Charter Replaces Two of Its Top Executives

Charter Communications Inc., the nation’s third-largest cable operator, fired two top executives Monday in a bid to regain investor confidence amid a federal probe into its accounting practices.

St. Louis-based Charter, which is controlled by Microsoft Corp. co-founder Paul Allen, issued a statement announcing that Chief Operating Officer David Barford and Chief Financial Officer Kent Kalkwarf would be replaced immediately. The company also said it would lower its cash projections for the fourth quarter and adopt an expanded code of conduct for its employees.

Charter would not specify why Barford and Kalkwarf were fired, but acknowledged in a statement that the action followed an internal review of “various matters, including those relating to the previously disclosed grand jury investigation.”

Federal prosecutors in Missouri launched a federal probe this year into how Charter accounts for capital expenditures and subscribers. One allegation is that Charter has kept nonpaying customers on its books to inflate the number of subscriber counts -- a key gauge investors and bankers use to value cable companies.

Charter has 6.7 million customers nationwide, about 500,000 of which are in Southern California.

Monday’s firings were the latest shake-up at Charter. Nearly two weeks ago, the company said it would eliminate a significant number of jobs in a management restructuring designed to reverse heavy subscriber losses and a crisis of confidence among investors spooked by the federal probe.

The developments also follow a wave of scandals that have shaken corporate America and the cable industry this year.

In July, cable pioneer John Rigas and two of his sons were arrested and accused of looting Adelphia Communications Corp., the nation’s sixth-largest cable company and the largest provider in Southern California. Among the allegations are that Rigas and former Adelphia executives hid $2.3 billion in personal loans guaranteed by the company and inflated corporate earnings and the number of cable subscribers.

Charter has stressed that it was advised by the U.S. attorney’s office for the Eastern District of Missouri that none of its board members, including Chief Executive Carl Vogel, is a target of the investigation.

“We intend to take the appropriate corrective actions -- both professionally and financially,” Vogel said in the statement.

Those actions, Charter said, include instituting a new corporate compliance program, which involves appointing a corporate compliance officer and adopting an expanded code of conduct to ensure that “employees, from top-to-bottom, will adhere to the highest standards.”

Analysts were not surprised by the developments, saying Charter is under pressure from investors to send a clear signal that it is taking steps to restore confidence in the company, whose stock has plummeted from a high of $17.05 a year ago to $1.17 on Monday, up 4 cents on Nasdaq.

“They want to make it very clear that they won’t tolerate any misrepresentation” of their accounts, said Larry Gerbrandt, chief content officer of Kagan World Media, a Carmel-based research and consulting firm. “Either you circle the wagons and everybody goes down, or you say, ‘OK, somebody’s going to take the fall here.’ ”

Barford, who has been COO since July 2000, was placed on paid leave in October because of the investigation. Kalkwarf, a former executive at Arthur Andersen, became CFO in 2000.

Neither of the executives could be reached for comment Monday.

Barford will be replaced by Margaret Bellville, who joined Charter this month as executive vice president of operations and is a veteran of the cable industry. Kalkwarf will be replaced on an interim basis by Steven Schumm, an executive vice president and the company’s chief administrative officer.

Also Monday, Charter said it expects fourth-quarter operating cash flow to fall below previous forecasts. Operating cash flow excludes depreciation, amortization and other items. Charter also said its revenue growth rate would be close to its earlier target of 8% to 9%.

The company said last month that it would restate two years of results to incorporate more than $2 billion in costs and tax liabilities.

Charter, like the cable industry as a whole, has been hurt by heavy debts incurred to upgrade cable systems for new technology such as video-on-demand. It also faces increasing competition from satellite TV services such as Hughes Electronic Corp.’s DirecTV and EchoStar Communications Corp.’s Dish Network.