Charter Communications (CHTR) - Get Charter Communications, Inc. Class A Report missed a Securities and Exchange Commission filing deadline and restated its financials for the past three years, but investors seem confident it won't become another cable industry casualty.
The St. Louis-based cable operator, controlled by
billionaire Paul Allen, said Monday that it is cutting nearly $600 million from the earnings before interest, taxes, depreciation and amortization it had reported from 2000 through the first three quarters of 2002.
These and other restatements tentatively quantify the accounting concerns that have dogged the operator in recent months, sparking both a federal grand jury investigation and
the termination of its former chief operating officer and chief financial officer.
Over the past year, Charter's shares have sunk from $11.53 to as low as 76 cents, as investors have taken into account Charter's accounting investigation, the company's operating difficulties and the collapse of
-- the bankruptcy of which raised concerns about cable industry accounting practices and credit risk.
But Monday, investors seemed reassured by Charter's numbers and by the company's statement that it is considering an offer from Allen, the company's chairman, to supply a $300 million backup credit facility to help meet covenants under existing credit facilities.
Charter, which has filed for an extension for sending its 2002 10-K to the SEC, says its failure to file the annual report by March 31 has made it unable to make additional borrowings under three of its bank facilities. The company, which has $450 million in cash, says it will pay the interest on public debt due April 1 and plans to make an April 15 payment on its convertible debt.
The company, which is having its financials for the past three years audited by KPMG, says the job is "essentially complete" and that it expects to file the 10-K in the next two weeks.
Charter chief Carl Vogel didn't take questions on a Tuesday morning conference call announcing the results, but he said the company would hold a Q&A session after the 2002 10-K is filed. "We're optimistic regarding our competitive positioning," he said on the call, citing the promise of advanced services such as high-speed data, video on demand and high-definition television.
On Tuesday, investors bid Charter's shares up 23 cents, or 28%, to $1.06.
Charter noted that results for 2002 reflected 15% revenue growth over restated pro forma figures for 2001. EBITDA -- a common bottom-line yardstick for cable operators and other media companies -- grew 16%. Charter's operating loss grew from $1.2 billion in 2001 to $4.3 billion in 2002, and its net loss widened to $2.5 billion, or $8.55 per share, from $1.2 billion, or $4.33 per share.
Those figures for 2001, however, have been restated downward from prior reports -- as much as 16%, in the case of 2001 EBITDA.
The Actor's Studio
In its Tuesday release announcing the 2002 results and prior restatements, Charter discloses several issues motivating the restatements, which were made in connection with the audits and discussions with the SEC. Adjustments, says Charter, corrected "previous interpretations and applications" of generally accepted accounting principles. In addition, says Charter, changes were required for transactions lacking appropriate or necessary supporting documentation, and for occasions in which mistakes were made in computations or applications of approved policies. The company says the yet-to-be-completed SEC review process may lead to additional changes.
One of the biggest adjustments came in the area of advertising revenue associated with the launch of new channels on Charter systems. Unlike most other major cable operators, Charter had been recognizing promotional payments from new channels as immediate advertising revenue. Now, Charter will be amortizing the payments as a reduction of programming costs over the course of the relevant programming contract. Such a change has the effect of cutting Charter's revenue by $194 million over 2000 and 2001.
Another major issue was improper capitalization of labor costs, which had the effect of reducing operating expenses and thus EBITDA. Reclassification of certain of these labor costs will increase operating expenses by $218 million from 2000 through the first three quarters of 2002.
One number that no one is disputing, however, is Charter's bleak basic subscriber count. The company hemorrhaged basic cable subscribers in 2002, ending the year with 6.6 million subscribers, down 357,000 homes, or 5%, from a year earlier. The company's penetration of homes passed -- that is, the percentage of households in its service areas actually subscribing to basic cable -- dropped from 60% to 55%. That decline ratchets up the pressure on Charter to stem basic losses and to build the subscriber base of its advanced services.