Charter Communications Inc. got the equivalent of a lump of coal in its stocking from Standard & Poor's Inc. on Dec. 24, after the company lowered the MSO's corporate debt rating from "B-plus" to "B."
But the lowered rating — based on company estimates that fourth-quarter revenue and cash flow growth will be lower than expected — was just the latest in a string of bad news for the St. Louis-based MSO.
On Dec. 23, Charter announced it had fired its chief financial officer and made several moves tied to the ongoing investigation of the troubled MSO by a federal grand jury.
Charter said that CFO Kent Kalkwarf, a long-time employee at the company, had been terminated by the board of directors and replaced in the interim by executive vice president and chief administrative officer Steve Schumm. The company said that it is conducting a search for a permanent CFO.
In addition, the company finally terminated former chief operating officer Dave Barford, who was placed on administrative leave in October. In releasing Barford, Charter also tweaked the title of recently hired executive vice president of operations Maggie Bellville, who came on board Dec. 4. Bellville's new title is executive vice president and COO.
The moves came about two weeks after the company announced a sweeping restructuring, reorganizing its operations into five regional divisions and warning of substantial layoffs by year's end. Although the company hasn't yet released a figure for the layoffs, most industry observers believe they will involve somewhere between 1,000 and 1,500 employees.
In a research note, UBS Warburg LLC cable analyst Aryeh Bourkoff called the management changes "somewhat of a continued statement of an 'out with the old, in with the new' message." He added that the changes further support the need for a restructuring of Charter's balance sheet — currently saddled with nearly $20 billion of debt — in 2003, "especially with the continuing deteriorating fundamental performance."
Charter also reiterated its intention to re-audit its books for the years 2001 and 2000 and said revenue growth in the fourth quarter of 2002 will be on the low-end of previous guidance of 8 percent to 9 percent. The company also said cash flow growth for the period will come in under previous guidance. Charter had earlier stated it expected fourth-quarter cash flow growth of between 4 percent and 5 percent.
Charter said the re-audits should be completed by the first quarter of 2003. The company added that it would issue no further earnings guidance until the audits are complete.
The changes were another blow to a company that had a very bad year. Charter's stock dropped more than 90 percent in 2002, and the company was rocked by heavy subscriber losses and questions about its accounting practices.
Once one of the highest growth companies in the industry, Charter has lost 277,000 subscribers since Dec. 31, 2001. In August, the company revealed it was the subject of a federal grand jury investigation regarding its accounting practices, including the way it counts some subscribers.
In a statement, Charter said that the terminations followed a review by the company of various matters, including those relating to the grand jury investigation. The company reiterated its earlier claims that no member of its board of directors, including its CEO, is the target of the investigation. Charter is cooperating fully with the grand jury.
Kalkwarf started with Charter in 1995 as senior vice president. He was named CFO in 2000, shortly after the company went public.
"These actions with respect to the management changes and the re-audit of the company's financials are necessary so that Charter Communications can move forward as we focus on building the company for the future," Charter CEO Carl Vogel said in a statement.
"We are moving as rapidly as practicable to ensure that Charter is on the right track."
The board of directors also has moved to create a corporate compliance program, including the appointment of a corporate compliance officer, the establishment of a compliance hotline, and the adoption of a comprehensive expanded employee code of conduct. In a statement, the company said these measures are designed to ensure that the Charter's employees, from top-to-bottom, will adhere to the highest standards.