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Global Crossing Reports First Quarter Results for GCUK
- GCUK continues to serve as template for execution of Global Crossing strategy, while generating EBITDA and cash.
- Approximately 140 new contracts including British Council and Forestry Commission.
- Gross margins as a percentage of revenue improved to 69 percent.
Florham Park, NJ - June 14, 2005 -- Global Crossing (NASDAQ: GLBC) today reported financial results for the first quarter of 2005 for its Global Crossing (UK) Telecommunications Limited (GCUK) subsidiary. These results were previously announced according to US Generally Accepted Accounting Principles (US GAAP) as part of Global Crossing's consolidated results, which were reported on May 10, 2005.
"Our UK business secured approximately 140 new contracts in the first quarter, attesting to Global Crossing's strength as a provider of managed IP services -- services for which our network was built," said John Legere, Global Crossing's chief executive officer. "This new business, combined with continued migration from legacy services and a shift away from lower-margin customers, shows why GCUK is a model for successful transformation of Global Crossing's business as a whole."
Management will hold a conference call on Wednesday, June 15, 2005 at 9:00 a.m. ET to review these results.
First Quarter Results
GCUK's results below are based on UK Generally Accepted Accounting Principles (UK GAAP) and in British pounds sterling. Its first quarter report to noteholders, which will be filed by Global Crossing on Form 8-K today, includes a reconciliation to US Generally Accepted Accounting Principles (US GAAP).
Revenue
GCUK revenue for the first quarter of 2005 was £60 million, compared with £68 million in the first quarter of 2004 and £67 million in the fourth quarter of 2004. The year-over-year revenue decline reflected a £3 million net decline in "invest and grow" revenue from a discrete set of customers, as previously disclosed in GCUK's annual report to noteholders for the year ended December 31, 2004. The remaining £5 million year-over-year decline was a result of global wholesale voice restructuring activities initiated by Global Crossing in 2004. The sequential decline in revenue was primarily attributable to the loss of two customers who chose to manage operations themselves or through affiliates, as well as a £2 million reduction in non-cash deferred indefeasible rights of use (IRU) revenue due to the positive impact of an adjustment in the fourth quarter. The remaining difference in sequential reported revenue was the result of previously announced wholesale voice restructuring initiatives.
Global Crossing's UK subsidiary signed approximately 140 new contracts in the first quarter of 2005, including a seven-year, £56 million contract with the British Council and more recently, a contract with the Forestry Commission that is expected to generate £14 million over seven years.
Managed services accounted for the majority of the solutions sold and managed by GCUK, comprising 87 percent of the company's total revenue stream for the first quarter of 2005. The migration of legacy managed services to converged Internet Protocol (IP) managed services has progressed, resulting in 5 percent IP revenue growth and improved margins.
Cost of Access
Cost of access expense was £19 million in the first quarter of 2005, compared to £25 million in the first quarter of 2004 and £14 million in the fourth quarter of 2004. The year-over-year reduction resulted from lower mobile phone termination rates and company initiatives including lower wholesale voice volumes and reduced facility costs. The sequential increase in cost of access was principally the result of credits from dispute settlements and regulatory savings which significantly improved the cost of access expense line in the fourth quarter of 2004.
Gross Margin
Gross margin (defined as revenue less cost of access) for the first quarter of 2005 was 69 percent of revenue, compared to 64 percent in the first quarter of 2004. The year-over-year improvement resulted primarily from improvements in cost of access expense. Gross margin in absolute terms declined slightly to £42 million in the first quarter, versus £43 million in the same quarter last year. Gross margin for the fourth quarter of 2004 was 79 percent of revenue. In absolute terms, gross margin declined from £53 million in the fourth quarter of 2004 to £42 million in the first quarter of 2005. This sequential decline in gross margin, both as a percentage of revenue and in absolute terms, was due to the above-described unusual cost of access benefits and the one time adjustment for deferred IRU revenue, both of which positively impacted the fourth quarter of 2004.
Operating Expenses
Operating expenses for the first quarter of 2005 were £24 million, compared to £25 million in the first quarter of 2004 and £16 million in the fourth quarter of 2004. The slight year-over-year decline was due to lower customer-specific costs.
The sequential increase in operating expenses was primarily due to unusual items that benefited the fourth quarter; specifically £4 million in reduced real estate costs mostly due to real estate restructuring reserve release and a rates rebate, and a £2 million accrual reversal due to a year-to-date corporate overhead recalculation.
Third party maintenance remained flat year over year and sequentially at approximately £5 million.
Earnings
GCUK's earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of 2005, as defined in Table 5 that follows, were £10 million, compared with £15 million in the first quarter of 2004 and £38 million in the fourth quarter of 2004. UK GAAP EBITDA includes foreign exchange gains and losses which significantly impacted EBITDA results in each quarter.
The year-over-year decline in EBITDA was primarily attributable to the impact of foreign exchange rate fluctuations on dollar-denominated debt, resulting in a loss of £3 million in the first quarter of 2005 on the Senior Notes due 2014, compared to a £3 million gain on inter-company balances in the first quarter of 2004. The foreign exchange gains and losses were unrealized, and therefore did not impact cash. Excluding the foreign exchange impacts, EBITDA remained relatively flat.
"GCUK's performance in the first quarter of 2005 showed a consistent trend of managing margins and costs," commented Mr. Legere. "GCUK's fourth quarter results last year were positively affected by several unusual and infrequent items, including dispute settlements, corporate overhead accrual reversals, and favorable foreign exchange rates."
The significant decline in EBITDA from the fourth quarter is attributed primarily to the unusual and infrequent items discussed above that benefited fourth quarter results. Specifically, these items included £7 million in credits from the settlement of cost-of-access disputes and regulatory savings; a £2 million accrual reversal for a corporate overhead recalculation; £4 million in reduced real estate costs due to real estate restructuring reserve release and a rates rebate; and a £5 million foreign exchange benefit on dollar-denominated debt. The £5 million foreign exchange benefit, combined with a £3 million loss in foreign exchange in the first quarter of 2005, amounted to an £8 million variance sequentially. The remaining difference in EBITDA resulted primarily from reduced gross margin associated with the loss of recurring revenue and non-cash deferred IRU revenue.
GCUK's net loss for the first quarter of 2005 was £6 million, compared to a net loss of less than £1 million in the first quarter of 2004 and to net income of £37 million in the fourth quarter of 2004. The year-over-year variance was attributable to £5 million in lower EBITDA for the reasons described above and £5 million in additional interest expense, partially offset by £3 million in increased recognition of deferred tax assets in the current quarter. The sequential variance primarily comprised £28 million in lower EBITDA for the reasons described above, £6 million in higher depreciation and amortization, and £7 million in increased interest expense.
Capital Expenditures
In the first quarter of 2005, cash used for capital expenditures and leases was £4 million, versus £5 million in the first quarter of 2004 and £4 million in the fourth quarter of 2004.
Cash and Financing
As of March 31, 2005, GCUK had £22 million of unrestricted cash on hand and short-term deposits.
Beginning cash for 2005 was £21 million. Cash flow for the first quarter of 2005 reflected annual bonus payments for 2004, certain professional fees relating to the high yield bond offering, and full year payments against annual maintenance contracts.
Conference Call
Management has scheduled a conference call for Wednesday, June 15, 2005 at 9:00 a.m. ET to discuss GCUK's financial results. The call may be accessed by dialing +1 212-271-4616 or for UK callers by dialing +44 (0) 870-001-3132. Callers are advised to dial in 15 minutes prior to the 9:00 a.m. start time. The call will also be Webcast at www.globalcrossing.com/xml/investors/index.xml.
A replay of the call will be available on Wednesday, June 15, 2005 beginning at 11:30 a.m. ET and will be accessible until Wednesday, June 22, 2005 at 11:30 a.m. ET. To access the replay, dial +1 402-977-9140 or +1 800-633-8284 and enter reservation number 21248760. UK callers may access the replay by dialing +44 (0) 870-000-3081 or 0800-692-0831 and enter reservation number 21248760.
ABOUT GLOBAL CROSSING (UK) TELECOMMUNICATIONS LTD.
Global Crossing (UK) Telecommunications Ltd. provides a full range of managed telecommunications services in a secure environment ideally suited for IP-based business applications. The company provides managed voice, data, Internet and e-commerce solutions to the strong and established commercial customer base, including more than 100 UK government departments, as well as systems integrators, rail sector customers and major corporate clients. In addition, GCUK provides carrier services to national and international communications service providers.
Global Crossing (UK) Telecommunications operates a high-capacity UK network comprising over 5,600 route miles of fiber optic cable connecting 150 towns and cities and reaching within just over one mile of 64 percent of UK businesses. The UK network is linked into the wider Global Crossing network that connects more than 300 cities and 30 countries worldwide, and delivers services to more than 500 major cities, 50 countries and 6 continents around the globe.
ABOUT GLOBAL CROSSING
Global Crossing (NASDAQ: GLBC) provides telecommunications solutions over the world's first integrated global IP-based network. Its core network connects more than 300 cities and 30 countries worldwide, and delivers services to more than 500 major cities, 50 countries and 6 continents around the globe. Global Crossing's global sales and support model matches the network footprint and, like the network, delivers a consistent customer experience worldwide.
Global Crossing IP services are global in scale, linking the world's enterprises, governments and carriers with customers, employees and partners worldwide in a secure environment that is ideally suited for IP-based business applications, allowing e-commerce to thrive. The company offers a full range of managed data and voice products including Global Crossing IP VPN Service, Global Crossing Managed Services and Global Crossing VoIP services, to more than 40 percent of the Fortune 500, as well as 700 carriers, mobile operators and ISPs.
Please visit www.globalcrossing.com for more information about Global Crossing.
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Statements made in this press release that state Global Crossing's intentions, beliefs, expectations, or predictions for the future are forward-looking statements. These statements contain words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will," "seek," or similar expressions. Such statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements, including the conditioning of Global Crossing's continued listing on the NASDAQ National Market on its timely filing with the SEC of all periodic reports for all reporting periods ending on or prior to September 30, 2005; Global Crossing's history of substantial operating losses and the fact that, in the near term, funds from operations will not satisfy cash requirements; legal and contractual restrictions on the payment of dividends and the inter-company transfer of funds by Global Crossing's subsidiaries, including restrictions under the senior secured notes indenture applicable to Global Crossing (UK) Telecommunications Limited ("GCUK"); the likelihood that the prices Global Crossing charges for its services will continue to decrease; Global Crossing's ability to continue to connect its network to incumbent carriers' networks or maintain Internet peering arrangements on favorable terms; the success of Global Crossing's business realignment plan and the realization of anticipated cost savings; the consequences of any inadvertent violation of Global Crossing's Network Security Agreement with the U.S. Government; the impact of actual and potential customers' bankruptcies on Global Crossing's sales prospects and results of operations; increased competition and pricing pressures resulting from technology advances and regulatory changes; competitive disadvantages relative to competitors with superior resources; the impact on Global Crossing's competitiveness of its technology choices; Global Crossing's dependence on third parties for many functions; political, legal and other risks due to Global Crossing's substantial international operations; risks arising out of Global Crossing's material weaknesses in internal controls and possible difficulties and delays in improving such controls; the concentration of GCUK's revenue in a limited number of customers, and the rights of such customers to terminate their contracts or to simply cease purchasing services thereunder; and other risks referenced from time to time in Global Crossing's filings with the Securities and Exchange Commission. Global Crossing undertakes no duty to update information contained in this press release or in other public disclosures at any time.
CONTACT GLOBAL CROSSING:
Press Contacts
Becky Yeamans
+ 1 973 937 0155
PR@globalcrossing.com
Kendra Langlie
Latin America
+ 1 305 808 5912
LatAmPR@globalcrossing.com
Mish Desmidt
Europe
+ 44 (0) 1256 732 866
EuropePR@globalcrossing.com
Analysts/Investors Contact
Laurinda Pang
+ 1 800 836 0342
glbc@globalcrossing.com
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