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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 9,
2001 was 42,010,000.
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GLOBIX CORPORATION AND SUBSIDIARIES
Table of Contents
Part I Financial Information Page
----
Item 1. Consolidated Balance Sheets - As of June 30, 2001 and September 30, 2000............................ 1
Consolidated Statements of Operations - For the Three Months Ended June 30, 2001 and 2000........... 2
Consolidated Statements of Operations - For the Nine Months Ended June 30, 2001 and 2000............ 2
Consolidated Statements of Cash Flows - For the Nine Months Ended June 30, 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)
June 30, September 30,
2001 2000
--------- ---------
Assets (Unaudited)
Current assets:
Cash and cash equivalents...................................................................... $ 185,497 $ 363,877
Short-term investments......................................................................... -- 9,948
Marketable securities.......................................................................... 4,234 4,685
Accounts receivable, net of allowance for doubtful accounts of $4,801 and $4,072,
respectively................................................................................. 19,204 21,403
Inventories.................................................................................... 103 38
Prepaid expenses and other current assets...................................................... 8,928 4,403
Restricted cash................................................................................ 6,663 7,093
--------- ---------
Total current assets........................................................................ 224,629 411,447
Investments, restricted.......................................................................... 30,523 36,085
Property, plant and equipment, net............................................................... 348,283 248,424
Debt issuance costs, net of accumulated amortization of $1,585 and $719, respectively........... 19,213 20,217
Intangible assets, net of accumulated amortization of $2,073 and $197, respectively............. 6,037 6,650
Other assets..................................................................................... 5,030 6,768
--------- ---------
Total assets................................................................................ $ 633,715 $ 729,591
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Capital lease and other obligations............................................................ $ 4,613 $ 2,173
Accounts payable............................................................................... 18,579 16,964
Accrued liabilities............................................................................ 28,192 13,669
Accrued interest............................................................................... 31,250 12,502
--------- ---------
Total current liabilities................................................................... 82,634 45,308
Capital lease obligations, net of current portion................................................ 7,413 1,135
Mortgage payable................................................................................. 20,492 20,674
Senior Notes..................................................................................... 600,000 600,000
Other long term liabilities...................................................................... 7,614 4,462
--------- ---------
Total liabilities........................................................................... 718,153 671,579
Redeemable convertible preferred stock........................................................... 81,412 76,042
Stockholders' Deficit
Common stock, $.01 par value; 500,000,000 shares authorized;
42,006,229 and 37,307,315 shares issued and outstanding, respectively........................... 420 373
Additional paid-in capital....................................................................... 173,254 165,890
Deferred compensation............................................................................ (7,889) --
Accumulated other comprehensive income........................................................... (4,307) 1,784
Accumulated deficit.............................................................................. (327,328) (186,077)
--------- ---------
Total stockholders' deficit................................................................. (165,850) (18,030)
--------- ---------
Total liabilities and stockholders' deficit.................................................... $ 633,715 $ 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 Nine months ended
------------------ -----------------
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
----------- -----------
Revenue............................................................... $ 26,239 $ 21,376 $ 79,257 $ 55,434
Operating costs and expense:
Cost of revenue..................................................... 9,774 10,590 30,720 30,864
Selling, general and administrative................................. 31,994 25,860 91,069 68,644
Non-recurring restructuring expenses................................ -- -- 38,109 --
Depreciation and amortization....................................... 8,526 4,699 24,073 12,646
----------- ----------- ----------- -----------
Total operating costs and expenses.................................... 50,294 41,149 183,971 112,154
----------- ----------- ----------- -----------
Loss from operations.................................................. (24,055) (19,773) (104,714) (56,720)
Interest and financing expense...................................... (14,458) (19,083) (47,056) (41,490)
Interest income..................................................... 2,993 8,143 13,908 17,138
Other income........................................................ 427 601 1,911 601
Other expense....................................................... (907) -- (2,967) --
----------- ----------- ----------- -----------
Loss before extraordinary loss and cumulative effect of a change
in accounting principle............................................. (36,000) (30,112) (138,918) (80,471)
Extraordinary loss.................................................... -- -- -- (17,577)
Cumulative effect of a change in accounting principle................. -- -- (2,332) --
----------- ----------- ----------- -----------
Net loss.............................................................. (36,000) (30,112) (141,250) (98,048)
Dividends and accretion on preferred stock.......................... (1,789) (1,738) (5,286) (4,030)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders'......................... $ (37,789) $ (31,850) $ (146,536) $ (102,078)
=========== =========== =========== ===========
Basic and diluted loss per share attributable to common stockholders'
before extraordinary loss and cumulative effect of a change in
accounting principle................................................ $ (0.97) $ (0.91) $ (3.76) $ (2.45)
Extraordinary loss per share.......................................... -- -- -- (0.51)
Cumulative effect of a change in accounting principle................. -- -- (0.06) --
----------- ----------- ----------- -----------
Basic and diluted net loss per share attributable to common
stockholders'........................................................ $ (0.97) $ (0.91) $ (3.82) $ (2.96)
=========== =========== =========== ===========
Weighted average common shares outstanding--basic and diluted......... 38,933,135 34,930,685 38,318,812 34,433,230
=========== =========== =========== ===========
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)
Nine months ended
-----------------
June 30,
--------
2001 2000
---- ----
Cash flows from operating activities
Net loss............................................................................... $(141,250) $ (98,048)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization.......................................................... 24,073 12,646
Provision for uncollectible accounts receivable........................................ 7,348 1,480
Extraordinary loss on early extinguishment of debt..................................... -- 17,577
Cumulative effect of a change in accounting principle.................................. 2,332 --
Non-recurring restructuring expenses................................................... 17,094 --
Gain on sale of short term investment.................................................. (1,459) --
Gain on sale of marketable securities.................................................. (427) (601)
Loss on impairment of investment....................................................... 2,750 --
Amortization of debt issuance costs.................................................... 866 753
Amortization of deferred compensation.................................................. 1,110 --
Changes in operating assets and liabilities:
Accounts receivable.................................................................... (5,149) (12,023)
Inventories............................................................................ (66) 943
Prepaid expenses and other current assets.............................................. (4,490) (1,284)
Other assets........................................................................... (3,834) (681)
Accounts payable....................................................................... 1,796 569
Accrued liabilities.................................................................... 7,331 822
Accrued interest....................................................................... 18,748 22,583
Other.................................................................................. (748) (292)
--------- ---------
Net cash used in operating activities.................................................. (73,975) (55,556)
--------- ---------
Cash flows from investing activities
Proceeds from sale of short term investments........................................... 10,180 (45,815)
Use of restricted cash and investments................................................. 5,991 13,477
Proceeds from sale of marketable securities............................................ 1,026 1,125
Purchases of property, plant and equipment............................................. (118,224) (72,042)
--------- ---------
Net cash used in investing activities.................................................. (101,027) (103,255)
--------- ---------
3
GLOBIX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(All Dollars in Thousands, Except Share and Per Share Data)
Nine months ended,
------------------
June 30,
--------
2001 2000
---- ----
Cash flows from financing activities
Proceeds from exercise of stock options and warrants, net........................... $ 2,498 $ 9,480
Proceeds from Senior Note offering, net of offering expenses........................ -- 580,000
Proceeds from issuance of redeemable convertible preferred stock, net............... -- 75,250
Payments of dividends on redeemable convertible preferred stock..................... -- (3,475)
Repayments of Senior Notes.......................................................... -- (170,400)
Proceeds from mortgage payable, net of expenses..................................... -- 20,000
Repayments of mortgage payable and capital lease obligations........................ (3,621) (1,626)
--------- ---------
Net cash (used in)/provided by financing activities................................. (1,123) 509,229
--------- ---------
Effects of exchange rate changes on cash and cash equivalents....................... (2,255) (1,463)
--------- ---------
Net (decrease) increase in cash and cash equivalents................................ (178,380) 348,955
Cash and cash equivalents, beginning of period...................................... 363,877 101,471
--------- ---------
Cash and cash equivalents, ending of period......................................... $ 185,497 $ 450,426
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest.............................................................. $ 39,655 $ 18,147
Cash paid for income taxes.......................................................... $ 34 $ 54
Cumulative dividends and accretion on preferred stock............................... $ 5,286 $ 4,030
Non-cash financing activities:
Equipment acquired under capital lease obligations................................. $ 12,157 --
Capital expenditures included in accounts payable, accrued liabilities and other
long term liabilities.............................................................. $ 16,978 --
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 June
30, 2001 and the results of its operations for the three-month and nine-months
periods ended June 30, 2001 and 2000 and its cash flows for the nine-month
periods ended June 30, 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 nine-months periods ending June 30, 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:
June 30, September 30,
-------- -------------
2001 2000
---- ----
Land.......................................................................................... $ 1,997 $ 1,997
Building and building improvements............................................................ 165,856 55,416
Leasehold improvements........................................................................ 71,087 30,927
Computer hardware and software and network equipment.......................................... 136,417 67,552
Furniture and equipment....................................................................... 9,274 7,198
--------- ---------
384,631 163,090
Less: Accumulated depreciation and amortization............................................... (47,152) (25,731)
Add: Construction in progress................................................................. 10,804 111,065
--------- ---------
Property, plant and equipment, net............................................................ $ 348,283 $ 248,424
========= =========
Certain computer and network equipment are recorded under capital leases
that aggregated approximately $18.2 and $6.0 million as of June 30, 2001 and
September 30, 2000, respectively. Accumulated amortization on the assets
recorded under capital leases aggregated approximately $4.8 and $3.2 million as
of June 30, 2001 and September 30, 2000, respectively.
Costs incurred prior to completion of construction of Internet data centers
and network infrastructure upgrades are reflected as construction in progress in
the accompanying consolidated balance sheets and are 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, related network equipment
and network upgrade projects 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 $12.4 million and $0.3 for
the nine-month periods ended June 30, 2001 and 2000, respectively. During the
quarter ended June 30, 2001 certain projects including two new Internet data
centers, expansion projects at several existing facilities and network
infrastructure upgrades totaling approximately $203.4 million became
operational. Accordingly, such assets were placed into service and recorded as a
component of the respective depreciable asset category.
5
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
may be 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.
3. Accrued Liabilities
Accrued liabilities consist of the following:
June 30, September 30,
-------- -------------
2001 2000
---- ----
Restructuring reserves........................................................................ $ 6,170 $ --
Deferred revenue.............................................................................. 4,055 601
Accrued construction costs.................................................................... 4,255 3,172
Other......................................................................................... 13,712 9,896
-------- ----------
$ 28,192 $ 13,669
======== ==========
4. 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.
5. 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.
6. 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 June 30, 2001, there were
84,587 Series A Preferred Shares outstanding and 165,413 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
6
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 periods ended June 30, 2001, 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
1,557, 1,529 and 1,501 shares of Series A Preferred Stock on June 30, 2001,
March 31, 2001 and December 31, 2000, respectively.
7. Stockholder's Equity
In December 2000, Globix granted approximately 3.1 million shares of
restricted stock 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 three-month and nine-month period
ended June 30, 2001 was $548 and $1,110, respectively.
8. 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. The Company is a full service
provider of sophisticated Internet solutions. The Company operates several
Internet data centers throughout the United States and Europe. Each Internet
data center provides the same internet related services to similar type of
customers. Effective April 1, 2001 and for the fiscal quarter ended June 30,
2001,Globix reports its results of operations in one operating segment under the
provisions of SFAS No. 131. Previously the Company reported under two operating
segments.
The following table sets forth geographic segment information for the three-
month and nine-month periods ended June 30, 2001 and 2000:
Three-month period ended Nine-month period ended
-------------------------- -------------------------
June 30, June 30,
-------------------------- -------------------------
2001 2000 2001 2000
---- ---- ----- ----
Revenue:
United States......................................................... $ 20,434 $ 19,003 $ 62,943 $ 51,503
Europe................................................................ 5,805 2,373 16,314 3,931
-------- -------- --------- --------
Consolidated....................................................... $ 26,239 $ 21,376 $ 79,257 $ 55,434
======== ======== ========= ========
Operating income (loss):
United States......................................................... $(20,545) $(16,207) $ (95,522) $(46,031)
Europe................................................................ (3,510) (3,566) (9,192) (10,689)
-------- -------- --------- --------
Consolidated....................................................... $(24,055) $(19,773) $(104,714) $(56,720)
======== ======== ========= ========
Identifiable assets:
United States......................................................... $528,485 $717,244 $ 528,355 $717,244
Europe................................................................ 79,980 25,259 79,980 25,259
-------- -------- --------- --------
Consolidated....................................................... $608,465 $742,503 $ 608,335 $742,503
======== ======== ========= ========
9. 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 June 30, 2001 and
2000 had been converted, but not included in the calculation of diluted loss per
share as such shares are antidilutive:
June 30,
--------
2001 2000
---- ----
Convertible preferred stock....................................................... 8,458,700 8,000,000
Stock options..................................................................... 10,571,700 10,043,800
Unvested restricted stock......................................................... 3,063,500 --
Warrants.......................................................................... 194,800 357,400
---------- ----------
22,288,700 18,401,200
========== ==========
The following is a reconciliation of net loss attributable to common
stockholders' for the three-month and nine-month periods ended June 30, 2001 and
2000:
Three-month period ended Nine month period ended
-------------------------- --------------------------
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Numerator:
Loss before extraordinary loss and cumulative effect of a change in
accounting principle...................................................... $ (36,000) $ (30,112) $ (138,918) $ (80,471)
Dividend and accretion on preferred stock.................................. (1,789) (1,738) (5,286) (4,030)
----------- ----------- ----------- -----------
Net loss attributable to common stockholders' before extraordinary loss
and cumulative effect of a change in accounting principle................ (37,789) (31,850) (144,204) (84,501)
Extraordinary loss......................................................... -- -- -- (17,577)
Cumulative effect of a change in accounting principle...................... -- -- (2,332) --
----------- ----------- ----------- -----------
Net loss attributable to common stockholders'.............................. $ (37,789) $ (31,850) $ (146,536) $ (102,078)
=========== =========== =========== ===========
Denominator:
Weighted average shares outstanding-basic and diluted...................... 38,933,135 34,930,685 38,318,812 34,433,230
=========== =========== =========== ===========
10. 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 nine-month periods ended June 30, 2001 and 2000:
Three-month period ended Nine-month period ended
-------------------------- -------------------------
June 30, June 30,
-------- --------
2001 2000 2001 2000
---- ---- ---- ----
Net loss................................................................. $ (36,000) $ (30,112) $ (141,250) $ (98,048)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities available for sale..... 793 (8,939) (2,610) (6,163)
Foreign currency translation adjustment................................ (98) (951) (2,255) (1,463)
---------- ---------- ---------- ---------
Comprehensive loss:...................................................... $ (35,305) $ (40,002) $ (146,115) $(105,674)
========== ========== ========== =========
8
11. Revenue Recognition
Monthly service revenue related to managed hosting and Internet access is
recognized over the period services are provided. 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
(increased)/decreased the net loss $(52) and $368 for the three-month and nine-
month periods ended June 30, 2001, respectively.
12. Recent Technical Accounting Pronouncements
In June 2001, the FASB issued SFAS Nos. 141 and 142 entitled, "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively. SFAS No
141, among other things, eliminates the pooling of interests method of
accounting for business acquisitions entered into after June 30, 2001. SFAS No.
142 requires companies to use a fair-value approach to determine whether there
is an impairment of existing and future goodwill. SFAS No. 142 is effective
beginning October 1, 2002. Globix expects the adoption of SFAS Nos. 141 and 142
will not have a material impact on Globix's consolidated financial position,
results of operations or cash flows.
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 secure and fault-tolerant Internet data
centers with high performance network services providing connectivity to the
Internet and complex Internet-based application services, which include hosting,
streaming media and GlobixMail. These 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 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 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, Georgia 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. We
believe that
10
our ability to offer a broad range of Internet 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 initial 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 reported 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. Effective April 1, 2001 and for the fiscal quarter ended June 30, 2001,
Globix reports its results of operations in one operating segment under the
provisions of SFAS No. 131.
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 three years. The second largest
component of Globix's total revenue is 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.
Cost of revenue 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
also includes 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 depreciates its capital assets on a straight-line basis over the useful
life of the assets, ranging from 3 to 40 years. Globix amortizes its
identifiable intangible assets (primarily customer lists) on a straight-line
basis over periods ranging from 12 to 36 months. 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 nine months ended June 30, 2001 and 2000, Globix generated
11
negative cash flows from operations of approximately $74.0 million and $55.6
million, respectively, and incurred net losses of approximately $141.3 million
and $98.0 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 and
interest expense related to the 12.5% Senior Notes. As of June 30, 2001, Globix
had an accumulated deficit of approximately $327.3 million.
Three-Months Ended June 30, 2001 As Compared To The Three-Months Ended June 30,
2000
Revenue. Revenue for the three-month period ended June 30, 2001 increased
22.7% to $26.2 million from $21.4 million for the three-month period ended June
30, 2000. This increase was primarily attributable to availability of data
center space, which provided the growing number of account managers with an
opportunity to increase the number of customers and upsell existing accounts.
Cost of Revenue. Cost of revenue for the three-month period ended June 30,
2001 was $9.8 million or 37.2% of total revenue as compared to $10.6 million or
49.5% of total revenue for the three-month period ended June 30, 2000. The
decrease in cost of revenue was primarily attributable to a shift in product mix
toward recurring revenue streams with higher margins. 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 June 30, 2001 were $32.0 million or
121.9% of revenue as compared to $25.9 million or 121.0% of revenue for the
three-month period ended June 30, 2000. Approximately $4.8 million or 77.8% 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 640 as of June 30, 2000 to approximately 796 as of June 30,
2001. Approximately $2.0 million or 32.8% of the increase was attributable to an
increase in bad debt expense necessitated by deterioration in the business
environment, particularly as it relates to the dot.com sector. The allowance for
doubtful accounts as a percentage of accounts receivable and in absolute dollars
has increased as a result of the continued difficult economic environment. These
increases in personnel and bad debt expenses were partially offset by a $1.2
million or 39.0% reduction in marketing expenses for the three-month period
ended June 30, 2001 as compared to the same period last year.
Depreciation and Amortization. Depreciation and amortization increased to $8.5
million for the three-month period ended June 30, 2001 as compared to $4.7
million for the three-month period ended June 30, 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 $14.5 million for the three-month period ended June 30,
2001 as compared to $19.1 million for the three-month period ended June 30,
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 $5.4 million for the three-months ended June 30, 2001 as compared to
$0.3 for the three-months ended June 30, 2000. The decrease in interest income
to $3.0 million for the three-month period ended June 30, 2001 reflects the
decrease in interest rates compared to the same three-month period in the prior
year and decreased average 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. Other income decreased to $0.4 million for the three-month
period ended June 30, 2001 as compared to $0.6 million for the three-month
period ended June 30, 2000 is a result of reduced gains on the sale of short-
term investments
Other Expense. The increase in other expense to $0.9 million for the three-
months ended June 30, 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 $36.0 million and net loss attributable to
common stockholders of $37.8 million for the three-month period ended June 30,
2001 or $0.97 per share as compared to a net loss of $30.1 million and a net
loss attributable to common stockholders of $31.9 million or $0.91 per share for
the three-month period ended June 30, 2000.
12
Nine-Months Ended June 30, 2001 As Compared To The Nine-Months Ended June 30,
2000
Revenue. Revenue for the nine-month period ended June 30, 2001 increased 43.0%
to $79.3 million from $55.4 million for the nine-month period ended June 30,
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.
Cost of Revenue. Cost of revenue for the nine-month period ended June 30, 2001
was $30.7 million or 38.8% of revenue as compared to $30.9 million or 55.7%
total revenue for the nine-month period ended June 30, 2000. The decrease in
cost of revenue was primarily attributable to a shift in product mix toward
recurring revenue streams with higher margins. 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 nine-month period ended June 30, 2001 were $91.1 million or
114.9% of revenue as compared to $68.6 million or 123.8% of revenue for the
nine-month period ended June 30, 2000. Approximately $15.7 million or 69.9% 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 640 as of June 30, 2000 to approximately 796 as of June 30,
2001. Approximately $5.9 million or 26.2% of the increase was attributable to an
increase in bad debt expense necessitated by the deterioration in the business
environment, particularly as it relates to the dot.com sector. These increases
in selling, general and administrative expenses were offset by a $2.9 million
or 33.7% reduction in marketing expenses for the nine-month period ended June
30, 2001 as compared to the same period last year.
Non-Recurring Restructuring Expenses. This charge of approximately $38.1
million is attributable to the non-recurring restructuring 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
$24.1 million for the nine-month period ended June 30, 2001 as compared to $12.6
million for the nine-month period ended June 30, 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 $47.1 million for the nine-month period ended June 30, 2001
as compared to $41.5 million for the nine-month period ended June 30, 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 nine-month period ended June 30, 2001 being included for the full nine-month
period in 2001 compared to the interest cost associated with this debt for only
a portion of the nine-month period ended June 30, 2000, off-set by increased
capitalized interest in connection with the build-out of the network
infrastructure and Internet data centers totaling $12.4 million for the nine-
months ended June 30, 2001 as compared to $0.3 for the nine-months ended June
30, 2000. The decrease in interest income to $13.9 million for the nine-month
period ended June 30, 2001 reflects the reduced 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 and the impact of declining interest
rates compared to the same nine-month period in the prior year.
Other Income. The increase in other income to $1.9 million for the nine-months
ended June 30, 2001 as compared to $0.6 million for the three-month period ended
June 30, 2000 is a result of increased gains recognized on the sale of short-
term investments.
Other Expense. The increase in other expense to $3.0 million for the nine-
months ended June 30, 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 $141.3 million and net loss attributable to
common stockholders of $146.5 million for the nine-month period ended June 30,
2001 or $3.82 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) as compared to a net loss before extraordinary item of $80.5 million
or $2.45 per share and a net loss attributable to common stockholders of $102.1
million or $2.96 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 nine-month period ended June 30, 2000.
13
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 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 $74.0 and $55.6 million for the
nine-months ended June 30, 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 loss was 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, amortization of deferred compensation and losses on
impairment of investments as well as, in both periods, depreciation and
amortization expenses relating to our build out of our network and facilities
provisions for uncollectible accounts receivable and non-cash amortization of
debt issuance costs.
Cash flows used in investing activities were $101.0 and $103.3 million for the
nine-months ended June 30, 2001 and 2000, respectively. Investments in capital
expenditures related to our network and facilities were $138,972 and $72.0
million for the nine-months ended June 30, 2001 and 2000, respectively. Of this
amount, $118.2 and $72.0 million for the nine-months ended June 30, 2001 and
2000, respectively was expended in cash and the balance was financed under
financing arrangements or remained in accounts payable, accrued liabilities and
other long term liabilities at each period-end.
Cash flows (used in)/provided by financing activities were ($1.1) and $509.2
million for the nine-months ended June 30, 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 the
13% Senior Notes.
As of June 30, 2001, we had $226.9 million of cash, cash equivalents,
restricted cash, restricted investments and marketable securities. At June 30,
2001, we had working capital of approximately $142.0 million, as compared to
working capital of approximately $366.1 million at September 30, 2000. Working
capital decreased $224.1 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 $11.8 million at June 30, 2001. As of June
30, 2001, Globix has various agreements to lease facilities and equipment and is
obligated to make future minimum lease payments of approximately $274 million on
operating leases expiring in various years through 2020. In addition, Globix has
issued collateralized letters of credit aggregating approximately $26.4 million.
The related collateral funds are included in restricted cash and investments on
the consolidated balance sheet at June 30, 2001. We intend to continue to make
capital expenditures during the next twelve-months as we complete the expansion
of our Internet data centers and network infrastructure. We expect to finance
such capital expenditures primarily through existing cash, vendor and other
financing. Since our September 30, 2000 fiscal year-end, Globix has secured
commitments for equipment financing arrangements from several vendors totaling
approximately $47 million. At June 30, 2001 approximately $23 million of such
commitments are unused.
14
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 have access to certain vendor and other financing alternatives and includes
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 through the end of our 2002 fiscal year. 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 2001, the FASB issued SFAS Nos. 141 and 142 entitled, "Business
Combinations" and "Goodwill and Other Intangible Assets", respectively. SFAS No
141, among other things, eliminates the pooling of interests method of
accounting for business acquisitions entered into after June 30, 2001. SFAS No.
142 requires companies to use a fair-value approach to determine whether there
is an impairment of existing and future goodwill. SFAS No. 142 is effective
beginning October 1, 2002. Globix expects the adoption of SFAS Nos. 141 and 142
will not have a material impact on Globix's consolidated financial position,
results of operations or cash flows.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
At June 30, 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: $5.2 million in 2002, $4.0 million in 2003, $2.5 million in 2004, $0.9
million in 2005 and thereafter.
Marketable securities include Globix's strategic investment in Edgar On-Line
and Globecomm Systems Inc., publicly traded entities, which are recorded at 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 June 30, 2001, all of our investments
are due to mature within twelve months and the carrying value of such
investments approximates fair value. At June 30, 2001, $37.2 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
On April 26, 2001, the Company's Annual Meeting of Shareholders was held at
the offices of the Company. A quorum, in person or by proxy, of both common
and preferred stockholders was present throughout. The following matters were
voted upon:
Election of Directors - The following persons were nominated, seconded and
elected by vote of security holders, as follows:
Name Number of Votes For Votes Withheld
---- ------------------- --------------
Marc H. Bell 37,858,623 396,951
Robert Bell 37,896,396 359,178
Lord Anthony St. John 37,861,014 394,560
Martin Fox 37,898,331 357,243
Jack D. Furst 36,724,245 1,531,329
Michael J. Levitt 36,641,095 1,614,479
Sid Paterson 37,482,466 773,108
Harshad Shah 37,898,753 356,821
Richard Videbeck 37,899,149 356,425
The Company's 2001 Stock Option Plan was approved with a vote of 16,557,599 in
favor, 3,191,266 opposed and 93,776 abstentions.
The Company's 2001 Restricted Stock Plan was ratified with a vote of
16,507,115 in favor, 3,199,034 opposed and 136,492 abstentions.
The selection of Arthur Andersen LLP as the Company's auditors for the 2001
fiscal year was ratified with a vote of 38,093,161 in favor, 102,961 opposed
and 59,452 abstentions.
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -Not Applicable
(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
Date: August 13, 2001 By: /s/ Peter L. Herzig
------------------------------------------
Peter L. Herzig, Chief Executive Officer
Date: August 13, 2001 By: /s/ Brian L. Reach
------------------------------------------
Brian L. Reach, Chief Financial Officer
Date: August 13, 2001 By: /s/ Shawn P. Brosnan
------------------------------------------
Shawn P. Brosnan, Senior Vice President,
Corporate Controller and Chief Accounting
Officer
18