Global Crossing Reports GCUK's Second Quarter 2011 Results

6 Schedules to Follow

SCHEDULE 1:

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

SCHEDULE 2:

CONSOLIDATED STATEMENTS OF OPERATIONS

SCHEDULE 3:

CONSOLIDATED STATEMENTS OF CASH FLOWS

SCHEDULE 4:

SUMMARY OF CONSOLIDATED REVENUES

SCHEDULE 5:

SUPPLEMENTAL INFORMATION PROVIDED PURSUANT TO THE INDENTURE GOVERNING THE GCUK SENIOR SECURED NOTES

SCHEDULE 6:

RECONCILIATION OF OIBDA TO NET LOSS

Schedule 1

Global Crossing (UK) Telecommunications Limited and Subsidiaries

Consolidated Statements of Financial Position

Results below are in pounds sterling in thousands

June 30,

December 31,

2011

2010

(unaudited)

Non-current assets

Intangible assets, net

10,789

10,524

Property, plant and equipment, net

128,046

139,269

Investment in associate

182

218

Retirement benefit asset

299

299

Trade and other receivables

39,363

38,768

178,679

189,078

Current assets

Trade and other receivables, net

58,787

49,718

Cash and cash equivalents

26,564

49,224

85,351

98,942

Total assets

264,030

288,020

Current liabilities

Trade and other payables

(69,510)

(72,680)

Senior secured notes

(1,207)

(10,857)

Deferred revenue

(36,289)

(39,608)

Provisions

(1,219)

(2,011)

Obligations under finance leases

(6,726)

(7,111)

Other debt obligations

-

(18)

(114,951)

(132,285)

Non-current liabilities

Trade and other payables

(22,348)

(22,874)

Senior secured notes

(267,772)

(262,538)

Deferred revenue

(73,932)

(79,099)

Retirement benefit obligation

(1,842)

(1,842)

Provisions

(1,707)

(1,636)

Obligations under finance leases

(8,088)

(8,109)

(375,689)

(376,098)

Total liabilities

(490,640)

(508,383)

Net liabilities

(226,610)

(220,363)

Capital and reserves

Equity share capital (101,000 shares outstanding at 1 pound each)

101

101

Capital reserve

32,520

32,330

Accumulated deficit

(259,231)

(252,794)

Total equity

(226,610)

(220,363)

Schedule 2

Global Crossing (UK) Telecommunications Limited and Subsidiaries

Consolidated Statements of Operations

Results below are in pounds sterling in thousands

Three Months Ended

June 30, 2011

March 31, 2011

June 30, 2010

(unaudited)

(unaudited)

(unaudited)

Revenue

72,181

73,855

77,994

Cost of sales

(46,160)

(47,570)

(49,317)

Gross profit

26,021

26,285

28,677

Distribution costs

(6,791)

(7,030)

(6,334)

Administrative expenses

(16,601)

(17,117)

(17,316)

Operating profit

2,629

2,138

5,027

Finance revenue

1,064

1,119

1,161

Finance charges

(8,896)

(9,155)

(9,385)

Net foreign exchange (loss)/gain on foreign currency borrowings, net

(83)

4,711

(220)

Loss before tax

(5,286)

(1,187)

(3,417)

Tax benefit (charge)

10

26

(5)

Loss for the period

(5,276)

(1,161)

(3,422)

Schedule 3

Global Crossing (UK) Telecommunications Limited and Subsidiaries

Consolidated Statements of Cash Flows

Results below are in pounds sterling in thousands

For the Three Months Ended

June 30, 2011

March 31, 2011

June 30, 2010

(unaudited)

(unaudited)

(unaudited)

Operating activities

Loss for the period

(5,276)

(1,161)

(3,422)

Adjustments for:

Finance costs, net

7,915

3,325

8,444

Income tax charges

(10)

(26)

5

Depreciation of property, plant and equipment

8,458

8,449

8,557

Amortization of intangible assets

610

609

556

Amortization of prepaid connection costs

1,154

1,541

1,623

Share based payment expense

90

100

107

Loss on disposal of property, plant and equipment

19

12

-

Equity income for associate

-

36

-

Change in long term deferred revenue

(1,686)

(3,481)

(4,678)

Change in long term other assets and liabilities

(1,342)

(1,097)

(929)

Change in operating working capital:

- Change in trade accounts receivable and accrued income

(7,278)

3,806

813

- Change in trade accounts payable and accrued cost of access

4,511

(5,115)

8,983

- Change in other receivables current

(7,949)

(2,320)

765

- Change in other payables current

8,745

(14,372)

1,132

Cash generated from operations

7,961

(9,694)

21,956

Interest paid

(15,954)

(1,599)

(16,922)

Net cash (used in)/provided by operating activities

(7,993)

(11,293)

5,034

Investing activities

Interest received

1,370

2,790

6,063

Proceeds from disposal of property, plant and equipment

18

-

-

Purchase of property, plant and equipment

(2,598)

(4,317)

(4,304)

Net cash used in investing activities

(1,210)

(1,527)

1,759

Financing activities

Repayment of senior secured notes

-

-

(221)

Proceeds from sale/leaseback

-

2,513

-

Repayments of capital elements under finance leases

(1,108)

(2,024)

(1,191)

Repayment of capital element of other debt obligations

-

(18)

(39)

Net cash provided by/(used in) financing activities

(1,108)

471

(1,451)

Net (decrease)/increase in cash and cash equivalents

(10,311)

(12,349)

5,342

Cash and cash equivalents at beginning of period

36,875

49,224

32,918

Cash and cash equivalents at end of period

26,564

36,875

38,260

Schedule 4

Global Crossing (UK) Telecommunications Limited and Subsidiaries

Summary of Consolidated Revenues

Results below are in pounds sterling in thousands

Three Months Ended

June 30, 2011

March 31, 2011

June 30, 2010

(unaudited)

(unaudited)

(unaudited)

Revenues:

Enterprise, carrier data and indirect sales channels

71,603

73,328

76,938

Carrier voice

470

419

931

Revenues from third party customers

72,073

73,747

77,869

Revenues from Global Crossing group companies

108

108

125

Consolidated revenues

72,181

73,855

77,994

Schedule 5

SUPPLEMENTAL INFORMATION PROVIDED PURSUANT TO THE INDENTURE GOVERNING THE GCUK SENIOR SECURED NOTES

       GCUK is required to provide the holders of its Senior Secured Notes due 2014 with quarterly information pursuant to Section 4.17(a)(2) of the indenture governing such notes.  For quarters prior to the first quarter of 2010, GCUK satisfied this requirement by providing the note holders with a quarterly report separate and apart from its quarterly earnings press releases.  Starting with the first quarter of 2010, GCUK has satisfied this requirement by providing the note holders with its quarterly earnings press releases.  This schedule of supplemental information is being included with the earnings press release to ensure that the information being provided complies with Section 4.17(a)(2) of the indenture.

Liquidity and Capital Resources

       GCUK's ability to make payments on and to refinance its indebtedness and to fund planned capital expenditures will depend on its ability to generate cash in the future. This depends to a degree on general economic, financial, competitive, legislative, regulatory and other factors that are beyond GCUK's control.

       Based on GCUK's current level of operations, expected revenue growth trends and anticipated cost management and operating improvements, GCUK believes its future cash flow from operations, available cash and cash available from financing activities will be adequate to meet its future liquidity needs for at least the next twelve months.  However, GCUK currently expects its cash and cash equivalents to decrease in 2011 as a result of relatively flat operating performance and greater working capital requirements as compared to 2010.

       There can be no assurance that GCUK's business will generate sufficient cash flow from operations that currently anticipated operating improvements will be realized on schedule or that future borrowings will be available to GCUK in an amount sufficient to enable it to pay its indebtedness or to fund its other liquidity needs. GCUK will need to refinance all or a substantial portion of its indebtedness on or before maturity. GCUK cannot provide assurances that it will be able to refinance any of its indebtedness on commercially reasonable terms or at all.

       GCUK monitors its capital structure on an ongoing basis and from time to time considers financing and refinancing options to improve its capital structure and to enhance its financial flexibility. GCUK's ability to enter into new financing arrangements is subject to restrictions in its outstanding debt instruments. In addition, the interim operating covenants in the agreement of amalgamation between Level 3 Communications, Inc. and Global Crossing Limited (GCUK's parent company) also limit GCUK's financial and operational flexibility unless Level 3's consent is obtained. These covenants include, among others, agreements by Global Crossing on behalf of it and its subsidiaries (including GCUK) (i) to continue conducting their businesses in the ordinary course, consistent with past practice and in compliance with applicable law, during the interim period between the execution of the amalgamation agreement on April 10, 2011 and consummation of the amalgamation between Level 3 and Global Crossing and (ii) not to engage in certain specified kinds of transactions during that period without Level 3's consent, including equity and debt financings, including any such financings that may be needed for general corporate purposes during the period prior to the consummation of the Amalgamation, which could be delayed due to the need for regulatory approvals or otherwise. Subject to the foregoing restrictions, at any given time GCUK may pursue a variety of financing opportunities, and its decision to proceed with any financing will depend, among other things, on prevailing market conditions, near term maturities and available terms.  In addition, from time to time GCUK reviews its operations and may consider opportunities to strategically enhance, expand or change its operations and leverage its capabilities. The aforementioned covenants in the amalgamation agreement may limit GCUK's flexibility to take advantage of such opportunities unless Level 3's consent is obtained. If GCUK pursues any such opportunities, it may require additional equity or debt financing, and there can be no assurance that it will be able to obtain such financing on favorable terms or at all or that Level 3 will provide any necessary consent to pursue such financings. Undertaking any such initiatives may place greater demands on GCUK's cash flows due to increased capital and operating expenses and debt service.

       At June 30, 2011, GCUK's available liquidity consisted of 27 million of unrestricted cash and cash equivalents.

       In the long term, GCUK expects its operating results and cash flows to improve as a result of growth of its revenues, including the economies of scale expected to result from such growth, and from ongoing cost management initiatives, including initiatives to optimize the access network and effectively lower unit prices. Thus, in the long term, GCUK expects to generate positive cash flow from operating activities in an amount sufficient to fund all investing and financing requirements, subject to the need to refinance the GCUK Senior Secured Notes. However, its ability to improve cash flows is subject to the risks and uncertainties, such as the variability of quarterly cash flows, discussed below.

       In the short term, GCUK expects cash provided by operating activities to exceed purchases of property and equipment. This expectation is based in part on the raising of financing for certain property and equipment from vendors and other third parties in similar amounts to 2010.  Its ability to arrange such financings is subject to negotiating acceptable terms from equipment vendors and financing parties.  In addition, GCUK's short term liquidity and more specifically its quarterly cash flows are subject to considerable variability as a result of the timing of interest payments as well as the following factors.

• Working capital variability significantly impacts its cash flows and can cause its intra-quarter cash balances to drop to levels significantly lower than those levels prevailing at the end of a quarter.

• The UK government's austerity measures aimed at reducing costs in a wide range of areas, including telecommunications could have a negative effect on GCUK's future revenue performance.

• Within 120 days after each calendar year, GCUK must offer to purchase a portion of the Senior Secured Notes at 100% of their principal amount using 50% of the Operating Cash Flow (as defined in the Indenture) for that year. In respect of 2010, it offered to purchase 11 million of the Notes, excluding accrued interest.  No Notes were tendered.

If the current year to date results were the results for the full year to December 31, 2011, the Company would be obliged to make an Annual Repurchase Offer of approximately 1 million, inclusive of accrued but unpaid interest.

• GCUK's liquidity may also be adversely affected if it is found liable in respect of contingent legal, tax and other liabilities. The amount and timing of the resolution of these contingencies remain uncertain.

Schedule 6

Global Crossing (UK) Telecommunications Limited and Subsidiaries

Reconciliation of Net (Loss) Profit to OIBDA

Results below are in pounds sterling in thousands

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

OIBDA is defined as operating profit before depreciation and amortization and foreign exchange (losses) gains on operating working capital movements, based upon our consolidated statements of operations. OIBDA differs from operating profit, 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, finance revenue, finance charges, foreign exchange (losses) gains, income taxes and other non-operating profit or loss items. 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 and income taxes, and of other items not associated with our everyday operations.

Three Months Ended

June 30, 2011

March 31, 2011

June 30, 2010

(unaudited)

(unaudited)

(unaudited)

Net loss

(5,276)

(1,161)

(3,422)

Tax (benefit)/charge

(10)

(26)

5

Finance revenue

(1,064)

(1,119)

(1,161)

Finance charges

8,896

9,155

9,385

Net foreign exchange loss/(gain) on foreign currency borrowings, net

83

(4,711)

220

Operating profit

2,629

2,138

5,027

Depreciation and amortization

9,750

10,127

10,105

Other foreign exchange gain/(loss), loss on disposal of fixed assets and other income

55

370

(17)

OIBDA

12,434

12,635

15,115