<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-24565
GLOBAL CROSSING LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 98-0189783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Wessex House
45 Reid Street
Hamilton HM12, Bermuda
(Address of principal executive offices)
(441) 296-8600
(Registrant's telephone number, including area code)
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares, $0.01 par value each, of the registrant's common stock
outstanding as of July 29, 1999: 434,765,858 shares, including 22,033,758
treasury shares.
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<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
For The Quarter Ended June 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations........................ 3
Condensed Consolidated Balance Sheets.................................. 5
Condensed Consolidated Statements of Cash Flows........................ 6
Condensed Consolidated Statements of Comprehensive Income.............. 8
Notes to Condensed Consolidated Financial Statements................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 20
Part II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 21
Item 2. Changes in Securities and Use of Proceeds........................ 21
Item 3. Defaults Upon Senior Securities.................................. 21
Item 4. Submission of Matters to A Vote of Security Holders.............. 21
Item 5. Other Information................................................ 21
Item 6. Exhibits and Reports on Form 8-K................................. 21
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues............................. $190,278 $ 101,256 $368,461 $ 101,256
-------- --------- -------- ---------
Expenses:
Cost of capacity sold.............. 80,905 41,200 150,292 41,200
Operations, administration and
maintenance....................... 14,008 2,470 25,869 2,470
General and administrative......... 22,089 6,508 44,503 8,850
Sales and marketing................ 13,498 6,529 23,256 7,313
Network development................ 4,848 4,314 9,753 4,314
Stock related expense.............. 9,358 22,760 26,074 23,398
Depreciation and amortization...... 3,989 443 4,200 473
Provision for doubtful accounts.... 1,819 1,012 3,683 1,012
Termination of advisory services
agreement......................... -- 139,669 -- 139,669
-------- --------- -------- ---------
150,514 224,905 287,630 228,699
-------- --------- -------- ---------
Operating Income (Loss).............. 39,764 (123,649) 80,831 (127,443)
Equity in Loss of Affiliates......... (2,806) -- (5,542) --
Other Income (Expense):
Interest income.................... 17,274 4,327 31,666 4,422
Interest expense................... (22,675) (7,403) (46,454) (7,426)
Other expense, net................. (7,683) -- (7,683) --
-------- --------- -------- ---------
Income (Loss) Before Provision for
Income Taxes, Cumulative Effect of
Change in Accounting Principle and
Extraordinary Item.................. 23,874 (126,725) 52,818 (130,447)
Provision for income taxes......... (13,896) (9,000) (30,038) (9,000)
-------- --------- -------- ---------
Income (Loss) Before Cumulative
Effect of Change In Accounting
Principle and Extraordinary Item.... 9,978 (135,725) 22,780 (139,447)
Cumulative effect of change in
accounting principle, net of
income tax benefit................ -- -- (14,710) --
-------- --------- -------- ---------
Income (Loss) Before Extraordinary
Item................................ 9,978 (135,725) 8,070 (139,447)
Extraordinary loss on retirement of
senior notes...................... -- (19,709) -- (19,709)
-------- --------- -------- ---------
Net Income (Loss).................... 9,978 (155,434) 8,070 (159,156)
Preferred stock dividends.......... (14,197) (3,899) (27,241) (8,306)
Redemption of preferred stock...... -- (34,140) -- (34,140)
-------- --------- -------- ---------
Net Loss Applicable to Common
Shareholders........................ $ (4,219) $(193,473) $(19,171) $(201,602)
======== ========= ======== =========
</TABLE>
3
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June Six Months Ended June
30, 30,
------------------------ ------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Loss Per Common Share:
Loss applicable to common
shareholders before
cumulative effect of
change in accounting
principle and
extraordinary item
Basic and Diluted...... $ (0.01) $ (0.52) $ (0.01) $ (0.55)
=========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and Diluted...... $ -- $ -- $ (0.04) $ --
=========== =========== =========== ===========
Extraordinary loss on
retirement of senior
Notes
Basic and Diluted...... $ -- $ (0.06) $ -- $ (0.06)
=========== =========== =========== ===========
Net loss applicable to
common shareholders
Basic and Diluted...... $ (0.01) $ (0.58) $ (0.05) $ (0.61)
=========== =========== =========== ===========
Shares used in computing
loss per share
Basic and Diluted...... 413,204,243 332,388,070 412,000,658 332,125,394
=========== =========== =========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
4
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 1999 and December 31, 1998
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and investments....................... $ 676,082 $ 806,593
Restricted cash and investments............ 45,260 77,190
Accounts receivable, net of allowance for
doubtful accounts of $7,916 as of June 30,
1999
and $4,233 as of December 31, 1998........ 132,652 71,195
Other assets and prepaid costs............. 51,475 21,637
---------- ----------
Total current assets....................... 905,469 976,615
Restricted cash and investments.............. 367,387 367,600
Accounts receivable.......................... 63,128 43,315
Capacity available for sale.................. 503,878 574,849
Property, plant and equipment, net........... 59,853 5,500
Construction in progress..................... 842,439 428,207
Investment in affiliates..................... 184,676 177,334
Other assets................................. 111,767 65,757
---------- ----------
Total assets............................... $3,038,597 $2,639,177
========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs................. $ 158,304 $ 129,081
Accounts payable and accrued liabilities... 59,560 31,990
Accrued interest and preferred dividends... 15,968 14,428
Deferred revenue........................... 35,322 44,197
Income taxes payable....................... 20,347 15,604
Current portion of long term debt.......... -- 6,393
Current portion of obligations under inland
services agreements and capital leases.... 12,581 14,572
---------- ----------
Total current liabilities.................. 302,082 256,265
Long term debt............................... 559,707 269,598
Senior notes................................. 796,682 796,495
Deferred revenue............................. 60,140 25,325
Obligations under inland services agreements
and capital leases.......................... 15,237 24,520
Deferred income taxes........................ 24,167 9,654
---------- ----------
Total liabilities.......................... 1,758,015 1,381,857
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK:
5,000,000 shares issued and outstanding, $100
liquidation preference per share (net of
unamortized issuance costs of $15,042 as of
June 30, 1999 and
$17,000 as of December 31, 1998)............ 484,958 483,000
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, 600,000,000 shares authorized,
par
value $.01, 436,167,061 and 432,776,246
shares
issued as of June 30, 1999 and December 31,
1998, respectively.......................... 4,361 4,328
Treasury stock, 22,033,758 shares............ (209,415) (209,415)
Other shareholders' equity................... 1,080,671 1,067,470
Accumulated deficit.......................... (79,993) (88,063)
---------- ----------
795,624 774,320
---------- ----------
Total liabilities and shareholders'
equity.................................... $3,038,597 $2,639,177
========== ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance
sheets.
5
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Net income (loss)...................................... $ 8,070 $(159,156)
Adjustments to reconcile net income (loss) to net cash
provided by
operating activities:
Cumulative effect of change in accounting principle.. 14,710 --
Equity in loss of affiliates......................... 5,542 --
Depreciation and amortization........................ 4,200 473
Termination of Advisory Services Agreement........... -- 135,000
Stock related expenses............................... 26,074 23,398
Extraordinary loss on retirement of senior notes..... -- 19,709
Deferred income taxes................................ 14,513 --
Provision for doubtful accounts...................... 3,683 1,012
Other adjustments.................................... (7,079) --
Changes in operating assets and liabilities............ (5,911) 16,985
--------- ---------
Net cash provided by operating activities.......... 63,802 37,421
--------- ---------
Cash Flows Used in Investing Activities:
Cash paid for construction in progress and capacity
available for sale.................................... (454,347) (191,072)
Investment in affiliates............................... (12,884) (6)
Purchases of property, plant and equipment............. (19,223) --
--------- ---------
Net cash used in investing activities.............. (486,454) (191,078)
--------- ---------
Cash Flows Provided by (used in) Financing Activities:
Proceeds from issuance of common stock, net............ 5,624 525
Proceeds from issuance of senior notes................. -- 796,233
Proceeds from long term debt........................... 409,083 204,723
Repayment of long term debt............................ (125,367) --
Retirement of 1997 issued senior notes................. -- (159,750)
Redemption of 1997 issued preferred stock.............. -- (134,372)
Preferred dividends.................................... (26,104) --
Financing costs........................................ (3,238) (31,773)
Cash reimbursement to certain shareholders............. -- (7,047)
(Increase) decrease in restricted cash and cash
equivalents........................................... 32,143 (212,210)
--------- ---------
Net cash provided by (used in) financing
activities........................................ 292,141 456,329
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents..... (130,511) 302,672
Cash and Cash Equivalents, beginning of period........... 806,593 1,453
--------- ---------
Cash and Cash Equivalents, end of period................. $ 676,082 $ 304,125
========= =========
</TABLE>
6
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Supplemental Information on Non-Cash Investing
Activities:
Costs incurred for construction in progress and
capacity available for sale........................... $(489,906) $(259,872)
Change in accrued construction costs................... 29,223 (30,315)
Change in accrued interest............................. -- 7,721
Amortization of deferred finance costs................. 7,089 2,981
Change in obligations under capital leases............. (753) 1,479
PCG Warrants........................................... -- 86,934
--------- ---------
Cash paid for construction in progress and capacity
available for sale.................................... $(454,347) $(191,072)
========= =========
Purchases of property, plant and equipment............. $ (38,300) $ --
========= =========
Supplemental Disclosure of Cash Flow Information:
Interest paid and capitalized.......................... $ 40,569 $ 18,060
========= =========
Interest paid (net of capitalized interest)............ $ 14,832 $ 23
========= =========
Cash paid for taxes.................................... $ 9,381 $ --
========= =========
Changes in operating assets and liabilities:
Accounts receivable.................................. $ (84,953) $ (44,723)
Capacity available for sale.......................... 131,934 (1,256)
Other assets and prepaid costs....................... (63,865) (27,454)
Deferred revenue..................................... (12,360) 44,339
Accounts payable and accrued liabilities............. 29,110 6,862
Income taxes payable................................. 4,743 9,000
Obligations under inland services agreements......... (10,520) 30,217
--------- ---------
$ (5,911) $ 16,985
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
7
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended Six Months Ended
------------------ ------------------
1999 1998 1999 1998
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Net Income (Loss)...................... $ 9,978 $(155,434) $ 8,070 $(159,156)
Foreign Currency Translation Loss...... (4,294) -- (9,224) --
------- --------- ------- ---------
Comprehensive Income (Loss)............ $ 5,684 $(155,434) $(1,154) $(159,156)
======= ========= ======= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
8
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(Unaudited)
(1) ORGANIZATION AND BACKGROUND
Global Crossing Ltd. (together with its consolidated subsidiaries, the
Company) is an independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and
terrestrial digital fiber optic cable systems (the Global Crossing Network).
The Company operates as a "carriers' carrier", providing tiered pricing and
segmented products to licensed providers of international telecommunications
services. Capacity on the Global Crossing Network is offered to all customers
on an open, equal access basis. The systems completed or under development by
the Company will form a state-of-the-art interconnected worldwide high capacity
fiber optic network including: Atlantic Crossing-1 (AC-1) and Atlantic
Crossing-2 (AC-2), undersea systems connecting the United States and Europe;
Pacific Crossing (PC-1), an undersea system connecting the United States and
Asia; Mid Atlantic Crossing (MAC), an undersea system connecting the eastern
United States and the Caribbean; Pan American Crossing (PAC), an undersea
system connecting the western United States, Mexico, Panama, Venezuela and the
Caribbean; South American Crossing (SAC), an undersea and terrestrial system
connecting the major cities of South America to MAC, PAC and the rest of the
Global Crossing Network; Pan European Crossing (PEC), a terrestrial system
connecting 24 European cities to AC-1; and a terrestrial system (GAL) to be
operated by Global Access Ltd., connecting certain cities in Japan to PC-1. The
undersea component of this initial portion of the Global Crossing Network
totals 74,700 km and the terrestrial component adds 17,800 km for a total of
92,500 km. The Company is in the process of developing several new undersea and
terrestrial cable systems and evaluating other business development
opportunities which will complement the Global Crossing Network.
(2) BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements as of June 30, 1999 and for the three and six months ended June 30,
1999 and 1998, include the accounts of Global Crossing Ltd. and its
subsidiaries. All material inter-company balances and transactions have been
eliminated. The unaudited interim condensed consolidated financial statements
reflect all adjustments, consisting of normal recurring items, which are, in
the opinion of management, necessary to present a fair statement of the results
of the interim period presented. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do not
include all footnotes and certain financial presentation normally required
under generally accepted accounting principles. Therefore, these financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K, for the
fiscal year ended December 31, 1998.
(3) NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement
No. 66" (FIN 43) which is effective July 1, 1999. Under
9
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
FIN 43 fiber optic cable system sales are required to be accounted for under
SFAS 66. Management does not expect the adoption of FIN 43 to have a material
impact on the Company's financial position or results of operations.
The FASB has recently issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133 (SFAS 133)" (SFAS 137) which
amended SFAS 133 to be effective for periods beginning after June 15, 2000.
Management does not expect the adoption of SFAS 133 to have a material impact
on the Company's financial position or results of operations.
(4) NET LOSS APPLICABLE TO COMMON SHAREHOLDERS
Basic Earnings Per Share (EPS) is computed by dividing net loss available to
common shareholders by the weighted average number of common shares outstanding
for the period. The weighted average number of common shares outstanding
totaled 413,204,243 and 332,388,070 for the three months ended June 30, 1999
and 1998, respectively. The weighted average number of common shares
outstanding totaled 412,000,658 and 332,125,394 for the six months ended June
30, 1999 and 1998, respectively. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted. The dilutive effect of the assumed exercise of stock
options and convertible securities were anti-dilutive for the three and six
months ended June 30, 1999 and 1998, respectively.
(5) SHAREHOLDERS' EQUITY
Stock Option Plan. During the three months ended June 30, 1999, the Company
granted stock options for an aggregate of 1,457,500 shares of common stock
under the Company's 1998 Stock Incentive Plan. On June 30, 1999, stock options
covering 34,115,830 shares of common stock were outstanding. Details of the
Company's 1998 Stock Incentive Plan are included in the Company's Annual Report
on Form 10-K, for the fiscal year ended December 31, 1998.
The Company recognized $9 million and $23 million of stock compensation
expense during the three months ended June 30, 1999 and 1998, respectively,
relating to options issued under its Stock Incentive Plan, plus certain stock
related expense related to stock options awarded to consultants, accounted for
under SFAS No. 123. The Company records the excess of the fair market value of
the rights over the purchase price as unearned stock compensation. The unearned
stock compensation is being recognized as an expense over the vesting period of
the rights.
During November 1998, Global Crossing's indirect subsidiary, GC Pacific
Landing Corp., entered into an agreement and plan of merger with Neptune
Communications, L.L.C. and its wholly owned subsidiary, Neptune Communications
Corp. ("NCC"), whereby, in April 1999, GC Pacific Landing merged with and into
NCC in exchange for 2,239,642 shares of Global Crossing common stock (of which
223,965 shares remain to be issued pending transfer of licenses).
(6) SEGMENT INFORMATION
The Company is a provider of Internet and long distance telecommunications
facilities and related services supplying its customers with global "point-to-
point" connectivity. As such, the Company is engaged in only one business
segment worldwide and derives its revenues from customers located in the
following geographic regions: the Americas, Europe and Asia Pacific. The
Company also maintains long-lived assets in these regions; however, the
majority of these assets are in international waters. In addition, the Company
derives all of its revenues from companies in the Internet and long distance
telecommunications industry and, as a result, has concentration of credit risk
in this industry.
(7) CONCENTRATION OF RISKS
During the three months ended June 30, 1999, there were four customers that
accounted for 18%, 16%, 13% and 11% of total revenues, respectively.
10
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
As of June 30, 1999, the Company had one customer representing 15% of
outstanding receivables.
(8) RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation.
(9) SIGNIFICANT EVENTS
Termination of the U S WEST Merger Agreement
On May 16, 1999, the Company entered into a definitive agreement to merge
with U S WEST, Inc., a Delaware corporation (U S WEST). The new company would
have been 50% owned by Global Crossing/ Frontier shareholders and 50% owned by
U S WEST shareholders. As part of the transaction U S WEST made a cash tender
offer for approximately 9.49% of Global Crossing common stock. The tender offer
was completed, with U S WEST acquiring 39,259,305 shares, on June 21, 1999. On
July 18, 1999, Global Crossing and U S WEST agreed to terminate their merger
agreement, and U S WEST agreed to merge with Qwest Communications International
Inc. (Qwest). As a result, U S WEST paid Global Crossing a termination fee of
$140 million in cash and returned 2,231,076 shares of Global Crossing common
stock purchased in the tender offer, and Qwest committed to purchase capacity
on the Global Crossing Network at established market unit prices for delivery
over the next four years and committed to make purchase price payments to
Global Crossing for this capacity of $140 million over the next two years. The
Company will record in the third quarter of 1999 the receipt of the termination
fee and Global Crossing common stock, net of expenses in the statement of
operations as other income, net.
Republic of Ireland Agreement
On July 5, 1999, Global Crossing announced an agreement with the government
of the Republic of Ireland to build and maintain an undersea fiber optic cable
system that will link two telehouses in Dublin, via two diverse fiber cables,
to cities in Europe and North America through the Global Crossing Network. The
Irish government will be the system's anchor customer under an $80 million
capacity purchase agreement. This agreement will add an additional city to PEC.
Global Marine Acquisition
On July 2, 1999, the Company acquired the Global Marine business of Cable &
Wireless plc for approximately $868 million. Global Marine currently provides
services, including maintenance under a number of long-term contracts, to
cables built by more than 100 carriers and is the world's largest undersea
cable installation and maintenance company with a fleet of 13 cable ships,
representing approximately 33 percent of the world's total, 21 submersible
vehicles and 1,200 employees servicing approximately 35 percent of the world's
undersea cable miles. Global Crossing initially financed the acquisition with
committed bank financing in the amount of $600 million and the remainder with
cash on hand. The acquisition will be accounted for using the purchase method
of accounting.
Senior Secured Credit Facility
On July 2, 1999, Global Crossing Holdings Ltd. (GCH), the direct wholly owned
subsidiary of Global Crossing Ltd., entered into a $3 billion Senior Secured
Credit Facility. The Senior Secured Credit Facility is comprised of a $1
billion 5-year Revolving Credit Facility with an initial interest rate of LIBOR
plus 2.25%, a $1 billion 5-year Multi-Draw Term Loan A with an initial interest
rate of LIBOR plus 2.25% and a $1 billion 8-year Term Loan B with an initial
interest rate of LIBOR plus 2.75%. The initial commitment fee on undrawn funds
is 0.75%. The purpose of the Senior Secured Credit Facility is to finance or
refinance construction of
11
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS--(Continued)
certain Global Crossing cable systems previously anticipated to be financed on
a per-system basis, to partially finance the Global Marine acquisition, to fund
future growth of Global Crossing and for general corporate purposes. In
connection with the transaction, the Senior Secured Credit Facility became
structurally senior to the Senior Notes for a consent fee of approximately $32
million, paid directly to the Senior Note holders.
On July 7, 1999, GCH borrowed approximately $1.5 billion under the Senior
Secured Credit Facility ($1 billion under the 8-year Term Loan B and $500
million under the 5-year Multi-Draw Term Loan A), sufficient to retire the
outstanding obligations under the AC-1 Credit Facility, the MAC Credit Facility
and the financing provided under the Lucent Agreement relating to the PEC and
SAC systems, to refinance the debt incurred in connection with the Global
Marine acquisition as well as to provide for current working capital
requirements. As a result of the Senior Secured Credit Facility, the Company
has classified all refinanced debt in the condensed consolidated balance sheet
as of June 30, 1999 as long term debt.
12
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations for the Three Months Ended June 30, 1999 and June 30,
1998
Revenues. The Company's revenues on sales of capacity relating to AC-1
increased $82 million (81 percent) to $183 million during the three months
ended June 30, 1999 from $101 million during the three months ended June 30,
1998. During the three months ended June 30, 1999 and 1998, operation and
maintenance services revenue was $7 million and none, respectively.
Cost of capacity sold. For the three months ended June 30, 1999 and 1998, the
Company recognized $81 million and $41 million, respectively, in cost of
capacity sold, resulting in a gross margin on capacity sales of 56% and 59%,
respectively. Non-cash cost of undersea capacity sold was $61 million and $32
million during the three months ended June 30, 1999 and 1998, respectively.
Cost of capacity sold also includes the cost of terrestrial capacity sold, a
cash expense, during the three months ended June 30, 1999 and 1998, of $20
million and $9 million, respectively. During the three months ended June 30,
1999, the Company calculated costs of undersea capacity sold for AC-1 based on
the ratio of the period's actual revenue to total expected future revenues
given a minimum projected sales capacity of 1024 circuits times the
construction cost of the system. This calculation of cost of sales matches
costs with the relative value of each sale. During the three months ended June
30, 1998, the Company calculated costs of undersea capacity sold for AC-1 based
upon a minimum projected sales capacity of 512 circuits.
Service Contracts. Since the AC-1 system became operational, the Company has
offered its capacity pursuant to sales agreements that qualify for sales type
lease accounting. Under this method, revenues and cost of capacity sold are
recognized in the period the rights and obligations of ownership transfer to
the purchaser and the cost of the AC-1 system has been recorded as Capacity
Available for Sale. (See notes to consolidated financial statements included in
the Company's Annual Report on Form 10-K, for the fiscal year ended December
31, 1998.)
As the Company continues to build and expand its global subsea and
terrestrial network, it expects that it will begin to offer to its customers
capacity services that will not qualify as sales-type leases as discussed
above. Capacity made available under such contracts (Service Contracts) may be
offered on AC-1 (or other subsea systems as they become operational) or as
point to point capacity connecting cities in the Company's global network, once
terrestrial capacity in the U.S. (i.e., upon completion of the Frontier
merger), Europe and Japan become available.
Upon the commencement of offering Service Contracts, which the Company
believes will occur prior to the end of 1999, the carrying value of the AC-1
system (and the other sub-sea systems as they become operational) will be
depreciated over their remaining economic useful lives and revenues related to
these Service Contracts will be recognized as the services are rendered over
the terms of the contracts. For capacity sales contracts that meet the
requirements of sales-type-lease accounting, revenues will be recognized as
described above and cost of capacity sold will be based upon the net book value
of the remaining committed to capacity. If the Company had offered Service
Contracts beginning on January 1, 1999, it would have incurred additional
depreciation expense, offset by reduced cost of capacity sold on sales type
leases recorded. During the six months ended June 30, 1999, the impact on
results of operations would not have been significant.
Operations, administration and maintenance (OA&M). The Company incurred OA&M
costs on AC-1 of $14 million and $2 million during the three months ended June
30, 1999 and 1998, respectively. The Company has entered into an agreement with
Tyco Submarine Systems Limited (TSSL) relating to operations, administration
and maintenance of AC-1 which limits the Company's total OA&M expense for the
system. The Company anticipates that its OA&M costs associated with AC-1 will
be largely recovered through charges to its customers under the terms of
Capacity Purchase Agreements (CPAs). OA&M costs associated with systems under
construction are expensed as incurred.
13
<PAGE>
General and administrative. General and administrative expenses totaled $22
million and $7 million during the three months ended June 30, 1999 and 1998,
respectively, and was comprised principally of salaries, employee benefits and
recruiting fees reflecting the Company's staffing for multiple systems, travel,
professional fees, insurance costs and occupancy costs.
Network development. The Company incurred network development costs during
the three months ended June 30, 1999 and 1998 of $5 million and $4 million,
respectively. These amounts are comprised principally of salaries and
professional fees.
Sales and marketing. During the three months ended June 30, 1999, the Company
incurred sales and marketing expenses of $13 million, including commissions to
TSSL of $7 million incurred on revenues recognized during this period. During
the three months ended June 30, 1998, the Company incurred sales and marketing
costs of $7 million, including commissions to TSSL of $3 million incurred on
revenues recognized during this period. The increase from 1998 was due to
additions in headcount, occupancy costs, plus marketing costs, commissions paid
and other promotional expenses to support the Company's rapid growth.
Stock related expense. The Company recognized $9 million and $23 million of
stock compensation expense during the three months ended June 30, 1999 and
1998, respectively, relating to options issued under its Stock Incentive Plan,
plus certain stock related expense related to stock options awarded to
consultants, accounted for under SFAS No. 123.
Depreciation and amortization. For the three months ended June 30, 1999 and
1998, the Company incurred depreciation and amortization of $4 million and $0.4
million, respectively.
Provision for doubtful accounts. For the three months ended June 30, 1999 and
1998, the Company recorded a provision for doubtful accounts of $2 million and
$1 million, respectively.
Termination of advisory services agreement. In connection with the
development and construction of AC-1, the Company entered into an advisory
services agreement with PCG Telecom Services LLC, an affiliate, providing for
the payment by the Company of an advisory fee of 2% of the gross revenues of
ACL over a 25 year term. The Company's Board of Directors also approved similar
advisory fees and authorized the Company to enter into similar agreements with
respect to other cable systems under development by the Company. In June 1998,
the Company acquired the rights of the persons entitled to the fees payable
under these agreements in consideration for the issuance to those persons of
shares of the Company's common stock, which had an aggregate value of $135
million, and the cancellation of approximately $3 million owed the Company
under a related advance agreement. In addition, the Company recognized
approximately $2 million of advisory fees incurred prior to termination of the
contract.
Equity in loss of affiliates. In April 1998, the Company entered into a joint
venture to construct an undersea cable system, PC-1. PC-1 is owned and operated
by Pacific Crossing Ltd. (PCL). The Company has an economic interest in PCL
represented by a 50% direct voting interest and, through one of the joint
venture partners, owns a further 8% economic non-voting interest. In December
1998, a wholly-owned subsidiary of the Company entered into a joint venture to
construct and operate GAL. The $3 million loss is comprised of a loss of $1
million representing the Company's 58% equity in the loss of PCL and a loss of
$2 million representing the Company's 49% equity in Global Access Ltd. for the
three months ended June 30, 1999.
Interest income. The Company earned interest income of $17 million and $4
million in the three months ended June 30, 1999 and 1998, respectively. Such
interest income represents earnings on cash raised from financings and on CPA
deposits.
Interest expense. During the three months ended June 30, 1999, the Company
incurred $32 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $9 million, and expensed $23 million.
During the three months ended June 30, 1998, the Company incurred $21 million
in interest costs, including the amortization of
14
<PAGE>
finance costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $14 million, and expensed $7 million.
Other expense, net. During the three months ended June 30, 1999, other
expense, net was comprised primarily of a $10 million loss on a foreign
currency forward contract in connection with the Global Marine acquisition and
$2 million in professional fees associated with the senior notes consent
solicitation, offset partially by a $4 million gain on sale of securities
available for sale.
Provision for income taxes. The income tax provision of $14 million and $9
million for the three months ended June 30, 1999 and 1998, respectively,
provides for taxes on profits earned from capacity sales and OA&M revenues
where subsidiaries of the Company have a presence in taxable jurisdictions.
Extraordinary loss on retirement of senior notes. During May 1998, the
Company recognized an extraordinary loss of $20 million in connection with the
repurchase of Global Telesystems Holdings' outstanding senior notes, comprising
of a premium of $10 million and a write-off of $10 million of unamortized
deferred financing costs.
Net income (loss). During the three months ended June 30, 1999, the Company
reported net income of $10 million compared to a net loss of $155 million in
the three months ended June 30, 1998.
Preferred stock dividends. Preferred stock dividends for the three months
ended June 30, 1999 and 1998 were $14 million and $4 million, respectively.
Redemption of preferred stock. The redemption of Global Telesystems Holdings'
outstanding preferred stock occurred in June 1998 and resulted in a $34 million
charge against equity. This amount was comprised of a $16 million redemption
premium and a write-off of $18 million of unamortized discount and issuance
costs. The redemption premium and write-off of unamortized discount and
issuance costs are treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statements of operations.
Net loss applicable to common shareholders. During the three months ended
June 30, 1999, the Company reported a net loss applicable to common
shareholders of $4 million, resulting in large part from $14 million of
dividends on preferred stock. During the three months ended June 30, 1998, the
Company reported a net loss applicable to common shareholders of $193 million,
resulting in a large part from $140 million in costs associated with the
termination of the advisory service agreement, $34 million redemption of
preferred stock, $20 million extraordinary loss on retirement of senior notes
and $4 million of preferred stock dividends.
Results of Operations for the Six Months Ended June 30, 1999 and June 30, 1998
Revenues. The Company's revenues on sales of capacity relating to AC-1
increased to $356 million during the six months ended June 30, 1999 from $101
million during the six months ended June 30, 1998. During the six months ended
June 30, 1999 and 1998, operation and maintenance services revenue was $12
million and none, respectively. The increase is primarily due to no sales or
related costs recognized in the three months ended March 31, 1998, as the
Company was in its development stage.
Cost of capacity sold. For the six months ended June 30, 1999 and 1998, the
Company recognized $150 million and $41 million, respectively, in cost of
capacity sold, resulting in a gross margin on capacity sales of 59%,
respectively. Non-cash cost of undersea capacity sold was $114 million and $32
million during the six months ended June 30, 1999 and 1998, respectively. Cost
of capacity sold also includes the cost of terrestrial capacity sold, a cash
expense, during the six months ended June 30, 1999 and 1998, of $36 million and
$9 million, respectively.
Operations, administration and maintenance (OA&M). The Company incurred OA&M
costs on AC-1 of $26 million and $2 million during the six months ended June
30, 1999 and 1998, respectively. The Company
15
<PAGE>
has entered into an agreement with TSSL relating to operations, administration
and maintenance of AC-1 which limits the Company's total OA&M expense for the
system. The Company anticipates that its recurring OA&M costs will be largely
recovered through charges to its customers under the terms of CPAs.
General and administrative. General and administrative expenses totaled $45
million during the six months ended June 30, 1999 and were comprised
principally of salaries, employee benefits and recruiting fees reflecting the
Company's staffing for multiple systems, travel, professional fees, insurance
costs and occupancy costs. During the six months ended June 30, 1998, the
Company incurred general and administrative expenses of $9 million.
Sales and marketing. During the six months ended June 30, 1999, the Company
incurred sales and marketing expenses of $23 million, including commissions to
TSSL of $15 million incurred on revenues recognized during this period. During
the six months ended June 30, 1998, the Company incurred sales and marketing
costs of $7 million, including commissions to TSSL of $3 million incurred on
revenues recognized during this period. The increase from 1998 was due to
additions in headcount, occupancy costs, plus marketing costs, commissions paid
and other promotional expenses to support the Company's rapid growth.
Network development. The Company incurred network development costs during
the six months ended June 30, 1999 and 1998 of $10 million and $4 million,
respectively. These amounts are comprised principally of salaries and
professional fees.
Stock related expense. The Company recognized $26 million and $23 million of
stock compensation expense during the six months ended June 30, 1999 and 1998,
respectively, relating to options issued under its Stock Incentive Plan, plus
certain stock related expense related to stock options awarded to consultants,
accounted for under SFAS No. 123.
Depreciation and amortization. For the six months ended June 30, 1999 and
1998, the Company incurred depreciation and amortization of $4 million and $0.4
million, respectively.
Provision for doubtful accounts. For the six months ended June 30, 1999 and
1998, the Company recorded a provision for doubtful accounts of $4 million and
$1 million, respectively.
Termination of advisory services agreement. In connection with the
development and construction of AC-1, the Company entered into an advisory
services agreement with PCG Telecom Services LLC, an affiliate, providing for
the payment by the Company of an advisory fee of 2% of the gross revenues of
ACL over a 25 year term. The Company's Board of Directors also approved similar
advisory fees and authorized the Company to enter into similar agreements with
respect to other cable systems under development by the Company. In June 1998,
the Company acquired the rights of the persons entitled to the fees payable
under these agreements in consideration for the issuance to those persons of
shares of the Company's common stock, which had an aggregate value of $135
million, and the cancellation of approximately $3 million owed the Company
under a related advance agreement. In addition, the Company recognized
approximately $2 million of advisory fees incurred prior to termination of the
contract.
Equity in loss of affiliates. In April 1998, the Company entered into a joint
venture to construct an undersea cable system, PC-1. PC-1 is owned and operated
by PCL. The Company has an economic interest in PCL represented by a 50% direct
voting interest and, through one of the joint venture partners, owns a further
8% economic non-voting interest. In December 1998, a wholly-owned subsidiary of
the Company entered into a joint venture to construct and operate GAL. The $6
million loss is comprised of a loss of $2 million representing the Company's
58% equity in the loss of PCL and a loss of $4 million representing the
Company's 49% equity in Global Access Ltd. for the six months ended June 30,
1999.
Interest income. The Company earned interest income of $32 million and $4
million in the six months ended June 30, 1999 and 1998, respectively. This
interest income represents earnings on cash raised from financings and on CPA
deposits.
16
<PAGE>
Interest expense. During the six months ended June 30, 1999, the Company
incurred $61 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $15 million, and expensed $46 million.
During the six months ended June 30, 1998, the Company incurred $32 million in
interest costs, including the amortization of finance costs and debt discount.
Of this amount, the Company capitalized to construction in progress interest of
$25 million, and expensed $7 million.
Other expense, net. During the six months ended June 30, 1999, other expense,
net was comprised primarily of a $10 million loss on a foreign currency forward
contract in connection with the Global Marine acquisition and $2 million in
professional fees associated with the senior notes consent solicitation, offset
partially by a $4 million gain on sale of securities available for sale.
Provision for income taxes. The income tax provision of $30 million and $9
million for the six months ended June 30, 1999 and 1998, respectively, provides
for taxes on profits earned from capacity sales and OA&M revenues where
subsidiaries of the Company have a presence in taxable jurisdictions.
Cumulative effect of change in accounting principle. The Company adopted
Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of Start-Up
Activities," issued by the American Institute of Certified Public Accountants,
during the three months ended March 31, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. The Company incurred a one-time charge during the three months
ended March 31, 1999 of $15 million (net of tax benefit) that represents start-
up costs incurred and capitalized during previous periods.
Extraordinary loss on retirement of senior notes. During May 1998, the
Company recognized an extraordinary loss of $20 million in connection with the
repurchase of Global Telesystems Holdings' outstanding senior notes, comprising
of a premium of $10 million and a write-off of $10 million of unamortized
deferred financing costs.
Net income (loss). During the six months ended June 30, 1999 the Company
reported net income of $8 million compared to a net loss of $159 million in the
six months ended June 30, 1998.
Preferred stock dividends. Preferred stock dividends for the six months ended
June 30, 1999 and 1998, were $27 million and $8 million, respectively.
Redemption of preferred stock. The redemption of Global Telesystems Holdings'
outstanding preferred stock occurred in June 1998 and resulted in a $34 million
charge against equity. This amount was comprised of a $16 million redemption
premium and a write-off of $18 million of unamortized discount and issuance
costs. The redemption premium and write-off of unamortized discount and
issuance costs are treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statements of operations.
Net loss applicable to common shareholders. During the six months ended June
30, 1999, the Company reported a net loss applicable to common shareholders of
$19 million, resulting in large part from $27 million of dividends on preferred
stock and $15 million resulting from a cumulative effect of change in
accounting principle. During the six months ended June 30, 1998, the Company
reported a net loss applicable to common shareholders of $202 million,
resulting in a large part from $140 million in costs associated with the
termination of the advisory service agreement and $42 million of dividends on
preferred stock.
Liquidity and Capital Resources
Restricted cash and investments. At June 30, 1999, restricted cash and
investments includes: $231 million for PC-1 construction, $61 million for PEC
construction, $10 million for MAC construction and $110 million received
pursuant to CPAs restricted under the terms of the AC-1 credit facility. In
connection with the Senior Secured Credit Facility, all restrictions under
refinanced debt on cash and investments have been removed.
17
<PAGE>
On July 2, 1999, Global Crossing entered into a $3 billion senior secured
corporate credit facility with a group of several lenders and The Chase
Manhattan Bank as administrative agent. The initial proceeds under the facility
were used to refinance outstanding balances under the AC-1 and MAC project
finance facilities, to refinance balances under a vendor financing arrangement
with Lucent, to refinance debt used for the purchase of the Global Marine
business from Cable & Wireless and for general corporate purposes. Global
Crossing intends to finance the remainder of its announced systems, new
projects and working capital needs mainly through the new corporate facility
and other corporate financing.
As of June 30, 1999, the approximately $750 million initial cost of AC-1 had
been fully financed. The first contracted upgrade was funded through cash on
hand, as will the second contracted upgrade. All remaining amounts outstanding
under the AC-1 non-recourse project finance credit facility were refinanced in
July 1999 through Global Crossing's new senior secured corporate credit
facility.
Global Crossing estimates the total cost of developing and deploying AC-2,
PC-1, MAC, PAC, SAC, PEC and GAL to be approximately $5,095 million, excluding
costs of potential future upgrades and the amounts capitalized with respect to
warrants issued in exchange for the rights to construct PC-1, MAC and PAC. This
total is comprised of $750 million for AC-2, $1,200 million for PC-1, $295
million for MAC, $580 million for PAC, $1,130 million for SAC, $950 million for
PEC and $190 million for GAL. PC-1 will be financed by total equity investments
of $400 million of which Global Crossing expects to provide approximately $231
million, with the remaining $800 million of estimated costs to be financed
through non-recourse project indebtedness at the PC-1 level. Global Crossing
has financed its 49% interest in GAL through cash on hand to date, and intends
to finance additional system costs through limited or non-recourse debt to be
raised at the GAL level. The remaining system costs for MAC and PAC will be
financed either through bank indebtedness under Global Crossing's new senior
secured corporate credit facility or through other corporate financing.
The construction costs for PEC (including costs of acquiring dark fiber) are
estimated to be $950 million, a portion of which was paid from the proceeds of
the December 1998 issuance by Global Crossing Holdings of 10 1/2% Senior
Exchangeable Preferred Stock (the "GCH Preferred Stock"). Global Crossing also
raised capital required to finance this system through a combination of
commercial bank borrowings, vendor financing and sales of dark fiber. Financing
to complete the system is expected to be obtained from the corporate credit
facility or other corporate financing.
Global Crossing initially financed the approximately $868 million Global
Marine acquisition, which was completed in July 1999, with approximately $600
million in committed bank financing and the remainder with cash on hand. This
initial indebtedness was refinanced through borrowings under Global Crossing's
new senior secured corporate credit facility.
The Company has extended financing to customers in connection with certain
CPAs. The financing terms provide for installment payments of up to four years.
The Company believes that its extension of financing to its customers will not
have a material effect on the Company's liquidity.
Cash provided by operating activities was $64 million for the six months
ended June 30, 1999 and $37 million for the six months ended June 30, 1998, and
principally represents cash received from deposits and payments for activated
capacity pursuant to signed CPAs, plus interest income received, less sales and
marketing, network development and general and administrative expenses paid.
18
<PAGE>
Cash used in investing activities was $486 million and $191 million for the
six months ended June 30, 1999 and 1998, respectively and represents cash paid
for construction in progress, purchases of property, plant and equipment and
cash investments in affiliates.
Cash provided by financing activities was $292 million for the six months
ended June 30, 1999 and primarily represents borrowings under the Lucent
facility, partially offset by repayments of borrowings under long term debt.
Cash provided by financing activities was $456 million for the six months ended
June 30, 1998 and primarily relates to proceeds from the issuance of senior
notes and borrowings under long term debt, less the increase in the restricted
cash and cash equivalents, retirement of old senior notes and redemption of
preference shares.
Inflation
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
Year 2000 Compliance
The Company believes that its computer information systems are Year 2000
(Y2K) compliant. The Company has established a Y2K compliance task force. The
task force has identified no potential material adverse effect on the two core
components of the Company's services: (1) transmission of capacity and (2)
management and maintenance of the transmission paths. The Company's anticipated
worst case scenario is failure of the Network Operations Center. In the event
the worst case scenario occurs management of the network can be performed at
the terminal stations with the network element managers or at the equipment
bays with the craft interface terminal, in each case at minimal additional
cost.
The Company is also subject to external forces that generally affect industry
and commerce, such as utility, transportation or other infrastructure failures
and interruptions. In addition to reviewing the Company's own systems, the
Company is submitting requests to third party service providers to obtain
information as to their compliance efforts. The Company has received assurances
from major suppliers, TSSL and Lucent, stating Y2K compliance status of their
respective systems regarding AC-1 (the Company's only active system at this
time). In addition, the Company received assurance from Alcatel Submarine
Networks, a supplier to MAC, that Alcatel is also Y2K compliant. In the event
that any of the Company's material third party service providers do not
successfully and timely achieve Y2K compliance, the Company's business or
operations could be adversely affected. The Company is developing contingency
plans to address any potential Y2K compliance failure due to significant third
party failures, although no such failure is expected. To date, response from
material third party service providers has not shown any of them to be non-
compliant with Y2K readiness plans.
The Company believes that costs of addressing Y2K compliance will not have a
material adverse impact on the Company's financial condition or results of
operations.
Euro Conversion
On January 1, 1999, a single currency called the Euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union agreed to
adopt the Euro as their common legal currency on that date. Fixed conversion
rates between these countries' existing currencies (legacy currencies) and the
Euro were established as of that date. The legacy currencies are scheduled to
remain legal tender in these participating countries between January 1, 1999
and January 1, 2002 (not later than July 1, 2002). During this transition
period, parties may settle transactions using either the Euro or a
participating country's legacy currency.
As most of the Company's sales and expenditures are denominated in United
States dollars, management does not believe that the Euro conversion will have
a material adverse impact on its business or financial condition. The Company
does not expect the cost of system modifications to be material and the Company
will continue to evaluate the impact of the Euro conversion.
19
<PAGE>
Information Regarding Forward-Looking Statements
The Company has included "forward-looking statements" throughout this
quarterly report filed on Form 10-Q. These statements describe the Company's
attempt to predict future occurrences. The Company's use the words "believe,"
"anticipate," "expect," "intend" and similar expressions to identify forward-
looking statements. Forward-looking statements are subject to a number of
risks, assumptions and uncertainties, such as:
. the Company's ability to complete the systems within currently estimated
time frames and budgets,
. the Company's ability to sell capacity on the systems,
. the Company's successful transition from a system development company to
an operating company, and
. the Company's ability to compete effectively in a rapidly evolving and
price competitive marketplace.
This list is only an example of some of the risks, uncertainties and
assumptions that may affect the Company's forward-looking statements. If any of
these risks or uncertainties materialize (or fail to materialize), or if the
underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates. The Company's
policy is to manage interest rates through use of a combination of fixed and
floating rate debt. Interest rate swaps may be used to adjust interest rate
exposures when appropriate, based upon market condition.
<TABLE>
<CAPTION>
Fair Value
June 30,
Expected maturity dates 1999 2000 2001 2002 2003 Thereafter Total 1999
----------------------- -------- ------- -------- ----- ----- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Non Current--US$
denominated
AC-1 Credit Facility.... $ 9,137 $14,298 $127,080 -- -- -- $150,515 $150,515
Average interest
rates--variable....... (1) (1) (1)
MAC Credit Facility..... -- 9,192 -- -- -- -- 9,192 9,192
Average interest
rates--variable....... (2)
Lucent Financing........ 400,000 -- -- -- -- -- 400,000 400,000
Average interest
rates--variable....... (3)
Senior notes............ -- -- -- -- -- 800,000 800,000 836,000
Average interest
rates--fixed.......... 9.6%
Mandatorily Redeemable
Preferred Stock........ -- -- -- -- -- 500,000 500,000 522,500
Average interest
rates--fixed.......... 10.5%
Obligations under ISAs
and capital lease
obligations:
US$ denominated......... 27,371 18,174 1,080 1,081 1,081 20,112 68,899 68,899
Average interest
rates--fixed.......... 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
Sterling, German Mark
and Dutch Guilder
denominated............ 8,223 4,000 4,155 4,316 4,483 134,194 159,371 159,371
Average interest
rates--fixed.......... 12.2% 12.2% 12.2% 12.2% 12.2% 12.2%
DERIVATIVE INSTRUMENTS
Foreign currency
forward--Sterling
denominated
Contract notional
amount................ 877,058 -- -- -- -- -- 877,058 (9,653)
Fixed conversion
rate................ 1.5947
</TABLE>
20
<PAGE>
- --------
(1) The interest rate is two-week LIBOR plus 2.00%, which was 7.30% as of June
30, 1999.
(2) The interest rate is one month LIBOR plus 3.00%, which was 8.00% as of June
30, 1999.
(3) The interest rate is one month LIBOR plus 0.25%, which was 5.25% as of June
30, 1999.
Foreign Currency Risk
For those subsidiaries using the U.S. dollar as their functional currency,
translation adjustments are recorded in the accompanying condensed consolidated
statements of operations. None of the Company's translation adjustments were
material as of and for the three months ended June 30, 1999 and 1998.
For those subsidiaries not using the U.S. dollar as their functional
currency, assets and liabilities are translated at exchange rates in effect at
the balance sheet date and income and expense accounts at average exchange
rates during the period. Resulting translation adjustments are recorded
directly to a separate component of shareholders' equity. As of and for the
three and six months ended June 30, 1999, the Company incurred a foreign
currency translation loss of $4 million and $9 million, respectively. As of and
for the three and six months ended June 30, 1998, the Company incurred no
foreign currency translation gain or loss.
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently subject to any material legal claims or
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During August 1998, the Company completed an IPO (File No. 333-53393;
effective date August 13, 1998) for which the Company received net proceeds of
approximately $391 million. Through June 30, 1999, the Company has used
substantially all proceeds from the IPO for (i) equity investments of
approximately $75 million for MAC, $136 million for PEC, $13 million for GAL
and $119 million for PAC and (ii) $48 million for general corporate purposes.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<C> <S>
27.1 Financial Data Schedule.
</TABLE>
21
<PAGE>
(b) Reports on Form 8-K.
During the quarter ended June 30, 1999, Global Crossing Ltd. filed the
following CurrentReports on Form 8-K:
1. Current Report on Form 8-K dated April 25, 1999 (date of earliest
event reported), filed on April 26, 1999, for the purpose of reporting,
under Item 5, the execution of a definitive agreement to acquire the Global
Marine business of Cable & Wireless plc.
2. Current Report on Form 8-K dated May 16, 1999 (date of earliest event
reported), filed on May 18, 1999, for the purpose of reporting, under Item
5, the execution of an agreement and plan of merger with U S WEST, Inc.
(Press Release)
3. Current Report on Form 8-K dated May 16, 1999 (date of earliest event
reported), filed on May 21, 1999, for the purpose of reporting, under Item
5, the execution of an agreement and plan of merger with U S WEST, Inc.
(Merger Agreement)
4. Current Report on Form 8-K dated May 16, 1999 (date of earliest event
reported), filed on May 26, 1999, for the purpose of reporting, under Item
5, the execution of an agreement and plan of merger with U S WEST, Inc.
(Q&A Presentation)
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Global Crossing Ltd.,
a Bermuda corporation
/s/ Dan J. Cohrs
By: ___________________________________
Dan J. Cohrs
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
August 3, 1999
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 721,342
<SECURITIES> 0
<RECEIVABLES> 140,568
<ALLOWANCES> (7,916)
<INVENTORY> 0
<CURRENT-ASSETS> 905,469
<PP&E> 59,853
<DEPRECIATION> (4,200)
<TOTAL-ASSETS> 3,038,597
<CURRENT-LIABILITIES> 302,082
<BONDS> 1,371,626
484,958
0
<COMMON> 4,361
<OTHER-SE> 791,263
<TOTAL-LIABILITY-AND-EQUITY> 3,038,597
<SALES> 356,376
<TOTAL-REVENUES> 368,461
<CGS> 150,292
<TOTAL-COSTS> 176,161
<OTHER-EXPENSES> 107,269
<LOSS-PROVISION> 3,683
<INTEREST-EXPENSE> 46,454
<INCOME-PRETAX> 52,818
<INCOME-TAX> 30,038
<INCOME-CONTINUING> 8,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,070
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
