UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: March 31, 2000
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT FOR THE
TRANSITION PERIOD From ____ to ____
Commission File number 0-25615
Globix Corporation
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
13-3781263
(IRS Employer Identification No.)
139 Centre Street, New York, NY 10013
(Address of principal executive offices)
(212) 334-8500
(Registrant's telephone number)
Indicate by check mark whether the registrant has (1) filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 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
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
36,672,000 shares of Common Stock outstanding as of May 12, 2000
Globix Corporation and Subsidiaries
Index
PART I - FINANCIAL INFORMATION Page
----
Item 1. Consolidated Balance Sheets - As of March 31, 2000 and
September 30,1999 1
Consolidated Statements of Operations - For the Three
Months Ended March 31, 2000 and 1999 2
Consolidated Statements of Operations - For the Six Months
Ended March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows - For the Six Months
Ended March 31, 2000 and 1999 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure of Market Risk 11
PART II - OTHER INFORMATION 13
Item 1. Legal Proceedings
Item 2. Changes is 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
Globix Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share and per share data)
March 31, September 30,
2000 1999
--------- ---------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents .................................... $ 498,252 $ 101,471
Short term investments ....................................... 75,325 --
Marketable securities ........................................ 13,033 9,941
Accounts receivable, net of allowance for doubtful accounts of
$1,213 and $707, respectively ............................. 13,963 7,798
Inventories .................................................. 582 1,282
Prepaid expenses and other current assets .................... 3,730 2,649
Restricted cash .............................................. 9,882 8,848
--------- ---------
Total current assets ......................................... 614,767 131,989
Investments, restricted ...................................... 5,781 36,191
Property, plant and equipment, net ........................... 133,705 122,653
Debt issuance costs, net of accumulated amortization of $350
and $1,030, respectively .................................. 21,650 5,583
Other assets ................................................. 6,283 6,102
--------- ---------
Total assets ................................................. $ 782,186 $ 302,518
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Capital Lease obligations and other .......................... $ 2,147 $ 2,088
Accounts payable ............................................. 9,282 10,439
Accrued liabilities .......................................... 9,271 9,579
Accrued interest ............................................. 12,500 8,667
--------- ---------
Total current liabilities .................................... 33,200 30,773
Capital Lease obligations, net of current portion ............ 1,918 2,896
Mortgage Payable ............................................. 20,774 --
Senior Notes, net of unamortized discount of
$1,891 in 1999 ............................................ 600,000 158,109
Other long term liabilities .................................. 4,295 4,335
--------- ---------
Total liabilities ............................................ 662,163 196,113
Redeemable Convertible Preferred Stock ....................... 75,567 --
Stockholders' Equity:
Common stock, $.01 par value; 500,000,000 shares
authorized; 36,359,036 and 33,300,020 shares issued and
outstanding, respectively ................................. 364 333
Additional paid-in capital ................................... 161,091 155,423
Accumulated other comprehensive income ....................... 12,543 10,279
Accumulated deficit .......................................... (127,566) (59,630)
--------- ---------
Total stockholders' equity ................................... 46,432 106,405
--------- ---------
Total liabilities and Stockholders' Equity ................... $ 782,186 $ 302,518
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
-1-
Globix Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share data)
Three Months Ended Six Months Ended
March 31, March 31
--------- --------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenue ...................................................... $ 17,913 $ 7,086 $ 34,058 $ 13,015
Operating costs and expenses:
Cost of revenues ........................................... 10,218 4,476 20,274 8,178
Selling, general and administrative ........................ 23,089 7,662 42,784 13,227
Depreciation and amortization .............................. 4,590 705 7,947 1,213
------------ ------------ ------------ ------------
Total operating costs and expenses ........................... 37,897 12,843 71,005 22,618
------------ ------------ ------------ ------------
Loss from operations ......................................... (19,984) (5,757) (36,947) (9,603)
Interest and financing expense ............................. (16,938) (4,331) (22,407) (9,249)
Interest income ............................................ 7,374 438 8,995 1,383
------------ ------------ ------------ ------------
Loss before extraordinary item ............................... (29,548) (9,650) (50,359) (17,469)
Dividends and accretion on preferred stock ................... (1,762) -- (2,292) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders before
extraordinary loss .......................................... $ (31,310) $ (9,650) $ (52,651) $ (17,469)
Extraordinary loss on early extinguishment of debt - Note 4 (17,577) -- (17,577) --
------------ ------------ ------------ ------------
Net loss attributable to common stockholders ................. $ (48,887) $ (9,650) $ (70,228) $ (17,469)
============ ============ ============ ============
Basic and diluted loss per share attributable to common
stockholders before extraordinary loss ...................... $ (0.90) $ (0.55) $ (1.55) $ (1.03)
Extraordinary loss per share ................................. (0.51) -- (0.51) --
------------ ------------ ------------ ------------
Basic and diluted net loss per share attributable
to common stockholders ...................................... $ (1.41) $ (0.55) $ (2.06) $ (1.03)
============ ============ ============ ============
Weighted average common shares outstanding ................... 34,617,361 17,505,800 34,084,624 17,027,940
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
Globix Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands, except share and per share data)
Six Months Ended
March 31,
---------
2000 1999
---- ----
(Unaudited)
Cash flows from operating activities
Net loss ............................................................. $ (67,936) $ (17,469)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................................ 7,947 1,213
Extraordinary loss on early extinguishment of debt ................... 17,577 --
Amortization of debt discount and issuance costs ..................... 653 677
Changes in operating assets and liabilities:
Accounts receivable .................................................. (6,165) (848)
Inventories .......................................................... 700 (335)
Prepaid expenses and other current assets ............................ (1,081) (578)
Other assets ......................................................... (181) (233)
Accounts payable ..................................................... (1,157) 765
Accrued liabilities .................................................. (2,291) 630
Accrued interest ..................................................... 3,833 --
Other ................................................................ (40) 363
--------- ---------
Net cash used in operating activities ................................ (48,141) (15,815)
--------- ---------
Cash flows from investing activities
Investment in short-term restricted investments ...................... (75,325) --
Use of restricted cash ............................................... 10,400 10,793
Use of (investment in restricted investments) ........................ 18,662 (2,600)
Proceeds from sale of marketable securities .......................... -- 13,758
Purchases of property, plant and equipment ........................... (18,998) (45,959)
--------- ---------
Net cash used in investing activities ................................ (65,261) (24,008)
--------- ---------
Cash flows from financing activities
Proceeds from Senior Note offering, net of offering expenses ......... 579,000 --
Proceeds from issuance of redeemable convertible preferred stock, net 75,250 --
Proceeds from exercise of stock options and warrants, net ............ 7,990 1,078
Proceeds from issuance of common stock ............................... -- 136,802
Repayments of Senior Notes ........................................... (170,400) --
Repayment of Note payable ............................................ -- (557)
Proceeds from mortgage payable, net of expenses ...................... 20,000 --
Repayments of mortgage payable and capital lease obligations ......... (1,145) --
--------- ---------
Net cash provided by financing activities ............................ 510,695 137,323
--------- ---------
Effects of exchange rate changes on cash and cash equivalents ........ (512) --
--------- ---------
Net increase (decrease) in cash and cash equivalents ................. 396,781 97,500
Cash and cash equivalents, beginning of period ....................... 101,471 61,473
--------- ---------
Cash and cash equivalents, end of period ............................. 498,252 158,973
========= =========
Supplemental disclosure of cash flow information
Cash paid for interest ............................................... $ 18,574 $ 10,643
========= =========
Non-cash financing activities:
Cumulative dividends and accretion on redeemable
convertible preferred stock ....................................... $ 2,292 $ --
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
Globix Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
(Unaudited)
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
financial statements furnished herein include all adjustments necessary for a
fair presentation of the Company's financial position at March 31, 2000 and the
results of its operations for the three-month and six-month periods ended March
31, 2000 and 1999 and cash flows for the six-month periods ended March 31, 2000
and 1999. 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-month periods ending March 31, 2000 are not necessarily indicative of the
operating results that may be expected for the year ending September 30, 2000.
The consolidated balance sheet as of September 30, 1999 has been derived from
the audited 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, 1999 on file with the Securities and Exchange
Commission.
2. Inventories
Inventories consist of computer hardware and software, parts and related items
principally related to the Company's Server Sales and Integration Segment.
Inventories are carried at the lower of cost or market determined by the
first-in, first-out method. The Company's inventories at March 31, 2000 and
September 30, 1999 totaled approximately $ 582 and $ 1,282, respectively.
3. Property, Plant and Equipment
Property, plant and equipment consist of the following:
March 31, September 30,
2000 1999
---- ----
Land $ 1,997 $ 1,997
Building and building improvements 55,288 51,828
Leasehold improvements 28,819 25,917
Computer hardware and software and network equipment 56,749 46,384
Furniture and equipment 6,666 5,266
--------- ---------
149,519 131,392
Less: Accumulated depreciation and amortization (15,814) (8,739)
--------- ---------
Property, plant and equipment, net $ 133,705 $ 122,653
========= =========
Certain computer and network equipment totaling approximately $7,100 is held
under capital lease obligations at March 31, 2000 and September 30, 1999.
-4-
Globix Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(In thousands, except share and per share data)
(Unaudited)
4. Senior Notes
In April 1998, the Company completed a $160,000 debt financing (the "13% Senior
Notes") consisting of 160,000 units, each unit consisting of a note in the
principal amount of one thousand dollars and one warrant to purchase 14.08
shares of common stock (total of 2,252,800 shares of common stock) at a purchase
price of $3.51 per share. The 13% Senior Notes were to mature on May 1, 2005.
Interest on the 13% Senior Notes accrued at a rate of 13.0% per annum and was
payable semi-annually in arrears on May 1 and November 1 of each year,
commencing November 1, 1998. Globix deposited $57,000 with an escrow agent at
closing, which amount, with interest, was sufficient to pay, when due, the first
six interest payments under the 13% Senior Notes. The 13% Senior Notes were
collateralized by a first priority security interest in the escrow account. The
13% Senior Notes were unsecured obligations of the Company and ranked 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 warrants issued with the 13% Senior Notes,
the Company had assigned an original issue discount of approximately $2,253.
On January 28, 2000, the Company announced that it had entered into an agreement
to sell $600,000 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, $160,000 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 $600,000 12.5% Senior Notes due 2010,
resulting in net proceeds of approximately $579,000, after underwriting fees and
offering expenses. The tender offer and related redemption of the outstanding
13% Senior Notes resulted in a one time charge of $17,577 or $0.51 per share
which has been recorded as an extraordinary item in the statement of operations
during the period ending March 31, 2000. As a result of the redemption of the
13% Senior Notes all restrictions related to the escrow deposit were released
and such funds are no longer restricted as to use.
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 $21,000 that are being amortized over
ten years using the effective interest method.
5. Mortgage Payable
On January 25, 2000, the Company borrowed $21,000 from a financial institution
against a mortgage note secured by the Company's 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
During November,1999, the Company designated 250,000 shares of its authorized
Preferred Stock, $0.01 par value, as Series A. At March 31, 2000, there were
80,000 Series A Preferred Shares outstanding and 170,000 Series A Preferred
Shares reserved for issuance (see note 11).
On December 3, 1999, the Company issued $80,000 (80,000 shares) in Series A
Redeemable 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 SuperPOPs and other facilities. The Series A Preferred
Stocks 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.
-5-
Globix Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(In thousands, except share and per share data)
(Unaudited)
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 $4,750 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. At March 31, 2000, the
Company accrued dividends on the Series A Preferred Stock in the amount of
$1,975. Such dividends are included in accrued liabilities in the accompanying
March 31, 2000 consolidated balance sheets. On April 4, 2000 the Company's Board
of Directors declared payment of cash dividends on the outstanding Series A
Preferred Stock for the periods ending December 31, 1999, March 31, 2000 and
June 30, 2000. In April 2000 the Company paid cash dividends totaling $1,975 to
the holders of the Series A Preferred Stock.
7. Segment Information
Under the provisions of SFAS No. 131 the Company's activities fall within two
operating segments: the Internet Division and the Server Sales and Integration
Division. The following tables set forth the Company's industry segment
information for the three and six month periods ended March 31, 1999 and 2000:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
Internet $ 10,312 $ 2,711 $ 17,268 $ 4,992
Server Sales and Integration 7,601 4,375 16,790 8,023
--------- --------- --------- ---------
Consolidated $ 17,913 $ 7,086 $ 34,058 $ 13,015
========= ========= ========= =========
Operating loss:
Internet $ (8,859) $ (959) $ (17,477) $ (1,682)
Server Sales and Integration 813 280 1,856 258
Corporate (11,938) (5,018) (21,326) (8,179)
--------- --------- --------- ---------
Consolidated $ (19,984) $ (5,757) $ (36,947) $ (9,603)
========= ========= ========= =========
Identifiable assets:
Internet $ 97,509 $ 41,936 $ 97,509 $ 41,936
Server Sales and Integration 7,466 4,054 7,466 4,054
Corporate 677,211 273,275 677,211 273,275
--------- --------- --------- ---------
Consolidated $ 782,186 $ 319,265 $ 782,186 $ 319,265
========= ========= ========= =========
The following tables set forth the Company's geographic segment information for
the three and six month periods ended March 31, 1999 and 2000:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
United States $ 16,849 $ 7,086 $ 32,499 $ 13,015
Europe 1,064 -- 1,559 --
--------- --------- --------- ---------
Consolidated $ 17,913 $ 7,086 $ 34,058 $ 13,015
========= ========= ========= =========
Operating income (loss):
United States $ (15,666) $ (5,757) $ (29,681) $ (9,603)
Europe (4,318) -- (7,266) --
--------- --------- --------- ---------
Consolidated $ (19,984) $ (5,757) $ (36,947) $ (9,602)
========= ========= ========= =========
Identifiable assets:
United States $ 759,863 $ 311,229 $ 759,863 $ 311,229
Europe 22,323 8,036 22,323 8,036
--------- --------- --------- ---------
Consolidated $ 782,186 $ 319,265 $ 782,186 $ 319,265
========= ========= ========= =========
-6-
Globix Corporation and Subsidiaries
Notes to Consolidated Financial Statements -- Continued
(In thousands, except share and per share data)
(Unaudited)
8. 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 components of other
comprehensive loss were as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2000 1999 2000 1999
---- ---- ---- ----
Net loss $(47,125) $ (9,650) $(67,936) $(17,469)
Other comprehensive income (loss):
Unrealized gain on marketable securities available for sale 2,533 189 2,776 527
Foreign currency translation adjustment (300) 55 (512) 67
-------- -------- -------- --------
Comprehensive loss $(44,892) $ (9,406) $(65,672) $(16,875)
======== ======== ======== ========
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 stock
options and warrants would be antidilutive.
10. Stock Splits
On December 10, 1999 the Company announced a two-for-one stock split of its
outstanding shares of common stock which was paid on December 30, 1999. On
January 10, 2000, the Company announced an additional two-for-one stock split of
its outstanding shares of common stock, payable on January 31, 2000.
Stockholders' equity has been restated to give retroactive recognition to both
stock splits for all periods presented in the accompanying financial statements
by reclassifying from additional paid-in-capital to common stock the par value
of the additional shares arising from the splits. In addition, all references to
number of shares, per share amounts and stock option data have been restated to
reflect the stock splits.
11. Subsequent Event
On April 4, 2000, the shareholders of the Company voted to amend the Company's
certificate of incorporation to increase the Company's authorized common stock
to 500,000,000 shares and increase the authorized preferred stock to 5,000,000
shares.
-7-
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 our ability to generate sufficient cash flow,
particularly in light of our expectation that operating losses will continue;
our ability to obtain additional debt or equity financing; our ability to
recruit and retain key personnel; the complexity of managing our expanding
operations; maintaining and expanding the capabilities of our network; forming
relationships with other Internet service providers; expanding into
international markets; our ability to obtain computer and network equipment for
a reasonable cost; the success of our investments or acquisitions; a failure of
the computer or telecommunications systems on which we depend; the continued
growth, use and improvement of the Internet; significant technological changes
rendering our products and services obsolete; and competition from numerous
other businesses. Cautionary statements regarding the risks, uncertainties and
other factors associated with these forward-looking statements are discussed
under "Risk Factors" appearing in our other periodic reports and documents filed
with the Securities and Exchange Commission.
You should read the following discussion in conjunction with our Consolidated
Financial Statements and notes thereto included in Part II, Item 8 of the
Company's Annual Report on Form10-K. The results shown herein are not
necessarily indicative of the results to be expected in any future periods.
Overview
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 debt financing to fund the
expansion of its physical facilities and the acquisition and build-out of its
network backbone. In 1999, Globix completed construction of the new
state-of-the-art SuperPOP facilities in New York City, London and Santa Clara,
California and began operations at each facility. These new SuperPOP facilities
increased Globix's total Internet Data Center capacity to approximately 63,000
square feet.
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. The proceeds from
those offerings are being used to fund the continued expansion of Globix's
facilities and network and for general corporate purposes.
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 was 106.5% of principal amount plus all
accrued and unpaid interest.
Globix reports its results of operations in two operating segments: (i) the
"Internet Division" and (ii) the "Server Sales and Integration Division." The
Internet Division provides dedicated Internet access, hosting, co-location,
application services (such as streaming media, electronic commerce, solutions
architecture and system administration and other internet solutions). The Server
Sales and Integration Division provides Internet-related hardware and software
sales and systems and network integration. Revenue from the Internet Division
has grown significantly as a percentage of total revenue from 6% in fiscal year
1996 to over 57% for the three months ended March 31, 2000. Globix expects that
the Internet Division revenues will continue to grow as a percentage of total
revenues due to the continued expansion of SuperPOP facilities and emphasis on
the internet business.
Globix continues to derive a substantial portion of its total revenues from
sales of third-party hardware and software, including workstation web and
database servers, network equipment, and server and application software. Globix
intends to continue to offer higher-margin
-8-
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 after receipt of
customer order. The second largest component of Globix's total revenues is
derived from providing 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. Globix also derives revenues from hosting and co-location services,
including charges for fixed amounts of bandwidth availability and incremental
fees for additional bandwidth use. In addition to fees based on bandwidth,
Globix charges its co-location customer's monthly fees for the use of its
physical facilities. Globix's hosting and co-location contracts typically range
from one to two years. Application services are charged on a fixed price or time
and materials basis.
Cost of revenues for the Server Sales and Integration Division consists of
acquisition costs of third-party hardware and software. Cost of revenues for the
Internet Division consists primarily of telecommunications costs for Internet
access, hosting and co-location customers and direct labor costs for application
services. Telecommunications costs include the cost of providing local telephone
lines into the Globix SuperPOP, costs related to the use of third-party
networks, and costs associated with leased data lines. Cost of revenues for
application services includes the cost of project management, quality control
and project review.
Selling, general and administrative expenses consist of sales and marketing
personnel and related occupancy costs; advertising costs; salaries and occupancy
costs for executives, financial and administrative personnel; and personnel
recruitment 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 three new SuperPOP facilities,
increase senior management and others to expand its sales, corporate and
marketing, network operations, customer service and field services personnel.
Globix has also begun to hire significant staff resources to handle the
build-out and initial occupancy of new and additional SuperPOP facilities
throughout the country. Accordingly, Globix expects selling, general and
administrative expenses to continue to significantly increase for the
foreseeable future.
Depreciation and amortization expense continues to increase significantly due to
the expansion of the SuperPOP facilities. 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 new SuperPOP in New York, London and Santa Clara,
California upon commencement of operations at each of these facilities. In
addition, Globix amortizes debt discount and issuance costs associated with its
debt offerings over the life 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, 2000 and 1999 Globix generated negative cash
flows from operations of approximately $44.2 million and $15.8 million,
respectively and incurred net losses of approximately $67.9 million and $17.5
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 the interest expense related to its debt financing
activities. As of March 31, 2000, Globix had an accumulated deficit of
approximately $127.6 million.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Total revenues for the three months ended March 31, 2000 increased
153% to $17.9 million from $7.1 million for the three months ended March 31,
1999, Revenues from the Server Sales and Integration Division for the three
months ended March 31, 2000 increased 74% to $7.6 million from $4.4 million for
the three months ended March 31, 1999. Revenues from the Internet Division
increased 280% to $10.3 million for the three months ended March 31, 2000 from
$2.7 million for the three months ended March 31, 1999. This increase was
primarily attributable to the expansion of our available data center space,
increased marketing efforts and our addition of new sales and technical staff.
The increase in percentage of Internet Division revenues as a percentage of
total revenues reflected the Company's continued shift in product mix toward
Internet related sales.
COST OF REVENUES. Cost of revenues for the three months ended March 31, 2000 was
$10.2 million or 57% of revenues as compared to $4.5 million or 63% of total
revenues for the three months ended March 31, 1999. Cost of revenues for the
Server Sales and Integration Division for the three months ended March 31, 2000
was $6.3 million or 83% of revenues as compared to $3.7 million or 84% of total
revenues for the three months ended March 31, 1999. Cost of revenues for the
Internet Division for the three months ended March 31, 2000 was $3.9 million or
38% of revenues as compared to $0.8 million or 30% of total revenues for the
three months ended March 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended March 31, 2000 were $23.1 million or 129% of
total revenues as compared to $7.7 million or 94% of total revenues for the
three months ended March 31, 1999. This increase in absolute dollars and as a
percentage of total revenues was primarily attributable to an increase in
employees and marketing costs associated with the opening of new SuperPOP
facilities and related additional personnel. The number of full time
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employees increased from 211 as of March 31, 1999 to over 590 as of March 31,
2000. Salaries and benefit costs increased from $4.6 million for the three
months ended March 31, 1999 to $14.1 million for the three months ended March
31, 2000. In addition, the Company increased expenditures in advertising from
$0.5 million for the three months ended March 31, 1999 to $3.1 million for the
three months ended March 31, 2000.
DEPRECIATION AND AMORITIZATION. Depreciation and amortization increased to $4.6
million for the three months ended March 31, 2000 as compared to $0.7 million
for the three months ended March 31, 1999. The increase was primarily related to
property and equipment purchased for use in the Internet Division.
INTEREST AND FINANCING EXPENSE AND INTEREST INCOME. The increase in interest
expense to $16.9 million for the three months ended March 31, 2000 from $4.3
million for the three months ended March 31, 1999 is a result of increased debt
financing and related costs. Amortization of debt discount and issuance costs
relating to the Company's debt financings totaled $ 0.4 million and $0.3 million
for the three months ended March 31, 2000 and March 31, 1999, respectively. The
increase in interest income to $7.4 million for the three months ended March 31,
2000 reflects the increased 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.
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS AND EXTRAORDINARY LOSS. As a result
of the above, Globix reported a net loss attributable to common stockholders
before extraordinary item of $31.3 million for the three months ended March 31,
2000 or $0.90 per share, excluding the extraordinary loss of $17.6 million or
$0.51 per share impact from the early extinguishment of the Company's 13% Senior
Notes due in 2005, and a net loss attributable to common stockholders (including
the extraordinary item) of $48.9 million or $1.41 per share as compared to a net
loss attributable to common stockholders of $9.6 million or $0.55 loss per share
for the three months ended March 31, 1999.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Total revenues for the six months ended March 31, 2000 increased 162%
to $34.1 million from $13.0 million for the six months ended March 31, 1999,
Revenues from the Server Sales and Integration Division for the six months ended
March 31, 2000 increased 109% to $16.8 million from $8.0 million for the six
months ended March 31, 1999. Revenues from the Internet Division increased 246%
to $17.3 million for the six months ended March 31, 2000 from $5.0 million for
the six months ended March 31, 1999. This increase was primarily attributable to
the expansion of our available data center space, increased marketing efforts
and our addition of new sales staff. The increase in percentage of Internet
Division revenues as a percentage of total revenues reflected the Company's
continued shift in product mix toward Internet related sales.
COST OF REVENUES. Cost of revenues for the six months ended March 31, 2000 was
$20.3 million or 60% of revenues as compared to $8.2 million or 63% of total
revenues for the six months ended March 31, 1999. Cost of revenues for the
Server Sales and Integration Division for the six months ended March 31, 2000
was $13.8 million or 82% of revenues as compared to $6.8 million or 85% of total
revenues for the six months ended March 31, 1999. Cost of revenues for the
Internet Division for the six months ended March 31, 2000 was $6.5 million or
37% of revenues as compared to $1.4 million or 27% of total revenues for the six
months ended March 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the six months ended March 31, 2000 were $42.8 million or 126% of
total revenues as compared to $13.2 million or 102% of total revenues for the
six months ended March 31, 1999. This increase in absolute dollars and as a
percentage of total revenues was primarily attributable to an increase in
employees and marketing costs associated with the opening of new SuperPOP
facilities and related additional personnel. The number of full time employees
increased from 211 as of March 31, 1999 to over 590 as of March 31, 2000.
Salaries and benefit costs increased from $7.7 million for the six months ended
March 31, 1999 to $24.5 million for the six months ended March 31, 2000. In
addition, the Company increased expenditures in advertising from $1.6 million
for the six months ended March 31, 1999 to $5.5 million for the six months ended
March 31, 2000.
DEPRECIATION AND AMORITIZATION. Depreciation and amortization increased to $7.9
million for the six months ended March 31, 2000 as compared to $1.2 million for
the six months ended March 31, 1999. The increase was primarily related to
property and equipment purchased for use in the Internet Division.
INTEREST AND FINANCING EXPENSE AND INTEREST INCOME. The increase in interest
expense to $22.4 million for the six months ended March 31, 2000 from $9.2
million for the six months ended March 31, 1999 is a result of increased debt
financing and related costs. Amortization of debt discount and issuance costs
relating to the Company's debt financings totaled $0.7 and $0.7 for the six
months ended March 31, 2000 and March 31, 1999, respectively. The increase in
interest income to $9.0 million for the six months ended March 31, 2000 reflects
the increased 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.
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS AND EXTRAORDINARY LOSS. As a result
of the above, Globix reported a net loss attributable to common stockholders
before extraordinary item of $52.7 million for the six months ended March 31,
2000 or $1.55 per share, excluding the extraordinary loss of $17.6 million or
$0.51 per share impact from the early extinguishment of the Company's 13% Senior
Notes due in 2005, and a net loss attributable to common stockholders of $70.2
million or $2.06 per share as compared to a net loss attributable to common
stockholders of $17.5 million or $1.03 per share for the six months ended March
31, 1999.
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. On
December 3, 1999 Globix issued $80.0 million in new Series A Convertible
Preferred Stock to affiliates of Hicks, Muse, Tate & Furst Incorporated ("Hicks
Muse") to expand our build-out of SuperPOPs and other facilities. 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. On February 8, 2000, the Company closed on its offering
for $600.0 million 12.5% Senior Notes due 2010 in a private placement to a group
of initial purchasers resulting in net proceeds of approximately $579.0 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.
In addition certain computer and network equipment has been financed through
vendors and financial institutions under capital and operating lease
arrangements. We intend to continue to make significant capital expenditures
during the next twelve months as we expand our internet data centers and
network. We expect to finance such capital expenditures primarily through
existing cash and future financings.
We actively monitor the capital and investing markets in analyzing our capital
raising and investing decisions.
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.
Recently Issued Accounting Pronouncement
In December 1999, the SEC issued SAB No. 101 "Revenue Recognition in Financial
Statements". SAB No. 101 expresses the view of the SEC staff in applying
generally accepted accounting principles to certain revenue recognition issues.
Globix is required to adopt SAB 101 in its fiscal quarter beginning October 1,
2000. Globix is currently evaluating the impact this SAB may have on its
consolidated financial position and results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
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 our debt obligations.
At March 31, 2000, we had financial instruments consisting of fixed rate debt,
marketable securities, short term investments and other investments. The
majority of our debt obligations consist of the Senior Notes, which bear
interest at 12.5% and mature February 1, 2010.
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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 short term and other investments are generally fixed rate investment grade
and government securities denominated in U.S. dollars. At March 31, 2000, all of
our investments are due to mature within twelve months except $5.8 million and
the carrying value of such investments approximates fair value. At March 31,
2000, $15.7 million of our investments were restricted in accordance with the
terms of certain collateral obligations.
Globix is also subject to market risk associated with foreign currency exchange
rates. Globix's current business plan includes the expansion of the U.K.
operation and further construction of facilities throughout Europe. 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.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities and Use of Proceeds
On February 4, 2000, and in connection with the tender offer at $1,065 for each
$1,000 principal amount 13% Senior Notes due 2005, the Company and HSBC Bank
USA, as Trustee, entered into the First Supplemental Indenture supplementing the
Indenture dated as of April 30, 1998, governing the Company's 13% Senior Notes
due 2005. The First Supplemental Indenture amended the Indenture to delete
substantially all of the restrictive covenants governing the 2005 Senior Notes.
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On January 10, 2000, the Company announced a two-for-one stock split of its
outstanding shares of common stock, which was paid on January 31, 2000 in the
form of a stock dividend.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation of the Company, as amended.
(b) Reports on Form 8-K
Date Filed: 1/13/00 Date of Event: 1/12/00
Subject: Press release announcing intent of Company, subject to market and
other conditions, to raise up to $250.0 million in a private
placement of high yield securities pursuant to Rule 144A.
Date Filed: 2/14/00 Date of Event: 1/28/00
Subject: (1) Company entered into a Purchase Agreement dated January 28,
2000 to privately place $600.0 million principal amount of 12.5%
Senior Notes due 2010.
(2) On February 8, 2000, the Company commenced a tender offer to
purchase any and all of its 13% Senior Notes due 2005 at a
purchase price of $1,065, plus accrued and unpaid interest from
November 1, 1999, per $1,000 principal amount of the 2005 Notes.
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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: May 12, 2000 By: /s / Marc H. Bell
----------------------------------------------------
Marc H. Bell, Chairman, President &
Chief Executive Officer
Date: May 12, 2000 By: /s/ Brian L. Reach
----------------------------------------------------
Brian L. Reach, Senior Vice President &
Chief Financial Officer
Date: May 12, 2000 By: /s/ Shawn P. Brosnan
----------------------------------------------------
Shawn P. Brosnan, Vice President, Corporate
Controller and Chief Accounting Officer
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