Corvis posts Q4 loss - Business - Corvis Corp

Fiber Optics Weekly Update, Feb 20, 2004

Corvis reported revenues of $142.5 million for its fiscal fourth quarter ended December 31, 2003. Revenues for the fourth quarter were generated primarily from communications services revenues recorded by its subsidiary, Broadwing Communications, as well as from equipment sales to the United States Government.

Quarterly Results

The Broadwing Communications services division contributed $140.4 million in recorded revenues in the fourth quarter. The remaining $2.1 million was generated from the company's equipment and equipment service contracts with the U.S. Government for the company's Optical Convergence Switch (OCS).

Reported net loss for the quarter was $55.4 million, or $0.12 loss per share, for the current quarter as compared with a reported net loss of $190.2 million, or $0.47 loss per share, for the fourth quarter of 2002. Included in this quarter's results were charges of $15.5 million related to restructuring, inventory allowances and other charges, including those charges associated with the renegotiation of the company's management agreement with Cequel III.

Up to $300 Million Private Placement of Senior Unsecured Convertible Notes As announced recently, the company has entered into a definitive agreement for the private placement of $225 million of senior unsecured convertible notes to several institutional investors, with the option of an additional subscription of up to another $75 million. The company said it would use the net proceeds for general corporate purposes in support of its service development and new market initiatives, as well as for potential strategic acquisitions for Broadwing Communications. The securities have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent a registration under the Securities Act and applicable state securities laws or an applicable exemption from those registration requirements.

Renegotiated Agreement with Cequel III During the fourth quarter, Corvis also reorganized the economic and management structure of C III Communications.

Most of the assets of Broadwing Communications originally were purchased from Cincinnati Bell by C III Communications. C III Communications had two principal owners. Corvis was the majority investor, with Cequel III, a St. Louis-based management company headed by Jerry Kent, taking a minority position.

In late November 2003, Corvis decided to acquire full board level and operational control of C III Communications, as well as the one percent equity stake and additional equity participation interests in Broadwing Communications owned by Cequel III. The companies also ended their management services agreement. Corvis now has 100 percent voting control and full operational control of Broadwing. Cincinnati Bell will retain a non-voting equity stake.

The new agreement calls for Cequel III to receive cash, stock, warrants and network services discounts in return for their initial investment, for the services they provided, and for concluding the management services agreement.

Cequel III will continue to act as a sales agent for Broadwing, particularly in the cable and wireless tower industries where they are a significant player. To complete the transaction, Corvis recorded a charge in the fourth quarter of $18.5 million in connection with renegotiating the agreement, which is reflected as a component of restructuring and other charges.

Fiscal 2003 Annual Results

For fiscal year 2003, Corvis recorded revenues of $314.3 million as compared to $20.2 million for the prior year. Broadwing Communications contributed $310.2 million in recorded revenues since the closing of the acquisition on June 13, 2003. The remaining $4.1 million was generated from the company's equipment and equipment service contracts with the U.S. Government, WilTel, Telefonica of Spain, France Telecom and Broadwing Communications prior to the closing of the acquisition. All inter-company accounts and transactions have been eliminated for the fiscal year.

Reported net loss for fiscal year 2003 was $260.5 million, or $0.60 loss per share, as compared with a reported net loss of $507.8 million, or $1.30 loss per share, for fiscal year 2002.

Included in the fiscal year 2003 results were charges of $82.9 million related to restructuring, inventory allowances and other charges, including those charges associated with the renegotiation of the company's management agreement with Cequel III.