Global Crossing Announces First Quarter 2011 Results

Results at a Glance

(Dollars in Millions)

Change vs. 1Q 2010

Constant

1Q 2011

Reported

Currency

Consolidated Revenues

$   661

2%

1%

"Invest and Grow" Revenues

$   587

6%

5%

OIBDA

$     84

9%

6%

Free Cash Flow

$   (93)

$    (21)

Global Crossing Limited and Subsidiaries

Table 1

Condensed Consolidated Balance Sheets

($ in millions)

March 31, 2011

December 31, 2010

(unaudited)

ASSETS:

Current assets:

Cash and cash equivalents

$                        265

$                        372

Restricted cash and cash equivalents - current portion

4

4

Accounts receivable, net of allowances of $47 and $45

356

324

Prepaid costs and other current assets

103

91

Total current assets

728

791

Restricted cash and cash equivalents - long term

5

5

Property and equipment, net of accumulated depreciation of $1,613 and $1,514

1,189

1,179

Intangible assets, net (including goodwill of $211 and $208)

229

227

Other assets

110

108

Total assets

$                     2,261

$                     2,310

LIABILITIES:

Current liabilities:

Accounts payable

$                        262

$                        297

Accrued cost of access

91

78

Short term debt and current portion of long term debt

37

27

Obligations under capital leases - current portion

52

51

Deferred revenue - current portion

180

184

Other current liabilities

366

376

Total current liabilities

988

1,013

Long term debt

1,328

1,311

Obligations under capital leases

78

72

Deferred revenue

337

338

Other deferred liabilities

55

53

Total liabilities

2,786

2,787

SHAREHOLDERS' DEFICIT:

Common stock,  110,000,000 shares authorized, $.01 par value,

61,064,896 and 60,497,709 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively

1

1

Preferred stock with controlling shareholder, 45,000,000 shares authorized,

         $.10 par value, 18,000,000 shares
            issued and outstanding

2

2

Additional paid-in capital

1,444

1,443

Accumulated other comprehensive income (loss)

(1)

15

Accumulated deficit

(1,971)

(1,938)

Total shareholders' deficit

(525)

(477)

Total liabilities and shareholders' deficit

$                     2,261

$                     2,310

Global Crossing Limited and Subsidiaries

Table 2

Unaudited Condensed Consolidated Statements of Operations

($ in millions)

Three Months Ended

March 31,

December 31,

March 31,

2011 ¹

2010 ¹

2010

Revenue

$                      661

$                      683

$                     648

Cost of revenue (excluding depreciation and amortization, shown separately below):

Cost of access

(298)

(289)

(305)

Real estate, network and operations

(108)

(105)

(99)

Third party maintenance

(24)

(26)

(27)

Cost of equipment and other sales

(26)

(32)

(24)

Total cost of revenue

(456)

(452)

(455)

Gross margin

205

231

193

Selling, general and administrative

(121)

(110)

(116)

Depreciation and amortization

(80)

(85)

(88)

Operating income (loss)

4

36

(11)

Other income (expense):

Interest income

-

1

-

Interest expense

(45)

(50)

(49)

Other income (expense), net

18

(14)

(52)

Loss before benefit (provision) for income taxes

(23)

(27)

(112)

Benefit (provision) for income taxes

(10)

27

(7)

Net loss

(33)

-

(119)

Preferred stock dividends

(1)

(1)

(1)

Loss applicable to common shareholders

$                      (34)

$                        (1)

$                    (120)

Loss per common share, basic and diluted:

Loss applicable to common shareholders

$                   (0.56)

$                   (0.02)

$                   (1.99)

Weighted average number of common shares

60,755,348

60,493,579

60,267,487

(1) On October 29, 2010, Global Crossing acquired Genesis Networks Inc. (Genesis), and since that date Genesis' results have been consolidated into Global Crossing.

Global Crossing Limited and Subsidiaries

Table 3

Unaudited Condensed Consolidated Statements of Cash Flows

($ in millions)

Three Months Ended

March 31,

December 31,

March 31,

2011 ¹

2010 ¹

2010

Cash flows provided by (used in) operating activities:

Net loss

$                             (33)

$                                 -

$                               (119)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Gain on sale of property and equipment

-

-

(1)

Non-cash loss on extinguishment of debt

-

5

-

Deferred income tax

2

(23)

-

Non-cash stock compensation expense

4

5

5

Depreciation and amortization

80

85

88

Provision for doubtful accounts

1

2

2

Amortization of prior period IRUs

(7)

(6)

(6)

Change in long term deferred revenue

4

16

10

Other

(20)

(5)

62

Change in operating working capital:

- Changes in accounts receivable

(28)

19

(47)

- Changes in accounts payable and accrued cost of access

(27)

20

(6)

- Changes in other current assets

(12)

5

(7)

- Changes in other current liabilities

(21)

26

(12)

Net cash provided by (used in) operating activities

(57)

149

(31)

Cash flows provided by (used in) investing activities:

Purchases of property and equipment

(36)

(47)

(41)

Genesis acquisition, net of cash acquired

-

(7)

-

Change in restricted cash and cash equivalents

-

9

2

Net cash used in investing activities

(36)

(45)

(39)

Cash flows provided by (used in) financing activities:

Proceeds from short and long term debt

-

150

-

Repayment of capital lease obligations

(16)

(17)

(14)

Repayment of long term debt (including current portion)

(1)

(170)

(4)

Premium paid on extinguishment of debt

-

(2)

-

Proceeds from exercise of stock options

1

1

-

Finance costs incurred

(1)

(4)

(1)

Proceeds from sales/leasebacks

4

-

-

Payment of employee taxes on share-based compensation

(3)

-

(1)

Net cash used in financing activities

(16)

(42)

(20)

Effect of exchange rate changes on cash and cash equivalents

2

(1)

(28)

Net increase (decrease) in cash and cash equivalents

(107)

61

(118)

Cash and cash equivalents, beginning of period

372

311

477

Cash and cash equivalents, end of period

$                            265

$                            372

$                                 359

(1) On October 29, 2010, Global Crossing acquired Genesis Networks Inc. (Genesis), and since that date Genesis' cash flows have been consolidated into Global Crossing.

Global Crossing Limited and Subsidiaries

 Table 4

Unaudited Condensed Consolidated Statements of Operations

($ in millions)

Quarter Ended March 31, 2011

GCUK

GC Impsat

ROW ^{1, 2}

Eliminations

Total

Revenue

$    114

$    152

$    403

$    (8)

$    661

Cost of revenue

Cost of access

(35)

(34)

(237)

8

(298)

Real estate, network and operations

(19)

(24)

(65)

-

(108)

Third party maintenance

(5)

(6)

(13)

-

(24)

Cost of equipment and other sales

(17)

(5)

(4)

-

(26)

Total cost of revenue

(76)

(69)

(319)

8

(456)

Gross margin

38

83

84

-

205

Selling, general and administrative

(20)

(34)

(67)

-

(121)

Depreciation and amortization

(16)

(20)

(44)

-

(80)

Operating income (loss)

2

29

(27)

-

4

Other income (expense):

Interest income

2

1

3

(6)

-

Interest expense

(15)

(3)

(33)

6

(45)

Other income (expense), net

7

1

10

-

18

Income (loss) before benefit (provision) for income taxes

(4)

28

(47)

-

(23)

Benefit (provision) for income taxes

-

(9)

(1)

-

(10)

Net income (loss)

(4)

19

(48)

-

(33)

Preferred stock dividends

-

-

(1)

-

(1)

Income (loss) applicable to common shareholders

$    (4)

$     19

$   (49)

$      -

$   (34)

Quarter Ended December 31, 2010

GCUK

GC Impsat

ROW ^1,2

Eliminations

Total

Revenue

$    129

$    154

$    412

$   (12)

$    683

Cost of revenue

Cost of access

(35)

(37)

(228)

11

(289)

Real estate, network and operations

(19)

(25)

(62)

1

(105)

Third party maintenance

(5)

(7)

(14)

-

(26)

Cost of equipment and other sales

(23)

(6)

(3)

-

(32)

Total cost of revenue

(82)

(75)

(307)

12

(452)

Gross margin

47

79

105

-

231

Selling, general and administrative

(19)

(33)

(58)

-

(110)

Depreciation and amortization

(17)

(20)

(48)

-

(85)

Operating income (loss)

11

26

(1)

-

36

Other income (expense):

Interest income

2

-

5

(6)

1

Interest expense

(14)

(6)

(36)

6

(50)

Other income (expense), net

(4)

2

(12)

-

(14)

Income (loss) before benefit (provision) for income taxes

(5)

22

(44)

-

(27)

Benefit (provision) for income taxes

-

27

-

-

27

Net income (loss)

(5)

49

(44)

-

-

Preferred stock dividends

-

-

(1)

-

(1)

Income (loss) applicable to common shareholders

$    (5)

$     49

$   (45)

$      -

$    (1)

Quarter Ended March 31, 2010

GCUK

GC Impsat

ROW ¹

Eliminations

Total

Revenue

$    120

$    132

$    402

$    (6)

$    648

Cost of revenue

Cost of access

(38)

(31)

(242)

6

(305)

Real estate, network and operations

(10)

(22)

(67)

-

(99)

Third party maintenance

(5)

(7)

(15)

-

(27)

Cost of equipment and other sales

(17)

(4)

(3)

-

(24)

Total cost of revenue

(70)

(64)

(327)

6

(455)

Gross margin

50

68

75

-

193

Selling, general and administrative

(20)

(28)

(68)

-

(116)

Depreciation and amortization

(17)

(24)

(47)

-

(88)

Operating income (loss)

13

16

(40)

-

(11)

Other income (expense):

Interest income

2

1

4

(7)

-

Interest expense

(14)

(7)

(35)

7

(49)

Other income (expense), net

(13)

(28)

(11)

-

(52)

Income (loss) before benefit (provision) for income taxes

(12)

(18)

(82)

-

(112)

Benefit (provision) for income taxes

-

(6)

(1)

-

(7)

Net income (loss)

(12)

(24)

(83)

-

(119)

Preferred stock dividends

-

-

(1)

-

(1)

Income (loss) applicable to common shareholders

$   (12)

$   (24)

$   (84)

$      -

$  (120)

(1) Rest of World (ROW) represents operations of Global Crossing Limited and subsidiaries excluding Global Crossing (UK) Telecommunications Ltd. and subsidiaries (GCUK) and GC Impsat Holdings I Plc and subsidiaries (GC Impsat).

(2) On October 29, 2010, Global Crossing acquired Genesis Networks Inc. (Genesis), and since that date Genesis' results have been consolidated into Global Crossing results as ROW.

Global Crossing Limited and Subsidiaries

Table 5

Unaudited Summary of Consolidated Revenue

($ in millions)

Quarter Ended March 31, 2011

GCUK

GC Impsat

ROW ^{1, 2}

Eliminations

Total

Revenue:

Enterprise, carrier data and indirect sales channel

$              113

$               148

$              326

$                        -

$             587

Carrier voice

1

2

71

-

74

Intersegment revenue

-

2

6

(8)

-

Consolidated revenue

$              114

$               152

$              403

$                      (8)

$             661

Quarter Ended December 31, 2010

GCUK

GC Impsat

ROW ^{1, 2}

Eliminations

Total

Revenue:

Enterprise, carrier data and indirect sales channel

$              128

$               149

$              325

$                        -

$             602

Carrier voice

1

3

77

-

81

Intersegment revenue

-

2

10

(12)

-

Consolidated revenue

$              129

$               154

$              412

$                    (12)

$             683

Quarter Ended March 31, 2010

GCUK

GC Impsat

ROW ¹

Eliminations

Total

Revenue:

Enterprise, carrier data and indirect sales channel

$              119

$               127

$              308

$                        -

$             554

Carrier voice

1

3

90

-

94

Intersegment revenue

-

2

4

(6)

-

Consolidated revenue

$              120

$               132

$              402

$                      (6)

$             648

(1) Rest of World (ROW) represents operations of Global Crossing Limited and subsidiaries excluding Global Crossing (UK) Telecommunications Ltd. and subsidiaries (GCUK) and GC Impsat Holdings I Plc and subsidiaries (GC Impsat).

(2) On October 29, 2010, Global Crossing acquired Genesis Networks Inc. (Genesis), and since that date Genesis' results have been consolidated into Global Crossing results as ROW.

Global Crossing Limited and Subsidiaries

 Table 6

Unaudited Reconciliation of OIBDA to Income (Loss) Applicable to Common Shareholders

($ in millions)

Pursuant to the SEC's Regulation G, the following table provides a reconciliation of OIBDA, which is considered a non-GAAP (Generally Accepted Accounting Principles) financial measure, to income (loss) applicable to common shareholders.

OIBDA is defined as operating income (loss) before depreciation and amortization. OIBDA differs from operating income (loss) in that it excludes depreciation and amortization.  Such excluded expenses primarily reflect the non-cash impacts of historical capital investments, as opposed to the cash impacts of capital expenditures made in recent periods.  In addition, OIBDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for reinvestment, distributions or other discretionary uses.

Management uses OIBDA as an important part of our internal reporting and planning processes and as a key measure to evaluate profitability and operating performance, make comparisons between periods, and to make resource allocation decisions.   Management believes that the investment community uses similar performance measures to compare performance of competitors in our industry.

There are material limitations to using non-GAAP financial measures.  Our calculation of OIBDA may differ from similarly titled measures used by other companies, and may not be comparable to those other measures.  Additionally, OIBDA does not include certain significant items such as depreciation and amortization, interest income, interest expense, income taxes, other non-operating income or expense items and preferred stock dividends.  OIBDA should be considered in addition to, and not as a substitute for, other measures of financial performance reported in accordance with GAAP.

Management believes that OIBDA is useful to our investors as it is a relevant indicator of operating performance, especially in a capital-intensive industry such as telecommunications.  OIBDA provides investors with an indication of the underlying performance of our everyday business operations.  It excludes the effect of items associated with our capitalization and tax structures, such as interest income, interest expense, income taxes and preferred stock dividends, and of other items not associated with our everyday operations.

Quarter Ended March 31, 2011

GCUK

GC Impsat

ROW ^{1, 2}

Eliminations

Total

OIBDA

$                18

$                  49

$                     17

$                        -

$                    84

Depreciation and amortization

(16)

(20)

(44)

-

(80)

Operating income (loss)

2

29

(27)

-

4

Interest income

2

1

3

(6)

-

Interest expense

(15)

(3)

(33)

6

(45)

Other income, net

7

1

10

-

18

Provision for income taxes

-

(9)

(1)

-

(10)

Preferred stock dividends

-

-

(1)

-

(1)

Income (loss) applicable to common shareholders

$                (4)

$                  19

$                   (49)

$                        -

$                  (34)

Quarter Ended December 31, 2010

GCUK

GC Impsat

ROW ^{1, 2}  

Eliminations

Total

OIBDA

$                28

$                  46

$                     47

$                        -

$                  121

Depreciation and amortization

(17)

(20)

(48)

-

(85)

Operating income (loss)

11

26

(1)

-

36

Interest income

2

-

5

(6)

1

Interest expense

(14)

(6)

(36)

6

(50)

Other income (expense), net

(4)

2

(12)

-

(14)

Benefit for income taxes

-

27

-

-

27

Preferred stock dividends

-

-

(1)

-

(1)

Income (loss) applicable to common shareholders

$                (5)

$                  49

$                   (45)

$                        -

$                    (1)

Quarter Ended March 31, 2010

GCUK

GC Impsat

ROW ¹

Eliminations

Total

OIBDA

$                30

$                  40

$                       7

$                        -

$                    77

Depreciation and amortization

(17)

(24)

(47)

-

(88)

Operating income (loss)

13

16

(40)

-

(11)

Interest income

2

1

4

(7)

-

Interest expense

(14)

(7)

(35)

7

(49)

Other expense, net

(13)

(28)

(11)

-

(52)

Provision for income taxes

-

(6)

(1)

-

(7)

Preferred stock dividends

-

-

(1)

-

(1)

Loss applicable to common shareholders

$              (12)

$                (24)

$                   (84)

$                        -

$                (120)

(1) Rest of World (ROW) represents operations of Global Crossing Limited and subsidiaries excluding Global Crossing (UK) Telecommunications Ltd. and subsidiaries (GCUK) and GC Impsat Holdings I Plc and subsidiaries (GC Impsat).

(2) On October 29, 2010, Global Crossing acquired Genesis Networks Inc. (Genesis), and since that date Genesis' results have been consolidated into Global Crossing results as ROW.

Global Crossing Limited and Subsidiaries

 Table 7

Unaudited Reconciliations of Free Cash Flow to Net Cash Provided by (Used in) Operating Activities

($ in millions)

Pursuant to the SEC's Regulation G, the following table provides a reconciliation of Free Cash Flow, which is considered a non-GAAP (Generally Accepted Accounting Principles) financial measure, to net cash provided by (used in) operating activities.

We define Free Cash Flow as net cash provided by (used in) operating activities less purchases of property and equipment as disclosed in the statement of cash flows.  Free Cash Flow differs from the net change in cash and cash equivalents in the statement of cash flows in that it excludes the cash impact of: all investing activities (other than capital expenditures, which are a fundamental and recurring part of our business); all financing activities; and exchange rate changes on cash and cash equivalents balances.

Management uses Free Cash Flow as a relevant indicator of our ability to generate cash to pay debt.  Free Cash Flow also is an important part of our internal reporting and a key measure used by management to evaluate liquidity from period to period. We believe that the investment community uses similar performance measures to compare performance of competitors in our industry.  

There are material limitations to using non-GAAP financial measures.  Our calculation of Free Cash Flow may differ from similarly titled measures used by other companies, and may not be comparable to those other measures.  Moreover, we do not currently pay a significant amount of income taxes due to net operating losses, and we therefore generate higher Free Cash Flow than comparable businesses that do pay income taxes.  Additionally, Free Cash Flow is subject to variability quarter over quarter as a result of the timing of payments related to accounts receivable and accounts payable and capital expenditures.  Free Cash Flow also does not include certain significant cash items such as purchases and sales out of the ordinary course of business, proceeds from financing activities, repayments of capital lease obligations and other debt, and the effect of exchange rate changes on cash and cash equivalents balances.  Free Cash Flow should be considered in addition to, and not as a substitute for, net change in cash and cash equivalents in the statement of cash flows reported in accordance with GAAP.

Management believes that Free Cash Flow is useful to our investors as it provides an indication of the underlying cash position of our everyday business operations and the ability to pay debt.

Quarter Ended

March 31,

2011 ¹

Free Cash Flow

$  (93)

Purchases of property and equipment

36

Net cash used in operating activities

$  (57)

Quarter Ended

December 31,

2010 ¹

Free Cash Flow

$   102

Purchases of property and equipment

47

Net cash provided by operating activities

$   149

Quarter Ended

March 31,

2010

Free Cash Flow

$  (72)

Purchases of property and equipment

41

Net cash used in operating activities

$  (31)

(1) On October 29, 2010, Global Crossing acquired Genesis Networks Inc. (Genesis), and since that date Genesis' cash flows have been consolidated into Global Crossing.

Global Crossing Limited and Subsidiaries

Table 8

Unaudited Reconciliation of 2011 OIBDA Guidance

When providing projections for non-GAAP measures, we are required to provide a reconciliation of the non-GAAP measure to the most directly comparable GAAP metric to the extent available without unreasonable efforts.  In such cases, we may indicate an amount or range for GAAP measures that are components of the reconciliation.  The provision of such amounts or ranges must not be interpreted as explicit or implicit projections of those GAAP components. To reconcile the non-GAAP financial metric to GAAP, we must use amounts or ranges for the GAAP components that arithmetically add up to the non-GAAP financial metric. While we feel reasonably comfortable with the methodology used to generate the projections of our non-GAAP financial metrics, we fully expect that the amounts or ranges used for the GAAP components will vary from actual results. We have made numerous assumptions in preparing our projections. These assumptions, including the amounts of the various components that comprise a financial metric, may or may not prove to be correct. We will consider our projections of non-GAAP financial metrics to have been achieved if the statement we make about a specific non-GAAP measure is satisfied, even if the GAAP components of the reconciliation are materially different from those provided in an earlier reconciliation.

This reconciliation was prepared based on the Company's guidance as provided on February 22, 2011, which included the Company's expectation that 2011 full-year OIBDA would be roughly $425 million at the midpoint of its revenue guidance range and otherwise based on the assumptions set forth in the February 22, 2011 press release.

Twelve Months Ended

December 31, 2011

($ in millions)

OIBDA

$   425

Depreciation and amortization

(321)

Operating income

104

Interest expense, net

(190)

Provision for income taxes

(38)

Preferred stock dividends

(4)

Net loss applicable to common shareholders

$ (128)

For definition and further description of this non-GAAP measure see table 6.