PSINet reports loss of $3 billion

Internet firm has disastrous quarter, capping painful year

April 18, 2001|By Andrew Ratner | Andrew Ratner,SUN STAFF

PSINet Inc., the Internet company that paid to have its name on Baltimore's football stadium in brighter days, announced yesterday that its net loss for the fourth quarter of 2000 was $3.2 billion - as large as all the stadium-name deals for all professional sports in North America combined.

For those who gasped at the price PSINet paid for the stadium naming rights, $105.5 million for 20 years, beginning in 1999, that was chump change compared with the company's reported losses as it heads toward expected bankruptcy.

The company had a net loss of $5 billion for 2000, including $1.2 billion for losses on discontinued businesses. That compared with a loss of $433.9 million in 1999.

PSINet's basic and diluted loss per share was $28.92 for 2000, compared with $3.49 in 1999.

"I was surprised to see that their loss was so much larger than in the previous quarters," said analyst F. Drake Johnstone, who switched to a "sell" position on the company last fall for Davenport & Co. in Richmond, Va.

The loss indicates that PSINet had to match heavy discounting by Internet and telecommunications competitors such as Genuity Inc. and WorldCom Inc., Johnstone said.

The quarterly losses rivaled some of the largest in recent corporate history: IBM Corp. losses of $8.04 billion in the second quarter of 1993 and $5.46 billion in the fourth quarter of 1992; a $3.2 billion loss by Sony Corp. in the second quarter of 1995, one of the largest in Japanese corporate history at the time; and Citicorp's $2.6 billion loss in the second quarter of 1987.

If the size of PSINet's loss was startling to some, the direction of the troubled Ashburn, Va.-based company was not. PSINet was among the first companies to link businesses to the Internet in the early 1990s and became a global player - the first foreign telecom company to operate in Korea.

But it collapsed as its own investments and the technology sector as a whole took a nose-dive.

Last month, the company reported that bankruptcy was imminent, that its stock might become worthless and that it hired outside firms - Dresdner Kleinwort Wasserstein and Goldman, Sachs & Co. - to help plan a restructuring.

On April 3, the Nasdaq exchange halted trading on the company's stock at 19 cents - down from a high of almost $60 in March 2000. The company said yesterday that it could not say whether it could or would provide the information Nasdaq requested before it will reactivate the stock, meaning that stockholders who would consider selling at a depressed price can't.

Also, PSINet's auditor, PricewaterhouseCoopers LLP, reported it had concerns that the company would be able to continue.

"We are likely to seek protection under Chapter 11 of the federal bankruptcy code and are subject to the risk that creditors may seek to commence involuntary bankruptcy proceedings against us," the company said in its 10-K annual report filed with the U.S. Securities and Exchange Commission.

"Even if we do propose a plan and it is accepted, we are unable to predict at this time what treatment would be accorded under any such plan to inter-company indebtedness, licenses, transfer of goods and services on other inter-company and intra-company arrangements, transactions and relationships."

The company reported cash, cash equivalents, short-term investments and marketable securities totaling about $520 million as of April 10. It reported debt of $3.7 billion as of the end of December.

Revenue for the fourth quarter was $291 million, compared with $165 million for the same quarter in 1999. Annual revenue was $995.5 million in 2000, compared with $534.1 million in 1999.

The $3.2 billion loss for the fourth quarter included $2.1 billion for the impairment of certain long-lived assets and $465.1 million for expected losses on discontinued businesses, the company said.

The net loss from continuing operations for the quarter was $2.7 billion, compared with $682.5 million for the third quarter of 2000 and $134.8 million in the fourth quarter of 1999.

The company owes the Baltimore Ravens $79.1 million for the next 18 years to satisfy its $105.5 million marketing deal with the football team that included naming the downtown stadium after PSINet.

Ravens spokesman Kevin Byrne did not dispute the figure yesterday and said the team does not plan to sever its relationship with the company prematurely.

The fourth-quarter loss matches the total $3.2 billion of all the naming rights of 61 professional sports facilities in North America, according to the Bonham Group, a sports marketing firm based in Denver.

Sponsorship of the Baltimore stadium was one of the few bright spots in the company's annual report.

"As part of our marketing effort, PSINet sponsors several leading sports competitions and teams globally, including the Super Bowl-winning Baltimore Ravens (whose home stadium is named PSINet Stadium), the European Football World Cup Championships, the French Open, and Shell-sponsored Team Rahal on the CART auto-racing circuit," the company reported.

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