Global Crossing Reports 2005

FLORHAM PARK, N.J. -- Global Crossing (Nasdaq: GLBC - News) today reported financial and operational results for the fourth quarter and full year 2005.

Highlights

Global Crossing demonstrated continued execution of its business plan by meeting or exceeding all of its aggregate guidance metrics in 2005. Total revenue for the year was $1,968 million, compared to a guidance range of $1,800 million to $1,950 million. Adjusted gross margin was $752 million, compared to guidance of $590 million to $845 million. Adjusted EBITDA loss was $120 million compared to a guidance range of $145 million to $115 million. Excluding non-cash stock compensation, adjusted EBITDA loss was $64 million, compared to a guidance loss range of $94 million to $74 million. Finally, cash use was better than expected at $141 million for the year, compared to guidance of $150 million to $180 million. The company's unrestricted cash at December 31, 2005 was $224 million.

"A year ago we provided 2005 guidance to the market for revenue, adjusted gross margin, EBITDA and cash. I'm happy to say that we met each of those targets," said John Legere, Global Crossing's chief executive officer. "What we accomplished in 2005 is just the beginning. As we approach our goals of reaching EBITDA and cash flow positive points during 2006, Global Crossing will play an even more prominent role in this industry as a leader in global IP services."

Revenue and Margin

Adjusted gross margin (defined in the tables that follow) for the overall "invest and grow" segment grew by 7 percent or $40 million in absolute terms during 2005, For the company's "invest and grow" business outside of its Global Crossing UK (GCUK) subsidiary, adjusted gross margin grew by 25 percent to $290 million in 2005, compared to $232 million in 2004.

Global Crossing's $1,085 million in "invest and grow" revenue represents growth of 2 percent in 2005 compared to 2004. For the business excluding GCUK, "invest and grow" revenue grew by 8 percent for the year, while GCUK "invest and grow" revenue declined by 7 percent due to the loss of four customers, as previously announced. GCUK revenue has stabilized since the third quarter of 2004 and continues to be a strong contributor to the financial results of the company.

During the fourth quarter of 2005, "invest and grow" revenue was $269 million, essentially flat when compared to the fourth quarter of 2004. Adjusted gross margin for the fourth quarter of 2005 in the "invest and grow" segment was $149 million, compared to $153 million in the fourth quarter of 2004.

The company's wholesale voice segment became a more robust contributor during 2005. Revenue and adjusted gross margin exceeded guidance ranges for the segment. In addition, wholesale voice operations became more efficient. Revenue for this segment was $777 million in 2005, a planned decline of 38 percent from 2004 wholesale voice revenue of $1,256 million. Adjusted gross margin for wholesale voice was $104 million for the year, compared to $123 million in 2004. For the fourth quarter of 2005, wholesale voice revenue and adjusted gross margin were $172 million and $22 million, respectively. These figures compare to revenue of $264 million and adjusted gross margin of $33 million in the fourth quarter of 2004.

"Global Crossing's 2005 revenue exceeded our original guidance, and we boosted adjusted gross margins to 38 percent from 30 percent one year ago," affirmed Mr. Legere. "We will build on this momentum in 2006 by keeping focus on our core IP services, further increasing margins and exploring new ways to grow our business."

To that end, Global Crossing recently added three industry leaders to strengthen its enterprise and collaboration sales team. The company also recently announced several customer wins, including agreements with AccessLine, Odebrecht and Telstra.

Cost of revenue -- which includes cost of access; technical real estate, network and operations; third-party maintenance and cost of equipment sales -- was $1,676 million in 2005, a 24 percent improvement compared to $2,200 million in 2004. In the fourth quarter, these expenses were $394 million, compared to $485 million in the fourth quarter of 2004. Sales, general and administrative (SG&A) expenses were $412 million for 2005, compared to $416 million in 2004. SG&A expenses for the fourth quarter of 2005 were $100 million, compared to $107 million in the fourth quarter of 2004.

Earnings

Adjusted EBITDA (as defined in the tables that follow) was reported at a loss of $120 million for 2005, a 7 percent improvement compared to a loss of $129 million in 2004. In 2005, the company incurred an additional $44 million of incentive and stock compensation when compared to 2004; this additional compensation resulted from planned stock and cash incentive programs as well as the company's exceeding of targets for 2005. Excluding the compensation variance, the company's adjusted EBITDA loss for 2005 would have been $76 million, a 41 percent improvement over the prior year. For the fourth quarter of 2005, adjusted EBITDA loss was $32 million, compared to a loss of $19 million in the fourth quarter of 2004. In the fourth quarter of 2005, the company incurred an additional $15 million of incentive and stock compensation when compared to the fourth quarter of 2004, for previously noted performance relative to its targets. Without the compensation variance, adjusted EBITDA loss for the fourth quarter would have been $17 million, an 11 percent improvement over the fourth quarter of 2004.

Adjusted EBITDA excluding non-cash stock compensation was a loss of $64 million, a 37 percent improvement when compared to a loss of $101 million in 2004. Cash incentive compensation was $16 million higher in 2005, as a result of planned incentive programs and the company's exceeding of targets for 2005. Excluding this variance, adjusted EBITDA excluding non-cash stock compensation would have been a loss of $48 million in 2005, a 52 percent improvement compared to 2004. For the fourth quarter, adjusted EBITDA excluding non-cash stock compensation was a loss of $15 million, compared to a loss of $11 million in the fourth quarter of 2004. For the same reasons stated above, cash incentive compensation was $6 million higher in the fourth quarter of 2005 when compared to the fourth quarter of 2004.

Consolidated loss applicable to common shareholders in 2005 was $358 million, compared to a loss of $340 million in 2004. For the fourth quarter of 2005, consolidated loss was $80 million, compared to a loss of $28 million in the fourth quarter of 2004.

Global Crossing (Nasdaq: GLBC)