Third quarter 2001 Earnings Before Interest, Taxes, Depreciation and Amortization, excluding special items, was a loss of $153 million, a $43 million or 22 percent improvement from the previous quarter and an $18 million or 10 percent improvement from the third quarter of 2000, due to aggressive cost controls initiated within the company. Genuity’s third quarter 2001 pro forma loss per share from operations, assuming full conversion of Class B common stock, was $0.31.
In the current economic climate, we have continued on our path to profitability making significant progress in reducing our costs and realizing greater operational efficiency, said Paul R. Gudonis, Genuity chairman and CEO. In addition to the steps we’ve already taken, we will be consolidating several of our current business units and implementing other cost-cutting measures, including a workforce reduction. These changes are necessary for us to realize our financial commitments, including achieving positive gross margin in the fourth quarter. While making significant improvements to our cost profile, we continue to position Genuity to realize growth opportunities, such as our global expansion through the acquisition of Integra, new Genuity BLACK ROCKET platform developments, and broadband services.
As part of this company-wide restructuring and cost savings plan, Genuity will reduce its U.S.-based workforce by approximately 22 percent of its full-time employee population and slightly over 50 percent of its contractor positions, resulting in a reduction of approximately 24 percent of full-time-equivalent personnel. The majority of the reductions will occur in the fourth quarter with a small number taking place in the first quarter of next year. The organizational restructuring will streamline Genuity’s operations and help align the size of the workforce to the current economic and business environment, resulting in an annual labor expense reduction of $80 million. This coupled with the previously announced workforce and related reductions completed earlier in the year will result in annual labor expense reductions totaling approximately $150 million.
Consolidated revenue for the third quarter declined 2 percent over the prior year’s quarter. This decrease reflects the impact of industry-wide pricing trends, decisions to turn off non-creditworthy customers and customer churn, which offset the growth from new order activity.
Genuity’s total access revenues were essentially unchanged from last year’s third quarter, which reflected the impact of the AOL contractual price decline that became effective in September 2000. Excluding revenue from services provided to AOL, third quarter access revenues grew 10 percent, or $11 million. Broadband revenues contributed to the majority of this growth in the quarter, driven by an approximate 171 percent increase in revenue and 165 percent increase in subscribers over the last 12 months. Access revenue growth also benefited from a 15 percent increase in dedicated connectivity services.
Dial-up revenues, which include wholesale, enterprise and AOL services, decreased 21 percent or $34 million from the prior year, offsetting the growth in the broadband and dedicated connectivity services. These dial-up revenues reflect the contractual price decline with AOL and the company’s reduced focus on the wholesale dial business. Domestic revenues from AOL increased 7 percent from the prior quarter, the result of higher dial and DSL volumes. Total AOL revenues now represent 36 percent of total Genuity revenue, compared to 39 percent in last year’s third quarter.
Managed Web Hosting and Value-Added Services revenues declined 5 percent over the same quarter last year, due to customer churn, including for credit-related reasons, and site reengineering by customers to reduce costs in this overall slower economic environment.
International services revenues for the third quarter were $14 million, a decline of approximately 15 percent, or $2 million from the prior year, driven primarily by continued competitive price declines. Transport revenues declined 5 percent, or about $1 million, as compared with the same quarter last year.
The events of September 11, 2001 had a direct impact on Genuity, as three Genuity employees remain unaccounted for. In addition, a portion of our New York sales office was displaced due to their proximity to the World Trade Center. While the vast majority of Genuity customers did not face service interruptions as a result of the attacks, Genuity engineers immediately began rerouting traffic and restoring service to those customers that had their service disrupted. Aside from the broad economic impact, the direct revenue impact to Genuity was minimal. The net-book value of the assets lost in the attacks is approximately $400,000, and is expected to be covered by insurance.
