Cash revenue is revenue, as determined by generally accepted accounting principles, adjusted for changes in the cash portion of deferred revenue.

Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization and stock-based compensation adjusted to reflect changes in deferred revenue and non-cash cost of sales) in the first quarter of 2001 rose sharply to $167 million, an increase of more than 450% over $30 million during the same period in 2000.

360networks believes cash revenue and adjusted EBITDA are the most appropriate metrics to measure the performance of emerging network service providers as they track a company’s success in obtaining sales contracts and delivering services to customers.

GAAP revenue reached $80 million in the first quarter of 2001, compared with $76 million in 2000.

EBITDA in the first quarter of 2001 was a loss of $27 million, compared with a gain of $17 million in the same period of 2000. The decrease is due primarily to higher operating costs and the addition of sales, product marketing and network services personnel as the company shifts its business from dark fiber construction and sales to network services.

Gross profit was $18 million (23% of GAAP revenue) for the three months ended March 31, 2001, compared with $29 million (38%) in 2000.

Selling, general and administrative expenses were $45 million in the first quarter of 2001, compared with $12 million in 2000. These expenses are not expected to increase in the next three quarters of this year.

Net loss for the three months ended March 31, 2001, was $106 million (14 cents per share) compared with a loss of $45 million (11 cents per share) during the same period in 2000.

360networks had a number of major achievements in the first quarter, said Greg Maffei, chief executive officer of 360networks. Both the number and size of the sales we made to customers for portable broadband capacity across our network confirm that our extensive footprint and advanced architecture is creating a valuable asset.

We also completed the installation of our transatlantic network and lit key segments of our North American, European and South American networks, Maffei added. In addition, we began delivering network services to leading companies such as Deutsche Telekom and Group Telecom.

Despite the downturn in the telecommunications sector and the overall economy, we booked $274 million of cash revenue in the first quarter and have more than $550 million of committed revenue in the next three quarters, said Vanessa Wittman, chief financial officer of 360networks. Although we are pleased with these results, we have recently completed an in-depth analysis of our capital expenditures, operating costs and revenue opportunities in order to focus spending and resources where we can achieve the greatest return in the near term. As a result, we have modified our business plan and are revising financial guidance for the year.

Revised 2001 financial guidance

360networks is reducing its planned capital expenditures in 2001 from $3.5$4 billion to $2.2-$2.4 billion. 360networks is also revising guidance for 2001 cash revenue from $2.4$2.6 billion to $1.2$1.4 billion. Consequently, the company is also revising adjusted EBITDA from $1.8-$1.9 billion to $750$800 million, GAAP revenue from $650-$750 million to $550-$600 million, and EBITDA from $110-$160 million to $20-$30 million.

As part of the reduction in capital expenditures, the company is investigating solutions to delay the development of a transpacific network. In addition, the current plan does not contemplate any further funding to the subsidiary purchasing fiber on C2C, a pan-Asian undersea network.

We remain committed to operating a global network and providing seamless, portable and scalable broadband services, said Jimmy Byrd, chief operating officer of 360networks. However, we are building first where we see the highest and earliest returns. In the meantime, we have purchased flexible, portable capacity on other Asian networks to achieve a global footprint and serve our customers quickly and cost-efficiently.

The development of this revised business plan is due in large part to the current weakness of the capital markets, which makes customers and vendors alike hesitant to make significant financial commitments. As economic conditions improve, we believe we will be able to reaccelerate the growth of our built global network, Byrd added.

Wittman continued: Under the revised business plan, 360networks will require additional working capital of approximately $300 million over the next four months. We are currently in discussion with existing shareholders to resolve this issue. That funding, if completed, would likely be in the form of additional senior debt. Based on the revised business plan and the incremental $300 million in funding, we would be funded through the point when our business is expected to be cash flow positive in 2002.