U.S. Probing Charter’s Accounting

Debt-laden cable giant Charter Communications Inc. said it has received a federal grand jury subpoena demanding information on the company’s accounting practices.

St. Louis-based Charter, controlled by billionaire Paul Allen, said the subpoena seeks documents about how the company accounts for various costs for current and disconnected cable TV customers.

Charter said it intends to cooperate in the probe, which was initiated by the U.S. attorney’s office for the Eastern District of Missouri. David Andersen, a Charter spokesman, said the issues under investigation are similar to those raised in a series of shareholder class-action lawsuits accusing the company of inflating its subscriber figures and stock price with deceptive bookkeeping.

Charter, the nation’s No. 4 cable provider, has denied the allegations. Charter has about 500,000 subscribers in Southern California.

In February, the company announced an increase in its reserve for uncollected customer accounts held at the end of last year. Charter also said that it had tightened its collection policies relating to these “marginal” customers and that it expected to remove about 120,000 of these customers from its basic customer count in the first quarter of this year. Charter later increased that figure to 145,000 customers.

Analysts said the federal inquiry appeared to be focusing not just on subscriber disconnections but also on how Charter accounts for capitalized labor--one of the issues that arose in the meltdown of cable firm Adelphia Communications Corp. Adelphia disclosed a series of accounting errors, including improperly reporting millions of dollars in ongoing labor expenses as capital expenditures, a step that inflated the firm’s reported cash flow and revenue.

The grand jury is not the only source of questions about Charter’s accounting. Last month, Merrill Lynch analyst Jessica Reif Cohen downgraded her rating of Charter, citing concerns about certain revenue it booked. Charter books some revenue from subscribers who use its cable modem service but not cable television service as revenue from “basic cable” customers. And unlike other cable companies, Charter counts programming launch fees--paid to Charter by cable network operators--as advertising revenue, Reif Cohen said.

This week, Charter executives swore to the accuracy of the company’s financial results in a statement filed with the Securities and Exchange Commission as part of a new law.

Charter is burdened with $17 billion in debt, and Allen has said he is considering taking the company private as part of a restructuring to cut the debt load. On Friday, Charter’s stock fell 18 cents to $2.53 on Nasdaq.

Earlier this summer, Charter was hoping to broaden its share of the lucrative Los Angeles cable market by buying cable systems from Adelphia. Allen has coveted the local systems since 1999, when Charter lost them in a bidding war.

But now, with Charter’s stock sinking and the specter of accounting woes, Charter is considered out of the running. “Our balance sheet will not support any acquisitions at this time,” Andersen said.

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Times wire services were used in compiling this report.