Charter fires top execs, cites criminal probe
By Derek Caney
NEW YORK, Dec 23 (Reuters) - Charter Communications Inc. <CHTR.O>, the No. 3 U.S. cable television operator, said on Monday it fired its chief financial officer and chief operating officer amid a federal grand jury probe of its accounting practices.
The dismissal of CFO Kent Kalkwarf surprised some analysts, who viewed it as the latest step taken to turn Charter around.
Shares of the company have lost 93 percent of their value this year against a backdrop of the criminal investigation, declining subscribers and a balance sheet saddled with $18.5 billion in debt.
"Kalkwarf's removal came out of the blue," said Stifel Nicolaus analyst Ted Henderson.
COO David Barford's firing was less of a surprise because he was put on paid leave in October due to issues surrounding the investigation.
Efforts to reach Kalkwarf and Barford were unsuccessful.
"Issues that were raised in the grand jury investigation made it clear to the board that based upon the company's internal review that, regardless of the outcome, the changes were appropriate," Charter spokesman Dave Andersen said. He declined to comment further.
UBS Warburg analyst Aryeh Bourkoff called the firings part of a larger plan that will eventually result in a financial restructuring of the company.
"The company needs to get its operations on solid footing," Bourkoff said. "After that, it can come up with a comprehensive plan to fix the balance sheet."
REPLACEMENTS NAMED
Charter, which is controlled by Microsoft Corp. <MSFT.O> co-founder Paul Allen, said Chief Administrative Officer Steven Schumm will replace Kalkwarf on an interim basis.
Maggie Bellville, who joined Charter earlier this month as executive vice president of operations, will replace Barford.
The U.S District Attorney's office for the Eastern District of Missouri recently began an investigation into how Charter accounts for subscribers who do not pay their bills.
The U.S. Attorney's office said no Charter board member, including Chief Executive Carl Vogel, is a target of the investigation.
The company has said it is cooperating with the probe.
Charter's shares closed at $1.17, up 4 cents in Monday's Nasdaq trading.
The company said last month it would restate and reaudit its financial results for 2000, 2001 and the first half of 2002 after understating costs and tax liabilities from acquisitions in 1999 and 2000.
Charter said at the time that the restatements would have no impact on revenue and operating cash flow, the performance measurements that cable operators prefer. It expects to complete the audits in the first quarter.
The company said fourth-quarter operating cash flow will fall short of its target announced in early November. It also said its revenue growth rate would be at the low end of its earlier forecast of 8 percent to 9 percent.
Cable operators have been losing subscribers as a result of aggressive competition from satellite TV services like Hughes Electronics Corp.'s <GMH.N> DirecTV and EchoStar Communications Corp.'s <DISH.O> Dish Network.
Charter in particular has suffered because its cable systems are in less urban areas, where satellite is a more viable competitor.
Wall Street has also punished Charter for being one of the most leveraged cable companies, with $18.5 billion in long-term debt on its balance sheet as of Sept. 30.
Allen, who is Charter's chairman, said earlier this year he was considering taking the company private as one of several restructuring options to cut its debt.
But Stifel's Henderson said, "I don't think there's anything Allen can do until the grand jury investigation is cleared up."
Charter bond investors see more credit risks in the company. Charter's "distressed" 8.625 percent notes maturing in 2009 traded late Monday down 2.5 cents on the dollar at 45.50 cents, after falling as low as 41 cents, traders said. The yield rose to 27.18 percent.
12/23/02 16:49 ET
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