Charter Communications Inc. placed executive vice president and chief operating officer David Barford on paid leave last week, tying the move to a grand jury investigation into the MSO's accounting practices.
The decision was striking. On one hand, Charter has repeatedly insisted that although a grand jury is investigating its method of counting subscribers and capitalizing expenses, the company adheres to generally accepted accounting principles. On the other hand, the MSO has sidelined one of its top executives because of the investigation into its accounting — which company officials have maintained is accurate.
"The company determined that the most appropriate course of action at this time is to place Mr. Barford on paid leave pending the result of the [grand jury] investigation, after which this status would be reviewed," Charter said in a prepared statement released last Tuesday.
CEO Carl Vogel is assuming Barford's COO responsibilities in the interim.
Spokesman David Andersen declined to comment on whether Charter was searching for a new COO.
Following the resignation of former Charter CEO Jerald Kent last fall, chairman Paul Allen announced in October 2001 that he had signed Barford — a one-time Comcast Corp. operating executive — and chief financial officer Kent Kalkwarf to long-term employment agreements.
"They [Barford and Kalkwarf] have always impressed me and the other members of our board with their management expertise and business prowess," Allen said in a statement at the time. "I'm confident the employees, shareholders and customers of Charter are in good hands in the interim."
About one week later, cable veteran Vogel was appointed CEO.
Barford's contract, disclosed in a Charter filing with the U.S. Securities & Exchange Commission, was set to expire in December 2005. He earned a $350,000 annual salary, plus a $175,000 bonus, according to the contract.
Barford was also granted options to purchase 750,000 class-A shares of Charter common stock at fair market value. The company also agreed to issue him 50,000 shares of its class-A stock as part of the contract.
According to the contract, Charter has the right to terminate Barford for cause after 30 days of advance written notice. The company's definitions of cause include conviction of a felony or misdemeanor; refusal to comply with directives from the CEO or board; negligence or willful misconduct; and breach of fiduciary duties.
Noting the terms of the employment contract, UBS Warburg analyst Aryeh Bourkoff wrote in a note last week that it's possible Barford "will be ultimately terminated after the 30 days notice."
Before he was named COO in July 2000, Barford was senior vice president of operations for Charter's Western Division. Barford held senior marketing and operations positions at Comcast before joining Charter in 1995.
The announcement of Barford's exit pummeled Charter's stock. Shares in Charter, which closed last Monday at $1.75, had dropped to 94 cents by last Thursday.
"We believe Mr. Barford's departure just two weeks before the release of [third-quarter] earnings raises additional questions about the near-term operating outlook for the company," Salomon Smith Barney analyst Niraj Gupta wrote in a research note. "We have little confidence in near-term estimates, and await the release of [third-quarter] results and the outcome of the grand jury investigation.
Q3 DATA released
Charter surprised Wall Street Thursday night, when it released preliminary third-quarter estimates of revenue, cash flow and revenue-generating units.
The MSO said it released the numbers because the results were leaked after credit-facility lenders were briefed about its anticipated results.
Charter said it expects third-quarter revenues to increase 12.6 percent and cash flow to increase by 8.7 percent.
The MSO said it added 215,000 RGUs during the quarter, including 150,000 digital customers and 150,000 high-speed data customers. [Charter has not yet adopted the reporting guidelines announced last week, which would add "primary analog subscribers" to the definition of RGUs.]
But Charter also said it saw a net loss of 85,000 basic subscribers during the quarter.
Charter is scheduled to release its third-quarter results on Nov. 5.