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
Industry analysts were sure company officials were holding off the report
while it determined the best way to present the numbers.
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
“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.
Santa Clara-based Covad had few highlights in its report, with only modest gains in revenues
compared to the amount of subscriber lines it owns.
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
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.