<PAGE>
--------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON FORM 10-Q/A
TO
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 March 31, 2000
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)
<TABLE>
<S> <C>
BERMUDA 98-0189783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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 September 1, 2000: 903,965,490 shares, including 22,033,758
treasury shares.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
This Amendment No. 1 on Form 10-Q/A amends and restates the Company's
Quarterly Report on Form 10-Q, for the quarterly period ended March 31, 2000
which was filed with the Securities and Exchange Commission on May 22, 2000.
On July 11, 2000, the Company entered into an agreement to sell its incumbent
local exchange carrier business, acquired as part of the Company's acquisition
of Frontier Corporation, to Citizens Communications for $3.65 billion in cash,
subject to certain adjustments concerning closing date liabilities and working
capital balances. This Amendment No. 1 reflects the financial position and
results of operations of the incumbent local exchange carrier business as
discontinued operations for all periods since the date of the Frontier
acquisition.
In addition, pursuant to a limited review by and subsequent discussions with
the accounting staff of the Securities and Exchange Commission, this Amendment
No. 1 adjusts the Company's consolidated financial statements for the quarter
ended March 31, 2000 to revise the estimated useful life of the $1.5 billion
goodwill related to GlobalCenter from 10 to 5 years. GlobalCenter was acquired
in September 1999 as part of the Company's acquisition of Frontier Corporation.
As a result, loss applicable to common shareholders increased by $41 million for
the three months ended March 31, 2000. This adjustment has no impact on the
Company's cash flow or its compliance with its debt agreements.
This Amendment No. 1 also updates various disclosures primarily related to
the above. This filing reflects modifications made in the Company's Amendment
No. 1 on Form 10-K/A for the fiscal year ended December 31, 1999 and should be
read in conjunction with that amendment.
GLOBAL CROSSING LTD. AND SUBSIDIARIES
For the quarter ended March 31, 2000
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Statements of Operations................. 3
Condensed Consolidated Balance Sheets........................... 4
Condensed Consolidated Statements of Cash Flows................. 5
Condensed Consolidated Statements of Comprehensive Income....... 7
Notes to Condensed Consolidated Financial Statements............ 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of
Operations..................................................... 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 31
Item 2. Changes in Securities and Use of Proceeds....................... 31
Item 3. Defaults Upon Senior Securities................................. 31
Item 4. Submission of Matters to A Vote of Security Holders............. 31
Item 5. Other Information............................................... 31
Item 6. Exhibits and Reports on Form 8-K................................ 32
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
------------------------
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
REVENUE.............................................. $ 932,694 $ 176,319
----------- -----------
EXPENSES:
Cost of sales....................................... 579,907 69,387
Operations, administration and maintenance.......... 92,393 12,026
Sales and marketing................................. 78,234 10,437
Network development................................. 19,209 7,376
General and administrative.......................... 152,126 35,815
Depreciation and amortization....................... 103,659 211
Goodwill and intangibles amortization............... 153,502 --
----------- -----------
1,179,030 135,252
----------- -----------
OPERATING INCOME (LOSS).............................. (246,336) 41,067
EQUITY IN LOSS OF AFFILIATES......................... (5,629) (2,736)
MINORITY INTEREST.................................... (15,731) --
OTHER INCOME (EXPENSE):
Interest income..................................... 15,050 14,392
Interest expense.................................... (83,993) (23,779)
Other expense, net.................................. (5,074) --
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES.......................... (341,713) 28,944
Benefit (provision) for income taxes................ 15,726 (16,142)
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS............. (325,987) 12,802
Income from discontinued operations, net of income
tax of $20,726..................................... 23,168 --
Cumulative effect of change in accounting
principle, net of income tax benefit of $1,400..... -- (14,710)
----------- -----------
INCOME (LOSS)........................................ (302,819) (1,908)
Preferred stock dividends........................... (45,258) (13,044)
----------- -----------
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS...... $ (348,077) $ (14,952)
=========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) from continuing operations applicable
to common shareholders
Basic and diluted................................. $ (0.48) $ (0.00)
=========== ===========
Discontinued operations
Basic and diluted................................. $ 0.03 $ --
=========== ===========
Cumulative effect of change in accounting principle
Basic and diluted................................. $ -- $ (0.04)
=========== ===========
Income (loss) applicable to common shareholders
Basic and diluted................................. $ (0.45) $ (0.04)
=========== ===========
Shares used in computing income (loss) per share
Basic and diluted................................. 778,780,323 410,797,073
=========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
3
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 1,249,263 $ 1,629,546
Restricted cash and cash equivalents.............. 70,997 17,092
Accounts receivable, net.......................... 815,204 861,583
Other assets and prepaid costs.................... 295,126 223,862
----------- -----------
Total current assets............................. 2,430,590 2,732,083
Restricted cash and cash equivalents................ 69,545 138,118
Accounts receivable, net............................ 42,419 52,052
Property and equipment, net......................... 6,999,497 5,057,102
Goodwill and intangibles, net....................... 7,682,979 7,825,554
Investment in and advances to/from affiliates, net.. 596,818 317,957
Other assets........................................ 732,494 655,594
Net assets of discontinued operations............... 2,484,615 2,502,850
----------- -----------
Total assets..................................... $21,038,957 $19,281,310
=========== ===========
LIABILITIES
Current liabilities:
Accrued construction costs........................ $ 570,461 $ 275,361
Accounts payable and accrued liabilities.......... 776,452 862,433
Accrued interest and preferred dividends.......... 161,370 64,333
Deferred revenue.................................. 208,138 124,775
Income taxes payable.............................. 65,051 127,449
Current portion of long term debt................. 8,511 2,071
Other current liabilities......................... 269,983 259,729
----------- -----------
Total current liabilities........................ 2,059,966 1,716,151
Long-term debt...................................... 5,913,288 4,899,596
Deferred revenue.................................... 488,312 382,305
Deferred credits and other.......................... 742,288 669,326
----------- -----------
Total liabilities................................ 9,203,854 7,667,378
----------- -----------
Minority interest................................... 478,030 351,338
----------- -----------
Mandatorily redeemable and cumulative convertible
preferred stock:
10 1/2% mandatorily Redeemable Preferred Stock,
5,000,000 shares issued and outstanding, $100
liquidation preference per share................. 486,517 485,947
----------- -----------
6 3/8% Cumulative Convertible Preferred Stock,
10,000,000 shares issued and outstanding, $100
liquidation preference per share................. 969,000 969,000
----------- -----------
6 3/8% Cumulative Convertible Preferred Stock,
Series B, 400,000 shares issued and outstanding,
$1000 liquidation preference per share........... 400,000 --
----------- -----------
7% Cumulative Convertible Preferred Stock,
2,600,000 shares issued and outstanding, $250
liquidation preference per share................. 629,750 629,750
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, 3,000,000,000 shares authorized, par
value $.01 per share, 803,604,237 and 799,137,142
shares issued as of March 31, 2000 and December 31,
1999, respectively................................. 8,030 7,992
Treasury stock, 22,033,758 shares................... (209,415) (209,415)
Additional paid-in capital and other shareholders'
equity............................................. 9,575,617 9,578,927
Accumulated deficit................................. (502,426) (199,607)
----------- -----------
Total stockholders' equity....................... 8,871,806 9,177,897
----------- -----------
Total liabilities and shareholders' equity....... $21,038,957 $19,281,310
=========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance
sheets.
4
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
---------------------
March 31, March 31,
2000 1999
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (302,819) $ (1,908)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Net income from discontinued operations.............. (23,168) --
Cumulative effect of change in accounting principle.. -- 14,710
Equity in loss of affiliates......................... 5,629 2,736
Depreciation and amortization........................ 257,161 211
Provision for doubtful accounts...................... 12,118 1,864
Stock related expense................................ 18,850 16,716
Deferred income taxes................................ (9,210) 22,125
Capacity available for sale.......................... -- 58,539
Non-cash cost of sales............................... 99,056 --
Minority Interest.................................... 15,731 --
Other................................................ 3,290 (4,831)
Changes in operating assets and liabilities.......... 100,924 (129,603)
---------- ---------
Net cash provided by (used in) operating
activities........................................ 177,562 (19,441)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale.................................... (501,622) (143,337)
Investment in and advances to affiliates............... (65,102) (12,860)
Effect of the consolidation of PC-1, net of cash
acquired.............................................. (19,979) --
Purchase of marketable securities...................... (81,200) --
Purchases of property and equipment.................... (307,984) (1,811)
---------- ---------
Net cash used in investing activities.............. (975,887) (158,008)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net............ 40,867 834
Proceeds from long term debt........................... 300,703 9,083
Repayment of long term debt............................ (11,233) (26,825)
Preferred dividends.................................... (22,535) --
Finance costs incurred................................. -- (77)
Minority interest investment in subsidiary............. 53,472 --
Change in restricted cash and cash equivalents......... 14,668 (47,811)
---------- ---------
Net cash provided by (used in) financing
activities........................................ 375,942 (64,796)
Net cash provided by discontinued
operations........................................ 42,100 --
---------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............. (380,283) (242,245)
CASH AND CASH EQUIVALENTS, beginning of period......... 1,629,546 806,593
---------- ---------
CASH AND CASH EQUIVALENTS, end of period............... $1,249,263 $ 564,348
========== =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
5
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
For the Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
--------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Costs incurred for construction in progress and capacity
available for sale..................................... $(637,996) $(180,119)
Accrued construction costs.............................. 134,284 14,282
Accrued interest........................................ -- 19,448
Amortization of deferred finance costs and other........ 2,090 3,052
--------- ---------
Cash paid for construction in progress and capacity
available for sale..................................... $(501,622) $(143,337)
========= =========
Non-cash purchases of property and equipment............ $ -- $ (38,300)
========= =========
Investments in affiliates:
Costs of investments in affiliates.................... $(468,851) $ --
Preferred stock issued for investment in joint
venture.............................................. 400,000 --
--------- ---------
$ (68,851) $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid and capitalized........................... $ 35,409 $ 6,132
========= =========
Interest paid (net of capitalized interest)............. $ 35,118 $ 772
========= =========
Cash paid for taxes..................................... $ 22,516 $ 1,788
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
6
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2000 and 1999
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
-----------------------------
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Net loss.......................................... $(302,819) $(1,908)
Unrealized gain on securities..................... 157 --
Foreign currency translation adjustment........... (22,792) (4,930)
--------- -------
Comprehensive loss................................ $(325,454) $(6,838)
========= =======
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
7
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(In thousands, except share and per share amounts)
(Unaudited)
(1) Organization and Background
Global Crossing Ltd. (a Bermuda company, together with its consolidated
subsidiaries, ("GCL" or the "Company") is building and offering services over
the world's first independent global fiber optic network, consisting of
101,000 announced route miles serving five continents, 27 countries and more
than 200 major cities. Upon completion of our currently announced systems, our
network and our telecommunications and Internet product offerings will be
available in markets constituting over 80% of the world's international
communications traffic.
The Company's strategy is to be the premier provider of global broadband
Internet Protocol ("IP") and data services for both wholesale and retail
customers. The Company is building a state-of-the-art fiber optic network that
management believes to be of unprecedented global scope and scale to serve as
the backbone for this strategy. Management believes that the Company's network
will enable it to be the low cost service provider in most of its addressable
markets.
Global Crossing Ltd. serves as a holding company for its subsidiaries'
operations, including the operations of the following acquired entities:
Global Marine Systems (acquired July 2, 1999), Frontier Corporation (acquired
September 28, 1999), Racal Telecom (acquired November 24, 1999) and a 50%
interest in the Hutchison Global Crossing joint venture (completed January 12,
2000). The acquisition of these entities is hereinafter referred to as the
"Acquisitions." In addition the Company has a significant ownership interest
in Asia Global Crossing.
Asia Global Crossing, a joint venture with Softbank Corp. and Microsoft
Corporation, intends to become the first truly pan-Asian carrier to offer
worldwide bandwidth and data communications. The Asia Global Crossing joint
venture was established on November 24, 1999.
GlobalCenter, a wholly-owned subsidiary of GCL, will expand its product set
to become a single-source e-commerce service solution that will provide web-
centric businesses with the high availability, flexibility and scalability
necessary to compete in the rapidly expanding digital economy.
On July 11, 2000, the Company entered into an agreement to sell the
Incumbent Local Exchange Carrier ("ILEC") business segment to Citizens
Communications Company ("Citizens") for $3.65 billion in cash, subject to
certain adjustments concerning closing date liabilities, working capital
balances and performance measurements as defined in the agreement. In
connection with the sales agreement, the Company and Citizens Communications
entered into a strategic agreement to provide long distance services to the
ILEC business. The segment has been shown in the accompanying financial
statements as discontinued operations.
In July 2000, the Company restated its financial statements to revise the
estimated useful life of goodwill related to GlobalCenter from 10 years to 5
years. As a result, loss applicable to common shareholders and loss per share
increased by $41 million and $0.05 per share, respectively, for the three months
ended March 31, 2000.
(2) Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements as of March 31, 2000 and for the three months ended March 31, 2000
and 1999, include the accounts of Global Crossing Ltd. and its consolidated
subsidiaries. All material inter-company balances and transactions have been
eliminated. The unaudited interim condensed consolidated financial statements
reflect all adjustments, consisting of normal
8
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 revenue and expenses during the reporting
period. Actual amounts and results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do
not include all footnotes and certain financial presentations 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 Amendment No.1 on Form 10-K/A for the fiscal
year ended December 31, 1999.
(3) Significant Accounting Policies
Revenue Recognition
Revenue from Capacity Purchase Agreements ("CPAs") that meet the criteria of
sales-type lease accounting are recognized in the period that the rights and
obligations of ownership transfer to the purchaser, which occurs when (i) the
purchaser obtains the right to use the capacity, which can only be suspended
if the purchaser fails to pay the full purchase price or fulfill its
contractual obligations, (ii) the purchaser is obligated to pay Operations,
Administration and Maintenance ("OA&M") costs and (iii) the segment of a
system related to the capacity purchased is available for service. Certain
customers who have entered into CPAs for capacity have paid deposits toward
the purchase price which have been included as deferred revenue in the
accompanying consolidated balance sheets.
Prior to July 1, 1999, substantially all CPAs were treated as sales-type
leases as described in Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" ("SFAS 13"). On July 1, 1999, the Company adopted
Financial Accounting Standards Board Interpretation No. 43, "Real Estate
Sales, an interpretation of FASB Statement No. 66" ("FIN 43"), which requires
prospective transactions to meet the criteria set forth in Statement of
Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate"
("SFAS 66")to qualify for sales-type lease accounting. Since sales of
terrestrial capacity did not meet the new criteria, the terrestrial portion of
CPAs executed subsequent to June 30, 1999 were recognized over the terms of
the contracts, as services.
The Company offers customers flexible bandwidth products to multiple
destinations and anticipates that many of the contracts for subsea circuits
entered into will be part of a service offering. Therefore, the Company
anticipates that many of these contracts will not meet the criteria of sales-
type lease accounting and will be accounted for as operating leases.
Consequently, the Company will defer revenue related to those circuits and
amortize that revenue over the appropriate term of the contract. Accordingly,
the Company will treat cash received, but not recognized, as deferred revenue.
In certain circumstances, should a contract meet all of the requirements of
sales-type lease accounting, the Company will recognize revenue without
deferral upon payment and activation.
The principal effect of the change in the type of contracts offered to the
Company's customers beginning on January 1, 2000 is that an increasing
percentage of capacity sales will be accounted for as operating leases
9
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rather than sales-type leases, resulting in more revenue from such sales being
deferred into future periods than was previously the case. Accordingly, this
change in contract terms will reduce revenue recognized upon activation of
circuits in earlier periods and increase revenue recognized in later periods.
As of December 31, 1999, the Company had an aggregate backlog of
approximately $700 million in capacity sales contracts for which revenue will
be recognized using sales-type lease accounting upon activation. For the
remaining backlog as of that date, revenue will be recognized using operating
lease accounting, that is amortized over the life of the contract.
For the three months ended March 31, 2000 and March 31, 1999, $166 million
and $170 million in revenue, respectively, was recognized using sales-type
lease accounting.
(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. 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 months
ended March 31, 2000 and 1999, respectively. The impact of dilutive options,
warrants and convertible securities increases the weighted average shares
outstanding to 841,992,988 used in calculating Diluted EPS for the three
months ended March 31, 2000.
(5) Acquisitions
The Acquisitions are being accounted for under the purchase method of
accounting for business combinations. The initial purchase price of the
Acquisitions were allocated based on the estimated fair value of acquired
assets and liabilities at the date of acquisition. The Company will make final
purchase price allocations based upon final values for certain assets and
liabilities. As a result, the final purchase price allocation may differ from
the presented estimate. Following is the unaudited pro forma results of the
Company, assuming the Acquisitions, as adjusted for the sale of the ILEC
business, had been completed at the beginning of the period presented:
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1999
--------------
<S> <C>
Revenue..................................................... $ 852,238
============
Income (loss) from continuing operations applicable to
common shareholders........................................ $ (174,546)
============
Income (loss) applicable to common shareholders............. $ (323,116)
============
Income (loss) from continuing operations per common share:
Income (loss) from continuing operations applicable to
common shareholders, basic and diluted................... $ (0.23)
============
Income (loss) applicable to common shareholders, basic and
diluted.................................................. $ (0.42)
============
Shares used in computing loss from continuing operations
per share, basic and diluted............................. 762,470,473
============
</TABLE>
10
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Land................................................ $ 10,848 $ 689
Buildings........................................... 133,448 87,928
Leasehold improvements.............................. 29,870 26,412
Furniture, fixtures and equipment................... 875,171 717,570
Transmission equipment.............................. 2,616,325 1,851,401
---------- ----------
3,665,662 2,684,000
Accumulated depreciation............................ (200,542) (82,663)
---------- ----------
3,465,120 2,601,337
Construction in progress............................ 3,534,377 2,455,765
---------- ----------
Total property and equipment........................ $6,999,497 $5,057,102
========== ==========
</TABLE>
(7) Shareholders' Equity
Stock Option Plan. During the three months ended March 31, 2000, the Company
granted stock options for an aggregate of 6,212,890 shares of common stock
under the Company's 1998 Stock Incentive Plan. On March 31, 2000, stock
options covering 79,528,469 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, 1999.
(8) Segment Information
The Company is a worldwide provider of Internet and long distance
telecommunications facilities and related services supplying its customers
with global "point to point" connectivity and, through its Global Marine
Systems subsidiary, providing cable installation and maintenance services. The
Company's reportable segments include telecommunications services and
installation and maintenance services. There are other corporate related
charges not attributable to a specific segment. As a result, there are many
shared expenses generated by the various revenue streams and management
believes that any allocation of the expenses incurred to multiple revenue
streams would be impractical and arbitrary. The Company's chief decision maker
monitors the revenue streams of the various products and geographic locations
and operations are managed and financial performance, Adjusted EBITDA, is
evaluated based on the delivery of multiple, integrated services to customers
over a single network.
11
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The information below summarizes certain financial data of the Company by
segment (in thousands):
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
----------- ----------
<S> <C> <C>
Telecommunications Services:
Revenue:
Commercial............................................. $ 327,020 $ --
Consumer............................................... 43,644 --
Carrier:
Sales-type leases.................................... 161,951 170,055
Services............................................. 327,813 6,264
----------- ----------
Total carrier........................................ 489,764 176,319
----------- ----------
Total revenue.......................................... $ 860,428 $ 176,319
=========== ==========
Operating income (loss)................................ $ (232,888) $ 41,607
=========== ==========
Adjusted EBITDA........................................ $ 286,499 $ 128,208
=========== ==========
Cash paid for capital expenditures..................... $ 779,291 $ 145,148
=========== ==========
Total assets........................................... $17,149,739 $2,689,797
=========== ==========
Installation and Maintenance:
Revenue................................................ $ 72,266 $ --
=========== ==========
Operating income (loss)................................ $ (864) $ --
=========== ==========
Adjusted EBITDA........................................ $ 20,748 $ --
=========== ==========
Cash paid for capital expenditures..................... $ 30,315 $ --
=========== ==========
Total assets........................................... $ 1,404,603 $ --
=========== ==========
Corporate Operations and Other:
Operating income (loss)................................ $ (12,584) $ --
=========== ==========
Adjusted EBITDA........................................ $ (12,584) $ --
=========== ==========
Total assets........................................... $ 2,484,615 $ --
=========== ==========
Consolidated:
Revenues............................................... $ 932,694 $ 176,319
=========== ==========
Operating income (loss)................................ $ (246,336) $ 41,067
=========== ==========
Adjusted EBITDA........................................ $ 294,663 $ 128,208
=========== ==========
Cash paid for capital expenditures..................... $ 809,606 $ 145,148
=========== ==========
Total assets........................................... $21,038,957 $2,689,797
=========== ==========
</TABLE>
12
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or
Adjusted EBITDA, is calculated as operating income (loss), plus goodwill
amortization, depreciation and amortization, non-cash cost of capacity sold,
stock related expenses, and incremental cash deferred revenue. This definition
is consistent with financial covenants contained in Global Crossing Ltd.'s
major financial agreements. Global Crossing Ltd's management uses Adjusted
EBITDA to monitor its compliance with Global Crossing's financial covenants
and to measure the performance and liquidity of its reportable segments. This
information should not be considered as an alternative to any measure of
performance as promulgated under GAAP. Our calculation of adjusted EBITDA may
be different from the calculation used by other companies and, therefore,
comparability may be limited. The calculation of Adjusted EBITDA is as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
2000 1999
--------- --------
<S> <C> <C>
Operating income (loss)............................... $(246,336) $ 41,067
Goodwill amortization................................. 153,502 --
Depreciation and amortization......................... 103,659 211
Stock related expense................................. 18,850 16,716
Non-cash cost of capacity sold........................ 99,056 53,514
Incremental cash deferred revenue..................... 165,932 16,700
--------- --------
Adjusted EBITDA....................................... $ 294,663 $128,208
========= ========
</TABLE>
(9) Pending Accounting Standards
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which is required to be adopted by the Company in the quarter
ending December 31, 2000. SAB 101 provides additional guidance on revenue
recognition as well as criteria for when revenue is generally realized and
earned. Management is currently assessing the impact of SAB 101 on the results
of operations and financial position of the Company.
(10) Reclassifications
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation to current year
amounts.
13
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) Discontinued Operations
On July 11, 2000, the Company entered into an agreement to sell the Incumbent
Local Exchange Carrier ("ILEC") business segment to Citizens Communications
Company ("Citizens") for $3.65 billion in cash, subject to certain adjustments
concerning closing date liabilities, working capital balances and performance
measurements as defined in the agreement. In connection with the sales
agreement, the Company and Citizens entered into a strategic agreement to
provide long distance services to the ILEC business. As a result of this
transaction, the Company's financial statements reflect the financial position
and results of operation, of the ILEC business as discontinued operations for
all periods presented since the date of the Frontier acquisition. The sale is
anticipated to be completed in early 2001. The Company anticipates income from
discontinued operations and a gain; therefore, no losses have been accrued. The
estimated gain (net of tax) from the disposal of discontinued operations will
decrease goodwill recorded upon the Acquisition of Frontier by the Company in
September 1999. Summary financial information of the ILEC business segment is as
follows:
<TABLE>
<CAPTION>
As of
March 31,
2000
------------
<S> <C>
BALANCE SHEET DATA:
Assets........................................................... $2,854,392
Liabilities...................................................... (369,777)
----------
Net Assets of discontinued operations............................ $2,484,615
==========
<CAPTION>
For the
Three Months
Ended
March 31,
2000
------------
<S> <C>
INCOME STATEMENT DATA:
Revenue.......................................................... $ 186,822
Expenses......................................................... (148,928)
----------
Operating income................................................. 37,894
Interest income, net............................................. 6,065
Other expenses................................................... (65)
Provision for income taxes....................................... (20,726)
----------
Income from discontinued operations.............................. $ 23,168
==========
</TABLE>
(12) Significant Events
On January 12, 2000, the Company established a joint venture, called
Hutchison Global Crossing, with Hutchison Whampoa Limited ("Hutchison") to
pursue fixed-line telecommunications and Internet opportunities in Hong Kong.
For its 50% share, Hutchison contributed to the joint venture its building-to-
building fixed-line telecommunications network in Hong Kong and a number of
Internet-related assets. In addition, Hutchison has agreed that any fixed-line
telecommunications activities it pursues in China will be carried out by the
joint venture. For its 50% share, the Company provided to Hutchison $400
million in Global Crossing convertible preferred stock (convertible into
shares of Global Crossing common stock at a rate of $45 per share) and
committed to contribute to the joint venture international telecommunications
capacity rights on our network and global media distribution center
capabilities which together are valued at $350 million, as well as $50 million
in cash. The Company intends to integrate its interest in Hutchison Global
Crossing into the Company's Asia Global Crossing joint venture ("AGC").
On January 26, 2000, AGC announced an agreement to create GlobalCenter
Japan, a joint venture with Japan's Internet Research Institute, Inc. ("IRI").
GlobalCenter Japan will design, develop and construct a media
14
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
distribution center in Japan providing connectivity worldwide through the Global
Crossing Network. The joint venture will also develop and provide complex web
hosting services, e-commerce support and applications hosting solutions. AGC
will own 89 percent of GlobalCenter Japan, with IRI owning the remaining 11
percent.
On February 22, 2000, we announced a definitive agreement to acquire IXnet,
Inc., a leading provider of specialized IP-based network services to the global
financial services community, and its parent company, IPC Communications, Inc.,
in exchange for shares of our common stock valued at approximately $3.8 billion.
Under the terms of the definitive merger agreement, 1.184 of our shares will be
exchanged for each IXnet share not owned by IPC, and 5.417 of our shares will be
exchanged for each share of IPC. We expect to complete the acquisition in the
second quarter of 2000. That acquisition is subject to regulatory approval and
customary closing conditions.
On March 2, 2000, we announced plans to create a new class of Global Crossing
common stock that would track the performance of the complex web hosting
business operated by our wholly-owned subsidiary, GlobalCenter, Inc. The
creation of this new class of stock will be subject to shareholder approval.
On March 24, 2000, the Company increased its interest in the PC-1 cable system
from 57.75% to 64.50% for approximately $21 million by acquiring the remaining
ownership of another partner in PC-1. In connection with this transaction, the
PC-1 Shareholder Agreement was amended, which enabled the Company to exercise
effective control over PC-1.
On March 31, 2000, AGC announced its intention to effectuate an initial public
offering of its common stock and to file a registration statement under the
Securities Act of 1933 in respect of the proposed offering.
(13) Global Crossing Ltd. Consolidating Financial Information
After shareholder approval and the implementation of the proposed tracking
stock structure discussed in Note 14, we intend to separate for financial
reporting purposes the Global Crossing group and the GlobalCenter group. Below
is the consolidating financial information of the Global Crossing group and
the GlobalCenter group. The financial information reflects the businesses of
the Global Crossing group and the GlobalCenter group, including the allocation
of revenues and expenses between the Global Crossing group and the
GlobalCenter group in accordance with our allocation policies. The group
presented below excludes the shares of GlobalCenter group stock reserved for
issuance for the benefit of the Global Crossing group or for holders of Global
Crossing group stock.
For each group, we attribute assets, liabilities, equity, revenue and
expenses, except shared corporate services, based on specific identification
of the companies which we include in each group.
We directly charge specifically identified costs for shared corporate services
to each group based upon use of those services. Where determinations based on
use alone are not practical, we use other methods and criteria, based on
revenues, expenses, net assets or income that we believe are fair and provide a
reasonable allocation of the cost of shared corporate services used by the
groups. Shared corporate services include executive management, human resources,
legal accounting and auditing, tax, treasury, strategic planning, media and
investor relations and corporate technology.
15
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Global Crossing Ltd. Consolidating Financial Information--(Continued)
<TABLE>
<CAPTION>
As of March 31, 2000
------------------------------------
Global Global Global
Crossing Center Crossing
Group Group Ltd.
----------- ---------- -----------
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.............. $ 1,249,263 $ -- $ 1,249,263
Restricted cash and cash equivalents... 70,997 -- 70,997
Accounts receivable, net............... 784,895 30,309 815,204
Other assets and prepaid costs......... 280,049 15,077 295,126
----------- ---------- -----------
Total current assets................. 2,385,204 45,386 2,430,590
Restricted cash and investments.......... 69,545 -- 69,545
Accounts receivable, net................. 42,419 -- 42,419
Property, plant and equipment, net....... 6,837,256 162,241 6,999,497
Goodwill and intangibles, net............ 6,346,119 1,336,860 7,682,979
Investment in and advances to/from
affiliates.............................. 596,818 -- 596,818
Other assets............................. 722,623 9,871 732,494
Net assets of discontinued operations.... 2,484,615 -- 2,484,615
----------- ---------- -----------
Total assets......................... $19,484,599 $1,554,358 $21,038,957
=========== ========== ===========
LIABILITIES:
Current liabilities:
Accrued construction costs............. $ 570,461 $ -- $ 570,461
Accounts payable and accrued
liabilities........................... 731,795 44,657 776,452
Accrued interest and preferred
dividends............................. 161,370 -- 161,370
Deferred revenue....................... 208,138 -- 208,138
Income taxes payable................... 65,051 -- 65,051
Current portion of long term debt...... 8,511 -- 8,511
Other current liabilities.............. 256,801 13,182 269,983
----------- ---------- -----------
Total current liabilities............ 2,002,127 57,839 2,059,966
Long-term debt........................... 5,913,288 -- 5,913,288
Deferred revenue......................... 488,312 -- 488,312
Deferred credits and other............... 714,537 27,751 742,288
----------- ---------- -----------
Total liabilities.................... 9,118,264 85,590 9,203,854
----------- ---------- -----------
MINORITY INTEREST........................ 478,030 -- 478,030
----------- ---------- -----------
MANDATORILY REDEEMABLE PREFERRED STOCK... 2,485,267 -- 2,485,267
----------- ---------- -----------
SHAREHOLDERS' EQUITY
Common stock........................... 8,030 -- 8,030
Treasury stock......................... (209,415) -- (209,415)
Other shareholders' equity............. 7,950,254 1,625,363 9,575,617
Accumulated deficit.................... (345,831) (156,595) (502,426)
----------- ---------- -----------
7,403,038 1,468,768 8,871,806
----------- ---------- -----------
Total liabilities and shareholders'
equity.............................. $19,484,599 $1,554,358 $21,038,957
=========== ========== ===========
</TABLE>
16
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Global Crossing Ltd. Consolidating Financial Information--(Continued)
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
---------------------------------------------
Global Global Global
Crossing Center Crossing
Group Group Eliminations Ltd.
---------- -------- ------------ ----------
<S> <C> <C> <C> <C>
REVENUE $ 896,707 $ 38,309 $(2,322) $ 932,694
---------- -------- ------- ----------
EXPENSES:
Cost of sales................ 547,698 34,531 (2,322) 579,907
Operations, administration
and maintenance............. 92,393 -- -- 92,393
Sales and marketing.......... 75,100 3,134 -- 78,234
Network development.......... 19,209 -- -- 19,209
General and administrative... 142,970 9,156 -- 152,126
Depreciation and
amortization................ 100,504 3,155 -- 103,659
Goodwill and intangibles
amortization................ 79,232 74,270 -- 153,502
---------- -------- ------- ----------
1,057,106 124,246 (2,322) 1,179,030
---------- -------- ------- ----------
OPERATING INCOME (LOSS) ....... (160,399) (85,937) -- (246,336)
EQUITY IN INCOME (LOSS) OF
AFFILIATES.................... (5,629) -- -- (5,629)
MINORITY INTEREST.............. (15,731) -- -- (15,731)
OTHER INCOME (EXPENSE):
Interest income.............. 15,050 -- -- 15,050
Interest expense............. (83,993) -- -- (83,993)
Other income (expense), net.. (4,863) (211) -- (5,074)
---------- -------- ------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE PROVISION
FOR INCOME TAXES 255,565 (86,148) -- (341,713)
Provision for income taxes .. 7,018 8,708 -- 15,726
---------- -------- ------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS.................... (248,547) (77,440) -- (325,987)
Income from discontinued
operations.................. 23,168 -- -- 23,168
---------- -------- ------- ----------
NET LOSS....................... (225,379) (77,440) -- (302,819)
Preferred stock dividends.... (45,258) -- -- (45,258)
---------- -------- ------- ----------
INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS........... $ (270,637) $(77,440) $ -- $ (348,077)
========== ======== ======= ==========
ADJUSTED EBITDA:
Operating income (loss)...... $ (160,399) $(85,937) $ -- $ (246,336)
Depreciation and
amortization................ 179,736 77,425 -- 257,161
Cash portion of change in
deferred revenue............ 165,932 -- -- 165,932
Stock related expenses....... 18,850 -- -- 18,850
Cost of capacity sold--
undersea.................... 99,056 -- -- 99,056
---------- -------- ------- ----------
ADJUSTED EBITDA................ $ 303,175 $ (8,512) $ -- $ 294,663
========== ======== ======= ==========
</TABLE>
17
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Global Crossing Ltd. Consolidating Financial Information--(Continued)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, 2000
--------------------------------
Global Global Global
Crossing Center Crossing
Group Group Ltd.
---------- -------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $ (225,379) $(77,440) $(302,819)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Net income from discontinued operations... (23,168) (23,168)
Cumulative effect of change in accounting
principle................................ -- -- --
Equity in loss of affiliates.............. 5,629 -- 5,629
Depreciation and amortization............. 179,736 77,425 257,161
Provision for doubtful accounts........... 12,118 -- 12,118
Stock related expense..................... 18,850 -- 18,850
Deferred income taxes..................... (7,705) (1,505) (9,210)
Capacity available for sale............... -- -- --
Non-cash cost of sales.................... 99,056 -- 99,056
Minority Interest......................... 15,731 -- 15,731
Other..................................... 2,596 -- 2,596
Changes in operating assets and
liabilities.............................. 92,810 8,114 100,924
---------- -------- ----------
Net cash provided by (used in) operating
activities............................. 170,274 6,594 176,868
---------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress and
capacity available for sale................ (501,622) -- (501,622)
Investment in and advances to affiliates.... (65,102) -- (65,102)
Effect of the consolidation of PC-1, net of
cash acquired.............................. (19,979) -- (19,979)
Purchase of marketable securities........... (71,200) (10,000) (81,200)
Purchases of property and equipment......... (258,900) (49,084) (307,984)
---------- -------- ----------
Net cash used in investing activities... (916,803) (59,084) (975,887)
---------- -------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net........................................ 40,867 -- 40,867
Proceeds from long term debt................ 300,703 -- 300,703
Repayment of long term debt................. (11,153) (80) (11,233)
Preferred dividends......................... (22,535) -- (22,535)
Finance costs incurred...................... 694 -- 694
Minority interest investment in subsidiary.. 53,472 -- 53,472
Change in restricted cash and cash
equivalents................................ 14,668 -- 14,668
Funds allocated by Frontier
Corporation/Global Crossing Ltd., net...... (52,570) 52,570 --
---------- -------- ----------
Net cash provided by (used in) financing
activities............................. 324,146 52,490 376,636
Net cash provided by (used in)
discontinued operations................ 42,100 -- 42,100
---------- -------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS... (380,283) -- (380,283)
CASH AND CASH EQUIVALENTS, beginning of
period..................................... 1,629,546 -- 1,629,546
---------- -------- ----------
CASH AND CASH EQUIVALENTS, end of period.... $1,249,263 $ -- $1,249,263
========== ======== ==========
</TABLE>
18
<PAGE>
(14) Subsequent Events
In April 2000, we issued 21,673,706 shares of our common stock for net
proceeds of approximately $694 million. In connection with this issuance and
sale by the Company of common stock, certain existing shareholders sold an
aggregate of 21,326,294 shares of common stock, for which the Company received
no proceeds.
In April 2000, we issued 4,000,000 shares of 6 3/4% cumulative convertible
preferred stock at a liquidation preference of $250 for net proceeds of
approximately $970 million. Each share of preferred stock is convertible into
6.3131 shares of common stock, based on a conversion price of $39.60.
Dividends on the preferred stock are cumulative from the date of issue and
will be payable on January 15, April 15, July 15 and October 15 of each year
beginning on July 15, 2000, at the annual rate of 6 3/4%. In May 2000,
pursuant to an over-allotment option held by the underwriters of the preferred
stock, the Company issued an additional 600,000 shares of 6 3/4% cumulative
convertible preferred stock for net proceeds of approximately $146 million.
We and our subsidiary, South American Crossing (Subsea) Ltd., filed a
lawsuit, on May 22, 2000, against Tyco Submarine Systems Ltd., in the United
States District Court for the Southern District of New York. Our complaint
alleges fraud, theft of trade secrets, breach of contract, and defamation
related to Tyco's agreements to install the South American Crossing fiber-
optic cable system. We are seeking damages, including punitive damages, in
excess of $1 billion and attorneys' fees and costs, as well as a declaration
that the construction and development agreement with Tyco is void due to
Tyco's alleged fraud and injunctive relief barring Tyco from further
misappropriation of trade secrets and confidential information. On June 13,
2000, Tyco answered the complaint, denying material allegations and asserting
a variety of defenses to such claims. Additionally, Tyco asserted
counterclaims that South American Crossing (Subsea) Ltd. breached its
construction and development agreement with Tyco. Tyco seeks damages of not
less than $150 million, attorneys' fees and costs and a declaration that,
among other things, the construction and development agreement with Tyco is a
valid, enforceable contract and that South American Crossing (Subsea) Ltd.
breached the contract or, in the alternative, terminated the contract for
convenience. On July 5, 2000, we answered Tyco's counterclaims, denying the
material allegations.
In addition, on May 22, 2000, our subsidiary, Atlantic Crossing Ltd.,
together with certain of its affiliates, filed arbitration claims against Tyco
for breaches of its obligations in connection with various contracts for the
development of its Atlantic Crossing-1 fiber-optic cable system. We are
seeking unspecified monetary damages, a declaration that the various contracts
for the development of Atlantic Crossing-1 are terminated and a return of
misappropriated intellectual property. On June 22, 2000, Tyco responded to
such claims, denying material allegations. Tyco additionally asserted
counterclaims that we and our subsidiaries breached their various obligations
under the development contracts. Tyco seeks among other things the denial of
all relief sought by us and awards aggregating not less than $155 million and
unspecified damages for breach of the agreements. In a settlement agreement
dated as of August 30, 2000, Atlantic Crossing entered into an agreement with
Tyco for the early termination of one of the contracts relating to Atlantic
Crossing-1, the Operations, Administration and Maintenance, or the OA&M
Agreement, in return for the payment of $19 million to Tyco. In addition,
Atlantic Crossing and Tyco have agreed to drop their respective claims under the
OA&M Agreement in the arbitration. The other claims asserted in the arbitration
remain pending.
19
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Financial Accounting Developments
During the third and fourth quarters of 1999, changes in our business
activities, together with a newly effective accounting standard, caused us to
modify some of our practices regarding recognition of revenue and costs
related to sales of capacity. None of the accounting practices described below
affect its cash flows.
As a result of Financial Accounting Standards Board (FASB) Interpretation
No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66" (FIN
43), which became effective July 1, 1999, we have accounted for revenue from
terrestrial circuits sold after that date as operating leases and have
amortized that revenue over the terms of the related contracts. Previously, we
had recognized these sales as current revenue upon activation of the circuits.
This deferral in revenue recognition has no impact on cash flow.
With the consummation of our acquisition of Frontier Corporation on
September 28, 1999, service offerings became a significant source of our
revenue. Consequently, we initiated service contract accounting for our subsea
systems during the fourth quarter, because we, since that date, no longer hold
subsea capacity exclusively for sale. As a result, since the beginning of the
fourth quarter, we have depreciated investments in both subsea and terrestrial
systems over their remaining economic lives and have recognized revenue
related to service contracts over the terms of the contracts. We have
recognized revenue and costs related to the sale of subsea circuits upon
activation, if the criteria of sales-type lease accounting have been satisfied
with respect to those circuits.
During the fourth quarter, our global network service capabilities were
significantly expanded by the activation of several previously announced
systems and by the integration of other networks obtained through acquisition
and joint venture agreements. With this network expansion, we began offering
our customers flexible bandwidth products to multiple destinations, which
makes the historical practice of fixed, point-to-point routing of traffic and
restoration capacity both impractical and inefficient. To ensure the required
network flexibility, we will modify our future capacity purchase agreements
and our network management in a manner that precludes the use of sales-type
lease accounting.
Because of these contract changes and the network management required to
meet customer demands for flexible bandwidth, multiple destinations and system
performance, we anticipate that most of the contracts for subsea circuits
entered into after January 1, 2000 will be part of a service offering and,
therefore, will not meet the criteria of sales-type lease accounting and will
be accounted for as operating leases. Consequently, we will defer revenue
related to those circuits and amortize it over the appropriate term of the
contract. In certain circumstances, if a contract meets all of the
requirements of sales-type lease accounting, we will recognize revenue without
deferral upon payment and activation.
The principal effect of the change in the type of contracts offered to our
customers beginning on January 1, 2000 is that an increasing percentage of our
capacity sales will be accounted for as operating leases rather than sales-
type leases, resulting in more revenue from such sales being deferred into
future periods than was previously the case. Accordingly, this change in
contract terms will reduce revenue recognized upon activation of the circuits
in earlier periods and increase revenue recognized in later periods.
As of March 31, 2000, we had an aggregate backlog of approximately $220
million in capacity sales contracts for which revenue will be recognized using
sales-type lease accounting upon activation. For the remaining backlog as of
that date, revenue will be recognized using operating lease accounting, that is
amortized over the life of the contract.
We note that accounting practice and authoritative guidance regarding the
applicability of sales-type lease accounting to the sale of capacity is still
evolving. Based on the accounting practices described above, we believe
20
<PAGE>
that additional changes, if any, in accounting practice or authoritative
guidance affecting sales of capacity would have little or no impact on our
financial position, results of operations, cash flows and the financial
statements taken as a whole.
Restatements
Sale of Incumbent Local Exchange Carrier Business
On July 11, 2000, we entered into an agreement to sell our incumbent local
exchange carrier business, acquired as part of our acquisition of Frontier
Corporation, to Citizens Communications for $3.65 billion in cash, subject to
adjustments concerning closing date liabilities and working capital balances.
We and Citizens Communications also entered into a strategic agreement under
which we will provide long distance services to the ILEC business. The
transaction is subject to both federal and state regulatory approvals, which
are expected to take approximately nine months to obtain. As a result of this
transaction, we have restated our financial statements to reflect the
financial position and results of operations of the incumbent local exchange
carrier business as discontinued operations for all periods presented since
the date of the Frontier Corporation acquisition.
Useful Life of GlobalCenter Goodwill
Subsequent to the issuance of our audited financial statements for the year
ended December 31, 1999 and our unaudited financial statements for the three
months ended March 31, 2000, and following discussion with representatives of
the Securities and Exchange Commission's Division of Corporation Finance
concerning its review of our financial statements, we restated our financial
statements for these periods to revise the estimated useful life of goodwill
related to GlobalCenter from 10 years to 5 years.
As a result, loss applicable to common shareholders and loss per share
increased by $41 million and $0.08, respectively, for the year ended December
31, 1999 and increased by $41 million and $0.05, respectively, for the three
months ended March 31, 2000. The restatement has no impact on cash flow or
compliance with our debt agreements.
Acquisitions
The Company completed its merger with Frontier (acquired September 28, 1999)
and acquisitions of Global Marine Systems (acquired July 2, 1999), Racal Telecom
(acquired November 24, 1999) and a 50% interest in the Hutchinson Global
Crossing joint venture (completed January 12, 2000). The acquisition of these
entities is referred to as the "Acquisitions", as adjusted for the sale of the
ILEC segment. The increase in revenue and expenses for the three months ended
March 31, 2000 is primarily due to these transactions. As the Acquisitions
occurred subsequent to March 31, 1999, the comparability of the results of
operations for the three months ended March 31, 2000 and 1999 is limited.
21
<PAGE>
Results of Operations for the Three Months Ended March 31, 2000 and March 31,
1999
During the second half of 1999, we completed our merger with Frontier
Corporation and our acquisitions of Global Marine Systems and Racal Telecom.
We refer to these acquisitions together as the "Acquisitions." The increase in
revenue and expenses for the three months ended March 31, 2000 compared to the
three months ended March 31, 1999 is primarily due to these transactions. As
the Acquisitions occurred subsequent to March 31, 1999, the comparability of
the results of operations for the three months ended March 31, 2000 and 1999
is limited.
Revenue. Revenue for the three months ended March 31, 2000 increased 428% to
$933 million as compared to $176 million for the three months ended March 31,
1999. For the three months ended March 31, 2000, $162 million in revenue was
recognized using sales-type lease accounting, while the remaining $698 million
in revenue from our telecommunications services segment was accounted for
using operating lease accounting. Cash revenue (revenue plus the cash portion
of the change in deferred revenue) for the three months ended March 31, 2000
increased 511% to $1,099 million compared to $200 million for the three months
ended March 31, 1999. The increase is due to the Acquisitions, which are
included in the results of the first quarter of 2000, partially off-set by our
business practice of selling capacity under terms that require amortization of
revenue over the contract life rather than terms that qualify for immediate
revenue recognition.
On a pro forma basis, giving effect to the Acquisitions as of December 31,
1998, revenues for the three months ended March 31, 2000 increased 9% to $933
million as compared to $852 million for the three months ended March 31, 1999.
The increase in pro forma revenue is primarily due to an increase in revenue
from data products.
Cost of sales. Cost of sales for the three months ended March 31, 2000 was
$580 million, or 62% of revenue, compared to $69 million, or 39% of revenue,
for the three months ended March 31, 1999. The increase is primarily
attributable to the increase in revenue. Reduced margins for the three months
ended March 31, 2000 compared to the three months ended March 31, 1999 were
due to lower margins in the businesses acquired and lower prices of subsea
capacity sold to customers.
Non-cash cost of undersea capacity sold was $99 million and $54 million
during the three months ended March 31, 2000 and 1999, respectively.
Operations, administration and maintenance. Operations, administration and
maintenance costs for the three months ended March 31, 2000 were $92 million,
or 10% of revenue, compared to $12 million, or 7% of revenue, for the three
months ended March 31, 1999. The increase is primarily a result of the costs
incurred in connection with the development of our network operations center,
the expansion of our network and the expenses of the 1999 acquired companies.
Sales and marketing. Sales and marketing expenses for the three months ended
March 31, 2000 were $78 million, or 8% of revenue, compared to $10 million, or
6% of revenue, for the three months ended March 31, 1999. The increase was due
to the additional expenses attributable to the 1999 acquired companies,
expenses related to additions in headcount, plus occupancy costs, marketing
costs and other promotional expenses.
Network development. Network development costs for the three months ended
March 31, 2000 were $19 million, or 2% of revenue, compared to $7 million, or
4% of revenue, for the three months ended March 31, 1999. The increase is due
to the additional expenses attributable to the 1999 acquired companies,
additional salaries, employee benefits, including stock compensation and
professional fees associated with the expansion of our network.
22
<PAGE>
General and administrative. General and administrative expenses for the
three months ended March 31, 2000 were $152 million, or 16% of revenue,
compared to $36 million, or 20% of revenue, for the three months ended March
31, 1999. The increase was comprised principally of salaries, employee
benefits, including stock compensation and recruiting for our need for
increased staffing for multiple fiber optic systems, travel, professional
fees, insurance costs and occupancy costs. The increase in general and
administrative expenses is primarily attributable to the additional expenses
of the 1999 acquired companies.
Depreciation and amortization. Depreciation and amortization for the three
months ended March 31, 2000 was $104 million, or 11% of revenue, compared to
$0.2 million for the three months ended March 31, 1999. The increase is due to
the Acquisitions and depreciation of subsea systems placed in service.
Goodwill and intangibles amortization. Goodwill and intangibles amortization
for the three months ended March 31, 2000 was $154 million resulting from the
Acquisitions, which occurred after March 31, 1999.
Minority interest. Minority interest for the three months ended March 31,
2000 was $16 million and relates to minority interest in net income of Pacific
Crossing Ltd. and Asia Global Crossing.
Interest income and interest expense. Interest income for the three months
ended March 31, 2000 was $15 million, compared to $14 million for the three
months ended March 31, 1999. The increase is due to interest earned on cash
raised from financings and on capacity purchase agreement deposits. Interest
expense for the three months ended March 31, 2000 was $84 million, compared to
$24 million for the three months ended March 31, 1999. The increase is due to
higher levels of debt outstanding resulting from the Acquisitions and capital
spending on the expansion of the Global Crossing network.
Benefit (provision) for income taxes. During the three months ended March
31, 2000, we recognized a benefit for income taxes of $16 million related to
recognition of deferred tax assets for NOL carryforwards. During the three
months ended March 31, 1999, we recognized a provision for income taxes of $16
million for taxes on profits earned from telecommunications services,
installation and maintenance and other income where our subsidiaries have a
presence in taxable jurisdictions.
Income from discontinued operations. During the three months ended March 31,
2000, we reported income from discontinued operations, net of provision for
income tax of $23 million, resulting from our incumbent local exchange carrier
business.
Cumulative effect of change in accounting principle. We 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, on January
1, 1999. SOP 98-5 requires that certain start-up expenditures previously
capitalized during system development must now be expensed. We incurred a one-
time charge during the three months ended March 31, 1999 of $15 million, net
of tax benefit of $1,400, that represents start-up costs incurred and
capitalized during previous periods.
Net loss. Net loss for the three months ended March 31, 2000 was $303
million compared to $2 million for the three months ended March 31, 1999.
Preferred stock dividends. Preferred stock dividends for the three months
ended March 31, 2000 were $45 million compared to $13 million for the three
months ended March 31, 1999. The increase is due to the additional issuances
of preferred stock, the proceeds of which are used to fund acquisitions and
capital spending.
Net loss applicable to common shareholders. During the three months ended
March 31, 2000, we reported net loss applicable to common shareholders of $348
million compared to $15 million for the three months ended March 31, 1999.
Adjusted EBITDA. Adjusted EBITDA was $295 million for the three months ended
March 31, 2000 compared to $128 million for the three months ended March 31,
1999. The increase in Adjusted EBITDA is due
23
<PAGE>
to the Acquisitions and the increase in the cash portion of the change in
deferred revenue for the three months ended March 31, 2000 compared to the
three months ended March 31, 1999. Adjusted Earnings Before Interest, Taxes,
Depreciation and Amortization, or Adjusted EBITDA, is calculated as operating
income (loss), plus goodwill amortization, depreciation and amortization, non-
cash cost of capacity sold, stock related expenses, incremental cash deferred
revenue and amounts relating to the termination of an advisory services
agreement. This definition is consistent with financial covenants contained in
our major financial agreements. Our management uses Adjusted EBITDA to monitor
compliance with our financial covenants and to measure the performance and
liquidity of our reportable segments. This information should not be
considered an alternative to any measure of performance as promulgated under
GAAP. Our calculation of Adjusted EBITDA may be different from the calculation
used by other companies and, therefore, comparability may be limited.
24
<PAGE>
Liquidity and Capital Resources
We estimate that the total remaining cost of developing and deploying the
announced systems on the Global Crossing network to be approximately $4
billion, excluding costs of potential future upgrades. We anticipate that all
of these systems will be completed by mid-2001. The remaining financing needed
to complete the Global Crossing network and to fund working capital
requirements is expected to be obtained from issuances of common or preferred
stock, bank financing or through other corporate financing. Some of this
financing is expected to be incurred by our wholly-owned subsidiaries or joint
venture companies as well as by us.
On July 11, 2000, we entered into an agreement to sell our incumbent local
exchange carrier business for $3.65 billion. The proceeds from the sale will
be used to reduce indebtedness and to invest in network and product
capabilities.
In April 2000, we issued 21,673,706 shares of its common stock for net
proceeds of approximately $694 million and 4,000,000 shares of 6 3/4%
cumulative convertible preferred stock at a liquidation preference of $250 for
net proceeds of approximately $970 million. In May 2000, pursuant to an over-
allotment option held by the underwriters of the preferred stock, we issued an
additional 600,000 shares of 6 3/4% cumulative convertible preferred stock for
net proceeds of approximately $146 million. We are using the proceeds of these
offerings for general corporate purposes, principally capital for the
expansion of our business.
25
<PAGE>
We have extended limited amounts of financing to customers in connection
with certain capacity sales. The financing terms provide for installment
payments of up to four years. We believe that our extension of financing to
our customers will not have a material effect on our liquidity.
Cash provided by and used in operating activities was $177 million and
$(19) million for the three months ended March 31, 2000 and 1999,
respectively. The balances principally represent cash received from capacity
sales and interest income received, less sales and marketing, network
development and general and administrative expenses paid.
Cash used in investing activities was $976 million and $158 million for the
three months ended March 31, 2000 and 1999, respectively. The balances
represent cash paid for construction in progress, purchases of property and
equipment and investments in affiliates.
Cash provided by financing activities was $377 million for the three months
ended March 31, 2000 and primarily represents borrowings under the senior
secured corporate facility, proceeds from the issuance of common stock and a
decrease in restricted cash and cash equivalents, partially offset by
repayments of borrowings under long term debt and payment of dividends on
preferred stock. Cash used in financing activities was $65 million for the
three months ended March 31, 1999 and primarily relates to repayments of
borrowings under the AC-1 credit facility and the increase in restricted cash
and cash equivalents.
26
<PAGE>
We have a substantial amount of indebtedness. Based upon the current level
of operations, our management believes that our cash flows from operations,
together with available borrowings under our credit facility, and our
continued ability to raise capital, will be adequate to meet our anticipated
requirements for working capital, capital expenditures, acquisitions and other
discretionary investments, interest payments and scheduled principal payments
for the foreseeable future. There can be no assurance, however, that our
business facility, and our continued ability to raise capital, will be
adequate to meet our anticipated requirements for working capital, capital
expenditures, acquisitions and other discretionary investments, interest
payments and scheduled principal payments for the foreseeable future. There
can be no assurance, however, that our business will continue to generate cash
flow at or above current levels or that currently anticipated improvements
will be achieved. If we are unable to generate sufficient cash flow and raise
capital to service our debt, we may be required to reduce capital
expenditures, refinance all or a portion of our existing debt or obtain
additional financing.
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 our sales and expenditures are denominated in United States
dollars, management does not believe that the Euro conversion will have a
material adverse impact on our business or financial condition. We do not
expect the cost of system modifications to be material and we will continue to
evaluate the impact of the Euro conversion.
27
<PAGE>
Information Regarding Forward-Looking Statements
The Company has included "forward-looking statements" throughout this
Amendment No.1 on Form 10-Q/A. These forward-looking statements describe
management's intentions, beliefs, expectations or predictions for the future.
The Company uses the words "believe," "anticipate," "expect," "intend" and
similar expressions to identify forward-looking statements. Such forward-looking
statements are subject to a number of risks, assumptions and uncertainties that
could cause the Company's actual results to differ materially from those
projected in such forward-looking statements. These risks, assumptions and
uncertainties include:
. the ability to complete systems within the currently estimated time
frames and budgets;
. the ability to compete effectively in a rapidly evolving and price
competitive marketplace;
. changes in business strategy;
. changes in the nature of telecommunications regulation in the United
States and other countries;
. the successful integration of newly-acquired businesses; and
. the impact of technological change.
This list is only an example of some of the risks, uncertainties and
assumptions that may affect the Company's forward-looking statements. The
Company undertakes no obligation to update any forward-looking statements made
by it.
28
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The table below provides information about our market sensitive financial
instruments and constitutes a "forward-looking statement." Our major market
risk exposure is changing interest rates. Our 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 conditions.
<TABLE>
<CAPTION>
Fair Value
Expected maturity dates 2000 2001 2002 2003 2004 Thereafter Total March 31, 2000
------------------------ ------- ------- ------- -------- -------- ---------- ---------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DEBT
Non Current--US$
denominated
9 1/2% Senior Notes due
2009................... -- -- -- -- -- $1,100,000 $1,100,000 $1,057,375
Average interest
rates--fixed.......... 9.5%
9 1/8% Senior Notes due
2006................... -- -- -- -- -- 900,000 900,000 852,750
Average interest
rates--fixed.......... 9.1%
9 5/8% Senior Notes due
2008................... -- -- -- -- -- 800,000 800,000 772,000
Average interest
rates--fixed.......... 9.6%
Senior Secured Revolving
Credit Facility........ -- -- -- -- $884,597 -- 884,597 884,597
Average interest
rates--variable....... (1)
Racal Term Loan A....... -- -- -- -- -- 636,639 636,639 636,639
Average interest
rates--variable....... (2)
Racal Term Loan B
and Ancillary Facility.. -- -- -- -- -- 113,163 113,163 113,163
Average interest
rates--variable........ (3)
Medium Term Notes,
7.51%-9.3%
Due 2000 to 2021....... $87,500 $71,500 -- -- 20,000 100,000 279,000 263,649
Average interest
rates--fixed.......... 9.0%
7% Senior Notes due
2004................... -- -- -- -- 300,000 -- 300,000 274,605
Average interest
rates--fixed.......... 7.3%
Pacific Crossing Term
Loan A-1............... -- 80,000 $90,000 $110,000 115,000 30,000 425,000 425,000
Average interest
rates--variable....... (5)
Pacific Crossing Term
Loan B................. -- $ 3,260 $ 3,260 $ 3,260 $ 3,260 311,960 325,000 325,000
Average interest
rates--variable....... (6)
6% Dealer Remarketable
Securities (DRS) due
2013................... -- -- -- -- -- 200,000 200,000 178,423
Average interest
rates--fixed.......... (4)
Other................... -- -- -- -- -- 9,437 9,437 8,115
Average interest
rates--fixed.......... (7)
DERIVATIVE INSTRUMENTS
Interest rate swap
floating for fixed--
Contract notional
amount................. -- -- -- -- -- 200,000 200,000 210,984
Fixed rate assumed by
GCL................... (8)
Variable rate assumed
by Counterparty....... 7.3%
Interest rate swap fixed
for floating--Contract
notional amount........ -- -- -- -- $698,888 $ 198,888 $ 897,776 $ 872,775
Average floating rate
assumed by GCL........ (9)
Average fixed rate
assumed by
Counterparty.......... 5.6% 6.9%
</TABLE>
-------
(1) The interest rate is 3 month US dollar LIBOR + 2.25% which was 8.5% as of
March 31, 2000.
(2) The interest rate is British pound LIBOR + 2.50%. The effective interest
rate was 8.7% as of March 31, 2000.
(3) The interest rate on Term Loan B and the Ancillary Facility is British
pound LIBOR + 2.50%. The weighted-average interest rate was 8.6% as of
March 31, 2000.
(4) The interest rate is fixed at 6.0% until October 2003. At that time, the
remarketing dealer (J.P. Morgan) has the option to remarket the notes at
prevailing interest rates or tender the notes for redemption.
(5) The interest rate is 1 month US dollar LIBOR + 2.25%, which was 8.4% as of
March 31, 2000.
(6) The interest rate is 1 month US dollar LIBOR + 2.50%, which was 8.7% as of
March 31, 2000.
29
<PAGE>
(7) Includes $81,512 of fixed rate debt with interest rates ranging from 2.0%
to 9.0%.
(8) The interest rate is 6 month US dollar LIBOR + 1.26%, which is set in
arrears.
(9) There are two fixed for floating interest rate swaps denominated in
British pounds. GCL receives interest rates based on 3 month British pound
LIBOR, which was 6.3% on March 31, 2000. GCL also has two US dollar
denominated swaps. The interest rate is 1 month US dollar LIBOR, which was
6.3% as of March 31, 2000.
Foreign Currency Risk
For those subsidiaries using the U.S. dollar as their functional currency,
translation adjustments are recorded in the financial statements included
elsewhere in this proxy statement.
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 months ended March 31, 2000 and 1999, we incurred a foreign currency
translation loss of $23 million and $5 million, respectively. Foreign currency
transaction gains and losses are included in the statement of operations as
incurred.
30
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On June 25, 1999, Frontier Corporation (now known as Global Crossing North
America, Inc.), a wholly-owned subsidiary of Global Crossing Ltd., was served
with a summons and complaint in a lawsuit commenced in the New York State
Supreme Court, Monroe County by a Frontier shareholder alleging that Frontier
and its Board of Directors had breached their fiduciary duties to shareholders
by endorsing a definitive merger agreement with the Company without having
adequately considered an alternative merger proposal made by Qwest
Communications International, Inc. The lawsuit was framed as a purported class
action brought on behalf of all shareholders of Frontier and sought unstated
compensatory damages and injunctive relief compelling Frontier's board to
evaluate Frontier's suitability as a merger partner, to enhance Frontier's value
as a merger candidate, to engage in discussions with Qwest about possible
business combinations, to act independently to protect the interests of Frontier
shareholders, and to ensure that no conflicts of interest exist which would
prevent maximizing value to shareholders. In July 1999, three additional
lawsuits were also commenced against Frontier in the New York State Supreme
Court on behalf of a number of individual shareholders seeking essentially
identical relief. All four lawsuits were consolidated into a single proceeding
pending in Rochester New York. In February 2000, all four lawsuits were
voluntarily withdrawn.
On July 16, 1999, Frontier was served with a summons and complaint in a
lawsuit commenced in New York State Supreme Court, New York County by a Frontier
shareholder alleging that Frontier and its board breached their fiduciary duties
by failing to obtain the highest possible acquisition price for Frontier in the
definitive merger agreement with the Company. The action has been framed as a
purported class action and seeks compensatory damages and injunctive relief. The
claims against Frontier were asserted in the same action as similar but separate
claims against US West, Inc. However, the claims against Frontier have been
severed from the US West claims. In February 2000, the Court granted the
Company's motion to transfer the action to Monroe County. The Company believes
the asserted claims are without merit and is defending itself vigorously.
On May 22, 2000, Global Crossing Ltd. and its subsidiary, South American
Crossing (Subsea) Ltd., filed a lawsuit against Tyco Submarine Systems Ltd. in
the United States District Court for the Southern District of New York. Global
Crossing's complaint alleges fraud, theft of trade secrets, breach of contract,
and defamation related to Tyco's agreements to install the South American
Crossing fiber-optic cable system. Global Crossing seeks damages, including
punitive damages, in excess of $1 billion and attorneys' fees and costs, as well
as a declaration that the construction and development agreement with Tyco is
void due to Tyco's alleged fraud and injunctive relief barring Tyco from further
misappropriation of trade secrets and confidential information. On June 13,
2000, Tyco answered the complaint, denying the material allegations and
asserting a variety of defenses to such claims. Additionally, Tyco asserted
counterclaims that South American Crossing (Subsea) Ltd. breached its
construction and development agreement with Tyco. Tyco seeks damages of not less
than $150 million, attorneys' fees and costs and a declaration that, among other
things, the construction and development agreement is a valid, enforceable
contract and that South American Crossing (Subsea) Ltd. breached the contract
or, in the alternative, terminated the contract for convenience. On July 5,
2000, Global Crossing answered Tyco's counterclaims, denying the material
allegations.
In addition, on May 22, 2000, Global Crossing's subsidiary, Atlantic Crossing
Ltd., together with certain of its affiliates, filed arbitration claims against
Tyco for breaches of its obligations in connection with various contracts for
the development of the Atlantic Crossing-1 fiber-optic cable system. Global
Crossing seeks unspecified monetary damages, a declaration that certain of its
obligations under the various contracts relating to Atlantic Crossing-1 are
terminated and a return of misappropriated intellectual property. On June 22,
2000, Tyco responded to such claims, denying the material allegations. Tyco
additionally asserted counterclaims that Global Crossing and its subsidiaries
breached their various obligations under the various contracts relating to
Atlantic Crossing-1. Tyco seeks, among other things, the denial of all relief
sought by Global Crossing and awards aggregating not less than $155 million and
unspecified damages for breach of the agreements. In a settlement agreement
dated as of August 30, 2000, Atlantic Crossing entered into an agreement with
Tyco for the early termination of one of the contracts relating to Atlantic
Crossing-1, the Operations, Administration and Maintenance, or the OA&M
Agreement, in return for the payment of $19 million to Tyco. In addition,
Atlantic Crossing and Tyco have agreed to drop their respective claims under the
OA&M Agreement in the arbitration. The other claims asserted in the arbitration
remain pending.
Global Crossing does not believe that the commencement of these actions with
Tyco will have an impact on Global Crossing's network and/or the timely
completion of any of its systems. Global Crossing intends to pursue its claims
against Tyco vigorously and to defend itself vigorously against Tyco's
counterclaims, which counterclaims it believes to be without merit.
Item 2. Changes in Securities and Use of Proceeds
In January 2000, the Company issued to Hutchison Whampoa Ltd. in a private
transaction 400,000 shares of its 6 3/8% cumulative convertible preferred
stock, Series B, for an aggregate liquidation preference of $400 million, in
connection with an equity investment by the Company in a joint venture. The
preferred stock is convertible into shares of Global Crossing common stock at
a rate of $45 per share. The Company received no cash proceeds from the
issuance of the convertible preferred stock.
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.
31
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<C> <S>
3.1 Certificate of Designations of 6 3/4% Cumulative Convertible Preferred
Stock of the Registrant dated April 14, 2000 (incorporated by reference
to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, filed on May 15, 2000).
10.1 Termination of Stockholders Agreement dated as of February 22, 2000 among
the Registrant and the investors named therein (incorporated by reference
to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, filed on May 15, 2000).
10.2 1998 Global Crossing Ltd. Stock Incentive Plan as amended and restated as
of May 1, 2000 (incorporated by reference to Annex A to the Registrant's
definitive proxy statement on Schedule 14A filed on May 8, 2000).
10.3 Global Crossing Senior Executive Incentive Compensation Plan
(incorporated by reference to Annex B to the Registrant's definitive
proxy statement on Schedule 14A filed on May 8, 2000).
10.4 Letter agreement dated March 2, 2000 relating to the termination of the
Employment Agreement dated as of February 9, 1999 between the Registrant
and Robert Annunziata (incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2000, filed on May 15, 2000).
10.5 Clarification letter dated April 17, 2000, relating to the Employment
Agreement dated as of December 5, 1999 between the Registrant and Leo J.
Hindery, Jr. (incorporated by reference to Exhibit 10.5 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed on May 15, 2000).
10.6 Employment Term Sheet dated as of April 26, 2000 between the Registrant
and Gary A. Cohen (incorporated by reference to Exhibit 10.6 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed on May 15, 2000).
10.7 Employment Term Sheet dated as of May 1, 2000 between the Registrant and
Joseph P. Perrone (incorporated by reference to Exhibit 10.7 of the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed on May 15, 2000).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
(b) Reports on Form 8-K.
During the quarter ended March 31, 2000, Global Crossing Ltd. filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated November 15, 1999 (date of earliest
event reported), filed on January 11, 2000, for the purpose of reporting,
under Items 2, 5 and 7, the acquisition of Racal Telecom, the execution of an
agreement to establish a joint venture called Hutchison Global Crossing with
Hutchison Whampoa Ltd. and providing certain historical and pro forma
financial information relating thereto.
2. Current Report on Form 8-K/A dated November 15, 1999 (date of earliest
event reported), filed on January 19, 2000, for the purpose of reporting,
under Items 2 and 5, to amend the Current Report on Form 8-K dated November
15, 1999 specified above.
3. Current Report on Form 8-K dated February 18, 2000 (date of earliest
event reported), filed on February 18, 2000, for the purpose of reporting,
under Item 5, Global Crossing's results of operations for the fourth quarter
and fiscal year ended December 31, 1999.
4. Current Report on Form 8-K dated February 22, 2000 (date of earliest
event reported), filed on March 2, 2000, for the purpose of reporting, under
Item 5, the execution of an agreement and plan of merger with IPC Information
Systems, Inc. and IXnet, Inc.
5. Current Report on Form 8-K dated March 2, 2000 (date of earliest event
reported), filed on March 3, 2000, for the purpose of reporting, under Item 5,
the appointment of Leo Hindery as the new Chief Executive Officer of Global
Crossing Ltd.
32
<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)
September 21, 2000
33
