Covad Posts Nearly $1.5 Billion in 2000 Losses

The troubled high-speed Internet provider has been holding off filing its 10-K to the SEC, a sign many analysts on Wall Street found disturbing. They were right.

by Jim Wagner of internetnews.com [May 28, 2001]

Covad Communications Group officials were quick to downplay the whopping $1.44 billion loss reported in its tardy year-end and fourth quarter 2000 filing to the Securities and Exchange Commission Thursday afternoon.

The SEC has been not-so-patiently waiting for the 10-K report from Covad's finance officials, even going so far as threatening delisting the troubled data competitive local exchange carrier (DLEC) if the report wasn't filed soon.

Industry analysts were sure company officials were holding off the report while it determined the best way to present the numbers.

It's not not easy being red
Chuck McMinn, Covad chairman, said the delay was the result of the complex accounting procedures necessary to report its restructuring and acquisitions, coupled with making non-cash adjustments to the company's value.

"We apologize for the delay, but the in-depth review has allowed us to implement many positive changes within the company that should greatly improve our internal controls and efficiencies both operationally and administratively," McMinn said.

Covad had few highlights in its report, with only modest gains in revenues compared to the amount of subscriber lines it owns.

Highlights
The company experienced a 40 percent gain in revenues in the fourth quarter, from $39.5 to $55.2 million, garnered mainly through the efforts of its Covad Safety Net, which refers the customers of its defunct Internet service providers to its own service and a large scale deployment of digital subscriber line access multiplexers (DSLAMs) to the central office of local telephone companies. Since then, the company has had to stop the deployment and shut down service at some of the central offices.

The increase of DSL subscribers was also modest with 274,000 at years-end, a 71,000 increase from the third quarter.

Covad also announced its restructuring charges, which came to roughly $5 million for the fourth quarter of 2000. It anticipates an additional charge of $15 million in the first quarter of 2001 to finish up its charges.

By far the biggest blow to the company's finances was the fair value determination of its long-lived assets, which Covad defines as the equipment it received when it acquired companies like BlueStar and LaserLink.net.

Losses from these assets accounted for more than half the loss in 2000, which Martha Sessums, Covad spokesperson, said doesn't accurately reflect the true value of the company.

"That number is mostly non-cash activities, things that are normally written off on the books like goodwill," Sessums said. "It's not real money, so even though it's a big number and it's a big write off, its not cash out of the bank."

Even without the markdown to its equipment, the company would have posted a $756.1 million loss on the year, an almost 700 percent increase from its 1999 losses of $171.6 million.

Sessums added that its first quarter 2001 financial report should be much more well-received by analysts when it's released in the next few weeks.

—End