Updated from 9:07 a.m. EDT

Charter Communications ( CHTR) is showing progress in its effort to gain firmer financial footing.

For the first quarter ended March 31, the St. Louis-based cable operator reported better-than-expected earnings before interest, taxes, depreciation and amortization, accompanied by strict penny-pinching and a strong growth in the high-speed Internet business.

"We're making steady progress operationally," said Chairman and CEO Carl Vogel on a conference call with analysts Wednesday.

Vogel said Charter continues to shoot for positive free cash flow in late 2003 or early 2004, if not earlier. The company still expects a majority of its revenue and cash flow growth to come in the second half of the year, he said.

Shares in Charter, which spent most of March below a dollar because of concerns about the company's liquidity, rose 15 cents Wednesday to trade at $2.03.

Over the past year, the company has been dogged by concerns about cash flow, and has restated past financial results amid investigations into its reporting practices.

Modem Boom

In the first quarter, Charter reaped revenue of $1.18 billion, up 9.7% from $1.07 billion in the first quarter of 2002 and in line with the consensus of analysts surveyed by Thomson First Call. Ebitda -- a common bottom-line yardstick employed by cable and other media companies -- grew 7.5% to $458 million.

One key to the company's performance was the impressive growth of its cable modem business. The company added 134,200 data customers in the fourth quarter, well above the 82,700 it added in the fourth quarter of 2002. The company said it also benefited from increasing prices in its video and data product offerings, and from reducing customer churn in all categories.

Charter said it lost 31,700 digital customers during the quarter but saw a 2% rise in the average revenue for digital service. The company attributed the changes to its strategy of focusing on customers who are more likely to buy higher revenue and margin products, a plan to repackage some digital service offerings and the discontinuance of its transitional satellite service.

Charter also continued to lose basic subscribers, though at lower rates than in prior quarters. The company shed 50,600 in the first quarter, with about a quarter of these lost through the shutdown of the satellite service. Charter, the nation's third-largest operator of cable TV systems, has lost 3.7% of its basic subscribers over the past year.

Cutting Back

Capital expenditures fell from $435 million in the first quarter of 2002 to $104 million in the first quarter of 2003 -- a cutback that investment bank Janco Partners said was remarkable but likely not sustainable. The company has previously said it expected capital expenditures to amount to $1 billion to $1.1 billion in 2003, though executives on the call indicated little enthusiasm for picking up the pace of their capex.

"We're very cognizant of not 'building and they will come,'" said Wayne Davis, senior vice president of engineering and technical operations.

The company says that it continues to "fully cooperate" with ongoing grand jury and Securities and Exchange Commission investigations into the company. Charter has been advised that no member of its board of directors, including Vogel, is a target of the grand jury investigation.

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