we believe we are very close to actually achieving the spin.”

Cablevision first announced the spinoff last year. Since then it has filed three versions of its Form 10 registration statement with the Securities and Exchange Commission, has raised $1.75 billion in a bond offering to fund the RME unit, strengthened the Rainbow management team and received a tax-free ruling for the spinoff from the Internal Revenue Service.

The two units have been operating separately since January, Dolan said at the conference.

After the spinoff, Cablevision will consist of cable systems in the New York metropolitan area with about 3 million subscribers, its New York sports teams and venues and other regional programming interests.

Dolan also reassured attendees at the conference that Cablevision, of which he will become chairman after the spinoff (his father, Charles Dolan, will become chairman of RME), will not invest in ventures outside its core cable area.

One of the criticisms of the company in the past has been its investment in Rainbow DBS (which sells its HDTV-laden service under the Voom brand name), which some analysts believed was a drain on Cablevision’s finances.

Dolan pointed to Cablevision’s success in its three core businesses — digital video, high-speed Internet and voice-over-Internet protocol telephony. Its VoIP service (Optimum Voice) currently has more than 100,000 customers — tops in the industry — he said.

“We’re not going to take any tangents here,” Dolan said at the conference. “You won’t see us investing the fruits of our labor in anything else other than these businesses.”

News of the delay came after Cablevision announced that three employees in its finance department have left the company, a move that sent its stock tumbling last Monday.

On Sept. 24, after market close, Cablevision said executive vice president of development Andrew Rosengard; senior vice president, controller and acting principal accounting officer Raymond Andersen; and vice president and divisional controller Luigi Cestra had resigned. Cablevision gave no explanation, but said recently hired chief financial officer Michael Huseby would serve as acting principal accounting officer until a replacement is found.

Investors apparently assumed the worst, due to the lack of an explanation. Cablevision’s stock declined close to 7% ($1.42), to $19.45, on Sept. 27.

Early speculation was the resignations could signal additional accounting problems for the company, which is still under investigation by the Securities and Exchange Commission and the U.S. Attorney’s Office concerning improper expense accruals at Rainbow Media Holdings. Or it could be a routine housecleaning by the new CFO.

An independent accounting firm, Wilmer, Cutler & Pickering, completed its investigation of Cablevision in July and found no additional accounting problems, but the SEC and the U.S. Attorney’s Office are still investigating.

In a report, UBS Warburg cable debt and equity analysts Aryeh Bourkoff said he gathered from management — mainly Cablevision senior vice president and treasurer John Bier — that the resignations were not due to additional accounting problems and were not requested by the SEC.

“At this point, we have no reason to expect any further restatements to the company’s financials following the Wilmer Cutler investigation,” Bourkoff wrote.

Bourkoff figured changes in the accounting department were likely due to the new CFO’s desire to hire his own people.

“It is possible that the resignations may be part of a housecleaning strategy by Mr. Huseby, as he follows the procedures and controls set forth by Wilmer Cutler and Pickering. The strategy is likely designed to bolster the credibility of the company’s finance group and its accounting controls given the SEC’s investigation.”

September