Covad Reports Improvement

Struggling CLEC Covad Communications Group Inc., which filed for Chapter 11
bankruptcy protection earlier this month, Monday said it is making progress
in streamlining operating costs, though it expects “little to no growth in
revenue in the third quarter.”

The company released its second quarter 2001 results Monday, reporting
revenue of $87.1 million for the quarter, which ended on June 30. That
represents a 22 percent increase over revenue of $71.2 million from the
previous quarter and a 101 percent increase over the $43.2 million in
revenue it reported in the same quarter a year ago.

Covad also reported a loss from operations of $141.8 million, or $1.01 per
share, a 19 percent improvement from its first quarter loss of $174.7
million or $1.15 per share. The company said a restructuring charge of $2.9
million, and a charge of $2.2 million related to the write-down of goodwill
associated with its BlueStar subsidiary, contributed to its loss.

“We continue to see improvement in our operating performance,” said Chuck
McMinn, chairman of Covad. “This is yet another step on the path to
profitability and helps demonstrate that Covad’s business model is
delivering results.”

McMinn added, “This is the second consecutive quarter of significant
improvement in our bottom line.”

Covad reported 333,000 subscriber lines in service at the end of the second
quarter, an increase of four percent over the 319,000 lines in service at
the end of the first quarter, when it reported 16 percent growth. The
company attributed the decreased growth to continued migration of lines from
“distressed” partners and its own BlueStar subsidiary, which it restructured
in the second quarter in a move it expects to save itself as much as $75
million over the next 12 months.

As for the bankruptcy proceeding, McMinn said the company has reached an
agreement with the majority of bond holders to restructure its bond debt.
The plan will allow the company to eliminate its debt with a face amount of
$1.4 billion.

McMinn said that once the debt is restructured, the company will need an
additional $200 million in funding to take the company to cash flow positive
territory, predicted to occur in the third quarter of 2003.

Covad has also signed a memorandum of understanding that would settle the
class action lawsuit against the company, which is pending in federal court
in California.

“We recently announced positive developments such as an agreement to
eliminate our bond debt and the potential settlement of a class action
lawsuit,” said Charles E. Hoffman, Covad’s president and chief executive
officer. “Completing those transactions will greatly strengthen the company
and improve our ability to obtain the additional $200 million that we need
to become cash flow positive in the third quarter of 2003. Most importantly,
they will help ensure that our customers will continue to receive
high-speed, always-on broadband Internet connections on our network.”

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