May, 2002 : Broadwing Confronts Rumors in Letter From CEO

📅 May 22, 2002 - Communications company and network provider Broadwing Inc. (Broadwing.com) sent a letter to its shareholders, customers and employees on Tuesday in an effort to dispel negative rumors about the company's financial position.

The letter, composed by Chairman and CEO Rick Ellenberger, said that "there has been much written about the financial position and future of Broadwing Inc., much of it misunderstood, misconstrued, and misleading," and promised to "set the record straight" about the company's financial position and ability to execute its business plan.
The letter first pointed out that Broadwing's credit facility and debt covenants are in good standing, as the company remains in compliance with all covenants. Broadwing, says Ellenberger, has reduced its bank debt by 15% since the beginning of 2002 to $2.12 billion. This makes the Broadwing ratio 3.27 as of the end of the first quarter, well within the requirement of 4.75. The company says it plans to refinance a portion of its debt, as a result of maturities in the credit facility, prior to or during 2003. Broadwing has reduced cash burn for continuing operations and lowered its rate of borrowing.
Ellenberger's letter also says that Broadwing has historically accounted for all IRUs in accordance with SEC methods, recognizing the revenue over the life of the agreement. The company says it has been consistent with its use of the deferral and amortization approach, and that the SEC guidance continues to reinforce this approach as appropriate.
The letter also discusses Broadwing's renegotiation of existing IRU agreements with PSInet in 2001. In order that they survive the latter company's bankruptcy, the agreements were adjusted to reduce the services provided, update operations and maintenance fees to current market rates and shorten the lives of the agreements. Broadwing says it has already disclosed the renegotiation of this agreement in each of its quarterly 10K filings since the second quarter of 2001, and that as a result of the negotiation, the preserved agreement continues to generate cash flow for Broadwing.
Ellenberger says that Broadwing has not traditionally responded to misunderstood reports, and does not necessarily plan to do so in the future. "However," says the letter, "the irrational state of the telecommunications market makes it imperative that we take this opportunity to set the record straight for our shareholders, customers, and employees."