<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 333-61457
GLOBAL CROSSING HOLDINGS LTD.
(Exact name of registrant as specified in its charter)
BERMUDA 98-0186828
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
WESSEX HOUSE
45 REID STREET
HAMILTON HM12, BERMUDA
(Address of principal executive offices)
(441) 296-8600
(Registrant's telephone number, including area code)
THE REGISTRANT, A WHOLLY OWNED SUBSIDIARY OF GLOBAL CROSSING LTD., MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND (B) OF FORM 10-Q AND IS
THEREFORE FILING THIS FORM WITH REDUCED DISCLOSURE FORMAT PURSUANT TO GENERAL
INSTRUCTION H(2).
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 2, 1999: 1,200,000 shares.
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
For The Quarter Ended March 31, 1999
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1999 March 31, 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
REVENUES $178,183 $ -
-------- -------
EXPENSES:
Cost of capacity sold 69,387 -
Operations, administration and maintenance 11,861 -
General and administrative 11,540 2,372
Stock related expense 5,079 638
Sales and marketing 9,758 784
Network development 4,812 -
Provision for doubtful accounts 1,864 -
-------- -------
114,301 3,794
-------- -------
OPERATING INCOME (LOSS) 63,882 (3,794)
EQUITY IN LOSS OF AFFILIATES (2,736) -
INTEREST INCOME (EXPENSE):
Interest income 14,359 95
Interest expense (23,779) (23)
-------- -------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 51,726 (3,722)
Provision for income taxes (16,142) -
-------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE 35,584 (3,722)
Cumulative effect of change in accounting principle, net of
income tax benefit of $1,400 (14,710) -
-------- -------
NET INCOME (LOSS) 20,874 (3,722)
Preferred stock dividends (13,044) (4,407)
-------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDER $ 7,830 $(8,129)
======== =======
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
3
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
--------------- ------------------
(Unuadited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 561,707 $ 803,427
Restricted cash and cash equivalents 69,668 77,190
Accounts receivable, net of allowance for
doubtful accounts of $6,097 as of March 31,
1999 and $4,233 as of December 31, 1998 95,528 71,195
Other assets and prepaid costs 51,688 30,526
---------- ----------
Total current assets 778,591 982,338
Restricted cash and cash equivalents 422,933 367,600
Accounts receivable 70,884 43,315
Capacity available for sale 577,273 574,849
Property, plant and equipment, net 45,400 5,500
Construction in progress 532,653 428,207
Deferred finance costs, net of accumulated amortization
of $13,437 as of March 31, 1999 and $10,130
as of December 31, 1998 42,527 45,757
Investment in affiliates 187,458 177,334
Other assets 44,200 20,000
---------- ----------
Total assets $2,701,919 $2,644,900
========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs $ 143,363 $ 129,081
Accounts payable and accrued liabilities 23,054 28,353
Accrued interest 29,501 10,053
Deferred revenue 42,455 44,197
Income taxes payable 6,433 15,604
Current portion of long term debt 9,774 6,393
Current portion of obligations under inland
services agreements and capital leases 11,536 14,572
---------- ----------
Total current liabilities 266,116 248,253
Long term debt 248,475 269,598
Senior notes 796,588 796,495
Deferred revenue 50,725 25,325
Obligations under inland services agreements and
capital leases 16,158 24,520
Deferred income taxes 31,779 9,654
---------- ----------
Total liabilities 1,409,841 1,373,845
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK --
5,000,000 shares issued and outstanding, $100
liquidation preference per share (including
accrued dividends of $17,300 as of March 31, 1999
and $4,375 as of December 31, 1998, net of
unamortized issuance costs of $16,881 as of March 31,
1999 and $17,000 as of December 31, 1998) 500,419 487,375
---------- ----------
SHAREHOLDER'S EQUITY:
Common stock, par value $.01, 1,200,000 shares authorized,
issued and outstanding as of March 31, 1999 and
December 31, 1998, respectively 12 12
Other shareholder's equity 820,048 832,943
Accumulated deficit (28,401) (49,275)
---------- ----------
791,659 783,680
---------- ----------
Total liabilities and shareholder's equity $2,701,919 $2,644,900
========== ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance sheets.
4
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For The Three Months Ended
March 31, 1999 March 31, 1998
--------------------------- ---------------
(Unaudited)
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income (loss) applicable to common shareholder $ 7,830 $ (8,129)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cumulative effect of change in accounting principle 14,710 -
Equity in loss of affiliates 2,736 -
Depreciation and amortization 211 30
Provision for doubtful accounts 1,864 -
Stock related expenses 5,079 -
Preferred stock dividends 13,045 4,407
Amortization of discount on preferred shares
and senior notes 92 -
Capacity available for sale excluding cash
expenditures for investing activities 58,539 -
Deferred income taxes 22,125 -
Currency translation account (4,930) -
Changes in operating assets and liabilities:
Increase in accounts receivable (53,766) -
Increase in other assets and prepaid costs (45,362) (11,779)
Increase (decrease) in deferred revenue (14,642) 9,225
Decrease in income taxes payable (9,171) -
Increase (decrease) in accounts payable and
accrued liabilities (5,299) 2,384
Decrease in obligations under inland services agreements (11,143) (7,642)
--------- ---------
Net cash used in operating activities (18,082) (11,504)
--------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Contribution of capital from Global Crossing Ltd. - 1,062
Proceeds from long term debt - 155,113
Repayment of long term debt (17,742) -
Finance costs incurred (77) (247)
Cash reimbursement to certain shareholders - (7,047)
Increase in restricted cash and cash equivalents (47,811) (13,905)
--------- ---------
Net cash provided by (used in) financing activities (65,630) 134,976
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale (143,337) (122,187)
Investment in affiliates (12,860) -
Purchases of property, plant and equipment (1,811) -
--------- ---------
Net cash used in investing activities (158,008) (122,187)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (241,720) 1,285
CASH AND CASH EQUIVALENTS, beginning of period 803,427 1,453
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 561,707 $ 2,738
========= =========
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING ACTIVITIES:
Costs incurred for construction in progress and
capacity available for sale $ 180,119 $ 102,445
(Increase) decrease in accrued construction costs (14,282) 28,271
Increase in accrued interest (19,448) (4,361)
Amortization of deferred finance costs (3,307) (1,206)
(Increase) decrease in obligations under capital leases 255 (2,962)
--------- ---------
Cash paid for construction in progress and
capacity available for sale $ 143,337 $ 122,187
========= =========
Purchases of property, plant and equipment $ (38,300) $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid and capitalized $ 6,132 $ 4,446
========= =========
Interest paid (net of capitalized interest) $ 772 $ 4,423
========= =========
Cash paid for taxes $ 1,788 $ -
========= =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
5
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(Unaudited)
(1) ORGANIZATION AND BACKGROUND
Global Crossing Holdings Ltd. (together with its consolidated subsidiaries, the
Company), a Bermuda company, is a wholly-owned subsidiary of Global Crossing
Ltd. (together with its consolidated subsidiaries, GCL). The Company is an
independent provider of global Internet and long distance telecommunications
facilities and services utilizing a network of undersea and terrestrial digital
fiber optic cable systems (the Global Crossing Network). The Company operates
as a "carriers' carrier", providing tiered pricing and segmented products to
licensed providers of international telecommunications services. Capacity on
the Global Crossing Network is offered to all customers on an open, equal access
basis. The systems under development by the Company will form a state-of-the-
art interconnected worldwide high capacity fiber optic network. The systems
completed or under development will form a state-of-the-art interconnected
worldwide high capacity fiber optic network: Atlantic Crossing-1 (AC-1) and the
recently announced Atlantic Crossing-2 (AC-2), undersea systems connecting the
United States and Europe; Pacific Crossing (PC-1), an undersea system connecting
the United States and Asia; Mid Atlantic Crossing (MAC), an undersea system
connecting the eastern United States and the Caribbean; Pan American Crossing
(PAC), an undersea system connecting the western United States, Mexico, Panama,
Venezuela and the Caribbean; South American Crossing (SAC), an undersea and
terrestrial system connecting the major cities of South America to MAC, PAC and
the rest of the Global Crossing Network; Pan European Crossing (PEC), a
terrestrial system connecting 24 European cities to AC-1; and a terrestrial
system (GAL) to be operated by Global Access Ltd., connecting certain cities in
Japan to PC-1. The undersea component of this initial portion of the Global
Crossing Network totals 74,500 km and the terrestrial component adds 13,400 km
for a total of 87,900 km. The Company is in the process of developing several
new undersea and terrestrial cable systems and evaluating other business
development opportunities which will complement the Global Crossing Network.
(2) BASIS OF PRESENTATION
General
The accompanying unaudited interim condensed consolidated financial statements
as of March 31, 1999 and for the three months ended March 31, 1999 and 1998,
include the accounts of the Company and its subsidiaries. All material inter-
company balances and transactions have been eliminated. The unaudited interim
condensed consolidated financial statements reflect all adjustments, consisting
of normal recurring items, which are, in the opinion of management, necessary to
present a fair statement of the results of the interim period presented. The
results of operations for any interim period are not necessarily indicative of
results for the full year ending December 31, 1999.
These unaudited condensed consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do not
include all footnotes and certain financial presentation normally required under
generally accepted accounting principles. Therefore, these financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1998.
Global Crossing (Cayman) Ltd. (formerly Global Crossing Ltd., LDC) ("Old GCL")
Prior to the Old GCL Exchange, equity ownership in GCH and its
subsidiaries was held through Old GCL, with Old GCL holding all of the shares of
common stock of GCL, which owns all of the shares of GCH. In connection with
the Old GCL Exchange, which occurred on August 13, 1998, each shareholder of Old
GCL (other than affiliates of Canadian Imperial Bank of Commerce (collectively,
"CIBC")) agreed to exchange their interests in Old GCL for shares of common
stock of GCL at a rate of 1.5 shares of common stock of GCL per share of common
stock of Old GCL. Immediately following the Old GCL Exchange, CIBC became the
sole beneficial owner of Old GCL.
Since the consummation of the Old GCL Exchange, Old GCL's only asset is
its ownership interest in GCL. Old GCL engages in no business activities other
than holding GCL shares. As of March 31, 1999, Old GCL was also a guarantor
under GCH's 9-5/8% Senior Notes due 2008.
Unaudited financial information for Old GCL for the three months ended
March 31, 1999 is hereby incorporated by reference to the Quarterly Report on
Form 10-Q of Old GCL for the quarterly period ended March 31, 1999 (File No.
333-61457-08).
(3) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
The Company adopted Statement of Position 98-5 (SOP 98-5), "Reporting on the
Cost of Start-Up Activities," issued by the American Institute of Certified
Public Accountants, during the three months ended March 31, 1999. SOP 98-5
requires that certain start-up expenditures previously capitalized during system
development must now be expensed. The Company incurred a one-time charge during
the three months ended March 31, 1999 of $15 million (net of tax benefit) that
represents start-up costs incurred and capitalized during previous periods.
During the three months ended March 31, 1999, the Company incurred $4 million of
start-up expenditures, which were expensed as incurred.
(3) NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," (SFAS 133) which is effective for periods beginning
after June 15, 1999. Management does not expect the impact of the adoption of
SFAS 133 on the Company's financial position or results of operations to be
material.
6
<PAGE>
(4) NET LOSS APPLICABLE TO COMMON SHAREHOLDER
Since the Company is a wholly-owned subsidiary of GCL, per share information is
not presented.
(5) SHAREHOLDER'S EQUITY
Stock Option Plan. Employees of the Company participate in the stock option
plan of GCL and the Company is therefore allocated its applicable share of stock
related expense. The Company recognized $5 million and $1 million of allocated
stock compensation expense during the three months ended March 31, 1999 and
1998, respectively.
(6) SEGMENT INFORMATION
The Company is a provider of Internet and long distance telecommunications
facilities and related services supplying its customers with global "point-to-
point" connectivity. As such, the Company is engaged in only one business
segment worldwide and derives its revenues from customers located in the
following geographic regions: the Americas, Europe and Asia Pacific. The
Company also maintains long-lived assets in these regions; however, the majority
of these assets are in international waters. In addition, the Company derives
all of its revenues from companies in the Internet and long distance
telecommunications industry and, as a result, has concentration of credit risk
in this industry.
(7) CONCENTRATION OF RISKS
During the three months ended March 31, 1999, there were two customers that
accounted for 19% and 15%, respectively, of total revenues.
As of March 31, 1999, the Company had two customers representing 15% and 11% of
outstanding receivables, respectively. Subsequent to March 31, 1999, one of
these customer's amounts were collected.
(8) RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the accompanying unaudited
condensed consolidated financial statements for consistent presentation.
(9) SIGNIFICANT EVENTS
Lucent Agreement
On January 26, 1999, GCL signed a technology agreement with Lucent Technologies
Inc. (Lucent) that will give the Company access to Lucent's terrestrial and
undersea fiber optic technology. In addition, the Company entered into a supply
contract with Lucent to provide fiber and equipment for PEC. As part of the
supply contract, Lucent will provide certain financing for PEC. The agreement
with Lucent also provides for financing of future systems if they are selected
as the contractor.
South American Crossing
On March 11, 1999, the Company announced plans for the development of SAC, an
18,000 km undersea and terrestrial fiber optic network directly linking the
major cities of South America through MAC and PAC to the United States, Mexico,
Central America, the Caribbean, Asia and Europe. The Company expects that SAC
will cost approximately $1,130 million to construct. Service is scheduled to
commence in the fourth quarter of 2000, with full ring completion expected in
the first quarter of 2001. The Company plans to build SAC in three phases. The
first two phases, providing Argentina and Brazil with connectivity to the Global
Crossing Network, are scheduled to commence service in the fourth quarter of
2000. The final phase, completing the loop around the continent, is scheduled
for completion in the first quarter of 2001. The undersea portion of SAC is
currently planned to be wholly-owned, while the terrestrial portion is expected
to be constructed through joint-venture arrangements.
Frontier Merger
On March 16, 1999, GCL entered into a definitive agreement and plan of merger
with Frontier Corporation, a New York corporation (Frontier), that will result
in Frontier becoming a wholly-owned subsidiary of GCL or a new parent holding
company of GCL. Frontier is one of the leading providers of facilities-based
integrated communications and Internet services in the United States. The board
of directors of each company has approved the merger. Completion of the
transaction is anticipated to occur during the third quarter of 1999. The
transaction is subject to approval by the shareholders of GCL and Frontier and
to other customary conditions, such as receipt of regulatory approvals. GCL
expects the merger will be accounted for using the purchase method of
accounting.
7
<PAGE>
Atlantic Crossing-2
On March 24, 1999, the Company announced its intention to develop and construct
AC-2, an additional eight fiber pair cable connecting the United States to
Europe. AC-2 will be integrated with the two transatlantic cables of AC-1,
adding a third high-capacity cable across the Atlantic for the Global Crossing
Network and providing AC-2 with self-healing capabilities. The new cable will
cost approximately $750 million and is expected to be in service in the first
quarter of 2001.
(10) SUBSEQUENT EVENTS
Global Marine Acquisition
On April 26, 1999, GCL announced a definitive agreement to acquire the Global
Marine business of Cable & Wireless plc in a transaction valued at approximately
$885 million, consisting of a combination of cash and assumed indebtedness.
Global Marine is an undersea cable installation and maintenance company. The
transaction, which is expected to be completed within 60 days, is subject to
certain regulatory and other approvals. GCL expects the acquisition will be
accounted for using the purchase method of accounting.
Tyco Submarine Systems Agreement
On April 29, 1999, the Company announced a contract with Tyco Submarine Systems
Ltd. (TSSL), valued initially at over $700 million pursuant to which the SAC
cable system will be designed, manufactured and installed by TSSL. The contract
provides for options for the Company to purchase future upgrades to the initial
base system, in order to substantially increase the capacity of the base system.
Lucent will supply fiber and equipment to TSSL for the SAC system, as well as
financing to the Company under terms of a previous agreement between Lucent and
the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Abbreviated pursuant to General Intruction H(2).)
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31,
1998
Revenues. During the three months ended March 31, 1999, the Company recognized
revenues of $173 million on sales of capacity relating to AC-1, in addition to
revenues from operation and maintenance services of $5 million. The full AC-1
ring was completed in February 1999. There were no sales or related costs
recognized in the three months ended March 31, 1998, as the Company was in its
development stage.
Cost of capacity sold. For the three months ended March 31, 1999, the Company
recognized $69 million in cost of capacity sold, resulting in a gross margin on
capacity sales of 60%. Non-cash cost of undersea capacity sold was $53 million
during the three months ended March 31, 1999. The Company calculates cost of
undersea capacity sold for AC-1 based on the ratio of the period's actual
revenue to total expected future revenues given a minimum projected sales
capacity of 512 circuits times the unamortized construction cost of the system.
This calculation of cost of sales matches costs with the relative value of each
sale. Cost of capacity sold also includes the cost of terrestrial capacity sold,
a cash expense, during the three months ended March 31, 1999, of $16 million.
Operations, administration and maintenance (OA&M). The Company incurred OA&M
costs on AC-1 of $12 million during the three months ended March 31, 1999. The
Company has entered into an agreement with TSSL relating to operations,
administration and maintenance of AC-1 which limits the Company's total OA&M
expense for the system. Following the AC-1 full system ready-for-service date,
the Company anticipates that its OA&M costs will be largely recovered through
charges to its customers under the terms of Capacity Purchase Agreements (CPAs).
There were no OA&M costs in the three months ended March 31, 1998, as the
Company was in its development stage.
General and administrative. General and administrative expenses totaled $12
million during the three months ended March 31, 1999 and was comprised
principally of salaries, employee benefits and recruiting fees reflecting the
Company's staffing for multiple systems, travel, professional fees, insurance
costs, occupancy costs, plus depreciation and amortization. During the three
months ended March 31, 1998, the Company incurred general and administrative
costs of $2 million.
Stock related compensation expense. The Company recognized $5 million and $1
million of stock compensation expense during the three months ended March 31,
1999 and 1998, respectively, relating to options issued under GCL's Stock
Incentive Plan, including certain stock related expense related to stock options
and rights to purchase stock awarded to consultants and a key executive,
accounted for under SFAS No. 123.
Sales and marketing. During the three months ended March 31, 1999, the Company
incurred sales and marketing expenses of $10 million, including commissions to
TSSL of $8 million incurred on revenues recognized during this period. During
the three months ended March 31, 1998, the Company incurred sales and marketing
costs of $1 million. The increase from 1998 was due to additions in headcount,
occupancy costs, plus marketing costs, commissions paid and other promotional
expenses to support the Company's rapid growth.
Network development. The Company incurred network development costs during the
three months ended March 31, 1999 of $5 million relating to network development,
and this amount is comprised principally of salaries and professional fees. No
such costs were incurred during the three months ended March 31, 1998.
Equity in loss of affiliates. In April 1998, the Company entered into a joint
venture to construct an undersea cable system, PC-1. PC-1 is owned and operated
by Pacific Crossing Ltd. (PCL). The Company has an economic interest in PCL
represented by a 50% direct voting interest and, through one of the joint
venture partners, owns a further 8% economic non-voting interest. In December
1998, a wholly-owned subsidiary of the Company entered into a joint venture to
construct and operate GAL. The $3 million loss is comprised of a loss of $2
million representing the Company's 58% equity in the loss of PCL and a loss of
$1 million representing the Company's 49% equity in Global Access Ltd. for the
three months ended March 31, 1999.
Interest income. The Company earned interest income of $14 million and $0.1
million in the three months ended March 31, 1999 and 1998, respectively. Such
interest income represents earnings on cash raised from financings and on CPA
deposits.
Interest expense. During the three months ended March 31, 1999, the Company
incurred $29 million in interest costs, including the amortization of finance
costs and debt discount. Of this amount, the Company capitalized to
construction in progress interest of $5 million, and expensed $24 million.
During the three months ended March 31, 1998, the Company incurred interest
costs of $4 million, substantially all of which was capitalized to construction
in progress.
Provision for income taxes. The income tax provision of $16 million for the
three months ended March 31, 1999, provides for taxes on profits earned from
capacity sales and OA&M revenues where subsidiaries of the Company have a
presence in taxable jurisdictions. During the three months ended March 31,
1998, the Company incurred operating losses, which related to non-taxable
jurisdictions and therefore, such losses could not be applied against future
taxable earnings. Accordingly, no tax provision or deferred tax benefit was
recorded as of March 31, 1998.
9
<PAGE>
Cumulative effect of change in accounting principle. The Company adopted
Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of Start-Up
Activities," issued by the American Institute of Certified Public Accountants,
during the three months ended March 31, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. The Company incurred a one-time charge during the three months
ended March 31, 1999 of $15 million (net of tax benefit) that represents start-
up costs incurred and capitalized during previous periods.
Net income (loss). During the three months ended March 31, 1999 the Company
reported net income of $21 million compared to a net loss of $4 million in the
three months ended March 31, 1998.
Preferred stock dividends. Preferred stock dividends for the three months ended
March 31, 1999 and 1998, were $13 million and $4 million, respectively.
Net income (loss) applicable to common shareholder. During the three months
ended March 31, 1999, the Company reported a net income applicable to common
shareholder of $8 million and during the three months ended March 31, 1998, the
Company reported a net loss applicable to common shareholder of $8 million.
LIQUIDITY AND CAPITAL RESOURCES
Restricted cash and cash equivalents. At March 31, 1999, restricted cash and
cash equivalents includes: $231 million for PC-1 construction, $63 million for
PEC construction, $56 million for MAC construction, $38 million for funding
future interest payable on the senior notes and $104 million received pursuant
to CPAs restricted under the terms of the AC-1 credit facility.
As of March 31, 1999, the approximately $750 million initial cost of AC-1 had
been fully financed. The first contracted upgrade has been fully funded through
operating cash flow.
We estimate the total cost of developing and deploying AC-2, PC-1, MAC, PAC,
SAC, PEC and GAL to be approximately $4,945 million (excluding costs of
potential future upgrades and the amounts capitalized with respect to the
warrants issued in exchange for the rights to certain of such systems) which is
comprised of $750 million for AC-2, $1,200 million for PC-1, $330 million for
MAC, $495 million for PAC, $1,130 million for SAC, $850 million for PEC and $190
million for GAL. PC-1 will be financed by total equity investments of $400
million (we expect to provide approximately $231 million), with the remaining
$800 million of estimated costs to be financed through non-recourse project
indebtedness at the PC-1 level. We have funded our 49% interest in GAL from
cash on hand. With respect to MAC and PAC, we have made equity investments of
$110 million and $200 million, respectively. We have obtained $220 million in
non-recourse project financing from certain lenders to finance the remaining
construction costs of MAC. We expect to finance the remaining estimated $295
million in costs for PAC through either non-recourse indebtedness for which we
have negotiated a contractual commitment or through other corporate borrowings
for which we have commitments.
During October 1998, we announced the development of PEC for which the
construction costs are estimated to be $850 million. A portion of these costs
will be paid from the proceeds of the recent issuance of the Company's 10 1/2%
Senior Exchangeable Preferred Stock due 2008. Further, we expect to raise
additional capital required to finance this system through a combination of
commercial bank borrowings, non-recourse project debt, vendor financing and
sales of dark fiber. In this regard, we have entered into an agreement with
Cable & Wireless for the sale of more than $100 million of dark fiber on PEC.
During January 1999, we entered into a supply contract with Lucent to provide
fiber and equipment for this system and, as part of this contract, Lucent will
also furnish financing along with project management and integration services.
On May 5, 1999, we borrowed approximately $400 million under the Lucent
facility.
The Company has raised or expects to raise the additional capital required to
finance AC-2, SAC and any additional cable systems through a combination of
commercial bank borrowings, non-recourse project financings, public and private
offerings of debt and equity securities, vendor financing, and sales of dark
fiber on PEC. We have traditionally secured project indebtedness for
approximately 65% of system costs. The actual amounts of our future capital
requirements will depend on certain factors including the cost of developing our
cable systems, the speed of developing our systems and the pricing of our
services. There can be no assurance that financing for such systems will be
available to us or, if available, that such financing can be obtained on a
timely basis or on terms acceptable to us.
The Company has extended financing to customers in connection with certain CPAs.
The financing terms provide for installment payments over a limited number of
periods 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 used in operating activities was $18 million for the three months ended
March 31, 1999 and $12 million for the three months ended March 31, 1998, and
principally represents sales and marketing, network development and general and
administrative expenses paid less cash received from deposits and payments for
activated capacity pursuant to signed CPAs, plus interest income received.
Cash used in financing activities was $66 million for the three months ended
March 31, 1999, and primarily represents the repayments of borrowings under the
AC-1 credit facility and the increase in amounts held in restricted cash and
cash equivalents. Cash provided by financing activities of $135 million for the
three months ended March 31, 1998, primarily relates to proceeds from borrowings
under the AC-1 credit facility.
10
<PAGE>
Cash used in investing activities was $158 million and $122 million for the
three months ended March 31, 1999, and for the three months ended March 31,
1998, respectively, and represents cash paid for Construction in Progress and
cash investments in affiliates and property, plant and equipment.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
YEAR 2000 COMPLIANCE
We believe that our computer information systems are Year 2000 (Y2K) compliant.
We have established a Y2K compliance task force. The task force has identified
no potential material adverse effect on the two core components of our services:
(1) transmission of capacity and (2) management and maintenance of the
transmission paths. Our anticipated worst case scenario is failure of our
Network Operations Center. In the event the worst case scenario occurs
management of the network can be performed at the terminal stations with the
network element managers or at the equipment bays with the craft interface
terminal, in each case at minimal additional cost.
We are also subject to external forces that generally affect industry and
commerce, such as utility, transportation or other infrastructure failures and
interruptions. In addition to reviewing our own systems, we are submitting
requests to third party service providers to obtain information as to their
compliance efforts. We have received assurances from our major suppliers, TSSL
and Lucent, stating Y2K compliance status of their respective systems regarding
AC-1 (our only active system at this time). In addition, we received assurance
from Alcatel Submarine Networks, a supplier to MAC, that Alcatel is also Y2K
compliant. In the event that any of our material third party service providers
do not successfully and timely achieve Y2K compliance, our business or
operations could be adversely affected. We are developing contingency plans to
address any potential Y2K compliance failure due to significant third party
failures, although no such failure is expected. To date, response from material
third party service providers has not shown any of them to be non-compliant with
Y2K readiness plans.
We believe that costs of addressing our Y2K compliance will not have a material
adverse impact on our financial condition or results of operations.
EURO CONVERSION
On January 1, 1999, a single currency called the Euro was introduced in Europe.
Eleven of the fifteen member countries of the European Union agreed to adopt the
Euro as their common legal currency on that date. Fixed conversion rates
between these countries' existing currencies (legacy currencies) and the Euro
were established as of that date. The legacy currencies are scheduled to remain
legal tender in these participating countries between January 1, 1999 and
January 1, 2002 (not later than July 1, 2002). During this transition period,
parties may settle transactions using either the Euro or a participating
country's legacy currency.
As most of 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.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
We have included "forward-looking statements" throughout this quarterly report
filed on Form 10-Q. These statements describe our attempt to predict future
occurrences. We use the words "believe," "anticipate," "expect," "intend" and
similar expressions to identify forward-looking statements. Forward-looking
statements are subject to a number of risks, assumptions and uncertainties, such
as:
. our ability to complete our systems within currently estimated time frames
and budgets,
. our ability to sell capacity on our systems,
. our successful transition from a system development company to an operating
company, and
. our ability to compete effectively in a rapidly evolving and price
competitive marketplace.
This list is only an example of some of the risks, uncertainties and assumptions
that may affect our forward-looking statements. If any of these risks or
uncertainties materialize (or fail to materialize), or if the underlying
assumptions prove incorrect, actual results may differ materially from those
projected in the forward-looking statements.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently subject to any material legal claims or
proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.8* Employment agreement, dated as of February 19, 1999, between Global
Crossing Ltd. and Robert Annunziata.
- -------------
* Previously filed as exhibit to original quarterly report on Form 10-Q filed on
May 13, 1999.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
During the quarter ended March 31, 1999, Global Crossing Holdings Ltd.
filed the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated February 1, 1999 (date of earliest
event reported), filed on February 2, 1999, for the purpose of
reporting, under Item 5, Global Crossing Ltd.'s results of operations
for the fourth quarter and fiscal year ended December 31, 1998.
2. Current Report on Form 8-K dated March 16, 1999 (date of earliest event
reported), filed on March 19, 1999, for the purpose of reporting, under
Item 5, Global Crossing Ltd.'s execution of an agreement and plan of
merger with Frontier Corporation.
12
<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 Holdings Ltd.,
a Bermuda corporation
By: /s/ Robert Klug
-------------------------------
Robert Klug
Controller
September 2, 1999
13
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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