Global Crossing cuts another 1200

As expected, Global Crossing reported dismal third-quarter earnings today and announced 1200 new job cuts to shave $550 million off operating expenses next year. At the same time, new CEO John Legere emphasized a more aggressive move into the enterprise space designed to wean the company off a reliance on wholesale services to other carriers.

Global Crossing recorded a net loss, which includes one-time charges, of $3.4 billion, or $3.84 per share, compared to a net loss of $602.4 million, or 69¢ per share, in the year-ago period. The figures exclude results from the Global Marine and IPC Trading Systems businesses, which are up for sale and are accounted for as discontinued operations.

Global Crossing’s one-time charges included a non-cash charge of $2.1 billion for the write-down of the company’s holdings in bankrupt Web hosting firm Exodus. Global Crossing received those shares in connection with the sale of its GlobalCenter subsidiary to Exodus. Global Crossing also took a $545 million charge associated with the discontinuation of its Global Marine operations and a restructuring charge of $294 million, $116 million of which was non-cash.

Quarterly revenue rose to $793 million, compared to $778.1 million in 2000. That figures does not include sales of indefeasible rights of use (IRUs), which fell to $242 million. Global Crossing is trying to de-emphasize IRU revenues as bandwidth becomes commoditized and carrier spending on capacity slows.

Legere outlined a three-phase business plan designed to redirect carrier from the wholesale business and into the enterprise market. He plans to start by selling inter-city connectivity for traditional voice and data services and then upsell corporations to managed data and IP VPN services.

Legere admitted that the transition would take some time.

“We have very little brand recognition. We have very little credibility with [enterprise customers],” he said.

For the current quarter, Global Crossing projects $725 to $750 million in revenue, not including about $100 million in expected IRU sales, and a recurring adjusted EBITDA loss of $150 million to $175 million.

For 2002, Global Crossing expects revenue from continuing operations to grow 10% and for cash EBITDA to reach breakeven. IRU sales are projected to reach $1 billion for the year, higher than the current run rate, because carriers are using up inventoried capacity quickly, Legere said.

According to Frank Governali, wireline analyst at Goldman Sachs, Global Crossing’s guidance on IRU sales is aggressive.

“We have seen no indication of a pickup in the capacity market,” Governali said in a research report.

In the current quarter, Global Crossing expects to fall short of target financial ratios that are part of its bank agreements. Therefore, it is currently negotiating with lenders to alter covenants on $2.25 billion of a secured facility. Global Crossing said it plans to make all of its upcoming interest payments.

Global Crossing’s capital expenditures next year, including expenditures by Asia Global Crossing, will decline significantly to about $1.0 billion to $1.25 billion, down from the expected $4.2 billion total in 2001. Legere attributed the dramatic decline to the fact that Global Crossing’s core network is complete and that future spending would be demand-driven.

Negotiations to sell the company’s Global Marine and IPC Trading Systems divisions are continuing, Legere said. Announcement of a fourth-quarter sale of IPC is “imminent,” he said, and an agreement on the Global Marine group is expected by the first quarter of 2002. Combined, the two units generated $244 million of cash revenue in the third quarter.

“[Global Crossing’s] funding status will be dependent on the sale of its Global Marine and IPC assets,” Governali said. Governali estimates the company needs to collect about $400 million from the sales to ensure its liquidity.