Bankrupt Global Crossing issues Q4 warning

Bankrupt international telecommunications service provider Global Crossing Holdings Ltd. yesterday warned investors that it will take billions of dollars in losses for the fourth quarter. The company also said it is delaying the release of its quarterly financial report and announced the resignation of yet another board member.

Global Crossing plans to write off at least $8 billion in tangible and intangible assets for the fourth quarter and the full year. It expects its net loss for both the fourth quarter and the full year to reflect the write-off of remaining goodwill from acquisitions and about $8 billion in other unspecified but identifiable intangible assets. It also plans an unspecified multibillion-dollar write-down of its tangible assets, with the exact figure still under consideration. Goodwill, which is an intangible asset, is the premium over the value of a company's assets that a purchasing company pays to reflect the anticipated benefit of the deal.

Global Crossing claimed $12.4 billion in assets in its January filing for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of New York (see story). It is also seeking bankruptcy protection from the Supreme Court of Bermuda, where the company is headquartered.

News of widening losses likely comes as little surprise to investors, who saw the value of their shares crater amid the dramatic collapse of the long-haul fiber-optic data transport market and allegations of accounting irregularities from a whistle-blowing former employee at Global Crossing.

The announcement probably also holds small consequence for common Global Crossing shareholders, since they stand to lose their entire investments in a proposed restructuring anyway. Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte. Ltd. have offered to invest a total of $750 million in Global Crossing in order to assume control of the company, but the plan is opposed by shareholders.

The company had planned to release fourth-quarter earnings information yesterday but postponed the release and the associated conference call to a date to be named when it files its annual report for 2001.

Global Crossing also announced that Mark Attanasio resigned as a member of the board "due to the requirements of his other professional responsibilities." The company said it is also actively recruiting outside directors.

Global Crossing reiterated that the accounting treatment of some of its capacity transactions is under investigation by an independent committee of its board of directors, the U.S. Securities and Exchange Commission and the U.S. attorney's office for the Central District of California.

The company stands accused by a former vice president of finance of making improper capacity swaps. The former executive said the company bought fiber-optic capacity from a customer to whom it also sold equivalent capacity in order to inflate its revenue while incurring no real cost.

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