News

More Detail Helps Lift Cablevision

8/18/2002 8:00 PM Eastern

Cablevision Systems Corp. last week provided some much-needed detail regarding its capital-expenditure reductions in a quarterly filing with the Securities and Exchange Commission — most notably the reduction of its digital set-top box contract with Sony Corp. from $1 billion to $138 million.

Cablevision executives went before analysts and investors on Aug. 8 to map out their plans to meet a $550 million to $1 billion funding gap in 2003. But the meeting at New York's Waldorf-Astoria hotel was largely deemed a failure, because Cablevision CEO James Dolan failed to provide necessary detail.

That failure was reflected in Cablevision's stock price, which plunged 16 percent, or $1.28 per share, on Aug. 8.

The stock continued to slide in subsequent trading, hitting a 10-year low of $4.95 per share on Aug. 13.

STOCK ROSE

That downward trend may be reversing. Cablevision's stock was up 62 cents each, or 12 percent, to $5.90 per share in morning trading on Aug. 15, as it provided at least some additional clarity in its 10-Q quarterly financial report with the SEC.

In that report, filed on Aug. 15, Cablevision said it had renegotiated its set-top box contract with Sony, reducing its purchase commitments from $378.5 million in 2002, $378.5 million in 2003 and $567.8 million in 2004 to a total remaining commitment of $87.5 million in 2002 and nothing thereafter. In addition, Cablevision would have to pay $50 million to license certain software related to the Sony boxes.

At the analyst's conference, Cablevision had said only that it had negotiated a significant reduction in the Sony contract.

Renegotiating the Sony deal allows Cablevision to purchase equipment from other vendors at lower prices, most analysts said.

The Sony boxes — which were crammed full of features like electronic mail — cost Cablevision about $350 each. Now the company said it plans on buying boxes for an average price of about $215 apiece.

BOXES ON HAND

But it might be a while before the MSO has to do that.

In the 10-Q, Cablevision said it expects to spend about $220 million on digital set-tops in 2002. Even at $350 per box, that works out to 628,571 set-tops. Since Cablevision has said it expects to end the year with between 125,000 and 150,000 digital subscribers, that leaves it with a digital set-top inventory of 478,571 units.

Cablevision also said in the 10-Q that its financing plan contemplates no further funding of its direct-broadcast satellite venture in 2003. The company invested about $140 million in DBS this year.

Cablevision's Northcoast Communications personal communications service in Cleveland is in technical default, and that it does not plan to invest further in that market. Earlier, Cablevision said it would cancel a planned New York pilot launch of the wireless-telephone service and that it would either seek a buyer or strategic partner for the venture.

Cablevision said its Rainbow Media Group subsidiary would contribute about $365 million to bridge the funding gap, largely through $190 million in cash reserves and roughly $185 million in free cash flow.

Cablevision has proposed taking the RMG tracking stock in house.

Bear Stearns & Co. cable analyst Ray Katz also was heartened by the additional clarity.

"After last Thursday's meeting, we believe the stock suffered harshly from a loss of credibility," Katz wrote in a research note. "While the road back may require a sustained effort, we believe the second quarter's 10-Q filing is a good first step."

September