<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-61457
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 INSTRUCTIONS 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 10, 2000: 1,200,000 shares.
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1
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
For the Quarter Ended September 30, 2000
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
Condensed Consolidated Statements of Comprehensive Income...... 7
Notes to Condensed Consolidated Financial Statements........... 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 12
Item 3 Quantitative and Qualitative Disclosure About Market Risk...... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 18
Item 6. Exhibits and Reports on Form 8-K............................... 18
2
<PAGE>
PART I.
FINANCIAL INFORMATION
Item 1. Financial Statements
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- -------- ---------- --------
<S> <C> <C> <C> <C>
REVENUE................................................. $ 296,116 $234,582 $ 953,738 $599,362
--------- -------- ---------- --------
EXPENSES:
Cost of sales......................................... 179,332 129,014 634,580 279,307
Operations, administration and maintenance............ 76,428 16,182 181,625 42,507
Sales and marketing................................... 25,857 13,208 71,289 37,898
Network development................................... 26,492 6,640 69,416 20,272
General and administrative............................ 103,877 27,750 227,254 56,523
Depreciation and amortization......................... 79,494 11,990 197,983 16,029
Goodwill and intangibles amortization................. 26,044 3,758 82,027 3,758
--------- -------- ---------- --------
517,524 208,542 1,464,174 456,294
--------- -------- ---------- --------
OPERATING (LOSS) INCOME................................. (221,408) 26,040 (510,436) 143,068
EQUITY IN INCOME (LOSS)OF AFFILIATES.................... (13,055) 71 (32,115) (5,471)
MINORITY INTEREST....................................... 6,641 - (5,989) -
OTHER INCOME (EXPENSE):
Interest income....................................... 26,391 13,906 69,578 45,512
Interest expense...................................... (78,015) (35,084) (209,313) (81,538)
Other income (expense), net........................... (9,384) 15,896 (14,631) 8,217
--------- -------- ---------- --------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES,
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY ITEM (288,830) 20,829 (702,906) 109,788
Provision for income taxes............................ (7,849) (6,977) (22,561) (37,015)
--------- -------- ---------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE AND EXTRAORDINARY ITEM...... (296,679) 13,852 (725,467) 72,773
Cumulative effect of change in accounting principle,
net of tax.......................................... - - - (14,711)
--------- -------- ---------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. (296,679) 13,852 (725,467) 58,062
Extraordinary loss on retirement of debt.............. - (14,865) - (14,865)
--------- -------- ---------- --------
NET INCOME (LOSS)....................................... (296,679) (1,013) (725,467) 43,197
Preferred stock dividends............................. (13,705) (14,071) (40,898) (41,313)
--------- -------- ---------- --------
INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDER.......... $(310,384) $(15,084) $ (766,365) $ 1,884
========= ======== ========== ========
</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 and per share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- ----------
(Unaudited)
ASSETS:
Current assets:
<S> <C> <C>
Cash and cash equivalents.................................. $ 473,972 $1,613,995
Restricted cash and cash equivalents....................... 57,271 17,092
Accounts receivable, net................................... 418,795 477,594
Other assets and prepaid costs............................. 304,750 201,779
----------- ----------
Total current assets....................................... 1,254,788 2,310,460
Restricted cash and cash equivalents......................... 18,459 138,118
Accounts receivable.......................................... 20,583 44,837
Property and equipment, net.................................. 5,834,866 3,336,895
Goodwill and intangibles, net................................ 1,768,918 1,971,357
Investment in and advances to/from affiliates, net........... 1,234,835 274,692
Other assets................................................. 843,871 245,414
----------- ----------
Total assets............................................. $10,976,320 $8,321,773
=========== ==========
LIABILITIES:
Current liabilities:
Accrued construction costs................................. $ 665,637 $ 275,361
Accounts payable and accrued liabilities................... 694,175 531,005
Deferred revenue........................................... 187,634 116,950
Current portion of long term debt.......................... 767,774 -
Other current liabilities.................................. 49,748 158,331
----------- ----------
Total current liabilities.................................. 2,364,968 1,081,647
Long-term debt............................................... 3,517,906 3,460,546
Deferred revenue............................................. 797,201 350,319
Deferred credits and other................................... 510,869 307,702
----------- ----------
Total liabilities........................................ 7,190,944 5,200,214
----------- ----------
MINORITY INTEREST.............................................. 497,722 351,338
----------- ----------
MANDATORILY REDEEMABLE PREFERRED STOCK......................... 487,615 485,947
----------- ----------
SHAREHOLDER'S EQUITY:
Common stock, par value $.01 per share, 1,200,000 shares
issued and outstanding, as of September 30, 2000 and
December 31, 1999, respectively.......................... 12 12
Additional paid-in capital and other shareholder's equity.. 3,647,358 2,406,126
Accumulated deficit........................................ (847,331) (121,864)
----------- ----------
Total shareholder's equity............................... 2,800,039 2,284,274
----------- ----------
Total liabilities and shareholder's equity............... $10,976,320 $8,321,773
=========== ==========
</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)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income(loss)........................................... $ (725,467) $ 43,197
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting principle...... - 14,711
Equity in loss of affiliates............................. 32,115 5,471
Depreciation and amortization............................ 280,010 19,787
Provision for doubtful accounts.......................... 8,055 24,211
Stock related expenses................................... 11,875 15,289
Extraordinary loss on retirement of debt................. - 14,865
Deferred income taxes.................................... (2,550) 12,353
Non-cash cost of sales................................... 252,228 180,589
Minority Interest........................................ 5,989 -
Changes in operating assets and liabilities.............. 515,307 200,140
----------- -----------
Net cash provided by operating activities.............. 377,562 530,613
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for construction in progress and capacity
available for sale........................................ (1,183,388) (1,068,912)
Acquisition, net of cash acquired.......................... - (864,002)
Investments in and advances to/from affiliates, net........ (756,424) (35,574)
Effect of the consolidation of PC-1, net of cash acquired.. (19,979) -
Change in restricted cash and cash equivalents............. 97,394 144,211
Purchases of marketable equity securities.................. (100,247) -
Purchases of property and equipment........................ (501,960) (236,751)
----------- -----------
Net cash used in investing activities.................. (2,464,604) (2,061,028)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt............................... 178,764 2,509,083
Repayment of long term debt................................ (30,714) (1,485,074)
Preferred dividends........................................ (26,250) (41,313)
Finance costs incurred..................................... - (82,728)
Minority interest investment in subsidiary................. 84,275 -
Cash contributions from GCL................................ 740,944 -
----------- -----------
Net cash provided by financing activities.............. 947,019 899,968
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.................... (1,140,023) (630,447)
CASH AND CASH EQUIVALENTS, beginning of period............... 1,613,995 803,427
----------- -----------
CASH AND CASH EQUIVALENTS, end of period..................... $ 473,972 $ 172,980
=========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
5
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
2000 1999
----------- -----------
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING
AND FINANCING ACTIVITIES:
<S> <C> <C>
Costs incurred for construction in progress and
capacity available for sale............................ $(1,438,488) $(1,127,731)
Accrued construction costs.............................. 229,459 52,272
Deferred finance costs capitalized...................... 14,111 3,711
Capital lease obligations............................... 11,530 2,836
----------- -----------
Cash paid for construction in progress and capacity
available for sale..................................... $(1,183,388) $(1,068,912)
=========== ===========
Non-cash purchases of property and equipment............ $ - $ (38,300)
=========== ===========
Investments in affiliates:
Costs of investments in affiliates...................... $ (893,010) $ (35,574)
Effects of consolidation of PCL......................... (263,414) -
Preferred stock issued for investment in joint venture.. 400,000 -
----------- -----------
$ (756,424) $ (35,574)
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid and capitalized.......................... $ 245,287 $ 77,988
=========== ===========
Interest paid (net of capitalized interest)............ $ 113,006 $ 41,234
=========== ===========
Cash paid for taxes.................................... $ 20,744 $ 11,369
=========== ===========
Detail of acquisitions:
Assets acquired........................................ $ - $ 601,422
Liabilities assumed.................................... ( -) (437,736)
----------- -----------
Net Assets acquired $ - $ 163,686
=========== ===========
Net cash paid for acquisitions......................... $ - $ 864,002
Cash acquired in acquisitions.......................... ( -) 44,398
----------- -----------
Cash paid for acquisitions, including transaction fee $ - $ 908,400
=========== ===========
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
6
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
2000 1999 2000 1999
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Net income (loss).......................... $(296,679) $(1,013) $(725,467) $43,197
Unrealized gain on securities............ 39,971 - 297,472 -
Foreign currency translation adjustment.. (85,047) 26,996 (174,480) 17,772
--------- ------- --------- -------
Comprehensive income (loss)................ $(341,755) $25,983 $(602,475) $60,969
========= ======= ========= =======
</TABLE>
See accompanying notes to these unaudited condensed consolidated financial
statements.
7
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(In thousands, except share and per share amounts)
(Unaudited)
(1) Organization and Background
Global Crossing Holdings Ltd., a Bermuda company, ("GCH", and together with
its consolidated subsidiaries, the "Company"), is a wholly owned subsidiary of
Global Crossing Ltd. ("GCL", and together with its consolidated subsidiaries,
"Global Crossing"). Global Crossing is building and offering services over the
world's first independent global fiber optic network, consisting of 101,000
announced route miles serving five continents, 27 countries and more than 200
major cities. Upon completion of our currently announced systems, our network
and our telecommunications and Internet product offerings will be available in
markets constituting over 80% of the world's international communications
traffic.
Global Crossing's strategy is to be the premier provider of global
broadband Internet Protocol ("IP") and data services for both wholesale and
retail customers. Global Crossing is building a state-of-the-art fiber optic
network that management believes to be of unprecedented global scope and scale
to serve as the backbone for this strategy. Management believes that the Global
Crossing network will enable it to be the low cost service provider in most of
its addressable markets.
GCH's subsidiaries' operations includes the operations of the following
acquired entities: Global Marine Systems (acquired July 2, 1999), Racal Telecom
(acquired November 24, 1999) and a 50% interest in the Hutchison Global Crossing
joint venture (acquired January 12, 2000). The acquisition of these entities is
hereinafter referred to as the "Acquisitions." In addition, the Company has a
significant ownership interest in Asia Global Crossing.
Asia Global Crossing ("AGC"), a joint venture with Softbank Corp. and
Microsoft Corporation, intends to become the first truly pan-Asian
telecommunications carrier to offer worldwide bandwidth and data communications.
The Asia Global Crossing joint venture was established on November 24, 1999. On
October 6, 2000, AGC completed an initial public offering ("IPO") of 68 million
shares of its common stock, at a price of $7.00 per share. GCL's ownership was
changed from 93% to 56.9% as a result of the offering and related transactions.
See footnote 10 for further discussion
(2) Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and Securities and Exchange
Commission ("SEC") regulations. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the unaudited interim
condensed consolidated financial statements reflect all adjustments necessary to
fairly present the results of operations, financial position and cash flows for
the periods presented. The results of operations for any interim period are not
necessarily indicative of results for the full year. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999.
(3) Significant Accounting Policies
Revenue Recognition - Revenue from Capacity Purchase Agreements ("CPAs")
that meet the criteria of sales-type lease accounting are recognized in the
period that the rights and obligations of ownership transfer to the purchaser,
which occurs when (i) the purchaser obtains the right to use the capacity, which
can only be suspended if the purchaser fails to pay the full purchase price or
fulfill its contractual obligations, (ii) the purchaser is obligated to pay
Operations, Administration and Maintenance ("OA&M") costs and (iii) the segment
of a system related to the capacity purchased is available for service. Certain
customers who have entered into CPAs for capacity have paid deposits toward the
purchase price which have been included as deferred revenue in the accompanying
consolidated balance sheets.
Prior to July 1, 1999, substantially all CPAs were treated as sales-type
leases as described in Statement of Financial Accounting Standards ("SFAS") No.
13, "Accounting for Leases" ("SFAS 13"). On July 1, 1999, the Company adopted
Financial Accounting Standards Board Interpretation No. 43, "Real Estate Sales,
an interpretation of FASB Statement No. 66" ("FIN 43"), which requires
prospective transactions to meet the criteria set forth in SFAS No. 66,
"Accounting for Sales of Real Estate" ("SFAS 66") to qualify for sales-type
lease accounting. Since sales of terrestrial capacity did not meet the
8
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
September 30, 2000
(Unaudited)
new criteria, the terrestrial portion of CPAs executed subsequent to June 30,
1999 were recognized over the terms of the contracts, as services.
Global Crossing offers customers flexible bandwidth products to multiple
destinations and anticipates that many of the contracts for subsea circuits
entered into will be part of a service offering. Therefore, the Company
anticipates that many of these contracts will not meet the criteria of
sales-type lease accounting and will be accounted for as operating leases.
Consequently, the Company will defer revenue related to those circuits and
amortize that revenue over the appropriate term of the contract. Accordingly,
the Company will treat cash received, but not recognized, as deferred revenue.
In certain circumstances, should a contract meet all of the requirements of
sales-type lease accounting, the Company will recognize revenue without deferral
upon payment and activation.
The principal effect of the change in the type of contracts offered to
Global Crossing's customers beginning on January 1, 2000 is that an increasing
percentage of capacity sales will be accounted for as operating leases rather
than sales-type leases, resulting in more revenue from such sales being deferred
into future periods than was previously the case. Accordingly, this change in
contract terms will reduce revenue recognized upon activation of circuits in
earlier periods and increase revenue recognized in later periods.
Impairment of Long-Lived Assets - The Company periodically evaluates
whether facts and circumstances have occurred that indicate the carrying amount
of a long-lived asset may be impaired. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset are compared
to the asset's carrying amount to determine if a write- down to market value or
discounted cashflow is required. During the three and nine months ended
September 30, 2000, the Company wrote down $3 million and $41 million,
respectively, of long-lived assets related to accrued losses on sales contracts.
Marketable Equity Securities - Investments covered under the scope of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities" are
classified as "available for sale" and are carried at fair value with any
unrealized gain or loss, net of tax, included in other shareholder's equity. For
the three and nine months ended September 30, 2000, the Company had unrealized
gains on securities of $40 million and $297 million, net of provision for income
taxes of $27 and $198 million, respectively.
Pending Accounting Standards - In December 1999, the SEC issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which is required to be adopted by the Company in the quarter ended
December 31, 2000. SAB 101 clarifies certain conditions regarding the
culmination of an earnings process and customer acceptance requirements in order
to recognize revenue. The adoption of this new requirement is not expected to
have a material impact on the financial position or results of operations of the
Company.
In June 1999, the FASB issued 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. The Company is currently evaluating the
impact of adopting this standard.
(4) Net Income (Loss) Applicable to Common Shareholder
Since the Company is a wholly owned subsidiary of GCL, per share
information is not presented.
(5) Acquisitions
The Acquisitions are being accounted for under the purchase method of
accounting for business combinations. The purchase price of Global Marine
Systems has been allocated based upon the fair market value of the acquired
assets and liabilities. The purchase price of Racal Telecom has not yet been
allocated based upon fair market value. The Company will make final purchase
price allocations, which may differ from the estimate presented. Following is
the unaudited pro forma results of the Company, assuming the Acquisitions had
been completed at the beginning of the period presented:
9
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
1999 1999
----------------------- --------------
<S> <C> <C>
Revenue................................................ $ 298,162 $1,030,940
========== ==========
Income (loss) applicable to common shareholder before
cumulative effect of change in accounting principle.. $ (105,689) $ (206,042)
========== ==========
Income (loss) applicable to common shareholder......... $ (105,689) $ (220,752)
========== ==========
</TABLE>
(6) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Land................................................. $ 751 $ 199
Buildings............................................ 21,300 21,755
Leasehold improvements............................... 50,568 29,096
Furniture, fixtures and equipment.................... 704,253 493,945
Transmission equipment............................... 2,699,342 968,972
---------- ----------
3,476,214 1,513,967
Accumulated depreciation............................. (260,788) (44,695)
---------- ----------
3,215,426 1,469,272
Construction in progress............................. 2,619,440 1,867,623
---------- ----------
Total property and equipment, net.................... $5,834,866 $3,336,895
========== ==========
</TABLE>
(7) Accrued Liabilities
Included in accrued liabilities as of September 30, 2000, is a settlement
payment of $19 million to Tyco Submarine Systems Ltd. ("Tyco") in relation to
the early termination of the OA&M Agreement for the Atlantic Crossing-1 Subsea
system. In addition, Atlantic Crossing and Tyco have agreed to drop their
respective claims under the OA&M Agreement. Other claims asserted in arbitration
remain pending. Refer to Legal Proceedings located in Part II of this report for
further information on the arbitration proceeding.
(8) Segment Information
Global Crossing is a worldwide provider of Internet and long distance
telecommunications facilities and related services supplying its customers with
global "point to point" connectivity and, through its Global Marine Systems
subsidiary, providing cable installation and maintenance services. Global
Crossing's reportable segments include telecommunications services and
installation and maintenance services. Global Crossing's chief decision maker
monitors the revenue streams of the various products and geographic locations.
Global Crossing's chief decision maker uses Adjusted EBITDA to monitor its
compliance with Global Crossing's financial covenants and to measure the
performance and liquidity of its reportable segments. The operations are managed
based on the delivery of multiple, integrated services to customers over a
single network. Because this monitoring and evaluation does not take place at
the Company level, no business segment information is provided for the Company.
(9) Reclassifications
Certain prior year amounts have been reclassified in the condensed
consolidated financial statements for consistent presentation to current year
amounts.
(10) Subsequent Events
AGC Offerings
-------------
On October 6, 2000, AGC completed its IPO in which it sold 68 million
shares of common stock to the public at a price of $7.00 per share. In November
2000, pursuant to an over-allotment option granted to the underwriters of the
IPO, AGC sold an additional 500,000 shares of its common stock at $7.00 per
share. GCL's ownership in AGC after these offerings and
10
<PAGE>
GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
September 30, 2000
(Unaudited)
related transactions was reduced to 56.9%.
Concurrently with the IPO, AGC issued $408 million of its 13.375% Senior
Notes due 2010. AGC intends to use the approximately $850 million in net
proceeds from this offering and the IPO to build the AGC network, make
investments in telecommunications and internet companies, repay some of AGC
indebtedness and for general corporate purposes.
Also concurrently with the IPO, GCL's 50% interest in Hutchinson Global
Crossing and 49% interest in Global Crossing Access Limited were each
contributed to AGC. In connection with this transaction, AGC purchased GCL's
interest in shareholder loans made to these entities and agreed to indemnify GCL
for certain contingent liabilities relating to Hutchinson Global Crossing.
Retirement of Racal Telecom Indebtedness
----------------------------------------
In October 2000, the Company repaid approximately $755 million of
borrowings under the credit facilities incurred in connection with the Company's
purchase of Racal Telecom in November 1999. The source of funds for the debt
repayment is a new debt facility entered into by a subsidiary of GCL with a
maturity date of April 12, 2002. The Company has written-off approximately $24
million of deferred financing costs as a result of this extinguishment.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Financial Accounting Developments
During the third and fourth quarters of 1999, changes in our business
activities, together with a newly effective accounting standard, caused us to
modify some of our practices regarding recognition of revenue and costs related
to sales of capacity. None of the accounting practices described below affect
our cash flows.
As a result of Financial Accounting Standards Board ("FASB") Interpretation
No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66" ("FIN
43"), which became effective July 1, 1999, we have accounted for revenue from
terrestrial circuits sold after that date as operating leases and have amortized
that revenue over the terms of the related contracts. Previously, we had
recognized these sales as current revenue upon activation of the circuits. This
deferral in revenue recognition has no impact on cash flow.
With the consummation of Global Crossing's acquisition of Frontier
Corporation on September 28, 1999, service offerings became a significant source
of our revenue. Consequently, we initiated service contract accounting for our
subsea systems during the fourth quarter of 1999, because we, since that date,
no longer hold subsea capacity exclusively for sale. As a result, since the
beginning of the fourth quarter, we have depreciated investments in both subsea
and terrestrial systems over their remaining economic lives and have recognized
revenue related to service contracts over the terms of the contracts. We have
recognized revenue and costs related to the sale of subsea circuits upon
activation, if the criteria of sales-type lease accounting have been satisfied
with respect to those circuits.
During the fourth quarter of 1999, our global network service capabilities
were significantly expanded by the activation of several previously announced
systems and by the integration of other networks obtained through acquisition
and joint venture agreements. With this network expansion, we began offering our
customers flexible bandwidth products to multiple destinations, which makes the
historical practice of fixed, point-to-point routing of traffic and restoration
capacity both impractical and inefficient. To ensure the required network
flexibility, we will modify our future capacity purchase agreements and our
network management in a manner that precludes the use of sales-type lease
accounting.
Because of these contract changes and the network management required to
meet customer demands for flexible bandwidth, multiple destinations and system
performance, we anticipate that most of the contracts for subsea circuits
entered into after January 1, 2000 will be part of a service offering and,
therefore, will not meet the criteria of sales-type lease accounting and will be
accounted for as operating leases. Consequently, we will defer revenue related
to those circuits and amortize it over the appropriate term of the contract. In
certain circumstances, if a contract meets all of the requirements of sales-type
lease accounting, we will recognize revenue without deferral upon payment and
activation.
The principal effect of the change in the type of contracts offered to our
customers beginning on January 1, 2000 is that an increasing percentage of our
capacity sales will be accounted for as operating leases rather than sales- type
leases, resulting in more revenue from such sales being deferred into future
periods than was previously the case. Accordingly, this change in contract terms
will reduce revenue recognized upon activation of the circuits in earlier
periods and increase revenue recognized in later periods.
We note that accounting practice and authoritative guidance regarding the
applicability of sales-type lease accounting to the sale of capacity is still
evolving. Based on the accounting practices described above, we believe that
additional changes, if any, in accounting practice or authoritative guidance
affecting sales of capacity would have little or no impact on our financial
position, results of operations, cash flows and the financial statements taken
as a whole.
The Company completed its acquisitions of Global Marine Systems (acquired July
2, 1999), Racal Telecom (acquired November 24, 1999) and a 50% interest in the
Hutchison Global Crossing joint venture (completed January 12, 2000). The
acquisition of these entities is referred to as the "Acquisitions." The increase
in revenue and expenses for the three and nine months ended September 30, 2000
is primarily due to these transactions. As the Acquisitions occurred just before
or subsequent to September 30, 1999, the comparability of the results of
operations for the three and nine months ended September 30, 2000 and 1999 is
limited.
Results of Operations for the Three Months Ended September 30, 2000 and 1999
Revenue. Revenue for the three months ended September 30, 2000 increased
26% to $296 million as compared to $235 million for the three months ended
September 30, 1999. The increase is due to the acquisition of Racal Telecom in
12
<PAGE>
November 1999, partially offset by the Company's business practice of selling
capacity under terms that require amortization of revenue over the contract life
rather than terms that qualify for revenue recognition upon the activation of
the circuits.
Cost of sales. Cost of sales for the three months ended September 30, 2000
was $179 million, or 60% of revenue, compared to $129 million, or 55% of
revenue, for the three months ended September 30, 1999. The increase is
primarily attributable to the increase in revenue. Reduced margins for the three
months ended September 30, 2000 compared to the three months ended September 30,
1999 were due lower prices of subsea capacity sold to customers.
Non-cash cost of undersea capacity sold was $41 million and $66 million
during the three months ended September 30, 2000 and 1999, respectively. Incuded
in the three months ended September 30, 2000 is $3 million in accrued losses on
sales contracts.
Operations, administration and maintenance ("OA&M"). OA&M costs for the
three months ended September 30, 2000 were $76 million, or 26% of revenue,
compared to $16 million, or 7% of revenue, for the three months ended September
30, 1999. The increase is primarily a result of the cost incurred in connection
with the development of the Global Network Operations Center, the expansion of
the Global Crossing network, the expenses of the Acquisitions and the
cancellation of a third party OA&M agreement.
Sales and marketing. Sales and marketing expenses for the three months
ended September 30, 2000 were $26 million, or 9% of revenue, compared to $13
million, or 6% of revenue, for the three months ended September 30, 1999. The
increase from 1999 was due to the additional expenses attributable to the
Acquisitions, expenses related to additions in headcount, plus increased
occupancy and advertising costs.
Network development. Network development costs for the three months ended
September 30, 2000 were $26 million, or 9% of revenue, compared to $7 million,
or 3% of revenue, for the three months ended September 30, 1999. The increase is
due to the additional expenses attributable to salaries, employee benefits and
professional fees associated with the expansion of the Global Crossing network.
General and administrative. General and administrative expenses for the
three months ended September 30, 2000 were $104 million, or 35% of revenue,
compared to $28 million, or 12% of revenue, for the three months ended September
30, 1999. The increase was comprised principally of salaries, employee benefits
and recruiting from the Company's increased staffing for multiple systems,
travel, professional fees, insurance and occupancy costs and expenses
attributable to the Acquisitions.
Depreciation and amortization. Depreciation and amortization for the three
months ended September 30, 2000 was $79 million, or 27% of revenue, compared to
$12 million for the three months ended September 30, 1999. The increase is due
to the Acquisitions and depreciation of subsea systems placed in service.
Goodwill and intangibles amortization. Goodwill and intangibles
amortization for the three months ended September 30, 2000 was $26 million,
compared to $4 million for the three months ended September 30, 1999. The
increase is attributable to the acquisition of Racal Telecom, which occurred
after September 30, 1999, and an increase in residual goodwill resulting from
the final purchase price allocation for Global Marine Systems.
Equity in income (loss) of affiliates. Equity in income (loss) of
affiliates was a $13 million loss, compared to a $71 thousand gain, for the
three months ended September 30, 2000 and 1999, respectively. The decrease is
primarily due to losses of the Hutchison Global Crossing joint venture that was
entered into in January 2000.
Minority interest. Minority interest for the three months ended September
30, 2000 was income of $7 million and relates to minority interest in net losses
of Pacific Crossing ("PC-1") and Asia Global Crossing ("AGC").
Interest income and interest expense. Interest income for the three months
ended September 30, 2000 was $26 million, compared to $14 million for the three
months ended September 30, 1999. The increase is due to interest earned on cash
raised from financings and on capacity purchase agreement deposits. Interest
expense for the three months ended September 30, 2000 was $78 million, compared
to $35 million for the three months ended September 30, 1999. The increase is
due to higher levels of debt outstanding resulting from the Acquisitions and
capital spending on the expansion of the Global Crossing network.
Provision for income taxes. We recognized a provision for income taxes of
$8 million and $7 million for the three months ended September 30, 2000 and
1999, respectively, to provide for taxes on profits earned from
telecommunications services, installation and maintenance and other income where
subsidiaries of the Company have a presence in taxable jurisdictions.
13
<PAGE>
Extraordinary loss on retirement of debt. In July 1999, the Company
recognized an extraordinary loss resulting from the repayment of existing debt
in connection with the issuance of its $3 billion Senior Secured Credit
Facility, comprised of a write-off of $15 million of unamortized deferred
financing costs.
Net income (loss). Net loss for the three months ended September 30, 2000
was $297 million, compared to $1 million for the three months ended September
30, 1999.
Income (loss) applicable to common shareholder. During the three months
ended September 30, 2000, the Company reported net loss applicable to common
shareholder of $310 million compared to $15 million for the three months ended
September 30, 1999.
Results of Operations for the Nine Months Ended September 30, 2000 and September
30, 1999
Revenue. Revenue for the nine months ended September 30, 2000 increased 59%
to $954 million as compared to $599 million for the nine months ended September
30, 1999. The increase is due to the Acquisitions, which are included in the
full period results for the nine months ended September 30, 2000, partially
offset by the Company's business practice of selling capacity under terms that
require amortization of revenue over the contract life rather than terms that
qualify for revenue recognition upon the activation of the circuits.
Cost of sales. Cost of sales for the nine months ended September 30, 2000
was $635 million, or 67% of revenue, compared to $279 million, or 47% of
revenue, for the nine months ended September 30, 1999. The increase is primarily
attributable to the increase in revenue. Reduced margins for the nine months
ended September 30, 2000 compared to the nine months ended September 30, 1999
were due to lower margins in the businesses acquired and lower prices of subsea
capacity sold to customers.
Non-cash cost of undersea capacity sold was $252 million and $181 million
during the nine months ended September 30, 2000 and 1999, respectively. Included
in the nine months ended September 30, 2000 is $41 million in accrued losses on
sales contracts.
Operations, administration and maintenance ("OA&M"). OA&M costs for the
nine months ended September 30, 2000 were $182 million, or 19% of revenue,
compared to $43 million, or 7% of revenue, for the nine months ended September
30, 1999. The increase is primarily a result of the cost incurred in connection
with the development of the Global Network Operations Center, the expansion of
the Global Crossing network, the expenses of the Acquisitions and the
cancellation of a third party OA&M agreement
Sales and marketing. Sales and marketing expenses for the nine months ended
September 30, 2000 were $71 million, or 7% of revenue, compared to $38 million,
or 6% of revenue, for the nine months ended September 30, 1999. The increase
from 1999 was due to the additional expenses attributable to the Acquisitions,
expenses related to additions in headcount, plus increased occupancy and
advertising costs.
Network development. Network development costs for the nine months ended
September 30, 2000 was $69 million, or 7% of revenue, compared to $20 million,
or 3% of revenue, for the nine months ended September 30, 1999. The increase is
due to the additional expenses attributable to salaries, employee benefits and
professional fees associated with the expansion of the Global Crossing network.
General and administrative. General and administrative expenses for the
nine months ended September 30, 2000 were $227 million, or 24% of revenue,
compared to $57 million, or 9% of revenue, for the nine months ended September
30, 1999. The increase was comprised principally of salaries, employee benefits
and recruiting from the Company's increased staffing for multiple systems,
travel, professional fees, insurance and occupancy costs and the additional
expenses attributable to the Acquisitions.
Depreciation and amortization. Depreciation and amortization for the nine
months ended September 30, 2000 was $198 million, compared to $16 million for
the nine months ended September 30, 1999. The increase is due to the
Acquisitions and depreciation of subsea systems placed in service.
Goodwill and intangibles amortization. Goodwill and intangibles
amortization for the nine months ended September 30, 2000 was $82 million,
compared to $4 million for the nine months ended September 30, 1999. The
increase is attributable to the Acquisitions which occurred just before or
subsequent to September 30, 1999.
14
<PAGE>
Equity in loss of affiliates. Equity in loss of affiliates was $32 million
and $5 million for the nine months ended September 30, 2000 and 1999,
respectively. The increase is primarily due to losses of the Hutchison Global
Crossing joint venture that was entered into in January 2000.
Minority interest. Minority interest for the nine months ended September
30, 2000 was a loss of $6 million and relates to minority interest in income of
PC-1, partially off-set by net losses of AGC.
Interest income and interest expense. Interest income for the nine months
ended September 30, 2000 was $70 million, compared to $46 million for the nine
months ended September 30, 1999. The increase is due to interest earned on cash
raised from financings and on capacity purchase agreement deposits. Interest
expense for the nine months ended September 30, 2000 was $209 million, compared
to $82 million for the nine months ended September 30, 1999. The increase is due
to higher levels of debt outstanding resulting from the Acquisitions and capital
spending on the expansion of the Global Crossing network.
Provision for income taxes. We recognized a provision for income taxes of
$23 million and $37 million for the nine months ended September 30, 2000 and
1999, respectively, to provide for taxes on profits earned from
telecommunications services, installation and maintenance and other income where
subsidiaries of the Company have a presence in taxable jurisdictions.
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 nine months ended September 30, 1999. SOP 98-5 requires that certain
start-up expenditures previously capitalized during system development must now
be expensed. The Company incurred a one-time charge during the nine months ended
September 30, 1999 of $15 million (net of tax benefit of $1.4 million) 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 repayment of existing debt
in connection with the issuance of its $3 billion senior secured corporate
credit facility, comprised of a write-off of $15 million of unamortized deferred
financing costs.
Net income (loss). Net loss for the nine months ended September 30, 2000
was $725 million, compared to net income of $43 million for the nine months
ended September 30, 1999.
Income (loss) applicable to common shareholder. During the nine months
ended September 30, 2000, the Company reported net loss applicable to common
shareholder of $766 million compared to net income of $2 million for the nine
months ended September 30, 1999.
Liquidity and Capital Resources
Global Crossing estimates the total remaining cost of developing and
deploying the announced systems on the Global Crossing network to be
approximately $3.0 billion, excluding costs of potential future upgrades. We
anticipate that all of these systems will be completed by the middle of 2001.
The Company and its affiliate raised approximately $2.13 billion by increasing
the size of its corporate credit facility ($1.25 billion), the initial public
offering of 68 million shares of Asia Global Crossing ("AGC") common stock ($476
million), and the issuance by AGC of 13.375% Senior Notes ($408 million). When
combined with the $3.65 billion in estimated pre-tax cash proceeds from the sale
of the ILEC and the Company's expected operating cash flows, Global Crossing
expects to be in a position to fully fund all of its anticipated business
expansion plans without further financing activities.
In October 2000, we repaid approximately $755 million of borrowings under
the credit facilities incurred in connection with the Company's purchase of
Racal Telecom in November 1999. The source of funds for the debt repayment is a
new debt facility entered into by a subsidiary of Global Crossing Ltd. ("GCL").
In August 2000, we amended and restated the terms of our existing senior
secured corporate credit facility, increasing the aggregate amount available to
be borrowed from $1 billion to $2.25 billion, consisting of a $1 billion
revolving credit facility which matures in July 2004, a $700 million revolving
term facility that converts to a term loan in August 2002 and matures in July
2004; and a $550 million term loan that matures in June 2006. The borrowings
under the facilities may be used for working capital and general corporate
purposes.
The Company has extended limited amounts of financing to customers in
connection with certain capacity sales. The financing terms provide for
installment payments of up to four years. The Company believes that its
extension of financing to its customers will not have a material effect on the
Company's liquidity.
Cash provided by operating activities was $378 million for the nine months
ended September 30, 2000 and $531 million for the nine months ended September
30, 1999. The balances principally represent cash received from capacity sales
and interest income received, less sales and marketing, network development and
general and administrative expenses paid.
15
<PAGE>
Cash used in investing activities was $2.5 billion and $2.1 billion for the
nine months ended September 30, 2000 and 1999, respectively, and represents cash
paid for construction in progress, purchases of property and equipment,
purchases of marketable equity securities, cash investments in affiliates and
the Acquisitions.
Cash provided by financing activities was $947 million and $900 for the
nine months ended September 30, 2000 and 1999, respectively, and primarily
represents borrowings under the senior secured corporate credit facility and
cash contributions from GCL, offset by repayments of borrowings under long term
debt and preferred dividends.
Global Crossing has a substantial amount of indebtedness. Based upon the current
level of operations, management believes that the Company's cash flows from
operations, together with available borrowings under its credit facility, and
its continued ability to raise capital, will be adequate to meet the Company's
anticipated requirements for working capital, capital expenditures, acquisitions
and other discretionary investments, interest payments and scheduled principal
payments for the foreseeable future. There can be no assurance, however, that
the Company's business will continue to generate cash flow at or above current
levels or that currently anticipated improvements will be achieved. If the
Company is unable to generate sufficient cash flow and raise capital to service
the Company's debt, the Company may be required to reduce capital expenditures,
refinance all or a portion of its existing debt or obtain additional financing.
Inflation
Management does not believe that its business is impacted by inflation to a
significantly different extent than the general economy.
Euro Conversion
On January 1, 1999, a single currency called the Euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union agreed to
adopt the Euro as their common legal currency on that date. Fixed conversion
rates between these countries' existing currencies (legacy currencies) and the
Euro were established as of that date. The legacy currencies are scheduled to
remain legal tender in these participating countries between January 1, 1999 and
January 1, 2002 (not later than July 1, 2002). During this transition period,
parties may settle transactions using either the Euro or a participating
country's legacy currency.
As most of the Company's sales and expenditures are denominated in United
States dollars, management does not believe that the Euro conversion will have a
material adverse impact on the business or its financial condition. The Company
does not expect the cost of system modifications to be material and the Company
will continue to evaluate the impact of the Euro conversion.
Information Regarding Forward-Looking Statements
The Company has included "forward-looking statements" throughout this
quarterly report filed on Form 10-Q. These forward-looking statements describe
management's intentions, beliefs, expectations or predictions for the future.
The Company uses the words "believe," "anticipate," "expect," "intend" and
similar expressions to identify forward-looking statements. Such forward-
looking statements are subject to a number of risks, assumptions and
uncertainties that could cause the Company's actual results to differ materially
from those projected in such forward-looking statements. These risks,
assumptions and uncertainties include:
. the ability to complete systems within the currently estimated time frames
and budgets;
. the ability to compete effectively in a rapidly evolving and price
competitive marketplace;
. changes in business strategy;
. changes in the nature of telecommunications regulation in the United States
and other countries;
. the successful integration of newly-acquired businesses; and
. the impact of technological change.
This list is only an example of some of the risks, uncertainties and assumptions
that may affect the Company's forward-looking statements. The Company undertakes
no obligation to update any forward-looking statements made by it.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The table below provides information about the Company's market sensitive
financial instruments and constitutes a "forward-looking statement." The
Company's major market risk exposure is changing interest rates. The Company's
policy is to manage interest rates through use of a combination of fixed and
floating rate debt. Interest rate swaps may be used to adjust interest rate
exposures when appropriate, based upon market conditions. The Company is the
guarantor of debt incurred by other Global Crossing entities which are not
included in the results of the Company.
<TABLE>
<CAPTION>
Expected maturity dates 2000 2001 2002 2003 2004 Thereafter Total
----------------------- ---- ---- ---- ---- ---- ---------- -----
(in thousands)
DEBT
Non Current - US$ denominated
<S> <C> <C> <C> <C> <C> <C> <C>
9 1/2% Senior Notes due 2009 - - - - - $1,100,000 $1,100,000
Average interest rates - fixed 9.5%
9 1/8% Senior Notes due 2006 - - - - - 900,000 900,000
Average interest rates - fixed 9.1%
9 5/8% Senior Notes due 2008 - - - - - 800,000 800,000
Average interest rates - fixed 9.6%
Racal Term Loan A 584,804 - - - - - 584,804
Average interest rates - variable (1)
Racal Term Loan B and Ancillary
Facility 182,751 - - - - - 182,751
Average interest rates - variable (2)
7 1/4% Senior Notes due 2004 - - - - 300,000 - 300,000
Average interest rates - fixed 7.3%
Pacific Crossing Term Loan A-1 - 80,000 $ 90,000 $ 110,000 115,000 30,000 425,000
Average interest rates - variable (4)
Pacific Crossing Term Loan B - 3,260 3,260 3,260 3,260 311,960 325,000
Average interest rates - variable (5)
6% Dealer Remarketable Securities
(DRS) due 2013 - - - - - 200,000 200,000
Average interest rates - fixed (3)
DERIVATIVE INSTRUMENTS
Interest rate swap floating for
fixed - Contract notional
amount - - - - 200,000 - 200,000
Fixed rate assumed by GCL (6)
Variable rate assumed by
Counterparty 7.3%
Interest rate swap fixed for
floating - Contract notional
amount 365,502 - - - 500,000 - 865,502
Average floating rate assumed
by GCL (7)
Average fixed rate assumed by
Counterparty 7% 5.0%
Foreign currency forward - Sterling
Denominated Contract notional amount 163,652 - - - - - 163,652
Fixed conversion rate 1.4612
<CAPTION>
Fair Value
Expected maturity dates September 30, 2000
----------------------- ------------------
(in thousands)
DEBT
Non Current - US$ denominated
<S> <C>
9 1/2% Senior Notes due 2009 $1,093,813
Average interest rates - fixed
9 1/8% Senior Notes due 2006 890,625
Average interest rates - fixed
9 5/8% Senior Notes due 2008 798,000
Average interest rates - fixed
Racal Term Loan A 584,804
Average interest rates - variable
Racal Term Loan B and Ancillary
Facility 182,751
Average interest rates - variable
Medium Term Notes, 8.8%-9.3%
Due 2000 to 2021 180,812
Average interest rates - fixed
7 1/4% Senior Notes due 2004 278,265
Average interest rates - fixed
Pacific Crossing Term Loan A-1 425,000
Average interest rates - variable
Pacific Crossing Term Loan B 325,000
Average interest rates - variable
6% Dealer Remarketable Securities
(DRS) due 2013 192,851
Average interest rates - fixed
Other 6,848
Average interest rates - fixed
DERIVATIVE INSTRUMENTS
Interest rate swap floating for
fixed - Contract notional
amount 205,913
Fixed rate assumed by GCL
Variable rate assumed by
Counterparty
Interest rate swap fixed for
floating - Contract notional
amount 859,917
Average floating rate assumed
by GCL
Average fixed rate assumed by
Counterparty
Foreign currency forward - Sterling
Denominated Contract notional amount 1,593
Fixed conversion rate
</TABLE>
(1) The interest rate is British pound LIBOR + 2.50%. The effective interest
rate was 8.6% as of September 30, 2000.
(2) The interest rate on Term Loan B and the Ancillary Facility is British
pound LIBOR + 2.50%. The weighted-average interest rate was 8.6% as of
September 30, 2000.
(3) The interest rate is fixed at 6.0% until October 2003. At that time, the
remarketing dealer (J.P. Morgan) has the option to remarket the notes at
prevailing interest rates or tender the notes for redemption.
(4) The interest rate is 1 month US dollar LIBOR + 2.25%, which was 8.9% as of
September 30, 2000.
(5) The interest rate is 1 month US dollar LIBOR + 2.50%, which was 9.1% as of
September 30, 2000.
(6) The interest rate is 6 month US dollar LIBOR + 1.26%, which is set in
arrears.
(7) There are two fixed for floating interest rate swaps denominated in British
pounds. GCL receives interest rates based on 3 month British pound LIBOR,
which was 6.2% on September 30, 2000. GCL also has two US dollar
denominated swaps. The interest rate is 1 month US dollar LIBOR, which was
6.6% as of September 30, 2000.
Foreign Currency Risk
For those subsidiaries using the U.S. dollar as their functional currency,
translation adjustments are recorded in the accompanying condensed consolidated
statements of operations.
For those subsidiaries not using the U.S. dollar as their functional
currency, assets and liabilities are translated at exchange rates in effect at
the balance sheet date and income and expense accounts at average exchange rates
during the period. Resulting translation adjustments are recorded directly to a
separate component of shareholders' equity. For the nine months ended September
30, 2000 and 1999, the Company incurred a foreign currency translation loss of
$174 million and gain of $18 million, respectively. Foreign currency transaction
gains and losses are included in the statement of operations as incurred.
17
<PAGE>
Part II
Other Information
Item 1. Legal Proceedings
On May 22, 2000, Global Crossing Ltd. and its subsidiary, South American
Crossing (Subsea) Ltd., filed a lawsuit against Tyco Submarine Systems Ltd. in
the United States District Court for the Southern District of New York. Global
Crossing's complaint alleges fraud, theft of trade secrets, breach of contract,
and defamation related to Tyco's agreements to install the South American
Crossing fiber-optic cable system. Global Crossing seeks damages, including
punitive damages, in excess of $1 billion and attorneys' fees and costs, as well
as a declaration that the construction and development agreement with Tyco is
void due to Tyco's alleged fraud and injunctive relief barring Tyco from further
misappropriation of trade secrets and confidential information. On June 13,
2000, Tyco answered the complaint, denying the material allegations and
asserting a variety of defenses to such claims. Additionally, Tyco asserted
counterclaims that South American Crossing (Subsea) Ltd. breached its
construction and development agreement with Tyco. Tyco seeks damages of not less
than $150 million, attorneys' fees and costs and a declaration that, among other
things, the construction and development agreement is a valid, enforceable
contract and that South American Crossing (Subsea) Ltd. breached the contract
or, in the alternative, terminated the contract for convenience. On July 5,
2000, Global Crossing answered Tyco's counterclaims, denying the material
allegations.
In addition, on May 22, 2000, Global Crossing's subsidiary, Atlantic
Crossing Ltd., together with certain of its affiliates, filed arbitration claims
against Tyco for breaches of its obligations in connection with various
contracts for the development of the Atlantic Crossing-1 fiber- optic cable
system. Global Crossing seeks unspecified monetary damages, a declaration that
certain of its obligations under the various contracts relating to Atlantic
Crossing-1 are terminated and a return of misappropriated intellectual property.
On June 22, 2000, Tyco responded to such claims, denying the material
allegations. Tyco additionally asserted counterclaims that Global Crossing and
its subsidiaries breached their various obligations under the various contracts
relating to Atlantic Crossing-1. Tyco seeks, among other things, the denial of
all relief sought by Global Crossing and awards aggregating not less than $155
million and unspecified damages for breach of the agreements. In a settlement
agreement dated as of August 30, 2000, Atlantic Crossing and Tyco agreed to the
early termination of one of the contracts relating to Atlantic Crossing-1, the
Operations, Administration and Maintenance ("OA&M") Agreement, in return for the
payment of $19 million to Tyco. In addition, Atlantic Crossing and Tyco have
agreed to drop their respective claims under the OA&M Agreement in the
arbitration. The other claims asserted in arbitration remain pending.
Global Crossing does not believe that the commencement of these actions
with Tyco will have an impact on Global Crossing's network and/or the timely
completion of any of its systems. Global Crossing intends to pursue its claims
against Tyco vigorously and to defend itself vigorously against Tyco's
counterclaims, which counterclaims it believes to be without merit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Stock Purchase Agreement, dated as of July 11, 2000, by and among
GCL, Global Crossing North America, Inc. and Citizens Communications
Company (incorporated by reference to Exhibit 2 to GCL's Current
Report on Form 8-K filed on July 19, 2000).
4.1 Amended and Restated Credit Agreement dated as of August 10, 2000
among Global Crossing Ltd., Global Crossing Holdings Ltd., Global
Crossing North America, Inc., the Lenders party thereto and The
Chase Manhattan Bank as Administrative Agent (incorporated by
reference to Exhibit 4.1 to GCL's Quarterly Report on Form 10-Q
filed on November 14, 2000)).
10.1 The Global Crossing Ltd. Deferred Compensation Plan for Executives
(incorporated by reference to Exhibit 4.2 to GCL's Registration
Statement on Form S-8 filed on June 14, 2000 ).
10.2 The Global Crossing Ltd. Deferred Plan for Directors (incorporated
by reference to Exhibit 4.1 to GCL's Registration Statement on Form
S-8 filed June 14, 2000.
10.3 Option Limitation Agreement, dated as of February 22, 2000, among
the GCL, IPC Communications, Inc., IXnet, Inc., and the individuals
signatory thereto (incorporated by reference to Exhibit 10.3 to
GCL's Quarterly Report on Form 10- Q filed on May 14, 2000).
10.4 Asia Global Crossing 2000 Stock Incentive Plan (incorporated by
reference to Exhibit 10.14 to the Registration Statement on Form
S-1/A of Asia Global Crossing Ltd. filed on September 27, 2000).
18
<PAGE>
27.1 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K.
None.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and 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/ Rob Klug
-----------------------------
Rob Klug
Controller
(Principal Accounting Officer)
November 14, 2000
20