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Global Reports $25-Billion Profit

One-time gains lift quarterly income, but revenue drops 6%. Analysts remain skeptical. Shares plunge.

March 11, 2004|From Reuters

Global Crossing Ltd. posted a fourth-quarter profit of about $25-billion Wednesday -- the largest in corporate history -- but the stock collapsed as not a penny of that came from its actual business.

The benefit came from gains realized as the high-speed communications carrier exited Chapter 11 bankruptcy protection, masking an operating loss from continuing operations.

The shares tumbled 38% in heavy trading on Nasdaq as analysts expressed concern about the company's cost structure and competitors' price cuts.

Although the profit outperformed the 2002 gross domestic products of Iceland, Jamaica and Mongolia combined, investors rushed for the exits on doubts that the company would be able to achieve a profit on its own or fund its operations to the point of profitability.

"I've been skeptical for a while and remain skeptical now," said Romeo Reyes, an analyst with Jefferies & Co., who said he doubted Global Crossing's business could become profitable.

The post-bankruptcy gains included about $16 billion to account for its new debt and equity structure and a one-time boost of about $8 billion that was tied to a write-down of liabilities that preceded its bankruptcy filing.

Gregory Miller, an analyst with Fulcrum Global Partners, questioned management's optimism about a turnaround in the cutthroat telecommunications market. "It's 2000 all over again," he quipped, referring to the bursting of the telecommunications bubble.

Global Crossing Chief Executive John J. Legere said the company was confident it could soon raise the $100 million in financing it was seeking, but he gave no time frame.

He said Singapore Technologies Telemedia, which holds a 61.5% stake in the firm and is controlled by the Singapore government, would provide the funds this year if Global Crossing was unable to raise the money on its own.

But Reyes said Singapore Technology's financing commitment was only oral and not written into any contract.

Shares of Bermuda-based Global Crossing closed down $10.99 at $17.82, the biggest percentage loss Wednesday on Nasdaq.

Global Crossing's profit -- $24.88 billion -- is nearly five times the size of the second-largest quarterly profit, Exxon's $5.2 billion. Quarterly revenue fell 6% to $719 million from $765 million a year earlier.

Gains in the company's revenue from carriers were offset by declines in commercial voice and data revenue and a drop in consumer revenue.

Earnings before interest, tax, depreciation and amortization were $13 million, compared with a loss of $62 million a year earlier. EBITDA is a measure of cash flow preferred by telecommunications companies.

"You have to wonder, if they weren't able to fix their cost structure in bankruptcy, what are they going to do outside bankruptcy to fix their cost structure?" said Shing Yin, a director of telecom research and consulting firm RHK Inc.

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