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TELECOMMUNICATIONS
Cablevision Unveils Cost Cuts
In Hopes of Inspiring Investors
By JULIA ANGWIN
Staff Reporter of THE WALL STREET JOURNAL
Attempting to stem losses and reassure investors, Cablevision Systems Corp. said it would
cut capital expenditures by nearly half, sell Clearview Cinemas, close 26 WIZ stores, and cut
7% of its staff in the hopes of getting into the black sooner than expected.
"Cablevision, like most companies today, must prove it can produce a dependable growing
return for money it has already spent before it can expect to receive additional investment,"
said Chairman Charles Dolan. "Our development activities now ... must proceed at a more
measured pace."
But investors didn't think Cablevision's actions
were drastic enough. Moody's Investors
Service Inc. downgraded Cablevision's debt to
three notches below investment grade, Ba-3,
from two notches below investment grade, or Ba-2, saying that the company's cutbacks "fall
considerably short of fully addressing our concerns about the funding shortfall."
In 4 p.m. composite trading Thursday on the New York Stock Exchange, Cablevision shares
were at $6.60, down $1.24, or 16%.
The company, the nation's seventh-largest cable concern with three million cable customers
in the New York metro region, also said its second-quarter results swung to a net loss of
$98.2 million from net income of $238.5 million a year earlier, in part because of a one-time
gain of $744 million from the sale of some assets last year. Second-quarter sales were
essentially flat at $1.1 billion, and the company reduced its subscriber growth targets.
Cablevision's results reflect the malaise spreading through the cable industry, which is
suffering from stalled growth in its core base of television subscribers and the heavy cost of
upgrading to provide new services. The cable industry has spent billions upgrading its lines
for add-on services such as the Internet and telephones, but now Wall Street is punishing
them for their massive debt levels. Last week, Cox Communications Inc. also said it would
scale back its rollout of digital cable and video-on-demand in order to manage its capital
spending.
Wall Street used to forgive cable industries their high levels of investment, because the costs
of acquiring customers and upgrading their systems were considered one-time expenses.
But with investors clamoring for more
conservative and reliable accounting methods
in the post-Enron Corp. era, shares of cable
companies have become increasingly subject
to investor skepticism.
Ebitda, earnings before interest, depreciation,
taxes and amortization -- a measure of
profitability that the cable industry used to rely
on -- has fallen out of favor recently as
investors have realized that ignoring the cable
industry's debt levels isn't wise, particularly
with a significantly leveraged company such
as Cablevision. As of June 30, Cablevision said
it had $37.5 million in cash and $7.6 billion of
debt and redeemable preferred stock. "They
have nosebleed levels of indebtedness," says
Scott Cleland of the Precursor Group.
Cablevision's Ebitda was higher than expected
at $249 million. Merrill Lynch analyst Jessica
Reif Cohen had predicted Ebitda would be
$231 million.
Thursday, with investors now focused on the
company's plans to cut costs before it runs
out of money, Cablevision unveiled a series of
cutbacks that it says will ensure that the
company will have enough money to survive
this year and to meet its "currently projected
funding needs" in 2003.
Cablevision Chief Executive James Dolan said
that the Internet and "dot-com fever"
contributed to the company's buying spree in
the late 1990s, when it bought cinemas, stores
and other assets in an attempt to diversify
beyond the cable systems. "That was a
full-throttle sort of scenario," Mr. Dolan said.
"This changing environment means that we have to throttle back."
The bulk of the cutbacks comes from reducing capital spending to a level of about $550
million to $650 million from $1 billion last year. Some of those cutbacks are likely going to
come from the restructuring of Cablevision's exclusive relationship with Sony Corp., which
provides Cablevision's set-top boxes. Cablevision said the Sony restructuring is contingent
upon receiving a "waiver under our existing credit facility, which we expect to receive."
Once the agreement is restructured, Cablevision will start offering set-top boxes from other
vendors.
The company also plans to consolidate some of its back-office equipment, delay expansion of its telephone services, sell off its
wireless licenses and curtail its planned wireless roll-out in New York City. Senior management also won't receive salary
increases or cash bonuses this year or next year
It also plans to sell Clearview Cinemas, operating 59 theaters in the New York metropolitan area.
However, the company said it will still invest in upgrading its cable lines to be able to carry high-speed Internet traffic. It expects
the upgrade to be finished in June of 2003. It also said it won't lay off employees at its call centers and field offices. It also plans
to continue operating 17 WIZ electronics retail stores. The company also said it will continue to invest in a satellite television
service.
The company said it will likely take a third-quarter restructuring charge in a range of $40 million to $80 million, due to the
employee cutbacks and other restructuring efforts. |
