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UNITED STATES

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 EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



Commission File Number: 00116201



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GLOBAL CROSSING LIMITED



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|BERMUDA                                                        |  | 98-0407042                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



WESSEX HOUSE

45 REID STREET

HAMILTON HM12, BERMUDA

(Address Of Principal Executive Offices)



(441) 296-8600

(Registrants Telephone Number, Including Area Code)



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Indicate by check mark whether the 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 ̈



Indicate by check mark
whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.).    Yes ̈No  x



Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.    Yes  x    No ̈



The number of shares of the Registrants Common
Stock, $0.01, per share par value, outstanding as of November 1, 2004 was 22,000,000 shares.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



INDEX



|         |  |                                                                                                                                                                                                          |  |     
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                                                                                                                          |  | Page
|PART I.  |  | FINANCIAL INFORMATION                                                                                                                                                                                    |  | 3   
|         |  |                                                                                                                                                                                                         
|Item 1.  |  | Financial Statements (unaudited):                                                                                                                                                                        |  | 3   
|         |  |                                                                                                                                                                                                         
|         |  | Condensed Consolidated Balance Sheets for Successor as of September 30, 2004 and December 31, 2003 as restated.                                                                                          |  | 3   
|         |  |                                                                                                                                                                                                         
|         |  | Condensed Consolidated Statements of Operations for Successor for the three and nine months ended September 30, 2004 and Predecessor for the three and nine months ended September 30, 2003 as
restated. |  | 4   
|         |  |                                                                                                                                                                                                         
|         |  | Condensed Consolidated Statements of Cash Flows for Successor for the nine months ended September 30, 2004 and Predecessor for the nine months ended September 30, 2003 as restated.                     |  | 5   
|         |  |                                                                                                                                                                                                         
|         |  | Notes to Condensed Consolidated Financial Statements                                                                                                                                                     |  | 6   
|         |  |                                                                                                                                                                                                         
|Item 2.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                                    |  | 26  
|         |  |                                                                                                                                                                                                         
|Item 3.  |  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                                                               |  | 58  
|         |  |                                                                                                                                                                                                         
|Item 4.  |  | Controls and Procedures                                                                                                                                                                                  |  | 58  
|         |  |                                                                                                                                                                                                         
|PART II. |  | OTHER INFORMATION                                                                                                                                                                                        |  | 62  
|         |  |                                                                                                                                                                                                         
|Item 1.  |  | Legal Proceedings.                                                                                                                                                                                       |  | 62  
|         |  |                                                                                                                                                                                                         
|Item 6.  |  | Exhibits and Reports on Form 8-K                                                                                                                                                                         |  | 62  



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##### Table of Contents

PART I. Financial Information



Item 1. Financial Statements



GLOBAL CROSSING LIMITED AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share information)



|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | -
|                                                                                                                                                                                                            |  | Successor         |      
|                                                                                                                                                                                                            |  | September 30,2004 |       |   | December 31,2003 |  
|                                                                                                                                                                                                            |  | (unaudited)       |       |   | (Restated)       |  
|ASSETS:                                                                                                                                                                                                     |  |                   |       |   |                  |   |       |  
|Current assets:                                                                                                                                                                                             |  |                   |       |   |                  |   |       |  
|Cash and cash equivalents                                                                                                                                                                                   |  | $                 | 88    |   |                  | $ | 216   |  
|Restricted cash and cash equivalents                                                                                                                                                                        |  |                   | 5     |   |                  |   | 12    |  
|Accounts receivable, net of allowances of $111 and $125                                                                                                                                                     |  |                   | 313   |   |                  |   | 402   |  
|Other current assets and prepaid costs                                                                                                                                                                      |  |                   | 98    |   |                  |   | 145   |  
|Current assets of discontinued operations                                                                                                                                                                   |  |                   |      |   |                  |   | 117   |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|Total current assets                                                                                                                                                                                        |  |                   | 504   |   |                  |   | 892   |  
|Property and equipment, net                                                                                                                                                                                 |  |                   | 1,059 |   |                  |   | 1,133 |  
|Intangible assets, net                                                                                                                                                                                      |  |                   | 63    |   |                  |   | 110   |  
|Other assets.                                                                                                                                                                                               |  |                   | 54    |   |                  |   | 44    |  
|Non current assets of discontinued operations                                                                                                                                                               |  |                   | 2     |   |                  |   | 69    |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|Total assets                                                                                                                                                                                                |  | $                 | 1,682 |   |                  | $ | 2,248 |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|LIABILITIES:                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Current liabilities:                                                                                                                                                                                        |  |                   |       |   |                  |   |       |  
|Short-term borrowings with controlling shareholder                                                                                                                                                          |  | $                 | 80    |   |                  | $ |      |  
|Accounts payable                                                                                                                                                                                            |  |                   | 144   |   |                  |   | 128   |  
|Accrued cost of access                                                                                                                                                                                      |  |                   | 224   |   |                  |   | 229   |  
|Accrued restructuring costs                                                                                                                                                                                 |  |                   | 41    |   |                  |   | 31    |  
|Deferred revenuecurrent portion                                                                                                                                                                            |  |                   | 88    |   |                  |   | 78    |  
|Deferred reorganization costscurrent portion                                                                                                                                                               |  |                   | 51    |   |                  |   | 128   |  
|Other current liabilities                                                                                                                                                                                   |  |                   | 346   |   |                  |   | 386   |  
|Current liabilities of discontinued operations                                                                                                                                                              |  |                   |      |   |                  |   | 60    |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|Total current liabilities                                                                                                                                                                                   |  |                   | 974   |   |                  |   | 1,040 |  
|Debt with controlling shareholder                                                                                                                                                                           |  |                   | 200   |   |                  |   | 200   |  
|Obligations under capital leases                                                                                                                                                                            |  |                   | 92    |   |                  |   | 84    |  
|Deferred revenue.                                                                                                                                                                                           |  |                   | 134   |   |                  |   | 148   |  
|Accrued restructuring costs                                                                                                                                                                                 |  |                   | 111   |   |                  |   | 155   |  
|Deferred reorganization costs                                                                                                                                                                               |  |                   | 31    |   |                  |   | 42    |  
|Other deferred liabilities                                                                                                                                                                                  |  |                   | 46    |   |                  |   | 36    |  
|Non current liabilities of discontinued operations                                                                                                                                                          |  |                   |      |   |                  |   | 150   |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|Total liabilities                                                                                                                                                                                           |  |                   | 1,588 |   |                  |   | 1,855 |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                               |  |                   |       |   |                  |   |       |  
|                                                                                                                                                                                                            |  |                  
|SHAREHOLDERS EQUITY:                                                                                                                                                                                       |  |                   |       |   |                  |   |       |  
|Preferred stock, 45,000,000 shares authorized, par value $0.10 per share, 18,000,000 shares issued and outstanding with controlling
shareholder as of September 30 2004 and December 31, 2003               |  |                   | 2     |   |                  |   | 2     |  
|Common stock, 55,000,000 shares authorized, par value $0.01 per share, 22,000,000 (6,600,000 with the controlling shareholder) shares issued
and outstanding as of September 30, 2004 and December 31, 2003 |  |                   |      |   |                  |   |      |  
|Additional paid-in capital                                                                                                                                                                                  |  |                   | 423   |   |                  |   | 406   |  
|Accumulated other comprehensive income (loss)                                                                                                                                                               |  |                   | 4     |   |                  |   | (4    | )
|Accumulated deficit                                                                                                                                                                                         |  |                   | (335  | ) |                  |   | (11   | )
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|                                                                                                                                                                                                            |  |                   | 94    |   |                  |   | 393   |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|Total liabilities and shareholders equity                                                                                                                                                                  |  | $                 | 1,682 |   |                  | $ | 2,248 |  
|                                                                                                                                                                                                            |  |                   |       |   |                  |   |       |  



The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in millions, except share and per share information)



|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|----------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ----------- | --------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                  |  | Successor                        |            |   | Predecessor                     |   |             | Successor |  |   | Predecessor |  
|                                                                  |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                                                  |  | 2004                             |            |   | 2003                            |   |             | 2004      |  |   | 2003        |  
|                                                                  |  |                                  |            |   | (Restated)                      |   |             |           |  |   | (Restated)  |  
|REVENUES                                                          |  | $                                | 617        |   |                                 | $ | 696         |           |  | $ | 1,907       |   |  | $ | 2,084       |  
|OPERATING EXPENSES:                                               |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Cost of access and maintenance                                    |  |                                  | 463        |   |                                 |   | 524         |           |  |   | 1,450       |   |  |   | 1,594       |  
|Other operating expenses                                          |  |                                  | 194        |   |                                 |   | 186         |           |  |   | 579         |   |  |   | 563         |  
|Depreciation and amortization                                     |  |                                  | 45         |   |                                 |   | 34          |           |  |   | 127         |   |  |   | 100         |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|                                                                  |  |                                  | 702        |   |                                 |   | 744         |           |  |   | 2,156       |   |  |   | 2,257       |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|OPERATING LOSS                                                    |  |                                  | (85        | ) |                                 |   | (48         | )         |  |   | (249        | ) |  |   | (173        | )
|OTHER INCOME (EXPENSE):                                           |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Interest expense, net                                             |  |                                  | (13        | ) |                                 |   | (4          | )         |  |   | (28         | ) |  |   | (12         | )
|Other income (expense), net                                       |  |                                  | 2          |   |                                 |   | (3          | )         |  |   | 7           |   |  |   | 21          |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|LOSS BEFORE REORGANIZATION ITEMS, NET AND INCOME TAXES            |  |                                  | (96        | ) |                                 |   | (55         | )         |  |   | (270        | ) |  |   | (164        | )
|Reorganization items, net                                         |  |                                  |           |   |                                 |   | (30         | )         |  |   |            |   |  |   | (36         | )
|Gain on preconfirmation contingencies                             |  |                                  | 5          |   |                                 |   |            |           |  |   | 5           |   |  |   |            |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES |  |                                  | (91        | ) |                                 |   | (85         | )         |  |   | (265        | ) |  |   | (200        | )
|Provision for income taxes                                        |  |                                  | (6         | ) |                                 |   | (1          | )         |  |   | (33         | ) |  |   | (4          | )
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|LOSS FROM CONTINUING OPERATIONS                                   |  |                                  | (97        | ) |                                 |   | (86         | )         |  |   | (298        | ) |  |   | (204        | )
|Discontinued operations, net of income tax                        |  |                                  | (4         | ) |                                 |   | 6           |           |  |   | (26         | ) |  |   |            |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|NET LOSS                                                          |  |                                  | (101       | ) |                                 |   | (80         | )         |  |   | (324        | ) |  |   | (204        | )
|Preferred stock dividends                                         |  |                                  | (1         | ) |                                 |   |            |           |  |   | (3          | ) |  |   |            |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|LOSS APPLICABLE TO COMMON SHAREHOLDERS                            |  | $                                | (102       | ) |                                 | $ | (80         | )         |  |   | (327        | ) |  | $ | (204        | )
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|LOSS PER COMMON SHARE, basic and diluted:                         |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Loss from continuing operating applicable to common shareholders  |  | $                                | (4.46      | ) |                                 | $ | (0.09       | )         |  | $ | (13.68      | ) |  | $ | (0.22       | )
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Income (loss) from discontinued operations, net                   |  | $                                | (0.18      | ) |                                 | $ |            |           |  | $ | (1.18       | ) |  | $ |            |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Loss applicable to common shareholders                            |  | $                                | (4.64      | ) |                                 | $ | (0.09       | )         |  | $ | (14.86      | ) |  | $ | (0.22       | )
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Shares used in computing basic and diluted loss per share         |  |                                  | 22,000,000 |   |                                 |   | 909,457,012 |           |  |   | 22,000,000  |   |  |   | 909,345,266 |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  



The accompanying notes
are an integral part of these unaudited condensed consolidated financial statements.



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in millions)



|                                                                             |  |                                |      |   |            |   |      |  
|---------------------------------------------------------------------------- |  | ------------------------------ | ---- | - | ---------- | - | ---- | -
|                                                                             |  | Nine Months EndedSeptember 30, |     
|                                                                             |  | 2004                           |      |   | 2003       |  
|                                                                             |  |                                |      |   | (Restated) |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                        |  |                                |      |   |            |   |      |  
|Net loss                                                                     |  | $                              | (324 | ) |            | $ | (204 | )
|Adjustments to reconcile net loss to net cash used in continuing operations: |  |                                |      |   |            |   |      |  
|Loss from discontinued operations                                            |  |                                | 26   |   |            |   |     |  
|Depreciation and amortization                                                |  |                                | 127  |   |            |   | 100  |  
|Amortization of prior period IRUs                                            |  |                                | (3   | ) |            |   | (63  | )
|Stock related expenses                                                       |  |                                | 20   |   |            |   |     |  
|Non cash income tax provision                                                |  |                                | 24   |   |            |   |     |  
|Reorganization items, net                                                    |  |                                |     |   |            |   | 36   |  
|Deferred reorganization costs                                                |  |                                | (84  | ) |            |   |     |  
|Gain on preconfirmation contingencies                                        |  |                                | (5   | ) |            |   |     |  
|Bad debt expense                                                             |  |                                | 14   |   |            |   | 38   |  
|Non cash other income                                                        |  |                                |     |   |            |   | (12  | )
|Other                                                                        |  |                                | 2    |   |            |   | 5    |  
|Changes in operating assets and liabilities                                  |  |                                | 69   |   |            |   | 128  |  
|                                                                             |  |                                |      |   |            |   |      |  
|Net cash (used in) provided by continuing operations                         |  |                                | (134 | ) |            |   | 28   |  
|Net cash used in discontinued operations                                     |  |                                | (12  | ) |            |   | (15  | )
|Net cash used in reorganization items                                        |  |                                |     |   |            |   | (112 | )
|                                                                             |  |                                |      |   |            |   |      |  
|Net cash used in operating activities                                        |  |                                | (146 | ) |            |   | (99  | )
|                                                                             |  |                                |      |   |            |   |      |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                        |  |                                |      |   |            |   |      |  
|Purchases of property and equipment                                          |  |                                | (75  | ) |            |   | (118 | )
|Proceeds from sale of property and equipment                                 |  |                                |     |   |            |   | 1    |  
|Proceeds from sale of discontinued operations                                |  |                                | 1    |   |            |   |     |  
|Change in restricted cash and cash equivalents                               |  |                                |     |   |            |   | (3   | )
|Proceeds from sale of marketable securities                                  |  |                                | 19   |   |            |   | 2    |  
|Proceeds from sale of equity interest in holding companies                   |  |                                | 4    |   |            |   |     |  
|                                                                             |  |                                |      |   |            |   |      |  
|Net cash used in investing activities                                        |  |                                | (51  | ) |            |   | (118 | )
|                                                                             |  |                                |      |   |            |   |      |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                        |  |                                |      |   |            |   |      |  
|Proceeds from short-term borrowings with controlling shareholder             |  |                                | 80   |   |            |   |     |  
|Repayment of capital lease obligations                                       |  |                                | (10  | ) |            |   | (9   | )
|Other                                                                        |  |                                | (2   | ) |            |   |     |  
|                                                                             |  |                                |      |   |            |   |      |  
|Net cash provided by (used in) financing activities                          |  |                                | 68   |   |            |   | (9   | )
|                                                                             |  |                                |      |   |            |   |      |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                 |  |                                | 1    |   |            |   | 6    |  
|                                                                             |  |                                |      |   |            |   |      |  
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                    |  |                                | (128 | ) |            |   | (220 | )
|CASH AND CASH EQUIVALENTS, beginning of period                               |  |                                | 216  |   |            |   | 367  |  
|                                                                             |  |                                |      |   |            |   |      |  
|CASH AND CASH EQUIVALENTS, end of period                                     |  | $                              | 88   |   |            | $ | 147  |  
|                                                                             |  |                                |      |   |            |   |      |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                            |  |                                |      |   |            |   |      |  
|Cash paid (received) for income taxes, net                                   |  | $                              | 2    |   |            | $ | (33  | )
|                                                                             |  |                                |      |   |            |   |      |  
|Cash paid for interest1                                                      |  | $                              | 20   |   |            | $ | 6    |  
|                                                                             |  |                                |      |   |            |   |      |  

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|1 | No interest has been capitalized since December 31, 2001.
|- | ---------------------------------------------------------



The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in millions, except number of sites, square footage, employees,
share and per share information)



1. BACKGROUND AND ORGANIZATION



Global Crossing Limited (formerly GC Acquisition Ltd.), a
company organized under the laws of Bermuda in 2002 (New GCL), became the successor to Global Crossing Ltd., a company organized under the laws of Bermuda in 1997 (Old GCL), as a result of the consummation of the transactions
contemplated by the Joint Plan of Reorganization, as amended (the Plan of Reorganization) of Old GCL and certain of its debtor subsidiaries (Old GCL, collectively with its debtor subsidiaries, the GC Debtors), pursuant to
chapter 11 of title 11 of the United States Code (the Bankruptcy Code) on December 9, 2003 (the Effective Date). In these notes to the condensed consolidated financial statements, references to the Company in
respect of time periods preceding the Effective Date are references to Old GCL and its consolidated subsidiaries (collectively, the Predecessor), while such references in respect of time periods commencing with the Effective Date are
references to New GCL and its consolidated subsidiaries (collectively, the Successor).



The Company provides telecommunication services using a global IP-based network that directly connects more than 300 cities in over 30 countries and
delivers services to more than 500 major cities in over 50 countries around the world. The Company serves many of the worlds largest corporations, providing a full range of managed data and voice products and services. The Company operates
throughout the Americas and Europe. The Company provides services throughout the Asia/Pacific region through commercial arrangements with other carriers. Through its former Global Marine Systems Limited (GMS or Global Marine)
subsidiary, prior to August 13, 2004, the Company also provided installation and maintenance services for subsea telecommunications systems (see Note 4).



The Companys strategy is to be a premier provider of global data and Internet Protocol (IP) services in commercial centers worldwide by
building on its extensive broadband network and technological capabilities.



At September 30, 2004, the Companys available liquidity consisted of $88 of unrestricted cash and cash equivalents. At September 30, 2004, the Company also held $17 ($12 of which is included in long-term other
assets) in restricted cash. This restricted cash represents collateral relating to certain letters of credit, guarantees, performance bonds and deposits.



The Company expects that its available liquidity will continue to decline during the remainder of 2004 due to operating cash flow requirements and
estimated payments of $28 for deferred reorganization costs, and that the Company will require substantial additional cash to fund operating cash flow requirements in future quarters.



On May 18, 2004, the Company reached agreement with a subsidiary of Singapore Technologies Telemedia Pte Ltd, the
Companys indirect majority stockholder (ST Telemedia), to provide the Company with up to $100 in financing under a senior secured loan facility (the Bridge Loan Facility). The Bridge Loan Facility was entered into by
the Companys primary operating company subsidiary in the United Kingdom, Global Crossing (UK) Telecommunications Limited (GCUK), and STT Communications Ltd. (STTC). STTC subsequently assigned its rights and obligations
under the Bridge Loan Facility to STT Crossing Ltd., another subsidiary of ST Telemedia (STT Crossing). All $100 of availability under the Bridge Loan Facility had been borrowed by October 1, 2004. On November 2, 2004, the Bridge Loan
Facility was amended to increase the availability thereunder to $125, and the Company borrowed the additional $25 on November 5, 2004. The Bridge Loan Facility was originally scheduled to mature on December 31, 2004 and initially bore interest at a
rate equal to one-month LIBOR plus 9.9%. Every 90 days after the May 18, 2004 closing, the spread over LIBOR increases by 0.5%. In addition, the Company is required to pay a fee of 1.0% per annum on any undrawn portion of the Bridge Loan Facility.



On November 5, 2004, STT Crossing and STT Hungary Liquidity
Management Limited Liability Company (STT Hungary), the subsidiary of ST Telemedia that holds the $200 of senior secured notes issued on the



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



Effective Date (the Senior Secured Notes), agreed to the deferral of certain payments on the Bridge Loan Facility and the Senior Secured Notes.
Specifically, STT Crossing and STT Hungary agreed to defer approximately $15 in aggregate interest payments otherwise due in December 2004 until the earlier of January 15, 2005 and the completion of the GCUK secured debt financing referred to
below. STT Crossing also agreed to defer the final maturity date of the Bridge Loan Facility from December 31, 2004 to the earlier of January 15, 2005 or the completion of the GCUK secured debt financing (when borrowings under the Bridge Loan
Facility would be refinanced, as described below). As a result of these deferrals, the Company has sufficient liquidity to meet its anticipated liquidity needs through December 2004, by which time the Company believes that it can complete the
recapitalization plan described below (the Recapitalization Plan). If the Company is unable to complete the Recapitalization Plan this December and to improve operating results to achieve positive operating cash flows in the future, the
Company will be unable to meet its anticipated liquidity requirements.



During 2004, the Company has been seeking to arrange financing to provide it with additional liquidity. Such financing has been expected to include a secured debt financing by GCUK and a working capital facility secured by certain accounts
receivable. The indenture for the Senior Secured Notes permits the Company to incur the following (now subject to the terms of the restructuring agreement described below): (i) up to $150 in additional debt under one or more working capital
facilities, (ii) up to $50 in purchase money debt or capital lease obligations, (iii) up to $10 in debt for general corporate purposes and (iv) additional subordinated debt if the Company satisfies the leverage ratio specified in the indenture,
although the Company does not expect to satisfy such ratio for the foreseeable future.



Although the indenture for the Senior Secured Notes permits the Company to borrow up to $150 under one or more working capital facilities, discussions with potential lenders revealed that an amendment of the
collateral security provisions of the Senior Secured Notes would be required in order for the Company to obtain financing under such a working capital facility. In addition, the Companys long-term financing requirements are substantially in
excess of the amounts permitted to be incurred under the Senior Secured Notes indenture. Thus, in order to permit a secured debt financing by GCUK and a working capital facility to proceed, on October 8, 2004 the Company entered into a restructuring
agreement with STTC, STT Crossing and STT Hungary (the Restructuring Agreement).



The Restructuring Agreement contemplates the simultaneous occurrence of the following transactions: (1) the closing of a secured debt financing by GCUK, through which the Company believes it can raise gross
proceeds of $300 or more; (2) the release of the security interests securing the Senior Secured Notes and the Bridge Loan Facility; (3) the repayment of $75 of the Senior Secured Notes; and (4) the refinancing of the Bridge Loan Facility and the
remaining Senior Secured Notes by $250 principal amount of 4.7% payable-in-kind secured debt instruments (the GCL Convertible Notes) that will be mandatorily convertible into common equity of GCL after four years, or converted earlier at
ST Crossings and STT Hungarys option, into approximately 16.2 million shares of common stock of the Company (assuming conversion after four years at the conversion price of $18.60 per share), subject to certain adjustments. The GCL
Convertible Notes will be secured in a manner substantially similar to the Senior Secured Notes, except that they will not have liens on assets of GCUK. In addition, the Restructuring Agreement contemplates that STT Crossing and STT Hungary will
negotiate in good faith with prospective lenders under a working capital facility to be secured by certain accounts receivable regarding the intercreditor arrangements relating to the collateral security provisions of such facility. The
Restructuring Agreement contains general descriptions of these transactions and is subject to completion of definitive documentation satisfactory to the parties and a number of other material conditions described therein. The Company can provide no
assurance that the Recapitalization Plan will be completed.



Based on the Companys operating plan and commitment to adhere to that plan, ST Telemedia previously indicated, in early October 2004, to our prior independent public accountants, Grant Thornton LLP, ST



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



Telemedias non-binding intention, if the Company cannot arrange additional financing by the end of November 2004, to provide up to $155 of financial
support to the Company (which support could come, in part, in the form of a restructuring or refinancing of the $125 Bridge Loan Facility and the interest payments due thereunder) to be used as additional working capital to fund the needs of the
Companys business as required through the first quarter of 2005, on such terms and conditions as the Company and ST Telemedia may agree. While ST Telemedia has indicated its intention to provide this financial support to the Company if
necessary and management expects that ST Telemedia would make such financial support available if the Recapitalization Plan does not close on a timely basis, neither ST Telemedia nor any of its affiliates has any contractual obligation to provide
financial support to the Company, and the Company can provide no assurance that ST Telemedia would provide any such financial support.



Restatement of Previously Issued Financial Statements



In April 2004, in the course of preparing the Companys condensed consolidated financial statements for the first quarter of 2004, management of the
Company became concerned with the adequacy of the Companys accrued cost of access liabilities. Upon review, the Company concluded that its December 31, 2003 cost of access liabilities were understated by $79. After substantial review and
evolution as to how the Company should account for the understatements, the Company finally concluded, after consultation with the Staff of the Securities and Exchange Commission, that a restatement of 2003 previously reported periods was required.
The condensed consolidated financial statements as of and for the three and nine months ended September 30, 2003, included in this quarterly report on Form 10-Q, reflect the impact of the restatement related to these periods. For more information
regarding the restatement and its impact on all previously issued financial statements affected, see the consolidated financial statements included in the Companys amended annual report on Form 10-K/A for the year ended December 31, 2003.



2. BASIS OF PRESENTATION



Basis of Presentation and Use of Estimates



The accompanying unaudited interim condensed consolidated financial
statements as of September 30, 2004, and for the three and nine months ended September 30, 2004 and 2003 have been prepared in accordance



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of New GCL and its consolidated
subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, which are,
in the opinion of management, necessary to present a fair statement of the results of the interim period presented in accordance with Regulation S-X Rule 10-01. The results of operations for any interim period are not necessarily indicative of
results for the full year. As a result of entering into a series of agreements for the sale of GMS and the transfer of the Companys forty-nine percent shareholding in S.B. Submarine Systems Company Ltd. (SBSS) on August 13, 2004,
the results of their operations and their assets and liabilities have been classified as a discontinued operation for all periods presented and the Companys only remaining reportable segment is telecommunications services.



The preparation of unaudited interim condensed consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the unaudited interim condensed
consolidated financial statements and the accompanying notes, as well as the reported amounts of revenue and expenses during the reporting period. Actual amounts and results could differ from those estimates. The estimates the Company makes are
based on historical factors, current circumstances and the experience and judgment of the Companys management. The Company evaluates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the
Companys evaluations.



The accompanying unaudited
condensed consolidated financial statements do not include all footnotes and certain financial presentations normally required under U.S. GAAP. Therefore, these financial statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys amended annual report on Form 10-K/A for the fiscal year ended December 31, 2003.



Old GCL and certain subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code and accordingly the accompanying unaudited
interim condensed consolidated financial statements for the three and nine months ended September 30, 2003 have also been prepared in accordance with Statement of Position No. 90-7, Financial Reporting by Entities in Reorganization under the
Bankruptcy Code (SOP 90-7). SOP 90-7 requires an entitys statement of operations to portray the results of operations of the entity during Chapter 11 proceedings. As a result, any revenues, expenses, realized gains and
losses, and provisions resulting from the reorganization and restructuring of the organization should be reported separately as reorganization items, except those required to be reported as discontinued operations and extraordinary items in
conformity with Accounting Principles Board Opinion No. 30 (APB No. 30), Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, as amended by Statement of Financial Accounting Standards (SFAS) No. 145 (SFAS No.145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections, and SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).



Reclassifications



Certain prior year amounts have been reclassified in the accompanying unaudited condensed consolidated financial statements for consistent presentation to
current period amounts.



Recently Issued Accounting Pronouncements



In December 2003, the Financial Accounting Standards
Board (FASB) completed its deliberations regarding the proposed modification to FASB Interpretation No. 46, Consolidation of Variable Interest Entities



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



an interpretation of ARB No. 51 (FIN 46), and issued FASB Interpretation Number 46R, Consolidation of Variable Interest Entities-an
Interpretation of ARB No. 51 (FIN 46R). The decisions reached included a deferral of the effective date and provisions for additional scope exceptions for certain type of variable interests. Application of FIN 46R is required in
financial statements of public entities that have interests in variable interest entities (VIEs), or potential VIEs commonly referred to as special-purpose entities, for periods ending after December 15, 2003. Application by public
entities (other than small business issuers) for all other types of entities is required in financial statements for periods ending after March 15, 2004. Based on the analysis performed by the Company to date, FIN 46R does not have any effect on the
condensed consolidated financial statements.



In December 2003,
the FASB issued SFAS No. 132 (Revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits (SFAS No. 132R). SFAS No. 132R increases the existing U.S. GAAP disclosure requirements by
requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies are now required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain
expected rates of return and other informational disclosures. In addition, SFAS No. 132R requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after
December 15, 2003 which have been included in these notes to condensed consolidated financial statements (see Note 6).



In May 2004, the FASB issued FASB Staff Position No. 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (FSP No. 106-2). FSP No. 106-2, which replaced the same titled FSP No. 106-1, provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Medicare Improvement Act) that was signed into law in December 2003. Under FSP No. 106-1, the Company elected to defer the accounting for the effects of the Medicare Improvement Act. FSP No. 106-2 is
effective for quarters beginning after June 15, 2004. The Company is evaluating the impact of the Medicare Improvement Act and FSP No. 106-2. Accordingly, the Companys postretirement benefit obligation and net postretirement health care costs
included in the condensed consolidated financial statements do not reflect the effects of the Medicare Improvement Act.



3. FRESH START ACCOUNTING



The Company implemented fresh start accounting and reporting in accordance with the American Institute of Certified Public Accountants
(AICPA) SOP 90-7, upon its emergence from bankruptcy on the Effective Date. Fresh start accounting required the Company to allocate the reorganization value to its assets and liabilities based upon their estimated fair values. The
reorganization value of $407 was determined pursuant to the Companys Plan of Reorganization and ST Telemedias $250 equity investment for 61.5% ownership. Adopting fresh start accounting has resulted in material adjustments to the
historical carrying amount of the Companys assets and liabilities. The reorganization value was allocated by the Company to its assets and liabilities based upon their preliminary estimated fair values. The Company engaged an independent
appraiser to assist in the allocation of the reorganization value and in determining the fair market value of its property and equipment and intangible assets. The fair values of the assets as determined for fresh start reporting were based on
estimates of anticipated future cash flow. Liabilities existing on the Effective Date are stated at the present values of amounts to be paid discounted at appropriate rates. As provided by the accounting rules, the Company uses a one-year period
following the Effective Date to finalize the allocation of the reorganization value to our assets and liabilities, excluding changes in amounts related to pre-confirmation contingencies which are included in the determination of net income in
accordance with AICPA Practice Bulletin 11, Accounting for Preconfirmation Contingencies in Fresh Start Reporting. The determination of fair values of assets and liabilities is subject to significant estimation and assumptions.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



The following table reflects the debt and equity restructuring, reorganization adjustments and the
adoption of fresh start reporting adjustments to the Companys consolidated balance sheet as of the Effective Date.



|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|-------------------------------------------------- |  | --------------------------- | ------- | - | --------------------------- | - | ------- | ------------------------- |  | - | ---------------------- | ---- |  | ------------------------- | ------ | ---- |  | - | -----
|                                                   |  | PredecessorDecember 9, 2003 |         |   | Debt & Equity Restructuring |   |         | ReorganizationAdjustments |  |   | Fresh StartAdjustments |      |  | SuccessorDecember 9, 2003
|                                                   |  | As Restated                 |         |   | As Restated                 |   |         | As Reported               |  |   | As Restated            |      |  | As Restated              
|ASSETS:                                            |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Current Assets:                                    |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Cash and cash equivalents                          |  | $                           | 131     |   |                             | $ |        |                           |  | $ | 450                    | (a)  |  | $                         |       |      |  | $ | 302  
|                                                   |  |                             |         |   |                             |   |         |                           |  |   | (279                   | )(b) |  |                           |        |      |  |   |      
|Restricted cash and cash equivalents               |  |                             | 329     |   |                             |   |        |                           |  |   | (322                   | )(c) |  |                           |       |      |  |   | 17   
|                                                   |  |                             |         |   |                             |   |         |                           |  |   | 10                     | (d)  |  |                           |        |      |  |   |      
|Accounts receivable, net                           |  |                             | 363     |   |                             |   |        |                           |  |   |                       |      |  |                           | (3     | )(k) |  |   | 360  
|Other current assets and prepaid costs             |  |                             | 161     |   |                             |   |        |                           |  |   |                       |      |  |                           | (27    | )(k) |  |   | 134  
|Current assets of discontinued operations          |  |                             | 110     |   |                             |   |         |                           |  |   |                        |      |  |                           | (3     | )(k) |  |   | 107  
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Total current assets                               |  |                             | 1,094   |   |                             |   |        |                           |  |   | (141                   | )    |  |                           | (33    | )    |  | $ | 920  
|Property and equipment, net                        |  |                             | 980     |   |                             |   |        |                           |  |   |                       |      |  |                           | 130    | (l)  |  |   | 1,110
|Intangibles, net                                   |  |                             |        |   |                             |   |        |                           |  |   |                       |      |  |                           | 110    | (l)  |  |   | 110  
|Other assets                                       |  |                             | 110     |   |                             |   |        |                           |  |   |                       |      |  |                           | (43    | )(l) |  |   | 44   
|Non current assets of discontinued operations      |  |                             | 75      |   |                             |   |        |                           |  |   |                       |      |  |                           | 1      | (l)  |  |   | 76   
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Total assets                                       |  | $                           | 2,259   |   |                             | $ |        |                           |  | $ | (141                   | )    |  | $                         | 142    |      |  | $ | 2,260
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|LIABILITIES:                                       |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Current liabilities not subject to compromise:     |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Accounts payable                                   |  | $                           | 82      |   |                             | $ |        |                           |  | $ |                       |      |  | $                         | (3     | )(m) |  | $ | 79   
|Accrued cost of access                             |  |                             | 286     |   |                             |   |        |                           |  |   |                       |      |  |                           | (2     | )(m) |  |   | 284  
|Accrued restructuring costscurrent portion        |  |                             | 30      |   |                             |   |        |                           |  |   |                       |      |  |                           |       |      |  |   | 30   
|Deferred revenuecurrent portion                   |  |                             | 211     |   |                             |   |        |                           |  |   |                       |      |  |                           | (151   | )(n) |  |   | 60   
|Deferred reorganization costscurrent portion      |  |                             |        |   |                             |   | 202     | (e)                       |  |   | (13                    | )(g) |  |                           |       |      |  |   | 189  
|Other current liabilities                          |  |                             | 455     |   |                             |   |        |                           |  |   | (56                    | )(g) |  |                           | (15    | )(m) |  |   | 414  
|Current liabilities of discontinued operations     |  |                             | 101     |   |                             |   |        |                           |  |   |                       |      |  |                           | (30    | )    |  |   | 71   
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Total current liabilities                          |  |                             | 1,165   |   |                             |   | 202     |                           |  |   | (69                    | )    |  |                           | (171   | )    |  |   | 1,127
|Debt with controlling shareholder                  |  |                             |        |   |                             |   |        |                           |  |   | 200                    | (h)  |  |                           |       |      |  |   | 200  
|Obligations under capital leases                   |  |                             | 80      |   |                             |   |        |                           |  |   |                       |      |  |                           |        |     |  |   | 80   
|Deferred revenue                                   |  |                             | 1,337   |   |                             |   |        |                           |  |   |                       |      |  |                           | (1,247 | )(n) |  |   | 90   
|Deferred reorganization costs                      |  |                             |        |   |                             |   | 32      | (e)                       |  |   |                       |      |  |                           |       |      |  |   | 32   
|Other deferred liabilities                         |  |                             | 175     |   |                             |   |        |                           |  |   |                       |      |  |                           | (1     | )(m) |  |   | 174  
|Non current liabilities of discontinued operations |  |                             | 173     |   |                             |   |         |                           |  |   |                        |      |  |                           | (23    | )(m) |  |   | 150  
|                                                   |  |                             |         |   |                             |   |         |                           |  |   | (522                   | )(f) |  |                           |        |      |  |   |     
|Liabilities subject to compromise                  |  |                             | 8,710   |   |                             |   | (8,031  | )(f)                      |  |   | (157                   | )(f) |  |                           |       |      |  |   |     
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Total liabilities                                  |  |                             | 11,640  |   |                             |   | (7,797  | )                         |  |   | (548                   | )    |  |                           | (1,442 | )    |  |   | 1,853
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|CUMULATIVE CONVERTIBLE PREFERRED STOCK             |  |                             | 1,894   |   |                             |   | (1,894  | )(l)                      |  |   |                       |      |  |                           |       |      |  |   |     
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|SHAREHOLDERS EQUITY (DEFICIT):                    |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Preferred stock                                    |  |                             |        |   |                             |   |        |                           |  |   | 2                      | (j)  |  |                           |       |      |  |   | 2    
|Common stock                                       |  |                             | 9       |   |                             |   | (9      | )(i)                      |  |   |                       |      |  |                           |       |      |  |   |     
|Treasury stock                                     |  |                             | (209    | ) |                             |   | 209     | (i)                       |  |   |                       |      |  |                           |       |      |  |   |     
|Additional paid-in capital                         |  |                             | 14,374  |   |                             |   | (14,374 | )(i)                      |  |   | 405                    | (j)  |  |                           |       |      |  |   | 405  
|Accumulated other comprehensive loss               |  |                             | (415    | ) |                             |   |        |                           |  |   |                       |      |  |                           | 415    | (o)  |  |   |     
|Accumulated deficit                                |  |                             | (25,034 | ) |                             |   | 23,934  | (o)                       |  |   |                       |      |  |                           | 1,100  | (o)  |  |   |     
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|                                                   |  |                             | (11,275 | ) |                             |   | 9,760   |                           |  |   | 407                    |      |  |                           | 1,515  |      |  |   | 407  
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      
|Total liabilities and shareholders equity         |  | $                           | 2,259   |   |                             | $ | 69      |                           |  | $ | (141                   | )    |  | $                         | 73     |      |  | $ | 2,260
|                                                   |  |                             |         |   |                             |   |         |                           |  |   |                        |      |  |                           |        |      |  |   |      



Debt and equity
restructuring, reorganization adjustments, emergence date and fresh start accounting adjustments consist primarily of the following:



| | (a) | To record the receipt of the $250 equity infusion from ST Telemedia and the $200 of cash proceeds for ST Telemedias purchase of the New Senior Secured Notes.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) | To record the payment of $200 of unrestricted cash to the secured and unsecured creditors and to record the payment of $56 in professional fees to the advisors to
the unsecured and secured creditors, joint
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



| | provisional liquidators, the indenture trustees and their counsels and certain of the Companys advisors. The balance of this amount was utilized to
cash collateralize certain letter of credit requirements ($10), pay post emergence professional fees to the estate ($7), fund the Class G distribution ($3) and pay certain vendor settlements that were not deferred past the emergence date ($3).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | To record the payment out of restricted cash of $315 to the secured creditors and $7 to unsecured creditors in accordance with the Plan of Reorganization.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) | To record cash restricted at closing to establish collateral for certain Company letter of credit requirements.
| | --- | ---------------------------------------------------------------------------------------------------------------



| | (e) | To establish $234 of deferred reorganization costs representing subject to compromise liabilities not required to be funded at emergence as described in the related settlement
agreements and/or the Plan of Reorganization. Certain settlement payments in connection with access vendors (approximately $12) and the Federal tax settlement (approximately $15) are due beyond one year of the emergence date.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (f) | To record the discharge of subject to compromise liabilities in consideration for the $522 in cash settlements at emergence referred to in (b) and (c) and 38.5% of the common stock
(valued at $157 in the Plan of Reorganization) in New GCL including indebtedness of $6,641 for pre-petition debt obligations, $526 of pre-petition mandatorily redeemable preferred stock (classified as a liability in accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,) and $1,547 of pre-petition liabilities including accrued cost of access, accrued construction costs, and other liabilities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (g) | To record the payment of required emergence costs including professional fees and vendors settlements.
| | --- | ------------------------------------------------------------------------------------------------------



| | (h) | To reflect the outstanding principal amount under the Senior Secured Notes, in accordance with the Plan of Reorganization.
| | --- | --------------------------------------------------------------------------------------------------------------------------



| | (i) | To cancel all of the outstanding preferred and common stock, including the treasury stock, of Old GCL in accordance with the Plan of Reorganization.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------



| | (j) | To record the issuance of equity in New GCL consisting of 18 million shares of preferred stock and 6.6 million shares of common stock to ST Telemedia for 61.5% ownership, the
issuance of 13 million shares of common stock for 32.5% ownership to the unsecured creditor classes and 2.4 million shares of common stock to the secured creditors for 6% ownership all in accordance with the Plan of Reorganization.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (k) | To adjust the carrying value of receivables, certain prepaid lease and maintenance agreements and certain value-added tax recoverable positions of foreign entities to fair value in
accordance with fresh start accounting.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (l) | To adjust the carrying value of property and equipment, intangibles and investments in unconsolidated affiliates to fair value in accordance with fresh start accounting. The Company
engaged an independent appraiser to assist in the allocation and valuation of these assets.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (m) | To adjust the carrying value of certain liabilities to fair value in accordance with fresh start accounting.
| | --- | ------------------------------------------------------------------------------------------------------------



| | (n) | To adjust the carrying value of deferred revenue to fair value in accordance with fresh start accounting.
| | --- | ---------------------------------------------------------------------------------------------------------



| | (o) | To close out the remaining equity balances of Old GCL in accordance with the recapitalization provisions of fresh start accounting, including accumulated other comprehensive loss of
$415, and accumulated deficit of $23,934 and $1,100, respectively.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



4. DISCONTINUED OPERATIONS AND DISPOSITIONS



Sale of Global Marine Systems



On August 3, 2004, the Companys board of directors approved a plan to divest GMS, a non-core business, and on August 13, 2004, the Company
consummated a series of agreements with Bridgehouse Marine Ltd. (Bridgehouse) for the sale of GMS and the transfer of the Companys forty-nine percent shareholding in SBSS, a joint venture primarily engaged in the subsea cable
installation and maintenance business in China, to Bridgehouse for consideration up to $15, subject to certain conditions as defined in the agreements. The Company has sold these assets, because they are not considered core to its strategy. During
the third quarter of 2004, the Company completed the sale of GMS for proceeds of $1 in cash, a portion of which was received at the closing and the balance of which will be received when audited financial statements for GMS are delivered, which is
expected in the fourth quarter of 2004. No gain was recorded on the sale. The sale of the Companys holdings in SBSS is currently subject to the approval of the other joint venture holder and regulatory approval of the Chinese government, which
is expected to occur by mid-2005. The Companys agreement to transfer its shareholding in SBSS expires in October 2005.



As a result of these transactions Bridgehouse has assumed all of GMSs capital and operating lease commitments and the Company is no longer subject
to cross-defaults that could have been triggered under the indenture for the Senior Secured Notes and the Bridge Loan Facility as a result of pending defaults by GMS under such lease commitments.



Under the indenture for the Senior Secured Notes, in the event of a sale of
GMS, any net proceeds received by the Company, after settlement of liabilities and deal costs, were required to be used to repay the Senior Secured Notes. However, the Company received a waiver of this requirement from STT Hungary, the holder of the
Senior Secured Notes, which is a subsidiary of ST Telemedia.



The following is a summary of the net assets and operating results of GMS included in discontinued operations for the three and nine months ended September 30, 2004 and 2003:



|                                 |  |                   |   |                  |   |     |  
|-------------------------------- |  | ----------------- | - | ---------------- | - | --- | -
|                                 |  | September 30,2004 |   | December 31,2003 |  
|                                 |  | (unaudited)       |   |                  |  
|Balance Sheet Data:              |  |                   |   |                  |   |     |  
|Current assets                   |  | $                 |  |                  | $ | 117 |  
|Property and equipment           |  |                   |  |                  |   | 53  |  
|Other assets                     |  |                   | 2 |                  |   | 16  |  
|                                 |  |                   |   |                  |   |     |  
|Total assets                     |  |                   | 2 |                  |   | 186 |  
|                                 |  |                   |   |                  |   |     |  
|Current liabilities              |  |                   |  |                  |   | 60  |  
|Obligations under capital leases |  |                   |  |                  |   | 116 |  
|Other deferred liabilities       |  |                   |  |                  |   | 34  |  
|                                 |  |                   |   |                  |   |     |  
|Total liabilities                |  |                   |  |                  |   | 210 |  
|                                 |  |                   |   |                  |   |     |  
|Net assets (liabilities)         |  | $                 | 2 |                  | $ | (24 | )
|                                 |  |                   |   |                  |   |     |  



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



|                              |  |                                    |     |   |                                    |   |     |                                   |  |   |                                   |   |  |   |      |  
|----------------------------- |  | ---------------------------------- | --- | - | ---------------------------------- | - | --- | --------------------------------- |  | - | --------------------------------- | - |  | - | ---- | -
|                              |  | Three MonthsEndedSeptember 30,2004 |     |   | Three MonthsEndedSeptember 30,2003 |   |     | Nine MonthsEndedSeptember 30,2004 |  |   | Nine MonthsEndedSeptember 30,2003 |  
|                              |  | (unaudited)                        |     |   | (unaudited)                        |  
|Statement of Operations Data: |  |                                    |     |   |                                    |   |     |                                   |  |   |                                   |   |  |   |      |  
|Revenue                       |  | $                                  | 14  |   |                                    | $ | 38  |                                   |  | $ | 70                                |   |  | $ | 139  |  
|Operating expenses            |  |                                    | (20 | ) |                                    |   | (31 | )                                 |  |   | (100                              | ) |  |   | (128 | )
|                              |  |                                    |     |   |                                    |   |     |                                   |  |   |                                   |   |  |   |      |  
|Operating income (loss)       |  |                                    | (6  | ) |                                    |   | 7   |                                   |  |   | (30                               | ) |  |   | 11   |  
|Interest expense, net         |  |                                    | (2  | ) |                                    |   | (3  | )                                 |  |   | (7                                | ) |  |   | (10  | )
|Other expense, net            |  |                                    | 4   |   |                                    |   | 2   |                                   |  |   | 11                                |   |  |   | 3    |  
|Reorganization items          |  |                                    |    |   |                                    |   |    |                                   |  |   |                                  |   |  |   | (4   | )
|                              |  |                                    |     |   |                                    |   |     |                                   |  |   |                                   |   |  |   |      |  
|Discontinued operations, net  |  | $                                  | (4  | ) |                                    | $ | 6   |                                   |  |   | (26                               | ) |  | $ |     |  
|                              |  |                                    |     |   |                                    |   |     |                                   |  |   |                                   |   |  |   |      |  



5. DEFERRED REORGANIZATION COSTS



Deferred reorganization costs consist of the following:



|                                              |  |                    |    |                  |   |    
|--------------------------------------------- |  | ------------------ | -- | ---------------- | - | ---
|                                              |  | Successor         
|                                              |  | September 30, 2004 |    | December 31,2003
|                                              |  | (unaudited)        |    |                 
|Access providers                              |  | $                  | 34 |                  | $ | 109
|Income taxes                                  |  |                    | 25 |                  |   | 25 
|Non-income taxes                              |  |                    | 13 |                  |   | 21 
|Other                                         |  |                    | 10 |                  |   | 15 
|                                              |  |                    |    |                  |   |    
|Total                                         |  |                    | 82 |                  |   | 170
|Lesscurrent portion                          |  |                    | 51 |                  |   | 128
|                                              |  |                    |    |                  |   |    
|Total long-term deferred reorganization costs |  | $                  | 31 |                  | $ | 42 
|                                              |  |                    |    |                  |   |    



In accordance with the
Plan of Reorganization certain reorganization costs were not due and payable in full on the Effective Date. The payment terms were negotiated with the claimants during the settlement process. Many of the Companys access providers are receiving
their settlements in twelve equal monthly installments commencing thirty days after the Effective Date. Some access providers agreed to twenty-four monthly installment terms. Most of the telecommunications equipment vendors and other reorganization
costs were paid within thirty days of the Effective Date. Certain of the tax claims in the case have payment terms of up to nine years.



6. EMPLOYEE BENEFIT PLANS



The Company sponsors a number of both contributory and non-contributory employee pension plans available to eligible employees of Global Crossing North
America, Inc. (f/k/a Frontier Corporation) and GCUK. In addition, the Company also sponsors a post retirement benefit plan for eligible employees of Global Crossing North America, Inc. The plans provide defined benefits based on years of service and
final average salary.



In 2004, the Company expects to
contribute approximately $3 to its pension plans. The sale of GMS to Bridgehouse was completed on August 13, 2004 and all related pension plan funding requirements were transferred.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



Details on the effect of operations of the Companys pension plans are as follows:



|                                              |  |                                 |    |   |                                 |   |    |           |  |   |             |   |  |   |    |  
|--------------------------------------------- |  | ------------------------------- | -- | - | ------------------------------- | - | -- | --------- |  | - | ----------- | - |  | - | -- | -
|                                              |  | Successor                       |    |   | Predecessor                     |   |    | Successor |  |   | Predecessor |  
|                                              |  | Pension Plans                   |    |   | Pension Plans                   |  
|                                              |  | Three Months EndedSeptember 30, |    |   | Nine Months Ended September 30, |  
|                                              |  | 2004                            |    |   | 2003                            |   |    | 2004      |  |   | 2003        |  
|                                              |  | (unaudited)                     |    |   | (unaudited)                     |  
|Service cost                                  |  | $                               |   |   |                                 | $ |   |           |  | $ | 1           |   |  | $ | 1  |  
|Interest cost on projected benefit obligation |  |                                 | 1  |   |                                 |   | 1  |           |  |   | 3           |   |  |   | 2  |  
|Expected return on plan assets                |  |                                 | (1 | ) |                                 |   | (1 | )         |  |   | (4          | ) |  |   | (3 | )
|Net amortization and deferral                 |  |                                 |   |   |                                 |   |   |           |  |   |            |   |  |   |   |  
|                                              |  |                                 |    |   |                                 |   |    |           |  |   |             |   |  |   |    |  
|Net cost                                      |  | $                               |   |   |                                 | $ |   |           |  | $ |            |   |  | $ |   |  
|                                              |  |                                 |    |   |                                 |   |    |           |  |   |             |   |  |   |    |  



The effect of
operations of the post retirement benefit plan was less than $1 during the periods presented.



7. STOCK-BASED COMPENSATION



Stock options



For the three and nine
months ended September 30, 2003, the Company accounted for employee stock options using the intrinsic method in accordance with APB No. 25 as amended by SFAS No. 123 and, as a result, did not recognize compensation expense. Had compensation expense
been determined and recorded based upon the fair value recognition provisions of SFAS No. 123, net loss and loss per share for the Predecessor would have been the following pro forma amounts for the three and nine months ended September 30, 2003
restated:



|                                                                                   |  |                                      |       |   |                                     |   |       |  
|---------------------------------------------------------------------------------- |  | ------------------------------------ | ----- | - | ----------------------------------- | - | ----- | -
|                                                                                   |  | Predecessor                          |      
|                                                                                   |  | Three Months EndedSeptember 30, 2003 |       |   | Nine Months EndedSeptember 30, 2003 |  
|                                                                                   |  | (Restated)                           |       |   | (Restated)                          |  
|                                                                                   |  | (unaudited)                          |      
|Loss applicable to common shareholders, as reported                                |  | $                                    | (80   | ) |                                     | $ | (204  | )
|Stock-based employee compensation expense determined under fair-value-based method |  |                                      | (47   | ) |                                     |   | (143  | )
|                                                                                   |  |                                      |       |   |                                     |   |       |  
|Pro forma loss applicable to common shareholders                                   |  | $                                    | (127  | ) |                                     | $ | (347  | )
|                                                                                   |  |                                      |       |   |                                     |   |       |  
|Loss per common share, basic and diluted as reported                               |  | $                                    | (0.09 | ) |                                     | $ | (0.22 | )
|                                                                                   |  |                                      |       |   |                                     |   |       |  
|Pro forma                                                                          |  | $                                    | (0.14 | ) |                                     | $ | (0.38 | )
|                                                                                   |  |                                      |       |   |                                     |   |       |  



Upon consummation of
the Companys Plan of Reorganization on December 9, 2003, all outstanding options in respect of the Predecessors common stock were canceled.



On December 9, 2003, the Company adopted the fair value provisions of SFAS No. 123, Accounting for Stock-Based Compensation, related to stock
option awards granted or modified on December 9, 2003 and thereafter. The stock compensation expense recognized for the three and nine months ended September 30, 2004 relating to stock option awards granted under Global Crossing Limited 2003 Stock
Incentive Plan (the 2003 Stock Incentive Plan) was approximately $4 and $13, respectively, included in Successors net loss as a component of other operating expenses. Under the fair value provisions of SFAS No. 123, the fair value
of each option is estimated on the date of grant using the Black-Scholes option-pricing model. As New GCL did not have



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



a historical basis for determining the volatility and expected life assumptions in the model due to New GCLs short market trading history, the
assumptions used are an average of those used by a select group of telecommunications companies. The assumptions used to calculate stock based compensation are an expected volatility of 70%, weighted average risk free rate of return of 3.25%,
expected life of 5 years, attrition rate of 6%, and zero dividend yield.



Restricted stock units



During the nine
months ended September 30, 2004, the Company awarded 1,183,475 restricted stock units to employees, officers and members of the Board of Directors under the 2003 Global Crossing Stock Incentive Plan. The restricted stock units vest and convert into
common shares of New GCL over a period between one and five years, with higher seniority employees having five year vesting periods. Granted but unvested units are forfeited upon termination of employment. The fair value of the restricted stock
units on the date of the grant, after reductions for assumed attrition, is amortized to stock compensation expense on a straight-line basis over the vesting period. Compensation expense relating to the restricted stock units was approximately $3 and
$7, respectively, included in Successors net loss for the three and nine months ended September 30, 2004.



8. OPERATING EXPENSES



Operating expenses consist of the following:



|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      
|------------------------------------ |  | ------------------------------- | --- | ------------------------------ | - | --------- |  | ----------- | ----- |  | - | -----
|                                     |  | Successor                       |     | Predecessor                    |   | Successor |  | Predecessor
|                                     |  | Three Months EndedSeptember 30, |     | Nine Months EndedSeptember 30,
|                                     |  | 2004                            |     | 2003                           |   | 2004      |  | 2003       
|                                     |  |                                 |     | (Restated)                     |   |           |  | (Restated) 
|                                     |  | (unaudited)                     |     | (unaudited)                   
|OPERATING EXPENSES:                  |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Cost of access and maintenance:      |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Cost of access                       |  | $                               | 435 |                                | $ | 496       |  | $           | 1,364 |  | $ | 1,499
|Third-party maintenance              |  |                                 | 28  |                                |   | 28        |  |             | 86    |  |   | 95   
|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Total cost of access and maintenance |  | $                               | 463 |                                | $ | 524       |  | $           | 1,450 |  | $ | 1,594
|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Other operating expenses:            |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Cost of sales                        |  | $                               | 8   |                                | $ | 14        |  | $           | 34    |  | $ | 36   
|Real estate, network, and operations |  |                                 | 99  |                                |   | 96        |  |             | 294   |  |   | 299  
|Sales and marketing                  |  |                                 | 33  |                                |   | 32        |  |             | 100   |  |   | 93   
|Stock-related expenses               |  |                                 | 7   |                                |   |          |  |             | 20    |  |   |     
|General and administrative           |  |                                 | 34  |                                |   | 24        |  |             | 97    |  |   | 72   
|Non-income taxes                     |  |                                 | 6   |                                |   | 8         |  |             | 20    |  |   | 25   
|Bad debt expense                     |  |                                 | 7   |                                |   | 12        |  |             | 14    |  |   | 38   
|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Total other operating expenses       |  | $                               | 194 |                                | $ | 186       |  | $           | 579   |  | $ | 563  
|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Depreciation and amortization        |  | $                               | 45  |                                | $ | 34        |  | $           | 127   |  | $ | 100  
|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      
|Total operating expenses             |  | $                               | 702 |                                | $ | 744       |  | $           | 2,156 |  | $ | 2,257
|                                     |  |                                 |     |                                |   |           |  |             |       |  |   |      



Restructuring charges
and incentive compensation under employee retention programs for the three and nine months ended September 30, 2003 were included in reorganization items, net (see Note 9).



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



9. REORGANIZATION ITEMS



Reorganization items are expenses or income that were incurred or realized by the GC Debtors as a result of the
reorganization and are disclosed separately in the Companys condensed consolidated statement of operations as required by SOP 90-7. These items include professional fees, restructuring costs and retention plan costs relating to the
reorganization. These expenses and costs were offset by gains on vendor settlements as well as interest earned on cash accumulated as a result of the GC Debtors not paying their pre-petition liabilities during the pendency of the bankruptcy
cases as well as vendor settlements. Reorganization items for the three and nine months ended September 30, 2003 were as follows:



|                                |  |                                      |     |   |                                     |   |     |  
|------------------------------- |  | ------------------------------------ | --- | - | ----------------------------------- | - | --- | -
|                                |  | Predecessor                          |    
|                                |  | Three Months EndedSeptember 30, 2003 |     |   | Nine Months EndedSeptember 30, 2003 |  
|                                |  | (unaudited)                          |    
|Professional fees               |  | $                                    | (20 | ) |                                     | $ | (62 | )
|Retention plan costs            |  |                                      | (6  | ) |                                     |   | (18 | )
|Vendor settlements              |  |                                      |    |   |                                     |   | 44  |  
|Restructuring costs             |  |                                      | (7  | ) |                                     |   | (8  | )
|Interest income, net            |  |                                      | 3   |   |                                     |   | 8   |  
|                                |  |                                      |     |   |                                     |   |     |  
|Total reorganization items, net |  | $                                    | (30 | ) |                                     | $ | (36 | )
|                                |  |                                      |     |   |                                     |   |     |  



Net cash used in
reorganization items was $112 for the nine months ended September 30, 2003.



Preconfirmation Contingencies



During
the three months ended September 30, 2004, the Company settled various third-party unasserted disputes and revised its estimated liability for other unasserted disputes related to periods prior to the commencement of chapter 11 proceedings. The
Company has accounted for this in accordance with AICPA Practice Bulleting 11Accounting for Preconfirmation Contingencies in Fresh Start Reporting.The resulting gain on the settlements and change in estimated liability of $5 is
included within Reorganization Items in the condensed consolidated statement of operations for the three and nine months ended September 30, 2004.



10. RESTRUCTURING ACTIVITY



The Company accounts for exit and disposal activities initiated after January 1, 2003, in accordance with SFAS No. 146, Accounting for Cost
Associated with Exit or Disposal Activities. During the first quarter of 2004, the Company adopted a restructuring plan primarily to combine previously segregated customer support functions for efficiency and realigning these customer support
functions from supporting customer retention and maintenance to supporting customer acquisition as a result of the Companys emergence from bankruptcy and certain other targeted reductions. The plan resulted in the elimination of approximately
100 employees. As a result, in the first quarter of 2004, the Company recorded $2 of restructuring charges related to severance and related benefit obligations related to the eliminated employees.



During the third quarter of 2004, the Company adopted a restructuring plan to
consolidate staff in a particular region into a single location to reduce overhead charges and improve functional efficiency. The restructuring plan resulted in the closure of one facility. As a result in the third quarter of 2004 the Company
recorded $1 of restructuring charges related to facility closure costs.



During the nine months ended September 30, 2004 the Company paid ongoing severance payments and continuing lease obligations committed to in previously announced restructuring plans.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



The table below details the activity associated with the restructuring reserve for the nine months
ended September 30, 2004 (unaudited):



|                              |  |                     |    |   |                  |   |     |       |  |   |     |  
|----------------------------- |  | ------------------- | -- | - | ---------------- | - | --- | ----- |  | - | --- | -
|                              |  | EmployeeSeparations |    |   | FacilityClosings |   |     | Total | 
|Balance at January 1, 2004    |  | $                   | 7  |   |                  | $ | 179 |       |  | $ | 186 |  
|Additions                     |  |                     | 2  |   |                  |   | 1   |       |  |   | 3   |  
|Deductions                    |  |                     | (2 | ) |                  |   | (32 | )     |  |   | (34 | )
|Currency impact               |  |                     |   |   |                  |   | (3  | )     |  |   | (3  | )
|                              |  |                     |    |   |                  |   |     |       |  |   |     |  
|Balance at September 30, 2004 |  | $                   | 7  |   |                  | $ | 145 |       |  | $ | 152 |  
|                              |  |                     |    |   |                  |   |     |       |  |   |     |  



Restructuring costs
are recognized in other operating expenses in the condensed consolidated statement of operations for the three and nine months ended September 30, 2004. The Company recognized $8 of restructuring costs for the nine months ended September 30, 2003.
See Note 16 for further information on restructuring activities entered into by the Company subsequent to September 30, 2004.



11. COMPREHENSIVE LOSS



The components of comprehensive loss consist of the following:



|                                        |  |                                 |      |   |                                 |   |     |           |  |   |             |   |  |   |      |  
|--------------------------------------- |  | ------------------------------- | ---- | - | ------------------------------- | - | --- | --------- |  | - | ----------- | - |  | - | ---- | -
|                                        |  | Successor                       |      |   | Predecessor                     |   |     | Successor |  |   | Predecessor |  
|                                        |  | Three Months EndedSeptember 30, |      |   | Nine Months Ended September 30, |  
|                                        |  | 2004                            |      |   | 2003                            |   |     | 2004      |  |   | 2003        |  
|                                        |  |                                 |      |   | (Restated)                      |   |     |           |  |   | (Restated)  |  
|                                        |  | (unaudited)                     |      |   | (unaudited)                     |  
|Net loss                                |  | $                               | (101 | ) |                                 | $ | (80 | )         |  | $ | (324        | ) |  | $ | (204 | )
|Foreign currency translation adjustment |  |                                 | (1   | ) |                                 |   | (13 | )         |  |   | 8           |   |  |   | (75  | )
|                                        |  |                                 |      |   |                                 |   |     |           |  |   |             |   |  |   |      |  
|Comprehensive loss                      |  | $                               | (102 | ) |                                 | $ | (93 | )         |  | $ | (316        | ) |  | $ | (279 | )
|                                        |  |                                 |      |   |                                 |   |     |           |  |   |             |   |  |   |      |  



Foreign currency
translation adjustments are not adjusted for income taxes since they relate to investments that are permanent in nature.



12. LOSS PER COMMON SHARE



Basic loss per common share is computed as net loss available to common stockholders divided by the weighted-average number of common shares outstanding
for the period. Loss applicable to common stockholders includes preferred stock dividends for the three and nine months ended September 30, 2004. Diluted loss per common share reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock. However, since the Company had a net loss for the three and nine months ended September 30, 2004 and 2003 restated, respectively, diluted loss per common share is the
same as basic loss per common share, as any potentially dilutive securities would reduce the loss per common share from continuing operations.



18



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



The following is a reconciliation of the numerators and the denominators of the basic and diluted
loss per share:



|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|----------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ----------- | --------- |  | - | ----------- | - |  | - | ----------- | -
|                                                                  |  | Successor                        |            |   | Predecessor                     |   |             | Successor |  |   | Predecessor |  
|                                                                  |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                                                  |  | 2004                             |            |   | 2003                            |   |             | 2004      |  |   | 2003        |  
|                                                                  |  |                                  |            |   | (Restated)                      |   |             |           |  |   | (Restated)  |  
|                                                                  |  | (unaudited)                      |            |   | (unaudited)                     |  
|Net loss from continuing operations                               |  | $                                | (97        | ) |                                 | $ | (86         | )         |  | $ | (298        | ) |  | $ | (204        | )
|Preferred stock dividends                                         |  |                                  | (1         | ) |                                 |   |            |           |  |   | (3          | ) |  |   |            |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Loss from continuing operations applicable to common shareholders |  | $                                | (98        | ) |                                 | $ | (86         | )         |  | $ | (301        | ) |  | $ | (204        | )
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Weighted average shares outstanding:                              |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Basic and diluted                                                 |  |                                  | 22,000,000 |   |                                 |   | 909,463,931 |           |  |   | 22,000,000  |   |  |   | 909,385,256 |  
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Loss from continuing operations applicable to common shareholders |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  
|Basic and diluted                                                 |  | $                                | (4.46      | ) |                                 | $ | (0.09       | )         |  | $ | (13.68      | ) |  | $ | (0.22       | )
|                                                                  |  |                                  |            |   |                                 |   |             |           |  |   |             |   |  |   |             |  



For the three and nine
months ended September 30, 2004 potentially dilutive securities not included in diluted loss per common share include 18,000,000 shares of convertible preferred stock, 2,139,000 stock options, and 1,117,375 restricted stock units. In addition, stock
options and warrants having an exercise price greater than the average market price of the common shares of 87 million and 92 million, calculated on a weighted average basis, for the three and nine months ended September 30, 2003, respectively, were
excluded from the computation of diluted loss per share.



13. INCOME TAXES



The Companys reorganization has resulted in a
significantly modified capital structure as a result of applying fresh-start accounting in accordance with SOP 90-7 on the Effective Date. Fresh-start accounting has important consequences on the accounting for the realization of valuation
allowances, related to net deferred tax assets that existed on the Effective Date but which arose in pre-emergence periods. Specifically, fresh start accounting requires the reversal of such allowances to be recorded as a reduction of intangible
assets until exhausted and thereafter as additional paid in capital and not a benefit that culminates in the earnings process.



For the three and nine months ended September 30, 2004, the Companys provision for income taxes was $6 and $33, respectively, of which $3 and
$24, respectively, were attributable to the tax on current earnings, which was offset by realized pre-emergence net deferred tax assets. The reversal of the related valuation allowance that existed at the fresh start date, which would have benefited
earnings under Statement of Financial Accounting Standards No 109, Accounting for Income Taxes, has instead been recorded as a reduction of intangible assets. Once intangible assets are reduced to zero, any remaining realization of
pre-emergence net deferred tax assets will be recorded as an increase to additional paid in capital. This treatment does not result in any change in liabilities to taxing authorities or in cash flows.



14. CONTINGENCIES



Under the Plan of Reorganization, which became effective on December 9, 2003, essentially all claims against the GC Debtors
that arose prior to the commencement of the chapter 11 cases were discharged. Claims



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



for monetary damages (and equitable claims that give rise to a right to payment), including most of the legal proceedings pending against the Company at that
time, were included in that discharge. However, certain claims pending at that time could affect the Successor. The following is a description of those claims and of claims alleged to have arisen after the commencement of the chapter 11 cases.



SBC Communications Inc. Claim



On September 8, 2004, the Company was notified by SBC Communications Inc.
(SBC) that they believe the Company is engaging in the misrouting of call traffic through third party intermediaries for the purpose of avoiding proper access charges, allegedly in violation of Federal Communications Commission orders.
SBC asserts that the Company owes it approximately $19 through July 15, 2004 and has threatened litigation for injunctive and monetary relief if the Company does not pay it this amount and agree to refrain from this allegedly improper activity by
September 15, 2004. The Company has responded to SBC denying the claim in the entirety.



Restatement Class Action Litigation



Following
the Companys April 27, 2004 announcement that the Company expected to restate certain of its consolidated financial statements as of and for the year ended December 31, 2003, eight separate class action lawsuits all purporting to be brought on
behalf of Company shareholders were commenced against the Company and certain of its officers and directors in the United States District Courts in New Jersey, New York and California.



The complaints in the lawsuits allege that the Company defrauded the public securities markets by (i) understating its
access costs and accrued access liabilities, (ii) misrepresenting that the Company monitored the accuracy of systems that measured access costs and that the Company adjusted its best estimates of access costs according to data generated
from those monitoring systems, (iii) failing to disclose that the Company lacked sufficient internal controls over accounting matters, and (iv) publishing overstated financial results in violation of generally accepted accounting principles.



The complaints assert claims under the federal securities
laws, specifically Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that, during the applicable class period, the Company failed to disclose or misrepresented that the Company had materially understated its accrued cost of
access liability by $50 to $80 and that the Company had insufficient internal controls to detect the understatement of costs. Plaintiffs contend that such misstatement or omissions artificially inflated the price of the Companys stock,
which declined when the true costs were disclosed. Plaintiffs seek compensatory damages as well as other relief.



On June 4, 2004, the Company asked the Judicial Panel on Multidistrict Litigation (the MDL Panel) to centralize all of the related cases (and
any others that might be filed) before a single court. Originally, the Company requested that the cases be consolidated in the United States District Court for the District of New Jersey. After discussions with two plaintiff groups, however, a joint
request was made to transfer the cases to Judge Gerard Lynch of the United States District Court for the Southern District of New York based on his past involvement in prior cases involving the Company. In an order dated October 22, 2004, the MDL
Panel granted the joint request and reassigned the cases to Judge Lynch. There are also applications by two of the plaintiffs to be appointed as lead plaintiff in the class actions. The Company anticipates that once lead plaintiff and lead counsel
are appointed, they will file a consolidated amended complaint. Defendants then will have a chance to move to dismiss the amended complaint.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



Securities and Exchange Commission Investigation



On February 5, 2002, the SEC commenced a formal investigation into the
Companys concurrent transactions for purchase and sale of telecommunications capacity services between the Company and our carrier customers and related accounting and disclosure issues. The Company has been cooperating with the SEC by
providing documents and other information to the SEC staff, which has taken testimony from current and former officers and directors of Old GCL. To resolve the SECs investigation, the Company and certain former officials have entered into
negotiations with the SEC staff with a view to settlement, although to date a final settlement has not been reached.



As part of the chapter 11 process, the SEC filed a proof of claim asserting contingent and unliquidated amounts against the Company. However, on November
14, 2003, the Bankruptcy Court approved a stipulation among Predecessor, the SEC and the Companys unsecured creditors committee in which the SEC withdrew its proof of claim, with prejudice.



Department of Justice Inquiry



In early 2002, the U.S. Attorneys Office for the Central District of
California, in conjunction with the Federal Bureau of Investigation (the FBI), began conducting an investigation into the Companys concurrent transactions and related accounting and disclosure issues. The Company has provided
documents to the U.S. Attorneys office and the FBI, and FBI representatives have interviewed a number of current and former officers and employees of the Company. The Company does not know whether the investigation is ongoing or has
concluded.



Department of Labor Investigation



The Department of Labor (DOL) is conducting an investigation
related to the Companys administration of its benefit plans, including the acquisition and maintenance of investments in the Companys 401(k) employee savings plans. The Company has been cooperating with the DOL by providing documents and
other information to the DOL staff, and the DOL has interviewed a number of the officers and employees of the Company. Following its investigation, the DOL and certain current and former directors, officers and employees of Old GCL entered into
settlement agreements in July 2004 resolving that investigation. Neither Old GCL nor New GCL is a party to any of those agreements. Any claims arising out of the DOLs ability to impose a civil monetary penalty on the Company was discharged
upon consummation of the Plan of Reorganization.



Claim by the United States
Department of Commerce



A claim was filed in the
Companys bankruptcy proceedings by the United States Department of Commerce (the Claimant) on October 30, 2002 asserting that an undersea cable owned by Pacific Crossing Limited (PCL), a former subsidiary of the
Company, violates the terms of a Special Use permit issued by the National Oceanic and Atmospheric Administration. The Company believes responsibility for the asserted claim rests entirely with the Companys former subsidiary. An identical
claim has also been filed in the bankruptcy proceedings of the former subsidiary in Delaware. On July 11, 2003, the Company and the Global Crossing Creditors Committee filed an objection to this claim with the bankruptcy court. Subsequently,
Claimant agreed to limit the size of the pre-petition portion of its claim to $13.5. Negotiations with PCL to resolve the remaining issues are ongoing but no final resolution has been reached.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



United Kingdom Anti-Trust Investigation



In 2002, an investigation was commenced by the United Kingdom Office of Fair Trading (OFT) regarding an
allegation that various subsea cable operator entities, including the Company, had engaged in an illegal agreement to collectively boycott a location in the United Kingdom as a means for the landing of subsea telecommunications cables in the United
Kingdom. The Company responded to that investigation in 2002 denying the allegation.



In August 2003, the OFT extended its investigation in respect of allegations of price fixing and information sharing on the level of fees that the subsea entities would pay landowners for permission to land submarine
telecommunication cables on their land in the United Kingdom. The Company responded to those allegations on October 10, 2003. In July 2004, the Company received a request for the production of certain information and documentation, to which it
responded in August 2004.



The Company has cooperated fully
with the investigation and has supplied additional factual materials including a number of formal witness statements. In the event that the OFT determines that the Company engaged in anti-competitive behavior, the OFT may impose a fine up to a
maximum of 10% of the responsible partys revenue in the field of activity in the United Kingdom for up to three years preceding the year on which the infringement ended. No findings have been made against the Company and the Company continues
to deny any wrongdoing.



Qwest Rights-of-Way Litigation



In May 2001, a purported class action was commenced against three of the
Companys subsidiaries in the United States District Court for the Southern District of Illinois. The complaint alleges that the Company had no right to install a fiber optic cable in rights-of-way granted by the plaintiffs to certain
railroads. Pursuant to an agreement with Qwest Communications Corporation, the Company has an indefeasible right to use certain fiber optical cables in a fiber optic communications system constructed by Qwest within the rights-of-way. The complaint
alleges that the railroads had only limited rights-of-way granted to them that did not include permission to install fiber optic cable for use by Qwest or any other entities. The action has been brought on behalf of a national class of landowners
whose property underlies or is adjacent to a railroad right-of-way within which the fiber optic cables have been installed. The action seeks actual damages in an unstated amount and alleges that the wrongs done by the Company involve fraud, malice,
intentional wrongdoing, willful or wanton conduct and/or reckless disregard for the rights of the plaintiff landowners. As a result, plaintiffs also request an award of punitive damages. The Company made a demand of Qwest to defend and indemnify the
Company in the lawsuit. In response, Qwest has appointed defense counsel to protect the Companys interests.



The Companys North American network includes capacity purchased from Qwest on an Indefeasible Rights of Use (IRU) basis. Although the
amount of the claim is unstated, an adverse outcome could have an adverse impact on the Companys ability to utilize large portions of the Companys North American network. This litigation was stayed against the Company pending the
effective date of the Plan of Reorganization, and the plaintiffs pre-petition claims against the Company were discharged at that time in accordance with its Plan of Reorganization. By agreement between the parties, the Plan of Reorganization
preserved plaintiffs rights to pursue any post-confirmation claims of trespass or ejectment. If the plaintiffs were to prevail, the Company could lose its ability to operate large portion of its North American network, although it believes
that it would be entitled to indemnification from Qwest for any losses under the terms of the IRU agreement under which Global Crossing originally purchased this capacity.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



In September 2002, Qwest and certain of the other telecommunication carrier defendants filed a
proposed settlement agreement in the United States District Court for the Northern District of Illinois. On July 25, 2003, the court granted preliminary approval of the settlement and entered an order enjoining competing class action claims, except
those in Louisiana. The settlement and the courts injunction are opposed by some, but not all, of the plaintiffs counsel and are on appeal before the U.S. Court of Appeals for the Seventh Circuit. If the pending settlement is rejected by
the Court of Appeals and claimants ultimately prevail, the Company believes that it is entitled to indemnification from Qwest for any losses.



Customs Tax Audit



A foreign tax authority has concluded a preliminary audit of the Companys books and records for the years ended December 31, 2001 and 2000 and has
made certain initial findings adverse to the Company including the following: failure to disclose discounts on certain goods imported into the country, failure to include the value of software installed on certain computer equipment, and clerical
errors in filed import documents.



The Company has now received
a formal assessment in the amount of $9.3. The potential customs and duties exposure, including possible treble penalties to the Company, could be as high as $25-$35. The Company is continuing to work with the tax authority to resolve the audit.



Administrative Claims from the Chapter 11 Case



Under the Plan of Reorganization, claims arising after the commencement of
the GC Debtors chapter 11 cases (Administrative Claims) are to be paid in full. As is typical in chapter 11 cases, Administrative Claims were asserted against the GC Debtors that far exceed the amount owed. The Successor has
assumed these obligations and is in the process of resolving such Administrative Claims. The Company does not believe that the resolution of those claims will have an adverse effect on the Successor.



Network Rail Copper Lease



A portion of the GCUK Network is subject to a finance lease with Network
Rail, the owner of the railway infrastructure in the UK. The finance lease includes provisions addressing copper cable and PABX equipment used by the Company to deliver managed voice services to UK train operating companies (the Copper
Provisions). Under a prior agreement, the Copper Provisions of the finance lease could have been terminated on 12 months notice. In connection with its plans to modernize the signaling system on the UK railways, Network Rail issued a notice to
terminate the Copper Provisions, which termination would have become effective March 31, 2005.



As this prospective termination of the Copper Provisions raised an issue regarding the Companys ability to continue to provide managed voice services to train operating companies in the UK and could also have
led to breaches of certain customer contracts pursuant to which the Company agreed to provide these services beyond March 31, 2005, negotiations were entered into with Network Rail to put in place a new agreement. On November 11, 2004, a new
five-year agreement was put in place, enabling the Company to continue to serve these customers on commercially acceptable terms, and furthermore providing a revenue stream for services being provided to Network Rail over the same period.



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



15. RELATED PARTY TRANSACTIONS



Commercial relationships between the Company and ST Telemedia



During the three and nine months ended September 30, 2004, the Company provided approximately $0.2 and $1.0 of
telecommunications and cable maintenance services to subsidiaries and affiliates of ST Telemedia. Further, during the three and nine months ended September 30, 2004 the Company received approximately $0.2 and $1.0 of co-location services from an
affiliate of ST Telemedia.



In May 2004, the Company reached
agreement with a subsidiary of ST Telemedia to provide the Company with up to $100 in financing under the Bridge Loan Facility. Under this facility, the Company borrowed $40 on June 1, 2004, an additional $40 on August 2, 2004, and a final $20 on
October 1, 2004.



On June 15, 2004, the Company paid $11.3 of
interest on the Senior Secured Notes to a subsidiary of ST Telemedia.



Other
relationships between the Company and the STT Shareholder Group



Various contractual arrangements were entered into between the Company and subsidiaries of ST Telemedia in connection with the latters investments in the Senior Secured Notes and in the capital stock of New GCL. The material
provisions of the indenture and other agreements governing the terms of the Senior Secured Notes are summarized in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, under the heading
Liquidity and Capital Resources-Indebtedness, in the Companys amended 2003 annual report on Form 10-K/A. The special voting, registration and other rights of STT Crossing in its capacity as an equity holder are summarized in Item
5, Market for Registrants Common Equity and Related Stockholder Matters, of the Companys 2003 annual report on Form 10-K.



See Note 1 for a description of the Bridge Loan Facility and the Restructuring Agreement.



Commercial relationships between the Company and Carlos Slim



According to filings made with the Securities Exchange Commission, Carlos
Slim Helu and members of his family (collectively, the Slim Family), together with entities controlled by the Slim Family, held greater than 10% of New GCLs common stock as of September 30, 2004. The members of the Slim Family may
therefore be considered related parties of the Company. During the three and nine months ended September 30, 2004, the Company engaged in various commercial transactions in the ordinary course of business with telecommunications companies controlled
by or subject to significant influence from the Slim Family (Slim-Related Entities). Specifically, during the three and nine months ended September 30, 2004, the Company provided approximately $3 and $4, respectively, of
telecommunications services to Slim-Related Entities and purchased approximately $1 and $3, respectively, of access related services from Slim-Related Entities.



16. SUBSEQUENT EVENTS



Business Restructuring Plan



On October 8, 2004, the Companys board of directors approved a restructuring plan designed to focus on businesses that are consistent with the
Companys overall strategyto be a premier provider of global data and



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(in millions, except number of sites, square footage, employees, share and per share information)



Internet Protocol (IP) services by building on its extensive broadband network and technological capabilities. The restructuring plan involves
concentrating the Companys efforts in areas that the Company anticipates will provide profitable growth opportunities and moving away from a number of unprofitable and non-strategic parts of the business. The Company has begun to implement the
restructuring plan during the fourth quarter of 2004. The Company has developed the restructuring plan in light of ongoing adverse conditions in the telecommunications industry, in particular the continued pricing pressures for telecommunications
services. The Company believes that the implementation of the restructuring plan will, over time, reduce the Companys financing requirements, accelerate the date by which its operating cash flow will be sufficient to satisfy its anticipated
liquidity requirements and lead to overall profitability for the Company. The restructuring plan has the following three principal elements.



First, the Company will downsize, discontinue, harvest or exit several business areas. These include small business and consumer local and long distance,
financial industry trader voice, calling card, and other low margin services. The Company plans to accomplish this through a series of actions, including commercial actions intended to improve profitability and dispositions and other strategic
alternatives. The most significant business that will be affected by these actions is the Companys legacy North American voice business. The Company anticipates that the restructuring actions will result in significant reductions in revenue
from this business area, while continuing with a core, higher margin revenue base sufficient to maintain network efficiencies.



Second, the Company will implement workforce reductions, facilities consolidation and other cost savings initiatives. The Company expects that these
restructuring efforts will result in the elimination of approximately 600 positions, representing approximately 15% of its workforce, by March 2005 across a range of business functions and job classes, principally in the Companys North
American operations. The Company expects to achieve approximately $40 to $45 in annual cost savings from the elimination of these positions. As part of the restructuring plan, the Company also plans to close and consolidate a number of offices and
other real estate facilities, with associated anticipated annual cost savings of approximately $1 to $2. The restructuring plan also includes outsourcing initiatives intended to reduce ongoing operating expenses, principally in the area of
non-access related procurement.



Third, the Company will place
greater emphasis on several new business development initiatives in areas where it can capitalize on the Companys IP network and capabilities. These initiatives are focused principally on global IP offerings and new carrier data offerings and
on expanding the Companys distribution capabilities through systems integrators and other indirect channels. The Company plans to redeploy certain personnel and reorganize its sales and marketing efforts around these initiatives.



As a result of these efforts, the Company estimates that it will incur
cash restructuring charges of approximately $12 to $14 for severance and benefits in connection with the anticipated workforce reduction and approximately $4 to $5 related to the real estate consolidation. In addition, the Company is in the process
of identifying and evaluating specific vendor contracts implicated by the restructuring in order to estimate the associated restructuring charge, which is expected to be material. Once determined, such estimate will be disclosed in a subsequent SEC
report. Based on current plans, the majority of the restructuring charges related to severance and benefits will occur in the final quarter of 2004 and the restructuring charges related to real estate consolidations and termination of vendor
contracts will occur in 2005. As a result of these restructuring activities, the Company will perform a review of its long-lived assets to determine if any impairment exists. As of the date of the filing of this quarterly report on Form 10-Q, the
Company has eliminated approximately 250 employee positions under this restructuring plan.



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##### Table of Contents

Part I. Financial Information



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis should be read together with our condensed consolidated financial statements and related notes appearing in this
report on Form 10-Q for the quarter ended September 30, 2004 and our amended annual report on Form 10-K/A for the year ended December 31, 2003.



In this quarterly report on Form 10-Q, references to the Company, we, our and us in respect of time
periods preceding December 9, 2003 (the Effective Date) are references to Old GCL (as defined in this Item 2 under Reorganization, below) and its consolidated subsidiaries (collectively, the Predecessor), while
such references in respect of time periods commencing with the Effective Date are references to New GCL (as defined in this Item 2 under Reorganization, below) and its consolidated subsidiaries (collectively, the Successor).



Cautionary Factors That May Affect Future Results

(Cautionary Statements Under Section 21E of the Securities Exchange Act of 1934)



Forward-Looking Statements



Our disclosure and analysis in this quarterly report on Form 10-Q contain certain forward-looking statements, as such term is defined in
Section 21E of the Securities Exchange Act of 1934. These statements set forth anticipated results based on managements plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the
public as well as oral forward-looking statements. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify such statements
by using words such as anticipate, estimate, expect, project, intend, plan, believe, will and similar expressions in connection with any discussion of
future operating or financial performance or strategies. Such forward-looking statements include, but are not limited to, statements regarding:



| |  | our services, including the development and deployment of data products and services based on IP and other technologies and strategies to expand our targeted customer base and
broaden our sales channels;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the operation of our network, including with respect to the development of IP protocols;
| | - | ----------------------------------------------------------------------------------------



| |  | our liquidity and financial resources, including anticipated capital expenditures, funding of capital expenditures and anticipated levels of indebtedness;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | trends related to and managements expectations regarding results of operations, revenues and cash flows, including but not limited to those statements set forth below in
Managements Discussion and Analysis of Financial Condition and Results of Operations; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | business restructuring activities, sales efforts, expenses, interest rates, foreign exchange rates, and the outcome of contingencies, such as legal proceedings.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



We cannot guarantee that any forward-looking
statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate,
actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.



We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K. Also note that we provide the following cautionary discussion of
risks and uncertainties related to our businesses. These are factors that we believe, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. We note these factors for investors as
permitted by the Section 21E of the Securities Exchange Act of 1934. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all
potential risks or uncertainties.



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Risk Factors



Our forward-looking statements are subject to a variety of factors that could cause actual results to differ significantly
from current beliefs and expectations. In addition to the risk factors identified under the captions below, the operation and results of our business are subject to general risks and uncertainties such as those relating to general economic
conditions and demand for telecommunications services.



Risks Related to Liquidity and Financial Resources



| |  | We incurred substantial operating losses, which have continued in 2004, and, in the near term, we will not generate funds from operations sufficient to meet all of our cash
requirements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | If we are unable to raise substantial financing and improve operating results to achieve positive cash flows in the future, we will be unable to meet our anticipated liquidity
requirements which include repayment of our borrowings under the Bridge Loan Facility by no later than January 15, 2005.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The covenants in our debt instruments restrict our financial and operational flexibility.
| | - | -----------------------------------------------------------------------------------------



| |  | Our international corporate structure limits the availability of our consolidated cash resources for intercompany funding purposes and reduces our financial restructuring
flexibility.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our access to capital is likely to be limited. We are currently seeking to arrange a secured debt financing and a working capital facility secured by certain accounts receivable.
Our financing plans are subject to continued access to capital markets and other factors beyond our control and may not be completed.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risks Related to our Operations



| |  | We cannot predict our future tax liabilities. If we become subject to increased levels of taxation, our results of operations could be adversely affected.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our rights to the use of the dark fiber that make up our network may be affected by the financial health of our fiber providers. A bankruptcy or financial collapse of one of these
providers could result in a loss of our rights to use the dark fiber, which in turn could have a negative impact on the integrity of our network and the results of our operations.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We may not be able to continue to connect our network to incumbent carriers networks or maintain Internet peering arrangements on favorable terms.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The loss of our indirect majority interest in Pacific Crossing Ltd. and our resultant dependence on its interim operator to provide services to the Asia/Pacific region could
adversely affect our operations and operating results.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Network Security Agreement requires significant operating and capital expenditures. The inadvertent violation of the agreement could have severe consequences.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The bankruptcies of potential customers in the Internet and communications-related industries have diminished our sales prospects and may have an adverse effect on our results of
operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | It is expensive and difficult to switch new customers to our network, and lack of cooperation of incumbent carriers can slow the new customer connection process.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We depend on our key personnel and qualified technical staff and, if we lose their services, our ability to manage the day-to-day aspects of our business and complex network will be
weakened. We may not be able to hire and retain qualified personnel, which could adversely affect our operating results.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The operation, administration, maintenance and repair of our systems are subject to risks that could lead to disruptions in our services and the failure of our systems to operate as
intended for their full design life.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The failure of our operations support systems to perform as we expect could impair our ability to retain customers and obtain new customers, or provision their services, or result
in increased capital expenditures, which would adversely affect our revenues or capital resources.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  | Intellectual property and proprietary rights of others could prevent us from using necessary technology. While we do not believe that there exists any technology patented by others,
that is necessary for us to provide our services and that is not now subject to a license allowing us to use it, there can be no assurances in this regard. If such technology is owned by others and not licensed by us, we would have to negotiate a
license for use of that property. We may not be able to negotiate an acceptable price.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Physical space limitations in office buildings and landlord demands for fees or revenue sharing could limit our ability to connect customers to our networks and increase our costs.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have substantial international operations and face political, legal and other risks from our operations in foreign jurisdictions.
| | - | ------------------------------------------------------------------------------------------------------------------------------------



| |  | We are exposed to contingent liabilities that could result in material losses that we have not reserved against.
| | - | ----------------------------------------------------------------------------------------------------------------



| |  | Due to issues regarding the financial viability of the Companys principal property, casualty, liability and related insurance carrier, it is possible that the Company would
not be able to access certain limits provided under these coverages. In addition, the Company may be required to secure replacement coverages at potentially higher premium levels.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risks Related to Competition and our Industry



| |  | Many of our customers deal predominantly in foreign currencies, so we may be exposed to exchange rate risks and our net loss may suffer due to currency translations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The prices that we charge for our services have been decreasing, and we expect that such decreases will continue over time.
| | - | ---------------------------------------------------------------------------------------------------------------------------



| |  | Technological advances and regulatory changes are eroding traditional barriers between formerly distinct telecommunications markets, which could increase the competition we face and
put downward pressure on prices.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Many of our competitors have superior resources, which could place us at a cost and price disadvantage.
| | - | -------------------------------------------------------------------------------------------------------



| |  | Our selection of technology could prove to be incorrect, ineffective or unacceptably costly, which would limit our ability to compete effectively.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our operations are subject to regulation in the United States and abroad and require us to obtain and maintain a number of governmental licenses and permits. If we fail to comply
with those regulatory requirements or obtain and maintain those licenses and permits, we may not be able to conduct our business. Moreover, those regulatory requirements could change in a manner that significantly increases our costs or otherwise
adversely affects our operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Attempts to limit the basic competitive framework of the Telecom Act could interfere with the successful implementation of our business plan.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | Potential regulation of Internet service providers could adversely affect our operations.
| | - | -----------------------------------------------------------------------------------------



| |  | The requirement that we obtain and maintain permits and rights-of-way for our network increases our cost of doing business and could adversely affect our performance and results.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We depend on third parties for many functions. If the services of those third parties become unavailable to us, we may not be able to conduct our business.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Terrorist attacks and other acts of violence or war may adversely affect the financial markets and our business and operations. Since the telecommunications networks and equipment
can be considered critical infrastructure, it is possible that our physical facilities or network control systems could be the target of such attacks, or that such attacks could impact other telecommunications companies in a manner that disrupts our
operations.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Risks Related to Our New Common
Stock



| |  | A subsidiary of ST Telemedia is our majority stockholder and the voting rights of other stockholders are significantly limited.
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | Future sales of New GCLs common stock could adversely affect its price and/or our ability to raise capital.
| | - | ------------------------------------------------------------------------------------------------------------



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| |  | The continued listing of New GCLs common stock on the Nasdaq National Market is subject to the Companys timely filing of all periodic reports with the Securities and
Exchange Commission due on or prior to September 30, 2005.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | If the GCL Convertible Notes are issued, the percentage ownership interest in the Company held by stockholders of the Company who do not own such notes will be significantly diluted
upon the conversion of such notes into common stock.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other Risks



| |  | Our adoption of fresh start accounting and changes due to acquisitions and dispositions make comparisons of our financial position and results of operations with those
of prior periods more difficult.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We and certain of our current and former officers and directors are involved in various governmental investigations and lawsuits.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



For a more detailed description of these risks and additional risk factors,
please see Item 1: BusinessCautionary Factors That May Affect Future Results, in our amended annual report on Form 10-K/A for the year ended December 31, 2003.



Restatement of Previously Issued Financial Statements



In April 2004, in the course of preparing our condensed consolidated financial statements for the first quarter of 2004, we
became concerned with the adequacy of our accrued cost of access liabilities. Upon review, we concluded that the December 31, 2003 cost of access liabilities were understated by $79 million. After substantial review and evolution as to how we should
account for the understatement, we finally concluded, after consultation with the Staff of the Securities and Exchange Commission, that a restatement of 2003 previously reported periods was required. The condensed consolidated financial statements
as of and for the three and nine months ended September 30, 2003, included in this quarterly report on Form 10-Q, reflect the impact of the restatement related to these periods. For more information regarding the restatement and its impact on all
previously issued financial statements affected, see the consolidated financial statements included in the amended annual report on Form 10-K/A for the year ended December 31, 2003.



Executive Summary



Overview



We are a global provider of telecommunications services to carriers and commercial enterprises around the world. The principal services we offer to our
customers include voice, data and conferencing services. We offer these services using a global IP-based network that directly connects more than 300 cities in over 30 countries and delivers services to more than 500 major cities in over 50
countries around the world. The majority of our telecommunications services revenues and cash flows are generated based on monthly recurring services. Prior to August 13, 2004, through our Global Marine subsidiary we also provided installation and
maintenance services for subsea telecommunications systems.



Third Quarter 2004 Highlights



Our revenues
decreased in the third quarter of 2004 compared with the third quarter of 2003 as a result of continued pricing reductions for telecommunications services and reduced revenue from the amortization of prior period IRUs as a result of fresh start
accounting on our emergence from bankruptcy on December 9, 2003 (the Effective Date). While the volume of telecommunications services sold has increased, as a result of increased sales to new and existing customers, the continued decline
in pricing has resulted in lower overall revenues. In addition, we expect our revenues to decrease between $40 million to $60 million in the fourth quarter of 2004 and even more significantly in the first quarter of 2005 primarily related to
reductions in carrier voice services



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revenue as a result of initiatives taken by us as part of our recently announced business restructuring plan. The business restructuring plan is expected to
improve operating cash flow from current levels. See the Business Restructuring Plan section below for further information on these and other restructuring activities.



Our cost of access expense is our single largest expense and was 71% and 74% (as restated) of our revenues, excluding
revenue from the amortization of IRUs, during the three months ended September 30, 2004 and 2003, respectively. Our cost of access expense decreased during the three months ended September 30, 2004 as compared to the three months ended September 30,
2003. Although our sales volume increased, our cost of access charges decreased as a result of cost of access reduction initiatives. These initiatives included shifting suppliers, contract and tariff renegotiations to lower access rates, facility
network access optimization, switched network access optimization through direct end office trunking and the continued review of access charges, special promotions and disputes resolution. The result of the improvement in cost of access unit charges
was a flat gross margin, excluding IRU amortization revenue, even though there were significant decreases in revenue. The improvement in cost of access unit charges also resulted in an improvement in gross margin percentage, despite the significant
reductions in pricing for our telecommunications services offerings.



Total gross margin, excluding IRU amortization revenue, is calculated as follows:



|                                                                                |  |                                       |     |                                               |                                      |   |               |   |                                               |  |      |  
|------------------------------------------------------------------------------- |  | ------------------------------------- | --- | --------------------------------------------- | ------------------------------------ | - | ------------- | - | --------------------------------------------- |  | ---- | -
|                                                                                |  | Successor                             |     | % of revenuesexcluding IRUamortizationrevenue |                                      |   | Predecessor   |   | % of revenuesexcluding IRUamortizationrevenue | 
|                                                                                |  | Three Months Ended September 30, 2004 |     |                                               | Three Months Ended September 30,2003 |  
|                                                                                |  |                                       |     |                                               |                                      |   | (Restated)    |   |                                               | 
|                                                                                |  | (in millions)                         |     |                                               |                                      |   | (in millions) |   |                                               | 
|Consolidated revenue                                                            |  | $                                     | 617 |                                               | NA                                   |   |               | $ | 696                                           |  | NA   |  
|Revenue from the amortization of prior period IRUs (IRU amortization revenue) |  |                                       | 1   |                                               | NA                                   |   |               |   | 21                                            |  | NA   |  
|                                                                                |  |                                       |     |                                               |                                      |   |               |   |                                               |  |      |  
|Revenue excluding IRU amortization revenue                                      |  |                                       | 616 |                                               | 100                                  | % |               |   | 675                                           |  | 100  | %
|Cost of access                                                                  |  |                                       | 435 |                                               | 70.6                                 | % |               |   | 496                                           |  | 73.5 | %
|                                                                                |  |                                       |     |                                               |                                      |   |               |   |                                               |  |      |  
|Gross margin excluding IRU amortization revenue                                 |  | $                                     | 181 |                                               | 29.4                                 | % |               | $ | 179                                           |  | 26.5 | %
|                                                                                |  |                                       |     |                                               |                                      |   |               |   |                                               |  |      |  



We experienced
negative cash flow from operations during the third quarter of 2004. At September 30, 2004, we had $88 million of unrestricted cash and cash equivalents. We expect our available liquidity to continue to decline during the remainder of 2004 due to
operating cash flow requirements and estimated payments of approximately $28 million for deferred reorganization costs, and that we will require substantial additional cash to fund operating cash flow requirements in future quarters.



In May 2004, we entered into an agreement with a subsidiary of Singapore
Technologies Telemedia Pte Ltd (ST Telemedia) regarding a $100 million senior secured loan facility (the Bridge Loan Facility). All $100 million of availability under the Bridge Loan Facility had been borrowed as of October
1, 2004. On November 2, 2004, the Bridge Loan Facility was amended to increase the availability there under to $125 million and we borrowed the additional $25 million on November 5, 2004 (see Liquidity and Capital Resources below for
further description of the Bridge Loan Facility). The Bridge Loan Facility was originally scheduled to mature on December 31, 2004.



On November 5, 2004, STT Crossing and STT Hungary Liquidity Management Limited Liability Company (STT Hungary), the subsidiary of ST Telemedia
that holds the $200 million of senior secured notes issued on the Effective Date (the Senior Secured Notes), agreed to the deferral of certain payments on the Bridge Loan Facility and the Senior Secured Notes. Specifically, STT Crossing
and STT Hungary agreed to defer



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approximately $15 million in aggregate interest payments otherwise due in December 2004 until the earlier of January 15, 2005 and the completion of a secured
debt financing, which we expect to complete in December 2004 and to raise $300 million or more in gross proceeds. STT Crossing also agreed to defer the final maturity date of the Bridge Loan Facility from December 31, 2004 to the earlier of January
15, 2005 or the completion of a secured debt financing. As a result of these deferrals, the Company has sufficient liquidity to meet its anticipated liquidity needs through December 2004, by which time the Company believes that it can complete the
recapitalization plan described below under Liquidity and Capital Resources. If the Company is unable to complete the recapitalization plan this December and to improve operating results to achieve positive operating cash flows in the
future, the Company will be unable to meet its anticipated liquidity requirements.



On August 3, 2004, New GCLs Board of Directors approved a plan to divest Global Marine, a non-core business, and on August 13, 2004, we consummated a series of agreements with Bridgehouse for the sale of Global
Marine and the transfer of our forty-nine percent shareholding in S.B. Submarine Systems Company Ltd. (SBSS), a joint venture primarily engaged in the subsea cable installation and maintenance business in China, for consideration up to
$15 million, subject to certain conditions as defined in the agreements. We completed the sale of Global Marine during the third quarter for proceeds of $1 million in cash, a portion of which was received at the closing and the balance of which will
be received when audited financial statements for Global Marine are delivered, which is expected in the fourth quarter of 2004. No gain was recorded on the sale. The sale of our holdings of SBSS is subject to approval by the other joint venture
holder and regulatory approval by the Chinese government, which we expect to occur by mid-2005. Our agreement to transfer our shareholding in SBSS expires in October 2005. As a result of these transactions, Bridgehouse has assumed all of Global
Marines capital and operating lease commitments and the Company is no longer subject to cross-defaults that could have been triggered under the indenture for the Senior Secured Notes and the Bridge Loan Facility as a result of the pending
defaults by Global Marine under such lease commitments. Global Marines and SBSSs results of operations are included in discontinued operations and our only remaining reportable segment is telecommunications services.



Under the indenture for the Senior Secured Notes, in the event of a sale of
Global Marine, any net proceeds received by us, after settlement of liabilities and deal costs, were required to be used to repay the Senior Secured Notes. However, we received a waiver of this requirement from STT Hungary.



Business Restructuring Plan



On October 8, 2004, our board of directors approved a restructuring plan
designed to focus on businesses that are consistent with our overall strategyto be a premier provider of global data and Internet Protocol (IP) services by building on our extensive broadband network and technological capabilities.
The restructuring plan involves concentrating our efforts in areas that we anticipate will provide profitable growth opportunities and moving away from a number of unprofitable and non-strategic parts of the business. We have begun to implement the
restructuring plan during the fourth quarter of 2004. We developed the restructuring plan in light of ongoing adverse conditions in the telecommunications industry, in particular the continued pricing pressures for telecommunications services. We
believe that the implementation of the restructuring plan will over time reduce our financing requirements, accelerate the date by which our operating cash flow will be sufficient to satisfy our anticipated liquidity requirements and lead to overall
profitability for the Company. The restructuring plan has the following three principal elements.



First, we will downsize, discontinue, harvest or exit several business areas. These include small business and consumer local and long distance, financial
industry trader voice, calling card, and other low margin services. We plan to accomplish this through a series of actions, including commercial actions intended to improve profitability and dispositions and other strategic alternatives. The most
significant business that will be affected by these actions is our legacy North American voice business. We anticipate that the restructuring actions will result in significant reductions in revenue from this business area, while continuing with a
core, higher margin revenue base sufficient to maintain network efficiencies.



Second, we will implement workforce reductions, facilities consolidation and other cost savings initiatives. We expect that these restructuring efforts will result in the elimination of approximately 600 positions,
representing



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approximately 15% of our workforce, by March 2005 across a range of business functions and job classes, principally in our North American operations. We
expect to achieve approximately $40 million to $45 million in annual cost savings from the elimination of these positions. As part of the restructuring plan, we also plan to close and consolidate a number of offices and other real estate facilities,
with associated anticipated annual cost savings of approximately $1 million to $2 million. The restructuring plan also includes outsourcing initiatives intended to reduce ongoing operating expenses, principally in the area of non-access related
procurement.



Third, we will place greater emphasis on several
new business development initiatives in areas where we can capitalize on our IP network and capabilities. These initiatives are focused principally on global IP offerings and new carrier data offerings and on expanding our distribution capabilities
through systems integrators and other indirect channels. We plan to redeploy certain personnel and reorganize our sales and marketing efforts around these initiatives.



As a result of these efforts, we estimate that we will incur cash restructuring charges of approximately $12 million to $14
million for severance and benefits in connection with the anticipated workforce reduction and approximately $4 million to $5 million related to the real estate consolidation. In addition, we are in the process of identifying and evaluating specific
vendor contracts implicated by the restructuring in order to estimate the associated restructuring charge, which is expected to be material. Once determined, such estimate will be disclosed in a subsequent SEC report. Based on current plans, the
majority of the restructuring charges related to severance and benefits will occur in the final quarter of 2004 and the restructuring charges related to real estate consolidations and termination of vendor contracts will occur in 2005. As a result
of these restructuring activities, the Company will perform a review of its long-lived assets to determine if any impairment exists. As of the date of the filing of this quarterly report on Form 10-Q, we have eliminated approximately 250 employee
positions under this restructuring plan.



Reorganization



Global Crossing Limited (formerly GC Acquisition Ltd.), a company organized
under the laws of Bermuda in 2002 (New GCL), became the successor to Global Crossing Ltd., a company organized under the laws of Bermuda in 1997 (Old GCL), as a result of the consummation of the transactions contemplated by
the Joint Plan of Reorganization, as amended (the Plan of Reorganization) of Old GCL and certain of its debtor subsidiaries (Old GCL, collectively with its debtor subsidiaries, the GC Debtors), pursuant to chapter 11 of title
11 of the United States Code (the Bankruptcy Code) on the Effective Date. For a description of the results of the consummation of the Plan of Reorganization and the accounting impact of the reorganization see Item 7, Managements
Discussion and Analysis of Financial condition and Results of Operations, to our amended annual report on Form 10-K/A for the year ended December 31, 2003.



Critical Accounting Estimates



Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements in conformity with U.S. GAAP requires management to make judgments, estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting
period. Management continually evaluates its judgments, estimates and assumptions based on historical experience and available information. The following are the significant areas of our financial statements that involve significant judgment,
assumptions, uncertainties and estimates. The estimates involved in these areas are considered critical because if actual results or events differ materially from those contemplated by management in making these estimates, the impact on our
consolidated financial statements could be material. For a full description of our significant accounting policies, see Note 5, Basis of Presentation and Significant Accounting Policies, to the accompanying consolidated financial
statements in our amended annual report on Form 10-K/A for the year ended December 31, 2003.



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Fresh-Start Accounting and Reporting



Upon emergence from bankruptcy, we adopted fresh start accounting and
reporting which resulted in material adjustments to the historical carrying amount of our assets and liabilities. Fresh start accounting and reporting was applied in accordance with Statement of Position 90-7, Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code (SOP 90-7), which required us to allocate the reorganization value to our assets and liabilities based upon their estimated fair values. The fair value of the assets, as determined for
fresh start reporting, was based on estimates of anticipated future cash flows of these assets discounted at appropriate current rates. Liabilities existing at the Effective Date were stated at the present values of expected amounts to be paid
discounted at appropriate current rates. We engaged an independent appraiser to assist in the allocation of the reorganization value and in determining the fair market value of its property and equipment and intangible assets. Deferred taxes were
reported in conformance with existing generally accepted accounting principles. Debt issued in connection with the Plan of Reorganization was recorded at fair value. As provided by the accounting rules, we use a one-year period following the
Effective Date to finalize the allocation of the reorganization value to our assets and liabilities, excluding changes in amounts related to pre-confirmation contingencies which are included in the determination of net income in accordance with
AICPA Practice Bulletin 11, Accounting for Preconfirmation Contingencies in Fresh Start Reporting. The determination of the fair values of assets and liabilities was subject to significant estimation and assumption.



Revenue Recognition and Related Reserves



Telecommunications Services



Revenues derived from telecommunication and maintenance services, including
sales of capacity under operating type leases, are recognized as services are provided. Payments received in advance of providing services are deferred until the period in which these services are provided.



Telecommunications Installation Revenues



We recognize revenue related to telecommunication installation services and
equipment in accordance with guidance included in SEC Staff Accounting Bulletin 101, Revenue Recognition in Financial Statements (SAB No. 101) as amended by SEC Staff Accounting Bulletin 104, Revenue
Recognition (SAB No. 104). Under the provisions of SAB No. 101, as amended by SAB No. 104, installation revenues and the associated costs related to installation are to be recognized over the longer of the contractual period or
expected customer relationship. We have determined our average expected customer relationship to be approximately 2 years and as such, that is the period over which we amortize our installation revenue unless the contractual period exceeds
2 years. The determination of the term of our average expected customer relationship is based on historical experience, including contractual periods and attrition rates and future expectations that are subject to significant estimation and
assumption.



Percentage-of-Completion



Revenue and estimated profits under long-term contracts for subsea
telecommunication installation by Global Marine are recognized under the percentage-of-completion method of accounting, whereby sales and profits are recognized as work is performed based on the relationship between actual costs incurred and total
estimated costs to complete. Provisions for anticipated losses are made in the period in which they first become determinable. The determination of estimated costs to complete involves significant estimation and assumption. On August 13, 2004, GMS
was sold and, therefore, the results of their operations are presented as a discontinued operation for all periods presented.



Sales Credit Reserves



During each reporting period we must make estimates for potential future sales credits to be issued in respect of current revenues, related to billing
errors, service interruptions and customer disputes. We analyze historical credit activity and changes in customer demands related to current billing and service interruptions



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when evaluating our credit reserve requirements. We reserve known billing errors and service interruptions as incurred. We review customer disputes and
reserve against those we believe to be valid claims. We also estimate a general sales credit reserve related to unknown billing errors and disputes based on such historical credit activity. The determination of the general sales credit and customer
dispute credit reserve requirements involves significant estimation and assumption.



Allowance for Doubtful Accounts



During each reporting period we must make estimates for potential losses resulting from the inability of our customers to make required payments. We analyze our reserve requirements using several factors, including the length of time the
receivables are past due, changes in the customers creditworthiness, the customers payment history, the length of the customers relationship with us, the current economic climate, current industry trends and other relevant factors.
A specific reserve requirement review is performed on customer accounts with larger balances. A general reserve requirement is developed on most accounts utilizing the factors previously mentioned. We have historically experienced significant
changes month to month in reserve level requirements, primarily due to unanticipated large customer bankruptcy filings or other insolvency proceedings. Due to the current economic climate, the competitive environment in the telecommunications sector
and the volatility of the financial strength of particular customer segments including resellers and CLECs, the collectibility of receivables and credit worthiness of customers can become more difficult and unpredictable. Changes in the financial
viability of significant customers, worsening of economic conditions and changes in our ability to meet service level requirements may require changes to our estimate of the recoverability of the receivables. In some cases receivables previously
charged off are recovered and are recognized as a reduction in bad debt expense in the period realized. Appropriate adjustments will be recorded to the period in which these changes become known. The determination of both the specific and general
allowance for doubtful accounts reserve requirements involves significant estimation and assumption.



Cost of Access Accruals



Background



Our cost of access primarily comprises usage-based voice charges paid to other carriers to originate and/or terminate switched voice traffic and charges
for leased lines for dedicated facilities. Cost of access is our single largest expense, amounting to approximately 71% and 72%, respectively of our revenue for the three and nine months ended September 30, 2004.



As a result of a review we initiated in April 2004, we determined that there
was a material weakness in our internal control over financial reporting related to cost of access accounting in our North American operations, including the failure to make use of available information to conduct an aggregate true-up of estimated
cost of access expenses to actual cash payments made to access providers. This weakness resulted in an understatement of cost of access in 2003 and gave rise to the restatement of our 2003 financial statements. A description of this weakness and the
remediation measures that have been and are being undertaken by us is set forth in Item 4, Controls and Procedures, of this quarterly report on Form 10-Q.



Set forth below is a summary of our current policy and procedures regarding cost of access accounting after giving effect to
changes made in light of our cost of access review. This summary reflects significant changes in the processes utilized to validate the monthly estimates of the cost of access accrual produced by our underlying cost of access expense estimation
processes in North America. Except for the implementation of the COA Overlay (as defined below), the overall design of our cost of access estimation process remains materially unchanged, although refinements have been made to improve the accuracy of
inputs to the process.



Policy and Use of Management
Estimates



Our policy is to record access expense as
services are provided by vendors. Access costs for switched voice traffic are estimated and expensed based on the volume of access services purchased, as measured by the



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Companys internal cost of access expense systems, and the access rates determined by contracts between the Company and its access providers and/or
tariff rates obtained from industry data sources. Access costs for leased lines are expensed based on invoice data and on estimates of the impact of circuits acquired or disconnected during the applicable month. We make a preliminary estimate of
monthly access costs incurred based on this information. We then adjust this preliminary estimate based on an analysis of historical differences between such preliminary monthly estimates and the comparable amounts determined by the validation
procedures described below, including the rebuilding of the cost of access accrual on a 90 day lag basis using aggregate cash payment information. The amount of the adjustment to our preliminary estimate is referred to in this quarterly report on
Form 10-Q as the COA Overlay. The recognition of access costs involves the use of significant management estimates and assumptions and requires reliance on non-financial systems.



The estimation and validation of cost of access expense is extremely complex
due to the following: changing regulations regarding access rules and related charges; the frequency of pricing changes in the market; constantly changing traffic patterns; the volume of information and inconsistency or deficiencies in external
databases, particularly regarding line ownership information; delays in invoicing by access vendors; and the receipt of multiple invoices from the same vendor. This is particularly true in North America, where approximately 85% of our total access
charges were incurred in 2003. Thus, our estimates of access charges are imprecise and may differ from the actual costs for the relevant periods when they are finally settled in the ordinary course of business. As a result of the improved cost of
access expense estimation and accrual validation processes reflected in the below summary, we believe that we have now established appropriate reserves for our accrued cost of access liabilities.



Principal Estimation Systems



For switched voice traffic, each month the minutes recorded by our switches
(the minutes of use or MOUs) are multiplied by the estimated rate for those minutes for that month; the result, after adjusting for any applicable COA Overlay, is the usage expense and accrued usage cost recorded for that
month. We use proprietary systems to identify, capture, and measure usage-based voice charges in North America using multiple sources of data, including: MOU data recorded by the Companys switches; vendor identification and rate information in
widely used industry databases; rate element estimates for smaller vendors; historical data; and actual contract rates for certain usage-based charges.



For leased lines, each month the expense is calculated based on the number of circuits and the average circuit costs, according to our leased line
inventory system, adjusted for contracted rate changes. Our inventory system is based on invoices received from facilities providers, which generally bill in advance of the period in which services are provided, as adjusted to track the daily
changes in our circuit inventory due to customer acquisitions and disconnections. An outside service provider assists us in maintaining and managing our circuit inventory.



We monitor the accuracy of our systems to measure network volumes and track circuits, and our rate tables are updated
frequently to maintain the accuracy of the rate structure we have with our access providers and per the current regulated tariff rates.



Accounting Entries for Cost of Access



The initial expenses estimated by our cost of access systems are expensed each month in our consolidated financial statements, with a corresponding
increase in the cost of access accrual. As invoices for MOUs purchased or access lines leased in North America are received and approved for payment, the Company records balance sheet entries to reduce the accrual and increase accounts payable.
Similarly, disbursement of cash to North American access vendors is also a balance sheet entry, reducing accounts payable and cash. Outside of North America, invoices are expensed upon receipt and the related estimates are reversed. This methodology
is practicable outside of North America because there are far fewer invoices (particularly manual invoices) and access vendors and a lower level of regulatory complexity in those regions.



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Validation of the North American Cost of Access Accrual



A reconciliation of North American cost of access charges at the individual
invoice level is impracticable given the magnitude of invoices received (particularly manual invoices), with approximately 15,000 invoices being received each month, the incompatibility of vendor billing information with our cost of access
estimation systems, and the high frequency of disputed charges. We therefore use procedures designed to validate the cost of access accrual established by our cost of access estimation systems.



The primary validation procedures now used in North America are: a monthly
rebuilding of the cost of access accrual on a 90 day lag basis using aggregate cash payment information from our financial systems; a comparison, by type of expense (e.g., domestic or international MOUs), of the expense estimates produced by our
cost of access estimation systems to the actual vouchered amounts billed by major vendors; a corroborative review between experienced and knowledgeable employees in the operational and financial cost of access management organizations; and a
statistical analysis of the timing of the receipt and vouchering of cost of access invoices and their related service periods. Due to invoicing delays by access vendors, which result in the receipt of invoices up to 90 days after the end of the
month in which services were provided, it is not possible to complete a comprehensive true-up to actual cash payments at the time of the issuance of the Companys balance sheet within the time frames required by applicable periodic reporting
requirements under the Exchange Act. Thus, cost of access accrual estimates are subject to the imprecision discussed above even after giving effect to the application of the Companys cost of access estimate validation processes. Any
mis-estimates reflected in a given balance sheet that are discovered through a subsequent true-up procedure are addressed through change in estimate adjustments made in the preparation of the ensuing balance sheet. We believe that our improved cost
of access expense estimation and accrual validation processes allow us to establish appropriate reserves for our accrued cost of access liabilities and that any such change in estimate adjustments will therefore be immaterial.



Disputes



We perform monthly bill verification procedures to identify errors in
vendors billing processes. The bill verification procedures include the examination of bills, comparing billed rates with rates used by the cost of access expense estimation systems during the cost of access monthly close process, evaluating
the trend of invoiced amounts by vendors, and reviewing the types of charges being assessed. These procedures do not include a comparison of invoiced amounts to amounts accrued in the financial statements. If we discover a bill that appears to
contain possible inaccuracies in rate or volume data, we record a charge to the cost of access expense and a corresponding increase to the access accrual for the disputed amounts, unless past experience or other corroborating evidence indicates that
it is not probable that the Company will ultimately be required to pay. If we ultimately reach an agreement with an access vendor in which we settle a disputed amount for less than the corresponding accrual, we recognize the resultant settlement
gain in the period in which the settlement is reached. Previously unaccrued disputes are tracked in a log and reviewed periodically to assess whether a loss has now become probable and reasonably estimable, in which case an accrual is established.
We generally withhold payments on all amounts subject to dispute until the dispute is settled.



Impairment of Long-Lived Assets



We assess the possible impairment of long-lived assets composed of property and equipment, intangibles and other assets held for a period longer than one year, whenever events or changes in circumstances indicate that
the carrying amount of the asset(s) may be impaired. Intangible assets are also reviewed annually for impairment whether or not events have occurred that may indicate impairment. Recoverability of assets to be held and used is measured by comparing
the carrying amount of an asset to the undiscounted net future cash flows expected to be generated by the asset. If these projected future cash flows are less than the carrying amount, impairment would be recognized, resulting in a write-down of the
assets with a corresponding charge to earnings. The impairment loss is measured by the amount by which the carrying amounts of the assets exceed their fair value. Calculating the future net cash flows expected to be generated by assets to determine
if impairment exists and to calculate the



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impairment involves significant assumptions, estimation and judgment. The estimation and judgment involves, but is not limited to, industry trends including
pricing, estimating long term revenues, revenue growth, operating expenses, capital expenditures, and expected periods the assets will be utilized.



As discussed in Note 3, Fresh Start Accounting, to the accompanying consolidated financial statements included in this quarterly report on
Form 10-Q, we adopted fresh start accounting upon our emergence from bankruptcy under SOP 90-7, which resulted in a change in the value of our long-lived assets. The change was a result of allocating the reorganization value to our assets and
liabilities based upon their estimated fair values.



As a
result of the business restructuring plan discussed above, we will be performing a review of long-lived assets to determine if any impairment exists.



Pension and Other Post Retirement Benefits



We maintain benefit plans for our employees, including defined benefit pension plans and other post retirement benefit plans. On a consolidated basis, the
fair value of benefit obligations exceeds pension plan assets resulting in expense. Other post retirement benefit plans are immaterial. The calculation of pension expense and pension liability requires the use of a number of estimates and
assumptions. Significant benefit plan assumptions include the assumed discount rate used, the long-term rate of return of plan assets and rate of future increases in compensation. The assumptions we use are based on historical experience and by
evaluating predictions on matters such as rates of return and mortality provided by third party advisors such as actuaries and investment advisors. Changes in these assumptions can result in different expense and liability amounts, and future actual
experience can materially differ from the assumptions.



Deferred Taxes



Our current and
deferred income taxes, and associated valuation allowances, are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-recurring items. Assessment of the appropriate amount and
classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax on income and deductions. Actual realization of deferred tax assets and liabilities may materially differ from
these estimates as a result of changes in tax laws as well as unanticipated future transactions impacting related income tax balances.



The assessment of a valuation allowance on deferred tax assets is based on the weight of available evidence that some portion or all of the deferred tax
asset will not be realized. Deferred tax liabilities were first applied to the deferred tax assets reducing the need for a valuation allowance. Future utilization of the remaining net deferred tax asset would require the ability to forecast future
earnings. Based on past performance resulting in net loss positions, sufficient evidence exists to require a full valuation allowance on the net asset balance.



As a result of our bankruptcy, estimates have been made that impact the deferred tax balances. The factors resulting in estimation include but are not
limited to the fresh start valuation of assets and liabilities, implications of cancellation of indebtedness income and various other matters. Additional information and analysis is required in order to finalize these preliminary calculations.



As a result of our emergence from bankruptcy and our adoption
of fresh start accounting rules under SOP 90-7, all pre-emergence deferred tax assets which are realized through the reversal of established valuation allowances are to be recorded as a reduction of intangibles until exhausted and thereafter
reported as additional paid-in capital and therefore should not culminate in the earnings process of the Company as a deferred tax benefit. However, this does not preclude the Company from realizing the cash tax benefits from these assets.



Restructuring



We have engaged in restructuring activities, which require us to make
significant judgments and estimates in determining restructuring charges, including, but not limited to, future severance costs and other employee



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separation costs, sublease income or disposal costs, length of time on market for abandoned rented facilities, and contractual termination costs. Such
estimates are inherently judgmental and changes in such estimates, especially as they relate to contractual lease commitments and related anticipated third party sub-lease payments, could have a material effect on the restructuring liabilities and
consolidated results of operations.



See further discussions in
this Item and Note 10, Restructuring Activity, to the accompanying condensed consolidated financial statements included in this interim report on Form 10-Q, for information on restructuring activities during the nine months ended
September 30, 2004.



Telecommunications Installation
Costs



We recognize costs related to the purchase of
third party telecommunication installation services and equipment in accordance with the guidance included in SAB No. 101 as amended by SAB No. 104. Under this guidance, installation costs are recognized over the longer of the contractual period or
expected customer relationship. We have determined our average expected customer relationship to be approximately 2 years and, as such, this is the period over which we amortize our third party installation costs unless the contractual period
exceeds 2 years. The determination of the term of our expected customer relationship is based on historical experience, including contractual periods and attrition rates and future expectations that are subject to significant estimation and
assumption.



Stock-Based Compensation



On December 9, 2003, Successor adopted the provisions of SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS No. 123), for all stock awards granted or modified on or after the Effective Date. Under SFAS No. 123, compensation cost is measured at the grant date based on the fair value of
the award. Once the fair value of a stock award is calculated we estimate the number of stock awards expected to actually vest (total stock awards granted less stock awards reduced by expected employee attrition) to determine total expected stock
compensation expense. The total expected stock compensation expense is amortized on a straight-line basis over the stock awards vesting terms; provided that the amount amortized as of a given date may be no less than the portion of the stock award
vested as of such date. We use the Black-Scholes option-pricing model to determine the fair value of stock option awards. The Black-Scholes model requires several subjective inputs including expected volatility, expected life of the option and
expected dividend yield. As we have restructured our business through the bankruptcy process, we do not have appropriate historical experience (especially towards the volatility input due to our short market trading history) to assist us in
determining the inputs and have therefore based our inputs, excluding dividend yield which is based on our expectation, on the average of a select group of our competitors assumptions. The assumptions used to calculate the fair value of the
options are a 70% expected volatility, a 5-year expected life of the option and 0% dividend yield. The estimated 6% employee attrition has been based on a review of historical attrition, prior to entering into bankruptcy, and current
telecommunications market trends. The determination of inputs used in the Black-Scholes option pricing model and expected employee attrition involves significant estimation and assumption.



For a description of our stock-based compensation programs, see Note 7,
Stock-Based Compensation, to the accompanying condensed consolidated financial statements included in this interim report on Form 10-Q.



COMPARISON OF FINANCIAL RESULTS



The financial information presented in this report comprises the condensed consolidated financial information of (i) Successor for the three and nine
months ended September 30, 2004; and (ii) Predecessor for the three and nine months ended September 30, 2003 restated. The condensed consolidated financial statements of the Predecessor were prepared while the Predecessor was still engaged in
chapter 11 proceedings and, accordingly, were prepared in accordance with SOP 90-7. These financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that would have resulted had Predecessor not been accounted for as a going concern.



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Results of Operations for the Three Months Ended September 30, 2004 and 2003



Revenues.Revenues for the three months ended September 30,
2004 and 2003 reflect the following changes:



|                                  |  |                                 |     |             |   |                       |  |   |                       |   |  |     |   
|--------------------------------- |  | ------------------------------- | --- | ----------- | - | --------------------- |  | - | --------------------- | - |  | --- | --
|                                  |  | Successor                       |     | Predecessor |   | $ Increase/(Decrease) |  |   | % Increase/(Decrease) |  
|                                  |  | Three Months EndedSeptember 30, |     |            
|                                  |  | 2004                            |     | 2003        |   |                      
|                                  |  | (in millions)                   |     |             |   |                       |  |  
|Commercial                        |  | $                               | 246 |             | $ | 257                   |  | $ | (11                   | ) |  | (4  | )%
|Consumer                          |  |                                 | 3   |             |   | 7                     |  |   | (4                    | ) |  | (57 | )%
|Carrier:                          |  |                                 |     |             |   |                       |  |   |                       |   |  |     |   
|Service revenue                   |  |                                 | 367 |             |   | 411                   |  |   | (44                   | ) |  | (11 | )%
|Amortization of prior period IRUs |  |                                 | 1   |             |   | 21                    |  |   | (20                   | ) |  | (95 | )%
|                                  |  |                                 |     |             |   |                       |  |   |                       |   |  |     |   
|Total carrier                     |  |                                 | 368 |             |   | 432                   |  |   | (64                   | ) |  | (15 | )%
|                                  |  |                                 |     |             |   |                       |  |   |                       |   |  |     |   
|Total revenue                     |  | $                               | 617 |             | $ | 696                   |  | $ | (79                   | ) |  | (11 | )%
|                                  |  |                                 |     |             |   |                       |  |   |                       |   |  |     |   



Commercial
revenues. Commercial revenues relates to the provision of voice, data and conferencing services to our customers, other than carriers and consumers.



|                              |  |                                 |     |                       |   |     |                       |   |     |   |  |    |   
|----------------------------- |  | ------------------------------- | --- | --------------------- | - | --- | --------------------- | - | --- | - |  | -- | --
|                              |  | Successor                       |     | Predecessor           |   |     |                       |   |     |  
|                              |  | Three Months EndedSeptember 30, |     | $ Increase/(Decrease) |   |     | % Increase/(Decrease) |  
|                              |  | 2004                            |     | 2003                  |   |    
|                              |  | (in millions)                   |     |                       |   |     |                       |  
|Voice services revenue        |  | $                               | 108 |                       | $ | 115 |                       | $ | (7  | ) |  | (6 | )%
|Data services revenue         |  |                                 | 117 |                       |   | 124 |                       |   | (7  | ) |  | (6 | )%
|Conferencing services revenue |  |                                 | 21  |                       |   | 18  |                       |   | 3   |   |  | 17 | % 
|                              |  |                                 |     |                       |   |     |                       |   |     |   |  |    |   
|Total commercial revenues     |  | $                               | 246 |                       | $ | 257 |                       | $ | (11 | ) |  | (4 | )%
|                              |  |                                 |     |                       |   |     |                       |   |     |   |  |    |   



Commercial revenues
decreased in the third quarter of 2004 as compared with the third quarter of 2003 as a result of declines in the average unit prices of voice, data, and conferencing services, as well as customer attrition due to continued intense competition in
certain of our service areas. The lower unit prices were partially offset by modest increases in sales volume for voice and data services and significant sales volume increases for conferencing services. We experienced a slight change in our sales
mix towards the higher margin data and conferencing products (56% of total commercial revenues in the third quarter of 2004 compared with 55% in the third quarter of 2003) from the lower margin voice services products. This sales mix change was
primarily a result of growth in our conferencing services.



Voice services revenue decreased as a result of a greater than 10% decrease in average annual unit prices. The decrease in average annual unit prices is a result of continued intense competition in the North American domestic market. The
decrease in revenue due to voice services price declines was partially offset by an increase in voice services sales volume of approximately 5%. The increase is a result of additional purchases from existing customers as well as sales to new
customers.



Data services revenue decreased as a result of
average unit price reductions and attrition of certain financial market customers. We have seen significant pricing declines in data services such as IP access and private line services. The rate of price declines for these products has slowed from
prior trends and pricing for premium products such as IP VPN and Managed Service applications have declined at a slower rate. The decrease in revenue from price reductions and customer attrition was partially offset by an increase in sales volume
for data service products. We have had significant increases in sales volume for our IP services products, including Internet access and IP VPN services.



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Conferencing services revenue increased as a result of an over 50% increase in sales volume. The increase
in sales volume is a result of greater collaboration between the conferencing and commercial sales force representatives to target new and existing customers not yet using Global Crossings conferencing services, the marketing of new iVideo and
IP video conferencing services to these customers, and the revision of our pricing of conferencing services to attract customers to increase purchases of conferencing services. The increase in revenue as a result of the greater sales volume was
partially offset by an over 25% decrease in average annual unit prices for conferencing services. The decrease in pricing for conferencing services is a result of continued competition and internal programs to attract additional business.



Consumer revenues.We continue to minimize our
investment in our consumer business as we have determined that this business is not core to our strategy. We have no plans to grow this business as the costs to maintain and acquire customers are expected to exceed the benefits to our future
profitability. Therefore we expect consumer revenues to continue to decline as a result of customer attrition and price erosion of the existing customer base.



Carrier revenues.Service revenue in the carrier channel relates to the provision of voice and data services to our telecommunications
carrier customers.



|                               |  |                                 |     |                       |   |     |                      |   |     |   |  |     |   
|------------------------------ |  | ------------------------------- | --- | --------------------- | - | --- | -------------------- | - | --- | - |  | --- | --
|                               |  | Successor                       |     | Predecessor           |   |     |                      |   |     |  
|                               |  | Three Months EndedSeptember 30, |     | $ Increase/(Decrease) |   |     | %Increase/(Decrease) |  
|                               |  | 2004                            |     | 2003                  |   |    
|                               |  | (in millions)                   |     |                       |   |     |                      |  
|Voice services revenue         |  | $                               | 315 |                       | $ | 351 |                      | $ | (36 | ) |  | (10 | )%
|Data services revenue          |  |                                 | 52  |                       |   | 60  |                      |   | (8  | ) |  | (13 | )%
|                               |  |                                 |     |                       |   |     |                      |   |     |   |  |     |   
|Total carrier service revenues |  | $                               | 367 |                       | $ | 411 |                      | $ | (44 | ) |  | (11 | )%
|                               |  |                                 |     |                       |   |     |                      |   |     |   |  |     |   



Carrier service
revenues decreased in the third quarter of 2004 as compared with the third quarter of 2003 as a result of declines in the average unit prices of voice and data services. The lower unit prices were partially offset by modest increases in sales volume
of both voice and data services. We experienced a slight change in our sales mix towards the lower margin voice services products (86% of total carrier services revenues in the third quarter of 2004 compared with 85% in the third quarter of 2003)
from the higher margin data services products. This sales mix change was primarily a result of a significant increase in data services sales to a large carrier customer during the third quarter of 2003 that has since decreased its business with us
significantly.



Voice services revenue decreased as a result of
a greater than 15% decrease in average annual unit prices for both our United States (US) domestic and international long distance voice services products. The decrease is a result of continued competition in both the US domestic
wireline services and international long distance services markets. The decrease in revenue from voice unit price declines was partially offset by increases in sales volume of approximately 10% in our US domestic wireline services. The increase is a
result of greater penetration into Wireless, Cable, and ISP/ESP markets. Our sales volume remained relatively constant with prior years for international long distance services as a result of our actions to tighten our pricing and payment terms for
the international reseller customers, which resulted in volume decreases with these resellers that offset volume increases with other international long distance customers. We expect our carrier voice services revenues to decrease between $40
million to $60 million in the fourth quarter of 2004 and even more significantly in the first quarter of 2005 as a result of initiatives taken by us as part of our recently announced business restructuring plan. We expect significant decreases in
both domestic and international long distance voice services product sales.



Data services revenue decreased as a result of a decrease in average annual unit prices and a significant increase in data service sales to a large carrier customer during the third quarter of 2003 that has since
decreased its business with us significantly, partially offset by increases in sales volume.



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##### Table of Contents

Revenue recognized relating to the amortization of IRUs sold in prior periods decreased in the third
quarter of 2004 as compared with the third quarter of 2003 as a result of the adoption of fresh start accounting on the Effective Date. The adoption of fresh start accounting resulted in the elimination of approximately 90% of deferred revenue, to
reflect its then fair value, resulting in the lower revenue recognized in the third quarter of 2004.



Operating Expenses. Components of operating expenses for the three months ended September 30, 2004 and 2003 restated were as follows:



|                               |  |                                 |     |                       |   |     |                       |   |     |   |  |     |   
|------------------------------ |  | ------------------------------- | --- | --------------------- | - | --- | --------------------- | - | --- | - |  | --- | --
|                               |  | Successor                       |     | Predecessor           |   |     |                       |   |     |  
|                               |  | Three Months EndedSeptember 30, |     | $ Increase/(Decrease) |   |     | % Increase/(Decrease) |  
|                               |  | 2004                            |     | 2003                  |   |    
|                               |  |                                 |     | (Restated)            |   |     |                       |   |     |  
|                               |  | (in millions)                   |     |                       |   |     |                       |  
|Cost of access and maintenance |  | $                               | 463 |                       | $ | 524 |                       | $ | (61 | ) |  | (12 | )%
|Other operating expenses       |  |                                 | 194 |                       |   | 186 |                       |   | 8   |   |  | 4   | % 
|Depreciation and amortization  |  |                                 | 45  |                       |   | 34  |                       |   | 11  |   |  | 32  | % 
|                               |  |                                 |     |                       |   |     |                       |   |     |   |  |     |   
|Total operating expenses       |  | $                               | 702 |                       | $ | 744 |                       | $ | (42 | ) |  | (6  | )%
|                               |  |                                 |     |                       |   |     |                       |   |     |   |  |     |   



Cost of access
and maintenance.Cost of access and maintenance (COA&M) primarily includes the following: (i) usage based voice charges paid to local exchange carriers (LECs) and interexchange carriers (IXCs) to
originate and/or terminate switched voice traffic; (ii) charges for leased lines for dedicated facilities and local loop (last mile) charges from both domestic and international carriers; and (iii) third party maintenance costs incurred
in connection with maintaining the terrestrial network, subsea fiber optic network (wet maintenance), cable landing stations and service layer equipment.



|                     |  |                                 |     |                       |   |     |                       |   |     |   |  |     |   
|-------------------- |  | ------------------------------- | --- | --------------------- | - | --- | --------------------- | - | --- | - |  | --- | --
|                     |  | Successor                       |     | Predecessor           |   |     |                       |   |     |  
|                     |  | Three Months EndedSeptember 30, |     | $ Increase/(Decrease) |   |     | % Increase/(Decrease) |  
|                     |  | 2004                            |     | 2003                  |   |    
|                     |  |                                 |     | (Restated)            |   |     |                       |   |     |  
|                     |  | (in millions)                   |     |                       |   |     |                       |  
|Cost of access       |  | $                               | 435 |                       | $ | 496 |                       | $ | (61 | ) |  | (12 | )%
|Maintenance expenses |  |                                 | 28  |                       |   | 28  |                       |   |    |   |  |    |   
|                     |  |                                 |     |                       |   |     |                       |   |     |   |  |     |   
|Total COA&M          |  | $                               | 463 |                       | $ | 524 |                       | $ | (61 | ) |  | (12 | )%
|                     |  |                                 |     |                       |   |     |                       |   |     |   |  |     |   



Cost of access for the
three months ended September 30, 2003 includes a $13 million charge resulting from the restatement described earlier under Restatement of Previously Issued Financial Statements. Our cost of access expense decreased as a result of
initiatives to negotiate lower cost of access unit prices and eliminate non-revenue usage. These initiatives include: shifting suppliers, contract and tariff renegotiations, facility network access optimization including extending the access network
closer to the customer as well as migrating lower trunk speeds to higher speeds, optimization through direct end office trunking and increased review of access charges, special promotions and disputes resolution. Usage based access charges decreased
$43 million to $287 million in the three months ended September 30, 2004 from $330 million in the three months ended September 30, 2003. Usage based charges decreased as a result of per unit pricing reductions, partially offset by volume
increases. Through our cost of access initiatives, we were able to negotiate pricing reductions to lower overall unit charges for usage-based access and almost maintain a flat margin for usage-based services even though our revenues decreased
significantly. Leased line access charges decreased $18 million to $148 million in the three months ended September 30, 2004 from $166 million in the three months ended September 30, 2003. Our cost of access initiatives were successful in reducing
our leased line based access charges greater than the decrease in revenues associated with these charges and modestly improve our gross margin for these services.



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Third party maintenance expense was unchanged during the third quarter of 2004 compared with the third
quarter of 2003.



Other operating expenses.Other
operating expenses primarily consist of (i) cost of sales, relating to our managed services and conferencing services; (ii) real estate and network operations related expenses, including all administrative real estate costs; (iii) selling and
marketing expenses; (iv) bad debt expense; (v) non-income taxes, including property taxes on owned real estate and trust fund related taxes such as gross receipts taxes, franchise taxes and capital taxes; and (vi) general and administrative expenses
(G&A), including all administrative employee related expenses, regulatory costs, insurance and professional fees.



|                                   |  |                                  |     |             |                                  |   |      |                       |             |  |                       |   |  |   |    |   |  |     |   
|---------------------------------- |  | -------------------------------- | --- | ----------- | -------------------------------- | - | ---- | --------------------- | ----------- |  | --------------------- | - |  | - | -- | - |  | --- | --
|                                   |  | Successor                        |     |             | Predecessor                      |   |      | $ Increase/(Decrease) |             |  | % Increase/(Decrease) |  
|                                   |  | Three Months Ended September 30, |     |             | Three Months Ended September 30, |   |      |                      
|(in millions)                      |  | 2004                             |     | % ofRevenue |                                  |   | 2003 |                       | % ofRevenue |  |                       |  
|Other operating expenses:          |  |                                  |     |             |                                  |   |      |                       |             |  |                       |   |  |   |    |   |  |     |   
|Cost of sales                      |  | $                                | 8   |             | 1.2                              | % |      | $                     | 14          |  | 2.0                   | % |  | $ | (6 | ) |  | (43 | )%
|Real estate and network operations |  |                                  | 99  |             | 16.1                             | % |      |                       | 96          |  | 13.8                  | % |  |   | 3  |   |  | 3   | % 
|Sales and marketing                |  |                                  | 33  |             | 5.4                              | % |      |                       | 32          |  | 4.6                   | % |  |   | 1  |   |  | 3   | % 
|Bad debt expense                   |  |                                  | 7   |             | 1.1                              | % |      |                       | 12          |  | 1.7                   | % |  |   | (5 | ) |  | (42 | )%
|Non-income taxes                   |  |                                  | 6   |             | 1.0                              | % |      |                       | 8           |  | 1.1                   | % |  |   | (2 | ) |  | (25 | )%
|Stock-related expense              |  |                                  | 7   |             | 1.1                              | % |      |                       |            |  |                      |   |  |   | 7  |   |  | NM  |   
|General and administrative         |  |                                  | 34  |             | 5.5                              | % |      |                       | 24          |  | 3.5                   | % |  |   | 10 |   |  | 42  | % 
|                                   |  |                                  |     |             |                                  |   |      |                       |             |  |                       |   |  |   |    |   |  |     |   
|Total other operating expenses     |  | $                                | 194 |             | 31.4                             | % |      | $                     | 186         |  | 26.7                  | % |  | $ | 8  |   |  | 4   | % 
|                                   |  |                                  |     |             |                                  |   |      |                       |             |  |                       |   |  |   |    |   |  |     |   

---

NMnot meaningful



Other Operating Expenses



The decrease in cost of sales was, in part, a result of recognizing
approximately $3 million of vendor charges in the third quarter of 2003 for service contracts that were either discontinued or expired prior to the third quarter of 2004. The decrease was partially offset by increases resulting from (a) leasing
additional equipment to connect our customers to our network to deliver our managed services product as a result of increased managed services sales and (b) higher cost of sales rates upon renewal of old contracts with vendors for servicing our
managed services product.



Real estate and network operations
related expenses increased primarily as a result of (i) increased facility maintenance costs due to the aging of certain facilities, (ii) an increase in rental properties throughout 2003, resulting in rent increases on these properties for the full
quarter of 2004 and (iii) increases in employee related costs as a result of accruing an annual bonus in 2004 and salary increases effective January 1, 2004 (although overall employee costs were lower as a result of lower headcount). The total 2004
annual bonus accrual for the third quarter was approximately $2 million. No annual bonus expenses were incurred in 2003 since comparable costs were recorded as reorganization items, as opposed to operating costs, during the pendency of our
bankruptcy proceedings. These items were partially offset by (a) reductions in salaries and benefits expenses due to lower network operations headcount as a result of the benefit in 2004 of restructuring activities initiated during 2003, and (b)
lower real estate taxes due to a real estate tax rebate for a property tax assessment in the United Kingdom received in the third quarter of 2004.



Sales and marketing expenses increased primarily due to (i) increases in salaries and benefits costs as a result of headcount increases in certain areas
in 2004 and (ii) increases in marketing expenses as a result of new marketing programs to support our strategy of acquiring new customers upon emergence from bankruptcy. In addition, other employee related costs were higher in the three months ended
September 30, 2004 from the same period in 2003, as a result of accruing an annual bonus in 2004 and salary increases effective January 1, 2004 for the marketing and salaried sales employees. As discussed above, no annual bonus expenses were
incurred in 2003.



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Bad debt expense decreased primarily due to improvements in the aging of our accounts receivable through
focused collection efforts, enhanced evaluations of customers creditworthiness and credit limits and the tightening of our payment terms for our international long distance reseller customers which provided for lower levels of general reserve
requirements. Our international long distance seller customers are generally higher financial risk than other customers and the tightening of payment terms with such customers has reduced this risk. In addition, we recorded approximately $1 million
in bad debt expenses in the third quarter of 2003 related to a significant carrier customer defaulting on its payments.



Non-income taxes decreased as we have reduced payments for personal property, capital stock, franchise and gross receipts taxes in the three months ended
September 30, 2004.



Stock-related expense for the third
quarter of 2004 consists of (i) $4 million stock compensation expense related to the December 9, 2003 stock option grant and (ii) $3 million related to the March 8, 2004 restricted stock unit grant. See Note 6, Stock-Based Compensation,
to the accompanying condensed consolidated financial statements included in this interim report on Form 10-Q. There were no stock related expenses incurred during the three months ended September 30, 2003 relating to Predecessor option grants, which
were accounted for under APB No. 25.



G&A costs increased
primarily as a result of (i) increases in professional fees expenses primarily related to the investigation and review of our cost of access liability and the planning, documenting and testing of our internal control systems for compliance with
Sarbanes-Oxley Act requirements, (ii) recognizing a $3 million reduction in G&A expenses in the third quarter of 2003 related to our deferred gain on the disposal of our former GlobalCenter subsidiary, (iii) incurring $1 million of restructuring
costs in the three months ended September 30, 2004 which are included in other operating expenses while restructuring costs incurred during the bankruptcy period were included as reorganization items (see Reorganization Items,
Net below), and (iv) increases in employee related costs related to the accrual of an annual bonus expense in 2004 and salary increases effective January 1, 2004. As discussed above, no annual bonus expenses were incurred in 2003.



Depreciation and amortization. Depreciation and amortization
consists of depreciation of property and equipment, amortization of customer installation costs and amortization of identifiable intangibles. The increase in depreciation and amortization in the third quarter of 2004 compared with the third quarter
of 2003 is directly attributable to the revaluation of property and equipment and intangibles, as a result of the fresh start accounting adjustments, on the Effective Date, the impact of depreciating additional capital purchases since the Effective
Date, and the $6 million write off of certain North American deferred customer installation costs in the third quarter of 2004.



Other income (expense) statement items.Other significant components of our condensed consolidated statements of operations for the three
months ended September 30, 2004 and 2003 include the following:



|                                      |  |                                             |     |   |                        |   |     |                        |  |   |     |   |  |     |  
|------------------------------------- |  | ------------------------------------------- | --- | - | ---------------------- | - | --- | ---------------------- |  | - | --- | - |  | --- | -
|                                      |  | Successor                                   |     |   | Predecessor            |   |     |                        |  |   |     |  
|                                      |  | Three Months EndedSeptember 30, (unaudited) |     |   | $ Increase/ (Decrease) |   |     | % Increase/ (Decrease) | 
|                                      |  | 2004                                        |     |   | 2003                   |   |     |                       
|                                      |  | (in millions)                               |     |   |                        |   |     |                        | 
|Interest expense, net                 |  | $                                           | (13 | ) |                        | $ | (4  | )                      |  | $ | 9   |   |  | 225 | %
|Other income (expense), net           |  |                                             | 2   |   |                        |   | (3  | )                      |  |   | 5   |   |  | NM  |  
|Reorganizations items, net            |  |                                             |    |   |                        |   | (30 | )                      |  |   | 30  |   |  | NM  |  
|Gain on preconfirmation contingencies |  |                                             | 5   |   |                        |   |    |                        |  |   | 5   |   |  | NM  |  
|Provision for income taxes            |  |                                             | (6  | ) |                        |   | (1  | )                      |  |   | 5   |   |  | 500 | %
|Discontinued operations, net of tax   |  |                                             | (4  | ) |                        |   | 6   |                        |  |   | (10 | ) |  | NM  |  



Interest
expense, net. Included in interest expense, net is the interest expense related to the Senior Secured Notes, the Bridge Loan Facility, capital lease obligations and certain tax liabilities, amortization of deferred finance costs related to
the Senior Secured Notes and interest income.



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|                                                            |  |                                            |     |   |                       |   |    |                       |  |   |    |   |  |     |  
|----------------------------------------------------------- |  | ------------------------------------------ | --- | - | --------------------- | - | -- | --------------------- |  | - | -- | - |  | --- | -
|                                                            |  | Successor                                  |     |   | Predecessor           |   |    |                       |  |   |    |  
|                                                            |  | Three Months EndedSeptember 30,(unaudited) |     |   | $ Increase/(Decrease) |   |    | % Increase/(Decrease) | 
|                                                            |  | 2004                                       |     |   | 2003                  |   |    |                      
|                                                            |  | (in millions)                              |     |   |                       |   |    |                       | 
|Interest expense and amortization of deferred finance costs |  | $                                          | (15 | ) |                       | $ | (4 | )                     |  | $ | 11 |   |  | 275 | %
|Interest income                                             |  |                                            | 2   |   |                       |   |   |                       |  |   | (2 | ) |  | NM  |  
|                                                            |  |                                            |     |   |                       |   |    |                       |  |   |    |   |  |     |  
|Interest expense, net                                       |  | $                                          | (13 | ) |                       | $ | (4 | )                     |  | $ | 9  |   |  | 225 | %
|                                                            |  |                                            |     |   |                       |   |    |                       |  |   |    |   |  |     |  

---

NMnot meaningful



The increase in interest expense and amortization of deferred finance costs
is primarily a result of interest expense incurred from the Senior Secured Notes. During the third quarter of 2004, we recorded interest expense, including the amortization of deferred finance fees, related to the Senior Secured Notes and Bridge
Loan Facility agreement of approximately $8 million. The increase in interest income in the third quarter of 2004 is a result of all interest income earned during the bankruptcy period (which included the entire third quarter of 2003) being
reflected in reorganization items, net in accordance with the provisions of bankruptcy reporting pursuant to SOP 907.



Other income (expense), net. The increase in other income, net is primarily a result of changes in the amount of gains or losses resulting
from foreign currency impacts on transactions partially offset by gains recorded in 2003 related to the extinguishment of obligations under long-term service agreements. Foreign currency transactions gains increased $8 million in the third quarter
of 2004 to $1 million compared with a $7 million loss in the third quarter of 2003. The increase in other income was partially offset by a $3 million gain in the third quarter of 2003 related to the termination of our obligations under
long-term prepaid lease agreements for services on our network through customer settlement agreements. As a result of these terminations, we no longer had any requirement to provide services to these customers and, therefore, the remaining deferred
revenue was recognized in other income. During the third quarter of 2004 we did not recognize any gains from the extinguishment of our obligations under long-term service agreements.



Reorganization items, net.We have no reorganization items in
the three months ended September 30, 2004 as a result of our emergence from bankruptcy on the Effective Date. During periods prior to the Effective Date, reorganization items represented expenses and income incurred or realized as a direct result of
the reorganization under bankruptcy that commenced on January 28, 2002. Reorganization items are reported separately in the condensed consolidated statements of operations in accordance with the provisions of SOP 90-7. The reorganization items
comprise (i) costs related to the employee retention programs, (ii) retained professional fee costs associated with the reorganization, (iii) interest income attributable to increased GC Debtors cash balances as a result of the bankruptcy,
(iv) adjustments to liabilities subject to compromise to the settlement claim amounts allowed by the Bankruptcy Court, and (v) costs incurred in connection with our continued restructuring efforts (see Restructuring Charges above for
further discussion). The reorganization items consisted of the following:



|                           |  |                                      |     |  
|-------------------------- |  | ------------------------------------ | --- | -
|                           |  | Predecessor                          |    
|                           |  | Three Months EndedSeptember 30, 2003 |    
|                           |  | (unaudited)                          |    
|Professional fees          |  | $                                    | (20 | )
|Retention plan costs       |  |                                      | (6  | )
|Vendor settlements         |  |                                      |    |  
|Restructuring costs        |  |                                      | (7  | )
|Interest income            |  |                                      | 3   |  
|                           |  |                                      |     |  
|Total reorganization items |  | $                                    | (30 | )
|                           |  |                                      |     |  



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Gain on Preconfirmation Contingencies.During the three months ended September 30, 2004,
the Company settled various third-party unasserted disputes and revised its estimated liability for other unasserted disputes related to periods prior to the commencement of chapter 11 proceedings. The Company has accounted for this in accordance
with AICPA Practice Bulleting 11Accounting for Preconfirmation Contingencies in Fresh Start Reportingand recorded a gain on the settlements and change in estimated liability of $5 million.



Provision for income taxes. The increase in the provision for
income taxes is primarily attributable to the unique tax accounting that applies under fresh start accounting to deferred tax benefits realized by the Company following its emergence from bankruptcy protection. Fresh start accounting requires the
realization of valuation allowances, related to net deferred tax assets that existed on or prior to the Effective Date, to be recorded as a reduction of intangibles until exhausted, and thereafter to be recorded as additional paid in capital. The
$3 million tax provision for the third quarter of 2004 related to the application of these rules does not result in any cash taxes. In addition, minimum taxes were applicable beginning with the first quarter of 2004 in tax jurisdictions for
which we were exempt in 2003 resulting in an increase of $1 million in the third quarter of 2004 as compared with the third quarter of 2003.



Discontinued operations, net of tax.As discussed in Note 4, Discontinued Operations to the accompanying condensed consolidated
financial statements, on August 13, 2004 we consummated a series of transactions with Bridgehouse for the sale of Global Marine and the transfer our forty nine percent shareholding in SBSS. We have sold these assets, which were not considered core
to our strategy. The results of their operations have been classified as discontinued operations for all periods presented. No gain was recorded on the sale of Global Marine. The sale of our shareholding in SBSS is subject to approval by the other
joint venture holder and regulatory approval. Global Marines loss from operations increased $10 million to a loss of $4 million in the third quarter of 2004 compared with income of $6 million in the third quarter of 2003. The increase in the
loss is primarily a result of a significant decline in installation and maintenance revenues due to the expiration of a significant maintenance contract on January 1, 2004, reduced installation activity and the early termination of two-sub charter
agreements. Partially offsetting the decrease in revenues is a reduction in operating expenses as a result of Global Marines restructuring activities.



Results of Operations for the Nine Months Ended September 30, 2004 and 2003



Revenues.Revenues for the nine months ended September 30, 2004 and 2003 reflect the following changes:



|                                  |  |                                |       |             |   |                       |  |   |                       |   |  |     |   
|--------------------------------- |  | ------------------------------ | ----- | ----------- | - | --------------------- |  | - | --------------------- | - |  | --- | --
|                                  |  | Successor                      |       | Predecessor |   | $ Increase/(Decrease) |  |   | % Increase/(Decrease) |  
|                                  |  | Nine Months EndedSeptember 30, |       |            
|                                  |  | 2004                           |       | 2003        |   |                      
|                                  |  | (in millions)                  |       |             |   |                       |  |  
|Commercial                        |  | $                              | 751   |             | $ | 801                   |  | $ | (50                   | ) |  | (6  | )%
|Consumer                          |  |                                | 12    |             |   | 22                    |  |   | (10                   | ) |  | (45 | )%
|Carrier:                          |  |                                |       |             |   |                       |  |   |                       |   |  |     |   
|Service revenue                   |  |                                | 1,141 |             |   | 1,198                 |  |   | (57                   | ) |  | (5  | )%
|Amortization of prior period IRUs |  |                                | 3     |             |   | 63                    |  |   | (60                   | ) |  | (95 | )%
|                                  |  |                                |       |             |   |                       |  |   |                       |   |  |     |   
|Total carrier                     |  |                                | 1,144 |             |   | 1,261                 |  |   | (117                  | ) |  | (9  | )%
|                                  |  |                                |       |             |   |                       |  |   |                       |   |  |     |   
|Total revenue                     |  | $                              | 1,907 |             |   | 2,084                 |  | $ | (177                  | ) |  | (9  | )%
|                                  |  |                                |       |             |   |                       |  |   |                       |   |  |     |   



45



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Commercial revenues. Commercial revenues relates to the provision of voice, data and
conferencing services to our customers, other than carriers and consumers



|                              |  |                                |     |             |   |                       |  |   |                       |   |  |    |   
|----------------------------- |  | ------------------------------ | --- | ----------- | - | --------------------- |  | - | --------------------- | - |  | -- | --
|                              |  | Successor                      |     | Predecessor |   | $ Increase/(Decrease) |  |   | % Increase/(Decrease) |  
|                              |  | Nine Months EndedSeptember 30, |     |            
|                              |  | 2004                           |     | 2003        |   |                      
|                              |  | (in millions)                  |     |             |   |                       |  |  
|Voice services revenue        |  | $                              | 329 |             | $ | 362                   |  | $ | (33                   | ) |  | (9 | )%
|Data services revenue         |  |                                | 360 |             |   | 377                   |  |   | (17                   | ) |  | (5 | )%
|Conferencing services revenue |  |                                | 62  |             |   | 62                    |  |   |                      |   |  |   |   
|                              |  |                                |     |             |   |                       |  |   |                       |   |  |    |   
|Total commercial revenues     |  | $                              | 751 |             | $ | 801                   |  | $ | (50                   | ) |  | (6 | )%
|                              |  |                                |     |             |   |                       |  |   |                       |   |  |    |   



Commercial revenues
decreased in the nine months ended September 30, 2004 as compared with the nine months ended September 30, 2003 as a result of declines in the average unit prices of voice, data, and conferencing services, as well as customer attrition due to
continued intense competition in certain of our service areas. The lower unit prices were partially offset by modest increases in sales volume for voice and data services and significant sales volume increases for conferencing services. We
experienced a slight change in our sales mix towards the higher margin data and conferencing products (56% of total commercial revenues in the nine months ended September 30, 2004 compared with 55% in the nine months ended September 30, 2003) from
the lower margin voice services products. This sales mix change was primarily a result of growth in our IP and global managed services sales, and lower data customer attrition than voice customer attrition during the bankruptcy period.



Voice services revenue decreased as a result of a greater than 10%
decrease in average annual unit prices. The decrease in average annual unit prices is a result of continued intense competition in the North American domestic market. The decrease in revenue due to voice services price declines was partially offset
by an increase in voice services sales volume of approximately 5%. The increase is a result of additional purchases from existing customers as well as sales to new customers.



Data services revenue decreased as a result of average unit price reductions and attrition of certain financial market
customers. We have seen significant pricing declines in data services such as IP access and private line services. The rate of price declines for these products has slowed from prior trends and pricing for premium products such as IP VPN and Managed
Service applications have declined at a slower rate. The decrease in revenue from price reductions and customer attrition was partially offset from an increase in sales volume for data service products. We have had significant increases in sales
volume for our IP services products, including Internet access and IP VPN services.



Conferencing services revenue was constant between periods. Revenue increases related to volume growth were offset by pricing decreases for conferencing services. The increase in sales volume is a result of greater
collaboration between the conferencing and commercial sales force representatives to target new and existing customers not yet using Global Crossings conferencing services, the marketing of new iVideo and IP video conferencing services to
these customers, and the revision of our pricing of conferencing services in the 3rdquarter of 2004 to attract
customers to purchase greater conferencing services. The decrease in pricing for conferencing services is a result of continued competition and internal programs to attract additional business.



Consumer revenues.We continue to minimize our investment in
our consumer business as we have determined this business is not core to our strategy. We have no plans to grow this business as the costs to maintain and acquire customers are expected to exceed the benefits to our future profitability. Therefore
we expect consumer revenues to continue to decline as a result of customer attrition and price erosion of the existing customer base.



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##### Table of Contents

Carrier revenues.Service revenue in the carrier channel relates to the provision of voice
and data services to our telecommunications carrier customers.



|                               |  |                                |       |                       |   |       |                       |   |     |   |  |    |   
|------------------------------ |  | ------------------------------ | ----- | --------------------- | - | ----- | --------------------- | - | --- | - |  | -- | --
|                               |  | Successor                      |       | Predecessor           |   |       |                       |   |     |  
|                               |  | Nine Months EndedSeptember 30, |       | $ Increase/(Decrease) |   |       | % Increase/(Decrease) |  
|                               |  | 2004                           |       | 2003                  |   |      
|                               |  | (in millions)                  |       |                       |   |       |                       |  
|Voice services revenue         |  | $                              | 985   |                       | $ | 1,035 |                       | $ | (50 | ) |  | (5 | )%
|Data services revenue          |  |                                | 156   |                       |   | 163   |                       |   | (7  | ) |  | (4 | )%
|                               |  |                                |       |                       |   |       |                       |   |     |   |  |    |   
|Total carrier service revenues |  | $                              | 1,141 |                       | $ | 1,198 |                       | $ | (57 | ) |  | (5 | )%
|                               |  |                                |       |                       |   |       |                       |   |     |   |  |    |   



Carrier service
revenues decreased in the nine months ended September 30, 2004 as compared with the nine months ended September 30, 2003 as a result of declines in the average unit prices of voice and data services. The lower unit prices were partially offset by
modest increases in sales volume of both voice and data services. Our sales mix between the higher margin data services and lower margin voice services remained constant for both periods at 14% and 86%, respectively, of carrier services revenue.



Voice services revenue decreased as a result of a greater than
15% decrease in average annual unit prices for both our US domestic and international long distance voice services products. The decrease is a result of continued competition in both the US domestic wireline services and international long distance
services markets. The decrease in revenue from voice unit price declines was partially offset by increases in sales volume greater than 10% and 15%, respectively, for our US domestic wireline and international long distance services. The increase in
United States domestic wireline services and international long distance markets is a result of greater penetration into Wireless, Cable, and ISP/ESP markets. We expect our carrier voice services revenues to decrease between $40 million to $60
million in the fourth quarter of 2004 and even more significantly in the first quarter of 2005 as a result of initiatives taken by us as part of our recently announced business restructuring plan. We expect significant decreases in both domestic and
international long distance voice services product sales.



Data
services revenue decreased as a result of a decrease in average annual unit prices and a significant increase in data service sales to a larger carrier customer during the third quarter of 2003 that has since decreased its business with us
significantly, partially offset by an increase in sales volume. The decrease in average unit prices is due to continued competition in the carrier markets. The majority of the increase in sales volume relates to sales of IP services (IP access and
VPN to the Cable, ISP/ESP, and University data markets).



Revenue recognized relating to the amortization of IRUs sold in prior periods decreased in the nine months ended September 30, 2004 as compared with the nine months ended September 30, 2003 as a result of the adoption of fresh start
accounting on the Effective Date. The adoption of fresh start accounting resulted in the elimination of approximately 90% of deferred revenue, to reflect its then fair value, resulting in lower revenue recognized in the nine months ended September
30, 2004.



Operating Expenses. Components of
operating expenses for the nine months ended September 30, 2004 and 2003 restated were as follows:



|                               |  |                                |       |             |   |                       |  |   |                       |   |  |    |   
|------------------------------ |  | ------------------------------ | ----- | ----------- | - | --------------------- |  | - | --------------------- | - |  | -- | --
|                               |  | Successor                      |       | Predecessor |   | $ Increase/(Decrease) |  |   | % Increase/(Decrease) |  
|                               |  | Nine Months EndedSeptember 30, |       |            
|                               |  | 2004                           |       | 2003        |   |                      
|                               |  |                                |       | (Restated)  |   |                       |  |   |                       |  
|                               |  | (in millions)                  |       |             |   |                       |  |  
|Cost of access and maintenance |  | $                              | 1,450 |             | $ | 1,594                 |  | $ | (144                  | ) |  | (9 | )%
|Other operating expenses       |  |                                | 579   |             |   | 563                   |  |   | 16                    |   |  | 3  | % 
|Depreciation and amortization  |  |                                | 127   |             |   | 100                   |  |   | 27                    |   |  | 27 | % 
|                               |  |                                |       |             |   |                       |  |   |                       |   |  |    |   
|Total operating expenses       |  | $                              | 2,156 |             | $ | 2,257                 |  | $ | (101                  | ) |  | (4 | )%
|                               |  |                                |       |             |   |                       |  |   |                       |   |  |    |   



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Cost of access and maintenance (COA&M).



|                     |  |                                 |       |                        |   |       |                        |   |      |   |  |    |   
|-------------------- |  | ------------------------------- | ----- | ---------------------- | - | ----- | ---------------------- | - | ---- | - |  | -- | --
|                     |  | Successor                       |       | Predecessor            |   |       |                        |   |      |  
|                     |  | Nine Months Ended September 30, |       | $ Increase/ (Decrease) |   |       | % Increase/ (Decrease) |  
|                     |  | 2004                            |       | 2003                   |   |      
|                     |  |                                 |       | (Restated)             |   |       |                        |   |      |  
|                     |  | (in millions)                   |       |                        |   |       |                        |  
|Cost of access       |  | $                               | 1,364 |                        | $ | 1,499 |                        | $ | (135 | ) |  | (9 | )%
|Maintenance expenses |  |                                 | 86    |                        |   | 95    |                        |   | (9   | ) |  | (9 | )%
|                     |  |                                 |       |                        |   |       |                        |   |      |   |  |    |   
|Total COA&M          |  | $                               | 1,450 |                        | $ | 1,594 |                        | $ | (144 | ) |  | (9 | )%
|                     |  |                                 |       |                        |   |       |                        |   |      |   |  |    |   



Cost of access for the
nine months ended September 30, 2003 includes a $55 million charge resulting from the restatement described earlier under Restatement of Previously Issued Financial Statements. Our cost of access expense decreased as a result of
initiatives to negotiate lower cost of access unit prices and eliminate non-revenue usage. These initiatives include: shifting suppliers, contract and tariff renegotiations, facility network access optimization including extending the access network
closer to the customer as well as migrating lower trunk speeds to higher speeds, optimization through direct end office trunking and increased review of access charges, special promotions and disputes resolution. Usage based access charges decreased
$98 million to $913 million in the nine months ended September 30, 2004 from $1.011 billion in the nine months ended September 30, 2003. Usage based charges decreased as a result of per unit pricing reductions, partially offset by volume
increases. Leased line access charges decreased $37 million to $451 million in the nine months ended September 30, 2004 from $488 million in the nine months ended September 30, 2003. Through our cost of access initiatives we were able to reduce our
cost of access charges and modestly improve our gross margin.



Third party maintenance expenses decreased primarily as a result of optimizing vendor arrangements with certain terrestrial and equipment maintenance vendors and the transition of certain third party managed costs into employee-managed
maintenance at lower rates (which is included in other operating expenses below).



Other operating expenses.



|                                   |  |                                 |     |              |                                 |   |               |                        |              |  |                        |   |  |   |     |   |  |     |   
|---------------------------------- |  | ------------------------------- | --- | ------------ | ------------------------------- | - | ------------- | ---------------------- | ------------ |  | ---------------------- | - |  | - | --- | - |  | --- | --
|                                   |  | Successor                       |     |              | Predecessor                     |   |               |                        |              |  |                        |  
|                                   |  | Nine Months Ended September 30, |     |              | Nine Months Ended September 30, |   |               | $ Increase/ (Decrease) |              |  | % Increase/ (Decrease) |  
|                                   |  | 2004                            |     | % of Revenue |                                 |   | 2003          |                        | % of Revenue |  |                        |  
|                                   |  |                                 |     |              |                                 |   | (in millions) |                        |              |  |                        |   |  |  
|Other operating expenses:          |  |                                 |     |              |                                 |   |               |                        |              |  |                        |   |  |   |     |   |  |     |   
|Cost of sales                      |  | $                               | 34  |              | 1.8                             | % |               | $                      | 36           |  | 1.7                    | % |  | $ | (2  | ) |  | (6  | )%
|Real estate and network operations |  |                                 | 294 |              | 15.4                            | % |               |                        | 299          |  | 14.4                   | % |  |   | (5  | ) |  | (2  | )%
|Sales and marketing                |  |                                 | 100 |              | 5.2                             | % |               |                        | 93           |  | 4.5                    | % |  |   | 7   |   |  | 8   | % 
|Bad debt expense                   |  |                                 | 14  |              | 0.7                             | % |               |                        | 38           |  | 1.8                    | % |  |   | (24 | ) |  | (63 | )%
|Non-income taxes                   |  |                                 | 20  |              | 1.1                             | % |               |                        | 25           |  | 1.2                    | % |  |   | (5  | ) |  | (20 | )%
|Stock-related expense              |  |                                 | 20  |              | 1.1                             | % |               |                        |             |  |                       |   |  |   | 20  |   |  | NM  |   
|General and administrative         |  |                                 | 97  |              | 5.1                             | % |               |                        | 72           |  | 3.4                    | % |  |   | 25  |   |  | 35  | % 
|                                   |  |                                 |     |              |                                 |   |               |                        |              |  |                        |   |  |   |     |   |  |     |   
|Total other operating expenses     |  |                                 | 579 |              | 30.4                            | % |               | $                      | 563          |  | 27.0                   | % |  | $ | 16  |   |  | 3   | % 
|                                   |  |                                 |     |              |                                 |   |               |                        |              |  |                        |   |  |   |     |   |  |     |   

---

NMnot meaningful



Other Operating Expenses



The decrease in cost of sales was, in part, a result of recognizing
approximately $5 million of vendor charges in the third quarter of 2003 for service contracts that were either discontinued or expired prior to the third



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quarter of 2004. The decrease was partially offset by increases resulting from (a) leasing additional equipment to connect our customers to our network to
deliver our managed services product as a result of increased managed services sales and (b) higher cost of sales rates upon renewal of old contracts with vendors for servicing our managed services product.



Real estate and network operations related expenses decreased primarily as a
result of (i) reductions in salaries and benefits expenses due to lower network operations headcount as a result of the benefit in 2004 of restructuring activities initiated during 2003, and (ii) lower real estate taxes due to an approximate $11
million real estate tax rebate for a property tax assessment in the United Kingdom received in the nine months ended September 30, 2004. These items were partially offset by (a) an increase in rental properties throughout 2003, resulting in rent
increases on these properties for all of 2004, (b) increased facility maintenance costs due to the aging of certain facilities, and (c) increases in employee related costs as a result of accruing an annual bonus in 2004 and salary increases
effective January 1, 2004 (although overall employee costs were lower as a result of lower headcount). The total 2004 annual bonus accrual for the nine months ended September 30, 2004 was approximately $6 million. No annual bonus expenses were
incurred in 2003 since comparable costs were recorded as reorganization items, as opposed to operating costs, during the pendency of our bankruptcy proceedings.



Sales and marketing expenses increased primarily due to (i) increases in salaries and benefits costs as a result of headcount increases in certain
areas 2004, and (ii) increases in marketing expenses as a result of new marketing programs to support our strategy of acquiring new customers upon emergence from bankruptcy. In addition, other employee related costs were higher in the nine months
ended September 30, 2004 from the same period in 2003, as a result of accruing an annual bonus in 2004 and salary increases effective January 1, 2004 for the marketing and salaried sales employees. As discussed above, no annual bonus expenses were
incurred in 2003.



Bad debt expense decreased primarily due to
(i) improvements in the aging of our accounts receivable through focused collection efforts, enhanced evaluations of customers creditworthiness and credit limits and the tightening of our payment terms for our international long distance
reseller customers which provided for lower levels of general reserve requirements, (ii) an approximate $2 million recovery in the nine months ended September 30, 2004 from a significant carrier customer for previously reserved balances, and (iii)
the fact that we recorded approximately $8 million in bad debt expenses during the nine months ended September 30, 2003 related to two significant carrier customer defaulting on their payments. Our international long distance reseller customers are
generally higher financial risk than other customers and the tightening of payment terms with such customers has reduced this risk.



Non-income taxes decreased as we have reduced payments for personal property, capital stock, franchise and gross receipts in the nine months ended
September 30, 2004.



Stock-related expense for the nine months
ended September 30, 2004 consists of (i) $13 million stock compensation expense related to the December 9, 2003 stock option grant, and (ii) $7 million related to the March 8, 2004 restricted stock unit grant. See Note 7, Stock-Based
Compensation, to the accompanying condensed consolidated financial statements included in this interim report on Form 10-Q. There were no stock related expenses incurred during the nine months ended September 30, 2003 relating to Predecessor
option grants which were accounted for under APB No. 25.



G&A costs increased as a result of (i) increases in professional fees expenses primarily related to the investigation and review of our cost of access liability and the planning, documenting, and testing of our internal control systems
for compliance with Sarbanes-Oxley Act requirements, (ii) recognizing a $9 million reduction in G&A expenses in the nine months ended September 30, 2003 related to our deferred gain on the disposal of our former GlobalCenter subsidiary, (iii)
incurring $3 million of restructuring costs in the nine months ended September 30, 2004 which are included in other operating expenses while restructuring costs incurred during



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the bankruptcy period were included as reorganization items (see Reorganization items, net below), and (iv) increases in employee related costs
as a result of accruing an annual bonus in 2004 and salary increases effective January 1, 2004. As discussed above, no annual bonus expenses were incurred in 2003. The increase related to the items above were partially offset by decreases in
communications costs as a result of programs to reduce our mobile and long distance charges by converting to VOIP technology and other cost saving initiatives.



Depreciation and amortization. Depreciation and amortization consists of depreciation of property and equipment, amortization of customer
installation costs and amortization of identifiable intangibles. The increase in depreciation and amortization in the nine months ended September 30, 2004 as compared with the nine months ended September 30, 2003 is directly attributable to the
revaluation of property and equipment and intangibles, as a result of the fresh start accounting adjustments, on the Effective Date, the impact of depreciating additional capital purchases since the Effective Date and the write off of certain
deferred customer installation costs.



Other income
statement items.Other significant components of our condensed consolidated statements of operations for the nine months ended September 30, 2004 and 2003 include the following:



|                                      |  |                                             |     |   |             |   |     |                        |  |   |                        |   |  |     |   
|------------------------------------- |  | ------------------------------------------- | --- | - | ----------- | - | --- | ---------------------- |  | - | ---------------------- | - |  | --- | --
|                                      |  | Successor                                   |     |   | Predecessor |   |     | $ Increase/ (Decrease) |  |   | % Increase/ (Decrease) |  
|                                      |  | Nine Months Ended September 30, (unaudited) |     |   |            
|                                      |  | 2004                                        |     |   | 2003        |   |     |                       
|                                      |  | (in millions)                               |     |   |             |   |     |                        | 
|Interest expense, net                 |  | $                                           | (28 | ) |             | $ | (12 | )                      |  | $ | 16                     |   |  | 133 | % 
|Other income, net                     |  |                                             | 7   |   |             |   | 21  |                        |  |   | (14                    | ) |  | (67 | )%
|Reorganizations items, net            |  |                                             |    |   |             |   | (36 | )                      |  |   | 36                     |   |  | NM  |   
|Gain on preconfirmation contingencies |  |                                             | 5   |   |             |   |    |                        |  |   | 5                      |   |  | NM  |   
|Provision for income taxes            |  |                                             | (33 | ) |             |   | (4  | )                      |  |   | 29                     |   |  | 725 | % 
|Discontinued operation, net of tax    |  |                                             | (26 | ) |             |   |    |                        |  |   | (26                    | ) |  | NM  |   



Interest
expense, net. Included in interest expense, net is the interest expense related to the Senior Secured Notes, the Bridge Loan Facility, capital lease obligations and certain tax liabilities, amortization of deferred finance costs related to
the Senior Secured Notes and interest income.



|                                                            |  |                                             |     |   |             |   |     |                        |  |   |                        |   |  |     |  
|----------------------------------------------------------- |  | ------------------------------------------- | --- | - | ----------- | - | --- | ---------------------- |  | - | ---------------------- | - |  | --- | -
|                                                            |  | Successor                                   |     |   | Predecessor |   |     | $ Increase/ (Decrease) |  |   | % Increase/ (Decrease) |  
|                                                            |  | Nine Months Ended September 30, (unaudited) |     |   |            
|                                                            |  | 2004                                        |     |   | 2003        |   |     |                       
|                                                            |  | (in millions)                               |     |   |             |   |     |                        | 
|Interest expense and amortization of deferred finance costs |  | $                                           | (34 | ) |             | $ | (12 | )                      |  | $ | 22                     |   |  | 183 | %
|Interest income                                             |  |                                             | 6   |   |             |   |    |                        |  |   | (6                     | ) |  | NM  |  
|                                                            |  |                                             |     |   |             |   |     |                        |  |   |                        |   |  |     |  
|Interest expense, net                                       |  | $                                           | (28 | ) |             | $ | (12 | )                      |  | $ | 16                     |   |  | 133 | %
|                                                            |  |                                             |     |   |             |   |     |                        |  |   |                        |   |  |     |  

---

NMnot meaningful



The increase in interest expense and amortization of deferred finance costs
is primarily a result of interest expense incurred from the Senior Secured Notes. During the nine months ended September 30, 2004, we recorded interest expense, including the amortization of deferred finance fees, related to the Senior Secured Notes
and Bridge Loan Facility of approximately $20 million. The increase in interest income for the nine months ended September 30, 2004 is a result of all interest income earned during the bankruptcy period (the entire first nine months of 2003) being
reflected in reorganization items, net in accordance with the provisions of bankruptcy reporting pursuant to SOP 90-7.



Other income, net. The decrease in other income, net is primarily a result of changes in the amount of gains or losses resulting from
foreign currency impacts on transactions, gains from the extinguishment of obligations



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under long-term service agreements during 2003 partially offset by a gain recorded in 2004 for recovery of legal fees under our Directors and Officers
insurance policy. Foreign currency transaction gains decreased $8 million in the nine months ended September 30, 2004 to a $3 million transaction loss compared with a $5 million transaction gain in the nine months ended September 30, 2003. Further,
during the nine months ended September 30, 2003 certain of our obligations under long-term prepaid lease agreements for services on our network were terminated either through customer settlement agreements or through bankruptcy proceedings of the
customers that purchased services from us. As a result of these terminations, we no longer had any requirement to provide services to these customers and therefore, the remaining deferred revenue of approximately $12 million was recognized in
other income. During the nine months ended September 30, 2004 we did not recognize any gains from the extinguishment of our obligations under long-term service agreements. During the nine months ended September 30, 2004 we recorded an $8
million gain from a recovery of legal fees incurred for class action lawsuits under our Directors and Officers insurance policy.



Reorganization items, net.We have no reorganization items in the nine months ended September 30, 2004 as a result of our emergence from
bankruptcy on the Effective Date. During periods prior to the Effective Date, reorganization items represented expenses and incomes incurred or realized as a direct result of the reorganization under bankruptcy that commenced on January 28, 2002.
Reorganization items are reported separately in the condensed consolidated statements of operations in accordance with the provisions of SOP 90-7. The reorganization items comprise (i) costs related to the employee retention programs, (ii) retained
professional fee costs associated with the reorganization, (iii) interest income attributable to increased GC Debtors cash balances as a result of the bankruptcy, (iv) adjustments to liabilities subject to compromise to the settlement claim
amounts allowed by the Bankruptcy Court, and (v) costs incurred in connection with our continued restructuring efforts (see Restructuring Charges above for further discussion). The reorganization items consisted of the following:



|                           |  |                                      |     |  
|-------------------------- |  | ------------------------------------ | --- | -
|                           |  | Predecessor                          |    
|                           |  | Nine Months Ended September 30, 2003 |    
|                           |  | (unaudited)                          |    
|Professional fees          |  | $                                    | (62 | )
|Retention plan costs       |  |                                      | (18 | )
|Vendor settlements         |  |                                      | 44  |  
|Restructuring costs        |  |                                      | (8  | )
|Interest income            |  |                                      | 8   |  
|                           |  |                                      |     |  
|Total reorganization items |  | $                                    | (36 | )
|                           |  |                                      |     |  



Gain on
Preconfirmation Contingencies. During the nine months ended September 30, 2004, the Company settled various third-party unasserted disputes and revised its estimated liability for other unasserted disputes related to periods prior to the
commencement of chapter 11 proceedings. The Company has accounted for this in accordance with AICPA Practice Bulleting 11Accounting for Preconfirmation Contingencies in Fresh Start Reportingand recorded a gain on the settlements and
change in estimated liability of $5 million.



Provision
for income taxes. The increase in the provision for income taxes is primarily attributable to the unique tax accounting that applies under fresh start accounting to deferred tax benefits realized by us following our emergence from bankruptcy
protection. Fresh start accounting requires the realization of valuation allowances, related to net deferred tax assets that existed on or prior to the Effective Date, to be recorded as a reduction of intangibles until exhausted, and thereafter to
be recorded as additional paid in capital. The $24 million tax provision for the nine months ended September 30, 2004 related to the application of these rules does not result in any cash taxes. In addition, minimum taxes were applicable beginning
with the first quarter of 2004 in tax jurisdictions for which we were exempt in 2003 resulting in an increase of $3 million in the nine months ended September 30, 2004 as compared with the nine months ended September 30, 2003.



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Discontinued operations, net of tax.As discussed in Note 4, Discontinued
Operations, to the accompanying condensed consolidated financial statements, on August 13, 2004 we consummated a series of transactions with Bridgehouse for the sale of Global Marine and the transfer our forty nine percent shareholding in
SBSS. We have sold these assets, which were not considered core to our strategy. The results of their operations have been classified as discontinued operations for all periods presented. No gain was recorded on the sale of Global Marine. The sale
of our shareholding in SBSS is subject to approval by the other joint venture holder and regulatory approval. Global Marines loss from operations increased $26 million to a loss of $26 million in the nine months ended September 30, 2004
compared with no loss in the nine months ended September 30, 2003. The increase in the loss is primarily a result of a significant decline in installation and maintenance revenues due to the expiration of a significant maintenance contract on
January 1, 2004, reduced installation activity and the early termination of two-sub charter agreements. Partially offsetting the decrease in revenues is a reduction in operating expenses as a result of Global Marines restructuring activities.



Liquidity and Capital Resources



Financial Condition and State of Liquidity



At September 30, 2004, our available liquidity consisted of $88 million of
unrestricted cash and cash equivalents. At September 30, 2004, we also held $17 million ($12 million of which is included in long-term other assets) in restricted cash. This restricted cash represents collateral relating to certain letters of
credit, guarantees, performance bonds and deposits.



The
Company expects that its available liquidity will continue to decline during the remainder of 2004 due to operating cash flow requirements and estimated payments of $28 million for deferred reorganization costs, and that the Company will require
substantial additional cash to fund operating cash flow requirements in future quarters.



On May 18, 2004, the Company reached agreement with a subsidiary of ST Telemedia, to provide the Company with up to $100 million in financing under a senior secured loan facility (the Bridge Loan
Facility). The Bridge Loan Facility was entered into by the Companys primary operating company subsidiary in the United Kingdom, Global Crossing (UK) Telecommunications Limited (GCUK), and STT Communications Ltd.
(STTC). STTC subsequently assigned its rights and obligations under the Bridge Loan Facility to STT Crossing Ltd., another subsidiary of ST Telemedia (STT Crossing). All $100 million of availability under the Bridge Loan
Facility had been borrowed by October 1, 2004. On November 2, 2004, the Bridge Loan Facility was amended to increase the availability thereunder to $125 million, and the Company borrowed the additional $25 million on November 5, 2004. The Bridge
Loan Facility was originally scheduled to mature on December 31, 2004 and initially bore interest at a rate equal to one-month LIBOR plus 9.9%. Every 90 days after the May 18, 2004 closing, the spread over LIBOR increases by 0.5%. In addition,
the Company is required to pay a fee of 1.0% per annum on any undrawn portion of the Bridge Loan Facility.



On November 5, 2004, STT Crossing and STT Hungary, the subsidiary of ST Telemedia that holds the Senior Secured Notes, agreed to the deferral of certain
payments on the Bridge Loan Facility and the Senior Secured Notes. Specifically, STT Crossing and STT Hungary agreed to defer approximately $15 million in aggregate interest payments otherwise due in December 2004 until the earlier of January 15,
2005 and the completion of the GCUK secured debt financing referred to below. STT Crossing also agreed to defer the final maturity date of the Bridge Loan Facility from December 31, 2004 to the earlier of January 15, 2005 or the completion of the
GCUK secured debt financing (when borrowings under the Bridge Loan Facility would be refinanced, as described below). As a result of these deferrals, the Company has sufficient liquidity to meet its anticipated liquidity needs through December 2004,
by which time the Company believes that it can complete the recapitalization plan described below (the Recapitalization Plan). If the Company is unable to complete the Recapitalization Plan this December and to improve operating results
to achieve positive operating cash flows in the future, the Company will be unable to meet its anticipated liquidity requirements.



During 2004, the Company has been seeking to arrange financing to provide it with additional liquidity . Such financing has been expected to include a
secured debt financing by GCUK and a working capital facility



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secured by certain accounts receivable. The indenture for the Senior Secured Notes permits the Company to incur the following (now subject to the terms of
the restructuring agreement described below): (i) up to $150 million in additional debt under one or more working capital facilities, (ii) up to $50 million in purchase money debt or capital lease obligations, (iii) up to $10 million in debt for
general corporate purposes and (iv) additional subordinated debt if the Company satisfies the leverage ratio specified in the indenture, although the Company does not expect to satisfy such ratio for the foreseeable future.



Although the indenture for the Senior Secured Notes permits the Company to
borrow up to $150 million under one or more working capital facilities, discussions with potential lenders revealed that an amendment of the collateral security provisions of the Senior Secured Notes would be required in order for the Company to
obtain financing under such a working capital facility. In addition, the Companys long-term financing requirements are substantially in excess of the amounts permitted to be incurred under the Senior Secured Notes indenture. Thus, in order to
permit a secured debt financing by GCUK and a working capital facility to proceed, on October 8, 2004 the Company entered into a restructuring agreement with STTC, STT Crossing and STT Hungary (the Restructuring Agreement).



The Restructuring Agreement contemplates the simultaneous occurrence of
the following transactions: (1) the closing of a secured debt financing by GCUK, through which the Company believes it can raise gross proceeds of $300 million or more; (2) the release of the security interests securing the Senior Secured Notes
and the Bridge Loan Facility; (3) the repayment of $75 million of the Senior Secured Notes; and (4) the refinancing of the Bridge Loan Facility and the remaining Senior Secured Notes by $250 million principal amount of 4.7% payable-in-kind secured
debt instruments (the GCL Convertible Notes) that will be mandatorily convertible into common equity of GCL after four years, or converted earlier at ST Crossings and STT Hungarys option, into approximately 16.2 million
shares of common stock of the Company (assuming conversion after four years at the conversion price of $18.60 per share), subject to certain adjustments. The GCL Convertible Notes will be secured in a manner substantially similar to the Senior
Secured Notes, except that they will not have liens on assets of GCUK. In addition, the Restructuring Agreement contemplates that STT Crossing and STT Hungary will negotiate in good faith with prospective lenders under a working capital facility to
be secured by certain accounts receivable regarding the intercreditor arrangements relating to the collateral security provisions of such facility. The Restructuring Agreement contains general descriptions of these transactions and is subject to
completion of definitive documentation satisfactory to the parties and a number of other material conditions described therein. The Company can provide no assurance that the Recapitalization Plan will be completed.



Based on the Companys operating plan and commitment to adhere to that
plan, ST Telemedia previously indicated, in early October 2004, to our prior independent public accountants, Grant Thornton LLP,



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ST Telemedias non-binding intention, if the Company cannot arrange additional financing by the end of November 2004, to provide up to $155 million of
financial support to the Company (which support could come, in part, in the form of a restructuring or refinancing of the $125 million Bridge Loan Facility and the interest payments due thereunder) to be used as additional working capital to fund
the needs of the Companys business as required through the first quarter of 2005, on such terms and conditions as the Company and ST Telemedia may agree. While ST Telemedia has indicated its intention to provide this financial support to the
Company if necessary and management expects that ST Telemedia would make such financial support available if the Recapitalization Plan does not close on a timely basis, neither ST Telemedia nor any of its affiliates has any contractual obligation to
provide financial support to the Company, and the Company can provide no assurance that ST Telemedia would provide any such financial support.



As a holding company, all of our revenues are generated by our subsidiaries and substantially all of our assets are owned by our subsidiaries. As a
result, we are dependent upon dividends and inter-company transfer of funds from our subsidiaries to meet our debt service and other payment obligations. Our subsidiaries are incorporated and are operating in various jurisdictions throughout the
world. A number of our subsidiaries have cash on hand that exceeds their immediate requirements but that cannot be distributed or loaned to us or our other subsidiaries to fund our or their operations due to contractual restrictions or legal
constraints related to the solvency of such entities. These restrictions could cause us or certain other subsidiaries to become and remain illiquid while other subsidiaries have sufficient liquidity to meet their liquidity needs.



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Cash Management Impacts and Working Capital



Condensed Consolidated Statements of Cash Flows



|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ----------- | - | ---- | -------------------- |  | - | ---- | -
|                                                                                                   |  | Successor                       |      |   | Predecessor |   |      |                      | 
|                                                                                                   |  | Nine Months Ended September 30, |      |   |             |  
|                                                                                                   |  | 2004                            |      |   | 2003        |   |      | $ Increase(Decrease) | 
|                                                                                                   |  |                                 |      |   | (Restated)  |   |      |                      | 
|CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:                                             |  |                                 |      |   |             |   |      |                      |  |   |      |  
|Net loss                                                                                           |  | $                               | (324 | ) |             | $ | (204 | )                    |  | $ | (120 | )
|Discontinued operations, net                                                                       |  |                                 | 26   |   |             |   |     |                      |  |   | 26   |  
|Reorganization items, net                                                                          |  |                                 |     |   |             |   | 36   |                      |  |   | (36  | )
|Deferred reorganization costs                                                                      |  |                                 | (84  | ) |             |   |     |                      |  |   | (84  | )
|Depreciation, amortization, stock compensation, bad debt expense and non-cash income tax provision |  |                                 | 185  |   |             |   | 138  |                      |  |   | 47   |  
|Amortization revenue of prior period IRUs                                                          |  |                                 | (3   | ) |             |   | (63  | )                    |  |   | 60   |  
|Non cash other income                                                                              |  |                                 |     |   |             |   | (12  | )                    |  |   | 12   |  
|Gain on preconfirmation contingencies                                                              |  |                                 | (5   | ) |             |   |     |                      |  |   | (5   | )
|Cash used in reorganization items                                                                  |  |                                 |     |   |             |   | (112 | )                    |  |   | 112  |  
|Other changes in operating assets and liabilities                                                  |  |                                 | 71   |   |             |   | 133  |                      |  |   | (62  | )
|Net cash used in discontinued operations                                                           |  |                                 | (12  | ) |             |   | (15  | )                    |  |   | 3    |  
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|Cash flows used in operating activities                                                            |  |                                 | (146 | ) |             |   | (99  | )                    |  |   | (47  | )
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:                                             |  |                                 |      |   |             |   |      |                      |  |   |      |  
|Capital expenditures                                                                               |  |                                 | (75  | ) |             |   | (118 | )                    |  |   | 43   |  
|Change in restricted cash and cash equivalents                                                     |  |                                 |     |   |             |   | (3   | )                    |  |   | 3    |  
|Proceeds from sale of equity interest in holding companies                                         |  |                                 | 4    |   |             |   |     |                      |  |   | 4    |  
|Proceeds from sale of discontinued operations                                                      |  |                                 | 1    |   |             |   |     |                      |  |   | 1    |  
|Proceeds from asset sales                                                                          |  |                                 | 19   |   |             |   | 3    |                      |  |   | 16   |  
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|Cash flows used in investing activities                                                            |  |                                 | (51  | ) |             |   | (118 | )                    |  |   | 67   |  
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:                                             |  |                                 |      |   |             |   |      |                      |  |   |      |  
|Proceeds from short-term borrowings                                                                |  |                                 | 80   |   |             |   |     |                      |  |   | 80   |  
|Repayment of capital lease obligations                                                             |  |                                 | (10  | ) |             |   | (9   | )                    |  |   | (1   | )
|Other                                                                                              |  |                                 | (2   | ) |             |   |     |                      |  |   | (2   | )
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|Cash flows provided by (used in) financing activities                                              |  |                                 | 68   |   |             |   | (9   | )                    |  |   | 77   |  
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS:                                      |  |                                 | 1    |   |             |   | 6    |                      |  |   | (5   | )
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  
|NET CHANGE IN CASH AND CASH EQUIVALENTS                                                            |  | $                               | (128 | ) |             | $ | (220 | )                    |  | $ | 92   |  
|                                                                                                   |  |                                 |      |   |             |   |      |                      |  |   |      |  



Our working capital
decreased $322 million to a negative working capital of $470 million at September 30, 2004 compared to a negative working capital of $148 million at December 31, 2003. The decrease in working capital is primarily due to (i) over $100 million of
operating cash flow losses, (ii) approximately $75 million of cash paid for capital expenditures, (iii) the elimination of approximately $57 million of working capital as at December 31, 2003 as a result of the sale of Global Marine in 2004 and (iv)
the transfer of long-term restructuring and deferred reorganization liabilities to current as a result of the liabilities becoming due within one year of September 30, 2004.



Cash Flow Activity for the nine months ended September 30, 2004



Cash and cash equivalents decreased $128 million in the nine months ended
September 30, 2004 to $88 million from $216 million at December 31, 2003. Our unrestricted cash decreased as a result of continued



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operating cash flow losses, capital expenditures, payments made related to deferred reorganization costs, restructuring costs, and final fees and expenses
paid to professionals retained in the bankruptcy proceedings. The decrease in cash is partially offset by the collection of receipts related to sales of services, prepaid service/IRU agreements, miscellaneous receipts from VAT refunds, interest on
deposits, proceeds from the sale of our equity interest in two holding companies and marketable securities, property tax rebates and other receipts and financing received under the Bridge Loan Facility.



During the nine months ended September 30, 2004, we collected approximately
$1.947 billion of cash receipts from sales of services. We also collected approximately $41 million under prepaid service/IRU agreements, of which $38 million related to a prepaid service/IRU from one customer, which represented the final
installment due under a settlement agreement entered into during 2003. Operating expense disbursements, including $21 million related to retention plan payments, were approximately $2.065 billion in the nine months ended September 30, 2004. Cash
disbursements for cost of access were approximately $1.327 billion for the nine months ended September 30, 2004. Other operating cash disbursements (including cost of sales, real estate, payroll, third party maintenance, general and administrative
costs and the final retention plan payment related to 2003) for the nine months ended September 30, 2004 were approximately $737 million. Cash paid for capital expenditures and the repayment of capital lease obligations were approximately $75
million and $10 million, respectively. Payments related to deferred reorganization costs, restructuring costs and fees for professionals retained in the bankruptcy proceedings were approximately $133 million. Miscellaneous receipts collected in the
nine months ended 2004 were approximately $96 million which included approximately $32 million related to VAT and directors and officers insurance policy refunds, $20 million related to property tax rebates, $19 million related to proceeds from the
sale of marketable securities, $4 million related to proceeds from the sale of our equity interests in holding companies and other miscellaneous receipts. We received $80 million in financing under the Bridge Loan Facility during the nine months
ended September 30, 2004.



Cash Flows from Operating
Activities



Cash flows used by operations increased
$47 million for the nine months ended 2004 as compared with the same period in 2003. The increase in cash flows used by operations is primarily as a result of a decrease in cash provided by changes in operating assets and liabilities. This decrease
in cash provided by changes in operating assets and liabilities is mainly due to an increase in access vendor and restructuring liability payments during 2004 and greater levels of cash collections for services and prepaid capacity/IRU agreements
during 2003. Changes in operating assets and liabilities are subject to significant variability from quarter to quarter depending on the timing of operating cash receipts and payments. This increase in cash flows used by operations as a result of
changes in operating assets and liabilities was partially offset by a decrease in reorganization related payments as a result of our emergence from bankruptcy protection on the Effective Date. Reorganization payments, including deferred
reorganization costs, decreased $28 million for the nine months ended September 30, 2004 to $84 million as compared with $112 million for the nine months ended September 30, 2003. The decrease in reorganization related payments is due to a decrease
in professional fees, retention and restructuring payments partially offset by payments related to deferred reorganization costs payable after the Effective Date to certain access providers and other claimants.



Cash Flows from Investing Activities



Cash flows from investing activities declined $67 million during the nine
months ended September 30, 2004 compared with the same period of 2003. Capital expenditures were greater in the first nine months of 2003 primarily as a result of payments made by our foreign subsidiaries that were not protected from local vendors
under the bankruptcy laws of the United States, for capital projects completed prior to the bankruptcy filing in



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January 2002. In addition, GCUK paid approximately $25 million in capital expenditures in the nine months ended September 30, 2003 on two significant
projects that did not require additional capital expenditures in the nine months ended September 30, 2004. Capital expenditures during the nine months ended September 30, 2004 primarily related to network and information technology expenditures. The
network expenditures primarily consist of capital spending to meet our anticipated network needs to acquire and/or expand existing customer service capabilities. These expenditures include significant amounts to convert several of our points of
presences from time division multiplexing technology to voice over internet protocol technology. The information technology expenditures consist of development projects to enhance and automate our sales order to cash process as well as
improve and expand our suite of internet protocol products and refresh our personal computer and server inventory. Proceeds from asset sales increased primarily as a result of a sale of a two marketable securities for approximately $19 million.
During the nine months ended September 30, 2004 we received $4 million in proceeds related to the sale of our equity interest in two non-operating holding companies.



Cash Flows from Financing Activities



Cash flows from financing activities for the nine months ended September 30, 2004 increased $77 million compared with the
nine months ended September 30, 2003 primarily as a result of the receipt of $80 million of short-term debt borrowings under the Bridge Loan Facility. The majority of the remaining activity is the repayment of capital lease obligations primarily
related to lease payments for GCUKs network.



Contractual Cash
Commitments



During the nine months ended September 30,
2004 we entered into the following significant purchase commitments: (i) an agreement with one of our access providers to purchase at least $5 million of services in 2004 and a total of $70 million over the next five years; (ii) two agreements with
our network equipment vendors to purchase equipment to support our managed services product in an amount equal to approximately $8 million in 2004 and a total of approximately $64 million over the next five years; and (iii) two agreements with our
maintenance service providers to purchase approximately $6 million of services in 2004 and a total of approximately $65 million over the next five years.



Credit Risk



We are subject to concentrations of credit risk in our trade receivables. Although our receivables are geographically dispersed and include customers both
large and small and in numerous industries, our revenue in our carrier sales channel is generated from services to other carriers in the telecommunications industry. For the three and nine months ended September 30, 2004, our revenues from the
carrier sales channel represented approximately 60% of our consolidated revenues.



Off-balance sheet arrangements



There have
been no material changes in our off-balance sheet arrangements during the nine months ended September 30, 2004.



Recently Issued Accounting Pronouncements



See Note 2, Basis of Presentation and Significant Accounting Policies, to the accompanying condensed consolidated financial statements for a
full description of recently issued accounting pronouncements including the date of adoption and effects on results of operations and financial condition.



Inflation



We do not believe that our business is impacted by inflation to a significantly different extent than the general economy.



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Item 3. Quantitative and Qualitative Disclosures about Market Risk



Refer to the Companys December 31, 2003 amended annual report on Form 10-K/A for information regarding quantitative and qualitative disclosures
about market risk. No material change regarding this information has occurred since that filing.



Item 4. Controls and Procedures



In March 2004, Grant Thornton completed an audit of our consolidated financial statements as of December 31, 2003 and for the year then ended for inclusion in our original annual report on Form 10-K filed on March 26, 2004 (the
Original 10-K Filing). In connection with such audit, Grant Thornton identified to our Audit Committee and management certain internal control deficiencies, including in the following areas: segregation of duties within a certain
subsidiary; information systems logical access; documentation for information technology policies, procedures and standards; development of a comprehensive enterprise-wide business continuity and disaster recovery plan; dependence of a certain
subsidiary on an outdated financial application; and customer contract files management. Grant Thornton advised the Audit Committee that they considered these internal control deficiencies in the aggregate to constitute material weaknesses in our
internal control over financial reporting. Grant Thornton further advised the Audit Committee that these internal control deficiencies did not affect Grant Thorntons unqualified report on our consolidated financial statements as of December
31, 2003 and for the year then ended included in the Original 10-K Filing.



Prior to the Original 10-K Filing on March 26, 2004, management carried out an evaluation, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure
controls and procedures pursuant to Rule 13a-15 of the Exchange Act. In connection with such evaluation, management considered the above internal control issues identified by Grant Thornton. While agreeing that the issues identified by Grant
Thornton were deficiencies, management and the Audit Committee did not regard those issues, either individually or in the aggregate, as constituting a material weakness in our internal control over financial reporting. The position of management and
the Audit Committee was based on their judgment that compensating controls in operation mitigated the possibility that the matters identified by Grant Thornton would adversely affect disclosure controls and procedures or that such matters were
inconsequential. Based upon managements evaluation, our chief executive officer and chief financial officer concluded at that time that disclosure controls and procedures were designed to provide reasonable assurance of meeting their
objectives and were effective at a reasonable assurance level as of December 31, 2003.



To address the matters identified by Grant Thornton, we:



| |  | implemented a number of additional controls at the relevant subsidiary to reduce the risk from segregation of duties issues, including the separation of cash allocation and bank
reconciliation activities from activities such as mail opening, check recording and check deposits;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | consolidated all security functions under a central organization that reports directly to the Companys chief information officer and has responsibility for security
architecture and operations, audit and compliance, and physical security;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | took additional measures to strengthen and standardize controls over access to sensitive systems and applications, including implementing new security tools and procedures;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | made substantial progress towards the implementation of a comprehensive enterprise-wide business continuity and disaster recovery plan, including updating the Companys
business continuity handbook and developing a business continuity template to ensure plans contain complete and accurate information;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | implemented a web-based centralized customer contract database;
| | - | ---------------------------------------------------------------



| |  | developed and, in September 2004, tested, a contingency plan using backup hardware and periodic software and data backups to ensure the continuity of the relevant subsidiarys
outdated financial application until it can be replaced in 2005; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | developed comprehensive documentation for information technology policies, procedures and standards and implemented these across the global information technology organization.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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We believe that the above measures remediated the matters identified by Grant Thornton.



Subsequent to the filing of the Original 10-K Filing, in the course of
preparing our financial statements for the first quarter of 2004 in early April 2004, management became concerned about the adequacy of our accrued cost of access liabilities. Cost of access includes usage-based charges paid to other carriers to
originate and terminate switched voice traffic and leased line charges for dedicated facilities. Management presented its concerns to the Audit Committee and, at the direction of the Audit Committee, continued its internal review of our accrued cost
of access liabilities and cost of access expenses and the related internal control environment. On April 27, 2004, we announced managements preliminary assessment of the under accrual of the cost of access liabilities at year-end 2003 and that
we expected to restate previously reported financial statements. We also stated that our previously reported financial statements for the years ended December 31, 2003 and 2002 should be disregarded pending the outcome of our review of our cost of
access liabilities. On April 29, 2004, we announced that Grant Thornton had notified us that its audit reports dated March 8, 2004, December 23, 2003 and September 10, 2003 covering calendar years 2001, 2002 and 2003 could no longer be relied upon.



On May 3, 2004, we announced that the Audit Committee had
retained Deloitte & Touche to conduct an independent investigation of the facts and circumstances surrounding the understatement of the cost of access liabilities and expenses and the causes that may have given rise thereto, including, if
relevant, associated internal control issues and issues of management integrity. Deloitte & Touches investigation included reading more than 90,000 e-mails and numerous other documents and interviewing 26 employees. On June 21, 2004, we
announced that Deloitte & Touche had completed its investigation and that the investigative procedures it performed did not reveal any management integrity issues related to the cost of access liabilities and expenses, or any knowledge by
management of an understatement of our accrued cost of access liabilities related to the year-end 2003 financial statements until after the date of the Original 10-K Filing. Based upon the investigative procedures it performed, Deloitte & Touche
observed that the Company had in place detailed processes and procedures for its cost of access accounting, but that control issues existed with respect to the Companys cost of access accounting in North America. The processes and procedures
relating to cost of access accounting are described in Item 2, Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting PoliciesCost of Access Accruals.



In addition to Deloitte & Touches investigation, the Company
conducted a review to determine the principal contributing factors that caused the underestimate of cost of access expenses that is the subject of the restatement covered by our 2003 amended annual report on Form 10-K/A. The root causes identified
included inaccuracies in third party, industry standard rating databases used to estimate the rates associated with minutes purchased by us from access vendors, the impact of changing traffic routing practices of emerging telecommunications industry
competitors on our cost estimation models, our increased reliance on CLECs to originate and terminate traffic, and disparities between the systems used by the Company and its third party service provider to manage fixed line costs.



Based on our own internal review and taking into account the results of
Deloitte & Touches investigation, we believe that the following control issues surrounding cost of access accounting in North America in the aggregate constituted a material weakness in our internal control over financial reporting: (1)
the failure to reconcile estimates of cost of access expenses to vendor invoiced amounts on an aggregate basis; (2) the lack of a clear understanding of cost of access-related processes and procedures and the lack of effective communications among
relevant personnel; (3) inadequate documentation of such processes and procedures; (4) an inappropriate focus of cost of access accounting on the balance sheet, with entries flowing through the income statement only indirectly; (5) inaccuracies in
the schedules used to help validate the adequacy of the monthly cost of access accrual; and (6) the lack of contemporaneous documentation to support decisions not to accrue for certain disputed amounts.



The Public Company Accounting Oversight Board has defined material weakness
as a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a



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material misstatement of the annual or interim financial statements will not be prevented or detected. Our conclusion that the above control issues
surrounding cost of access accounting in North America constituted a material weakness means that, absent remediation of these issues, there would exist a reasonable possibility of a material misstatement in the cost of access accounts in our
financial statements for future periods.



In connection with
the preparation of our 2003 amended annual report on Form 10-K/A, management, with the participation of our chief executive officer and chief financial officer, reevaluated the effectiveness of our disclosure controls and procedures, pursuant to
Rule 13a-15 of the Exchange Act. As part of such reevaluation, management considered the cost of access internal control issues identified in Deloitte & Touches independent investigation and in managements own internal review. Based
upon managements reevaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level as of December 31, 2003.



Based in part on Deloitte & Touches observations, our board of
directors directed management, under the oversight of the Audit Committee, to continue implementation of appropriate interim and long-term remediation measures to ensure accurate reporting of financial information regarding cost of access. These
remediation measures include, among other things: (1) adding systems and procedures for reconciling vendor invoices to accruals for cost of access expenses; (2) conducting a required skill level analysis for cost of access-related functions and
supplementing resources accordingly; (3) developing comprehensive documentation of cost of access expense and accrual processes and procedures; (4) improving support tools for estimating and disputing cost of access expenses and training personnel
on the use of such tools and on cost of access processes; and (5) reorganizing the cost of access financial organization to improve oversight by appropriate accounting personnel.



Since the discovery in April 2004 of the under accrual of the cost of access liabilities, the Company has implemented the
following remediation measures:



| |  | We have adopted a new estimate validation system and procedure to allow for a monthly rebuilding of the cost of access accrual on a 90 day lag basis using aggregate vendor invoices
and cash payments. This rebuilding of historical cost of access accruals, which allows us to true-up our cost of access estimate to aggregate cash payments made to access providers, has also allowed us to confirm that such accruals were
not materially understated for periods prior to January 1, 2003. We have also identified additional invoice information within the existing voucher system to improve the monthly cost of access close process, including the use of reports that provide
a history of the timing of the receipt/vouchering of invoices and their related service period.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have identified the primary causes that resulted in miscalculations by our cost of access expense estimation systems and have initiated improvements to such estimation systems.
We have improved the quality of the databases that feed the estimation systems for voice minutes of use and reconciled disparities between the systems used by the Company and its third party service provider to manage fixed line costs.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We have completed workflow documentation for the historical cost of access expense and accrual processes.
| | - | ---------------------------------------------------------------------------------------------------------



| |  | We have made changes in lines of reporting and personnel responsibilities, including having all finance and accounting functions related to cost of access worldwide report to one
vice president who is a certified public accountant and who in turn reports directly to the chief financial officer.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company has validated that these new measures improve the accuracy of our estimates and that our actual cost of access expenses recorded are
reconciled to third party vendor amounts in the aggregate on a reasonably timely basis (approximately 90 days).



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In addition, based on the Companys internal review and taking into account the results of Deloitte
& Touches investigation, the Company identified a number of actions, which while not necessary to remediate the material weakness in our internal control over financial reporting, would in the long-term enhance the systems, controls,
oversight and efficiency of our cost of access operations.



In
connection with the preparation of this quarterly report on Form 10-Q, management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures, pursuant
to Rule 13a-15 of the Exchange Act. As part of such evaluation, management considered the cost of access internal control issues identified in Deloitte & Touches independent investigation and in managements own internal review.
Management also considered those remediation measures identified above that were implemented prior to September 30, 2004, including the monthly rebuilding of the cost of access accrual on a 90 day lag basis using aggregate vendor invoices and cash
payments. Based upon managements evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were designed to provide reasonable assurance of meeting their objectives and were
effective at a reasonable assurance level as of September 30, 2004. No change in our internal control over financial reporting was made during the third quarter of 2004 that materially affected, or that is reasonably likely to materially affect, our
internal control over financial reporting.



The Company is
continuing to perform the systems and process evaluation testing of its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, in order to allow our management to report on, and our auditors, Ernst
& Young LLP, to attest to, our internal control over financial reporting. Although the Company has made significant progress in this regard and management expects to be in a position to complete its evaluation by year-end 2004, the time
remaining for our auditors to complete the steps required for their attestation is short, and no assurances can be given that their work can be completed on a timely basis.



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PART II. OTHER INFORMATION



Item 1. Legal Proceedings



See
Note 14, Contingencies, to the accompanying condensed consolidated financial statements for a discussion of certain legal proceedings affecting the Company.



Item 6. Exhibits



Exhibits filed
as part of this report are listed below.



|      |  |                                                                                                                                                                                                                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.5   |  | Amendment to the Credit Agreement, dated as of May 18, 2004 (the Bridge Loan Facility), by and among Global Crossing Limited, Global Crossing (UK) Telecommunications Limited, the
other Loan Parties party thereto, and STT Communications Ltd., dated as of October 8, 2004 (filed herewith)                                                          
|4.6   |  | Restructuring Agreement, dated as of October 8, 2004, by and among Global Crossing Limited, Global Crossing Holdings Limited, Global Crossing North American Holdings, Inc., Global Crossing
(UK) Telecommunications Limited, STT Crossing Ltd., STT Hungary Liquidity Management Limited Liability Company, and STT Communications Ltd. (filed herewith).
|10.13 |  | Form of Restricted Stock Unit Agreement applicable to directors and executive officers of Global Crossing Limited (filed herewith).                                                                                                                                                                                                                       
|10.14 |  | Form of Non-Qualified Stock Option Agreement applicable to John J. Legere (filed herewith).                                                                                                                                                                                                                                                               
|10.15 |  | Form of Restricted Stock Unit Agreement applicable to John J. Legere (filed herewith).                                                                                                                                                                                                                                                                    
|10.16 |  | Form of Indemnity Agreement applicable to directors and Executive Committee members of Global Crossing Limited (filed herewith).                                                                                                                                                                                                                          
|31.1  |  | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                  
|31.2  |  | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                                                                  
|32.1  |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                   
|32.2  |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                                                                                                                                                   



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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 on November
15, 2004 by the undersigned thereunto duly authorized.



|                        |  |                                                                                                                                   
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|GLOBAL CROSSING LIMITED
|                        | 
|By:                     |  | /s/    DANIEL
OBRIEN                                                                                                             
|                        |  | Daniel OBrien Executive Vice President and Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)



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