cwa-cvc investor briefing presentation 4-15-13
TRANSCRIPT
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Presented by
Communications Workers of AmericaandLocker Associates, Inc.
.
April 15, 2013
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The largest telecommunications union in the world, representingover 700,000 men and women in both the private and public sectors
Represents workers at Verizon, Verizon Wireless, T-Mobile, AT&T,AT&T Mobility and many other telecommunications companies
On January 26, 2012, an overwhelming majority of the 282
Cablevision technicians in Brooklyn, NY voted to join CWA
CVC technicians have unique insight into Field Service Operations,including physical plant weaknesses, inefficiencies in operations,and daily interaction with customers
By leveraging their front-line workforce, management should utilizetheir knowledge, skill and customer relations to help turn thingsaround
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But instead, over the past year, management has engaged in an escalating
conflict with its Brooklyn techs to thwart their ability to win a union contract
Numerous Unfair Labor Practices against its Brooklyn and Bronx workforce,most recently illegally firing 22 Brooklyn workers who sought a meeting withmanagement
The National Labor Relations Board announced on April 5th and April 10th
that it would file complaints against CVC alleging illegal worker intimidation& other violations
NYC Council investigating possible violation of CVCs cable televisionfranchise agreements
Top NYC elected leaders demand CVC cease its illegal behavior and negotiate
a contract with CWA
CVC management can easily end this dispute by negotiating a labor contractat very little expense
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Flawed business model too small a customer base to cover rising costs
Mounting challenges threaten the companys future stiff competition
ongoing recovery from Superstorm Sandy
escalating programming costs
subscriber losses
significant capex needs
shrinking cash flow
burdensome debt load regulatory scrutiny in NYC
Cablevision continues to exemplify pressure on the MSO Model
-Brean Capital, March 3rd, 2013
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An expanding labor dispute in New York City, CVCs largestcustomer base, makes it difficult to deal with these pressingproblems
Investors and lenders need a coherent strategy to boost cash flowand protect shareholder value by:
improving customer service increasing product offerings stabilizing, if not growing market share
This growing [labor] conflict should cause concern and attention among
investors. If left unresolved, the company risks facing an increased threat oflabor disruptions, increased legal and regulatory scrutiny, and a negativebrand impact for Dolan-associated companies, all of which could have amaterial impact on thecompanysfinancialperformance.
-- Bill de Blasio, New York City Public Advocate
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Fierce competition, especially from Verizon FiOS
58% penetration rate for CVC subscribers
continues attractive promotions seeking 150-170K new subscribersper quarter
aggressive in CVC's NYC footprint with triple play offers as low as$69.95
expects to complete FiOS build-out to all of CVCs NYC service areaby 2014
2012: Miserable results 2012 annual operating income was a mere $33.3 million
- down significantly from $238 million in 2011
4Q12 operating loss of $83.7 million- compared to a profit of $60.5 million a year earlier
CVC only able to post a 4Q'12 profit due to a one-time $350m Dish Networkpayment
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Q412: Subscriber loss 50,000 video customers lost - Wall Street expected 12,000
10,000 voice customers lost
5,000 high-speed Internet subscribers lost
- first time Cablevision has ever reported a loss of internet subscribers
analysts predict that $2.98 RSN surcharge and $5 monthly broadband
price increase could undermine customer retention
Weakening cash flow
2012 AOCF declined $395m year-over-year
Sandy accounted for only $110m of this bad news
Significant capex needs 2012 capex was $1.08b
- up significantly from $814.8m in 2011
2013 capex projected to remain at elevated levels
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Ballooning programming costs 12% increase in 2012
anticipates a similar number in 2013 driven by new contracts withCBS, Disney, NBCU, NFL Network and an 8% hike in 2014
Similar to peers, programming costs are the biggest pressure point, withabsolute growth expected to remain in the low-double digits.
-- Jason Armstrong, Goldman Sachs, 2/28/13
Cablevision reported a significant deterioration in operating and financialresults in 4Q12. While Hurricane Sandy was a material issue during thequarter, excluding the impact of the storm underlying results continue todeteriorate due to higher programming costs, competitive pressures, andan increase in capital expenditures.
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Stock repurchases suspended in 4Q12 purchased $188.6 million during the previous three quarters
management indicated share repurchases suspended until 1Q13
Questions about dividend payments
continuing cash pressure could force a reduction or even suspension
Analysts downgrade the stock
over the past year major equity research firms have downgraded theirratings and estimates
"While Sandy impacted the quarter, the stock is reflecting some of thecommentary about operating fundamentals.
-- Vijay Jayant, ISI
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Excessive executive turnover undermines stability 8 top executives left the company in last 2 years, including former
COO Tom Rutledge
-- after Rutledge resigned in Dec 2011, CVCs stock price dropped 13%
-- Rutledges departure was described as a bombshell by ISIs Vijay Jayant
This is a staggering loss, said Craig Moffett, an analyst at Sanford C.Bernstein. Tom Rutledge is the hands-down-best executive in thecable business.
Share price remains depressed
CVCs stock price fell 9.6% in one day (after release of 4Q12 results)
share price has declined almost 60% since 2/11
Cablevisions quarterly egg-laying streak is unmatched in the U.S. pay-TVindustry. Bloomberg, 3/1/13
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For years CVC has been a rumored buyout target
The Dolans attempted a private buyout in 2007 for $36/share, but Class Ashareholders rejected this offer as inadequate
Rumors of a potential CVC buyout have re-emerged
Citigroup analyst predicts a buyout in 12-18 months (March, 2013)
Class A Shareholders could once again be asked to approve an offer
lack of independent board members could trigger Class A Shareholders concerns
Escalating labor confrontation could negatively impact a buyout effort
triggers additional regulatory scrutiny
franchise agreements require NYC approval of a merger or buyout
liabilities related to CVCs Unfair Labor Practices could transfer to new owner
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Since January 2012 CVC management has engaged in a confrontation withits Brooklyn unionized employees
282 technicians voted to join CWA over a year ago but company has stalled atthe bargaining table and refused to reach a fair contract
in 2012 CVC provided a unilateral wage increase of $2-9/hour to 10,000 of theirtechnicians -- outside of Brooklyn
management refuses to discuss a wage increase for Brooklyn technicians, ineffect punishing them for joining a union
in January of this year CVC illegally fired 22 Brooklyn union members after theyrequested a meeting with management in accordance with the companys opendoor policy
mounting support for the fired workers encouraged CVC to rehire the employees
The cost of settling this dispute is minimal, but rather than settle, seniormanagement has been distracted from more pressing matters
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The National Labor Relations Board (NLRB) announced on April 5th, 2013they will file a complaint alleging that CVC:
granted unlawful wage and benefit increases to Bronx technicians in the middleof a union election to discourage their support for CWA
threatened to withhold training on new technology to Bronx workers if theyvoted to join the union, as they did to Brooklyn workers
The NLRB announced on April 10, 2013 additional complaints alleging: Bad Faith Bargaining in Brooklyn with no intent to reach an agreement
- refusal to meet other than once a month for the first four-five months; refusal to discussunion security and dues check-off (both mandatory subjects); refusal to discuss seniorityand safety; delay in producing requested information
unlawful discharge of the 22 fired technicians
unlawful surveillance of employees
instructing employees not to engage in union activity
The NLRB moved to dismiss a company-driven effort to decertify the unionin Brooklyn
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Franchisee shall recognize the right of its employees to bargaincollectively through representatives of their own choosing inaccordance with applicable law.
ongoing violations of this franchise clause could cause Cablevision tolose its NYC franchises
NYC Council investigating possible franchise violation elected leaders including the NYC Council Speaker, Public Advocate and
the Comptroller demanded that CVC bargain in good faith with CWA, inaccordance with the franchise
on February 26th, The NYC Council held a hearing to investigate CVCsalleged violations of the franchise agreement
We will not stand for Cablevision-Optimums blatant disregard of New Yorkscollective bargaining (requirement). -- Council Speaker Christine Quinn, 2/7/13
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Brooklyn is a core CVC market 431,871 total subscribers, 13% of its total nationwide customers
Verizon FiOS, CVCs major competitor, to complete its Brooklyn build-out in 2014
In spite of digital conversion and WiFi expansion, Brooklyns networkrequires additional capex to remain competitive
CWA field reports indicate Brooklyn customers are faced with:
overstretched residential fiber network
antiquated plant and equipment
out of date home cable boxes 4200 HD
overburdened residential junction boxes
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In June 2012, CEO James Dolan told a group of Bronx technicians the companywas leaving Brooklyn behind and the Brooklyn techs who voted to join CWA wouldnot be trained in the new technologies
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Random CWA survey of 700 Brooklyn customers in 3Q12 yields
overwhelmingly negative responses Service: 23% poor or terrible, 38% fair and 37% favorably Speed: 27% poor, 34% fair and 39% favorably Cost: 88% felt they paid too much
Survey also indicates CVC is falling behind NYC franchise service standards
over 33% report late service appointments
nearly 25% said it took longer than 7 days to install their cable
25% had their services improperly terminated in the last year
33% experienced improper bill charges
Another CWA survey found that CVC Brooklyn internet speeds were 25%
slower than CVC Bronx speeds
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Over reliance on third party contractors could lead to service deterioration
in reversal of company policy, shifting work from skilled in-house technicians tothird party contractors, including customer service appointments
-- contractors already perform nearly 100% of Brooklyn installation work
according to a 2003 internal company document, third party contractors had a 5.8%higher rate of missed appointments and a 14.1% higher rate of failed serviceappointments
low contractor pay, inadequate training and incentive structure leads to poor service
CVC needs to focus on customer service and expanded product offerings incore markets like Brooklyn in order to stem further customer erosion
We need answers about the quality of service Brooklyn customers are getting. And weneed Cablevision to do right by its workers and negotiate a fair contract in good faith.That what Brooklyn families, both customers and employees, deserve.
--Public Advocate Bill de Blasio, 1/3/13
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Since January 2012 have met 27times and spent 258 hoursattempting to bargain a first contract, but to no avail
CWA seeks wage parity with the rest of CVCs 10,000 technicians
Estimated economic impact of settlement: between $1 million and$3 million on an annualized basis
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CVC at a crossroads -- the company must adopt a coherent strategy todeal with its mounting challenges
Escalating conflict with its Brooklyn employees which is a majordistraction for management
CEO James Dolan has been personally involved in this labor dispute
Instead of agreeing to wage parity for its Brooklyn employees CVC hasspent millions on attorneys fees obstructing contract negotiations
CWAs contract demands do not represent a significant cost to thecompany, estimated at $1-$3 million annually
By settling this labor dispute, and partnering with its frontline employees,CVC can focus on overcoming its many challenges
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