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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
_______________
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
Commission File No. 0-25615
Globix Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-3781263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
139 Centre Street, New York, New York 10013
(address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (212) 334-8500
Indicate by check mark whether 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 ____
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares of the Registrant's common stock outstanding as of May 9,
2001 was 41,926,200.
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GLOBIX CORPORATION AND SUBSIDIARIES
Table of Contents
Part I Financial Information Page
-----
Item 1. Consolidated Balance Sheets - As of March 31, 2001 and September 30, 2000........................... 1
Consolidated Statements of Operations - For the Three Months Ended March 31, 2001 and 2000.......... 2
Consolidated Statements of Operations - For the Six Months Ended March 31, 2001 and 2000............ 2
Consolidated Statements of Cash Flows - For the Six Months Ended March 31, 2001 and 2000............ 3
Notes to Consolidated Financial Statements.......................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 10
Item 3. Quantitative and Qualitative Disclosure of Market Risk.............................................. 16
Part II Other Information 17
Item 1. Legal Proceedings...................................................................................
Item 2. Changes in Securities and Use of Proceeds...........................................................
Item 3. Defaults upon Senior Securities.....................................................................
Item 4. Submission of Matters to a Vote of Security Holders.................................................
Item 5. Other Information...................................................................................
Item 6. Exhibits and Reports on Form 8-K....................................................................
Signatures 18
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All Dollars in Thousands, Except Share and Per Share Data)
March 31, September 30,
2001 2000
---- ----
Assets (Unaudited)
Current assets:
Cash and cash equivalents...................................................................... $ 217,295 $ 363,877
Short-term investments......................................................................... -- 9,948
Marketable securities.......................................................................... 1,282 4,685
Accounts receivable, net of allowance for doubtful accounts of $4,208 and $4,072,
respectively................................................................................. 20,362 21,403
Inventories.................................................................................... 103 38
Prepaid expenses and other current assets...................................................... 8,957 4,403
Restricted cash................................................................................ 6,905 7,093
--------- ---------
Total current assets........................................................................ 254,904 411,447
Investments, restricted.......................................................................... 30,525 36,085
Property, plant and equipment, net............................................................... 321,785 248,424
Debt issuance costs, net of accumulated amortization of $1,287 and $719, respectively............ 19,511 20,217
Goodwill, net of accumulated amortization of $1,344 and $197, respectively....................... 5,503 6,650
Other assets..................................................................................... 9,049 6,768
--------- ---------
Total assets................................................................................ $ 641,277 $ 729,591
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Capital lease and other obligations............................................................ $ 4,299 $ 2,173
Accounts payable............................................................................... 16,995 16,964
Accrued liabilities............................................................................ 28,489 13,669
Accrued interest............................................................................... 12,500 12,502
--------- ---------
Total current liabilities................................................................... 62,283 45,308
Capital lease obligations, net of current portion................................................ 5,639 1,135
Mortgage payable................................................................................. 20,552 20,674
Senior Notes..................................................................................... 600,000 600,000
Other long term liabilities...................................................................... 3,726 4,462
--------- ---------
Total liabilities........................................................................... 692,200 671,579
Redeemable convertible preferred stock........................................................... 79,622 76,042
Stockholders' Deficit
Common stock, $.01 par value; 500,000,000 shares authorized;
41,892,229 and 37,307,315 shares issued and outstanding, respectively........................... 419 373
Additional paid-in capital....................................................................... 173,802 165,890
Deferred compensation............................................................................ (8,437) --
Accumulated other comprehensive income........................................................... (5,002) 1,784
Accumulated deficit.............................................................................. (291,327) (186,077)
--------- ---------
Total stockholders' deficit................................................................. (130,545) (18,030)
--------- ---------
Total liabilities and stockholders' deficit.................................................... $ 641,277 $ 729,591
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
1
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All Dollars in Thousands, Except Share and Per Share Data)
Three months ended Six months ended
------------------ ----------------
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
----------- ----------
Revenue............................................................... $ 26,782 $ 17,913 $ 53,018 $ 34,058
Operating costs and expense:
Cost of revenue..................................................... 10,480 10,218 20,948 20,274
Selling, general and administrative................................. 28,308 23,089 59,072 42,784
Non-recurring lease termination and other related expenses.......... -- -- 38,109 --
Depreciation and amortization....................................... 7,951 4,590 15,547 7,947
----------- ----------- ----------- -----------
Total operating costs and expenses.................................... 46,739 37,897 133,676 71,005
----------- ----------- ----------- -----------
Loss from operations.................................................. (19,957) (19,984) (80,658) (36,947)
Interest and financing expense...................................... (16,118) (16,938) (32,598) (22,407)
Interest income..................................................... 4,439 7,374 10,915 8,995
Other income........................................................ 1,461 -- 1,488 --
Other expense....................................................... (1,791) -- (2,065) --
----------- ----------- ----------- -----------
Loss before extraordinary loss and cumulative effect of a change
in accounting principle............................................. (31,966) (29,548) (102,918) (50,359)
Extraordinary loss.................................................... -- (17,577) -- (17,577)
Cumulative effect of a change in accounting principle................. -- -- (2,332) --
----------- ----------- ----------- -----------
Net loss.............................................................. (31,966) (47,125) (105,250) (67,936)
Dividends and accretion on preferred stock.......................... (1,761) (1,762) (3,496) (2,292)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders'......................... $ (33,727) $ (48,887) $ (108,746) $ (70,228)
=========== =========== =========== ===========
Basic and diluted loss per share attributable to common stockholders'
before extraordinary loss and cumulative effect of a change in
accounting principle................................................ $ (0.87) $ (0.90) $ (2.80) $ (1.55)
Extraordinary loss per share.......................................... -- (0.51) -- (0.51)
Cumulative effect of a change in accounting principle................. -- -- (0.06) --
----------- ----------- ----------- -----------
Basic and diluted net loss per share attributable to common
stockholders'........................................................ $ (0.87) $ (1.41) $ (2.86) $ (2.06)
=========== =========== =========== ===========
Weighted average common shares outstanding--basic and diluted......... 38,709,658 34,617,361 38,011,488 34,084,624
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
2
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All Dollars in Thousands, Except Share and Per Share Data)
Six months ended
----------------
March 31,
---------
2001 2000
---- ----
Cash flows from operating activities
Net loss............................................................................... $(105,250) $(67,936)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................................... 15,547 7,947
Extraordinary loss on early extinguishment of debt..................................... -- 17,577
Cumulative effect of a change in accounting principle.................................. 2,332 --
Non-recurring lease termination and other related expenses............................. 17,094 --
Gain on sale of short term investments................................................. (1,459) --
Loss on impairment of investment....................................................... 1,950 --
Amortization of debt issuance costs.................................................... 568 653
Amortization of deferred compensation.................................................. 562 --
Changes in operating assets and liabilities:
Accounts receivable, net............................................................... 1,040 (6,165)
Inventories............................................................................ (64) 700
Prepaid expenses and other current assets.............................................. (4,554) (1,081)
Other assets........................................................................... (4,274) (181)
Accounts payable....................................................................... (1,481) (1,157)
Accrued liabilities.................................................................... 9,253 (3,291)
Accrued interest....................................................................... (2) 3,833
Other.................................................................................. (736) (40)
--------- --------
Net cash used in operating activities.................................................. (69,474) (49,141)
--------- --------
Cash flows from investing activities
Proceeds from sale of short term investments........................................... 10,180 --
Use of (investment in) restricted cash and investments................................. 5,747 (46,263)
Purchases of property, plant and equipment............................................. (91,269) (18,998)
--------- --------
Net cash used in investing activities.................................................. (75,342) (65,261)
--------- --------
3
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Six months ended
----------------
March 31,
---------
2001 2000
---- ----
Cash flows from financing activities
Proceeds from exercise of stock options and warrants, net........................... $ 2,456 $ 7,990
Proceeds from Senior Note offering, net of offering expenses........................ -- 580,000
Proceeds from issuance of redeemable convertible preferred stock, net............... -- $ 75,250
Repayments of Senior Notes.......................................................... -- (170,400)
Proceeds from mortgage payable, net of expenses..................................... -- 20,000
Repayments of mortgage payable and capital lease obligations........................ (2,065) (1,145)
--------- ---------
Net cash provided by financing activities........................................... 391 511,695
--------- ---------
Effects of exchange rate changes on cash and cash equivalents....................... (2,157) (512)
--------- ---------
Net (decrease) increase in cash and cash equivalents................................ (146,582) 396,781
Cash and cash equivalents, beginning of period...................................... 363,877 101,471
--------- ---------
Cash and cash equivalents, ending of period......................................... $ 217,295 $ 498,252
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest.............................................................. $ 38,907 $ 18,574
Cash paid for income taxes.......................................................... $ 34 $ 36
Cumulative dividends and accretion on preferred stock............................... $ 3,496 $ 2,292
Non-cash financing activities:
Equipment acquired under capital lease obligations................................. $ 8,573 --
Capital expenditures included in accounts payable and accrued liabilities.......... $ 4,969 --
The accompanying notes are an integral part of these consolidated financial
statements.
4
GLOBIX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All Dollars in Thousands, Except Share and Per Share Data)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the unaudited interim
consolidated financial statements furnished herein include all adjustments
necessary for a fair presentation of the Company's financial position at March
31, 2001 and the results of its operations for the three-month and six-months
periods ended March 31, 2001 and 2000 and its cash flows for the six-month
periods ended March 31, 2001 and 2000. All such adjustments are of a normal
recurring nature. Interim financial statements are prepared on a basis
consistent with the Company's annual financial statements. Results of
operations for the three-month and six-months periods ending March 31, 2001 are
not necessarily indicative of the operating results that may be expected for
future periods.
The consolidated balance sheet as of September 30, 2000 has been derived
from the audited consolidated financial statements at that date but does not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements.
For further information, refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 2000 on file with the Securities and Exchange
Commission.
2. Property, Plant and Equipment
Property, plant and equipment consist of the following:
March 31, September 30,
--------- -------------
2001 2000
-------- --------
Land.......................................................................................... $ 1,997 $ 1,997
Building and building improvements............................................................ 55,416 55,416
Leasehold improvements........................................................................ 33,482 30,927
Computer hardware and software and network equipment.......................................... 79,542 67,552
Furniture and equipment....................................................................... 8,181 7,198
-------- --------
178,618 163,090
Less: Accumulated depreciation and amortization............................................... (39,902) (25,731)
Add: Construction in progress................................................................. 183,069 111,065
-------- --------
Property, plant and equipment, net............................................................ $321,785 $248,424
======== ========
Certain computer and network equipment are recorded under capital leases
that aggregated approximately $14.7 and $6.0 million as of March 31, 2001 and
September 30, 2000, respectively. Accumulated amortization on the assets
recorded under capital leases aggregated approximately $4.2 and $3.2 million as
of March 31, 2001 and September 30, 2000, respectively.
Costs incurred prior to completion of construction of Internet data centers
and network infrastructure are reflected as construction in progress in the
accompanying consolidated balance sheets and will be recorded as property, plant
and equipment at the date each Internet data center or network segment becomes
operational. Construction in progress includes direct expenditures for
construction of the Internet data center facilities and related network
equipment and is stated at cost. Capitalized costs include costs incurred under
the construction contract, advisory, consulting and legal fees as well as labor
and interest incurred during the construction phase. Capitalized interest is
included in construction in progress under the provisions of SFAS No. 34 and
totals approximately $7.1 million and zero for the six-month periods ended March
31, 2001 and 2000, respectively.
ATC Merger Corp. ("ATC Corp."), a wholly-owned subsidiary of the Company,
owns the land and building located at 139 Centre Street, New York, New York. The
nine-story building with approximately 160,000 square feet of floor space houses
the Company's corporate headquarters and one of its Internet data center
facilities. A former owner of the right to purchase the Centre Street property
is entitled to additional consideration if Globix sells the property. Such
amount will be equal to the greater of (a) $1.0 million (subject to increase
after June 1, 2018 by ten percent and an additional ten percent every fifth year
thereafter), or (b) ten percent of the gross sales price of the property if such
sales price is greater than $17.5 million.
5
3. Senior Notes
In January 2000, the Company agreed to sell $600.0 million 12.5% senior
notes (the "12.5% Senior Notes") due 2010 in a private placement to a group of
initial purchasers and in March 2000 completed a tender offer to purchase all of
the outstanding 13% Senior Notes, $160.0 million in principal amount. The
purchase price in the tender offer was 106.5% of the principal amount, plus
accrued and unpaid interest. On February 8, 2000 the Company closed on its
offering for the $600.0 million 12.5% Senior Notes due 2010, resulting in net
proceeds of approximately $580.0 million, after underwriting fees and offering
expenses. The tender offer and related redemption of the outstanding 13% Senior
Notes also resulted in a one time charge of $17,577 or $0.51 per share which has
been recorded as an extraordinary item in the consolidated statement of
operations.
The 12.5% Senior Notes mature on February 1, 2010. Interest on the 12.5%
Senior Notes is payable semiannually on February 1 and August 1 of each year,
commencing August 1, 2000. The 12.5% Senior Notes are unsecured obligations of
the Company and rank pari passu in right of payment with all existing and future
unsecured and unsubordinated indebtedness and rank senior in right of payment to
any future subordinated indebtedness. In connection with the offering the
Company incurred costs of approximately $20.0 million that are being amortized
over ten years using the effective interest method.
4. Mortgage Payable
On January 25, 2000, ATC Corp. borrowed $21.0 million from a financial
institution pursuant to a mortgage note secured by the property at 139 Centre
Street, New York. Interest is payable at 9.16% (subject to adjustment on
February 11, 2010) based on a 25 year amortization schedule. Principal and
interest payments of $178.5 are payable monthly and any balance of the principal
and all accrued and unpaid interest is due and payable in February 2025.
5. Redeemable Convertible Preferred Stock
The Company has designated 250,000 shares of its authorized 5,000,000
shares of Preferred Stock, $0.01 par value, as a Series A. At March 31, 2001,
there were 83,030 Series A Preferred Shares outstanding and 166,970 Series A
Preferred Shares reserved for issuance.
On December 3, 1999, the Company issued $80.0 million (80,000 shares) in
Series A Convertible Preferred Stock (the "Series A Preferred Stock") to
affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks Muse") to expand
the build-out of its Internet data centers and other facilities. The Series A
Preferred Stock is convertible into common stock at $10.00 per share at any time
and may not be called for redemption by the Company for five years. Under the
agreement, the Series A Preferred Stock is subject to mandatory redemption in
2014 and yields an annual dividend of 7.5% payable quarterly in cash or
additional Series A Preferred Stock, at the option of the Company. The holders
of the Series A Preferred Stock have a liquidation preference of $1,000 per
share and are entitled to cumulative dividends.
The Series A Preferred Stock is recorded in the accompanying consolidated
balance sheet outside the stockholders equity section due to its mandatory
redemption feature. The Company incurred approximately $4.75 million of issuance
costs in connection with the Series A Preferred Stock transaction. Such costs
have been recorded as a reduction of the carrying amount of the Series A
Preferred Stock and are being accreted through a charge to additional paid in
capital over the five-year period to the earliest redemption date.
During the three-month period ended March 31, 2001 and December 31, 2000
the Company declared and paid dividends in the form of a stock dividend to the
holders of the Series A Preferred Stock. In connection with such dividends, the
Holders of the Series A Preferred Stock received a total of 1,529 and 1,501
shares of Series A Preferred Stock on March 31, 2001 and December 31, 2000,
respectively.
6. Stockholder's Equity
In December 2000, Globix granted approximately 3.1 million restricted stock
awards to certain employees and directors. The restricted stock awards vest 25%
per year over a four-year period on the anniversary date of the grant. In
connection with this restricted stock grant the Company has recorded a deferred
compensation charge of $8,999 in stockholders equity. This deferred compensation
will be recorded as compensation expense over the four-year vesting period.
Compensation expense recorded in the six-month period ended March 31, 2001 was
$562.
6
7. Segment Information
The Company reports segment information under SFAS No. 131, which
establishes standards for reporting information about operating segments in
annual financial statements, and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for disclosures about products and services and geographic
areas. Operating segments are components of an enterprise for which separate
financial information is available and which is evaluated regularly by the
Company's chief operating decision-maker, or decision-making group, in deciding
how to allocate resources and assess performance. Operating segments are managed
separately and represent strategic business units that offer different products
and serve different markets.
The Company's activities fall within two operating segments: the Internet
Division and the Server Sales and Integration Division. The following table sets
forth industry segment information for the three-month period ended March 31,
2001 and 2000:
Three-month period ended Six-month period ended
------------------------ ----------------------
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
Internet..................................................................... $ 25,077 $ 10,312 $ 48,680 $ 17,268
Server sales and integration................................................. 1,705 7,601 4,338 16,790
-------- -------- -------- --------
Consolidated.............................................................. $ 26,782 $ 17,913 53,018 $ 34,058
======== ======== ======== ========
Operating income (loss):
Internet..................................................................... $ (29) $ (8,859) $ 607 $(17,477)
Server sales and integration................................................. 69 813 685 1,856
Corporate.................................................................... (19,997) (11,938) (81,950) (21,326)
-------- -------- -------- --------
Consolidated.............................................................. $(19,957) $(19,984) $(80,658) $(36,947)
======== ======== ======== ========
Identifiable assets:
Internet..................................................................... $292,477 $ 97,509 $292,477 $ 97,509
Server sales and integration................................................. 1,769 7,466 1,769 7,466
Corporate.................................................................... 347,031 677,211 347,031 677,211
-------- -------- -------- --------
Consolidated.............................................................. $641,277 $782,186 $641,277 $782,186
======== ======== ======== ========
The following table sets forth geographic segment information for the three-
month period ended March 31, 2001and 2000:
Three-month period ended Six-month period ended
------------------------ ----------------------
March 31, March 31,
--------- ---------
2001 2000 2001 2000
---- ---- ---- ----
Revenue:
United States................................................................ $ 21,138 $ 16,849 $ 42,785 $ 32,499
Europe....................................................................... 5,644 1,064 10,233 1,559
-------- -------- -------- --------
Consolidated.............................................................. $ 26,782 $ 17,913 $ 53,018 $ 34,058
======== ======== ======== ========
Operating income (loss):
United States................................................................ $(17,008) $(15,666) $(74,701) $(29,681)
Europe....................................................................... (2,949) (4,318) (5,957) (7,266)
-------- -------- -------- --------
Consolidated.............................................................. $(19,957) $(19,984) $(80,658) $(36,947)
======== ======== ======== ========
Identifiable assets:
United States................................................................ $566,239 $759,863 $566,239 $759,863
Europe....................................................................... 75,038 22,323 75,038 22,323
-------- -------- -------- --------
Consolidated.............................................................. $641,277 $782,186 $641,277 $782,186
======== ======== ======== ========
8. Loss Per Share
Basic loss per share is calculated by dividing net loss attributable to
common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted loss per share is calculated by dividing
net loss attributable to common shareholders by the weighted average number of
common shares outstanding, adjusted for potentially dilutive securities. Diluted
loss per share has not been presented since the inclusion of outstanding
convertible preferred stock, stock options and warrants would be antidilutive.
7
The following table summarizes the equivalent number of common shares
assuming the related securities that were outstanding as of March 31, 2001 and
2000 had been converted, but not included in the calculation of diluted loss per
share as such shares are antidilutive:
March 31,
---------
2001 2000
---- ----
Convertible preferred stock....................................................... 8,303,000 8,000,000
Stock options..................................................................... 10,398,400 10,416,500
Unvested restricted stock......................................................... 3,063,500 --
Warrants.......................................................................... 194,800 2,436,500
---------- ----------
21,959,700 20,853,000
========== ==========
The following is a reconciliation of net loss attributable to common
stockholders' for the three-month and six-month periods ended March 31, 2001 and
2000:
Three-month period ended Six month period ended
------------------------ ----------------------
March 31, March 31,
---------- ----------
2001 2000 2001 2000
---- ---- ---- ----
Numerator:
Loss before extraordinary loss and cumulative effect of a change in
accounting principle........................................................ $ (31,966) $ (29,548) $ (102,918) $ (50,359)
Dividend and accretion on preferred stock.................................... (1,761) (1,762) (3,496) (2,292)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders' before extraordinary loss
and cumulative effect of a change in accounting principle................. (33,727) (31,310) (106,414) (52,651)
Extraordinary loss........................................................... -- (17,577) -- (17,577)
Cumulative effect of a change in accounting principle........................ -- -- (2,332) --
----------- ----------- ----------- -----------
Net loss attributable to common stockholders'................................ $ (33,727) $ (48,887) $ (108,746) $ (70,228)
=========== =========== =========== ===========
Denominator:
Weighted average shares outstanding-basic and diluted........................ 38,709,658 34,617,361 38,011,488 34,084,624
=========== =========== =========== ===========
9. Comprehensive Loss
The Company reports comprehensive loss under the provisions of SFAS No.
130. Accumulated other comprehensive loss is reported as a component of
stockholders equity in the consolidated balance sheets. The Company primarily
has two components of comprehensive loss: cumulative translation adjustments
from the Company's operations in foreign countries and unrealized gains and
losses on marketable securities classified as available for sale. The following
table summarizes the components of other comprehensive loss for the three-month
and six-month periods ended March 31, 2001 and 2000:
Three-month period ended Six month period ended
------------------------ ----------------------
March 31, March 31,
---------- ----------
2001 2000 2001 2000
---- ---- ---- ----
Net loss................................................................. $(31,966) $(47,125) $(105,250) $(67,936)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities available for sale..... (290) 2,533 (3,403) 2,776
Foreign currency translation adjustment................................ (3,268) (300) (2,156) (512)
-------- -------- --------- --------
Comprehensive loss:...................................................... $(35,524) $(44,892) $(110,809) $(65,672)
======== ======== ========= ========
8
10. Revenue Recognition
Monthly service revenue related to managed hosting and Internet access is
recognized over the period services are provided. Service and equipment
installation revenue is recognized at completion of installation and upon
commencement of service. Revenue derived from application services is recognized
as the project progresses. Projects are generally completed within less than one
year. Payments received in advance of providing services are deferred until the
period such services are provided.
Effective October 1, 2000, the Company changed its revenue recognition
method for set up and service installation fees upon the adoption of SAB No. 101
"Revenue Recognition in Financial Statements" ("SAB No. 101"). SAB No. 101
expresses the view of the SEC Staff in applying generally accepted accounting
principles to certain revenue recognition issues. Under the provisions of SAB
No. 101 set up and installation revenue are deferred and recognized over the
estimated life of the underlying service contracts, which range from twelve to
thirty six months. Prior to the adoption of SAB No. 101, the Company recognized
revenue immediately upon completion of set up or installation. The change in
accounting principle resulted in a revenue deferred and cumulative effect charge
totaling $2.3 million or $0.06 per share, which was reflected in the
accompanying consolidated statements of operations. The adoption of SAB No. 101
decreased the net loss $188 and $232 for the three-month and six-month periods
ended March 31, 2001, respectively.
9
PART I
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Information
This Report on Form 10-Q contains certain forward-looking statements
concerning, among other things, the Company's plans and objectives for future
operations, planned products and services, potential expansion into new markets,
and anticipated customer demand for our existing and future products and
services. The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage the inclusion of prospective
information so long as those statements are accompanied by meaningful cautionary
statements identifying factors that could cause actual results to differ
materially. Among the factors that could cause actual results, performance or
achievement to differ materially from those described or implied in the forward-
looking statements are:
. potential marketplace or technology changes, rendering existing
products and services obsolete,
. changes in or the lack of anticipated changes in the regulatory
environment in various countries, including potential legislation
increasing our exposure to content distribution and intellectual
property liability,
. changes in customer purchasing policies and practices,
. Globix's ability to recruit and retain sufficient and qualified
personnel needed to staff our expanding operations,
. the ability of Globix to raise additional capital to finance
expansion,
. the sufficiency of existing cash and cash flow to complete our
business plan and fund our working capital and debt service,
. Globix's large existing debt obligations and history of operating
losses,
. the ability of Globix to integrate, operate and further expand and
upgrade our network, and
. the continued growth, use and improvement of the Internet, along with
the risks inherent in new product and service introductions and the
entry into new geographic markets.
The following discussion and analysis should be read together with the
consolidated financial statements and notes to the financial statements included
in Part II Item 8 of the Company's Annual Report on Form 10-K. The following
discussion contains forward-looking statements based on Globix's current
expectations, assumptions, estimates and projections about Globix and its
industry. Globix's results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including the
risks and uncertainties appearing in our other periodic reports and documents
filed with the Securities and Exchange Commission. The results shown herein are
not necessarily indicative of the results to be expected in any future periods.
Overview
We are a leading full-service provider of sophisticated Internet solutions
to businesses. Our solutions include field operations, which provide secure, and
fault-tolerant Internet data centers, high performance network services, which
provide connectivity to the Internet and complex Internet-based application
services, which include hosting, streaming media and GlobixMail. These three
major elements of our total Internet solution combine to provide our customers
with the ability to create, operate and scale their increasingly complex
Internet operations in a cost-efficient manner.
Our customers primarily use our products and services to maintain complex
computer equipment in a secure fault-tolerant environment with connectivity to a
high-speed, high-capacity, direct link to the Internet and to support complex
Internet applications. We currently offer our products and services from our
Internet data centers in New York City, London and Santa Clara, California. Our
teams of account managers, computer system and network engineers and customer
support specialists are based at each of these locations. We also maintain
Internet data centers in Atlanta and the Washington D.C. suburb of McLean,
Virginia. Our strong local market presence enables us to evaluate the needs of
our customers and quickly respond with tailored solutions. We also provide our
customers the ability to outsource the systems administration and technical
management of their Internet presence. Our products are flexible and scaleable,
allowing us to modify the size and breadth of the services we provide.
10
We believe that our ability to offer a broad range of Internet products and
services, combined with our local sales and support professionals and high
performance Internet data center facilities and network, differentiates us from
our competitors.
Globix was founded in 1989 as a value-added reseller primarily focused on
providing custom computer hardware and software solutions for desktop
publishing. By 1995, Globix recognized the growing demand by businesses for
electronic information delivery and began to re-shape its corporate strategy to
focus on offering Internet products and services. In early 1996, Globix raised
net proceeds of approximately $7.4 million through an initial public offering of
its common stock and subsequently began to offer Internet access products and
services to business customers. In 1997, Globix expanded its product and service
offerings beyond Internet access and began to offer a range of end-to-end
Internet solutions designed to enable its customers to more effectively
capitalize on the Internet as a business tool.
In 1998, Globix undertook a major expansion plan in order to more
aggressively pursue opportunities resulting from the tremendous growth of the
Internet. In April 1998, Globix completed a $160.0 million offering of 13%
senior notes. In June and July 1999, Globix completed construction of its
current Internet data center facilities in New York City, London and Santa
Clara, California and began operations at each facility.
In March 1999, Globix completed a public offering of 16,000,000 shares of
its common stock, resulting in net proceeds to Globix of approximately $136.6
million.
In December 1999, Globix completed the private placement of 80,000 shares
of Series A Preferred Stock to affiliates of Hicks, Muse, Tate & Furst
Incorporated, resulting in net proceeds of $75.3 million.
In February 2000, Globix completed a $600.0 million debt financing to fund
(a) the continued expansion of its facilities and network and (b) the tender
offer to purchase all of the outstanding 13% Senior Notes, $160.0 million
principal amount. The purchase price of the tender, completed on February 8,
2000, was 106.5% of principal amount plus all accrued and unpaid interest.
For fiscal periods ending on or before March 31, 2001 Globix reports its
results of operations in two operating segments: the "Internet Division" and the
"Server Sales and Integration Division." The Internet Division provides, complex
managed hosting, dedicated Internet access and application services, (such as,
streaming media, network security and server administration and network
monitoring). The Server Sales and Integration Division provides Internet-related
hardware and software, systems and network integration. Revenue from the
Internet Division has grown significantly as a percentage of total revenue,
increasing from 6% in 1996 to 94% in the three-month period ended March 31,
2001. Globix expects that Internet Division revenues will continue to grow both
absolutely and as a percentage of total revenues.
The largest component of Globix's total revenue is complex managed hosting
services and connectivity including both minimum committed amounts and overages.
In addition to fees based on bandwidth usage, Globix charges certain customer's
monthly fees for the use of its physical facilities. Globix's complex managed
hosting contracts typically range from one to two years. The second largest
component of Globix's total revenue is from dedicated Internet access services
to business customers. Globix's Internet access customers typically sign one or
two-year contracts that provide for fixed, monthly-recurring service fees and a
one-time installation fee. Application services are charged on a monthly, fixed
price or time and materials basis. Globix continues to derive a portion of its
total revenue from sales of third-party hardware and software, including
workstation, web and database servers, network equipment, and server and
application software licenses. Globix intends to continue to offer higher-margin
workstation, server and software components as a complement to its Internet
solutions. Globix maintains a limited inventory of hardware and software and
typically purchases such products from third-party vendors only upon receipt of
a customer order.
Cost of revenue for the Internet Division consists primarily of
telecommunications costs for Internet access and managed hosting customers.
Telecommunications costs include the cost of providing local loop costs for
connecting dedicated access customers to the Globix network, leased line and
associated costs related to connecting with our peering partners, and costs
associated with leased lines connecting our facilities to our backbone and
aggregation points of presence. Cost of revenue for the Server Sales and
Integration Division consist primarily of acquisition costs of third-party
hardware and software.
Selling, general and administrative expenses consist primarily of sales and
marketing personnel and related occupancy costs; advertising costs; salaries and
occupancy costs for executive, financial, personnel recruitment and
administrative personnel and related operating expenses associated with network
operations, customer service and field services. Globix continues to hire a
significant number of additional personnel to staff its facilities and Internet
data centers and to expand its sales and marketing, network operations, customer
service and field services personnel. Accordingly, Globix expects selling,
general and administrative expenses to continue to increase for the foreseeable
future.
11
Globix depreciates its capital assets on a straight-line basis over the
useful life of the assets, ranging from 3 to 40 years. Globix began to recognize
depreciation expense in the year ended September 30, 1999 for its Internet data
centers in New York, London and Santa Clara, California upon commencement of
operations at each of these facilities. In addition, Globix amortizes debt
issuance costs associated with its debt financings over the term of those
obligations using the effective interest method.
Globix historically has experienced negative cash flow from operations and
has incurred net losses. Globix's ability to generate positive cash flow from
operations and achieve profitability is dependent upon Globix's ability to
continue to grow its revenue base and achieve further operating efficiencies.
For the six months ended March 31, 2001 and 2000, Globix generated negative cash
flows from operations of approximately $69.5 million and $49.1 million,
respectively, and incurred net losses of approximately $105.3 million and $67.9
million, respectively. Globix expects to continue to experience negative cash
flow from operations and to incur net losses as a result of its significant
investment in the expansion of its network and facilities, the hiring of
additional personnel and interest expense related to the 12.5% senior notes. As
of March 31, 2001, Globix had an accumulated deficit of approximately $291.3
million.
Three-Months Ended March 31, 2001 As Compared To The Three-Months Ended March
31, 2000
Revenue. Total revenue for the three-month period ended March 31, 2001
increased 50% to $26.8 million from $17.9 million for the three-month period
ended March 31, 2000. Revenue from the Internet Division for the three-month
period ended March 31, 2001 increased 143.2% to $25.1 million from $10.3 million
for the three-month period ended March 31, 2000. This increase was primarily
attributable to availability of new data center space, which provided the
growing number of account managers with an opportunity to increase the number of
customers and upsell existing accounts. Revenue from the Server Sales and
Integration Division decreased 77.6% to $1.7 million for the three-month period
ended March 31, 2001 from $7.6 million for the three-month period ended March
31, 2000. This decrease was primarily attributable to a planned shift in product
mix toward recurring revenue streams with higher margins.
Cost of Revenue. Cost of revenue for the three-month period ended March 31,
2001 was $10.5 million or 39.1% of total revenue as compared to $10.2 million or
57.0% of total revenue for the three-month period ended March 31, 2000. The
increase in cost of revenue was primarily attributable to an increase in data
transmission costs because of higher network operating and maintenance expenses
associated with the expansion of the network backbone. As utilization of the
network increases in future years, we expect to realize a reduction in this cost
as a percent of revenue due to the network's scalability and fixed cost
structure.
Selling, General and Administrative. Selling general and administrative
expenses for the three-month period ended March 31, 2001 were $28.3 million or
105.7% of total revenue as compared to $23.1 million or 128.9% of total revenue
for the three-month period ended March 31, 2000. Approximately $4.1 million or
78.8% of the increase was attributable to an increase in sales and marketing,
engineering, recruiting, finance and administrative personnel necessitated by
the growth in Internet-related operations. The number of employees increased
from approximately 590 as of March 31, 2000 to approximately 860 as of March 31,
2001. Approximately $1.7 million or 32.7% of the increase was attributable to an
increase in bad debt expense necessitated by the recent deterioration in the
business environment, particularly as it relates to the dot.com sector. These
increases in personnel and bad debt expenses were partially off set by a $1.1
million or 51.0% reduction in marketing expenses for the three-month period
ended March 31, 2001 as compared to the same period last year.
Depreciation and Amortization. Depreciation and amortization increased to
$8.0 million for the three-month period ended March 31, 2001 as compared to $4.6
million for the three-month period ended March 31, 2000. The increase was
primarily related to the increase in construction costs and equipment purchases
related to the network infrastructure enhancements of the Internet data centers
in New York, London and Santa Clara.
Interest and Financing Expense and Interest Income. Interest and financing
expense decreased to $16.1 million for the three-month period ended March 31,
2001 as compared to $16.9 million for the three-month period ended March 31,
2000. The decrease is a result of increased capitalized interest in connection
with the build-out of the network infrastructure and Interest data centers
totaling $3.9 million for the three-months ended March 31, 2001 as compared to
zero for the three-months ended March 31, 2000 off-set by interest costs
associated with the $600 million 12.5% senior notes and the interest costs
associated with the $21 million mortgage for the three-month period ended March
31, 2001 being included for the full three-month period in 2001 compared to the
interest cost associated with this debt for only a portion of the three-month
period ended March 31, 2000. The decrease in interest income to $4.4 million for
the three-month period ended March 31, 2001 reflects the decrease in interest
rates compared to the same three-month period in the prior year and decreased
cash position derived from the net proceeds of the February 2000 debt financing
and the December 1999 issuance of the Series A Convertible Preferred Stock.
Other Income. The increase in other income to $1.5 million for the three-
months ended March 31, 2001 is a result of the gain realized on the sale of
short-term investments.
12
Other Expense. The increase in other expense to $1.8 million for the three-
months ended March 31, 2001 is a result of the loss realized on the impairment
of certain strategic investments.
Net Loss and Net Loss Attributable To Common Stockholders. As a result of
the above, Globix reported a net loss of $32.0 million and net loss attributable
to common stockholders of $33.7 million for the three-month period ended March
31, 2001 or $0.87 per share as compared to a net loss before extraordinary item
of $29.5 million or $0.90 per share and a net loss attributable to common
stockholders of $48.9 million or $1.41 per share (including the extraordinary
loss associated with the $17.6 million or $0.51 per share impact of the early
extinguishment of the Company's 13% Senior Notes) for the three-month period
ended March 31, 2000.
Six-Months Ended March 31, 2001 As Compared To The Six-Months Ended March 31,
2000
Revenue. Total revenue for the six-month period ended March 31, 2001
increased 55.7% to $53.0 million from $34.1 million for the six-month period
ended March 31, 2000. Revenue from the Internet Division for the six-month
period ended March 31, 2001 increased 181.9% to $48.7 million from $17.3 million
for the six-month period ended March 31, 2000. This increase was primarily
attributable to availability of new data center space, which provided the
growing number of account managers with an opportunity to increase the number of
customers and upsell existing accounts. Revenue from the Server Sales and
Integration Division decreased 74.2% to $4.3 million for the six-month period
ended March 31, 2001 from $16.8 million for the six-month period ended March 31,
2000. This decrease was primarily attributable to a planned shift in product mix
toward recurring revenue streams with higher margins.
Cost of Revenue. Cost of revenue for the six-month period ended March 31,
2001 was $20.9 million or 39.5% of total revenue as compared to $20.3 million or
59.5% of total revenue for the six-month period ended March 31, 2000. The
increase in cost of revenue was primarily attributable to an increase in data
transmission costs because of higher network operating and maintenance expenses
associated with the expansion of the network backbone. As utilization of the
network increases in future years, we expect to realize a reduction in this cost
as a percent of revenue due to the network's scalability and fixed cost
structure.
Selling, General and Administrative. Selling general and administrative
expenses for the six-month period ended March 31, 2001 were $59.1 million or
111.5% of total revenue as compared to $42.8 million or 125.6% of total revenue
for the six-month period ended March 31, 2000. Approximately $10.9 million or
66.9% of the increase was attributable to an increase in sales and marketing,
engineering, recruiting, finance and administrative personnel necessitated by
the growth in Internet-related operations. The number of employees increased
from approximately 590 as of March 31, 2000 to approximately 860 as of March 31,
2001. Approximately $4.1 million or 25.2% of the increase was attributable to an
increase in bad debt expense necessitated by the recent deterioration in the
business environment, particularly as it relates to the dot.com sector. These
increases in selling, general and administrative expenses were off set by a $1.7
million or 30.9% reduction in marketing expenses for the six-month period ended
March 31, 2001 as compared to the same period last year.
Non-Recurring Lease Termination and Other Related Expenses. This charge of
approximately $38.1 million is attributable to the non-recurring lease
termination and other equipment related expenses associated with the execution
of our revised business plan, whereby we plan to construct fewer Internet data
centers and have taken an estimated charge associated with the termination of
certain leases and reduction of certain commitments for surplus power and
environmental equipment related to the Internet data center expansion. This
charge includes estimated lease termination costs in addition to a write off of
construction in progress associated with equipment, capitalized interest,
consulting and legal fees, construction and pre-construction related costs
previously capitalized.
Depreciation and Amortization. Depreciation and amortization increased to
$15.5 million for the six-month period ended March 31, 2001 as compared to $7.9
million for the six-month period ended March 31, 2000. The increase was
primarily related to the increase in construction costs and equipment purchases
related to the network infrastructure enhancements of the Internet data centers
in New York, London and Santa Clara.
Interest and Financing Expense and Interest Income. Interest and financing
expense increased to $32.6 million for the six-month period ended March 31, 2001
as compared to $22.4 million for the six-month period ended March 31, 2000. The
increase is a result of interest costs associated with the $600 million 12.5%
senior notes and the interest costs associated with the $21 million mortgage for
the six-month period ended March 31, 2001 being included for the full six-month
period in 2001 compared to the interest cost associated with this debt for only
a portion of the six-month period ended March 31, 2000, off-set by increased
capitalized interest in connection with the build-out of the network
infrastructure and Interest data centers totaling $7.1 million for the six-
months ended March 31, 2001 as compared to zero for the six-months ended March
31, 2000. The increase in interest income to $10.9 million for the six-month
period ended March 31, 2001 reflects the cash position derived from the net
13
proceeds of the February 2000 debt financing and the December 1999 issuance of
the Series A Convertible Preferred Stock and the impact of declining interest
rates compared to the same six-month period in the prior year.
Other Income. The increase in other income to $1.5 million for the six-
months ended March 31, 2001 is a result of the gain realized on the sale of
short-term investments.
Other Expense. The increase in other expense to $2.1 million for the six-
months ended March 31, 2001 is a result of the loss realized on the impairment
of certain strategic investments.
Net Loss and Net Loss Attributable To Common Stockholders. As a result of
the above, Globix reported a net loss of $105.3 million and net loss
attributable to common stockholders of $108.7 million for the six-month period
ended March 31, 2001 or $2.86 per share (including the cumulative effect change
of accounting principle associated with the adoption of SAB No. 101 of $2.3
million or $0.06 per share impact from the cumulative effect change of
accounting principle) as compared to a net loss before extraordinary item of
$50.4 million or $1.55 per share and a net loss attributable to common
stockholders of $70.2 million or $2.06 per share (including the extraordinary
loss associated with the $17.6 million or $0.51 per share impact of the early
extinguishment of the Company's 13% Senior Notes) for the six-month period ended
March 31, 2000.
Liquidity and Capital Resources
Globix has historically had losses from operations, which have been funded
primarily through the issuance of debt and equity securities. In fiscal 1999, we
received net proceeds of approximately $136.6 million from equity financings.
In December 1999 Globix issued $80.0 million in Series A Convertible
Preferred Stock to affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks
Muse") to expand our build-out of Internet data centers and other facilities.
The Company incurred approximately $4.75 million of issuance costs associated
with the Series A Convertible Preferred Stock transaction, of which $3.2 million
was a fee paid to Hicks Muse. The preferred stock is convertible into common
stock at any time and cannot be called for redemption for five years. Under the
agreement, the Series A Convertible Preferred Stock is subject to mandatory
redemption in 2014 and yields an annual dividend rate of 7.5% payable quarterly
in cash or additional preferred stock at the option of Globix.
In January 2000, Globix obtained a $21.0 million loan secured by a first
mortgage on the building at 139 Centre Street housing Globix's New York Internet
data center. The loan accrues interest at a rate of 9.16% (subject to adjustment
on February 11, 2010) annually using a 25-year amortization schedule and is due
February 2010.
In February 2000, the Company issued $600 million 12.5% Senior Notes due
2010 in a private placement resulting in net proceeds of approximately $580.0
million. In March 2000 Globix completed its tender offer to purchase for cash
all of its outstanding 13% Senior Notes due 2005, $160.0 million in principal
amount. The purchase price in the tender offer was 106.5% of the principal
amount, plus accrued and unpaid interest.
Cash flows used in operating activities were $69.5 and $49.1 million for
the six-months ended March 31, 2001 and 2000, respectively. Cash flows from
operating activities can vary significantly from period to period depending upon
the timing of operating cash receipts and payments, especially accounts
receivable, prepaid expenses and other assets, and accounts payable and accrued
liabilities. In both periods, our net losses were the primary component of cash
used in operating activities, offset in 2001 by non-cash charges related to the
lease termination and other related equipment expenses, the cumulative effect of
the adoption of SAB No. 101 and a loss on impairment of an investment as well
as, in both periods, depreciation and amortization expenses relating to our
build out of our network and facilities and non-cash amortization of debt
issuance costs.
Cash flows used in investing activities were $75.3 and $65.3 million for
the six-months ended March 31, 2001 and 2000, respectively. Investments in
capital expenditures related to our network and facilities were $104.8 and $19.0
million for the six-months ended March 31, 2001 and 2000, respectively. Of this
amount, $91.3 and $19.0 million for the six-months ended March 31, 2001 and
2000, respectively was expended in cash and the balance was financed under
financing arrangements or remained in accounts payable and accrued liabilities
at each period-end.
Cash flows provided by financing activities were $0.4 and $511.7 million
for the six-months ended March 31, 2001 and 2000, respectively. In 2001 and
2000, Globix received net proceeds from the exercise of stock options and
warrants and repaid certain mortgage and capital lease obligations. In 2000,
cash flows from financing activities included debt and equity financings
totaling $675.3 million offset by the early repayment of $170.4 million of 13%
Senior Notes.
As of March 31, 2001, we had $256.0 million of cash, cash equivalents,
short-term investments, restricted cash, restricted investments and marketable
securities. At March 31, 2001, we had working capital of approximately $192.6
14
million, as compared to working capital of approximately $366.1 million at
September 30, 2000. Working capital decreased $173.5 million primarily due to
timing of operating cash receipts and disbursements, funding of operating losses
and capital expenditures.
Certain computer and network equipment has been financed through vendors
and financial institutions under capital and operating lease arrangements.
Capital lease obligations total approximately $9.7 million at March 31, 2001. As
of March 31, 2001, Globix has various agreements to lease facilities and
equipment and is obligated to make future minimum lease payments of
approximately $280.2 million on operating leases expiring in various years
through 2020. In addition, Globix has issued collateralized letters of credit
aggregating approximately $26.7 million. The related collateral funds are
included in restricted cash and investments on the consolidated balance sheet at
March 31, 2001. We intend to continue to make significant capital expenditures
during the next twelve-months as we expand our Internet data centers and network
infrastructure. We expect to finance such capital expenditures primarily through
existing cash, vendor financing and a mortgage with respect to our Greenwich
Street, New York property. Since our September 30, 2000 fiscal year-end, Globix
has secured commitments for equipment financing arrangements from several
vendors totaling approximately $47.0 million. At March 31, 2001 approximately
$32.0 million of such commitments are unused.
Due to current state of the capital markets, we have determined that Globix
cannot rely upon obtaining additional funding from the debt and equity markets
on an acceptable basis within the near future. Consequently, we have continued
to modify our expansion plan in order to delay, scale-back and eliminate certain
facilities and the purchase of related equipment. The plan assumes that Globix
will refinance its new Greenwich Street, New York property, which is currently
debt free along with certain other revenue and cost assumptions. There can be no
assurance that these assumptions will prove correct. Based on these assumptions,
our cash on hand is sufficient to fund our operations for the next twelve
months. We will continue to monitor the capital markets with a view towards
obtaining additional funding to accelerate the growth of our business.
Conversion to the Euro
On January 1, 1999, eleven of the fifteen member countries of the European
Union established a fixed conversion rate between their existing sovereign
currencies and a new currency called the "Euro." These countries have agreed to
adopt the Euro as their common legal currency on that date. The Euro trades on
currency exchanges and is available for non-cash transactions. Thereafter and
until January 1, 2002, the existing sovereign currencies will remain legal
tender in these countries. On January 1, 2002, the Euro is scheduled to replace
the sovereign legal currencies of these countries.
Globix does not anticipate that the implementation of the Euro will have a
material adverse effect on its business operations as the operations of Globix
expands into other European countries. However there are no assurances that the
implementation of the Euro will not have a material adverse affect on Globix's
business, financial condition and results of operations. In addition, Globix
cannot predict the impact the Euro will have on currency exchange rates or
Globix's currency exchange risk.
Recent Technical Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities,"("SFAS No. 133"), as amended, which is
effective for all quarters of the fiscal year beginning after June 15, 2000.
This Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging securities. Globix expects the adoption of SFAS No.
133 will not have a material impact on Globix's consolidated financial position,
results of operations and cash flows.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At March 31, 2001, we had financial instruments consisting of fixed rate
debt, mortgage payable marketable securities, short-term investments and other
investments. The substantial majority of our debt obligations consist of the
Senior Notes, which bear interest at 12.5% and mature May 1, 2010. The mortgage
interest is payable at 9.16% (subject to adjustment on February 11, 2010) based
on a 25 year amortization schedule. Principal and interest payments of $178.5
are payable monthly and any balance of the principal and all accrued and unpaid
interest is due and payable in February 2025. Annual maturities for our capital
lease obligations (including interest) in each of the next twelve-months are as
follows: $4.9 million in 2002, $3.1 million in 2003, $2.2 million in 2004, $1.1
million in 2005 and thereafter.
Marketable securities include Globix's strategic investment in Edgar On-
Line, a publicly traded entity, which is recorded at its fair market value.
Globix does not hedge its exposure to fluctuations in the value of its equity
securities.
Our other investments are generally fixed rate investment grade and
government securities denominated in U.S. dollars. At March 31, 2001, all of our
investments are due to mature within twelve months except $30.5 million and the
carrying value of such investments approximates fair value. At March 31, 2001,
$37.4 million of our cash and investments were restricted in accordance with the
terms of certain collateral obligations.
We actively monitor the capital and investing markets in analyzing our
capital raising and investing decisions.
Globix is also subject to market risk associated with foreign currency
exchange rates. Globix's business plan includes the expansion of the U.K.
operation. To date, Globix has not utilized financial instruments to minimize
its exposure to foreign currency fluctuations. Globix will continue to analyze
risk management strategies to minimize foreign currency exchange risk in the
future.
Globix believes it has limited exposure to financial market risks,
including changes in interest rates. The fair value of our investment portfolio
or related income would not be significantly impacted by a 100 basis point
increase or decrease in interest rates due mainly to the short-term nature of
the major portion of our investment portfolio. An increase or decrease in
interest rates would not significantly increase or decrease interest expense on
debt obligations due to the fixed nature of the substantial majority of our debt
obligations.
16
PART II
Item 1. Legal Proceedings
We are not party to any material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended March 31, 2001 there were no matters submitted to
a vote of security holders.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.24 Amendment No. 2 to Marc H. Bell Employment Agreement dated
March 21, 2001
(b) Reports on Form 8-K-Not Applicable
17
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.
Globix Corporation
By: /s/ Marc H. Bell
------------------------------------------
Marc H. Bell, Chairman and
Chief Executive Officer
Date: May 10, 2001
By: /s/ Brian L. Reach
------------------------------------------
Brian L. Reach, Senior Vice President
and Chief Financial Officer
Date: May 10, 2001
By: /s/ Shawn P. Brosnan
------------------------------------------
Shawn P. Brosnan, Vice President,
Corporate Controller and Chief
Accounting Officer
Date: May 10, 2001
18