Charter Restates — and Rises


Despite restating three years of revenue, reporting a 5.6 percent decline in its subscriber base and missing a March 31 deadline to file its 10-K annual report, Charter Communications Inc. last week enjoyed one of the biggest increases in its stock price in months.

Shares in the St. Louis-based MSO rose 29 percent (24 cents) between March 31 and April 3, to $1.07 from 83 cents. That marked the first time in nearly a month Charter has traded over $1.

Investors were eagerly anticipating the March 31 deadline, because missing it sets off a chain reaction of bank and bond-debt defaults.

But Charter got a little breathing room by filing for a 15-day extension with the Securities and Exchange Commission, which would extend the 10-K deadline to April 15.

The operator said it needed extra time to complete a new audit of its 2000 and 2001 financial results and the ongoing audit of 2002 results.

Tax-day deadline

CEO Carl Vogel told analysts on a conference call April 1 — when he declined to take questions — that Charter would meet the April 15 deadline.

Charter has a 30-day grace period with lenders and bondholders to make the appropriate financial filings. Until then, Charter cannot draw down from its bank facilities.

In the meantime, chairman and principal shareholder Paul Allen has offered to provide Charter with a $300-million backup credit facility. Charter said it appointed a special committee of its board of directors to evaluate the proposal.

UBS Warburg cable debt and equity analyst Aryeh Bourkoff said Allen's offer was mainly a negotiating tool for Charter to use in talks with bank lenders.

Charter has about $18.5 billion in long-term debt, of which $17 billion could come due if Charter violates its debt covenants.

Restatements: Mild relief

Investor relief over the extension — and the possibility of an Allen loan — appeared to soften the blow of Charter's restated financials.

Charter shaved a combined $254 million in revenue and $341 million in cash flow from its books for 2000 and 2001. Charter said the reductions were made to comply with Generally Accepted Accounting Principles and to adjust "for transactions that lacked appropriate or necessary supporting documentation or in instances where mistakes were made in computations or applications of approved policies."

Charter took a lesser hit for the first three quarters of 2002, reducing revenue by 1 percent (about $38 million) and lowering cash flow by about 8 percent ($110 million).

The 2002 restatement wasn't as bad as some on Wall Street had feared. "I think the worst-case scenario was far worse than what we saw," said Salomon Smith Barney Inc. cable analyst Niraj Gupta, adding that the 8 percent reduction in cash flow was material, but not as high as others had expected.

On a restated basis, Charter's fourth-quarter revenue rose 13 percent from a year ago, to $1.2 billion, and cash flow rose 14 percent, to $457 million.

For the year, revenue rose 15 percent, to $4.6 billion, and cash flow rose 16 percent, to $1.8 billion.

More sub losses

Direct-broadcast satellite rivals are still causing substantial erosion to the Charter's subscriber base.

Deutsche Bank Securities cable analyst Karim Zia estimated Charter lost about 69,000 customers in the fourth quarter, more than twice his estimate of 34,000.

For the year, Charter shed 357,000 basic cable customers — 5.6 percent of its total base — ending the year with 6.6 million subscribers.

In the conference call, Vogel said Charter would redouble its efforts to win back subscribers.

Charter also laid off about 1,300 employees between Dec. 31 and March 31, reducing its workforce to 17,300 from 18,600. More layoffs are expected in 2003.

Scheniderjohn leaves

Charter also said it named former Cox Communications Inc. executive Kip Simonson as vice president of sales and marketing, replacing senior vice president of marketing and programming Diane Schneiderjohn, who resigned for personal reasons.

Simonson had been vice president of marketing and sales for Cox's Orange County, California, cluster. He will report to COO Margaret Bellville.

Schneiderjohn joined Charter in April 2002 from Carlsen Resources' Global Media Division, where she was managing partner. Charter would not elaborate on her personal reasons for leaving. But a source said she and her family wanted to return to San Francisco, where they had lived prior to her stint with St. Louis-based Charter.

In the past six months, executive-level changes at Charter have included terminations of a former chief operating officer and former chief financial officer and the defection of Schneiderjohn's predecessor, Patty McCaskill, to the start-up cable operation headed by former Charter CEO Jerry Kent.