<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 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 333-61457-08
-----------
GLOBAL CROSSING (CAYMAN) LTD.
(Exact name of registrant as specified in its charter)
CAYMAN ISLANDS 98-0167638
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
c/o CIBC BANK AND TRUST COMPANY (CAYMAN) LIMITED
P.O.BOX 694GT
EDWARD STREET
GEORGETOWN, GRAND CAYMAN
CAYMAN ISLANDS
(Address of principal executive offices)
(345) 949-8666
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 1, 1999, the registrant had outstanding 2,630,943 shares of Class A
Common Stock, par value $0.000001 per share; 906,605 shares of Class B Common
Stock, par value $0.000001 per share; and 19,427,281 shares of Class C Common
Stock, par value $0.000001 per share.
1
<PAGE>
GLOBAL CROSSING CAYMAN LTD.
(formerly GLOBAL CROSSING LTD., LDC)
QUARTER ENDED MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (unaudited):
Condensed Statements of Operations 3
Condensed Balance Sheets 4
Condensed Statements of Cash Flows 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Notes 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
GLOBAL CROSSING (CAYMAN) LTD.
(formerly GLOBAL CROSSING LTD., LDC)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
SALES AND OPERATING REVENUES $ - $ -
EXPENSES
General and administrative 130,238 2,372,000
Stock related expense - 638,000
Sales and marketing - 784,000
------------- ------------
130,238 3,794,000
------------- ------------
OPERATING LOSS (130,238) (3,794,000)
Equity in earnings (loss) of
Global Crossing Ltd. (2,505,943) -
NET INTEREST INCOME - 72,000
------------- ------------
LOSS BEFORE INCOME TAXES (2,636,181) (3,722,000)
GAIN FROM CAPITAL TRANSACTION OF
GLOBAL CROSSING LTD. 139,443 -
PROVISION FOR INCOME TAXES - -
------------- ------------
NET LOSS (2,496,738) (3,722,000)
PREFERRED STOCK DIVIDENDS - (4,407,000)
------------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS'
(STOCKHOLDER'S) (2,496,738) (8,129,000)
RETAINED EARNINGS (DEFICIT),
BEGINNING OF PERIOD 40,760,092 (160,000)
------------- ------------
Equity transactions of Global
Crossing Ltd. 1,975,334 -
RETAINED EARNINGS (DEFICIT),
END OF PERIOD $ 40,238,688 $ (8,289,000)
============= ============
LOSS PER SHARE - BASIC AND DILUTED $ (0.11) $ (0.02)
============= ============
SHARES USED IN COMPUTING BASIC AND DILUTED LOSS
PER SHARE 22,964,828 331,845,633
============= ============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
3
<PAGE>
GLOBAL CROSSING (CAYMAN) LTD.
(formerly GLOBAL CROSSING LTD., LDC)
CONDENSED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
March 31, 1999 December 31, 1998
(Unaudited)
ASSETS
Investment in Global Crossing Ltd. $129,418,738 $129,809,904
------------ ------------
Total Assets $129,418,738 $129,809,904
============ ============
LIABILITIES
Current Liabilities:
Accounts payable and accrued $ 275,861 $ 145,623
liabilities
Due to Parent 625,920 625,920
------------ ------------
Total current liabilities 901,781 771,543
------------ ------------
Total Liabilities 901,781 771,543
------------ ------------
STOCKHOLDERS' (STOCKHOLDER'S) EQUITY
Class A common stock, 1 billion authorized 2 2
with a par value of $.000001, 2,630,943
issued as of March 31, 1999 and December
31, 1998
Class B common stock, 1 billion authorized 1 1
with a par value of $.000001, 906,605
issued as of March 31, 1999 and December
31, 1998
Class C common stock, 1 billion authorized 19 19
with a par value of $.000001, 19,427,281
issued as of March 31, 1999 and December
31, 1998
Class D common stock, 3 billion authorized - -
with a par value of $.000001, 0 issued as
of March 31, 1999 and December 31, 1998
Class E common stock, 1 billion authorized - -
with a par value of $.000001, 0 issued as
of March 31, 1999 and December 31, 1998
Undesignated common stock, 43 billion - -
authorized with a par value of $.000001, 0
issued as of March 31, 1999 and December
31, 1998
Additional paid-in capital 88,278,247 88,278,247
Retained earnings 40,238,688 40,760,092
------------ ------------
Total stockholders' (stockholder's) equity 128,516,957 129,038,361
------------ ------------
Total liabilities and stockholders'
(stockholder's) equity $129,418,738 $129,809,904
============ ============
The accompanying notes are an integral part of these unaudited condensed
financial statements.
4
<PAGE>
GLOBAL CROSSING (CAYMAN) LTD.
(formerly GLOBAL CROSSING LTD., LDC)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss applicable to common stockholders' (stockholder's) $(2,496,738) (8,129,000)
Adjustments to reconcile net loss to net cash used by operating Activities:
Equity in loss of Global Crossing Ltd. 2,505,943 -
Gain from capital transaction of Global Crossing Ltd. (139,443) -
Depreciation and amortization - 30,000
Preferred stock dividends - 4,407,000
Changes in operating assets and liabilities: - -
Increase in other assets and prepaid costs - (11,779,000)
Increase in deferred revenue - 9,225,000
Increase in accounts payable and accrued liabilities 130,238 2,384,000
Decrease in obligations under inland services agreements - (7,642,000)
----------- -----------
Net cash used in operating activities - (11,504,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net - 1,062,000
Proceeds from long term debt - 155,113,000
Finance and organization costs incurred - (247,000)
Cash reimbursement to certain shareholders - (7,047,000)
Increase in restricted cash and cash equivalents (13,905,000)
----------- ------------
Net cash provided by financing activities - 134,976,000
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Global Crossing Ltd. - -
Cash paid for construction in progress and capacity
available for sale - (122,187,000)
----------- -------------
Net cash used in investing activities - (122,187,000)
----------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS - 1,285,000
CASH AND CASH EQUIVALENTS, beginning of period 1,453,000
----------- -------------
CASH AND CASH EQUIVALENTS, end of period - $ 2,738,000
=========== =============
SUPPLEMENTAL INFORMATION ON NON-CASH
OPERATING ACTIVITIES
Decrease in operating assets
Costs incurred for construction in progress and capacity available for - $ 102,445,000
sale
Increase in accrued construction costs - 28,271,000
Increase in accrual interest - (4,361,000)
Amortization of deferred finance and organization costs - (1,206,000)
Increase in obligations under capital lease - (2,962,000)
----------- -------------
Cash paid for construction in progress and capacity available for sale $ $ 122,187,000
=========== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid and capitalized $ - $ 4,446,000
=========== =============
Interest paid (net of capitalized interest) $ - $ 4,423,000
=========== =============
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
5
<PAGE>
GLOBAL CROSSING (CAYMAN) LTD.
(formerly GLOBAL CROSSING LTD., LDC)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1999 AND FOR THE YEAR ENDED DECEMBER 31, 1998
NOTE 1. ORGANIZATION
Global Crossing (Cayman) Ltd., formerly Global Crossing Ltd., LDC ("Old GCL"),
and originally GT Parent Holdings LDC, was incorporated as an exempted limited
duration company in the Cayman Islands on March 19, 1997 (date of inception).
From March 19, 1997 through May 26, 1998, Old GCL was in the development stage
and was engaged in the construction and development of an underwater fiber optic
system connecting the United States and Europe ("Atlantic Crossing" or "AC-1
system"). On May 26, 1998, the United States to United Kingdom segment of the
AC-1 system was placed into service and Old GCL began generating revenues.
During the development stage, Old GCL recognized approximately $101 million in
revenues and had minimal operating costs as the costs of construction were
capitalized. During the period from March 19, 1997 through June 30, 1998, Old
GCL incurred a net loss applicable to common stockholders of approximately
$214.5 million. This loss was primarily the result of (1) the termination of an
Advisory Services Agreement, dated March 25, 1997 (as amended, the "Advisory
Services Agreement") with PCG Telecom with respect to the AC-1 system under
which PCG Telecom was entitled to an advisory fee based upon the gross revenues
of Atlantic Crossing Ltd. ("ACL"); (2) awards under Old GCL's Stock Incentive
Plan; (3) the extraordinary loss on the retirement of Global Telesystems
Holdings, Ltd. ("GTH") Senior Notes which were repurchased on May 18, 1998; and
(4) the redemption of GTH Preference Shares on June 17, 1998. Old GCL financed
its net losses, debt service, capital expenditure and other cash needs through
the proceeds of sales of common and preferred equity and the issuance of debt.
Prior to the initial public offering of Global Crossing Ltd. ("New GCL"), all
shares of common stock in New GCL, a Bermuda Company, were owned by Old GCL. In
August 1998, New GCL declared a stock dividend so that Old GCL held 1.5 shares
of common stock of New GCL for each share of common stock of Old GCL
outstanding. Pursuant to the terms of the Articles of Association of Old GCL,
prior to the initial public offering each holder of Class D shares converted
such shares into a fraction of a Class E share based upon a valuation at the
time of such conversion, together with a warrant to purchase the remaining
fraction of such Class E share at an exercise price based upon such market
valuation. In addition, each holder of Class E shares of Old GCL had such E
shares converted into Class B shares of Old GCL. Accordingly, each holder of
Class D and Class E shares received Class B shares, with the warrants to
purchase Class E shares received by former Class D shareholders then cancelled
in exchange for warrants ("New GCL Warrants") to purchase shares of common stock
of New GCL at an exercise price equal to the initial offering price.
Immediately subsequent to such transactions and prior to the initial public
offering, each shareholder of Old GCL, other than CIBC Wood Gundy Capital (SFC),
Inc. ("SFC" or "Parent"), agreed with Old GCL to exchange their interests in Old
GCL for shares of common stock of New GCL held by Old GCL at a rate of 1.5
shares of common stock of New GCL per share of common stock of Old GCL (the "Old
GCL Exchange"). SFC did not participate in the Old GCL Exchange. Subsequent to
the Old GCL Exchange, each previous shareholder of Old GCL (now referred to as
the "Company") holds an equal proportionate interest in New GCL, with the
Company becoming wholly owned by SFC. All shares of common stock in Old GCL,
other than the shares owned by SFC and one Class C share held by CIBC Capital
Partners (Cayman) No. 1, have been retired.
Effective March 23, 1999, the Company changed its form of organization from an
exempted limited duration company to a Cayman Islands incorporated company
limited by shares and changed its name from Global Crossing Ltd., LDC to Global
Crossing (Cayman) Ltd.
The pro forma financial statements for the Company appearing below give effect
to the Old GCL Exchange. Subsequent to the Old GCL Exchange, the Company's only
asset is its investment in New GCL. The Company engages in no business
activities other than holding New GCL shares.
6
<PAGE>
Summarized Pro Forma Financial Statements:
<TABLE>
<CAPTION>
Old GCL
Old GCL Old GCL Adjusted
Historical Exchange Proforma
For the three For the three
month period month period
ended March 31, ended March 31,
1998 1998
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
SALES AND OPERATING REVENUES $ - $ - $ -
EXPENSES
General and administrative 2,372,000 (2,372,000) -
Stock related expense 638,000 (638,000) -
Sales and marketing 784,000 (784,000) -
----------- --------- ------------
3,794,000 (3,794,000) -
----------- ----------- ------------
OPERATING LOSS (3,794,000) 3,794,000 -
Equity in earnings (loss) of Global Crossing Ltd. - (1,528,000) (1,528,000)
NET INTEREST INCOME 72,000 (72,000) -
----------- -------- ------------
LOSS BEFORE INCOME TAXES (3,722,000) 2,194,000 (1,528,000)
PROVISION FOR INCOME TAXES - - -
----------- ---------------- -------------
NET LOSS (3,722,000) 2,194,000 (1,528,000)
----------- --------- ------------
PREFERRED STOCK DIVIDENDS (4,407,000) 4,407,000 -
----------- --------- ------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDERS' (STOCKHOLDER'S) $(8,129,000) $ 6,601,000 $ (1,528,000)
=========== ========== ============
</TABLE>
NOTE 2. BASIS OF PRESENTATION
The Company's unaudited interim condensed financial statements as of March 31,
1999 and for the three months ending March 31, 1999 and March 31, 1998 include
the accounts of Old GCL. All material intercompany balances and transactions
have been eliminated. The unaudited interim condensed 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.
The Company's unaudited interim condensed financial statements have been
prepared in accordance with Generally Accepted Accounting Principles in the
United States ("U.S. GAAP"). U.S. GAAP requires that management of the Company
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Management of the Company
believes that the estimates utilized in preparing the financial statements are
reasonable and prudent; however, actual results could differ from those
estimates.
The accompanying unaudited condensed 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.
The following is a summary of significant accounting policies consistently
followed by the Company, which are in accordance with U.S. GAAP.
7
<PAGE>
Equity Method of Accounting
The Company holds an investment in New GCL where the principal objective of
investing is to obtain capital gains over the investment term that is typically
medium term. Because of the significance of transactions with SFC and its
affiliates, the number of representatives on New GCL's Board of Directors
affiliated with Canadian Imperial Bank of Commerce ("CIBC") and the Company's
guarantee of New GCL debt, the Company accounts for the investment using the
equity method of accounting whereby a proportionate share of income, losses,
dividend and capital transactions are recorded in the Company's financial
statements.
Loss per Share
Loss per share is calculated in accordance with Statement of Accounting
Standards No. 128 "Earnings Per Share." Share and per share data presented
reflects all stock dividends and stock splits.
New Accounting Standards
The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for periods beginning
after June 15, 1999. Management does not expect the impact of the adoption of
SFAS 133 on the Company's financial position or results of operations to be
material.
NOTE 3. INVESTMENT IN NEW GCL
New GCL provides Internet and long distance telecommunications facilities and
services utilizing a network of undersea and terrestrial digital fiber optic
cable systems. The first five cable systems under development by New GCL,
together with associated terrestrial backhaul capacity, will form an
interconnected worldwide high capacity fiber optic network (the "Global Crossing
Network") consisting of Atlantic Crossing-1 ("AC-1") and the recently announced
Atlantic Crossing-2 ("AC-2") under sea systems connecting the United States and
Europe; Pacific Crossing ("PC-1"), an undersea system connecting the United
States and Asia; Mid-Atlantic Crossing ("MAC"), an undersea system connecting
the eastern United States and the Caribbean; Pan American Crossing ("PAC"), an
undersea system connecting the western United States, Mexico, Panama, Venezuela
and the Caribbean; South American Crossing ("SAC"), an undersea and terrestrial
system connecting the major cities of South America to MAC, PAC, and the rest of
the Global Crossing Network; Pan European Crossing ("PEC") a terrestrial system
connecting 24 European cities to AC-1; and a terrestrial system to be operated
by Global Access Ltd. ("GAL"), connecting certain cities in Japan to PC-1.
Cumulative effect of change in Accounting Principle
New GCL has 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. New GCL incurred a one-time charge during the
three months ended March 31, 1999 of $15 million (net of tax benefit), that
represents start-up costs incurred and capitalized during previous periods.
During the three months ended March 31, 1999, New GCL incurred approximately $4
million of start-up expenditures, which were expensed as incurred.
Investment Transfer and Voting Restrictions
Each share of Common Stock of New GCL ("New GCL Common Stock") has one vote,
except that if, and so long as, the Controlled Shares (as defined below) of any
person constitute more than 9.5% (or, in the case of CIBC and certain of its
affiliates, including the Company collectively, 35%) of the voting power of the
outstanding shares, including New GCL Common Stock (an "Over-the-Threshold
Common Stockholder"), the voting rights with respect to the Controlled Shares
owned by such person will be limited, in the aggregate, to a voting power of
9.5%, pursuant to a formula set forth in the Bye-Laws of New GCL ("GCL
Bye-laws"). The votes that could be cast by Over-the-Threshold Common
Stockholders but for the restrictions on voting rights described above will be
allocated to the other holders of New GCL Common Stock, pro rata based upon the
number of shares of New GCL Common Stock held by all other holders of New GCL
Common Stock, subject only to the further limitation that no stockholder
allocated any such voting rights may exceed the applicable limitation set forth
above as a result of such allocation. "Controlled Shares" includes among other
things, all shares of New GCL Common
8
<PAGE>
Stock that a person is deemed (i) to own directly, indirectly or constructively
pursuant to Section 958 of the Internal Revenue Code of 1986, as amended (the
"Code"), or (ii) to beneficially own directly or indirectly as a result of the
possession of sole or shared voting power within the meaning of Section 13(d) of
the Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder.
New GCL, the Company, Pacific Capital Group, Inc. ("PCG"), GKW Unified Holdings,
LL ("GKW"), certain other affiliates of CIBC, Continental Casualty Company,
MRCo. Inc. and certain other shareholders of New GCL (including certain of New
GCL's officers and directors and their affiliates) (collectively, the "Existing
Holders") have entered into a Stockholders Agreement. The Stockholders Agreement
contains certain restrictions on the transfer or other disposition by such
affiliates of CIBC (including the Company) of shares of New GCL Common Stock.
Pursuant to the Stockholders Agreement (i) New GCL has been granted a right of
first refusal on certain private transfers by the Existing Holders during the
first two years after the consummation of the initial public offering of Common
Stock of New GCL; and (ii) no Stockholder (as defined in the Stockholders
Agreement) shall Transfer (as defined in the Stockholders Agreement) any
securities to any person if such Transfer would, for purposes of section 551 of
the Code, result in more than 50% of the vote or value of the outstanding
capital stock of the Company being owned, directly or indirectly, (taking into
account the applicable attribution and constructive ownership rules under the
Code), by 5 or fewer individuals. In addition, subject to the exceptions set
forth in the Stockholders Agreement, certain of the Existing Holders have rights
("tag-along rights") permitting such shareholder to participate, on the same
terms and conditions, in certain transfers of shares by other Existing Holders
as follows: (i) PCG, GKW and certain affiliates of CIBC (including the Company)
(and their affiliates and permitted transferees) shall have the right to
participate in any transaction initiated by any of them to transfer 5% or more
of the outstanding securities of New GCL and (ii) PCG, GKW, certain affiliates
of CIBC (including the Company), Continental Casualty Company and MRCo, Inc.
(and their affiliates and permitted transferees) shall have the right to
participate in any transaction initiated by any of them to transfer any
securities of New GCL which transaction would result in a change of control of
New GCL.
The shares of New GCL Common Stock held by the Company are "restricted shares"
as that term is defined in Rule 144 under the Securities Act of 1933, as
amended, and as such may not be sold except pursuant to an effective
registration statement under the Securities Act or in compliance with Rule 144
or another duly available exemption under the Securities Act.
Dividends
The Company does not anticipate receiving dividends in the foreseeable future as
New GCL's ability to pay dividends is limited by certain debt instruments.
Stock Dividend
On February 3, 1999, the New GCL board of directors declared a 2-for-1 stock
split in the form of a stock dividend to shareholders of record on February 16,
1999, effective March 9, 1999. All New GCL share information presented in these
financial statements gives retroactive effect to this transaction.
Summary Financial Statements for New GCL
The selected interim unaudited condensed consolidated financial data of New GCL
as of March 31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
For the three months For the three months
ended March 31, 1999 ended March 31, 1998
<S> <C> <C>
(000's)
STATEMENT OF OPERATIONS DATA
Revenues $ 178,183 $ -
Expenses:
Cost of Capacity sold 69,387 -
Other 67,729 3,794
--------- --------
137,116 3,794
Operating Income (Loss) 41,067 (3,794)
Equity in Loss of Affiliates (2,736) -
Net interest (expense) income (9,387) 72
Income (Loss) before provision for income taxes and
cumulative effect of change in accounting principle 28,944 (3,722)
Provision for Income Taxes (16,142) -
--------- --------
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C>
Income before cumulative effect of change in 12,802 (3,722)
--------- --------
accounting principle
Cumulative effect of change in accounting principle, (14,710) -
--------- --------
net of income tax benefit of $1,400
Net Loss (1,908) (3,722)
------- --------
Preferred stock dividends (13,044) (4,407)
-------- --------
Net loss applicable to common shareholders $ (14,952) $ (8,129)
========== ========
</TABLE>
The financial data for New GCL does 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 New GCL 10-Q as
filed with the Securities and Exchange Commission (Registration No. 000-24565)
Frontier Merger
On March 16, 1999, New GCL entered into a definitive agreement and plan of
merger with Frontier Corporation, a New York Corporation ("Frontier"). The board
of directors of each company has approved the merger. Completion of the
transaction is anticipated to occur during the third quarter of 1999. The
transaction is subject to the approval by the shareholders of New GCL and
Frontier and to other customary conditions, such as receipt of regulatory
approvals. New GCL expects that merger will be accounted for using the purchase
method of accounting.
NOTE 4. GUARANTEE
On May 13, 1998, the Company, together with New GCL and certain subsidiaries of
Global Crossing Holdings Ltd. ("GCH"), a Bermuda company and operating
wholly-owned subsidiary of New GCL, entered into a Purchase Agreement with GCH
and certain initial purchasers pursuant to which it guaranteed payment and
performance obligations under GCH's $800 million 9 5/8% Senior Notes due 2008
(the"Restricted Notes"). The Restricted Notes were exchanged for registered
Senior Notes (the "Senior Notes") under an Exchange Offer initiated in October
1998. The terms of the Senior Notes are identical in all material respects to
those of the Restricted Notes, except for certain transfer restrictions and
registration rights related to the Restricted Notes and except for certain
interest provisions related to such registration rights. The Company, together
with New GCL and certain subsidiaries of GCH jointly and severally guaranteed
the payment and performance obligations of GCH under the Senior Notes (the
"Guarantee").
NOTE 5. RELATED PARTY TRANSACTIONS
The parent company is SFC, a wholly owned subsidiary of CIBC.
SFC has paid for certain expenses and other investing transactions on behalf of
the Company. The amounts due to SFC are non-interest bearing and have no
specific terms of repayment. In addition, certain administrative and other
services are provided to the Company by CIBC, and its affiliates, without
charge.
During 1998, CIBC and its affiliates entered into certain financing transactions
with New GCL in connection with the development and construction of its systems.
NOTE 6. INCOME TAXES
The Company is incorporated and resident in the Cayman Islands and, as such,
there are no income taxes levied on the Company or on undistributed earnings.
NOTE 7. SUBSEQUENT EVENTS
Global Marine Acquisition
On April 26, 1999, New GCL announced a definitive agreement to acquire the
Global Marine business of Cable & Wireless plc in a transaction valued at
approximately $885 million, consisting of a combination of cash and assumed
indebtedness. Global Marine is an undersea cable installation and maintenance
company. The transaction, which is expected to be completed within 60 days, is
subject to certain regulatory and other approvals. New GCL expects the
acquisition will be accounted for using the purchase method of accounting.
10
<PAGE>
Tyco Submarine Systems Agreement
On April 29, 1999, New GCL announced a contract with Tyco Submarine Systems Ltd.
("TSSL"), valued initially at over $700 million pursuant to which the SAC cable
system will be designed, manufactured and installed by TSSL. The contract
provides for options for New GCL to purchase future upgrades to the initial base
system, in order to substantially increase the capacity of the base system.
Lucent Technologies, Inc. ("Lucent") will supply fiber and equipment to TSSL for
the SAC system, as well as financing to New GCL under terms of a previous
agreement between Lucent and New GCL.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's only asset is its investment in New GCL. The Company has no other
material assets or liabilities and engages in no other business activities,
other than the Guarantee. The Company's results of operations primarily reflect
its share of the results of operations of New GCL on an equity accounting basis.
The Company is filing this Form 10-Q as a guarantor of the Senior Notes issued
by GCH, a wholly owned subsidiary of New GCL. Prior to the Old GCL Exchange, as
discussed in Item 1 above, the business and operations of New GCL were conducted
through Old GCL. Subsequent to the Old GCL Exchange, the Company and New GCL
each present their own separate financial statements in their annual and
quarterly reports filed with the SEC. As such, the comparable prior period
financial information for New GCL is not discussed herein. Management of the
Company assumes no responsibility for the financial and other information of New
GCL.
Results of Operations for the Three Months ended March 31, 1999
For the three months ended March 31, 1999, the Company recorded a loss from its
investment in New GCL of approximately $2.6 million. This loss represents the
Company's equity in the loss of New GCL based on the equity method of
accounting. For the reasons that have been previously discussed, management has
concluded that providing comparative information is not relevant.
For the three months ended March 31, 1999, New GCL reported sales and operating
revenues of approximately $178 million, expenses of approximately $137 million,
operating income of approximately $41 million, income before income taxes and
cumulative change in accounting principle of approximately $29 million, income
before cumulative change in accounting principle of approximately $13 million
and net loss of approximately $2 million. For the reasons that have been
previously discussed, management has concluded that providing comparative
information is not relevant.
Balance Sheet as of March 31, 1999
As of March 31, 1999, the Company reported total assets of approximately $129
million, total liabilities of approximately $.9 million and total stockholders'
(stockholder's) equity of approximately $128 million.
As of March 31, 1999, New GCL reported total assets of approximately $2.7
billion, total liabilities of approximately $1.4 billion and total shareholders'
equity of approximately $.8 billion.
Liquidity and Capital Resources
The shares of New GCL Common Stock held by the Company are "restricted shares"
as that term is defined in Rule 144 under the Securities Act of 1933, as
amended, and as such may not be sold except pursuant to an effective
registration statement under the Securities Act or in compliance with Rule 144
or another duly available exemption under the Securities Act. The shares held by
the Company are subject to additional restrictions on transfer or other
disposition pursuant to the Stockholders Agreement. As this investment in New
GCL represents its principal asset, the Company is reliant upon its Parent, SFC,
for funding its operating expenses. SFC has provided this funding through an
advance which approximated $626,000 at March 31, 1999. The Company will continue
to rely upon SFC to advance funds to meet its financing requirements.
Regarding the Company's investment in New GCL, because of the cost of developing
and constructing New GCL's systems, operating New GCL's business depends on a
variety of factors (including New GCL's ability to successfully negotiate
construction supply contracts at favorable prices, New GCL's ability to generate
sufficient sales, changes in the competitive environment of the markets New GCL
serves, the levels of participation by New GCL's joint venture partners, and
changes in technology), actual costs and revenues may vary, possibly materially,
from expected amounts. Such variations may impact New GCL's future capital
requirements. The development of additional systems, which New GCL may pursue,
would lead to additional future capital requirements.
Year 2000 Compliance
The Company believes that its computer information systems will enable it to
process transactions relating to Year 2000 and beyond and that its computer
systems will not be adversely affected.
New GCL believes that their computer information systems are Year 2000 compliant
and that the costs of addressing compliance will not have a material adverse
impact on its financial condition or results of operations. In the event that
New GCL does not successfully achieve Year 2000 compliance, the Company's
business could be adversely affected.
Information Regarding Forward-Looking Statements
11
<PAGE>
We have included certain "forward-looking statements" in this Form 10-Q. These
statements describe our attempt to predict future occurrences. We use the words
"believe," "anticipate," "expect," "intend" and similar expressions to identify
forward-looking statements. Forward-looking statements are subject to risks,
assumptions and uncertainties. If any of these risks or uncertainties
materialize (or fail to materialize), or if the underlying assumptions prove
incorrect, actual results may differ materially from those projected in the
forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently subject to any material legal claims or
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR NOTES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
ended March 31, 1999.
12
<PAGE>
SIGNATURES
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 (CAYMAN) LTD.
Date Signature
- --------- -------------------------------------------
May 13, 1999 /s/ Christopher Francis Richmond
-------------------------------------------
CHRISTOPHER FRANCIS RICHMOND
Director (Principal Executive Officer)
May 13, 1999 /s/ Evan Charles Burtton
-------------------------------------------
EVAN CHARLES BURTTON
Director (Principal Financial Officer
and Principal Accounting Officer)
13
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<LEGEND>
This schedule contains summary financial information extracted from the
condensed balance sheet as of March 31, 1999 and condensed statement of
operations for the three months ended March 31, 1999 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
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