Broadwing Inc. posted a hefty operating loss for the year due to special charges associated with exiting its network service provider business, but the phone company said it produced its second quarter of positive cash flow and reached an agreement to provide sufficient liquidity through 2006.
The Cincinnati-based company posted a $2.09 billion operating loss for the year and an annual loss from continuing operations of $11.18 share, compared to a $1.50 loss per share in 2001. Excluding special items, annual loss from operations was 46 cents per share.
Broadwing posted $2.16 billion in annual revenue, a 5 percent decrease compared to 2001, but EBITDA increased 11 percent from the previous year to $641 million.
The company also said it posted $30 million of positive cash flow in the fourth quarter, its second consecutive quarter of positive cash flow. Broadwing defines cash flow as cash used in operating, financing and investing activities, less changes in restricted cash in operating activities, the issuance and repayment of long-term debt, short-term borrowings and proceeds from the sale of discontinued operations.
Separately, Broadwing announced closing its agreement with Goldman Sachs & Co. to raise $350 million, which the telecommunications provider will primarily use to pay off debt. Broadwing said it was reducing its permanent credit facility by $220 million, but the interest rate on the bank facility would increase.
Broadwing, which operates incumbent phone company Cincinnati Bell, also reached an agreement with a majority of preferred stock and noteholders to participate in a common stock exchange.
“The amendment to our credit facility provides Broadwing with liquidity until 2006 and will enable us to significantly de-leverage the company over the next three years. The net effect of this recapitalization will reduce Broadwing’s minority interest and debt by approximately $500 million and have a modest negative impact on net income,” says Tom Schilling, chief financial officer of Broadwing.
Merrill Lynch analyst Adam Quinton said in a research note the moves would dilute interests of shareholders by 20 percent.
The agreement with shareholders is contingent on the company closing the $129 million sale of its broadband services network unit. For the fourth quarter, Broadwing recorded a $2.2 billion non-cash impairment charge at its subsidiary.
Last month Broadwing announced an agreement to sell Broadwing Communications Services Inc. to C III Communications LLC, a new company backed primarily by telecom equipment maker Corvis Corp.
Corvis disclosed in a filing with the Securities and Exchange Commission that it owns 96 percent of C III, The Washington Post reported Wednesday. Broadwing and Missouri-based communications investment company Cequel III, LLC also will retain a minority interest in the company.
Corvis is seeking additional investors in C III, which means its cash commitment and ownership interest in C III could decline, the Post reported, citing a spokesman. C III is acquiring a 18,700-route mile network and thousands of customers ranging from telecom carriers to corporations.
Broadwing expects the agreement to close in the second quarter.
