Nasdaq Investigating Covad

Covad Communications Group officials are praying three events are all it has to deal with after finding out Friday morning that the Nasdaq exchange had put trading for the company on hold until it can produce the information the exchange needs.

Covad officials wouldn’t elaborate on the needed information and said they aren’t sure when it will get to the exchange.

Martha Sessums, Covad vice president of corporate communications, said “it’s going to take some time to get the information together. The information (Nasdaq) asked for is detailed and we’re working as hard as we can to get it to them.”

The bad news comes only a half-day after a Santa Clara judge rejected an injunction against Covad. DSLnetworks, a broadband Internet service provider that had some of its digital subscriber lines shut down by Covad, failed to convince a judge Thursday afternoon that Covad was stealing customers.

Sessums said DSLnetworks’ contract didn’t call for non-disclosure of customer names, which gives Covad the right to contact customers.

“The judge ruled that DSLnetworks had failed to show a breach of contract, because the 1999 contract that they have does not give us any restrictions on contacting their end users,” Sessums said. “(The judge) also found that DSLnetworks hadn’t shown that they had taken any proper step to show that their list was confidential and, in fact, had given it to us and never told us it was confidential.”

Another hearing for the injunction has been set for March 8.

While claiming victory in the court system, Covad will need some more good luck on Wall Street which is sure to make its displeasure known when investors react to the company’s year-end revision.

While company officials were rejoicing over the decision, they were readying an announcement that shows its financial status is much grimmer than it was acknowledging.

A 2000 review conference call to investors was scheduled for Feb. 27, but has been postponed as Covad accountants regroup and get financials in order.

At the conference, Covad officials will announce even deeper earnings before interest, taxes, depreciation and amortization losses and lower revenues for 2000.

In addition to the 200 central offices it had originally planned to close, officials said the data local exchange carrier (DLEC) will now close an additional 60 COs nationwide. Covad is also halting the application process on 500 more COs.

The closures are the result of cost-cutting measures needed after the company cut its staff by 800, at the same time saying it was taking a one-time restructuring charge of $20 million.

Officials now say the restructuring charge will be “substantially larger than $20 million,” according to a statement released Friday, and they will be looking to take further cost cutting measures down the road.

Chuck McMinn, Covad chairman, said the measures are necessary to reach profitability down the road.

“We have made a number of significant changes to our business in the past several months to put Covad on a quicker path to profitability,” McMinn said. “Accurately accounting for these changes is essential, and we simply need the extra time to ensure we review these changes and report them correctly.”

Covad was trading at 2 7/8 this morning, before the freeze.

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