Charter loss mushrooms, says overstated revenues
By Sinead Carew
NEW YORK, April 1 (Reuters) - Charter Communications Inc. <CHTR.O> said on Tuesday it had overstated sales and cash flow back to 2000, but investors were relieved the struggling No. 3 cable TV company said it would meet its debt interest payments.
Charter, heavily laden with debt and under criminal investigation for accounting practices, also said its chairman and largest shareholder, Paul Allen, the billionaire co-founder of Microsoft Corp., offered to lend it up to $300 million.
As the company's stock rose 25 percent in heavy trading, Banc of America analyst Douglas Shapiro said Allen's offer and Charter's ability to meet its payments gave investors "a degree of comfort as to the company's liquidity."
Charter is the second cable operator to face accounting questions. Bankrupt rival Adelphia Communications <ADEL.PK> revealed accounting errors that led to the indictment of its founder, John Rigas, and several others last year.
"In some form or another this company is viable," Janco Partners analyst Matthew Harrigan said of Charter. "This is not remotely an Adelphia genre situation. There were accounting issues, but they were fairly mundane things. There's no fraud or real wild misrepresentation."
Late last year, Charter dismissed its chief financial and chief operating officers in connection with the federal grand jury probe. And this year its treasurer resigned.
It had said in November it would need to adjust tax expenses related to acquisitions made in 1999, but insisted at the time the changes would not affect revenue or cash flow.
Charter said on Tuesday the errors that led to the overstatement were uncovered after talks with the U.S. Securities and Exchange Commission and its auditor, KPMG.
Chief Executive Carl Vogel would not take questions from analysts during a telephone conference call but said the company fully cooperated with the SEC and "does not anticipate there will be further adjustments" as a result of inquiries.
Charter said it expected to file its 2002 earnings in the next two weeks, giving it more time to complete its statements. Vogel promised to answer questions after the filing.
The St. Louis-based company, which carries about $21 billion in debt, has had its credit rating cut to junk status by ratings agencies.
Until it files financial statements with its lenders, the cable company said, it is unable to borrow money under three of its bank facilities.
Charter had $450 million in cash on March 31, which it said would be enough to cover its operations and debts. It plans to pay interest due on its public debt on Tuesday, and interest for convertible debt on April 15, Charter said.
UBS Warburg analyst Aryeh Bourkoff said in a research note that he believed the company still needed to negotiate with banks in order to comply with financial covenants.
Charter said it formed a special committee to evaluate Allen's offer to lend it up to $300 million to help meet its credit agreements.
RESTATEMENTS
The company said it had overstated revenue for the first three quarters of 2002 by 1 percent, or $38 million, its 2001 revenue by 4 percent, or $146 million, and its 2000 revenue by 3 percent, or $108 million.
Adjusted earnings before interest, taxes, depreciation and amortization -- a measurement of cash flow -- was overstated by 8 percent in the first three quarters of 2002, by 16 percent in 2001 and by 13 percent in 2002.
Charter defines adjusted EBITDA as revenues minus operating expenses, and selling, general and administrative expenses.
Its net loss was trimmed by $12 million for the first three quarters of 2002, and $11 million in 2001. Its net loss widened by $29 million in 2000.
Charter's fourth-quarter net loss widened to $1.87 billion, or $6.36 a share, from a $303 million, or $1.03 a share. The wider loss was due to the write down of the value of acquisitions.
It reported a 13 percent rise in revenue to $1.2 billion from the restated year-ago revenue of $1.1 billion. Adjusted EBITDA rose 14 percent to $457 million from the restated year-ago amount of $402 million.
The stock rose 20 cents to $1.03 in afternoon trading on the Nasdaq stock market, up from its year low of 76 cents but still way off its 52-week high of $11.53.
(Additional reporting by Derek Caney)
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