<PAGE>
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 September 30, 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 November 8, 1999: 1,200,000 shares.
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
For The Quarter Ended September 30, 1999
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
<TABLE>
<CAPTION>
<S> <C> <C>
Condensed Consolidated Statements of Operations 3
Business Segment Information 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Cash Flows 6
Condensed Consolidated Statements of Comprehensive Income 8
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES $255,110 $117,693 $623,573 $ 218,949
-------- -------- -------- ---------
EXPENSES:
Cost of sales 129,014 49,238 279,307 90,438
Operations, administration and maintenance 16,016 8,182 41,885 10,652
General and administrative 22,453 3,695 45,554 10,216
Sales and marketing 12,789 6,342 39,036 13,655
Network development 5,790 2,919 15,436 7,234
Stock related expense 6,732 1,655 15,289 8,249
Depreciation and amortization 11,990 72 16,029 545
Goodwill amortization 3,758 - 3,758 -
Provision for doubtful accounts 20,528 1,199 24,211 2,211
Termination of advisory services agreement - - - 139,669
-------- -------- -------- ---------
229,070 73,302 480,505 282,869
-------- -------- -------- ---------
OPERATING INCOME (LOSS) 26,040 44,391 143,068 (63,920)
EQUITY IN INCOME (LOSS) OF AFFILIATES 71 (1,037) (5,471) (1,036)
OTHER INCOME (EXPENSE):
Interest income 13,906 8,266 45,512 12,939
Interest expense (35,084) (17,984) (81,538) (25,660)
Other income, net 15,896 - 8,217 -
-------- -------- -------- ---------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES,
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE AND EXTRAORDINARY ITEM 20,829 33,636 109,788 (77,677)
Provision for income taxes (6,977) (7,331) (37,015) (16,332)
-------- -------- -------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE AND EXTRAORDINARY ITEM 13,852 26,305 72,773 (94,009)
Cumulative effect of change in accounting
principle, net of income tax benefit - - (14,711) -
-------- -------- -------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 13,852 26,305 58,062 (94,009)
Extraordinary loss on retirement of debt (14,865) - (14,865) (19,709)
-------- -------- -------- ---------
NET INCOME (LOSS) (1,013) 26,305 43,197 (113,718)
Preferred stock dividends (14,071) - (41,313) (8,306)
Redemption of preferred stock - - - (34,140)
-------- -------- -------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON
SHAREHOLDERS $(15,084) $ 26,305 $ 1,884 $(156,164)
======== ======== ======== =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
3
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
BUSINESS SEGMENT INFORMATION
As of and For the Three and Nine Months Ended September 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CARRIER SERVICES:
REVENUES $ 170,374 $ 117,693 $ 538,837 $ 218,949
========== ========== ========== ==========
OPERATING INCOME $ 38,293 $ 50,681 $ 186,368 $ 98,296
========== ========== ========== ==========
TOTAL ASSETS $2,390,168 $ 969,901 $2,390,168 $ 969,901
========== ========== ========== ==========
INSTALLATION AND MAINTENANCE:
REVENUES $ 84,736 $ - $ 84,736 $ -
========== ========== ========== ==========
OPERATING INCOME $ 7,287 $ - $ 7,287 $ -
========== ========== ========== ==========
TOTAL ASSETS $1,245,640 $ - $1,245,640 $ -
========== ========== ========== ==========
CORPORATE OPERATIONS AND OTHER:
OPERATING LOSS $ (19,540) $ (6,290) $ (50,587) $ (162,216)
========== ========== ========== ==========
TOTAL ASSETS $ 571,386 $1,079,195 $ 571,386 $1,079,195
========== ========== ========== ==========
CONSOLIDATED:
REVENUES $ 255,110 $ 117,693 $ 623,573 $ 218,949
========== ========== ========== ==========
OPERATING INCOME (LOSS) $ 26,040 $ 44,391 $ 143,068 $ (63,920)
========== ========== ========== ==========
TOTAL ASSETS $4,207,194 $2,049,096 $4,207,194 $2,049,096
========== ========== ========== ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
4
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and investments $ 172,980 $ 803,427
Restricted cash and investments 3,491 77,190
Accounts receivable, net of allowance for
doubtful accounts of $23,994 as of September 30,
1999 and $4,233 as of December 31, 1998 159,312 71,195
Other assets and prepaid costs 49,108 30,526
---------- ----------
Total current assets 384,891 982,338
Restricted cash and investments 297,088 367,600
Accounts receivable 48,520 43,315
Capacity available for sale 466,274 574,849
Property, plant and equipment, net 460,295 5,500
Construction in progress 1,496,024 428,207
Goodwill, net 645,517 -
Investment in affiliates 224,960 177,334
Other assets 183,625 65,757
---------- ----------
Total assets $4,207,194 $2,644,900
========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs $ 181,353 $ 129,081
Accounts payable and accrued liabilities 151,619 28,353
Accrued interest and preferred dividends 46,949 14,428
Deferred revenue 90,427 44,197
Income taxes payable 55,811 15,604
Current portion of long term debt - 6,393
Current portion of obligations under inland
services agreements and capital leases 12,950 14,572
---------- ----------
Total current liabilities 539,109 252,628
Long term debt 2,065,341 1,066,093
Deferred revenue 88,969 25,325
Obligations under inland services agreements and
capital leases 127,852 24,520
Deferred credits and other 63,344 9,654
---------- ----------
Total liabilities 2,884,615 1,378,220
---------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK:
5,000,000 shares issued and outstanding, $100
liquidation preference per share (net of
unamortized issuance costs of $14,353 as of September 30,
1999 and $17,000 as of December 31, 1998) 485,647 483,000
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, par value $.01, 1,200,000 shares
issued and outstanding as of September 30, 1999
and December 31, 1998, respectively 12 12
Other shareholders' equity 842,998 832,943
Accumulated deficit (6,078) (49,275)
---------- ----------
836,932 783,680
---------- ----------
Total liabilities and shareholders' equity $4,207,194 $2,644,900
========== ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated balance sheets.
5
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ 43,193 $(113,718)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Cumulative effect of change in accounting principle 14,711 -
Equity in loss of affiliates 5,471 1,036
Depreciation and amortization 19,787 545
Termination of Advisory Services Agreement - 135,000
Stock related expenses 15,289 8,249
Extraordinary loss on retirement of debt 14,865 19,709
Deferred income taxes 12,353 -
Provision for doubtful accounts 24,211 2,211
Other (6,486) -
Changes in operating assets and liabilities 206,626 29,525
----------- ---------
Net cash provided by operating activities 350,024 82,557
----------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale (1,068,912) (287,421)
Acquisition, net of cash acquired (864,002) -
Investment in affiliates (12,741) (6)
Loans to affiliates (22,833) -
Purchases of property, plant and equipment (56,162) -
----------- ---------
Net cash used in investing activities (2,024,650) (287,427)
----------- ---------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Contribution of capital from Global Crossing Ltd. - 405,050
Proceeds from issuance of senior notes - 796,231
Proceeds from long term debt 2,509,083 202,816
Repayment of long term debt (1,485,074) (15,054)
Retirement of 1997 issued senior notes - (159,750)
Redemption of 1997 issued preferred stock - (134,372)
Preferred dividends (41,313) -
Financing costs (82,728) (32,232)
Cash reimbursement to certain shareholders - (7,047)
(Increase) decrease in restricted cash and cash equivalents 144,211 (366,538)
----------- ---------
Net cash provided by financing activities 1,044,179 689,104
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (630,447) 484,234
CASH AND CASH EQUIVALENTS, beginning of period 803,427 1,453
----------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 172,985 $ 485,687
=========== =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
6
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING
ACTIVITIES:
Costs incurred for construction in progress
and capacity available for sale $(1,127,731) $(398,376)
(Increase) decrease in accrued construction costs 52,272 (34,651)
Increase in accrued interest - 27,020
Amortization of deferred finance costs 6,547 6,607
(Increase) decrease in obligations under capital leases - (179)
PCG Warrants - 112,158
----------- ---------
Cash paid for construction in progress and
capacity available for sale $(1,068,912) $(287,421)
=========== =========
Non-cash purchases of property, plant and equipment $ (38,300) $ -
=========== =========
Investment in affiliate $ - $(163,146)
PCG Warrants - 163,140
----------- ---------
$ - $ (6)
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid and capitalized $ 77,988 $ 28,632
=========== =========
Interest paid (net of capitalized interest) $ 41,234 $ 23
=========== =========
Cash paid for taxes $ 11,369 $ 4,904
=========== =========
Changes in operating assets and liabilities:
Accounts receivable $ (49,961) $ (64,961)
Capacity available for sale 108,575 (192,635)
Capacity available for sale and transferred from
construction in progress 60,963 238,554
Other assets and prepaid costs (42,470) (32,479)
Deferred revenue 53,460 45,335
Accounts payable and accrued liabilities 82,507 6,225
Income taxes payable 12,538 2,110
Obligations under inland services agreements (17,062) 18,049
Deferred credits and other (1,924) 9,327
----------- ---------
$ 206,626 $ 29,525
=========== =========
Detail of acquisition:
Assets acquired $ 601,422 $ -
Liabilities assumed (437,736) -
----------- ---------
Net Assets acquired $ 163,686 $ -
=========== =========
Net cash paid for acquisition $ 864,002 -
Cash acquired in acquisition 44,398 -
----------- ---------
Cash paid for acquisition including
transaction fees $ 908,400 -
=========== =========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
7
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended September 30, 1999 and 1998
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ---------------------
1999 1998 1999 1998
--------- -------- -------- -----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $(1,013) $26,305 $43,197 $(113,718)
FOREIGN CURRENCY TRANSLATION GAIN 26,996 - 17,772 -
------- ------- ------- ----------
COMPREHENSIVE INCOME (LOSS) $25,983 $26,305 $60,969 $(113,718)
======= ======= ======= ==========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
8
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 or Global Crossing), a
Company that is building and offering services over the world's first global
fiber optic network, consisting of 92,700 announced route miles and serving four
continents, 26 countries and more than 170 major cities. Upon completion of
GCL's currently announced systems, GCL's network, telecommunications and
Internet product offerings will be available to over 80% of the world's
international communications traffic. The systems completed or under development
by GCL will form a state-of-the-art interconnected worldwide high capacity fiber
optic network including: Atlantic Crossing-1 (AC-1) and Atlantic Crossing-2 (AC-
2), undersea systems connecting the United States and Europe; Pacific Crossing
(PC-1), an undersea system connecting the United States and Japan; East Asia
Crossing (EAC), an undersea system connecting several countries in Asia; North
American Crossing (NAC), formerly part of Frontier, a terrestrial system
connecting several major cities in the United States; Mid Atlantic Crossing
(MAC), an undersea system connecting the eastern United States and the
Caribbean; Pan American Crossing (PAC), a primarily 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), primarily a terrestrial system connecting 25
European cities to AC-1; and GAL, a terrestrial system connecting a number of
cities in Japan to PC-1. The Company is in the process of developing several new
undersea and terrestrial cable systems and evaluating other business development
opportunities which will complement the Global Crossing Network.
(2) BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
as of September 30, 1999 and for the three and nine months ended September 30,
1999 and 1998, include the accounts of Global Crossing Holdings Ltd. and its
subsidiaries. All material inter-company balances and transactions have been
eliminated. The unaudited interim condensed consolidated financial statements
reflect all adjustments, consisting of normal recurring items, which are, in the
opinion of management, necessary to present a fair statement of the results of
the interim period presented. The results of operations for any interim period
are not necessarily indicative of results for the full year.
These condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements do not
include all footnotes and certain financial presentation normally required under
generally accepted accounting principles. Therefore, these financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1998.
(3) ACQUISITIONS
Global Marine Acquisition
On July 2, 1999, the Company acquired the Global Marine business of Cable &
Wireless Plc in a transaction valued at approximately $870 million, consisting
of a combination of cash and assumed indebtedness. Global Marine currently
provides services, including maintenance under a number of long-term contracts,
to cables built by more than 100 carriers and is the world's largest undersea
cable installation and maintenance company with a fleet of 13 cable ships,
representing approximately 33 percent of the world's total, 21 submersible
vehicles and 1,200 employees servicing approximately 35 percent of the world's
undersea cable miles. Global Crossing initially financed the acquisition with
committed bank financing in the amount of $600 million and the remainder with
cash on hand.
9
<PAGE>
Frontier Corporation Merger
On September 28, 1999, GCL announced the consummation of the merger of GCF
Acquisition Corp., a New York corporation and a wholly owned subsidiary of
Global Crossing ("Merger Sub"), with and into Frontier Corporation, resulting in
Frontier becoming a direct, wholly owned subsidiary of GCL.
Under the terms of the amended merger agreement for the Frontier transaction,
Frontier shareholders received 2.05 Global Crossing common shares for each
outstanding common share of Frontier Corporation, for a total of approximately
355 million shares. Upon the effectiveness of the merger, the then outstanding
and unexercised options exercisable for shares of Frontier Corporation common
stock were converted into options exercisable for an aggregate of approximately
25 million shares of Global Crossing common stock, having the same terms and
conditions as the Frontier Corporation options, except that the exercise price
and the number of shares issuable upon exercise were divided and multiplied,
respectively, by 2.05. The purchase price of $10.3 billion assumes a Global
Crossing stock price of $22 15/16 per share, the average closing price of
Global Crossing common stock from September 1, 1999 through September 3, 1999,
and includes long term debt, accrued interest, and Frontier Corporation options
assumed by Global Crossing. For accounting purposes, the merger with Global
Crossing is deemed to have occurred as of the close of business on September 30,
1999.
In connection with the Frontier merger and the Global Marine Systems acquisition
(together, the Acquisitions), GCL has tentatively considered the carrying value
of the acquired assets to approximate their fair value, with all of the excess
of such acquisition costs being attributable to goodwill. GCL is in the process
of fully evaluating the assets acquired and, as a result, the purchase price
allocation among the tangible and intangible assets acquired (and their related
useful lives, including goodwill) may change. The initial evaluation of goodwill
anticipated a useful life of 40 years. Upon the completion of the final
evaluation, expected to be completed in the fourth quarter of 1999, it is
possible that the estimated useful life of goodwill could be less than 40 years.
The Acquisitions are being accounted for under the purchase method of accounting
for business combinations.
Pro Forma Results
Following are the unaudited pro forma results of the Company and Global Marine
Systems assuming the acquisitions had been completed at the beginning of each of
the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
REVENUES $255,110 $205,189 $797,069 $ 428,070
======== ======== ======== =========
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS $(15,084) $ 32,769 $ 196 $(160,178)
======== ======== ======== =========
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES AND EXTRAORDINARY ITEMS $ (219) $ 32,769 $ 29,771 $(140,469)
======== ======== ======== =========
</TABLE>
(4) NEW ACCOUNTING STANDARDS
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, certain sales of capacity may no longer be
recognized as revenue at the time the circuits are activated. We believe that
our sales of subsea capacity will continue to be recognized as revenue upon
activation of those circuits, because we believe that subsea capacity contracts
meet the conditions for sales type lease accounting. Beginning July 1, 1999,
revenues from the sale of terrestrial backhaul circuits are being amortized over
the terms of the contracts. The result was a deferral of $16 million of revenue
related to terrestrial backhaul circuits activated during the third quarter.
Previously, these circuits would have been recognized as current revenue. This
deferral in revenue recognition has no impact on cash flow. We note that
accounting practice and authoritative guidance on this subject are still
evolving, with resolution expected within the next several months.
With GCL's acquisition of Frontier completed, services are now expected to be a
significant source of revenue on each of our systems. Therefore, beginning
October 1, 1999, we initiated service contract accounting for our subsea
systems. Under service contract accounting, the investment in both subsea and
terrestrial systems will be depreciated over their economic lives, and revenues
related to service contracts will be recognized over the terms of the contracts.
However, revenues and costs related to the sale of indefeasible rights of use
for subsea circuits will continue to be recognized upon activation when
appropriate. If we had adopted service contract accounting effective January 1,
1999, there would not have been a material impact on our results of operations
during the year.
10
<PAGE>
In June 1999, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of SFAS No. 133" which deferred SFAS No. 133's
effective date to fiscal quarters beginning after June 15, 2000. This statement
standardizes the accounting for derivatives and hedging activities and requires
that all derivatives be recognized in the statement of financial position as
either assets or liabilities at fair value. Changes in the fair value of
derivatives that do not meet the hedge accounting criteria are to be reported in
earnings. Adoption of this standard is not expected to have a material effect
on the Company's financial position, results of operations or cash flows.
(5) NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS
Since the Company is a wholly owned subsidiary of GCL, per share information is
not presented.
(6) SHAREHOLDERS' 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. Details of GCL's Stock Incentive Plan are included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
(7) 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 and, through its Global Marine Systems subsidiary, providing
cable maintenance and installation services. In addition to its corporate
functions, the Company is engaged in two business segments 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.
(8) CONCENTRATION OF RISKS
During the three months ended September 30, 1999, there were two customers that
accounted for 16% and 16% of total revenues, respectively. 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.
(9) RECLASSIFICATIONS
Certain prior year amounts have been reclassified in the condensed consolidated
financial statements for consistent presentation.
(10) SIGNIFICANT EVENTS
Asia Global Crossing
On September 8, 1999, the Company announced the establishment, together with
Softbank Corp. and Microsoft Corporation, of a new joint venture company called
Asia Global Crossing that will own EAC. Upon formation of Asia Global Crossing,
anticipated to be completed by the end of 1999, the Company will contribute to
the venture its 58% ownership in PC-1 as well as its development rights in EAC.
Softbank and Microsoft will each contribute $175 million in cash to Asia Global
Crossing. In addition, Softbank and Microsoft have committed to make a total of
at least $200 million in Global Crossing network capacity purchases over a
three-year period, expected to be utilized primarily on PC-1 and EAC. Softbank
and Microsoft have also agreed to use Asia Global Crossing's network in the
region, subject to specific conditions.
(11) SUBSEQUENT EVENTS
Hutchison Global Crossing joint venture
On November 15, 1999, Global Crossing entered into an agreement with
Hutchison Whampoa Limited ("Hutchison") pursuant to which Global Crossing and
Hutchison agreed to form a joint venture to pursue fixed-line telecommunications
and Internet opportunities in Hong Kong. The joint venture, to be called
Hutchison Global Crossing, will be owned in equal parts by Global Crossing and
Hutchison. In exchange for its 50 percent interest, Hutchison agreed to
contribute to the joint venture its existing building-to-building fixed-line
telecommunications network in Hong Kong and certain Internet-related assets
currently held by Hutchison Telecommunications Limited. In exchange for its 50
percent interest, Global Crossing will contribute to the joint venture
international telecommunications capacity rights on the Global Crossing Network
valued at $200 million, $50 million in cash, as well as know how related to
Internet data centers. In addition, Global Crossing will issue to Hutchison $400
million aggregate liquidation preference of 6 3/8% cumulative preferred stock
convertible into common stock of Global Crossing.
Racal Telecom Acquisition
On October 11, 1999, the Company entered into an agreement to acquire Racal
Telecom, a group of wholly owned subsidiaries of Racal Electronics Plc, for
approximately $1.65 billion in cash. Racal Telecom owns one of the most
extensive fiber telecommunications networks in the UK consisting of
approximately 4,650 route miles of fiber laid alongside railway lines and
reaching more than 2,000 cities and towns. This network would be linked to PEC
and monitored by the Company's network operations center in London, which opened
September 16, 1999. The Company expects to complete this transaction by the end
of 1999.
11
<PAGE>
6 3/8% Cumulative Convertible Preferred Stock
On November 5, 1999, GCL issued 10,000,000 shares of its 6 3/8% Cumulative
Convertible Preferred Stock (Preferred Stock) with a liquidation preference of
$100 per share in a transaction pursuant to Rule 144A under the Securities Act
of 1933, as amended. Each share of Preferred Stock may be converted, at the
option of the holder, into 2.2222 shares of GCL common stock, resulting in a
conversion price of $45 per share of common stock received. The Company
received net proceeds of $970 million in the transaction.
$2 Billion Senior Notes
On November 12, 1999, the Company announced that it is in the process of
completing an offering of $1.1 billion in aggregate principal amount of its
Senior Notes Due 2009, and $0.9 billion in aggregate principal amount of its
Senior Notes Due 2006. The senior notes will be guaranteed by GCL. The senior
notes are expected to be issued on November 19, 1999, subject to market
conditions.
The net proceeds from the offerings will be used by the Company primarily to
refinance existing indebtedness consisting of term loans and revolving loans
under its corporate credit facility. The senior notes have not been registered
under the Securities Act of 1933, as amended, and will be offered and sold
pursuant to applicable exemptions from the registration requirements under that
Act.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
SEPTEMBER 30, 1998
Revenues.
During the three months ended September 30, 1999, revenues increased $137
million (117%) to $255 million from $118 million during the three months ended
September 30, 1998. The increase is due to carrier services revenue increasing
$53 million to $170 million during the three months ended September 30, 1999
from $118 million during the three months ended September 30, 1998.
Installation and maintenance revenue provided by Global Marine Systems during
the three months ended September 30, 1999 of $85 million, compared to unaudited
pro forma revenues during the three months ended September 30, 1998 of $87
million.
Cost of sales. For the three months ended September 30, 1999 and 1998, the
Company recognized $129 million and $49 million, respectively, in cost of sales.
The increase in cost of sales is primarily due to installation and maintenance
cost of sales relating to Global Marine Systems of $58 million during the three
months ended September 30, 1999. During the three months ended September 30,
1999 and 1998, carrier services cost of capacity sold was $71 million and $49
million, respectively.
Non-cash cost of undersea capacity sold was $66 million and $42 million during
the three months ended September 30, 1999 and 1998, respectively. During the
three months ended September 30, 1999, the Company calculated costs of undersea
capacity sold for AC-1 based on the ratio of the period's actual revenue to
total expected future revenues given a minimum projected sales capacity of 1024
circuits (512 circuits in 1998) times the construction cost of the system. This
calculation of cost of sales matches costs with the relative value of each sale.
Since the AC-1 system became operational, the Company has offered its capacity
pursuant to sales agreements that qualify for sales type lease accounting.
Under this method, revenues and cost of capacity sold are recognized in the
period the rights and obligations of ownership transfer to the purchaser and the
cost of the AC-1 system has been recorded as Capacity Available for Sale. (See
note 4 to condensed consolidated financial statements.)
Operations, administration and maintenance (OA&M). The Company incurred OA&M
costs of $16 million and $8 million during the three months ended September 30,
1999 and 1998, respectively. On September 16, 1999, the Company opened its
network operations center in London. The Company has entered into agreements
relating to operations, administration and maintenance which limits the
Company's total OA&M expense for each of its systems.
General and administrative. General and administrative expenses totaled $22
million and $4 million during the three months ended September 30, 1999 and
1998, respectively, and was comprised principally of salaries, employee benefits
and recruiting fees reflecting the Company's staffing for multiple systems,
travel, professional fees, insurance costs and occupancy costs.
Sales and marketing. During the three months ended September 30, 1999, the
Company incurred sales and marketing expenses of $13 million, including
commissions to TSSL of $7 million incurred on revenues recognized during this
period. During the three months ended September 30, 1998, the Company incurred
sales and marketing costs of $6 million, including commissions to TSSL of $3
million incurred on revenues recognized during this period. The increase from
1998 was due to additions in headcount, occupancy costs, plus marketing costs,
commissions paid and other promotional expenses to support the Company's rapid
growth.
12
<PAGE>
Network development. The Company incurred network development costs during the
three months ended September 30, 1999 and 1998 of $6 million and $3 million,
respectively. These amounts are comprised principally of salaries and
professional fees.
Stock related expense. The Company recognized $7 million and $2 million of
stock compensation expense during the three months ended September 30, 1999 and
1998, respectively, relating to options issued under its Stock Incentive Plan,
plus certain stock related expense related to stock options and rights to
purchase stock awarded to consultants, accounted for under SFAS No. 123.
Depreciation and amortization. For the three months ended September 30, 1999
and 1998, the Company incurred depreciation and amortization of $12 million and
$0.1 million, respectively.
Goodwill amortization. For the three months ended September 30, 1999, the
Company incurred goodwill amortization in connection with the acquisition of
Global Marine Systems of $4 million. Preliminary Goodwill associated with the
Global Marine Systems acquisition is currently being amortized over a 40-year
life.
Provision for doubtful accounts. For the three months ended September 30, 1999
and 1998, the Company recorded a provision for doubtful accounts of $21 million
and $1 million, respectively. The increase is due to additional reserves
required during the third quarter.
Equity in income (loss) of affiliates. For the three months ended September 30,
1999 and 1998, the Company recorded equity in income of affiliates of $0.1
million and a loss of $1 million, respectively. The increase is primarily due
to additional affiliate income from Global Marine Systems' affiliates, offset by
equity losses in the PC-1 and GAL joint ventures.
Interest income. The Company earned interest income of $14 million and $8
million in the three months ended September 30, 1999 and 1998, respectively.
Such interest income represents earnings on cash raised from financings and on
CPA deposits.
Interest expense. During the three months ended September 30, 1999, the Company
incurred $55 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 $20 million, and expensed $35 million.
During the three months ended September 30, 1998, the Company incurred $31
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 $13 million, and expensed $18 million.
Other income, net. During the three months ended September 30, 1999, other
income, net was comprised primarily of a $16 million realized gain on foreign
currency transactions.
Provision for income taxes. The income tax provision of $7 million and $7
million for the three months ended September 30, 1999 and 1998, respectively,
provides for taxes on profits earned from capacity sales, installation and
maintenance and OA&M revenues where subsidiaries of the Company have a presence
in taxable jurisdictions.
Extraordinary loss on retirement of debt. In July 1999, the Company recognized
an extraordinary loss resulting from the payoff of existing debt in connection
with the issuance of its $3 billion Senior Secured Credit Facility, comprising
of a write-off of $15 million of unamortized deferred financing costs.
Net income. During the three months ended September 30, 1999, the Company
reported a net loss of $1 million compared to a net income of $26 million in the
three months ended September 30, 1998.
Preferred stock dividends. Preferred stock dividends for the three months ended
September 30, 1999 and 1998 were $14 million and none, respectively.
Net income (loss) applicable to common shareholders. During the three months
ended September 30, 1999, the Company reported net loss applicable to common
shareholders of $15 million, resulting primarily from $15 million extraordinary
loss on retirement of debt and preferred stock dividends. During the three
months ended September 30, 1998, the Company reported net income applicable to
common shareholders of $26 million.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER
30, 1998
Revenues. During the nine months ended September 30, 1999, revenues increased
$405 million (185%) to $624 million from $219 million during the three months
ended September 30, 1998. The increase is due to carrier services revenue
increasing $320 million to $539 million during the nine months ended September
30, 1999 from $219 million during the nine months ended September 30, 1998 and
installation and maintenance revenue provided by Global Marine Systems of $85
million during the nine months ended September 30, 1999.
13
<PAGE>
Cost of sales. For the nine months ended September 30, 1999 and 1998, the
Company recognized $279 million and $90 million, respectively, in cost of sales.
The increase in cost of sales is primarily due to installation and maintenance
cost of sales relating to Global Marine Systems of $58 million during the nine
months ended September 30, 1999. During the nine months ended September 30,
1999 and 1998, carrier services cost of capacity sold was $221 million and $90
million, respectively. Non-cash cost of undersea capacity sold was $181 million
and $74 million during the nine months ended September 30, 1999 and 1998,
respectively.
Operations, administration and maintenance (OA&M). The Company incurred OA&M
costs of $42 million and $11 million during the nine months ended September 30,
1999 and 1998, respectively. On September 16, 1999, the Company opened its
network operations center in London. The Company has entered into agreements
relating to operations, administration and maintenance which limits the
Company's total OA&M expense for each of its systems.
General and administrative. General and administrative expenses totaled $46
million during the nine months ended September 30, 1999 and were comprised
principally of salaries, employee benefits and recruiting fees reflecting the
Company's staffing for multiple systems, travel, professional fees, insurance
costs and occupancy costs. During the nine months ended September 30, 1998, the
Company incurred general and administrative costs of $10 million.
Sales and marketing. During the nine months ended September 30, 1999, the
Company incurred sales and marketing expenses of $39 million, including
commissions to TSSL of $24 million incurred on revenues recognized during this
period. During the nine months ended September 30, 1998, the Company incurred
sales and marketing costs of $14 million, including commissions to TSSL of $8
million incurred on revenues recognized during this period. The increase from
1998 was due to additions in headcount, occupancy costs, plus marketing costs,
commissions paid and other promotional expenses to support the Company's rapid
growth.
Network development. The Company incurred network development costs during the
nine months ended September 30, 1999 and 1998 of $15 million and $7 million,
respectively. These amounts are comprised principally of salaries and
professional fees.
Stock related expense. The Company recognized $15 million and $8 million of
stock compensation expense during the nine months ended September 30, 1999 and
1998, respectively, relating to options issued under its Stock Incentive Plan,
plus 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.
Depreciation and amortization. For the nine months ended September 30, 1999 and
1998, the Company incurred depreciation and amortization of $16 million and $0.5
million, respectively.
Goodwill amortization. For the nine months ended September 30, 1999, the
Company incurred goodwill amortization in connection with the acquisition of
Global Marine Systems of $4 million. Preliminary Goodwill associated with the
Global Marine Systems acquisition is currently being amortized over a 40-year
life.
Provision for doubtful accounts. For the nine months ended September 30, 1999
and 1998, the Company recorded a provision for doubtful accounts of $24 million
and $2 million, respectively. The increase is due to additional reserves
required during the third quarter.
Termination of advisory services agreement. In connection with the development
and construction of AC-1, the Company entered into an advisory services
agreement with PCG Telecom Services LLC, an affiliate, providing for the payment
by the Company of an advisory fee of 2% of the gross revenues of ACL over a 25
year term. The Company's Board of Directors also approved similar advisory fees
and authorized the Company to enter into similar agreements with respect to
other cable systems under development by the Company. In June 1998, the Company
acquired the rights of the persons entitled to the fees payable under these
agreements in consideration for the issuance to those persons of shares of the
Company's common stock, which had an aggregate value of $135 million, and the
cancellation of approximately $3 million owed the Company under a related
advance agreement. In addition, the Company recognized approximately $2 million
of advisory fees incurred prior to termination of the contract.
Equity in loss of affiliates. For the nine months ended September 30, 1999 and
1998, the Company recorded equity in loss of affiliates of $5 million and a loss
of $1 million, respectively. The increase is primarily due to equity losses in
the PC-1 and GAL joint ventures, partially offset by affiliate income from
Global Marine Systems' affiliates.
Interest income. The Company earned interest income of $46 million and $13
million in the nine months ended September 30, 1999 and 1998, respectively.
This interest income represents earnings on cash raised from financings and on
CPA deposits.
14
<PAGE>
Interest expense. During the nine months ended September 30, 1999, the Company
incurred $117 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 $35 million, and expensed $82 million.
During the nine months ended September 30, 1998, the Company incurred $63
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 $37 million, and expensed $26 million.
Other income, net. During the nine months ended September 30, 1999, other
income, net was comprised of a $16 million realized gain on foreign currency
transactions and a $4 million gain on sale of securities available for sale,
partially offset by a $10 million loss on a foreign currency forward contract in
connection with the Global Marine acquisition and $2 million in professional
fees associated with a consent solicitation to amend the terms of the Company's
outstanding Senior Notes.
Provision for income taxes. The income tax provision of $37 million and $16
million for the nine months ended September 30, 1999 and 1998, respectively,
provides for taxes on profits earned from capacity sales, installation and
maintenance and OA&M revenues where subsidiaries of the Company have a presence
in taxable jurisdictions.
Cumulative effect of change in accounting principle. The Company adopted
Statement of Position 98-5 (SOP 98-5), "Reporting on the Cost of Start-Up
Activities," issued by the American Institute of Certified Public Accountants,
during the three months ended March 31, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. The Company incurred a one-time charge during the three months
ended March 31, 1999 of $15 million (net of tax benefit) that represents start-
up costs incurred and capitalized during previous periods.
Extraordinary loss on retirement of debt. In July 1999, the Company recognized
an extraordinary loss resulting from the payoff of existing debt in connection
with the commencement of its $3 billion Senior Secured Credit Facility,
comprising of a write-off of $15 million of unamortized deferred financing
costs. During May 1998, the Company recognized an extraordinary loss of $20
million in connection with the repurchase of Global Telesystems Holdings's
outstanding senior notes, comprising of a premium of $10 million and a write-off
of $10 million of unamortized deferred financing costs.
Net income (loss). During the nine months ended September 30, 1999 the Company
reported a net income of $43 million compared to a net loss of $114 million in
the nine months ended September 30, 1998.
Preferred stock dividends. Preferred stock dividends for the nine months ended
September 30, 1999 and 1998, were $41 million and $8 million, respectively.
Redemption of preferred stock. The redemption of Global Telesystems Holdings'
outstanding preferred stock occurred in June 1998 and resulted in a $34 million
charge against equity. This amount was comprised of a $16 million redemption
premium and a write-off of $18 million of unamortized discount and issuance
costs. The redemption premium and write-off of unamortized discount and
issuance costs are treated as a deduction to arrive at net loss applicable to
common shareholders in the consolidated statements of operations.
Net loss applicable to common shareholders. During the nine months ended
September 30, 1999, the Company reported net income applicable to common
shareholders of $2 million, resulting primarily from $41 million of dividends on
preferred stock and $15 million resulting from a cumulative effect of change in
accounting principle. During the nine months ended September 30, 1998, the
Company reported net loss applicable to common shareholders of $156 million,
resulting in a large part from $140 million in costs associated with the
termination of the advisory service agreement and $34 million of redemption of
Global Telesystems Holdings' outstanding preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
On July 2, 1999, Global Crossing entered into a $3 billion senior secured
corporate credit facility with a group of several lenders and The Chase
Manhattan Bank as administrative agent. The initial proceeds under the facility
were used to refinance outstanding balances under the AC-1 and MAC project
finance facilities, to refinance balances under a vendor financing arrangement
with Lucent, to refinance debt used for the purchase of the Global Marine
business from Cable & Wireless and for general corporate purposes. As of
September 30, 1999, the Company had a remaining unused balance of $1.3 billion
under the senior secured corporate credit facility.
Global Crossing anticipates the Racal acquisition costs to be approximately
$1.65 billion. The acquisition cost is expected to be financed with a $675
million secured bank facility at Racal (non-recourse to the Company), with the
remaining amount to be financed with proceeds from the recently issued issuance
of GCL's Preferred Stock or through other corporate financing.
15
<PAGE>
Global Crossing initially financed the approximately $870 million Global Marine
acquisition, which was completed in July 1999, with approximately $600 million
in committed bank financing and the remainder with cash on hand. This initial
indebtedness was refinanced through borrowings under the Company's senior
secured corporate credit facility.
Global Crossing estimates the total cost of developing and deploying AC-2, PC-1,
MAC, PAC, SAC, PEC and GAL to be approximately $5,095 million, excluding costs
of potential future upgrades and the amounts capitalized with respect to
warrants issued in exchange for the rights to construct PC-1, MAC and PAC. This
total is comprised of $750 million for AC-2, $1,200 million for PC-1, $295
million for MAC, $580 million for PAC, $1,130 million for SAC, $950 million for
PEC and $190 million for GAL. PC-1 will be financed by total equity investments
of $400 million of which Global Crossing expects to provide approximately $231
million, with the remaining $800 million of estimated costs to be financed
through non-recourse project indebtedness at the PC-1 level. Global Crossing
has financed its 49% interest in GAL through cash on hand to date, and intends
to finance additional system costs through limited or non-recourse debt to be
raised at the GAL level. The remaining system costs for MAC and PAC will be
financed either through bank indebtedness under the Company's senior secured
corporate credit facility or through other corporate financing.
The construction costs for PEC (including costs of acquiring dark fiber) are
estimated to be $950 million, a portion of which was paid from the proceeds of
the December 1998 issuance by Global Crossing Holdings of 10 1/2% Senior
Exchangeable Preferred Stock (the "GCH Preferred Stock"). Global Crossing also
raised capital required to finance this system through a combination of
commercial bank borrowings, vendor financing and sales of dark fiber. Financing
to complete the system is expected to be obtained from the corporate credit
facility, Preferred Stock or other corporate financing.
The Company has extended financing to customers in connection with certain CPAs.
The financing terms provide for installment payments of up to four years. The
Company believes that its extension of financing to its customers will not have
a material effect on the Company's liquidity.
Cash provided by operating activities was $350 million for the nine months ended
September 30, 1999 and $83 million for the nine months ended September 30, 1998,
and principally represents cash received from deposits and payments for
activated capacity pursuant to signed CPAs, plus interest income received, less
sales and marketing, network development and general and administrative expenses
paid.
Cash used in investing activities was $2,025 million and $287 million for the
nine months ended September 30, 1999 and 1998, respectively and represents cash
paid for construction in progress, purchases of property, plant and equipment
and cash investments in affiliates.
Cash provided by financing activities was $1,044 million for the nine months
ended September 30, 1999 and primarily represents borrowings under the senior
secured corporate facility, partially offset by repayments of borrowings under
long term debt. Cash provided by financing activities was $689 million for the
nine months ended September 30, 1998 and primarily relates to proceeds from the
issuance of senior notes and borrowings under long term debt, less the increase
in the restricted cash and cash equivalents, retirement of old senior notes and
redemption of preference shares.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
YEAR 2000 COMPLIANCE
The Company believes that its computer information systems are Year 2000 (Y2K)
compliant. The Company has established a Y2K compliance task force. The task
force has identified no potential material adverse effect on the two core
components of the Company's services: (1) transmission of capacity and (2)
management and maintenance of the transmission paths. The Company's anticipated
worst case scenario is failure of the Network Operations Center. In the event
the worst case scenario occurs management of the network can be performed at the
terminal stations with the network element managers or at the equipment bays
with the craft interface terminal, in each case at minimal additional cost.
The Company is also subject to external forces that generally affect industry
and commerce, such as utility, transportation or other infrastructure failures
and interruptions. In addition to reviewing the Company's own systems, the
Company is submitting requests to third party service providers to obtain
information as to their compliance efforts. The Company has received assurances
from major suppliers, TSSL and Lucent, stating Y2K compliance status of their
respective systems regarding AC-1 (the Company's only active system at this
time). In addition, the Company received assurance from Alcatel Submarine
Networks, a supplier to MAC and SAC, that Alcatel is also Y2K compliant. In the
event that any of the Company's material third party service providers do not
successfully and timely achieve Y2K compliance, the Company's business or
operations could be adversely affected. The Company is developing contingency
plans to address any potential Y2K compliance failure due to significant third
party failures, although no such failure is expected. To date, response from
material third party service providers has not shown any of them to be non-
compliant with Y2K readiness plans.
16
<PAGE>
The Company believes that costs of addressing Y2K compliance will not have a
material adverse impact on the Company's financial condition or results of
operations.
EURO CONVERSION
On January 1, 1999, a single currency called the Euro was introduced in Europe.
Eleven of the fifteen member countries of the European Union agreed to adopt the
Euro as their common legal currency on that date. Fixed conversion rates
between these countries' existing currencies (legacy currencies) and the Euro
were established as of that date. The legacy currencies are scheduled to remain
legal tender in these participating countries between January 1, 1999 and
January 1, 2002 (not later than July 1, 2002). During this transition period,
parties may settle transactions using either the Euro or a participating
country's legacy currency.
As most of the Company's sales and expenditures are denominated in United States
dollars, management does not believe that the Euro conversion will have a
material adverse impact on 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 Company's ability to complete systems within currently estimated time
frames and budgets,
. the Company's ability to compete effectively in a rapidly evolving and price
competitive marketplace,
. changes in the nature of telecommunications regulation in the United States
and other countries,
. changes in the Company's business strategy,
. 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently party to any material pending legal proceedings and
is not aware of any material legal proceedings contemplated by governmental
authorities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Lease made as of October 1, 1999 between North Crescent Realty V, LLC and
Global Crossing Development Company (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q for Global Crossing LTD. filed
on November 15, 1999 (the "November 15, 1999 GCL 10-Q")).
10.2 Form of Non-Qualified Stock Option Agreement as in effect on September 30,
1999 (incorporated by reference to Exibit 10.2 to the November 15, 1999
GCL 10-Q).
27.1 Financial Data Schedule (filed herewith).
17
<PAGE>
(b) Reports on Form 8-K.
During the quarter ended September 30, 1999, Global Crossing Holdings Ltd.
filed the following Current Reports on Form 8-K:
1. Current Report on Form 8-K dated July 2, 1999 (date of earliest
event reported), filed on July 16, 1999, for the purpose of reporting,
under Item 2, the acquisition of the Global Marine business of Cable &
Wireless plc.
2. Current Report on Form 8-K dated July 18, 1999 (date of earliest
event reported), filed on July 20, 1999, for the purpose of reporting,
under Item 5, the execution of the termination agreement with U S
WEST, Inc.
3. Current Report on Form 8-K dated September 2, 1999 (date of
earliest event reported), filed on September 3, 1999, for the purpose
of reporting, under Item 5, the execution of Amendment No. 2 to the
Agreement and Plan of Merger with Frontier Corporation.
4. Current Report on Form 8-K dated September 8, 1999 (date of
earliest event reported), filed on September 10, 1999, for the purpose
of reporting, under Item 5, the execution of an agreement to establish
a new joint venture called Asia Global Crossing with Softbank Corp.
and Microsoft Corporation.
5. Current Report on Form 8-K dated September 28, 1999 (date of
earliest event reported), filed on September 30, 1999, for the purpose
of reporting, under Item 2, the consummation of the merger of a
wholly-owned subsidiary of Global Crossing Ltd. with Frontier
Corporation.
18
<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 (Chief Accounting Officer)
November 15, 1999
19
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CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
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