IXNET INC, 10-Q, 2000-05-15

IXNET INC
10-Q, 2000-05-15
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2000

Commission file number 000-26959

IXnet, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 13-4060000
(state or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)

Wall Street Plaza
88 Pine Street
New York, New York
10005
(Address of principal executive offices)
(Zip Code)

212-412-6400
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----

The number of shares of the Registrant's Common Stock outstanding as of
April 30, 2000 was 51,148,867.

<PAGE>

<TABLE>
<CAPTION>
INDEX

PART I. FINANCIAL INFORMATION

Page
----
<S> <C>
Item 1. Financial Statements (unaudited)

Consolidated Balance Sheets at March 31, 2000 and September 30, 1999.......................................... 1

Consolidated and Combined Statements of Operations for the three and six months ended March 31, 2000 and 1999. 2

Consolidated and Combined Statements of Cash Flows for the six months ended March 31, 2000 and 1999........... 3

Notes to Consolidated and Combined Financial Statements....................................................... 4

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 8

Item 3. Quantitative and Qualitative Disclosure about Market Risk..................................................... 16

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................................................................. 17

Item 2. Changes in Securities and Use of Proceeds..................................................................... 17

Item 3. Defaults Upon Senior Securities............................................................................... 17

Item 4. Submission of Matters to a Vote of Security Holders........................................................... 17

Item 5. Other Information............................................................................................. 17

Item 6 Exhibits and Reports on Form 8-K.............................................................................. 18

</TABLE>
<PAGE>

Disclosure regarding forward-looking statements

Statements contained in this Interim Report on Form 10-Q that are not historical
facts are forward-looking statements within the meaning of section 21E of the
Securities Exchange Act of 1934, as amended. Section 21E provides a "safe
harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves so long as they identify these
statements as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. Investors are cautioned that forward-looking statements are
inherently uncertain and that undue reliance should not be placed on such
forward looking statements. Actual performance and results may differ
materially from that projected or suggested herein due to certain risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue"
or similar words. Among the factors that could cause actual results,
performance, or achievement to differ materially from any future results,
performance, or achievements expressed, described, or implied by such forward
looking statements are general economic conditions, key employee factors,
competition, potential technology changes, changes in or the lack of anticipated
changes in the regulatory environment in various countries, the ability to
secure partnership or joint venture relationships with other entities, the
ability to raise additional capital to finance expansion, the risks inherent in
new product and service introductions and the entry into new geographic markets.
For a complete discussion of these and other risk factors, refer to the "Risk
Factors" section on pages 7-15 of our August 12, 1999 prospectus.
<PAGE>

IXNET, INC.

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(In thousands, except per share amount)

<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 6,583 $ 39,020
Marketable securities..................................... -- 28,357
Marketable securities, restricted......................... 3,000 20,435
Accounts receivable, net.................................. 26,374 17,824
Prepaids and other current assets.......................... 6,946 5,505
-------- --------
Total current assets..................................... 42,903 111,141

Long term marketable securities, restricted................. -- 6,065
Property and equipment, net................................. 100,316 80,170
Goodwill, net............................................... 73,809 49,773
Other assets................................................ 768 889
-------- --------
Total assets............................................. $217,796 $248,038
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 28,599 $ 10,198
Accrued liabilities........................................ 30,938 22,445
Current portion of capital leases.......................... 6,727 5,636
Current portion of notes payable........................... 8,744 14,502
--------- ---------
Total current liabilities................................ 75,008 52,781

Note payable to parent...................................... 65,851 52,122
Lease obligations, less current portion..................... 18,504 15,412
Notes payable, less current portion......................... 2,403 4,854
--------- ---------
Total liabilities........................................ 161,766 125,169
--------- ---------

Commitments and contingencies

Stockholders' equity:
Common stock--$0.01 par value, authorized 100,000 shares;
51,149 and 51,075 shares issued and outstanding at
March 31, 2000 and September 30, 1999, respectively..... 511 511
Paid-in capital............................................ 256,337 249,080
Accumulated deficit........................................ (180,524) (109,176)
Deferred compensation................................. (18,548) (16,797)
Accumulated other comprehensive loss....................... (1,746) (749)
--------- ---------
Total stockholders' equity............................... 56,030 122,869
--------- ---------
Total liabilities and stockholders' equity............... $ 217,796 $ 248,038
========= =========
</TABLE>

See Notes to Consolidated and Combined Financial Statements

1
<PAGE>

IXNET, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)

(In thousands, except per share amounts)

<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
----------- ----------- ----------- -----------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 29,017 $ 19,859 $ 52,142 $ 32,611
Cost of revenue (exclusive of depreciation and
amortization shown separately below) 30,950 18,476 55,695 30,934
Sales and marketing expense 7,931 2,786 13,736 4,878
General and administrative expense 5,881 1,600 10,357 2,815
Depreciation and amortization 10,157 5,586 18,368 9,508
Stock compensation charge 1,236 - 2,599 -
Merger related costs 18,539 - 18,539 -
----------- ----------- ----------- ----------
Loss from operations (45,677) (8,589) (67,152) (15,524)
Interest expense, net (1,693) (2,493) (2,853) (4,318)
Other income, net (543) (64) (444) (18)
----------- ----------- ----------- ----------
Loss before provision for income taxes (47,913) (11,146) (70,449) (19,860)
Provision for income taxes 587 134 899 257
----------- ----------- ----------- ----------
Net loss $(48,500) $(11,280) $(71,348) $(20,117)
=========== =========== =========== ==========

Basic and diluted loss per share $(0.95) $(0.26) $(1.40) $(0.47)
=========== =========== =========== ==========
Basic and diluted weighted average number of
shares outstanding 51,128 43,100 51,101 43,100
=========== =========== =========== ==========
</TABLE>

See Notes to Consolidated and Combined Financial Statements.

2
<PAGE>

IXNET, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(In thousands)
<TABLE>
<CAPTION>
Six Months ended March 31,
--------------------------

2000 1999
---- ----

<S> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $(71,348) $(20,117)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................... 13,830 6,226
Amortization of goodwill.................................................... 4,538 3,282
Bad debt and sales credit provision......................................... 3,671 529
Stock compensation charges.................................................. 2,599 --

Changes in operating assets and liabilities:
Trade receivables.......................................................... (11,707) (2,016)
Prepaids and other assets.................................................. (851) 701
Accounts payable and accrued liabilities................................... 24,331 (212)
-------- --------
Net cash used in operating activities....................................... (34,937) (11,607)
-------- --------
Cash flows from investing activities:
Capital expenditures........................................................ (26,208) (7,683)
Acquisition of Saturn, net of cash acquired................................. -- (34,713)
Acquisition of Business Networks of New York (BNNY), net of cash
acquired................................................................... (23,571) --
Acquisition of Systems Programming & Network Computing, Inc. (SPNC), net of
cash acquired ............................................................. (293) --
Net change in investment of marketable securities........................... 52,453 --
-------- --------
Net cash provided (used by) investing activities........................... 2,381 (42,396)
-------- --------
Cash flows from financing activities:
Cash financing from parent, net............................................. 11,956 54,893
Principal payments on capital leases........................................ (3,024) (2,152)
Issuance of note in connection with SPNC
acquisition................................................................ 100 --
Capital transactions with parent............................................ 587 5,254
Repayment of notes payable.................................................. (8,503) (555)
-------- --------
Net cash provided by financing activities................................... 1,116 57,440
-------- --------
Effect of exchange rate changes on cash....................................... (997) (631)
-------- --------
Net (decrease)/increase in cash............................................... (32,437) 2,806
Cash and cash equivalents, beginning of period................................ 39,020 1,255
-------- --------
Cash and cash equivalents, end of period...................................... $ 6,583 $ 4,061
======== ========

Non-cash investing and financing activities-
Capital lease obligations entered into during the period.................... $ 7,207 $ 5,345
Deferred compensation in connection with grants of stock options............ 4,416 --------
</TABLE>

See Notes to Consolidated and Combined Financial Statements.

3
<PAGE>

IXNET, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(UNAUDITED)

1. Background and Basis of Presentation

IXnet, Inc. ("IXnet" or the "Company") provides communications services tailored
to the specialized needs of the worldwide financial services community. The
Company has built and operates an Extranet, a global network connecting members
of the financial services community as well as multiple offices within the same
firm. The Company provides global services including managed voice and data
services, switched voice communications and content hosting and distribution of
news, research, analytics and market data.

IXnet started its business as International Exchange Networks, Ltd. ("IEXN"),
which was incorporated in Delaware on March 8, 1993. On June 23, 1995, IPC
Information Systems, Inc. ("IPC"), acquired 80% of the outstanding common stock
of IEXN and acquired the remaining 20% on April 30, 1998. On March 31, 1999,
IPC contributed $73 million of IEXN's then outstanding note payable to IPC into
IEXN's paid-in capital.

MXNet, Inc. ("MXNet") was incorporated in Delaware on May 24, 1996, as a wholly
owned subsidiary of National Discount Brokers Group, Inc. On February 13, 1998,
IPC acquired the outstanding common stock of MXNet, which was contributed to
IEXN in May 1999.

On May 4, 1999, IPC contributed 100% of the outstanding common stock of IEXN to
the Company. In addition, on May 4, 1999, the Company was incorporated in
Delaware as a wholly owned subsidiary of IPC with 2,000 shares of common stock,
par value $0.01 per share, authorized, and 1,000 shares issued to IPC.
Effective July 1, 1999, the Company amended its certificate of incorporation to
increase its authorized shares to 100,000,000. On June 30, 1999, the Company
declared a 43,100 for one stock split effective July 1, 1999, resulting in
43,100,000 shares issued and outstanding.

The Company completed an initial public offering (the "Offering") of 6,500,000
shares of common stock at $15 per share on August 12, 1999. On August 30, 1999,
the underwriters exercised their over-allotment option and purchased an
additional 975,000 shares of common stock at $15 per share.

On February 22, 2000, the Company, IPC and IPC Communications, Inc. entered into
a merger agreement with Global Crossing, Ltd. (the "Merger"). The Merger was
approved by a majority of the Company's and IPC's stockholders. Under the terms
of the Merger agreement, at the closing, Company stockholders will be entitled
to receive 1.184 shares of Global Crossing common stock for each share of
Company common stock and IPC stockholders will be entitled to receive 5.417
shares of Global Crossing common stock for each share of IPC common stock. The
Merger is expected to be completed by the end of the Company's third fiscal
quarter. For the three and six months ended March 31, 2000, the Company recorded
costs of $18.5 million related to the Merger. These costs primarily included
investment banker fees, legal fees, other professional fees, and other direct
costs.

The financial statements as of and for the three and six months ended March 31,
2000, and as of September 30, 1999, include the accounts of IXnet and its
consolidated subsidiaries. The financial statements for the three and six months
ended March 31, 1999, combine the historical financial information of IEXN and
its consolidated subsidiaries with the historical financial information of
MXNet. Intercompany balances and transactions between IEXN and MXNet have been
eliminated. Additionally, the financial statements present the issued and
outstanding shares of IXnet as if they had been in place for the quarter ended
March 31, 1999. The financial statements include certain corporate expenses
incurred by IPC that have been charged to the Company. Management believes these
allocations are reasonable.

In the opinion of management, the accompanying unaudited financial statements
include all necessary adjustments (consisting of normal recurring accruals and
appropriate inter-company elimination adjustments) for a fair presentation of
the financial position of IXnet, Inc. as of March 31, 2000, and the results of
its operations for the three and six months ended March 31, 2000 and 1999, in
conformity with generally accepted accounting principles, commonly referred to
as GAAP, for interim financial information applied on a consistent basis. The
results of operations for the three and six months ended March 31, 2000, are not
necessarily indicative of the results to be expected for the full year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with GAAP have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with IXnet's Annual Report on Form 10-K
for the year ended September 30, 1999.

4
<PAGE>

IXNET, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)

2. Summary of Significant Accounting Policies

Accounts Receivable

Accounts receivable relate to the billing of communication services and are net
of allowance for doubtful accounts and sales credit provision of $2.9 million
and $2.1 million as of March 31, 2000 and September 30, 1999, respectively.

Earnings Per Share

Basic loss per share is computed using the weighted average number of common
shares outstanding during the year. Diluted loss per share is computed using
the weighted average number of shares of common stock adjusted for the dilutive
effect of common stock equivalent shares of common stock options. Common stock
equivalent shares are calculated using the treasury stock method. All stock
options outstanding have been excluded from the computation of diluted loss per
share as their effect would be antidilutive. Accordingly, there is no
difference between basic and diluted EPS.

3. Comprehensive Loss

Comprehensive loss includes the Company's net loss and foreign currency
translation adjustments. The tax effect and reclassifications are not
significant. The Company's total comprehensive loss for the six months ended
March 31, 2000 and 1999 was as follows (in thousands):

<TABLE>
<CAPTION>
Six Months Ended March 31,
------------------------------
2000 1999
---- ----
<S> <C> <C>
Net loss $(71,348) $(20,117)
Translation adjustment (997) (923)
------------------ --------------------
Total comprehensive loss $(72,345) $(21,040)
================== ====================
</TABLE>

4. Acquisitions and Strategic Agreement

Saturn Global Network Services Holdings Ltd.

On December 18, 1998, the Company acquired all of the issued and outstanding
common shares of Saturn Global Network Services Holdings Limited ("Saturn") from
Marshalls 106 Limited ("Marshalls"). The purchase price included the payment of
cash in the amount of $35.7 million (paid by the Company through borrowings from
IPC) and the issuance by the Company of a promissory note, guaranteed by IPC, in
the amount of $7.5 million bearing interest at the UK Sterling Base Rate, as
defined, plus three percent and payable over three years (the "Marshalls Note").
In addition, the Company assumed indebtedness of Saturn due to Marshalls in the
amount of $5 million payable over 24 months with interest at 9.25% (the "Saturn
Note"). Under this agreement, the Marshalls note is subject to a working
capital adjustment and right of offset. The working capital adjustment was
settled in June 1999 resulting in a reduction of $2 million.

Saturn, a UK holding company, owns telecommunication network operating
subsidiaries in the United Kingdom, USA, Hong Kong, Australia, Japan and
Singapore which sell managed premium grade voice and data communication services
to the financial community. The acquisition was accounted for using the purchase
method of accounting and resulted in $49.2 million of goodwill. Saturn goodwill
is being amortized over 10 years from the date of the acquisition.

5
<PAGE>

IXNET, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)

Strategic Agreement

On September 24, 1999, IXnet entered into a strategic agreement (the "Strategic
Agreement"), including the licensing of certain software products to enhance
the intelligence of its network for a purchase price of $20.0 million
consisting of $10.0 million in cash financed from the proceeds from IXnet's IPO
and 500,000 shares of IXnet restricted common stock valued at an average closing
price prior to the agreement date. The Strategic Agreement is designed to
enhance IXnet's network capabilities with embedded intelligence, delivering
financial enterprise integration, subject-based addressing, trading turret
integration and application management.

Business Networks of New York, Inc.

Effective January 1, 2000, IXnet acquired all of the issued and outstanding
common shares of Business Networks of New York, Inc. ("BNNY"). BNNY is a leader
in providing voice and data services to the financial community, primarily in
the New York Metropolitan Area. The $26.5 million purchase price consisted of
$24.5 million in cash and 45,707 shares of IXnet common stock. The acquisition
was accounted for using the purchase method of accounting and resulted in $27.3
million of goodwill, which will be amortized over a 10 year period from the date
of the acquisition.

Systems Programming & Network Computing, Inc.

On January 25, 2000, IXnet acquired all of the issued and outstanding common
shares of Systems Programming & Network Computing, Inc. ("SPNC"). SPNC is a
leader in providing and integrating sophisticated multi-system, multi-platform
applications for the financial services community. The purchase price was
approximately $1.5 million and consisted of $300,000 in cash, a $100,000
promissory note issued by the Company and 6,080 shares of IXnet common stock.
The acquisition was accounted for using the purchase method of accounting and
resulted in $111,000 of goodwill, which will be amortized over a 5 year period
from the date of the acquisition.

5. Stock Compensation Charge

In May 1999, IXnet recorded $26.4 million in non-cash deferred stock
compensation reflecting the issuance by the Company of options to purchase
6,530,184 shares of common stock of IXnet at $13.96 per share. The deferred
stock compensation is based upon the deemed fair market value of IXnet's common
stock and the exercise price of such options issued on the date of grant. The
Company recorded an additional $2.1 million of non-cash deferred stock
compensation during the quarter and $4.4 during the six months ended March 31,
2000, which represents the charge for the issuance of options in May 1999 that
are treated as variable options for accounting purposes. Stock compensation
expense for the three and six months ended March 31, 2000 is $1.2 million and
$2.6 million respectively. The remaining deferred compensation will be amortized
over the remaining vesting period of the options. In addition, certain of these
options may be treated as variable options and may result in additional
compensation expense in future periods.

6. Property and Equipment

Property and equipment is comprised of the following (in thousands):

<TABLE>
<CAPTION>
March 31, September 30,
Useful Lives 2000 1999
------------ ---- ----

<S> <C> <C> <C>
Network equipment................................. 2 to 5 years $ 56,179 $39,700
Network equipment under capital leases............ 5 years 35,844 28,637
Indefeasible rights of use........................ IRU term 10,760 6,571
Network software.................................. 3 years 24,546 21,485
Office equipment and furniture.................... 5 years 7,964 6,227
Leasehold improvements............................ Lease term 3,827 2,524
-------- -------

Total depreciable property and equipment......... 139,120 105,144
Less accumulated depreciation and amortization... (38,804) (24,974)
-------- -------

$100,316 $ 80,170
======== ========
</TABLE>

6
<PAGE>

IXNET, INC.

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)

Accumulated depreciation of network equipment under capital leases at March 31,
2000 and September 30, 1999, was $13.9 million and $10.8 million,
respectively.

7. Disclosures about Segments of an Enterprise and Related Information

The Company is focused on providing a seamless global network providing a
variety of voice, data, and content distribution services which has been
specifically designed to meet the specialized requirements of the financial
services industry. All of our revenue is derived from our global network. All
operating expenses and assets of the Company are combined and reviewed by the
chief operating decision makers on an enterprise wide-basis, resulting in no
additional discrete reportable segment information.

Our network connects customers in 38 countries around the world and we have
major offices in New York, London and Sydney from which we coordinate our sales
and marketing, finance and administrative functions in North America, Europe and
the Asia Pacific countries. We refer to these areas as regions. All of our
products and services are similar in each of the regions. We specifically
address the needs of the financial services industry and therefore the types and
class of customers for all products and services in each of the regions are
similar. The methods of providing services on our global network are similar.

Enterprise wide information is provided in accordance with SFAS 131
"Disclosures about Segments of an Enterprise and Related Information".
Geographic sales information is based on the currency in which the customer is
billed. Long-lived asset information is based on the physical location of the
assets. The following is revenue and long-lived asset information for geographic
areas (in thousands):

Six Months ended March 31,
----------------------------

2000 1999
---- ----

Long-Lived Long-Lived
Revenue Assets Revenue Assets
------- ------ ------- ------
North America............... $29,736 $112,844 $18,046 $ 40,467
Europe...................... 12,628 57,652 10,011 59,909
Asia/Pacific................ 9,778 4,397 4,554 2,192
------- -------- ------- --------
$52,142 $174,893 $32,611 $102,568
======= ======== ======= ========

For the six months ended March 31, 2000, revenue from the United States, United
Kingdom, and Australia represented 57.0%, 23.4%, and 9.8% of total revenue,
respectively. For the six months ended March 31, 1999, revenue from the United
States and the United Kingdom represented 54.0% and 28.0% of total revenue,
respectively.

As of March 31, 2000, long-lived assets located with the United States and the
United Kingdom represented 64.5% and 31.8% of total long-lived assets,
respectively. As of March 31, 1999, long-lived assets located within the United
States and the United Kingdom represented 39.5% and 58.3% of total long-lived
assets, respectively.

For the six months ended March 31, 2000, no individual customer represented
more than 10% of total revenue. For the six months ended March 31, 1999, two
customers accounted for 14.4% and 11.5% of total revenue.

8. Commitments and Contingencies:

Intercompany Agreement

As of July 1, 1999, the Company, IPC and IEXN entered into an intercompany
agreement which provides, among other matters, for IPC to furnish up to $50.0
million of credit, including the provision of letters of credit, guarantees and
other forms of credit enhancements limited to $6.25 million per quarter,
commencing July 1, 1999 and continuing through the quarter ending June 30, 2001.
Outstanding notes payable on July 1, 1999 and additional amounts borrowed under
the agreement bear interest at the Base Rate, as defined, plus 2%. Any and all
amounts advanced by IPC which are outstanding on June 30, 2001 shall be
immediately due and payable.

7
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

The following discussion and analysis should be read together with our
Consolidated and Combined Financial Statements, and related notes to these
statements appearing elsewhere in this interim report.

Overview

IXnet is a leading provider of communications services to the worldwide
financial services community. We have built and operate a global seamless
communications network connecting financial services firms and their business
partners, as well as multiple offices within the same firm. We refer to this
network as our Extranet. Through our Extranet, our customers obtain highly
reliable, secure and fully managed voice and data connectivity without having to
access multiple disparate public networks or rely on multiple customer service
organizations.

The Company provides a variety of voice, data, and content distribution services
which has been specifically designed to meet the specialized requirements of the
financial services industry. All of our revenue is derived from our global
network.

In 1995, we began building our Extranet and offering voice and data services. We
funded the initial construction of our Extranet, including capital expenditures
and working capital, through inter-company investments and loans provided by our
parent, IPC. Our Extranet connects over 600 customers in 38 countries in
financial centers around the world, including New York, Chicago, Los Angeles,
London, Frankfurt, Paris, Zurich, Hong Kong, Tokyo, Sydney and Singapore.

We provide services to meet the specialized needs of the financial services
community, including managed voice and data services, virtual private network
services and fully outsourced network solutions. In addition, we aggregate, host
and distribute financial content, such as news, research, analytics and market
data, for information service providers.

We have incurred operating losses, net losses and negative operating cash flow
for each month since our formation. As of March 31, 2000, we had an accumulated
deficit of approximately $180.5 million. We expect to substantially increase our
expenditures and operating expenses as we continue the buildout of our Extranet.
We expect to incur substantial operating losses, net losses, and negative cash
flow during the network buildout and as we penetrate new markets for the
foreseeable future.

On August 12, 1999, the Company completed its initial public offering ("IPO") of
6,500,000 shares at price of $15 per share. On August 30, 1999, the underwriters
exercised their over-allotment option and purchased an additional 975,000 shares
at $15 per share.

Total proceeds received by the Company net of commissions and expenses were
approximately $102.1 million. The proceeds of the IPO were to be used to finance
the continued expansion of our network and for acquisitions, strategic
alliances, and investments in IXnet's business. See "Changes in Securities and
Use of Proceeds" on page 18 for a breakdown as to how the proceeds have been
used.

On February 22, 2000, the Company, IPC Information Systems, Inc., IPC
Communications, Inc. entered into a merger agreement with Global Crossing, Ltd.
(the "Merger"). The Merger was approved by a majority of the Company's and IPC's
stockholders. Under the terms of the Merger agreement, at the closing, (1)
Company stockholders will be entitled to receive 1.184 shares of Global Crossing
common stock for each share of Company common stock and IPC stockholders will be
entitled to receive 5.417 shares of Global Crossing common stock for each share
of IPC common stock. For the three and six months ended March 31, 2000, the
Company recorded costs of $18.5 million related to the Merger with Global
Crossing Ltd. These costs primarily included investment banker fees, legal fees,
other professional fees, and other direct costs. The Merger is expected to be
completed by the end of the Company's third fiscal quarter.

As of March 31, 2000, IXnet had 51,148,867 shares of common stock outstanding,
of which 43,100,000 shares are owned by IPC.

Components of Revenues

We offer a full range of services to meet the needs of our customers, including
the following voice and data communications services:

. Premium voice--dedicated private voice lines;

. Managed bandwidth--fully managed dedicated bandwidth facilities;

8
<PAGE>

. Outsourcing--end-to-end management of communications networks;

. Switched voice--high quality voice communications services;

. Shared internet protocol--network delivery and hosting of third party
market data, research, analytics, news and other trading information to
the desktop, also known as our Liquidity service; and

. Frame relay--dedicated transport of data applications.

We currently derive a majority of our revenues from sales of premium voice,
managed bandwidth and outsourcing services, and to a lesser extent switched
voice, shared internet protocol and other services. Our services are billed on a
monthly basis in advance of customer utilization, except for switched voice
services, which are billed monthly after service is provided. Revenue is
recorded as services are provided. We expect future revenues will include
software revenue recognition, however, this amount is not expected to be
significant to our overall revenue.

Pricing Policies

Rates for our premium voice, managed bandwidth and frame relay services are
determined by geographic location and bandwidth utilization. For frame relay
service, there is frequently an additional pricing component for optional
telecommunications equipment deployed on customers' premises. These fees may be
adjusted for customer volume commitments and term of contract.

The primary components of pricing for switched voice are duration of call and
geographic location, which may be adjusted for customer volume commitment, term
of contract and connections to an on-net customer.

Rates for our outsourcing service are determined by geographic location,
bandwidth utilization, telecommunications equipment deployed on the customers'
premises, level of service requested and any custom requirements. The rate may
be adjusted for customer volume commitments and term of contract.

The components of pricing shared internet protocol may include the following
charges paid by content providers:

. an access fee to connect to our Extranet;

. a fee to deliver service to end-users; and

. fees associated with housing of equipment and customer application
support.

The access and delivery fees are determined by geographic location and bandwidth
utilization. The hosting fee is determined by amount of space and level of
required service. The other component of pricing, paid either by the end-user or
the content provider, is a fee for end-user access to our Extranet. This fee is
determined by geographic location and bandwidth utilization and may be adjusted
for volume commitment and term of contract. The Company also expects to charge
fees in connection with the use of licensed software for the delivery of content
over our network.

Long Term Agreements

The terms of our sales agreements typically range from one to five years and are
determined based on the level of service requested. Customers who outsource
their network needs to us tend to have longer term agreements, up to five years.
Our ability to obtain fixed term agreements from our customers provides us with
a certain level of predictability as to revenue generation. We continue to
penetrate our customer base by marketing additional services to existing
customers, adding new customer locations and renewing the term of our existing
customer agreements. We also provide services to some of our customers on a
month-to-month basis.

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Components of Costs and Expenses

Cost of revenue

Cost of revenue consists primarily of leased local and long distance circuit
costs, personnel and related operating expenses associated with network
operations, customer support and field service support. Depreciation and
amortization related to the cost of our network operations centers, points of
presence, customer access nodes, and indefeasible rights to use cable and fiber
optic lines, are included in depreciation and amortization expense. The increase
in these expenses relates primarily to the expansion of our network and
resulting increases in leased circuit, maintenance, personnel, facilities, and
customer support costs. Although we expect that cost of revenue will continue to
increase as our customer base increases, we anticipate that such expenses as a
percentage of revenues will decrease over time. These expenses may be incurred
prior to the realization of anticipated revenue. We intend to lease or buy
higher capacity local and long distance circuits. As a result of these lease
agreements and purchases, we expect to realize the associated benefits of lower
unit costs as the use of our network increases. In addition, as revenues grow,
we expect to realize economies of scale associated with a relatively fixed
operating infrastructure.

Sales and marketing expense

Sales and marketing expense consists primarily of personnel costs, commissions,
bad debt, travel and entertainment, marketing and advertising. We market our
services to the financial services community primarily through our direct
salesforce. We intend to significantly expand our salesforce within the U.S.,
Europe and the AsiaPacific region through the hiring of personnel who have
backgrounds in network services or experience with the specialized communication
needs of the financial services community. Although we compensate our salesforce
employees, in part, on a commission basis, hiring, training, integrating and
retaining these new hires requires substantial expenditures in advance of any
revenue realization that may arise from the sales efforts of new hires. We
estimate that an average of three months elapses between the hiring of a new
sales employee and the realization of recognizable productivity, and
approximately another two months elapses before any significant revenues result.
We expect that sales and marketing expenses will increase in the future as we
expand our sales and marketing staffs to keep pace with our rapid growth both
domestically and internationally but that such expenses will decrease over time
as a percent of revenue.

General and administrative expense

General and administrative expense consists primarily of salaries and occupancy
costs for executive, financial, and management information systems personnel.
Certain accounting and management information systems functions, human
resources, legal, executive and administrative services have been performed
under an inter-company agreement with our parent, IPC. The related costs of
providing such services have been, and will continue to be, allocated based upon
utilization of the specific services. We expect that general and administrative
expenses will increase in the future as we expand our management and
administrative staffs to keep pace with our rapid growth both domestically and
internationally, but that such expenses will decrease over time as a percent of
revenue.

Depreciation and amortization

Depreciation and amortization expense includes the allocation of cost for
property and equipment and goodwill over their expected useful lives. Property
and equipment, excluding indefeasible rights of use, leasehold improvements and
network software, are depreciated over two to five years. The cost of
indefeasible rights of use are amortized over the leased term, generally 20 to
25 years, leasehold improvements are amortized over the life of the lease term,
generally five years, network software is amortized over 3 years, and goodwill
is amortized over periods ranging from 2.25 to 10 years.

Network expansion

Since the beginning of our operations, we have undertaken a program of
developing and expanding our Extranet. We have made significant investments in
network capacity and telecommunications equipment, including routers, customer
access nodes, transmission electronics, switches, circuits and other equipment
to produce a technologically advanced global Extranet. Historically, a large
portion of our network expense was associated with the development of our
Extranet and was only

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undertaken based on customer demand. Subsequent to our initial public offering,
we have begun to make greater network investments in certain strategic areas in
anticipation of increased customer demand. Investments in customer access nodes
and network capacity through acquisitions of indefeasible rights of use and the
buildout of our points of presence will continue to represent significant
capital expenditures and are expected to be substantially above historical
levels.

Deferred Compensation

During May 1999, our board of directors and our sole stockholder, IPC, approved
the IXnet, Inc. 1999 Stock Option Plan (the "Plan"), authorizing the grant of
options to purchase up to 7,053,409 shares of our common stock. At that time,
options to purchase 6,530,184 shares were granted to employees, directors and
others at an exercise price of $13.96 per share. Except for 1,763,352 options
granted to our Chief Executive Officer which vested immediately, such options
vest over four years. All such options become exercisable, to the extent then
vested, 30 months from the date the Plan was adopted, subject to certain
exceptions.

In connection with this issuance of stock options, we have recorded deferred
compensation in the aggregate amount of approximately $26 million, based upon
the deemed fair market value of our common stock at the date of grant. The
Company recorded an additional $2.1 million and $4.4 million, respectively, of
non-cash deferred stock compensation for the three and six months ended March
31, 2000, which represents the charge for the issuance of options in May 1999
that are treated as variable options for accounting purposes. Furthermore, for
the three and six months period ended March 31, 2000, the Company recorded $1.2
million and $2.6 million of expense. The remaining deferred compensation will
be amortized over the remaining vesting period of the options. In addition,
certain of these options are treated as variable options and may result in
additional deferred compensation expense in future periods as the value of our
shares changes over the vesting period.

Results of Operations

Comparison of the three month period ended March 31, 2000 to the three month
period ended March 31, 1999

Revenue. Revenue was $29.0 million for the three months ended March 31, 2000, an
increase of $9.1 million, or 45.7%, from $19.9 million for the three months
ended March 31, 1999. This increase is from the Saturn and BNNY acquisitions and
growth in our overall customer base.

Cost of revenue. Cost of revenue was $31.0 million for the three months ended
March 31, 2000, an increase of $12.5 million, or 67.6%, from $18.5 million for
the three month ended March 31, 1999. Of this increase, approximately $3.4
million relates to carrier costs from BNNY which was acquired in January 2000.
The balance of the increase was primarily due to increased leased circuit costs
and, to a lesser extent, the increase in operations personnel. Leased circuit
costs increased due to the expansion of our points of presence, increased
engineering support and the build out of the network ahead of revenue growth.

Sales and marketing expense. Sales and marketing expense was $7.9 million for
the three months ended March 31, 2000, an increase of $5.1 million, or 182.1%,
from $2.8 million for the three months ended March 31, 1999. This increase was
primarily due to the growth in our sales force including the addition of BNNY
sales personnel, related support personnel, consulting fees, advertising, and
the product marketing program.

General and administrative expense. General and administrative expense was $5.9
million for the three months ended March 31, 2000, an increase of $4.3 million,
or 268.8%, from $1.6 million for the three months ended March 31, 1999. This
increase was primarily due to an increase in personnel costs, higher occupancy
fees and higher professional fees as we build and expand in European and
Asia/Pacific Markets.

Depreciation and amortization. Depreciation and amortization was $10.2 million
for the three months ended March 31, 2000, an increase of $4.6 million, or
82.1%, from $5.6 million for the three months ended March 31, 1999. This
increase was primarily due to the increase in property and equipment in
connection with the expansion of our network and includes the amortization of
our TIBCO software license, and amortization of goodwill of $700,000 associated
with the BNNY acquisition.

Stock compensation charge. The Company recognized approximately $1.2 million in
stock compensation expense during the three month period ended March 31, 2000,
compared to zero stock compensation expense for three months ended March 31,
1999. The change relates to stock options issued in connection with the initial
public offering. The deferred compensation balance in equity, $18.6 million,
will be amortized over the remaining vesting period of the options.

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Merger related costs. Merger related costs were $18.5 million for the three
months ended March 31, 2000, a 100% increase over the prior period. These
costs, incurred in connection with the merger with Global Crossing Ltd,
primarily include investment banker fees, legal fees, other professional fees,
and other direct costs.

Interest expense, net. Interest expense, net was $1.7 million for the three
months ended March 31, 2000, a decrease of $800 thousand, or 32%, from $2.5
million for the three months ended March 31, 1999. This decrease was primarily
due to an offset of interest expense by higher interest income resulting from
the investment of the IPO proceeds in short-term marketable securities. We
expect interest expense to increase in future periods as we use the proceeds of
the offering for acquisition and expansion of the network and increase our
borrowings from IPC and our capital lease obligations.

Provision for income taxes. The provision for income taxes consisted of
primarily foreign taxes in 1999 and 1998. The Company is included in the IPC
consolidated tax return and the benefits of the NOL's realized on the
consolidated return are recorded as capital contributions.

Comparison of the six month period ended March 31, 2000 to the six month period
ended March 31, 1999

Revenue. Revenue was $52.1 million for the six months ended March 31, 2000, an
increase of $19.5 million, or 59.8%, from $32.6 million for the six months ended
March 31, 1999. This increase related to revenues from the Saturn and BNNY
acquisitions and increased revenue from the growth in our overall customer base.

Cost of revenue. Cost of revenue was $55.7 million for the six months ended
March 31, 2000, an increase of $24.8 million, or 80.3%, from $30.9 million for
the six month ended March 31, 1999. This increase primarily relates to increased
carrier costs from the Saturn and BNNY acquisitions. The balance of this
increase was primarily due to increased leased circuit costs and, to a lesser
extent, the increase in operations personnel. Leased circuit costs increased due
to the expansion of our points of presence, increased engineering support and
the build out of the network ahead of revenue growth.

Sales and marketing expense. Sales and marketing expense was $13.7 million for
the six months ended March 31, 2000, an increase of $8.8 million, or 179.6%,
from $4.9 million for the six months ended March 31, 1999. This increase was
primarily due to the growth in our sales force including the addition of Saturn
and BNNY sales personnel, related support personnel, consulting fees,
advertising, and product marketing program.

General and administrative expense. General and administrative expense was $10.4
million for the six months ended March 31, 2000, an increase of $7.6 million, or
271.4%, from $2.8 million for the six months ended March 31, 1999. This increase
was primarily due to an increase in personnel costs resulting from the Saturn
and BNNY acquisitions, higher occupancy fees and professional fees and continued
growth as we build and expand in European and Asia/Pacific Markets.

Depreciation and amortization. Depreciation and amortization was $18.4 million
for the six months ended March 31, 2000, an increase of $8.9 million, or 93.7%,
from $9.5 million for the six months ended March 31, 1999. This increase was
primarily due to the increase in property and equipment in connection with the
expansion of our network and includes the amortization of our TIBCO software
license, $1.0 million of amortization of goodwill associated with the Saturn
acquisition as well as $700,000 of amortization of goodwill associated with the
BNNY acquisition

Stock compensation charge. The Company recognized approximately $2.6 million in
stock compensation expense during the six month period ended March 31, 2000
related to stock options issued in connection with the initial public offering.
The deferred compensation balance in equity, $18.6 million, will be amortized
over the remaining vesting period of the options.

Merger related costs. Merger related costs were $18.5 million for the six
months ended March 31, 2000, a 100% increase over the prior period. These
costs, incurred in connection with Global Crossing merger primarily include
investment banker fees, legal fees, other professional fees, and other direct
costs.

Interest expense, net. Interest expense, net was $2.9 million for the six months
ended March 31, 2000, a decrease of $1.4 million, or 32.6%, from $4.3 million
for the six months ended March 31, 1999. This decrease was primarily due to an
offset of interest expense by higher interest income resulting from the
investment of the IPO proceeds in short-term marketable securities. We expect
interest expense to increase in future periods as we use the proceeds of the
offering for acquisition and expansion of the network and increase our
borrowings from IPC and our capital lease obligations.

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Liquidity and Capital Resources

Since the commencement of our operations in 1995, we have relied primarily on
IPC to fund our operating cash requirements, property and equipment
expenditures, debt service payments and acquisitions. We have also obtained
financing for certain of our network equipment, which is either guaranteed by
IPC and/or partially supported by letters of credit issued under IPC's credit
agreement. In addition, we obtained certain seller financing for the Saturn
acquisition, which has been guaranteed by IPC. From inception to March 31, 2000,
the aggregate net amount of intercompany funding, exclusive of guarantees and
letters of credit, was approximately $138.9 million, of which $73.0 million was
contributed to equity effective March 31, 1999.

On August 12, 1999 we completed our initial public offering of 6,500,000 shares
at a price of $15 per share. On August 30, 1999, the underwriters exercised
their over-allotment option and purchased an additional 975,000 shares at $15
per share. Total proceeds received by IXnet net of commissions and expenses
were approximately $102.1 million. The proceeds of the initial public offering
are to be used to finance the continued expansion of IXnet's network and for
possible acquisitions, strategic alliances, or investments in IXnet's business.
See "Changes in Securities and Use of Proceeds" on page 18 for a breakdown as to
how the proceeds have been used.

Subject to the terms and conditions of the intercompany agreement, IPC has
agreed to continue to provide us with ongoing financing and to obtain letters of
credit on our behalf. The amount available under the intercompany agreement
starts at $6.25 million and increases by that amount quarterly thereafter, up to
an aggregate of $50 million during the period beginning July 1, 1999 through
June 30, 2001. On June 30, 2001, all amounts loaned and outstanding under the
inter-company agreement will become immediately due and payable. In addition,
IPC, in its sole discretion, will continue to provide guarantees of our
obligations.

IPC has primarily two sources of funds from which it can fund our working
capital needs. The first is from its cash flow and the second is through its $65
million secured credit facility, consisting of a $20 million term loan facility
and a revolving credit facility of up to $45 million. However, IPC will not
make loans to us, obtain letters of credit on our behalf or provide us with
guarantees if, such requests would be prohibited under IPC's credit agreement;
would result in a default or event of default under IPC's agreement; or would
result in a default or event of default under the indenture for IPC's senior
discount notes.

All borrowings under the intercompany agreement will be evidenced by demand
notes. However IPC has agreed not to demand payment on those notes until June
30, 2001, unless a default or an event of default under IPC's credit agreement
or a change in control occurs. In either case, all amounts owing under the
intercompany agreement will be immediately due and payable upon demand. A change
in control will occur if IPC ceases to own at least 50% of our voting
securities.

Under the intercompany agreement, all currently outstanding and any future loans
from IPC will be made at a rate per annum equal to 2% over the base rate under
IPC's credit agreement. The base rate under IPC's credit agreement is equal to
the higher of the rate of interest announced publicly by Citibank, N.A. at its
head office in New York as its base rate or 1/2 of 1% per annum above the
federal funds rate.

In addition, any amounts loaned by IPC to us which are outstanding on July 1,
1999 will bear interest at a rate equal to 2% over the base rate and will not
reduce the amount of funding that will be available to us.

The intercompany agreement provides that the letters of credit or guarantees
provided by IPC which were outstanding on July 1, 1999 of $5.75 million shall
continue in full force and effect on their same terms and conditions until their
expiration. Loans from IPC and letters of credit procured by IPC which were
outstanding on July 1, 1999 do not reduce the amounts available to us under the
intercompany agreement.

We will reimburse IPC for the applicable costs, fees and charges incurred by IPC
in obtaining letters of credit or for providing guarantees to us after July 1,
1999 or payments made by IPC in connection with any enforcement by third parties
of such letters of credit and guarantees. All other costs under IPC's credit
agreement will continue to be borne by IPC.

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The intercompany agreement also provides for the allocation between us and IPC
of certain allowances and limitations provided for in IPC's credit agreement,
which include sales of assets, investments and the amount of debt that may be
incurred.

Cash Flows

Cash flows from operating activities can vary significantly from period to
period depending upon the timing of operating cash receipts and payments,
particularly accounts receivable, prepaid expenses and other assets, and
accounts payable and accrued liabilities. During the six months ended March 31,
2000 and 1999, our net losses were the primary component of net cash used in
operating activities, offset by significant non-cash depreciation and
amortization expenses. Net cash used in operating activities was $34.9 million
for the six months ended March 31, 2000, as compared to $11.6 million for the
six months ended March 31, 1999.

Cash provided by investing activities was $2.4 million for the six months ended
March 31, 2000, compared to cash used of 42.4 million for the same period ended
March 31, 1999. Cash provided by investing activities during the six month
period ended March 31, 2000, resulted from $26.2 million used for capital
expenditures and $23.6 million used for the acquisition of BNNY, as well as a
net decrease of $52.5 million in marketable securities which were used for the
build out of our network as well as other expansion activities. For the six
months ended March 31, 1999, components of cash used in investing activities
were $7.7 million in capital expenditures, as well as $34.7 million used for the
Saturn acquisition.

Cash provided by financing activities was $1.1 million for the six months ended
March 31, 2000, compared to $57.4 million for the three months ended March 31,
1999. The largest component of cash provided from financing activities for the
six months ended March 31, 2000 and 1999, resulted from net borrowings from
our parent, IPC, in the amount of $12.0 million and $54.9 million, respectively.
The higher borrowings was due to funding for the Saturn acquisition, losses from
operations, debt service payments, costs associated with our initial public
offering, and capital expenditures.

Commitments, Capital Expenditures and Future Financing Requirements

Capital expenditures, funded through IPO proceeds and borrowings from IPC, were
$26.2 million for the six months ended March 31, 2000. As of March 31, 2000, we
had capital lease commitments to certain telecommunications vendors totaling
$25.2 million payable in various years through 2004 of which $6.7 million plus
finance charges were due within one year.

Notes in the aggregate amount of $11.1 million were outstanding as of March 31,
2000 consisting of $8.0 million due to the former shareholders of Saturn and
$3.0 million in connection with the strategic agreement entered into in
September 1999. As of March 31, 2000, $8.7 million is payable within one year.

Installation of customer access nodes, acquisition of indefeasible rights of use
and the buildout of our points of presence are expected to be our most
significant capital expenditure items over the next 12 months. We expect to
continue to acquire high capacity bandwidth to enhance our global network
capabilities in North America, Europe and the Asia/Pacific region which would be
accompanied by capital expenditures in the deployment of points of presence. We
expect that our purchase of property and equipment will increase substantially
from historic levels and that the net proceeds from the initial public offering,
along with third party equipment financing arrangements, should be sufficient to
meet our near term needs for property and equipment for the next 12 months.

As of March 31, 2000, we had available cash and cash equivalents of $6.6 million
and restricted cash of $3.0 million in connection with the strategic agreement.
We are currently generating operating losses and expect to continue to do so for
the foreseeable future. Under the indenture for IPC's senior discount notes, the
net proceeds from our initial public offering is limited in its use to fund our
working capital needs. We believe that we will need additional working capital,
along with the funding of our debt obligations, which consist of capital lease
obligations, installment payments for indefeasible rights to use international
cable systems, and payments on the notes to Saturn. Payments in connection with
the strategic agreement installment note and payments for certain IRU's are made
against the restricted cash balance. Under IPC's credit agreement and our inter-
company agreement with IPC, there are some restrictions from seeking additional
debt or equity financing other than debt financing from IPC for working capital
and other operating costs. Accordingly we expect to continue to rely upon IPC to
fund these requirements.

We have purchased or committed to purchase interests in or indefeasible rights
to use international cable systems on projects such as TAT12/13, TAT14, Gemini,
GTS, CANTAT3, Germany-U.K.6, TPC-5, Japan-U.S., NTL and Sirius. Further, we
expect to continue to enter into commitments to purchase similar interests and
rights in the future.

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Other Possible Strategic Relationships and Acquisitions

We intend to make strategic acquisitions as appropriate opportunities arise to
expand our service offerings, expand our Extranet and/or increase our customer
base. See "Overview" located in the beginning of this section.

Foreign Exchange Rate Risk

We conduct our business in more than 38 countries, and transactions from these
foreign operations are denominated in local currencies. With respect to these
foreign operations, we are exposed to foreign currency fluctuations for our net
working capital positions. Foreign currency fluctuations historically have not
had a significant impact on our revenues or operating results. We currently do
not have a foreign exchange hedging program; however, we may implement a program
to mitigate foreign currency transaction risk in the future. Although our
foreign operations are subject to economic, fiscal and monetary policy of
foreign governments, to date these factors have not had a material effect on our
results of operations or liquidity. A significant and growing portion of our
business is from our international operations, and changes in the global
economy, foreign tax laws, international business practices and currency
exchange rates could adversely affect our business.

On January 1, 1999, several members of the European Union established fixed
conversion rates between their existing sovereign currencies and adopted the
Euro as their new legal currency. Since its adoption, the Euro has not had a
material effect on the Company's business or financial condition.

Effects of Recently Issued Accounting Standards

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments and hedging activities. The effective date of this
standard was deferred to all fiscal quarters of fiscal years beginning after
June 15, 2000 by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133"
which was issued on June 30, 1999. The Company does not currently use
derivative financial instruments.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial
statements. SAB 101 is not a rule or interpretation of the SEC, however, it
represents interpretations and practices followed by the Division of Corporation
Finance and the Office of the Chief Accountant in administering the disclosure
requirements of the Federal securities laws. The Company does not believe that
the interpretations outlined in SAB 101 will have an impact on the Company's
revenue recognition policies.

Year 2000 Update

Even though the date is now past January 1, 2000 and we have not experienced any
immediate adverse impact on our operations from the transition to the Year 2000,
we cannot provide complete assurance that our operations have not been affected
in a manner that is not yet apparent or that will arise in the future. In
addition, certain computer programs that were date sensitive to the Year 2000
may not have been programmed to process the Year 2000 as a leap year, and any
negative consequential effects remain unknown. As a result, we will continue to
monitor our Year 2000 compliance and the Year 2000 compliance of our suppliers.
However, we anticipate no Year 2000 problems that are reasonably likely to have
a material adverse effect on our operations.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange Rate Risk

We conduct our business in approximately 38 countries, and transactions from
these foreign operations are denominated in local currencies. With respect to
these foreign operations, we are exposed to foreign currency fluctuations for
our net working capital positions. Foreign currency fluctuations historically
have not had a significant impact on our revenues or operating results. We
currently do not have a foreign currency exchange hedging program; however, we
may implement a program to mitigate foreign currency transaction risk in the
future. Although our foreign operations are subject to economic, fiscal and
monetary policy of foreign governments, to date these factors have not had a
material effect on our results of operations or liquidity. A significant and
growing portion of our business is from our international operations, and
changes in the global economy, foreign tax laws, international business
practices and currency exchange rates could adversely affect our business.

Interest Rate Risk

The Company is exposed to changes in interest rates primarily from its
outstanding debt and its investments in certain marketable securities. The
interest rate for all outstanding debt is variable and therefore will fluctuate
with market conditions. As a result, the Company is exposed to interest rate
fluctuations, which could have a negative impact on our results of operations.
We currently do not have an interest rate hedging program; however, we may
implement a program to mitigate future fluctuations in interest rates. The
Company's marketable securities consist of fixed income investments in the form
of short-term commercial paper. The Company continually monitors its exposure
to changes in interest rates from its marketable securities. Accordingly, the
Company believes that the effects of changes in interest rates are limited,
however, it is possible that the Company would be at risk if interest rates
change in an unfavorable direction. The magnitude of any gain or loss will be a
function of the difference between the fixed rate of the financial instrument
and the market rate, which could have a material affect on financial condition
and results of operations.

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IXNET, INC.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From February 20, 2000 to March 8, 2000, three lawsuits purporting to be class
actions were filed in the Delaware Chancery Court against the Company, IPC and
the individual directors of the Company and IPC. The complaints, captioned
Weinbtraub v. Smith, et al., Blisko v. Smith, et al., and Koening v. Smith, et
al., allege that the defendants breached their fiduciary duties to the Company's
minority shareholders in connection with the Merger. The plaintiffs allege,
among other things, that when measured in percentage terms, the Company's
minority shareholders will receive a lower premium for their shares than IPC
shareholders. The plaintiffs seek an injunction, money damages, costs and
attorneys' fees. The Company believes that these actions are entirely without
merit and intends to contest them vigorously.

ITEM 2. CHANGES IN SECURITIES & USE OF PROCEEDS

The common stock of IXnet, Inc, has been traded on the NASDAQ National Market
(NASDAQ Symbol: EXNT) since the completion of our initial public offering
("IPO") on August 12, 1999 (Registration Statement on Form S-1 No. 333-79079).
Prior to that date, IPC owned 100% of the outstanding common stock. In
connection with the IPO, IPC retained 43,100,000 restricted shares of common
stock. Furthermore, IXnet issued 500,000 restricted shares of its common stock
as part of the purchase price for a strategic agreement.

We sold 6,500,000 common shares through our IPO on August 12, 1999. On August
30, 1999, the over-allotment option was exercised and an additional 975,000
shares were sold. Total aggregate proceeds, net of underwriting commissions of
approximately $7.6 million and offering expenses of approximately $2.5 million,
were approximately $102 million. The net offering proceeds have the following
intended uses:

. Approximately $3 million has been invested in U.S. investment grade
and government securities and approximately $.3 million is held in
cash equivalent accounts. These amounts will be used for the remaining
$3 million committed to a strategic agreement, as mentioned below, as
well as continued deployment and expansion of our Extranet, or
investments in property or assets used in our business.

. Approximately $7 million has been spent and $3 million committed to a
strategic agreement including the license of certain software products
to enhance our network intelligence.

. Approximately $3 million has been invested in IRU's and bandwidth
capacity.

. Approximately $88.7 million has been spent to fund investments in
network telecommunications equipment in our continuing expansion of
our network and build-out of our points of presence.

None of the payments indicated above were direct or indirect payments to
entities that were (i) directors, officers or their associates, (ii) greater
than 10% owners of any of our equity securities or (iii) our affiliates.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Company's Annual Meeting of Stockholders on March 2, 2000, the following
proposals were adopted: 1) the election of nine directors to hold office until
the next Annual Meeting; 2) the approval of an amendment to increase by
2,000,000 the shares reserved for the IXnet, Inc. 1999 Stock Option Plan; and 3)
the ratification of the appointment of PricewaterhouseCoopers LLP as independent
auditor of the Company for the fiscal year ending September 30, 2000.

ITEM 5. OTHER INFORMATION

None

17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit No. Description
----------- -----------

2.1 Agreement for the Sale/Purchase of the Issued Share Capital of
Saturn Global Network Services Holdings Limited dated August 7,
1998 (as amended on December 18, 1998) among Marshalls 106
Limited, Marshalls Finance Limited, International Exchange
Networks, Ltd. and IPC Information Systems, Inc. (incorporated
by reference to Exhibit 2.1 to Form S-1, Registration No. 333-
70979).

2.2 Deed constituting unsecured Guaranteed Subordinated Loan Notes
2000/2002, dated December 18, 1998, made between Saturn Global
Network Services Holdings Limited, International Exchange
Networks, Ltd. and IPC Information Systems, Inc. (incorporated
by reference to Exhibit 2.1.1 to Form S-1, Registration No.
333-79079).

2.3 Deed constituting unsecured Guaranteed Subordinated Loan Note
2000/2002, dated December 18, 1998, between International
Exchange Networks Ltd. and IPC Information Systems, Inc.
(incorporated by reference to Exhibit 2.1.2 to Form S-1,
Registration No. 333-79079).

2.4 Stock Purchase Agreement, dated February 13, 1998, between IPC
Information Systems, Inc., MXNet, Inc. and National Discount
Brokers Group, Inc. (incorporated by reference to Exhibit 2.2
to Form S-1, Registration No. 333-79079).

2.5 Agreement and plan of merger, dated as of February 22, 2000,
among Global Crossing Ltd., Georgia Merger Sub Corporation,
IPC Communications, Inc., IPC Information Systems, Inc., Idaho
Merger Sub Corporation and IXnet, Inc. (incorporated by reference
to Exhibit 2.1 to Form 8-K filed on March 6, 2000).

3.1 Amended and Restated Certificate of Incorporation of IXnet,
Inc. (incorporated by reference to Exhibit 3.1 to Form S-1,
Registration No. 333-79079).

3.2 Bylaws of IXnet, Inc. (incorporated by reference to Exhibit 3.2
to Form S-1, Registration No. 333-79079).

4.1 Specimen Stock Certificate (incorporated by reference to
Exhibit 4.1 to Form S-1, Registration No. 333-79079).

10.1 Form of Inter-Company Agreement among IXnet, Inc.,
International Exchange Networks, Ltd. and IPC Information
Systems, Inc. (incorporated by reference to Exhibit 10.1 to
Form S-1, Registration No. 333-79079).

10.2 Form of Tax Sharing Agreement between IPC Communications, Inc.
and IXnet, Inc. (incorporated by reference to Exhibit 10.2 to
Form S-1, Registration No. 333-79079).

10.3 Form of Registration Rights Agreement between IPC Information

18
<PAGE>

Systems, Inc. and IXnet, Inc. (incorporated by reference to
Exhibit 10.3 to Form S-1, Registration No. 333-79079).

10.4 Form of Maintenance Agreement between International Exchange
Networks, Ltd. and IPC Information Systems, Inc. (incorporated
by reference to Exhibit 10.4 to Form S-1, Registration No. 333-
79079).

10.5 Share Exchange and Termination Agreement, dated as of December
18, 1997, among International Exchange Networks, Ltd., IPC
Communications, Inc., David A. Walsh and Anthony M. Servidio
(incorporated by reference to Exhibit 10.5 to Form S-1,
Registration No. 333-79079).

10.6 Amended and Restated Employment Agreement, dated as of December
18, 1997, between David A. Walsh and International Exchange
Networks, Ltd. (incorporated by reference to Exhibit 10.6 to
Form S-1, Registration No. 333-79079).

10.7 Amendment No. 1, dated as of June 1, 1999, to the Amended and
Restated Employment Agreement between David A. Walsh and
International Exchange Networks, Ltd. (incorporated by
reference to Exhibit 10.7 to Form S-1, Registration No. 333-
79079).

10.8 Waiver letter, dated as of June 9, 1999, from David A. Walsh
regarding provisions in the Amended and Restated Employment
Agreement by and between David A. Walsh and International
Exchange Networks, Ltd. (incorporated by reference to Exhibit
10.8 to Form S-1, Registration No. 333-79079).

10.9 Amended and Restated Employment Agreement, dated as of December
18, 1997, between International Exchange Networks, Ltd. and
Anthony M. Servidio (incorporated by reference to Exhibit 10.11
to Form S-1, Registration No. 333-79079).

10.10 Waiver letter, dated as of June 9, 1999, from Anthony Servidio
regarding provisions in the Amended and Restated Employment
Agreement between Anthony M. Servidio and International
Exchange Networks, Ltd. (incorporated by reference to Exhibit
10.12 to Form S-1, Registration No. 333-79079).

10.11 Employment Agreement, dated as of July 1, 1999, between
International Exchange Networks, Ltd. and Gerald E. Starr
(Incorporated by reference to exhibit 10.11 to form 10-K at
September 30, 1999).

10.12 Form of Employment Agreement for certain Senior Executives
(Incorporated by reference to exhibit 10.12 to form 10-K at
September 30, 1999).

10.13 IXnet, Inc. 1999 Stock Option Plan (incorporated by reference
to Exhibit 10.19 to Form S-1, Registration No. 333-79079).

10.14 IPC Information Systems, Inc. 1998 Stock Incentive Plan
(incorporated by reference to Exhibit 10.20 to Form S-1,
Registration No. 333-79079).

10.15 Indenture, dated as of April 30, 1998, between IPC Information
Systems, Inc. and the United States Trust Company of New York,
as indenture trustee (incorporated by reference to Exhibit

19
<PAGE>

10.21 to Form S-1, Registration No. 333-79079).

10.16 Amended and Restated Credit Agreement, dated as of June 21,
1999, among IPC Information Systems, Inc., IPC Funding Corp.,
IPC Communications, Inc., General Electric Capital Corporation,
as collateral agent and administrative agent, Morgan Stanley
Senior Funding, Inc., as syndication agent, and the lenders and
the issuing bank named therein (incorporated by reference to
Exhibit 10.22 to Form S-1, Registration No. 333-79079).

10.17 International Purchase and Sale Agreement, dated as of July 23,
1996, between International Exchange Networks, Ltd. and
Newbridge Networks Inc. (incorporated by reference to Exhibit
10.23 to Form S-1, Registration No. 333-79079).

10.18 Strategic Agreement, dated as of September 24, 1999 among
IXnet, Inc., International Exchange Networks, Ltd. and TIBCO
Finance Technology, Inc. (incorporated by reference to Exhibit
10.24 to the Company's Report on Form 8-K, dated September 24,
1999).

21.1 Subsidiaries of IXnet, Inc. (incorporated by reference to
Exhibit 21.1 to Form S-1, Registration No. 333-79079).

27.1 Financial Data Schedule (filed only electronically with
Securities and Exchange Commission)

(b) Form 8-K
--------

On March 6, 2000, the Company filed Form 8-K in connection with the merger with
Global Crossing, Ltd. The filing included the merger agreement, as well as a
joint press release.

20
<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.

IXnet, Inc.

Date: May 15, 2000 /s/ Timothy Whelan
----------------------
Vice-President, Finance

<PAGE>

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