<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 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)
BERMUDA 98-0189783
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
WESSEX HOUSE
45 REID STREET
HAMILTON HM12, BERMUDA
(Address of principal executive offices)
(441) 296-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares, $0.01 par value each, of the registrant's common stock
outstanding as of August 1, 2000: 902,555,804 shares, including 22,033,758
treasury shares.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
For the quarter ended June 30, 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
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................... 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk.. 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 25
Item 2. Changes in Securities and Use of Proceeds................... 26
Item 3. Defaults Upon Senior Securities............................. 26
Item 4. Submission of Matters to A Vote of Security Holders......... 26
Item 5. Other Information........................................... 27
Item 6. Exhibits and Reports on Form 8-K............................ 27
</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>
Three Months Ended June Six Months Ended June
30, 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE.................... $ 918,420 $ 188,459 $ 1,851,114 $ 364,778
----------- ----------- ----------- -----------
EXPENSES:
Cost of sales............ 631,182 80,905 1,211,089 150,292
Operations,
administration and
maintenance............. 100,205 14,299 192,598 26,325
Sales and marketing...... 85,056 14,252 163,290 24,689
Network development...... 26,503 6,364 45,712 13,740
General and
administrative.......... 180,428 28,886 332,554 64,701
Depreciation and
amortization............ 126,952 3,989 230,611 4,200
Goodwill and intangibles
amortization............ 159,501 -- 313,003 --
----------- ----------- ----------- -----------
1,309,827 148,695 2,488,857 283,947
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS).... (391,407) 39,764 (637,743) 80,831
EQUITY IN LOSS OF
AFFILIATES................ (13,429) (2,806) (19,058) (5,542)
MINORITY INTEREST.......... 3,101 -- (12,630) --
OTHER INCOME (EXPENSE):
Interest income.......... 32,661 17,274 47,711 31,666
Interest expense......... (94,303) (22,675) (178,296) (46,454)
Other expense, net....... (8,185) (7,683) (13,259) (7,683)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS
BEFORE PROVISION FOR
INCOME TAXES.............. (471,562) 23,874 (813,275) 52,818
Benefit (provision) for
income taxes............ 77,404 (13,896) 93,130 (30,038)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM
CONTINUING OPERATIONS..... (394,158) 9,978 (720,145) 22,780
Discontinued operations,
net of provision for
income tax.............. 28,784 -- 51,952 --
Cumulative effect of
change in accounting
principle, net of income
tax benefit............. -- -- -- (14,710)
----------- ----------- ----------- -----------
NET INCOME (LOSS).......... (365,374) 9,978 (668,193) 8,070
Preferred stock
dividends............... (58,540) (14,197) (103,798) (27,241)
Charge for conversion of
preferred stock......... (92,277) -- (92,277) --
----------- ----------- ----------- -----------
INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS....... $ (516,191) $ (4,219) $ (864,268) $ (19,171)
=========== =========== =========== ===========
INCOME (LOSS) PER COMMON
SHARE:
Income (loss) from
continuing operations
applicable to common
shareholders
Basic and diluted....... $ (0.66) $ (0.01) $ (1.14) $ (0.01)
=========== =========== =========== ===========
Discontinued operations
Basic and diluted....... $ 0.04 $ -- $ 0.07 $ --
=========== =========== =========== ===========
Cumulative effect of
change in accounting
principle
Basic and diluted....... $ -- $ -- $ -- $ (0.04)
=========== =========== =========== ===========
Income (loss) applicable
to common shareholders
Basic and diluted....... $ (0.62) $ (0.01) $ (1.07) $ (0.05)
=========== =========== =========== ===========
Shares used in computing
income (loss) per share
Basic and diluted....... 830,903,109 413,204,243 804,779,705 412,000,658
=========== =========== =========== ===========
</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>
June 30, December
2000 31, 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................... $ 2,294,502 $ 1,629,546
Restricted cash and cash equivalents............... 55,415 17,092
Accounts receivable, net........................... 847,427 861,583
Other assets and prepaid costs..................... 388,793 223,862
----------- -----------
Total current assets............................. 3,586,137 2,732,083
Restricted cash and cash equivalents............... 38,921 138,118
Accounts receivable, net........................... 42,239 52,052
Property and equipment, net........................ 7,909,415 5,057,102
Goodwill and intangibles, net...................... 10,867,908 7,825,554
Investment in and advances to/from affiliates,
net............................................... 591,023 317,957
Other assets....................................... 1,362,089 655,594
Net assets of discontinued operations.............. 2,504,133 2,502,850
----------- -----------
Total assets..................................... $26,901,865 $19,281,310
=========== ===========
LIABILITIES:
Current liabilities:
Accrued construction costs......................... $ 667,573 $ 275,361
Accounts payable and accrued liabilities........... 1,108,837 926,766
Deferred revenue................................... 183,674 124,775
Income taxes payable............................... 8,541 127,449
Current portion of long term debt.................. 11,329 2,071
Other current liabilities.......................... 141,084 259,729
----------- -----------
Total current liabilities........................ 2,121,038 1,716,151
Long-term debt..................................... 6,230,195 4,899,596
Deferred revenue................................... 831,114 382,305
Deferred credits and other......................... 993,635 669,326
----------- -----------
Total liabilities................................ 10,175,982 7,667,378
----------- -----------
MINORITY INTEREST.................................... 490,931 351,338
----------- -----------
MANDATORILY REDEEMABLE AND CUMULATIVE CONVERTIBLE
PREFERRED STOCK..................................... 3,156,961 2,084,697
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, 3,000,000,000 shares authorized, par
value $.01 per share, 900,673,347 and 799,137,142
shares issued as of June 30, 2000 and December 31,
1999, respectively................................ 9,007 7,992
Treasury stock, 22,033,758 shares.................. (209,415) (209,415)
Other shareholders' equity......................... 14,146,199 9,578,927
Accumulated deficit................................ (867,800) (199,607)
----------- -----------
Total shareholders' equity....................... 13,077,991 9,177,897
----------- -----------
Total liabilities and shareholders' equity....... $26,901,865 $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
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended
----------------------
June 30, June 30,
2000 1999
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (668,193) $ 8,070
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting
principle.......................................... -- 14,710
Net income from discontinued operations............. (51,952) --
Equity in loss of affiliates........................ 19,058 5,542
Depreciation and amortization....................... 543,614 4,200
Provision for doubtful accounts..................... 36,214 3,683
Stock related expenses.............................. 26,687 26,074
Deferred income taxes............................... 371 14,513
Non-cash cost of sales.............................. 211,374 114,125
Minority interest................................... 12,630 --
Changes in operating assets and liabilities......... 198,602 (12,990)
----------- ---------
Net cash provided by operating activities......... 328,405 177,927
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale................................... (1,338,424) (568,472)
Investment in and advances to/from affiliates, net.... (111,803) (12,884)
Effect of the consolidation of PC-1, net of cash
acquired............................................. (19,979) --
Cash acquired in acquisitions......................... 9,910 --
Change in restricted cash and cash equivalents........ 78,788 32,143
Purchase of marketable securities..................... (154,064) --
Purchases of property and equipment................... (363,421) (19,223)
----------- ---------
Net cash used in investing activities............. (1,898,993) (568,436)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net........... 746,559 5,624
Proceeds from issuance of preferred stock, net........ 1,111,676 --
Proceeds from long term debt.......................... 443,630 409,083
Repayment of long term debt........................... (100,694) (125,367)
Preferred dividends................................... (76,758) (26,104)
Finance costs incurred................................ -- (3,238)
Minority interest investment in subsidiary............ 60,462 --
----------- ---------
Net cash provided by financing activities......... 2,184,875 259,998
----------- ---------
NET CASH PROVIDED BY DISCONTINUED OPERATIONS........... 50,669 --
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 664,956 (130,511)
CASH AND CASH EQUIVALENTS, beginning of period......... 1,629,546 806,593
----------- ---------
CASH AND CASH EQUIVALENTS, end of period............... $ 2,294,502 $ 676,082
=========== =========
</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)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended
----------------------
June 30, June 30,
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.......................... $(1,607,710) $(604,031)
Accrued construction costs............................ 231,395 29,223
Deferred finance costs capitalized.................... 8,970 7,089
Capital lease obligations............................. 28,921 (753)
----------- ---------
Cash paid for construction in progress and capacity
available for sale................................... $(1,338,424) $(568,472)
=========== =========
Non-cash purchases of property and equipment.......... $ -- $ (38,300)
=========== =========
Detail of acquisitions:
Assets acquired....................................... $ 3,694,283 $ --
Liabilities assumed and fair market value of stock
options issued....................................... (796,258) --
----------- ---------
Common stock issued................................... $ 2,898,025 $ --
=========== =========
Investments in affiliates:
Costs of investments in affiliates.................... $ (248,389) $ (12,884)
Effects of consolidation of PCL....................... (263,414) --
Preferred stock issued for investment in joint
venture.............................................. 400,000 --
----------- ---------
$ (111,803) $ (12,884)
=========== =========
Common stock issued for preferred dividends............ $ 4,603 $ --
=========== =========
Conversion of preferred stock into common stock........ $ 441,862 $ --
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid and capitalized......................... $ 268,325 $ 40,569
=========== =========
Interest paid (net of capitalized interest)........... $ 169,449 $ 14,832
=========== =========
Cash paid for taxes................................... $ 33,514 $ 9,381
=========== =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
6
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
----------------- ------------------
2000 1999 2000 1999
--------- ------ --------- -------
<S> <C> <C> <C> <C>
Net income (loss)...................... $(365,374) $9,978 $(668,193) $ 8,070
Unrealized gain on securities.......... 354,325 -- 354,482 --
Foreign currency translation
adjustment............................ (69,554) (4,294) (92,346) (9,224)
--------- ------ --------- -------
Comprehensive income (loss)............ $ (80,603) $5,684 $(406,057) $(1,154)
========= ====== ========= =======
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
7
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 and 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
telecommunications 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. subsidiaries' operations, includes 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), a 50% interest in the Hutchison Global Crossing joint
venture (completed January 12, 2000) and IPC Communications and IXnet (acquired
June 14, 2000). The acquisition of these entities is referred to as the
"Acquisitions." In addition, the Company has a 93% ownership interest in Asia
Global Crossing as of June 30, 2000.
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
offerings 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 entered into a
strategic agreement to provide long distance services to the customers of the
ILEC business. The ILEC segment has been shown in the accompanying financial
statements as discontinued operations.
At December 31, 1999, the Company beneficially owned 57.75% of Pacific
Crossing Ltd. Before January 1, 2000, the Company's investment in Pacific
Crossing Ltd. was accounted for under the equity method because the Company was
not able to exercise effective control over Pacific Crossing Ltd. In March
2000, the Company increased its interest in Pacific Crossing Ltd. to 64.5% and
the Pacific Crossing Ltd. shareholders agreement was amended to give the
Company effective control over Pacific Crossing Ltd. As a result, the Company
has consolidated Pacific Crossing Ltd. as of January 1, 2000.
Subsequent to the issuance of the Company's audited financial statements for
the year ended December 31, 1999 and the Company's 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 the Company's financial
statements, the Company's financial statements were restated for these periods
to revise the estimated useful life of the $1.5 billion goodwill related to
GlobalCenter from 10 years to 5 years. GlobalCenter was acquired by the Company
in September 1999 as part of the Frontier merger.
8
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
As a result, loss applicable to common shareholders accumulated deficit
increased by $41 million as of December 31, 1999. The restatement has no impact
on cash flow or compliance with the Company's debt agreements.
(2) Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and Exchange
Commission (SEC) regulations. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the unaudited interim
condensed consolidated financial statements reflect all adjustments necessary
to fairly present the results of operations, financial position and cash flows
for the periods presented. The results of operations for any interim period are
not necessarily indicative of results for the full year. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Company's Annual Report on Form 10-K 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 rather
than sales-type leases, resulting in more revenue from such sales being
deferred into future periods than
9
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
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 June 30, 2000, the Company had an aggregate backlog of approximately
$126 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 June 30,
2000 and June 30, 1999, $99 million and $181 million in revenue, respectively,
was recognized using sales-type lease accounting.
Impairment of Long-Lived Assets--The Company periodically evaluates whether
facts and circumstances have occurred that indicate the carrying amount of a
long-lived asset may be impaired. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value or
discounted cashflow is required. During the three months ended June 30, 2000,
the Company wrote down $38 million of long-lived assets related to accrued
losses on sales contracts.
Marketable Equity Securities--Investments covered under the scope of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" are classified as "available for
sale" and are carried at fair value with any unrealized gain or loss, net of
tax, being included in other shareholder's equity. For the three and six months
ended June 30, 2000, the Company had unrealized gain on securities of $354
million, net of provision for income taxes of $245 million.
Pending Accounting Standards--In December 1999, the SEC issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which is required to be adopted by the Company in the quarter
ended December 31, 2000. SAB 101 clarifies certain conditions regarding the
culmination of an earnings process and customer acceptance requirements in
order to recognize revenue. The Company's management is currently assessing the
impact of SAB 101 on the results of operations and financial position of the
Company.
(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 and six months ended
June 30, 2000 and 1999, respectively. The impact of dilutive options, warrants
and convertible securities increases the weighted average shares outstanding to
871,231,539 and 854,385,698 for the three and six months ended June 30, 2000,
respectively.
(5) Acquisitions
On June 14, 2000, the Company completed its acquisition of IXnet, Inc. and
its parent company, IPC Communications, Inc, resulting in IXnet and IPC
becoming wholly owned subsidiaries of the Company. IXnet shareholders received
1.184 shares of the Company's common stock for each outstanding share of common
stock of IXnet and 5.417 shares of the Company's common stock for each
outstanding share of common stock of share of IPC, for a total of 58.2 million
shares of Global Crossing common stock. The purchase price of $3.8 billion
reflects a Global Crossing stock price of $49.77 per share, the average price
before and after the definitive merger agreement was entered into (February 22,
2000), and includes long-term debt assumed and
10
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
the fair market value of options issued by Global Crossing. The excess of the
purchase price over net liabilities assumed of $3.4 billion was allocated to
goodwill and other intangible assets, which are being amortized on the
straight-line method over 10 years.
The Acquisitions are being accounted for under the purchase method of
accounting for business combinations. The purchase price of the Acquisitions
was 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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue................... $ 999,144 $ 932,016 $ 2,019,578 $ 1,865,187
=========== =========== =========== ===========
Income (loss) from
continuing operations
applicable to common
shareholders............. $ (658,232) $ (277,455) $(1,064,639) $ (534,019)
=========== =========== =========== ===========
Income (loss) applicable
to common shareholders... $ (629,448) $ (235,806) $(1,012,687) $ (479,485)
=========== =========== =========== ===========
Loss per common share:
Income (loss) from
continuing operations
applicable to common
shareholders, basic and
diluted................ $ (0.75) $ (0.34) $ (1.25) $ (0.65)
=========== =========== =========== ===========
Income (loss) applicable
to common shareholders,
basic and diluted...... $ (0.72) $ (0.29) $ (1.18) $ (0.58)
=========== =========== =========== ===========
Shares used in computing
loss per share, basic
and diluted............ 873,134,665 826,613,601 855,009,032 825,410,016
=========== =========== =========== ===========
</TABLE>
(6) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Land.............................................. $ 578 $ 689
Buildings......................................... 147,242 87,928
Leasehold improvements............................ 42,154 26,412
Furniture, fixtures and equipment................. 1,040,564 717,570
Transmission equipment............................ 3,846,021 1,851,401
---------- ----------
5,076,559 2,684,000
Accumulated depreciation.......................... (435,341) (82,663)
---------- ----------
4,641,218 2,601,337
Construction in progress.......................... 3,268,197 2,455,765
---------- ----------
Total property and equipment.................... $7,909,415 $5,057,102
========== ==========
</TABLE>
11
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
(7) Shareholders' Equity
In April 2000, the Company issued 21,673,706 shares of its common stock for
net proceeds of approximately $694 million. In connection with this
transaction, certain of the Company's shareholders sold an aggregate of
21,326,294 shares of common stock, for which the Company received no proceeds.
In April 2000, the Company issued 4,000,000 shares of 6 3/4% cumulative
convertible preferred stock at a liquidation preference of $250 per share 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.
In April 2000, the Company issued in privately negotiated transactions with
certain holders of its 6 3/8% cumulative convertible preferred stock an
aggregate of 12,363,489 shares of its common stock in exchange for an aggregate
of 4,559,970 shares of preferred stock. The fair market value of the shares of
common stock issued by the Company (in excess of what would have been issued by
the Company upon conversion of the preferred stock in accordance with the terms
of the preferred stock) is included in the accompanying financial statements in
net loss applicable to common shareholders.
(8) Segment Information
The Company is a worldwide provider of Internet and long distance
telecommunications services and related facilities 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 shared
expenses related to various revenue streams and management believes that any
allocation of the expenses incurred to revenue streams would be arbitrary. The
Company's chief decision maker monitors the revenue streams of the various
products and geographic locations. The Company's chief decision maker uses
Adjusted EBITDA to monitor its compliance with the Company's financial
covenants and to measure the performance and liquidity of its reportable
segments. The operations are managed based on the delivery of multiple,
integrated services to customers over a single network.
12
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
The information below summarizes certain financial data of the Company:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
TELECOMMUNICATIONS SERVICES:
Revenue:
Commercial.................... $ 358,513 $ -- $ 685,532 $ --
Consumer...................... 40,889 -- 84,533 --
Carrier:
Sales-type leases............ 98,833 181,322 260,784 351,377
Services..................... 300,943 7,137 628,757 13,401
----------- ---------- ----------- ----------
Total Carrier.............. 399,776 188,459 889,541 364,778
----------- ---------- ----------- ----------
Total revenue................. $ 799,178 $ 188,459 $ 1,659,606 $ 364,778
=========== ========== =========== ==========
Operating income (loss)....... $ (377,371) $ 39,764 $ (610,259) $ 80,831
=========== ========== =========== ==========
Adjusted EBITDA............... $ 312,048 $ 116,004 $ 598,547 $ 251,170
=========== ========== =========== ==========
Cash paid for capital
expenditures................. $ 872,561 $ 389,033 $ 1,651,852 $ 587,695
=========== ========== =========== ==========
Total assets.................. $23,069,954 $3,308,597 $23,069,954 $3,308,597
=========== ========== =========== ==========
INSTALLATION AND MAINTENANCE:
Revenue....................... $ 119,242 $ -- $ 191,508 $ --
=========== ========== =========== ==========
Operating income (loss)....... $ (682) $ -- $ (1,546) $ --
=========== ========== =========== ==========
Adjusted EBITDA............... $ 24,398 $ -- $ 45,146 $ --
=========== ========== =========== ==========
Cash paid for capital
expenditures................. $ 19,678 $ -- $ 49,993 $ --
=========== ========== =========== ==========
Total assets.................. $ 1,327,778 $ -- $ 1,327,778 $ --
=========== ========== =========== ==========
CORPORATE OPERATIONS AND OTHER:
Operating income (loss)....... $ (13,354) $ -- $ (25,938) $ --
=========== ========== =========== ==========
Adjusted EBITDA............... $ (13,354) $ -- $ (25,938) $ --
=========== ========== =========== ==========
Total assets(1)............... $ 2,504,133 $ -- $ 2,504,133 $ --
=========== ========== =========== ==========
CONSOLIDATED:
Revenue....................... $ 918,420 $ 188,459 $ 1,851,114 $ 364,778
=========== ========== =========== ==========
Operating income (loss)....... $ (391,407) $ 39,764 $ (637,743) $ 80,831
=========== ========== =========== ==========
Adjusted EBITDA............... $ 323,092 $ 116,004 $ 617,755 $ 251,170
=========== ========== =========== ==========
Cash paid for capital
expenditures................. $ 892,239 $ 389,033 $ 1,701,845 $ 587,695
=========== ========== =========== ==========
Total assets.................. $26,901,865 $3,308,597 $26,901,865 $3,308,597
=========== ========== =========== ==========
</TABLE>
--------
(1) Corporate assets include net assets of discontinued operations
13
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, or
Adjusted EBITDA, is calculated as operating income (loss) plus depreciation and
amortization, goodwill and intangibles amortization, non-cash cost of capacity
sold, stock related expenses and incremental cash deferred revenue. This
definition is consistent with financial covenants contained in the Company's
major financial agreements. The Company's management uses Adjusted EBITDA to
monitor its compliance with the Company'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. The Company's 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 Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Operating income (loss)............. $(391,407) $ 39,764 $(637,743) $ 80,831
Goodwill amortization............... 159,501 -- 313,003 --
Depreciation and amortization....... 126,952 3,989 230,611 4,200
Stock related expense............... 7,837 9,358 26,687 26,074
Non-cash cost of capacity sold...... 112,318 60,611 211,374 114,125
Incremental cash deferred revenue... 307,891 2,282 473,823 25,940
--------- -------- --------- --------
Adjusted EBITDA..................... $ 323,092 $116,004 $ 617,755 $251,170
========= ======== ========= ========
</TABLE>
(9) Reclassifications
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation.
14
<PAGE>
GLOBAL CROSSING LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
June 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
(10) Discontinued Operations
On July 11, 2000, the Company entered into a stock purchase 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 whereby the Company will continue to provide long distance
services to customers within the ILEC business. As a result of this
transaction, the Company's financial statements 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 acquisition. The sale is anticipated to be completed in early 2001.
The Company anticipates income from discontinued operations; 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:
BALANCE SHEET DATA
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Assets............................................ $2,897,823 $2,886,502
Liabilities....................................... (393,690) (383,652)
---------- ----------
Net assets of discontinued operations............. $2,504,133 $2,502,850
========== ==========
</TABLE>
INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
2000 2000
------------ ----------
<S> <C> <C>
Revenue............................................ $188,677 $375,499
Expenses........................................... 141,963 290,891
-------- --------
Operating income................................... 46,714 84,608
Interest income, net............................... 6,148 12,213
Other expenses..................................... (380) (445)
Provision for income taxes......................... (23,698) (44,424)
-------- --------
Income from discontinued operations................ $ 28,784 $ 51,952
======== ========
</TABLE>
15
<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
our 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 June 30, 2000, we had an aggregate backlog of approximately $126
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 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.
16
<PAGE>
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 customers of 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, our financial statements 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 the $1.5
billion goodwill related to GlobalCenter from 10 years to 5 years. GlobalCenter
was acquired by us in September 1999 as part of the Frontier merger.
As a result, loss applicable to common shareholders accumulated deficit
increased by $41 million as of December 31, 1999. 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), a 50% interest in the Hutchison Global
Crossing joint venture (completed January 12, 2000) and IPC Communications and
IXnet (acquired June 14, 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 June 30, 2000 is
primarily due to these transactions. As the Acquisitions occurred subsequent to
June 30, 1999, the comparability of the results of operations for the three
months ended June 30, 2000 and 1999 is limited.
Results of Operations for the Three Months Ended June 30, 2000 and June 30,
1999
Revenue. Revenue for the three months ended June 30, 2000 increased 387% to
$918 million as compared to $188 million for the three months ended June 30,
1999. For the three months ended June 30, 2000, $99 million in revenue was
recognized using sales-type lease accounting, while the remaining $301 million
in revenue from our telecommunications services segment was accounted for using
operating lease accounting. For the three months ended June 30, 1999, $181
million in revenue was recognized using sales-type lease accounting, while the
remaining $7 million in revenue from our telecommunications services segment
was accounted for using operating lease accounting. The increase in revenue is
due to the Acquisitions, which are included in the results of the second
quarter of 2000, partially off-set by the Company's business practice of
selling capacity under terms that require amortization of revenue over the
contract life rather than terms that qualify for revenue recognition upon the
activation of the circuits.
Cash revenue (revenue plus the cash portion of the change in deferred
revenue) for the three months ended June 30, 2000 increased 480% to $1,107
million compared to $191 million for the three months ended June 30, 1999. The
increase is due to the Acquisitions, which are included in the results of the
second quarter of 2000 and an increase in the cash portion of the change in
deferred revenue.
17
<PAGE>
On a pro forma basis, giving effect to the Acquisitions, as of January 1,
1999, revenues for the three months ended June 30, 2000 increased 7% to $999
million as compared to $932 million for the three months ended June 30, 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 June 30, 2000 was
$631 million, or 69% of revenue, compared to $81 million, or 43% of revenue,
for the three months ended June 30, 1999. The increase is primarily
attributable to the increase in revenue. Reduced margins for the three months
ended June 30, 2000 compared to the three months ended June 30, 1999 was due to
lower margins in the businesses acquired, lower prices of subsea capacity sold
to customers and a $38 million charge for accrued losses on sales contracts.
Non-cash cost of undersea capacity sold was $112 million, including the $38
million charge for accrued losses, and $61 million during the three months
ended June 30, 2000 and 1999, respectively.
Operations, administration and maintenance (OA&M). OA&M costs for the three
months ended June 30, 2000 were $100 million, or 11% of revenue, compared to
$14 million, or 8% of revenue, for the three months ended June 30, 1999. The
increase is primarily a result of the cost incurred in connection with the
development of the Global Network Operations Center, the expansion of the
Global Crossing Network and the expenses of the Acqusitions.
Sales and marketing. Sales and marketing expenses for the three months ended
June 30, 2000 were $85 million, or 9% of revenue, compared to $14 million, or
8% of revenue, for the three months ended June 30, 1999. The increase from 1999
was due to the additional expenses attributable to the Acquisitions, 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
June 30, 2000 was $27 million, or 3% of revenue, compared to $6 million, or 3%
of revenue, for the three months ended June 30, 1999. The increase is due to
the additional expenses attributable to the Acquisitions, additional salaries,
employee benefits and professional fees associated with the expansion of the
Global Crossing Network.
General and administrative. General and administrative expenses for the
three months ended June 30, 2000 were $180 million, or 20% of revenue, compared
to $29 million, or 15% of revenue, for the three months ended June 30, 1999.
The increase was comprised principally of salaries, employee benefits and
recruiting from the Company's increased staffing for multiple systems, travel,
professional fees, insurance costs and occupancy costs. The increase in general
and administrative expenses is primarily attributable to the additional
expenses attributable to the Acquisitions.
Depreciation and amortization. Depreciation and amortization for the three
months ended June 30, 2000 was $127 million, compared to $4 million for the
three months ended June 30, 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 June 30, 2000 was $160 million resulting from the
Acquisitions, which occurred after June 30, 1999.
Minority interest. Minority interest for the three months ended June 30,
2000 was $3 million and relates to minority interest in net losses of PC-1 and
AGC.
Equity in loss of affiliates. Equity in loss of affiliates was $13 million,
compared to $3 million for the three months ended June 30, 2000 and 1999,
respectively. The increase is due to losses of the Hutchison Global Crossing
joint venture that was entered into in January 2000.
Interest income and interest expense. Interest income for the three months
ended June 30, 2000 was $33 million, compared to $17 million for the three
months ended June 30, 1999. The increase is due to interest earned on cash
raised from financings and on capacity purchase agreement deposits. Interest
expense for the
18
<PAGE>
three months ended June 30, 2000 was $94 million, compared to $23 million for
the three months ended June 30, 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 June 30,
2000, we recognized a benefit for income taxes of $77 million primarily due to
the revision of the prior year provision for income taxes related to non-
recurring items and the recognition of deferred tax assets for net operating
loss carryforwards. During the three months ended June 30, 1999, we recognized
a provision for income taxes of $14 to provide for taxes on profits earned from
telecommunications services, installation and maintenance and other income
where subsidiaries of the Company have a presence in taxable jurisdictions.
Income from discontinued operations. During the three months ended June 30,
2000, we reported income from discontinued operations of $29 million, net of a
provision for income tax of $24 million, resulting from our incumbent local
exchange carrier business.
Net income (loss). Net loss for the three months ended June 30, 2000 was
$365 million compared to net income of $10 million for the three months ended
June 30, 1999.
Preferred stock dividends. Preferred stock dividends for the three months
ended June 30, 2000 were $59 million compared to $14 million for the three
months ended June 30, 1999. The increase is due to the additional issuances of
preferred stock in November 1999, December 1999, January 2000 and April 2000,
the proceeds of which are used to fund acquisitions and capital spending.
Charge for exchange of preferred stock. Charge for exchange of preferred
stock of $92 million for the three months ended June 30, 2000 related to the
fair market value of the shares of our common stock issued by the Company in
privately negotiated exchange transactions with holders of preferred stock in
excess of what would have been issued by the Company upon conversion of the
preferred stock in accordance with the terms of the preferred stock.
Income (loss) applicable to common shareholders. During the three months
ended June 30, 2000, the Company reported net loss applicable to common
shareholders of $516 million compared to $4 million for the three months ended
June 30, 1999.
Adjusted EBITDA. Our operating (loss) income plus depreciation and
amortization, goodwill and intangibles amortization, stock related expenses and
the change in the cash portion of deferred revenue ("Adjusted EBITDA") was $323
million for the three months ended June 30, 2000, compared to $116 million for
the three months ended June 30, 1999. The increase in Adjusted EBITDA is due to
the Acquisitions and the increase in the cash portion of the change in deferred
revenue for the three months ended June 30, 2000 compared to the three months
ended June 30, 1999. Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization, or Adjusted EBITDA, is calculated as operating income (loss) plus
depreciation and amortization, goodwill and intangibles amortization, non-cash
cost of capacity sold, stock related expenses and incremental cash deferred
revenue. This definition is consistent with financial covenants contained in
our 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
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.
Results of Operations for the Six Months Ended June 30, 2000 and June 30, 1999
Revenue. Revenue for the six months ended June 30, 2000 increased 407% to
$1,851 million as compared to $365 million for the six months ended June 30,
1999. For the six months ended June 30, 2000, $261 million in revenue was
recognized using sales-type lease accounting, while the remaining $629 million
in
19
<PAGE>
revenue from our telecommunications services segment was accounted for using
operating lease accounting. For the six months ended June 30, 1999, $351
million in revenue was recognized using sales-type lease accounting, while the
remaining $13 million in revenue from our telecommunications services segment
was accounted for using operating lease accounting. The increase in revenue is
due to the Acquisitions, which are included in the results of 2000, partially
off-set by the Company's business practice of selling capacity under terms that
require amortization of revenue over the contract life rather than terms that
qualify for revenue recognition upon the activation of the circuits.
Cash revenue (revenue plus the cash portion of the change in deferred
revenue) for the six months ended June 30, 2000 increased 446% to $2,133
million compared to $391 million for the six months ended June 30, 1999. The
increase is due to the Acquisitions, which are included in the results of 2000
and an increase in the cash portion of the change in deferred revenue.
On a pro forma basis, giving effect to the Acquisitions as of January 1,
1999, revenues for the six months ended June 30, 2000 increased 8% to $2,020 as
compared to $1,865 million for the six months ended June 30, 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 six months ended June 30, 2000 was
$1,211 million, or 65% of revenue, compared to $150 million, or 41% of revenue,
for the six months ended June 30, 1999. The increase is primarily attributable
to the increase in revenue. Reduced margins for the six months ended June 30,
2000 compared to the six months ended June 30, 1999 was 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 $211 million and $114 million
during the six months ended June 30, 2000 and 1999, respectively.
Operations, administration and maintenance (OA&M). OA&M costs for the six
months ended June 30, 2000 were $193 million, or 10% of revenue, compared to
$26 million, or 7% of revenue, for the six months ended June 30, 1999. The
increase is primarily a result of the cost incurred in connection with the
development of the Global Network Operations Center, the expansion of the
Global Crossing Network and the expenses of the Acquisitions.
Sales and marketing. Sales and marketing expenses for the six months ended
June 30, 2000 were $163 million, or 9% of revenue, compared to $25 million, or
7% of revenue, for the six months ended June 30, 1999. The increase from 1999
was due to the additional expenses attributable to the Acquisitions, expenses
related to additions in headcount, plus occupancy costs, marketing costs and
other promotional expenses.
Network development. Network development costs for the six months ended June
30, 2000 was $46 million, or 3% of revenue, compared to $14 million, or 4% of
revenue, for the six months ended June 30, 1999. The increase is due to the
additional expenses attributable to the Acquisitions, additional salaries,
employee benefits and professional fees associated with the expansion of the
Global Crossing Network.
General and administrative. General and administrative expenses for the six
months ended June 30, 2000 were $333 million, or 18% of revenue, compared to
$65 million, or 18% of revenue, for the six months ended June 30, 1999. The
increase in general and administrative expenses is primarily attributable to
the additional expenses related to the Acquisitions.
Depreciation and amortization. Depreciation and amortization for the six
months ended June 30, 2000 was $231 million, compared to $4 million for the six
months ended June 30, 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 six months ended June 30, 2000 was $313 million resulting from the
Acquisitions, which occurred after June 30, 1999.
20
<PAGE>
Minority interest. Minority interest for the six months ended June 30, 2000
was $13 million and relates to minority interest in income of PC-1 and AGC.
Equity in loss of affiliates. Equity in loss of affiliates was $19 million,
compared to $6 million for the three months ended June 30, 2000 and 1999,
respectively. The increase is due to losses of the Hutchison Global Crossing
joint venture that was entered into in January 2000.
Interest income and interest expense. Interest income for the six months
ended June 30, 2000 was $48 million, compared to $32 million for the six months
ended June 30, 1999. The increase is due to interest earned on cash raised from
financings and on capacity purchase agreement deposits. Interest expense for
the six months ended June 30, 2000 was $178 million, compared to $46 million
for the six months ended June 30, 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 six months ended June 30,
2000, we recognized a benefit for income taxes of $93 million primarily due to
the revision of the prior year provision for income taxes related to non-
recurring items and the recognition of deferred tax assets for net operating
loss carryforwards. During the six months ended June 30, 1999, we recognized a
provision for income taxes of $30 to provide for taxes on profits earned from
telecommunications services, installation and maintenance and other income
where subsidiaries of the Company have a presence in taxable jurisdictions.
Income from discontinued operations. During the six months ended June 30,
2000, we reported income from discontinued operations, net of a provision for
income tax of $52 million resulting from our incumbent local exchange carrier
business.
Cumulative effect of change in accounting principle. The Company adopted
Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of Start-Up
Activities," issued by the American Institute of Certified Public Accountants,
during the six months ended June 30, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. The Company incurred a one-time charge during the six months ended
June 30, 1999 of $15 million (net of tax benefit of $1,400) that represents
start-up costs incurred and capitalized during previous periods.
Net income (loss). Net loss for the six months ended June 30, 2000, was $668
million compared to net income of $8 million for the six months ended June 30,
1999.
Preferred stock dividends. Preferred stock dividends for the six months
ended June 30, 2000 were $104 million compared to $27 million for the six
months ended June 30, 1999. The increase is due to the additional issuances of
preferred stock in November 1999, December 1999, January 2000 and April 2000,
the proceeds of which are used to fund acquisitions and capital spending.
Charge for exchange of preferred stock. Charge for exchange of preferred
stock of $92 million for the six months ended June 30, 2000 related to the fair
market value of the shares of our common stock issued by the Company in
privately negotiated exchange transactions with holders of preferred stock in
excess of what would have been issued by the Company upon conversion of the
preferred stock in accordance with the terms of the preferred stock.
Income (loss) applicable to common shareholders. During the six months ended
June 30, 2000, the Company reported net loss applicable to common shareholders
of $864 million compared to $19 million for the six months ended June 30, 1999.
Adjusted EBITDA. Our operating income (loss) plus depreciation and
amortization, goodwill and intangibles amortization, stock related expenses and
the change in the cash portion of deferred revenue ("Adjusted EBITDA") was $618
million for the six months ended June 30, 2000 compared to $251 million for the
six months ended June 30, 1999. The increase in Adjusted EBITDA is due to the
Acquisitions and the
21
<PAGE>
increase in the cash portion of the change in deferred revenue for the six
months ended June 30, 2000 compared to the six months ended June 30, 1999.
Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, or
Adjusted EBITDA, is calculated as operating income (loss) plus depreciation and
amortization, goodwill and intangibles amortization, non-cash cost of capacity
sold, stock related expenses and incremental cash deferred revenue. This
definition is consistent with financial covenants contained in our 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 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.
Liquidity and Capital Resources
Global Crossing estimates the remaining cost of developing and deploying the
announced systems on the Global Crossing Network to be approximately $3.3
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 stock or
preferred stock, bank financing or through other corporate financing. Some of
this financing is expected to be incurred by wholly-owned subsidiaries or joint
venture companies as well as by Global Crossing Ltd.
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 our 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, the Company
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.
The Company has 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. The Company believes that its
extension of financing to its customers will not have a material effect on the
Company's liquidity.
Cash provided by operating activities was $328 million and $178 million for
the six months ended June 30, 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 $1,899 million and $568 million for
the six months ended June 30, 2000 and 1999, respectively. The balances
represent cash paid for construction in progress, purchases marketable
securities, purchases of property, plant and equipment and cash investments in
affiliates. The increase in cash used in investing activities primarily relates
to the construction costs incurred on expansion of the Global Crossing network.
Cash provided by financing activities was $2,185 million and $260 million
for the six months ended June 30, 2000 and 1999, respectively. The balances
represent 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. The increase in cash provided by
financing activities primarily relates to proceeds from the issuance of our
common stock and preferred stock.
22
<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 will
continue to generate cash flow at or above current levels or that currently
anticipated improvements will be achieved. Also, there can be no assurance 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. 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.
Inflation
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
Euro Conversion
On January 1, 1999, a single currency called the Euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union agreed to
adopt the Euro as their common legal currency on that date. Fixed conversion
rates between these countries' existing currencies (legacy currencies) and the
Euro were established as of that date. The legacy currencies are scheduled to
remain legal tender in these participating countries between January 1, 1999
and January 1, 2002 (not later than July 1, 2002). During this transition
period, parties may settle transactions using either the Euro or a
participating country's legacy currency.
As most of the Company's sales and expenditures are denominated in United
States dollars, management does not believe that the Euro conversion will have
a material adverse impact on the business or financial condition. The Company
does not expect the cost of system modifications to be material and the Company
will continue to evaluate the impact of the Euro conversion.
Information Regarding Forward-Looking Statements
The Company has included "forward-looking statements" throughout this
quarterly report filed on Form 10-Q. 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.
23
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates. The Company's
policy is to manage interest rates through use of a combination of fixed and
floating rate debt. Interest rate swaps may be used to adjust interest rate
exposures when appropriate, based upon market conditions.
<TABLE>
<CAPTION>
Fair Value
June 30,
Expected maturity dates 2000 2001 2002 2003 2004 Thereafter Total 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 $1,062,829
Average interest
rates--fixed.......... 9.5%
9 1/8% Senior Notes due
2006................... -- -- -- -- -- 900,000 900,000 862,932
Average interest
rates--fixed.......... 9.1%
9 5/8% Senior Notes due
2008................... -- -- -- -- -- 800,000 800,000 779,012
Average interest
rates--fixed.......... 9.6%
Senior Secured Revolving
Credit Facility........ -- -- -- -- $960,000 -- 960,000 960,000
Average interest
rates--variable....... (1)
Racal Term Loan A....... -- -- -- -- -- 607,201 607,201 607,201
Average interest
rates--variable....... (2)
Racal Term Loan B and
Ancillary Facility..... -- -- -- -- -- 156,203 156,203 156,230
Average interest
rates--variable....... (3)
Medium Term Notes,
7.51%-9.3% Due 2000 to
2021................... $69,500 $71,500 -- -- 20,000 100,000 261,000 247,243
Average interest
rates--fixed.......... 9.0%
7 1/4% Senior Notes due
2004................... -- -- -- -- 300,000 -- 300,000 272,168
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................... -- -- -- -- -- 200,000 200,000 185,904
Average interest
rates--fixed.......... (4)
IPC 10.7/8% Senior Notes
due 2008............... -- -- -- -- -- 247,700 247,700 236,369
Average interest
rates--fixed.......... 10.9%
Other................... $ 1,801 $ 1,873 $ 2,025 -- -- 5,130 10,829 10,829
Average interest
rates--fixed.......... (7)
DERIVATIVE INSTRUMENTS
Interest rate swap
floating for fixed--
Contract notional
amount................. -- -- -- -- -- 200,000 200,000 209,056
Fixed rate assumed by
GCL................... (8)
Variable rate assumed
by Counterparty....... 7.3%
Interest rate swap fixed
for floating--Contract
notional amount........ -- -- -- -- $689,750 $ 189,750 $ 879,500 $ 861,322
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%. The effective
interest rate was 8.9% as of June 30, 2000.
(2) The interest rate is British pound LIBOR + 2.50%. The effective interest
rate was 9.0% as of June 30, 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 8.9% as of June
30, 2000.
24
<PAGE>
(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 8.9% as of
June 30, 2000.
(6) The interest rate is 1 month US dollar LIBOR + 2.50%, which was 9.2% as of
June 30, 2000.
(7) Various fixed and floating rate obligations with interest rates ranging
from 0% to 9.3%.
(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 6.2% on June 30, 2000. GCL also has two US dollar denominated
swaps. The interest rate is 1 month US dollar LIBOR, which was 6.7% as of
June 30, 2000.
Foreign Currency Risk
For those subsidiaries using the U.S. dollar as their functional currency,
translation adjustments are recorded in the accompanying condensed consolidated
statements of operations.
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 six
months ended June 30, 2000 and 1999, the Company 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.
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
25
<PAGE>
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.
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 April 2000, Global Crossing Ltd. 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
per share for net proceeds of approximately $970 million. In May 2000, pursuant
to an over-allotment option held by the underwriters of the preferred stock,
Global Crossing Ltd. issued an additional 600,000 shares of 6 3/4% cumulative
convertible preferred stock for net proceeds of approximately $146 million.
Global Crossing Ltd. is using the proceeds of these offerings for general
corporate purposes, principally capital for the expansion of its business.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual General Meeting of Shareholders of the Company was held on June
15, 2000. All of the director nominees were elected at the Annual General
Meeting pursuant to Proposal No. 1. The names of the nominees and the results
of the voting were as follows:
<TABLE>
<CAPTION>
Shares
Nominee Shares For Withheld
------- ----------- ---------
<S> <C> <C>
Norman Brownstein................................... 668,162,548 9,942,211
Thomas J. Casey..................................... 668,505,482 9,599,277
William E. Conway, Jr............................... 669,160,149 8,944,610
Leo J. Hindery, Jr.................................. 668,229,642 9,875,117
James F. McDonald................................... 669,106,065 8,998,694
</TABLE>
26
<PAGE>
Each of the other Proposals submitted for Shareholder approval at the Annual
General Meeting was approved. The results of the voting were as follows:
<TABLE>
<CAPTION>
Proposal Number and Shares Shares Broker
Description For Against Abstentions Non-Votes
------------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
2. Proposal to appoint Arthur
Andersen as independent
auditors of Global
Crossing Ltd. for 2000 and
approve the authority of
the board of directors of
Global Crossing Ltd. to
determine their
remuneration.............. 673,701,052 1,888,028 2,215,679
3. Proposal to amend the 1998
Global Crossing Ltd. Stock
Incentive Plan, including
an increase in the number
of authorized shares of
Global Crossing Ltd.
common stock reserved for
issuance under that plan.. 459,793,659 55,755,936 4,869,086 157,686,078
4. Proposal to approve the
Global Crossing Senior
Executive Incentive
Compensation Plan......... 490,884,036 24,623,591 4,911,053 157,686,079
</TABLE>
Item 5. Other Information
Not applicable.
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
<TABLE>
<C> <S>
2.1 Stock Purchase Agreement, dated as of July 11, 2000, by and among the
Registrant, Global Crossing North America, Inc. and Citizens
Communications Company (incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K filed on July 19, 2000).
10.1 The Global Crossing Ltd. Deferred Compensation Plan for Directors
(incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-8 filed on June 14, 2000).
10.2 The Global Crossing Ltd. Deferred Compensation Plan for Executives
(incorporated by reference to Exhibit 4.2 to the Registration
Statement on Form S-8 filed June 14, 2000).
10.3 Option Limitation Agreement, dated as of February 22, 2000, among the
Registrant, IPC Communications, Inc., IXnet Inc., and the individuals
signatory thereto (filed herewith).
27.1 Financial Data Schedule (filed herewith).
</TABLE>
(b) Reports on Form 8-K.
During the quarter ended June 30, 2000, Global Crossing Ltd. filed the
following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated May 2, 2000 (date of earliest
event reported), filed on May 10, 2000, for the purpose of
reporting, under Item 5, the Registrant's first quarter 2000
results of operations.
2. Current Report on Form 8-K dated June 14, 2000 (date of
earliest event reported), filed on June 16, 2000, for the
purpose of reporting, under Items 2 and 7, the acquisition of
IPC Communications, Inc. and providing certain historical and
pro forma financial information relating thereto and IXnet,
Inc.
27
<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 Officer)
August 14, 2000
28
