Cablevision Takes Another Knock

The stock slips 5% as the company posts soft results and reduces its growth projections.
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slid 5% Tuesday after the company cut guidance and said it would restate previously issued financial statements for 2003.

The New York-based cable operator, which has been hit by an accounting scandal at its Rainbow Media programming subsidiary, along with Wall Street grumbling over its startup satellite service, also said that it has uncovered additional examples of improper expense reporting at Rainbow and other business units.

The company posted a steep third-quarter loss on weaker-than-expected revenue. Shares in Cablevision, headed by Chairman Charles Dolan and his son, CEO James Dolan, dropped $1.05 to $19.38.

The setback caps off an eventful month for the company. Cablevision shares have rallied sharply through 2003 off last year's liquidity-concerned plunge into the low single digits, but investors have recently cooled on the company. In October, the stock

lost more than 10% of its value in a single day after Cablevision rolled out a much-criticized plan to spin off some of its programming assets

along with a widely derided direct-broadcast satellite operation.

The developments highlight the love-hate relationship that Wall Street has with the family that controls Cablevision. While the Dolans have built up an attractive collection of cable TV assets over the years, they have also exhibited a maddening habit of spending money on unwise-looking business opportunities in such areas as movie theaters, consumer electronics retailing and satellite TV.

For the third quarter ended Sept. 30, Cablevision reported consolidated revenue of $975.8 million, up from $872.4 million in the third quarter of 2002, but below the Thomson First Call estimate of $985.8 million.

Companywide adjusted operating cash flow -- operating income before depreciation and amortization, excluding certain compensation and restructuring charges -- amounted to $315.6 million for the quarter, just ahead of the $314 million multianalyst consensus figure compiled by SoundView Technology. Cable system AOCF amounted to $276.7 million, short of the $289 million SoundView consensus.

The company lost 8,900 basic video subscribers in the quarter, blaming a system rebuild that was scheduled to be finished by the end of September but won't be completed until December.

For the second time this year, Cablevision cut guidance for its telecommunications segment, or its cable-related business. Adjusted OCF growth -- which Cablevision trimmed this summer from a range of 16% to 18% to a range of 14% to 16% -- will now come in at 12%. Telecommunications revenue growth expectations were trimmed from a range of 12% to 14% to a range of 11.5% to 12.5%.

Cablevision, which insisted as recently as this June that it would have positive free cash flow in 2004, backed down from that promise Tuesday. Free cash flow -- that is, operating cash flow after capital expenditures and interest expense has been subtracted -- now will be "modestly negative" in 2004, says Cablevision.

Basic video customer growth will be between 0.25% to 0.5%, says the company, down from the prior 0.5% guidance.

Cablevision cited several factors for the cutback, starting with the delayed upgrade. Also hurting revenue are less-than-expected video upgrade activity, weaker-than-expected advertising revenue, and increased bad-debt expense. Adjusted OCF growth, says Cablevision, will be hurt by higher field service operations costs and call center activity driven by new product offerings.

The upgrade delay, said the company, was due to the permitting process necessary to for construction in New York City. "It's been a little more bureaucratic than we anticipated due to the nature of the environment," said one executive on the call.

Separately, Cablevision said an investigation of accounting practices at the company had uncovered additional expenses that should have been recognized in 2003 but had been improperly accelerated. Beyond the $3.4 million in improperly timed pretax expenses already disclosed, Cablevision revealed that an additional $10.1 million in pretax expenses had been uncovered. For the first time, the company disclosed that these accounting problems were not limited to the company's Rainbow programming subsidiary; $1.3 million of the newly disclosed improperly accelerated expenses were at non-Rainbow businesses.

On a conference call with analysts, Cablevision execs declined to specify which non-Rainbow businesses were affected.

Cablevision did have some unqualified good news to report: Its Rainbow programming group, which includes the AMC movie channel, the Independent Film Channel and WE: Women's Entertainment, reported strong results and raised guidance for the year.