I assume this is the problem today:
San Francisco-Based Communications Company Restates Earnings
Nov. 21 (San Jose Mercury News/KRTBN)--NorthPoint Communications Group Inc. said Monday that its third-quarter results were actually worse than it reported in October, a change one analyst said could call into question its deal to merge its operations into Verizon Communications Inc.
San Francisco-based NorthPoint, which sells high-speed digital subscriber line Internet access to business customers and Internet service providers, said it learned after releasing its earnings report Oct. 26 that some of its ISP customers can't afford to pay their bills. NorthPoint decided not to recognize sales to those ISPs during the quarter, reducing revenue from the $30 million it initially reported to $24 million. Its net loss widened to $137 million, or $1.03 per share, from a previously reported loss of $125 million, or 94 cents a share.
Delinquent ISP customers account for 26,700 of NorthPoint's installed DSLs -- about one-third of its total 87,300 lines, NorthPoint said, adding that it's not installing any new lines for those customers.
The problems -- only the latest fallout from the financially weak ISP industry -- make it all the more important for NorthPoint to merge with the DSL operations of Verizon Communications, which has well-established systems for selling to consumers. As announced earlier this fall, Verizon would pay $800 million for a 55 percent stake in the merged operations, to be run by NorthPoint Chief Executive Officer Liz Fetter.
But at least one analyst said the change in results could trigger a clause in the contract between the companies stating that Verizon doesn't have to go forward if something happens to create a "material adverse effect" on NorthPoint's business.
"Verizon has to look at this as a material change and is now able to sit back and look at their options," said Merrill Lynch analyst Ken Hoexter. "It's still probably something that they want to do, but just on different terms," meaning that Verizon could wind up paying less or gaining a larger stake in the combined operations.
A spokesman for Verizon declined to comment, but Fetter said the merger is still scheduled to close in the first quarter of 2001.
Fetter said a clause in the contract protects NorthPoint from certain industry-wide issues, including the one with its ISP customers.
"Most people are assuming, `Oh, absolutely, for heavens sakes, this would be material.' But...we don't feel that's at all the case." NorthPoint officials told Verizon executives "weeks ago" about weakening ISPs, she said. "They've been consistent in their feedback -- the deal is on track."
Even if the merger doesn't go through, she said, Verizon would still contribute $200 million in debt financing for NorthPoint on Jan. 1, which combined with other financing would allow the company to continue operating through the end of next year.
NorthPoint named only FlashCom, a Huntington Beach-based company, among its ISP customers that are delinquent in paying their bills. It said it is trying to transfer lines serviced by the delinquent ISPs to better-funded, publicly traded Internet service providers. FlashCom did not return a call for comment.
Similar issues forced Santa Clara-based Covad Communications Group Inc. to restate its third-quarter earnings last week, causing the company's stock to fall 23 percent. On Monday, NorthPoint shares fell 72 cents to $3.41. Covad shares fell 41 cents to $3.31. |
