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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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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2006

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

(Exact name
of registrant as specified in its charter)



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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 HM 12, 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated
filer ̈Accelerated filer  x    Non-accelerated filer ̈

Indicate by check mark whether the registrant is a shell company (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,
par value $0.01 per share, outstanding as of November 1, 2006 was 36,479,136.



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES

INDEX



|                             |  |                                                                                       |  |     
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                       |  | Page
|PART I FINANCIAL INFORMATION |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Financial Statements                                                                  |  | 1   
|                             |  |                                                                                      
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18  
|                             |  |                                                                                      
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 29  
|                             |  |                                                                                      
|Item 4.                      |  | Controls and Procedures                                                               |  | 29  
|                             | 
|PART II OTHER INFORMATION    |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  | 31  
|                             |  |                                                                                      
|Item 1A.                     |  | Risk Factors                                                                          |  | 31  
|                             |  |                                                                                      
|Item 6.                      |  | Exhibits                                                                              |  | 31  



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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)



|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----- | - | ---------------- | - | ----- | -
|                                                                                                                                                                                                |  | September 30,2006 |       |   | December 31,2005 |  
|                                                                                                                                                                                                |  | (unaudited)       |       |   |                  |  
|ASSETS:                                                                                                                                                                                         |  |                   |       |   |                  |   |       |  
|Current assets:                                                                                                                                                                                 |  |                   |       |   |                  |   |       |  
|Cash and cash equivalents                                                                                                                                                                       |  | $                 | 417   |   |                  | $ | 224   |  
|Restricted cash and cash equivalents                                                                                                                                                            |  |                   | 2     |   |                  |   | 5     |  
|Accounts receivable, net of allowances of $43 and $ 49                                                                                                                                          |  |                   | 227   |   |                  |   | 225   |  
|Prepaid costs and other current assets                                                                                                                                                          |  |                   | 89    |   |                  |   | 94    |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Total current assets                                                                                                                                                                            |  |                   | 735   |   |                  |   | 548   |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Property and equipment, net of accumulated depreciation of $356 and $242                                                                                                                        |  |                   | 1,002 |   |                  |   | 963   |  
|Other assets                                                                                                                                                                                    |  |                   | 97    |   |                  |   | 79    |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Total assets                                                                                                                                                                                    |  | $                 | 1,834 |   |                  | $ | 1,590 |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|LIABILITIES:                                                                                                                                                                                    |  |                   |       |   |                  |   |       |  
|Current liabilities:                                                                                                                                                                            |  |                   |       |   |                  |   |       |  
|Accounts payable                                                                                                                                                                                |  | $                 | 240   |   |                  | $ | 197   |  
|Accrued cost of access                                                                                                                                                                          |  |                   | 124   |   |                  |   | 134   |  
|Current portion of long term debt                                                                                                                                                               |  |                   | 13    |   |                  |   | 26    |  
|Accrued restructuring costs - current portion                                                                                                                                                   |  |                   | 29    |   |                  |   | 31    |  
|Deferred revenue - current portion                                                                                                                                                              |  |                   | 97    |   |                  |   | 89    |  
|Other current liabilities                                                                                                                                                                       |  |                   | 311   |   |                  |   | 323   |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Total current liabilities                                                                                                                                                                       |  |                   | 814   |   |                  |   | 800   |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Debt with controlling shareholder                                                                                                                                                               |  |                   | 268   |   |                  |   | 262   |  
|Long term debt                                                                                                                                                                                  |  |                   | 535   |   |                  |   | 361   |  
|Obligations under capital leases                                                                                                                                                                |  |                   | 87    |   |                  |   | 62    |  
|Deferred revenue                                                                                                                                                                                |  |                   | 124   |   |                  |   | 115   |  
|Accrued restructuring costs                                                                                                                                                                     |  |                   | 68    |   |                  |   | 89    |  
|Other deferred liabilities                                                                                                                                                                      |  |                   | 69    |   |                  |   | 74    |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Total liabilities                                                                                                                                                                               |  |                   | 1,965 |   |                  |   | 1,763 |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|SHAREHOLDERS DEFICIT:                                                                                                                                                                          |  |                   |       |   |                  |   |       |  
|Common stock, 85,000,000 and 55,000,000 shares authorized, $.01 par value, 36,457,065 and 22,586,703 shares issued and outstanding as of
September 30, 2006 and December 31, 2005, respectively |  |                   |      |   |                  |   |      |  
|Preferred stock with controlling shareholder, 45,000,000 shares authorized, $.10 par value, 18,000,000 shares issued and
outstanding                                                            |  |                   | 2     |   |                  |   | 2     |  
|Additional paid-in capital                                                                                                                                                                      |  |                   | 815   |   |                  |   | 534   |  
|Accumulated other comprehensive loss                                                                                                                                                            |  |                   | (13   | ) |                  |   | (8    | )
|Accumulated deficit                                                                                                                                                                             |  |                   | (935  | ) |                  |   | (701  | )
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Total shareholders deficit                                                                                                                                                                     |  |                   | (131  | ) |                  |   | (173  | )
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  
|Total liabilities and shareholders deficit                                                                                                                                                     |  | $                 | 1,834 |   |                  | $ | 1,590 |  
|                                                                                                                                                                                                |  |                   |       |   |                  |   |       |  

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



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##### Table of Contents

GLOBAL CROSSING LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except share
and per share information)

(unaudited)



|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                            |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                                            |  | 2006                            |            |   | 2005                           |   |            | 2006 |  |   | 2005       |  
|Revenue                                                                                     |  | $                               | 466        |   |                                | $ | 481        |      |  | $ | 1,383      |   |  | $ | 1,506      |  
|Cost of revenue (excluding depreciation and amortization, shown separately below):          |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Cost of access                                                                              |  |                                 | (275       | ) |                                |   | (306       | )    |  |   | (846       | ) |  |   | (937       | )
|Real estate, network and operations                                                         |  |                                 | (69        | ) |                                |   | (75        | )    |  |   | (219       | ) |  |   | (231       | )
|Third party maintenance                                                                     |  |                                 | (22        | ) |                                |   | (24        | )    |  |   | (67        | ) |  |   | (74        | )
|Cost of equipment sales                                                                     |  |                                 | (15        | ) |                                |   | (13        | )    |  |   | (43        | ) |  |   | (40        | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total cost of revenue                                                                       |  |                                 | (381       | ) |                                |   | (418       | )    |  |   | (1,175     | ) |  |   | (1,282     | )
|                                                                                            |  |                                 |            |  
|Selling, general and administrative                                                         |  |                                 | (78        | ) |                                |   | (96        | )    |  |   | (263       | ) |  |   | (312       | )
|Depreciation and amortization                                                               |  |                                 | (41        | ) |                                |   | (36        | )    |  |   | (114       | ) |  |   | (106       | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total operating expenses                                                                    |  |                                 | (500       | ) |                                |   | (550       | )    |  |   | (1,552     | ) |  |   | (1,700     | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Operating loss                                                                              |  |                                 | (34        | ) |                                |   | (69        | )    |  |   | (169       | ) |  |   | (194       | )
|                                                                                            |  |                                 |            |  
|Other income (expense):                                                                     |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                                                             |  |                                 | 5          |   |                                |   | 3          |      |  |   | 12         |   |  |   | 9          |  
|Interest expense                                                                            |  |                                 | (27        | ) |                                |   | (24        | )    |  |   | (76        | ) |  |   | (74        | )
|Other expense, net                                                                          |  |                                 | (2         | ) |                                |   | (1         | )    |  |   | (3         | ) |  |   | (2         | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss from continuing operations before reorganization items and provision for income taxes. |  |                                 | (58        | ) |                                |   | (91        | )    |  |   | (236       | ) |  |   | (261       | )
|                                                                                            |  |                                 |            |  
|Net gain on preconfirmation contingencies                                                   |  |                                 | 10         |   |                                |   | 9          |      |  |   | 29         |   |  |   | 21         |  
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss from continuing operations before provision for income taxes                           |  |                                 | (48        | ) |                                |   | (82        | )    |  |   | (207       | ) |  |   | (240       | )
|                                                                                            |  |                                 |            |  
|Provision for income taxes                                                                  |  |                                 | (2         | ) |                                |   | (20        | )    |  |   | (27        | ) |  |   | (44        | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss from continuing operations                                                             |  |                                 | (50        | ) |                                |   | (102       | )    |  |   | (234       | ) |  |   | (284       | )
|                                                                                            |  |                                 |            |  
|Income from discontinued operations, net of income tax                                      |  |                                 |           |   |                                |   | 8          |      |  |   |           |   |  |   | 9          |  
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net loss                                                                                    |  |                                 | (50        | ) |                                |   | (94        | )    |  |   | (234       | ) |  |   | (275       | )
|                                                                                            |  |                                 |            |  
|Preferred stock dividends                                                                   |  |                                 | (1         | ) |                                |   | (1         | )    |  |   | (3         | ) |  |   | (3         | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss applicable to common shareholders                                                      |  | $                               | (51        | ) |                                | $ | (95        | )    |  | $ | (237       | ) |  | $ | (278       | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss per common share, basic and diluted:                                                   |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss from continuing operations applicable to common shareholders                           |  | $                               | (1.40      | ) |                                | $ | (4.56      | )    |  | $ | (8.07      | ) |  | $ | (12.79     | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Income from discontinued operations, net                                                    |  | $                               |           |   |                                | $ | 0.35       |      |  | $ |           |   |  | $ | 0.40       |  
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Loss applicable to common shareholders                                                      |  | $                               | (1.40      | ) |                                | $ | (4.21      | )    |  | $ | (8.07      | ) |  | $ | (12.39     | )
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Weighted average number of common shares                                                    |  |                                 | 36,456,178 |   |                                |   | 22,555,260 |      |  |   | 29,351,305 |   |  |   | 22,433,382 |  
|                                                                                            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  

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



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GLOBAL CROSSING LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in millions)



|                                                                            |  |                                 |      |   |      |   |      |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ---- | - | ---- | - | ---- | -
|                                                                            |  | Nine Months Ended September 30, |     
|                                                                            |  | 2006                            |      |   | 2005 |  
|Cash flows provided by (used in) operating activities:                      |  |                                 |      |   |      |   |      |  
|Net loss                                                                    |  | $                               | (234 | ) |      | $ | (275 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                                 |      |   |      |   |      |  
|Income from discontinued operations                                         |  |                                 |     |   |      |   | (9   | )
|Gain on sale of property and equipment                                      |  |                                 |     |   |      |   | (2   | )
|Gain on sale of marketable securities                                       |  |                                 | (1   | ) |      |   | (2   | )
|Gain on sale of assets                                                      |  |                                 |     |   |      |   | (14  | )
|Non-cash income tax provision                                               |  |                                 | 28   |   |      |   | 36   |  
|Non-cash stock compensation expense                                         |  |                                 | 18   |   |      |   | 39   |  
|Depreciation and amortization                                               |  |                                 | 114  |   |      |   | 106  |  
|Provision for doubtful accounts                                             |  |                                 | 2    |   |      |   | 7    |  
|Amortization of prior period IRUs                                           |  |                                 | (4   | ) |      |   | (3   | )
|Deferred reorganization costs                                               |  |                                 |     |   |      |   | (12  | )
|Gain on preconfirmation contingencies                                       |  |                                 | (29  | ) |      |   | (21  | )
|Changes in operating working capital                                        |  |                                 | 15   |   |      |   | (4   | )
|Other                                                                       |  |                                 | 5    |   |      |   | 68   |  
|                                                                            |  |                                 |      |   |      |   |      |  
|Net cash used in operating activities                                       |  |                                 | (86  | ) |      |   | (86  | )
|                                                                            |  |                                 |      |   |      |   |      |  
|Cash flows provided by (used in) investing activities:                      |  |                                 |      |   |      |   |      |  
|Purchases of property and equipment                                         |  |                                 | (73  | ) |      |   | (60  | )
|Purchases of marketable securities                                          |  |                                 | (20  | ) |      |   |     |  
|Proceeds from sale of discontinued operations                               |  |                                 |     |   |      |   | 5    |  
|Proceeds from sale of marketable securities                                 |  |                                 | 1    |   |      |   | 5    |  
|Proceeds from sale of assets                                                |  |                                 |     |   |      |   | 55   |  
|Change in restricted cash and cash equivalents                              |  |                                 | 16   |   |      |   | (6   | )
|                                                                            |  |                                 |      |   |      |   |      |  
|Net cash used in investing activities                                       |  |                                 | (76  | ) |      |   | (1   | )
|                                                                            |  |                                 |      |   |      |   |      |  
|Cash flows provided by (used in) financing activities:                      |  |                                 |      |   |      |   |      |  
|Proceeds from issuance of common stock                                      |  |                                 | 240  |   |      |   |     |  
|Proceeds from long term debt                                                |  |                                 | 144  |   |      |   |     |  
|Repayment of capital lease obligations                                      |  |                                 | (12  | ) |      |   | (12  | )
|Repayment of long term debt                                                 |  |                                 | (6   | ) |      |   |     |  
|Proceeds from exercise of stock options                                     |  |                                 | 3    |   |      |   | 2    |  
|Finance costs incurred                                                      |  |                                 | (17  | ) |      |   |     |  
|Other                                                                       |  |                                 |     |   |      |   | (2   | )
|                                                                            |  |                                 |      |   |      |   |      |  
|Cash flows provided by (used in) financing activities                       |  |                                 | 352  |   |      |   | (12  | )
|                                                                            |  |                                 |      |   |      |   |      |  
|Effect of exchange rate changes on cash and cash equivalents                |  |                                 | 3    |   |      |   | (6   | )
|                                                                            |  |                                 |      |   |      |   |      |  
|Net increase (decrease) in cash and cash equivalents                        |  |                                 | 193  |   |      |   | (105 | )
|Cash and cash equivalents, beginning of period                              |  |                                 | 224  |   |      |   | 365  |  
|                                                                            |  |                                 |      |   |      |   |      |  
|Cash and cash equivalents, end of period                                    |  | $                               | 417  |   |      | $ | 260  |  
|                                                                            |  |                                 |      |   |      |   |      |  
|Non cash investing and financing activities:                                |  |                                 |      |   |      |   |      |  
|Capital lease and debt obligations incurred                                 |  | $                               | 46   |   |      | $ | 2    |  
|                                                                            |  |                                 |      |   |      |   |      |  
|Accrued interest paid with the issuance of convertible notes                |  | $                               | 6    |   |      | $ | 6    |  
|                                                                            |  |                                 |      |   |      |   |      |  

The accompanying notes are an integral part of these 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 locations, square footage, employees, share and per share information)

(unaudited)

1. BACKGROUND AND ORGANIZATION

Global Crossing
Limited and its subsidiaries (collectively, the Company) provide telecommunications services using a global IP-based network that directly connects more than 300 cities in 29 countries and delivers services to more than 600 cities in
more than 60 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. For management purposes, the Companys operations are organized
into three reportable operating segments: (i) enterprise, carrier data and indirect channels, (ii) carrier voice, and (iii) consumer voice (see Note 12).

2. BASIS OF PRESENTATION

Basis of Presentation and Use of Estimates

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (U.S. GAAP) and pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). Certain information and disclosures normally included in financial statements prepared in accordance
with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes
thereto included in the Companys Annual Report for the year ended December 31, 2005 filed with the SEC on Form 10-K. These condensed consolidated financial statements include the accounts of the Company over which it exercises control. In
the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of interim results for the Company. The results
of operations for any interim period are not necessarily indicative of results to be expected for the full year.

The preparation of
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 as of the date of the condensed consolidated financial statements, the
disclosure of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes, and the reported amounts of revenue and expenses during the periods presented. 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.

Reclassifications

Certain amounts in prior period condensed consolidated financial statements and accompanying footnotes have been reclassified to conform to the current
year presentation.

New Accounting Pronouncements

The Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (FIN
48) in July 2006. This interpretation states that an enterprise shall initially recognize the financial statement effects of a tax position where it is more likely than not, based on the technical merits, that the position will be
sustained upon examination. More likely than not is defined as a likelihood of greater than 50% based on the facts, circumstances, and information available at the reporting date. FIN 48 is effective for fiscal periods beginning
after December 15, 2006. The cumulative effect of applying FIN 48 is to be reported as an adjustment to the beginning balance of accumulated deficit. The Company is currently evaluating the impact of adopting FIN 48 on the Companys
financial statements.



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##### Table of Contents

The FASB issued Statement of Financial Accounting Standards (SFAS) No.157, Fair Value
Measurements (FAS 157), in September 2006. FAS 157 clarifies that the fair value is the amount that would be exchanged to sell an asset or transfer a liability in an orderly transaction between market participants. This statement
also requires that a fair value measurement technique include an adjustment for risks inherent in a particular valuation technique and/or the risks inherent in the inputs to the model if market participants would also include such an adjustment. The
provisions of FAS 157 are effective for fiscal periods beginning after November 15, 2007 and are to be applied prospectively. The Company is currently evaluating the impact of adopting FAS 157.

The FASB issued SFAS No.158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans (FAS 158) in
September 2006. The interpretation states that the enterprise is required to recognize in its statement of financial condition the funded status of its defined benefit postretirement plans, measured as the difference between the fair value of the
plan assets and the benefit obligation. FAS 158 also requires an entity to recognize changes in the funded status within accumulated other comprehensive income, net of tax to the extent such changes are not recognized in earnings as components of
periodic net benefit cost. The provisions of FAS 158 are effective as of the end of the fiscal period ending after December 15, 2006. The Company is currently evaluating the impact of adopting FAS 158.

3. FINANCING ACTIVITIES

Working Capital Facility

On May 10, 2006, through certain of our U.S. subsidiaries (the W/C Facility Borrowers), the Company entered into a
$55 working capital facility (the Working Capital Facility) with Bank of America, N.A. (the Agent) and other lenders participating from time to time. The Working Capital Facility, which expires on May 9, 2009, provides
for a secured revolving line of credit of up to $55; provided that the availability is limited to $35 until certain financial tests are met. Except as set forth in the immediately succeeding paragraph, initial advances under the facility (excluding
the May 10, 2006 advance of $1 representing an upfront fee rolled into the facility) are subject to certain state regulatory approvals, which are expected by the end of the fourth quarter of 2006, and to customary closing
conditions. The W/C Facility Borrowers can borrow up to (i) 85% of their eligible billed accounts receivable and (ii) 60% of their eligible unbilled accounts receivable (not to exceed $25 in unbilled accounts receivable), to the extent the
aggregate of such amounts exceed a $20 availability block and other reserve amounts that may be set aside by the Agent. Facility fees and other fees are payable for the duration of the facility. Borrowings under the Working Capital Facility will be
used for commercial letters of credit up to $25 and to fund the Companys ongoing working capital requirements including operating losses, debt service and capital expenditures. The Working Capital Facility effectively allows for borrowing at
rates equal to LIBOR plus 2.5% to 3.0% or the lenders prime rate plus 1.0% to 1.5%. The actual rate will depend upon the Companys consolidated restricted cash and the availability under the facility. The facility is secured by
(i) guarantees from substantially all of the Companys North American subsidiaries (together with the W/C Facility Borrowers, the W/C Facility Loan Parties), (ii) a pledge of the W/C Facility Loan Parties outstanding
common shares, and (iii) a first lien on accounts receivable and other assets of the W/C Facility Loan Parties, subject to an intercreditor agreement with the trustee under the indenture for the $250 aggregate initial principal amount of the
Companys 4.7% payable-in-kind mandatory convertible notes (the Mandatory Convertible Notes) . The Working Capital Facility includes, among other things, certain financial covenants. The Working Capital Facility can be terminated by
the Company at any time without penalty and can be terminated by the lenders ninety days prior to the maturity of the Mandatory Convertible Notes if the lenders have not received reasonable assurance that such notes will convert to equity. As
required by the terms of the restructuring agreement among the Company and certain subsidiaries of Singapore Technologies Telemedia Pte Ltd, the Companys indirect majority shareholder (ST Telemedia), dated October 8, 2004, the
Company incurred and paid a consent fee of $1 to an ST Telemedia subsidiary in connection with such subsidiarys execution of the intercreditor agreement and resultant subordination of its security interest in the collateral which also secures
the Working Capital Facility.

As originally executed, the Working Capital Facility allowed for the issuance, in the sole discretion of the
lenders, of letters of credit prior to the satisfaction of all conditions precedent to borrowing under the facility (including the receipt of all required regulatory approvals), provided that any such letters of credit were required to



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have been cash collateralized. In the third quarter of 2006, the Working Capital Facility was amended to eliminate the
cash collateralization requirement. During the three and nine months ended September 30, 2006, approximately $11 of commercial letters of credit were issued under the Working Capital Facility.

In addition, in the third quarter of 2006, the Company entered into a separate amendment to the Working Capital Facility which: (1) clarified a
technical ambiguity in the definition of Cash EBITDA for purposes of the financial covenant contained in the Working Capital Facility and waived compliance with such covenant for the nine-month period ended September 30, 2006;
(2) increased the flexibility of the Company to make immaterial sales and other dispositions of property; (3) simplified compliance by the Company with the covenants regarding compliance with agreements with other telecommunications
carriers and the furnishing of related notices to the Agent; and (4) increased, to a limited extent, the Companys flexibility to incur purchase money indebtedness and intercompany indebtedness.

Debt and equity financing

On May 30,
2006, the Company completed concurrent public offerings of 12,000,000 shares of common stock and $144 aggregate principal amount of 5% convertible senior notes due 2011 (the 5% Convertible Notes) for total gross proceeds of $384. The net
proceeds from the public offerings were approximately $371, after deducting underwriters discounts and payment of other direct fees. Concurrent with the closing of the convertible senior notes offering we purchased a portfolio of U.S. treasury
securities with total face value of $21 for $20, and pledged these securities to collateralize the first six interest payments due on the 5% Convertible Notes; these securities are included in other current assets (approximately $7) and other assets
(approximately $13). The remaining net proceeds will be used for general corporate purposes, which may include the acquisition of assets or businesses that are complementary to our existing business.

The 5% Convertible Notes rank equal in right of payment with any other senior indebtedness of Global Crossing Limited, except to the extent of the value
of any collateral securing such indebtedness. The notes were priced at par value, mature on May 15, 2011, and accrue interest at 5% per annum, payable semi-annually on May 15 and November 15 of each year. The 5% Convertible Notes
may be converted at any time prior to maturity at the option of the holder into shares of the Companys common stock at a conversion price of approximately $22.98 per share. At any time prior to maturity, the Company may unilaterally and
irrevocably elect to settle the Companys conversion obligation in cash and, if applicable, shares of the Companys common stock, calculated as set forth in the indenture governing the 5% Convertible Notes. During the twelve months ended
May 20, 2009 and May 20, 2010, the Company may redeem some or all of the 5% Convertible Notes for cash at a redemption price equal to 102% and 101%, respectively, of the principal amount being redeemed, plus accrued and unpaid interest.
The Company has no right to redeem the 5% Convertible Notes prior to May 20, 2008. The Company may be required to repurchase, for cash, all or a portion of the notes upon the occurrence of a fundamental change (i.e., a change in control or a
delisting of the Companys common stock) at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, or, in certain cases, to convert the notes at an increased conversion rate based on the price paid per share
of our common stock in a transaction constituting a fundamental change.

GCUK Notes Tender Offer

As required by the indenture governing the GCUK Notes, within 120 days after the end of the period beginning on December 23, 2004 and ending
December 31, 2005 and for each twelve month period thereafter, GCUK must offer (the Annual Repurchase Offer) to purchase a portion of the GCUK Notes at a purchase price equal to 100% of their principal amount, plus accrued and
unpaid interest, if any, to the purchase date, with 50% of Designated GCUK Cash Flow from that period. Designated GCUK Cash Flow means GCUKs consolidated net income plus non-cash charges minus capital expenditures,
calculated in accordance with the terms of the indenture governing the GCUK Notes. On April 18, 2006, GCUK commenced its Annual Repurchase Offer for the period from December 23, 2004 to December 31, 2005 and offered to purchase for
cash up to approximately £15 (approximately $26) of GCUK Notes, including accrued interest. The Annual Repurchase Offer expired on May 17, 2006, with no GCUK Notes tendered.



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As of September 30, 2006, the Company estimates that it will offer to purchase for cash up to
approximately £3 (approximately $6) of GCUK notes as required under the Annual Repurchase offer for the twelve months ended December 31, 2006. Any such offer is required to be made within 120 days of such date.

4. RESTRUCTURING ACTIVITIES

2004 Restructuring Plan

In light of ongoing adverse conditions in the telecommunications industry, particularly the continued pricing pressures for
telecommunications services, the Companys Board of Directors approved a restructuring plan on October 8, 2004 designed to focus on businesses that are consistent with the Companys overall mission. The plan involved concentrating the
Companys efforts in areas that the Company anticipated will provide profitable growth opportunities and exit strategies for moving away from a number of unprofitable and non-strategic parts of the business. The plan included initiatives to
increase the Companys focus on its core enterprise, collaboration, and carrier data sales business as well as to pursue several new business development opportunities in areas where the Company can capitalize on its IP network and
capabilities.

As a result of these efforts, the Company incurred cash restructuring charges of approximately $11 for severance and related
benefits in 2004 in connection with the anticipated workforce reductions and an additional $1 for real estate consolidation. All amounts incurred for employee separations had been paid at December 31, 2005, and it is anticipated that payment in
respect of these restructuring activities related to real estate consolidations will continue through 2008. At September 30, 2006 the restructuring reserve related to this plan was less than $1. Restructuring charges for all periods are
included in selling, general, and administrative expenses in the condensed consolidated statement of operations.

2003 and Prior Restructuring Plans

Prior to the Companys emergence from bankruptcy on December 9, 2003, the Company adopted certain restructuring plans as
a result of the slow down of the economy and telecommunications industry, as well as its efforts to restructure while under Chapter 11 bankruptcy protection. As a result of these activities, the Company eliminated approximately 5,200 positions and
vacated more than 250 facilities. All amounts incurred for employee separations have been paid, and it is anticipated that the remainder of the restructuring liability, all of which relates to facility closings, will be paid through 2025.

The undiscounted facilities closings reserve, which represents estimated cash flows, is composed of continuing building lease obligations
and broker commissions for the restructured sites (aggregating $380 as of September 30, 2006), offset by anticipated receipts from existing and future third-party subleases. As of September 30, 2006, anticipated third-party sublease
receipts were $287, representing $107 from subleases already entered into and $180 from subleases projected to be entered into in the future. The discounted facilities closing reserve, shown in the table below, represents the current fair value of
the restructuring reserve. The Company continues to review the anticipated costs and third-party sublease payments on a quarterly basis and records adjustments for changes in these estimates in the period such changes become known.



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The table below reflects the activity associated with the restructuring reserve relating to the
restructuring plans initiated during and prior to 2003 for the nine months ended September 30, 2006 (unaudited):



|                              |  |                   |     |  
|----------------------------- |  | ----------------- | --- | -
|                              |  | Facility Closings |    
|Balance at December 31, 2005  |  | $                 | 119 |  
|Accretion                     |  |                   | 1   |  
|Change in estimated liability |  |                   | (3  | )
|Deductions                    |  |                   | (28 | )
|Foreign currency impact       |  |                   | 8   |  
|                              |  |                   |     |  
|Balance at September 30, 2006 |  | $                 | 97  |  
|                              |  |                   |     |  

Included in the $28 of deductions are approximately $6 related to the purchase by the Company of a
partially restructured technical facility and approximately $22 related to third-party lease payments offset by third party sublease receipts. Upon transfer of ownership of the technical facility, the Companys building lease obligation and
remaining facilities closing reserves were extinguished.

5. OTHER CURRENT LIABILITIES



|                                                                    |  |                   |     |                  |   |    
|------------------------------------------------------------------- |  | ----------------- | --- | ---------------- | - | ---
|                                                                    |  | September 30,2006 |     | December 31,2005
|                                                                    |  | (unaudited)       |     |                 
|Accrued taxes, including value added taxes in foreign jurisdictions |  | $                 | 88  |                  | $ | 97 
|Accrued payroll, bonus, commissions, and related benefits           |  |                   | 28  |                  |   | 57 
|Accrued interest                                                    |  |                   | 51  |                  |   | 19 
|Current portion of capital lease obligations                        |  |                   | 23  |                  |   | 14 
|Accrued professional fees                                           |  |                   | 22  |                  |   | 20 
|Accrued real estate and related costs                               |  |                   | 14  |                  |   | 10 
|Accrued operations, administration and maintenance costs            |  |                   | 9   |                  |   | 7  
|Accrued capital expenditures                                        |  |                   | 12  |                  |   | 16 
|Income taxes payable                                                |  |                   | 4   |                  |   | 10 
|Deferred reorganization costs                                       |  |                   | 7   |                  |   | 8  
|Other                                                               |  |                   | 53  |                  |   | 65 
|                                                                    |  |                   |     |                  |   |    
|Total other current liabilities                                     |  | $                 | 311 |                  | $ | 323
|                                                                    |  |                   |     |                  |   |    

6. STOCK BASED COMPENSATION

Effective January 1, 2006, the Company adopted SFAS No. 123R, Share Based Payment, (SFAS 123R) using the modified prospective method. SFAS 123R requires all share-based awards granted
to employees to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. Prior to the adoption of SFAS 123R, stock-based compensation expense
was recognized using the fair value provisions of SFAS 123, Accounting for Stock-Based Compensation, (SFAS 123) which the Company adopted on December 9, 2003. The fair value method under SFAS 123R is similar to the fair
value method under SFAS 123 with respect to measurement and recognition of stock-based compensation expense except that SFAS 123R requires an estimate of future forfeitures whereas SFAS 123 permitted recognizing the impact of the forfeitures as they
occur. As the Company estimated the impact of future forfeitures for the majority of its share-based payment plans upon adoption of SFAS 123, the impact on the Companys consolidated results of operations or financial position of adopting SFAS
123R is estimated to be less than $0.2 over the remaining service period. SFAS 123R also requires the realization of tax benefits in excess of amounts recognized for financial reporting purposes to be recognized as a financing activity rather than
an operating activity in the consolidated statement of cash flows. Currently only our Global Crossing (UK) Telecommunications Limited subsidiary (together with its subsidiaries, GCUK) has the ability to realize any tax benefits.



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The Company recognized $(1) and $18 of non-cash stock related expenses for the three and nine months
ended September 30, 2006 and $14 and $39, respectively, for the three and nine months ended September 30, 2005. These expenses are included in real estate, network and operations and selling, general and administrative in the condensed
consolidated statements of operations. The stock-related expenses for each period reflect share-based awards outstanding during such period, including awards granted both prior to and during such period.

During the nine months ended September 30, 2006, the Company awarded 440,200 restricted stock units to employees, 39,528 restricted stock units to
members of the Companys Board of Directors, and 522,800 performance share opportunities to employees. The 39,528 restricted stock units awarded to members of the Board of Directors vest on August 15, 2007, subject to continued service on
the board through the vesting date. The 440,200 restricted stock units and 522,800 performance share opportunities awarded to employees are scheduled to vest on March 7, 2009 and December 31, 2008, respectively; however the chief executive
officers performance shares vest in full upon actual or constructive termination without cause (as determined in accordance with his employment agreement). Each performance share grantee can earn (i) 50% of his or her target award for a
given opportunity if the threshold financial performance goal for that opportunity is achieved, (ii) 100% of his or her target award for a given opportunity if the target financial performance goal for that opportunity is achieved or
(iii) 150% of his or her target award for a given opportunity if the maximum financial performance goal for that opportunity is achieved. No payout will be made for performance below threshold, and the payout for performance above maximum is
capped at 150% of the target opportunity. Actual payouts will be calculated using interpolation between threshold and target or target and maximum, as applicable. The total performance share opportunity of each participant in this program comprises
three separate award opportunities based on measures of combined 2006 and 2007 earnings, cash use, and adjusted gross margin attributable to the Companys enterprise, carrier data and indirect channel segment. The 2007 portion of these measures
will be based on the 2007 business plan when approved by the Board of Directors.

Annual Bonus Program

During the nine months ended September 30, 2006, the Board of Directors of the Company adopted the 2006 Annual Bonus Program (the 2006 Bonus
Program). The 2006 Bonus Program is an annual bonus applicable to substantially all non-sales employees of the Company, which is intended to retain such employees and to motivate them to help the Company achieve its financial goals. Each
participant is provided a target award under the 2006 Bonus Program expressed as a percentage of base salary. Actual awards under the 2006 Bonus Program will be paid only if the Company achieves specified earnings and cash use goals. Bonus payouts
under the 2006 Bonus Program will be made half in cash and half in fully vested shares of common stock of the Company; however the Compensation Committee of the Board of Directors retains discretion to use cash rather than shares as the Committee
deems fit. To the extent common shares are used for payment of bonus awards, such shares shall be valued based on the closing price on the NASDAQ National Market on the date financial results are certified by the Compensation Committee and the Board
of Directors. During the third quarter of 2006 the Company reduced its annual bonus program accrual to zero.



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7. COMPREHENSIVE LOSS

The components of comprehensive loss for the periods indicated are as follows:



|                                                      |  |                                  |     |   |                                 |   |     |      |  |   |      |   |  |   |      |  
|----------------------------------------------------- |  | -------------------------------- | --- | - | ------------------------------- | - | --- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                      |  | Three Months Ended September 30, |     |   | Nine Months Ended September 30, |  
|                                                      |  | 2006                             |     |   | 2005                            |   |     | 2006 |  |   | 2005 |  
|Net loss                                              |  | $                                | (50 | ) |                                 | $ | (94 | )    |  | $ | (234 | ) |  | $ | (275 | )
|Foreign currency translation adjustment               |  |                                  | 1   |   |                                 |   | (1  | )    |  |   | 1    |   |  |   | 18   |  
|Unrealized derivative gain (loss) on cash flow hedges |  |                                  |    |   |                                 |   | 1   |      |  |   | (6   | ) |  |   | 7    |  
|                                                      |  |                                  |     |   |                                 |   |     |      |  |   |      |   |  |   |      |  
|Comprehensive loss                                    |  | $                                | (49 | ) |                                 | $ | (94 | )    |  | $ | (239 | ) |  | $ | (250 | )
|                                                      |  |                                  |     |   |                                 |   |     |      |  |   |      |   |  |   |      |  

8. LOSS PER COMMON SHARE

Basic loss per common share is computed as loss applicable to common stockholders divided by the weighted-average number of common shares outstanding for the period. Loss applicable to common shareholders includes
preferred stock dividends of $1 and $3, respectively, for each of the three and nine months ended September 30, 2006 and 2005. 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 net losses for the three and nine months ended September 30, 2006 and 2005, diluted loss per common share is the same as basic loss per common
share.

For the three and nine months ended September 30, 2006, potentially dilutive securities not included in diluted loss per
common share include 18,000,000 shares of convertible preferred stock, 20,953,794 common shares issuable upon conversion of convertible debt securities, 681,530 stock options, and 1,130,478 common shares issuable upon vesting of restricted stock
units issued under the 2003 Global Crossing Limited Stock Incentive Plan. For the three and nine months ended September 30, 2005, potentially dilutive securities not included in diluted loss per common share include 18,000,000 shares of
convertible preferred stock, 636,132 stock options, 13,932,565 common shares issuable upon conversion of convertible debt securities and 1,061,137 common shares issuable upon vesting of restricted stock units under the 2003 Global Crossing Limited
Stock Incentive Plan.

9. INCOME TAXES

The Companys provision for income taxes for the three and nine months ended September 30, 2006 was $2 and $27, respectively, consisting of $5 and $28, respectively, which was attributable to tax on current earnings, for which the
liability was completely offset by realizing pre-emergence net deferred tax assets. For the three and nine months ended September 30, 2005, the Companys provision for income taxes was $20 and $44, respectively, consisting of $15 and $36,
respectively which was attributable to tax on current earnings, for which the liability was completely offset by realizing pre-emergence net deferred tax assets. The reversal of the related valuation allowance that existed at the fresh start date
has been recorded as a reduction of intangibles to zero and thereafter as an increase in additional paid-in-capital in accordance with Statement of Position No. 90-7, Financial Reporting by Entities in Reorganizations under the Bankruptcy
Code. This accounting treatment does not result in any change in liabilities to taxing authorities or in cash flows.

10. CONTINGENCIES

From time to time, the Company is party to various legal proceedings in the ordinary course of business or otherwise. The following is
a description of the material legal proceedings involving the Company commenced or pending during the nine months ended September 30, 2006. In accordance with SFAS 5, Accounting for Contingencies, the Company makes a provision for a
liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings,
advice of legal counsel, and other information and events pertaining to a particular case. Although the Company believes it has adequate provisions for the following matters, litigation is inherently unpredictable and it is possible that cash flows
or results of operations could be materially and adversely affected in any particular period by the unfavorable resolution or disposition of one or more of these contingencies.



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AT&T Inc. (formally SBC Communications Inc.) Claim

AT&T Inc. (AT&T) has asserted that the Company is engaging in the misrouting of traffic through third- party intermediaries for the
purpose of avoiding access charges payable to AT&Ts LEC affiliates, allegedly in violation of the AT&T Order. AT&T asserted that the Company owed it $19 through July 15, 2004. The Company responded to AT&T denying
the claim in its entirety.

On November 17, 2004, AT&Ts LEC affiliates commenced an action against the Company and other
defendants in the U.S. District Court for the Eastern District of Missouri. The complaint alleges that the Company, through certain unnamed intermediaries, which are characterized as least cost routers, terminated long distance traffic
in a manner designed to avoid the payment of interstate and intrastate access charges.

The complaint alleges five causes of action:
(1) breach of federal tariffs; (2) breach of state tariffs; (3) unjust enrichment (in the alternative to the tariff claims); (4) fraud; and (5) civil conspiracy. Although the complaint does not contain a specific claim for
damages, plaintiffs allege that they have been damaged in the amount of approximately $20 for the time period of February 2002 through August 2004. The complaint also seeks an injunction against the use of least cost routers and the
avoidance of access charges. The Company filed a motion to dismiss the complaint on January 18, 2005, which motion was mooted by the filing of a First Amended Complaint on February 4, 2005. The First Amended Complaint added as defendants
five competitive local exchange carriers and certain of their affiliates (none of which are affiliated with the Company) and re-alleged the same five causes of action. The Company filed a motion to dismiss the First Amended Complaint on
March 4, 2005. On August 23, 2005, the Court referred a comparable case to the FCC and the FCC has sought comments on the issues referred by the Court. The Company filed comments in the two declaratory judgment proceedings occasioned by
the Courts referral. On February 7, 2006, the Court entered an order: (a) dismissing AT&Ts claims against Global Crossing to the extent that such claims arose prior to December 9, 2003 by virtue of the injunction
contained in the joint plan of reorganization (the Plan of Reorganization) of the Companys predecessor and a number of its subsidiaries (collectively, the GC Debtors) pursuant to chapter 11 of title 11 of the United
States Code which became effective on that date; and (b) staying the remainder of the action pending the outcome of the referral to the FCC described above. On February 22, 2006, AT&T moved the Court to reconsider its decision of
February 7, 2006 to the extent that it dismissed claims that arose prior to December 9, 2003. The Company filed its response to the motion on March 6, 2006, requesting that the Court deny the motion. On May 31, 2006, the Court
entered an order denying plaintiffs motion for reconsideration without prejudice.

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 U.S. District
Courts in New Jersey, New York and California. The cases were consolidated and transferred by the Judicial Panel on Multidistrict Litigation to Judge Gerard Lynch of the U.S. District Court for the Southern District of New York based on his past
involvement in prior cases involving the Company. On February 18, 2005, lead plaintiffs filed an amended consolidated class action complaint against the Company and two of its past and present officers.

The consolidated amended complaint alleges that the Company defrauded the public securities markets by issuing false and misleading statements that
failed to disclose or indicate (i) that the Company had materially understated its accrued cost of access liabilities by as much as $80, (ii) that the Company lacked sufficient internal controls to prevent material misstatements,
(iii) that the Company lacked sufficient internal controls to properly record and report accrued cost of access liabilities and operating expenses, (iv) that its financial statements were not prepared in accordance with generally accepted
accounting principles, (v) that the Company did not, contrary to its representations, consistently monitor the accuracy of its systems that measured cost of access, (vi) that the Companys results were materially inflated, and
(vii) that the Company did not have a clean balance sheet. Plaintiffs contend that the Companys 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.



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The Company and the lead plaintiffs have signed an agreement to settle the litigation that would obligate
the Company to pay $15 into a settlement fund. The Company expects that the full $15 would be paid or reimbursed by proceeds from one of the Companys directors and officers liability insurance policies. On April 17, 2006, the Court
signed an order granting preliminary approval of the settlement and preliminarily certified a class for purposes of settlement. The Court also provided that notice of the settlement should be given to the class, and scheduled a hearing for final
approval of the settlement on September 22, 2006.

In an order and judgment dated September 22, 2006, the Court approved the
settlement and dismissed the litigation. The time to file an appeal expired on October 25, 2006.

Claim by the U.S. Department of Commerce

A claim was filed in the Companys bankruptcy proceedings by the U.S. Department of Commerce (the Commerce
Department) 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 (NOAA). The Company believes responsibility for the asserted claim rests entirely with the Companys former subsidiary. On November 7, 2003, the Company and the Global Crossing Creditors
Committee filed an objection to this claim with the Bankruptcy Court. Subsequently, the Commerce Department agreed to limit the size of the pre-petition portion of its claim to $14. Negotiations with PCL to resolve the remaining issues are ongoing
but no final resolution has been reached. An identical claim that had been filed in the bankruptcy proceedings of PCL was settled in principle in September 2005 and was subsequently approved by the court as part of the PCL plan of reorganization
confirmed in an order dated November 10, 2005. The Company has commenced preliminary discussions with NOAA as to the impact that settlement has on the claim against the Company.

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 company located in the U.K. that was holding
itself out as providing a means for the landing of subsea telecommunications cables at a location in the U.K. The Company responded to that investigation in 2002 denying the allegation.

In August 2003, the OFT extended its investigation to include 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 U.K. The Company responded to that investigation denying illegality on October 10, 2003. The Company cooperated fully with the
investigation and has supplied additional factual materials including a number of formal witness statements. By a letter dated January 24, 2006, the OFT notified the Company that it had provisionally decided to close both investigations. In a
letter dated June 23, 2006, the OFT formally notified the Company that it was terminating its investigation with no finding of liability adverse to the Company.

Qwest Rights-of-Way Litigation

In May 2001, a purported class action was commenced against
three of the Companys subsidiaries in the U.S. 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-optic 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



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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 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 the 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 portions 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 the Company originally purchased this capacity. As part of a global resolution of all bankruptcy claims asserted against the Company by Qwest, Qwest agreed to
reaffirm its obligations of defense and indemnity to the Company for the assertions made in this claim. In September 2002, Qwest and certain of the other telecommunication carrier defendants filed a proposed settlement agreement in the U.S. 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 were opposed by a number of parties who intervened and an appeal was taken to the U.S. Court of Appeals for the Seventh Circuit. In a decision dated October 19, 2004, the Court of Appeals reversed the approval of the settlement and
lifted the injunction. The case has been remanded to the District Court for further proceedings.

Customs Tax Audit

A tax authority in South America 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 received formal assessments totaling $9. The potential customs and duties exposure, including possible treble penalties to the Company, could be as high as $38. The Company is now
engaged in litigation with the tax authority to resolve the issues raised in the assessment.

Foreign Income Tax Audit

A tax authority in South America issued a preliminary notice of findings based on an income tax audit for calendar years 2001 and 2002. The
examiners initial findings took the position that the Company incorrectly documented its importations and incorrectly deducted its foreign exchange losses against its foreign exchange gains on loan balances. An official assessment of $26,
including potential interest and penalties, was issued in 2005. The Company challenged the assessment and commenced litigation in September 2006 to resolve its dispute with the tax authority.

Claim by Pacific Crossing Limited

This claim
arises out of the management of the PC-1 trans-Pacific fiber-optic cable, which was constructed, owned and operated by PCL. PCL asserts that the Company and Asia Global Crossing, another former subsidiary of the Company, breached their fiduciary
duties to PCL, improperly diverted revenue derived from sales of capacity on PC-1, and failed to account for the way revenue was allocated among the corporate entities involved with the ownership and operation of PC-1. The claim also asserts that
revenues derived from operation and maintenance fees were also improperly diverted and that PCLs expenses increased unjustifiably through agreements executed by the Company and Asia Global Crossing Limited on behalf of PCL.



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During the pendency of the Companys Chapter 11 proceedings, on January 14, 2003, PCL filed an
administrative expense claim in the GC Debtors bankruptcy court for $8 in post-petition services plus unliquidated amounts arising from the Companys alleged breaches of fiduciary duty and misallocation of PCLs revenues. The Company
objected to the claim and asserted that the losses claimed were the result of operational decisions made by PCL management and its corporate parent, Asia Global Crossing. On February 4, 2005, PCL filed an amended claim in the amount of $79
claiming the Company failed to pay revenue for services and maintenance charges relating to PC-1 capacity and failed to pay PCL for use of the related cable stations and seeking to recover a portion of the monies received by the Company under a
settlement agreement entered into with Microsoft Corporation and an arbitration award against Softbank. The Company filed an objection to the amended claim seeking to dismiss, expunge and/or reclassify the claim and PCL responded to the objection by
filing a motion for partial summary judgment claiming approximately $22 for the capacity, operations and maintenance charges and co-location charges and up to approximately $78 for the Microsoft and Softbank proceeds. PCLs claim for
co-location charges (which comprised approximately $2 of the total claim) was settled pursuant to a settlement agreement which was approved by PCLs bankruptcy court on November 4, 2005.

Subsequently on June 5, 2006 (and pursuant to a new scheduling order agreed between the parties), the parties agreed to hold the Companys
motion to dismiss in abatement and PCL agreed to withdraw its partial summary judgment motion and to file a new summary judgment motion. On June 5, 2006 PCL filed a new motion for partial summary judgment claiming not less than $2 for revenues
for short term leases on PC-1, not less than $6 in respect of operation and maintenance fees paid to the Company by its customers for capacity on PC-1 and an unspecified amount to be determined at trial in respect of the Microsoft/ Softbank Claim.
The Company filed a response to that motion on June 26, 2006, together with a cross motion for partial summary judgment disallowing certain of PCLs administrative claims. On August 28, 2006, PCL replied to the Companys response
to PCLs new motion for partial summary judgment and responded to the Companys cross motion for partial summary judgment.

PCL
and the Company have also agreed that PCLs claims will be consolidated with those which the Company has filed against PCL in its separate bankruptcy case and both parties claims will be litigated in the Companys bankruptcy court.
No monies will be paid by either party until both parties countervailing claims have been resolved. The Company has until November 20, 2006 to reply to PCLs response to the Companys cross motion for summary judgment. It
is anticipated that a trial of this matter will not take place before February 12, 2007.

11. RELATED PARTY TRANSACTIONS

Commercial and other relationships between the Company and ST Telemedia

During the three and nine months ended September 30, 2006, the Company provided approximately $0.0 and $0.1, respectively, of telecommunications services to subsidiaries and affiliates of the Companys
majority shareholder and parent company, ST Telemedia. Further, during the three and nine months ended September 30, 2006, the Company received approximately $0.6 and $1.5, respectively, of telecommunication services from an affiliate of ST
Telemedia. For the three and nine months ended September 30, 2005, the Company provided approximately $0.0 and $0.2, respectively, of telecommunications services to subsidiaries and affiliates of ST Telemedia and received approximately $0.4 and
$0.9, respectively, of co-location services from an affiliate of ST Telemedia. Additionally, during the three and nine months ended September 30, 2006, the Company accrued dividends and interest of $8.9 and $26.1, respectively, related to debt
and preferred stock held by affiliates of ST Telemedia and $8.2 and $23.8 during the three and nine months ended September 30, 2005, respectively.

At September 30, 2006 and December 31, 2005, the Company had approximately $44.5 and $24.1, respectively, due to ST Telemedia and its subsidiaries and affiliates, and in each case nothing due from ST
Telemedia and its subsidiaries and affiliates. The amounts due to ST Telemedia and its subsidiaries and affiliates primarily relate to interest due under the Mandatory Convertible Notes and dividends accrued on the Companys 2% cumulative
senior convertible preferred stock, and are included in other current liabilities and other deferred liabilities, respectively, in the accompanying consolidated balance sheets. The Company accrues interest on the Mandatory
Convertible Notes at the annual rate of 11% due to certain provisions in the Mandatory Convertible Notes indenture that could obligate the Company to pay interest retroactively at that rate if the Company were unable to deliver common shares upon
receiving a notice of conversion from a holder of such notes (a



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Conversion Restriction). However, at such time, if any, as the Mandatory Convertible Notes are converted into
common shares of the Company, all amounts accrued for interest and principal on the applicable Mandatory Convertible Notes will be reclassified to common stock and additional paid in capital.

During the nine months ended September 30, 2006, the Company incurred and paid a consent fee of $1 to an ST Telemedia subsidiary in connection with
the subsidiarys execution of an intercreditor agreement and resultant subordination of its security interest in the collateral which also secures the Working Capital Facility.

On May 30, 2006, STT Crossing Ltd, a wholly-owned subsidiary of ST Telemedia, purchased 6.23 million shares of the Companys common stock
as part of the Companys public offering of common stock.

Commercial relationships between the Company and the Slim Family

According to filings made with the SEC, 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 the Companys common stock prior to May 2, 2006. Accordingly, the members of the Slim Family may therefore be considered to have been related parties of the Company during the first
and a portion of the second quarter of 2006. During the three and nine months ended September 30, 2006 and 2005, 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). Telecommunications services provided to Slim-Related Entities were approximately $0.6 and $1.9, respectively, during April 2006 and during
the four months ended April 30, 2006 and approximately $1.7 and $5.5, respectively, for the three and nine months ended September 30, 2005. Purchases of access-related services from Slim-Related Entities were approximately $0.8 and $2.5,
respectively, during April 2006 and during the four months ended April 30, 2006 and approximately $2.0 and $4.6, respectively, for the three and nine months ended September 30, 2005.

Commercial relationships with Employees

During the first quarter of 2006, the Company purchased the shares of a company owned by an employee for $0.2.

Settlement with Asia Global
Crossing Bankruptcy Trustee

In November 2004, the bankruptcy trustee for Asia Global Crossing Ltd, a former majority-owned
subsidiary of the Company now in liquidation under Chapter 7 of the U.S. Bankruptcy Code (AGC), filed a lawsuit against a number of former directors and officers of AGC, including the chief executive officer and certain other senior
officers of the Company (collectively, the Company Parties). The lawsuit alleged, among other things, breaches of fiduciary duty and duty of loyalty, preferential transfers, and fraudulent conveyances, in each case arising prior to the
AGC bankruptcy filing in November 2002. The Company was not named as a defendant in the lawsuit. To avoid adverse consequences to the Company that might result from protracted litigation of the matter, the Company entered into a stipulation of
settlement on November 30, 2005 with (among others) the AGC bankruptcy trustee and agreed to contribute $4 to a larger settlement fund. The stipulation was approved by Judge Lynch of the U.S. District Court for the Southern District of New York
on March 23, 2006. Under the terms of the settlement, the Company contributed $2 to the settlement fund in June 2006 and is required to contribute the remaining $2 on January 31, 2007 which is included in other current liabilities.

12. SEGMENT REPORTING

SFAS
No. 131 Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131) defines operating segments as components of an enterprise for which separate financial information is available and which is
evaluated regularly by the Companys chief operating decision maker in deciding how to assess performance and allocate resources. The Companys chief operating decision maker assesses performance and allocates resources based on three
separate operating segments: (i) enterprise, carrier data and indirect channels, (ii) carrier voice, and (iii) consumer voice.

The enterprise, carrier data and indirect channels segment consists of: (i) the provision of voice, data and collaboration services to all customers other than carriers, consumers, and Trader Voice and Small Business Group
(SBG) customers; (ii) the provision of data products, including IP, transport and capacity services, to



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telecommunications carrier customers; and (iii) the provision of voice, data and managed services to or through
business relationships with other telecommunications carriers, sales agents and system integrators. The carrier voice segment consists of the provision of United States domestic and international long distance voice services to carrier customers.
The consumer voice segment consists of the provision of voice services to consumers and, prior to the sales of the SBG and Trader Voice businesses in 2005, the provision of voice and data services to customers of these businesses.

The Company defines adjusted gross margin as revenue less cost of access. This metric is a key financial measure used by the chief operating decision
maker in assessing segment performance and allocating resources. Adjusted gross margin is not recognized under U.S. GAAP.

Segment information

For the three months ended September 30, 2006:



|                                    |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   |      |  
|----------------------------------- |  | ---------------------------------------------- | ---- | - | ------------- | - | ---- | ------------- |  | - | -------------------- | - |  | - | ---- | -
|                                    |  | Enterprise, carrier data and indirect channels |      |   | Carrier Voice |   |      | ConsumerVoice |  |   | Consolidated Results |  
|Revenues from external customers    |  | $                                              | 313  |   |               | $ | 151  |               |  | $ | 2                    |   |  | $ | 466  |  
|Cost of access                      |  |                                                | (141 | ) |               |   | (133 | )             |  |   | (1                   | ) |  |   | (275 | )
|                                    |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   |      |  
|Adjusted gross margin               |  | $                                              | 172  |   |               | $ | 18   |               |  | $ | 1                    |   |  |   | 191  |  
|                                    |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   |      |  
|Real estate, network and operations |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   | (69  | )
|Third party maintenance             |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   | (22  | )
|Cost of equipment sales             |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   | (15  | )
|                                    |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   |      |  
|Gross margin                        |  |                                                |      |   |               |   |      |               |  |   |                      |   |  | $ | 85   |  
|                                    |  |                                                |      |   |               |   |      |               |  |   |                      |   |  |   |      |  

For the three months ended September 30, 2005:



|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |      |  
|----------------------------------- |  | ---------------------------------------------- | ---- | - | ------------- | - | ---- | ----------------------------------- |  | - | -------------------- | - |  | - | ---- | -
|                                    |  | Enterprise, carrier data and indirect channels |      |   | Carrier Voice |   |      | Consumer Voice SBG and Trader
Voice |  |   | Consolidated Results |  
|Revenues from external customers    |  | $                                              | 269  |   |               | $ | 189  |                                     |  | $ | 23                   |   |  | $ | 481  |  
|Cost of access                      |  |                                                | (126 | ) |               |   | (170 | )                                   |  |   | (10                  | ) |  |   | (306 | )
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |      |  
|Adjusted gross margin               |  | $                                              | 143  |   |               | $ | 19   |                                     |  | $ | 13                   |   |  |   | 175  |  
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |      |  
|Real estate, network and operations |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   | (75  | )
|Third party maintenance             |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   | (24  | )
|Cost of equipment sales             |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   | (13  | )
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |      |  
|Gross margin                        |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  | $ | 63   |  
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |      |  

For the nine months ended September 30, 2006:



|                                    |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   |       |  
|----------------------------------- |  | ---------------------------------------------- | ---- | - | ------------- | - | ---- | -------------- |  | - | -------------------- | - |  | - | ----- | -
|                                    |  | Enterprise, carrier data and indirect channels |      |   | Carrier Voice |   |      | Consumer Voice |  |   | Consolidated Results |  
|Revenues from external customers    |  | $                                              | 898  |   |               | $ | 479  |                |  | $ | 6                    |   |  | $ | 1,383 |  
|Cost of access                      |  |                                                | (421 | ) |               |   | (424 | )              |  |   | (1                   | ) |  |   | (846  | )
|                                    |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   |       |  
|Adjusted gross margin               |  | $                                              | 477  |   |               | $ | 55   |                |  | $ | 5                    |   |  |   | 537   |  
|                                    |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   |       |  
|Real estate, network and operations |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   | (219  | )
|Third party maintenance             |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   | (67   | )
|Cost of equipment sales             |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   | (43   | )
|                                    |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   |       |  
|Gross margin                        |  |                                                |      |   |               |   |      |                |  |   |                      |   |  | $ | 208   |  
|                                    |  |                                                |      |   |               |   |      |                |  |   |                      |   |  |   |       |  



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For the nine months ended September 30, 2005:



|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |       |  
|----------------------------------- |  | ---------------------------------------------- | ---- | - | ------------- | - | ---- | ----------------------------------- |  | - | -------------------- | - |  | - | ----- | -
|                                    |  | Enterprise, carrier data and indirect channels |      |   | Carrier Voice |   |      | Consumer Voice SBG and Trader
Voice |  |   | Consolidated Results |  
|Revenues from external customers    |  | $                                              | 816  |   |               | $ | 605  |                                     |  | $ | 85                   |   |  | $ | 1,506 |  
|Cost of access                      |  |                                                | (376 | ) |               |   | (523 | )                                   |  |   | (38                  | ) |  |   | (937  | )
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |       |  
|Adjusted gross margin               |  | $                                              | 440  |   |               | $ | 82   |                                     |  | $ | 47                   |   |  |   | 569   |  
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |       |  
|Real estate, network and operations |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   | (231  | )
|Third party maintenance             |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   | (74   | )
|Cost of equipment sales             |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   | (40   | )
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |       |  
|Gross margin                        |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  | $ | 224   |  
|                                    |  |                                                |      |   |               |   |      |                                     |  |   |                      |   |  |   |       |  

13. SUBSEQUENT EVENTS

Business Acquisitions

On October 11, 2006, the Company announced that, in response to its September 14,
2006 offer to shareholders of Fibernet Group Plc (Fibernet), it had received acceptances as to 91 percent of Fibernets issued shares and had declared the offer unconditional and thereby taken control of Fibernet. After all of the
remaining shares are acquired through the UKs compulsory share acquisition process, the aggregate consideration will total approximately £50 (approximately $95) of cash. Fibernet is a leading provider of specialist telecommunications
services to large enterprises and other telecommunications and internet service companies primarily located in the United Kingdom and Germany. As a result of the acquisition, the Company is expected to expand its presence as a leading provider of
telecommunications services in those markets. The results of Fibernets operations will be included in the condensed consolidated financial statements as of October 11, 2006. The Company is in the process of obtaining a third-party
valuation of certain assets and liabilities to assist in the allocation of the purchase price. Direct costs of the acquisition incurred as of September 30, 2006 are approximately $2 and have been capitalized and included in other assets in the
condensed consolidated balance sheet. The Company has obtained a financing commitment from ABN Amro Bank N.V. for up to approximately $95 to refinance the Fibernet acquisition.

On October 26, 2006, the Company announced that it has agreed to acquire Impsat Fiber Networks Inc. (Impsat) for cash of $9.32 per share
of Impsat common stock, representing a total equity value of approximately $95. The Company will assume, refinance and/or repay Impsats debt, which was approximately $241 as of June 30, 2006. Impsats cash balance as of June 30,
2006 was $23. The transaction is expected to close in the first quarter of 2007. The transaction is subject to the approval of Impsats common shareholders, certain debt holders, certain regulatory approvals and other closing conditions. Impsat
is a leading Latin American provider of IP, hosting and value-added data solutions. As a result of the acquisition, the Company will be able to provide a greater breadth of services and coverage to the Companys Latin American operations and
enhance its competitive position as a global service provider. The results of Impsats operations will be included in the condensed consolidated financial statements as of the acquisition date. Direct costs of the acquisition incurred as of
September 30, 2006 are approximately $4 and have been capitalized and included in other assets in the condensed consolidated balance sheet. At closing of the acquisition, the Company expects to use approximately $160 of its existing cash for
equity payments to Impsat shareholders, transaction expenses, and repayment of a limited amount of indebtedness. In addition, the Company has obtained a financing commitment from Credit Suisse for up to $200 to refinance most of the Impsat debt that
is not being repaid at closing.

Mortgage Note

On October 23, 2006, the Company executed a Swiss Franc 7 (approximately $6) mortgage note collateralized by property located in Switzerland. The mortgage note expires on October 23, 2007 and bears
interest at 15.65% per annum. Interest payments on the mortgage note are due quarterly.



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

The
following is a discussion of our results of operations and current financial position. This discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report
and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2005.

As used in this quarterly report on Form 10-Q, references to the Company, we, us, our or similar terms include Global Crossing Limited and its consolidated subsidiaries.

Cautionary Note Regarding 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 Internet Protocol, or 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 this
Item 2; 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 business. 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 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.

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 operations 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.



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Risks Related to Liquidity and Financial Resources



| | We have incurred substantial operating losses, which have continued in 2006. We may be unable to improve operating results to achieve positive cash flows in the future, which could
prevent us from meeting our long-term liquidity requirements.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 flexibility.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Risks Related to our Operations



| | 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.
|- | --------------------------------------------------------------------------------------------------------------------------------



| | 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 lives, including as a result of natural disasters, terrorist acts, power losses, security breaches or computer viruses.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| | Many of our most important government customers have the right to terminate their contracts with us if a change of control occurs or to reduce the services they purchase from us.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The proposed acquisition of Impsat Fiber Networks may not be completed due to the failure of a closing condition, the making of a superior offer by another bidder or the failure to
obtain acquisition financing as contemplated by the existing financing commitment.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We may encounter difficulties in integrating acquired businesses and realizing anticipated operational and capital expense synergies.
|- | -------------------------------------------------------------------------------------------------------------------------------------

Risks Related to Competition and our Industry



| | 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. Ongoing industry consolidation among our competitors has the potential to
enhance the competitive position of such competitors.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 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 extensive regulation and require us to obtain and maintain a number of governmental licenses and permits. Moreover, those regulatory requirements could
change in a manner that significantly increases our costs or otherwise adversely affects our operations.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Terrorist attacks and other acts of violence or war may adversely affect the financial markets and our business and operations.
|- | -------------------------------------------------------------------------------------------------------------------------------

Risks Related to our Securities



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



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| | Future sales of our common stock by our majority stockholder or others could adversely affect its price and/or our ability to raise capital. Future acquisitions by our majority
stockholder will decrease the stocks liquidity.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We have a very substantial overhang of common stock. Future issuances of common stock (upon conversion of derivative securities or otherwise) will cause substantial dilution which
may negatively affect the market price.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We will require a significant amount of cash to service our indebtedness. We may not be able to meet our debt obligations without significant improvements in operating cash flows.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Our 5% Convertible Notes are not guaranteed by our subsidiaries and are therefore structurally subordinated to all future liabilities of our subsidiaries. Furthermore, the indenture
governing the 5% Convertible Notes does not limit us or our subsidiaries from incurring additional secured or unsecured indebtedness.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other Risks



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



| | Our real estate restructuring reserve represents a material liability the calculation of which involves significant estimation.
|- | -------------------------------------------------------------------------------------------------------------------------------



| | We have significant deficiencies in our internal controls, processes and procedures and may face difficulties in strengthening our internal accounting systems and controls and in
our ability to satisfy our financial reporting obligations on a timely basis.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Acquired businesses may have weaknesses in internal controls, and we may encounter difficulties in integrating internal controls of acquired businesses with our own internal
controls.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

For a more detailed description of many of these risks and important additional risk factors, see Item 1A,
BusinessCautionary Factors That May Affect Future Results, in our annual report on Form 10-K for the year ended December 31, 2005

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 collaboration services. We
offer these services using a global IP-based network that directly connects more than 300 cities in 29 countries and delivers services to more than 600 cities in more than 60 countries around the world. The majority of our telecommunications
services revenues and cash flows are generated based on monthly recurring services. We organize our operations into three reportable operating segments: (i) enterprise, carrier data and indirect channels, (ii) carrier voice, and
(iii) consumer voice.

Third Quarter 2006 Highlights

On September 14, 2006, we made an offer to the shareholders of Fibernet Group Plc (Fibernet) to purchase all outstanding shares. On October 11, 2006, we announced in response to our offer, we had
received acceptances as to 91 percent of Fibernets issued shares and have declared the offer unconditional and thereby taken control of Fibernet. After all of the remaining shares are acquired through the UKs compulsory share acquisition
process, the aggregate consideration will total approximately £50 million (approximately $95 million) of cash. Fibernet is a leading provider of specialist telecommunications services to large enterprises and other telecommunications and
internet



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service companies primarily located in the United Kingdom and Germany. As a result of the acquisition, we expect to
expand our presence as a leading provider of telecommunications services in those markets. The results of Fibernets operations will be included in our condensed consolidated financial statements as of October 11, 2006. We are in the
process of obtaining a third-party valuation of certain assets and liabilities to assist in the allocation of the purchase price. On October 26, 2006 we announced we obtained a financing commitment from ABN Amro Bank N.V. for up to
approximately $95 million to refinance the Fibernet acquisition.

During the third quarter of 2006 our revenues for our enterprise, carrier
and indirect channels segment, which is the primary focus of our business strategy, increased $44 million or 16% to $313 million in the third quarter of 2006 from $269 million in the third quarter of 2005 as a result of obtaining new customers and
existing customer base growth in specific enterprise and carrier target markets. We have also modestly increased revenue from our indirect sales channels through establishing additional system integrator and application service provider
relationships.

During the third quarter of 2006 our adjusted gross margin (defined as revenue less cost of access), which is considered a
key financial measure by the chief operating decision maker, increased $16 million, or 9%, in the third quarter of 2006 compared with the third quarter of 2005. The increase is a result of a change in our revenue mix to higher margin services and
cost of access initiatives that reduced access charges.

During the third quarter of 2006, we posted a net operating loss of $34 million and
had net cash used by operating and investing activities of $32 million. At September 30, 2006 we had $417 million of unrestricted cash, as compared to $224 million at December 31, 2005. We expect our operations to generate positive cash
flow for the fourth quarter of 2006.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon the accompanying condensed consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial statements and during the reporting period. Although these estimates are based on our
knowledge of current events, our actual amounts and results could differ from those estimates. The estimates made are based on historical factors, current circumstances, and the experience and judgment of our management, who continually evaluate the
judgments, estimates and assumptions and may employ outside experts to assist in the evaluations.

Certain of our accounting policies are
deemed critical, as they are both most important to the financial statement presentation and require managements most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters
that are inherently uncertain. For a discussion of our critical accounting policies, see Managements Discussion and Analysis of Financial Condition and Results of Operations in our annual report on Form 10-K for the year ended
December 31, 2005, as management believes that there have been no significant changes regarding our critical accounting policies since such time.

New Accounting Pronouncements

During the nine months ended September 30, 2006, the Financial
Accounting Standards Board (FASB) issued the following new significant accounting pronouncements:



| |  | FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement No. 109 (FIN 48),
| | - | -------------------------------------------------------------------------------------------------------------------------------



| |  | SFAS No. 157, Fair Value Measurement (FAS 157) and
| | - | ----------------------------------------------------



| |  | SFAS No. 158, Employer Accounting for Defined Pension and Other Postretirement Plans.
| | - | --------------------------------------------------------------------------------------

See Footnote 2 to our condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for further information on
these new accounting pronouncements.



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Results of operations for the three and nine months ended September 30, 2006 compared to the three and nine
months ended September 30, 2005:

Consolidated Results



|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|------------------------------------------------------------------------------------------ |  | -------------------------------- | ---- | - | ------------------- | - | ---- | ------------------------------- |  | - | ------------------- | - |  | ---- | -- |  | ---- | ------ | - | - | - | ------ | - |  | - | ---- | - |  | ---- | --
|                                                                                           |  | Three Months Ended September 30, |      |   | Increase/(Decrease) |   |      | Nine Months Ended September 30, |  |   | Increase/(Decrease) |  
|                                                                                           |  | 2006                             |      |   | 2005                |   |      | $                               |  |   | %                   |   |  | 2006 |    |  | 2005 |        |   | $ |   |        | % | 
|                                                                                           |  | (dollars in millions)            |     
|Revenue                                                                                    |  | $                                | 466  |   |                     | $ | 481  |                                 |  | $ | (15                 | ) |  | (3   | )% |  | $    | 1,383  |   |   | $ | 1,506  |   |  | $ | (123 | ) |  | (8   | )%
|Cost of revenue (excluding depreciation and amortization, shown separately below):         |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Cost of access                                                                             |  |                                  | (275 | ) |                     |   | (306 | )                               |  |   | (31                 | ) |  | (10  | )% |  |      | (846   | ) |   |   | (937   | ) |  |   | (91  | ) |  | (10  | )%
|Real estate, network and operations                                                        |  |                                  | (69  | ) |                     |   | (75  | )                               |  |   | (6                  | ) |  | (8   | )% |  |      | (219   | ) |   |   | (231   | ) |  |   | (12  | ) |  | (5   | )%
|Third party maintenance                                                                    |  |                                  | (22  | ) |                     |   | (24  | )                               |  |   | (2                  | ) |  | (8   | )% |  |      | (67    | ) |   |   | (74    | ) |  |   | (7   | ) |  | (9   | )%
|Cost of equipment sales                                                                    |  |                                  | (15  | ) |                     |   | (13  | )                               |  |   | 2                   |   |  | 15   | %  |  |      | (43    | ) |   |   | (40    | ) |  |   | 3    |   |  | 8    | % 
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Total cost of revenue                                                                      |  |                                  | (381 | ) |                     |   | (418 | )                               |  |   |                     |   |  |      |    |  |      | (1,175 | ) |   |   | (1,282 | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                
|Selling, general and administrative                                                        |  |                                  | (78  | ) |                     |   | (96  | )                               |  |   | (18                 | ) |  | (19  | )% |  |      | (263   | ) |   |   | (312   | ) |  |   | (49  | ) |  | (16  | )%
|Depreciation and amortization                                                              |  |                                  | (41  | ) |                     |   | (36  | )                               |  |   | 5                   |   |  | 14   | %  |  |      | (114   | ) |   |   | (106   | ) |  |   | 8    |   |  | 8    | % 
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Total operating expenses                                                                   |  |                                  | (500 | ) |                     |   | (550 | )                               |  |   |                     |   |  |      |    |  |      | (1,552 | ) |   |   | (1,700 | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Operating loss                                                                             |  |                                  | (34  | ) |                     |   | (69  | )                               |  |   |                     |   |  |      |    |  |      | (169   | ) |   |   | (194   | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                
|Other income (expense):                                                                    |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Interest income                                                                            |  |                                  | 5    |   |                     |   | 3    |                                 |  |   | 2                   |   |  | 67   | %  |  |      | 12     |   |   |   | 9      |   |  |   | 3    |   |  | 33   | % 
|Interest expense                                                                           |  |                                  | (27  | ) |                     |   | (24  | )                               |  |   | 3                   |   |  | 13   | %  |  |      | (76    | ) |   |   | (74    | ) |  |   | 2    |   |  | 3    | % 
|Other expense, net                                                                         |  |                                  | (2   | ) |                     |   | (1   | )                               |  |   | 1                   |   |  | NM   |    |  |      | (3     | ) |   |   | (2     | ) |  |   | 1    |   |  | NM   |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Loss from continuing operations before reorganization items and provision for income taxes |  |                                  | (58  | ) |                     |   | (91  | )                               |  |   |                     |   |  |      |    |  |      | (236   | ) |   |   | (261   | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                
|Net gain on preconfirmation contingencies                                                  |  |                                  | 10   |   |                     |   | 9    |                                 |  |   | 1                   |   |  | 11   | %  |  |      | 29     |   |   |   | 21     |   |  |   | 8    |   |  | 38   | % 
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Loss from continuing operations before provision for income taxes                          |  |                                  | (48  | ) |                     |   | (82  | )                               |  |   |                     |   |  |      |    |  |      | (207   | ) |   |   | (240   | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Provision for income taxes                                                                 |  |                                  | (2   | ) |                     |   | (20  | )                               |  |   | (18                 | ) |  | (90  | )% |  |      | (27    | ) |   |   | (44    | ) |  |   | (17  | ) |  | (39  | )%
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Loss from continuing operations                                                            |  |                                  | (50  | ) |                     |   | (102 | )                               |  |   |                     |   |  |      |    |  |      | (234   | ) |   |   | (284   | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                
|Income from discontinued operations, net of income tax                                     |  |                                  |     |   |                     |   | 8    |                                 |  |   | (8                  | ) |  | (100 | )% |  |      |       |   |   |   | 9      |   |  |   | (9   | ) |  | (100 | )%
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Net loss                                                                                   |  |                                  | (50  | ) |                     |   | (94  | )                               |  |   |                     |   |  |      |    |  |      | (234   | ) |   |   | (275   | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                
|Preferred stock dividends                                                                  |  |                                  | (1   | ) |                     |   | (1   | )                               |  |   |                    |   |  | NM   |    |  |      | (3     | ) |   |   | (3     | ) |  |   |     |   |  | NM   |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   
|Loss applicable to common shareholders                                                     |  | $                                | (51  | ) |                     | $ | (95  | )                               |  |   |                     |   |  |      |    |  | $    | (237   | ) |   | $ | (278   | ) |  |   |      |   |  |      |   
|                                                                                           |  |                                  |      |   |                     |   |      |                                 |  |   |                     |   |  |      |    |  |      |        |   |   |   |        |   |  |   |      |   |  |      |   

---

NMzero balances and comparisons from
positive to negative numbers are not meaningful.

Discussion of all significant variances:

Revenue.Our revenue decreased in the three and nine months ended September 30, 2006 compared with the same periods in 2005 as a result
of (i) reductions in our carrier voice segment revenue as a result of decreases in sales volume; (ii) reductions in our consumer voice segment revenue as a result of the planned sales of our Trader Voice and SBG businesses on May 3,
2005 and December 31, 2005, respectively; and (iii) pricing reductions for certain telecommunications services.

Revenues for our
enterprise, carrier and indirect channels segment, which is the primary focus of our business strategy, increased in the three and nine months ended September 30, 2006 compared with the same periods in 2005 as a result of obtaining new
customers and existing customer base growth in specific enterprise and carrier target markets which resulted in increases in sales volume. We have also increased our revenue from our indirect sales channels through establishing additional system
integrator and application service provider relationships (see Segment Results in this Item 2 for further discussion of results by segment).



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Cost of revenue.Cost of revenue primarily includes the following: (i) cost of access,
including usage-based voice charges paid to local exchange carriers and interexchange carriers to originate and/or terminate switched voice traffic and charges for leased lines for dedicated facilities and local loop (last mile) charges
from both domestic and international carriers; (ii) real estate, network and operations charges which include (a) employee- related costs such as salaries and benefits, incentive compensation and stock-related expenses for employees
directly attributable to the operation of our network, (b) real estate expenses for all technical sites, and (c) other non-employee related costs incurred to operate our network, such as license and permit fees and professional fees;
(iii) cost of equipment sales, which includes the software, hardware, equipment and maintenance sold to our managed services, collaboration services and system integrator customers; and (iv) third party maintenance costs incurred in
connection with maintaining the terrestrial network, subsea fiber-optic network and cable landing stations.

Cost of access decreased in
the three and nine months ended September 30, 2006 compared with the same periods in 2005 as a result of: (i) reductions in the amount of usage-based access services purchased due to lower carrier voice sales volume and (ii) our cost
of access initiatives to optimize the access network and effectively lower cost of access unit prices.

Real estate, network and operations
decreased in the three and nine months ended September 30, 2006 compared with the same periods in 2005 primarily as a result of an $11 and $16 million reduction, respectively, in stock and cash compensation. Stock and cash compensation
decreased as a result of the reduction of the 2006 annual bonus program accrual to zero and accruing other performance based compensation plans at a significantly lower rate than 2005.

Third party maintenance expenses decreased in the three and nine months ended September 30, 2006 compared with the same periods in 2005 as a result
of optimizing our vendor arrangements by renegotiating certain maintenance agreements. Specific renegotiations included term extensions, which resulted in lower annual charges, and amendments to change maintenance charges from a standing fixed fee
to a variable charge based on actual vendor time and materials incurred.

Selling, general and administrative expenses
(SG&A).SG&A expenses primarily consist of : (i) employee-related costs such as salaries and benefits, incentive compensation and stock-related expenses for employees not directly attributable to the operation of our
network; (ii) real estate expenses for all administrative sites; (iii) bad debt expense; (iv) 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; (v) restructuring costs; and (vi) regulatory costs, insurance, telecommunications costs, professional fees and license and maintenance fees for internal software and hardware.

The decrease in SG&A in the third quarter of 2006 compared with the third quarter of 2005 is primarily a result of: (i) a $16 million reduction
in stock and cash compensation. Stock and cash compensation decreased as a result of the reduction of the 2006 annual bonus program accrual to zero and accruing other performance based compensation plans at a significantly lower rate than 2005; and
(ii) a $7 million decrease in bad debt expense, all of which were partially offset by a $4 million increase in restructuring expense.

The decrease in SG&A in the nine months ended September 30, 2006 compared with the nine months ended September 30, 2005 is primarily a result of: (i) a $22 million reduction in stock and cash compensation. Stock and cash
compensation decreased as a result of the reduction of the 2006 annual bonus program accrual to zero and accruing other performance based compensation plans at a significantly lower rate than 2005 (ii) a $20 million decrease in restructuring
expenses primarily due to the recognition in the first quarter of 2005 of additional facility closure restructuring charges as a result of a reduction in our estimated sublease payments for the 2003 and prior restructuring plans; (iii) a $9
million decrease in professional fees predominantly related to legal and; (iv) a $5 million reduction in bad debt expense. The above decreases in SG&A were partially offset by an $8 million increase in miscellaneous expenses primarily as a
result of higher medical benefits expenses in 2006 and certain non-recurring vendor settlement gains recorded during 2005.

Depreciation and amortization.Depreciation and amortization consists of depreciation of property and equipment, including leased assets, amortization of customer installation costs and amortization of identifiable
intangibles. Depreciation and amortization increased in the third quarter of 2006 compared with the third quarter of 2005 as a result of (i) new depreciation and amortization expense from capital purchases during and after the third quarter of
2005 and (ii) additional amortization of prepaid installation charges.



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Interest expense.Interest expense includes interest related to indebtedness for money
borrowed, capital lease obligations, certain tax liabilities and amortization of deferred finance costs. The increase in interest expense in the three and nine months ended September 30, 2006 compared with the same periods in 2005, is primarily
a result of incurring interest on $144M aggregate principal amount of 5% convertible senior notes due 2011 (the 5% Convertible Notes) issued in May of 2006 and the conversion of accrued interest on the $250 million aggregate principal
amount of 4.7% payable in kind mandatory convertible notes (the Convertible Notes) to additional mandatory Convertible Notes since September 30, 2005. We accrue interest on the Convertible Notes at an annual rate of 11% due to
certain provisions in the Convertible Notes indenture that could obligate us to pay interest retroactively at that rate if we are unable to deliver common shares upon receiving a notice of conversion. At such time as any of the Convertible Notes are
converted into common shares of the Company all amounts of accrued interest will be reclassified into common stock and additional paid-in-capital. At September 30, 2006, there is approximately $34 million of accrued interest in our condensed
consolidated balance sheet related to the Convertible Notes.

Net gain on pre-confirmation contingencies.During the three
and nine months ended September 30, 2006 and 2005, we settled various third-party disputes and revised our estimated liability for certain contingencies related to periods prior to our emergence from Chapter 11 proceedings. We have accounted
for these contingencies in accordance with AICPA Practice Bulletin 11Accounting for Preconfirmation Contingencies in Fresh Start Reporting and recorded a net gain on the settlements and/or changes in estimated liabilities. The most
significant gains in all periods are related to changes in estimated liabilities for income and non-income tax contingencies and settlements with certain tax authorities and one of our former insurance companies.

Provision for income taxes.Provisions for income taxes decreased in the three and nine months ended September 30, 2006 compared with
the same periods in 2005 primarily as a result of a change in mix of earnings to jurisdictions with lower tax rates and changes in certain estimates. Provision for income taxes related to fresh start accounting for deferred tax benefits realized
after emergence from bankruptcy does not result in cash taxes. This non-cash tax provision was $5 million and $28 million for the three and nine months September 30, 2006, respectively and $15 million and $36 million for the three and nine
months September 30, 2005, respectively.

Segment Results

Our results are segmented according to groupings based on a combination of products, customer types and distribution channels.

We define adjusted gross margin as revenue less cost of access. This metric is a key financial measure used by the chief operating decision maker in assessing segment performance and allocating resources. Adjusted
gross margin is not recognized under U.S. GAAP. See Note 12 to the condensed consolidated financial statements for a reconciliation of segment results to consolidated results.

Enterprise, carrier data and indirect channels segment:



|                      |  |                                  |      |   |                     |   |      |                                 |  |   |                     |  |      |   |  |      |      |   |   |   |      |   |  |   |    |  |    |  
|--------------------- |  | -------------------------------- | ---- | - | ------------------- | - | ---- | ------------------------------- |  | - | ------------------- |  | ---- | - |  | ---- | ---- | - | - | - | ---- | - |  | - | -- |  | -- | -
|                      |  | Three Months Ended September 30, |      |   | Increase/(Decrease) |   |      | Nine Months Ended September 30, |  |   | Increase/(Decrease) | 
|                      |  | 2006                             |      |   | 2005                |   |      | $                               |  | % |                     |  | 2006 |   |  | 2005 |      |   | $ |   | %    |  
|                      |  | (dollars in millions)            |     
|Revenue               |  | $                                | 313  |   |                     | $ | 269  |                                 |  | $ | 44                  |  | 16   | % |  | $    | 898  |   |   | $ | 816  |   |  | $ | 82 |  | 10 | %
|Cost of access        |  |                                  | (141 | ) |                     |   | (126 | )                               |  |   | 15                  |  | 12   | % |  |      | (421 | ) |   |   | (376 | ) |  |   | 45 |  | 12 | %
|                      |  |                                  |      |   |                     |   |      |                                 |  |   |                     |  |      |   |  |      |      |   |   |   |      |   |  |   |    |  |    |  
|Adjusted gross margin |  | $                                | 172  |   |                     | $ | 143  |                                 |  |   | 29                  |  | 20   | % |  | $    | 477  |   |   | $ | 440  |   |  |   | 37 |  | 8  | %
|                      |  |                                  |      |   |                     |   |      |                                 |  |   |                     |  |      |   |  |      |      |   |   |   |      |   |  |   |    |  |    |  

Enterprise, carrier data and indirect channels represent areas in which we are investing our
resources to grow our business. Enterprise consists of the provision of voice, data and collaboration services to large and mid-sized multinational enterprises and governments. Carrier data consists of the provision of our data products,



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including IP, transport and capacity services, to our telecommunications carrier customers. Indirect channels consist of
the provision of voice, data and managed services to end users through business relationships with other telecommunications carriers, sales agents and system integrators.

Revenue.Revenue in these areas in total increased in the three and nine months ended September 30, 2006 compared with the same periods in 2005 as a result of obtaining new customers and existing
customer base growth in specific enterprise and carrier target markets which resulted in an increase in sales volume. There was a modest increase in revenue related to sales through indirect channels as a result of entering into additional
agreements with system integrators and application service providers; these channels are expected to grow significantly in future years. The increase in revenue was moderated by declines in prices for certain telecommunications services as well as
customer attrition. Prices for basic data services, such as transport services (i.e. international private line and wavelength services) and internet access services, declined approximately 20% while prices for advanced data services such as IP VPN
services and managed solutions were flat. Prices for enterprise voice services declined approximately 5%.

Adjusted Gross Margin.Adjusted gross margin in this segment increased in the three and nine months ended September 30, 2006 compared with the third quarter of 2005 as a result of the increases in revenue described above, partially offset by higher cost of
access charges as a result of additional usage volume.

Carrier voice segment:



|                      |  |                                  |      |   |                     |   |      |                                |  |   |                     |   |  |      |    |  |      |      |   |   |   |      |   |  |   |      |   |  |     |   
|--------------------- |  | -------------------------------- | ---- | - | ------------------- | - | ---- | ------------------------------ |  | - | ------------------- | - |  | ---- | -- |  | ---- | ---- | - | - | - | ---- | - |  | - | ---- | - |  | --- | --
|                      |  | Three Months Ended September 30, |      |   | Increase/(Decrease) |   |      | Nine Months EndedSeptember 30, |  |   | Increase/(Decrease) |  
|                      |  | 2006                             |      |   | 2005                |   |      | $                              |  |   | %                   |   |  | 2006 |    |  | 2005 |      |   | $ |   |      | % | 
|                      |  | (dollars in millions)            |     
|Revenue               |  | $                                | 151  |   |                     | $ | 189  |                                |  | $ | (38                 | ) |  | (20  | )% |  | $    | 479  |   |   | $ | 605  |   |  | $ | (126 | ) |  | (21 | )%
|Cost of access        |  |                                  | (133 | ) |                     |   | (170 | )                              |  |   | (37                 | ) |  | (22  | )% |  |      | (424 | ) |   |   | (523 | ) |  |   | (99  | ) |  | (19 | )%
|                      |  |                                  |      |   |                     |   |      |                                |  |   |                     |   |  |      |    |  |      |      |   |   |   |      |   |  |   |      |   |  |     |   
|Adjusted gross margin |  | $                                | 18   |   |                     | $ | 19   |                                |  |   | (1                  | ) |  | (5   | )% |  | $    | 55   |   |   | $ | 82   |   |  |   | (27  | ) |  | (33 | )%
|                      |  |                                  |      |   |                     |   |      |                                |  |   |                     |   |  |      |    |  |      |      |   |   |   |      |   |  |   |      |   |  |     |   

Revenue.Carrier voice revenue declined in the three and nine months ended
September 30, 2006 compared with the same periods in 2005 as a result of reductions in sales volume and prices. Our sales volume related to U.S. domestic long distance voice services declined by more than 10%. In addition, our average pricing
for our U.S. domestic long distance voice services base decreased approximately 10% and average pricing for our international long distance services decreased at a greater rate.

Adjusted Gross Margin.Adjusted gross margin in this segment decreased in the nine months ended September 30, 2006 compared with the
same period in 2005 as a result of the reductions in carrier voice revenue due to reductions in pricing and sales volumes. The decrease as a result of lower revenues was partially offset by reductions in cost of access charges due to lower carrier
voice sales volume and cost of access initiatives to optimize network access and effectively lower access unit prices. There was a modest reduction in adjusted gross margin for the three months ended September 30, 2006 compared with the same
period in 2005.

Consumer Voice segment:



|                      |  |                                 |    |   |                     |   |     |                                |  |   |                     |   |  |      |    |  |      |    |   |   |   |     |   |  |   |     |   |  |     |   
|--------------------- |  | ------------------------------- | -- | - | ------------------- | - | --- | ------------------------------ |  | - | ------------------- | - |  | ---- | -- |  | ---- | -- | - | - | - | --- | - |  | - | --- | - |  | --- | --
|                      |  | Three Months EndedSeptember 30, |    |   | Increase/(Decrease) |   |     | Nine Months EndedSeptember 30, |  |   | Increase/(Decrease) |  
|                      |  | 2006                            |    |   | 2005                |   |     | $                              |  |   | %                   |   |  | 2006 |    |  | 2005 |    |   | $ |   |     | % | 
|                      |  | (dollars in millions)           |   
|Revenue               |  | $                               | 2  |   |                     | $ | 23  |                                |  | $ | (21                 | ) |  | (91  | )% |  | $    | 6  |   |   | $ | 85  |   |  | $ | (79 | ) |  | (93 | )%
|Cost of access        |  |                                 | (1 | ) |                     |   | (10 | )                              |  |   | (9                  | ) |  | (90  | )% |  |      | (1 | ) |   |   | (38 | ) |  |   | (37 | ) |  | (97 | )%
|                      |  |                                 |    |   |                     |   |     |                                |  |   |                     |   |  |      |    |  |      |    |   |   |   |     |   |  |   |     |   |  |     |   
|Adjusted gross margin |  | $                               | 1  |   |                     | $ | 13  |                                |  |   | (12                 | ) |  | (92  | )% |  | $    | 5  |   |   | $ | 47  |   |  |   | (42 | ) |  | (89 | )%
|                      |  |                                 |    |   |                     |   |     |                                |  |   |                     |   |  |      |    |  |      |    |   |   |   |     |   |  |   |     |   |  |     |   

Revenue.Consumer voice revenues decreased in the three and nine months ended
September 30, 2006 compared with the same periods in 2005 primarily as a result of the sales of our Trader Voice and SBG businesses on May 3, 2005 and December 31, 2005, respectively.



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Adjusted Gross Margin.Adjusted gross margin in this segment decreased in the three and
nine months ended September 30, 2006 compared with the same periods in 2005 as a result of the sales of the business groups noted above.

Liquidity and Capital Resources

Financial Condition and Liquidity

At September 30, 2006, our available liquidity consisted of $417 million of unrestricted cash and cash equivalents. In addition, we also held $7
million in restricted cash and cash equivalents of which $5 million is included in other assets in the accompanying unaudited condensed consolidated balance sheet. The restricted cash and cash equivalents represent collateral relating to certain
rental guarantees, performance bonds, letters of credit and deposits.

For each period since we commenced operations, we have incurred
substantial operating losses. For the nine months ended September 30, 2006, we posted a net operating loss of approximately $169 million and had net cash used by operating and investing activities of $162 million (including $73 million of
purchases of property and equipment and $20 million used to collateralize the first six annual interest payments on the 5% Convertible Notes due 2011). We expect our operations to generate positive cash flow for the fourth quarter of 2006.

On May 30, 2006, we completed concurrent public offerings of 12,000,000 shares of common stock and $144 million aggregate principal
amount of 5% Convertible Notes for total gross proceeds of $384 million. The net proceeds from the public offerings were approximately $371 million, after deducting underwriters discounts and payment of other direct fees. Concurrent with the
closing of the 5% Convertible Notes offering we purchased a portfolio of U.S. treasury securities with total face value of $21 million for $20 million, and pledged these securities to collateralize the first six interest payments due on the 5%
Convertible Notes; these securities are included in other current assets ($7 million) and other assets ($13 million). The remaining net proceeds will be used for general corporate purposes, which may include the acquisition of assets or businesses
that are complementary to our existing business. See Note 13, Subsequent Events, to the accompanying unaudited condensed consolidated financial statements for additional information regarding business acquisitions.

On May 10, 2006, through certain of our U.S. subsidiaries (the W/C Facility Borrowers), we entered into a $55 million working capital
facility (the Working Capital Facility) with Bank of America, N.A. (the Agent) and other lenders participating from time to time. The Working Capital Facility, which expires on May 9, 2009, provides for a secured
revolving line of credit of up to $55 million; provided that the availability is limited to $35 million until certain financial tests are met. Except as set forth in the immediately succeeding paragraph, initial advances under the facility
(excluding the May 10, 2006 advance of $1 million representing an upfront fee rolled into the facility) are subject to certain state regulatory approvals, which are expected by the end of fourth quarter of 2006, and to customary
closing conditions.

As originally executed, the Working Capital Facility allowed for the issuance, in the sole discretion of the lenders,
of letters of credit prior to the satisfaction of all conditions precedent to borrowing under the facility (including the receipt of all required regulatory approvals), provided that any such letters of credit were required to have been cash
collateralized. In the third quarter of 2006, the Working Capital Facility was amended to eliminate the cash collateralization requirement. During the three and nine months ended September 30, 2006, approximately $11 million of commercial
letters of credit were issued under the Working Capital Facility. See Note 3, Financing Activities, to the accompanying unaudited condensed consolidated financial statements for additional information regarding the Working Capital
Facility.

In addition, in the third quarter of 2006, we entered into a separate amendment to the Working Capital Facility which:
(1) clarified a technical ambiguity in the definition of Cash EBITDA for purposes of the financial covenant contained in the Working Capital Facility and waived compliance with such covenant for the nine-month period ended
September 30, 2006; (2) increased our flexibility to make immaterial sales and other dispositions of property; (3) simplified our compliance with the covenants regarding compliance with agreements with other



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telecommunications carriers and the furnishing of related notices to the Agent; and (4) increased, to a limited
extent, our flexibility to incur purchase money indebtedness and intercompany indebtedness.

In addition to the above financing
arrangements, depending on business opportunity and market conditions prevailing from time to time, we may elect to preserve financial flexibility by entering into additional financing arrangements, which could include, but are not limited to,
equipment lease facilities. Our ability to do so is subject to the limitations in our outstanding debt instruments and to the rights of ST Telemedia under our outstanding preference shares.

In connection with our recent acquisition of Fibernet, we have obtained a financing commitment for up to approximately $95 million from ABN AMRO Bank
N.V. In connection with our recent announcement that we have agreed to acquire Impsat Fiber Networks (Impsat), we have obtained a financing commitment for up to $200 million from Credit Suisse to refinance most of Impsat debt that is not
being repaid at closing. Together, the two financing arrangements, which are subject to customary closing conditions, are intended to preserve sufficient cash reserves to enable us to pursue additional growth opportunities that may arise, including
those generated by industry consolidation.

As required by the indenture governing the GCUK Notes, within 120 days after the end of each
year, GCUK must offer (the Annual Repurchase Offer) to purchase a portion of the GCUK Notes at a purchase price equal to 100% of their principal amount, plus accrued and unpaid interest, with 50% of Designated GCUK Cash Flow
from that period. Designated GCUK Cash Flow means GCUKs consolidated net income plus non-cash charges minus capital expenditures, calculated in accordance with the terms of the indenture governing the GCUK Notes. On April 18,
2006, GCUK commenced its Annual Repurchase Offer for the period from December 23, 2004 to December 31, 2005 and offered to purchase for cash up to approximately £15 million (approximately $26 million) of GCUK Notes, including
accrued interest. The Annual Repurchase Offer expired on May 17, 2006 without any unwithdrawn tenders.

At September 30, 2006, we
estimate that we will offer to purchase for cash up to approximately £3 (approximately $6) of GCUK notes as required under the Annual Repurchase offer for the twelve months ended December 31, 2006. Any such offer is required to be made
within 120 days of such date.

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 transfers of funds from our subsidiaries to meet our debt service and other payment obligations. Our subsidiaries are incorporated and operate in
various jurisdictions throughout the world and may be subject to contractual restrictions or legal constraints affecting their ability to pay dividends or make inter-company funds transfers.

In particular, GCUK serves as a source of funding for us and our other subsidiaries, and we expect to continue to use GCUK as a source of funding though
intercompany loans, subject to significant restrictions under the GCUK Notes indenture and English law. GCUK made loans to our Global Crossing Europe Limited subsidiary of approximately $31 million in April 2006. Further loans of approximately $50
million were made in May 2006 after the expiration of the Annual Repurchase Offer, at which time the loans from April 2006 were repaid in full. These intercompany loans are guaranteed by GCL, and accrue a market-related interest rate and are
denominated in United States dollars. These loans mature five business days prior to the maturity of the principal outstanding of the GCUK Notes.

A default by us or any of our subsidiaries under any capital lease obligation or debt obligation totaling more than $2.5 million, as well as the bankruptcy or insolvency of any of such entities, could trigger cross-default provisions under
the indenture for the Mandatory Convertible Notes and may trigger cross-default provisions under the 5% Convertible Notes indenture, the Working Capital Facility or any other financing that we may arrange. This could lead the applicable debt holders
to accelerate the maturity of their relevant debt instruments, foreclose on our assets and adversely affect our rights under other commercial agreements, which would have a material adverse effect on our financial condition. In addition, in the
event of a Conversion Restriction (as defined in the indenture for the Mandatory Convertible Notes),we could be required to pay cash interest on the Mandatory Convertible Notes at 11% (calculated retroactively from the issue
date) and to redeem such notes on December 23, 2008 for $250 million in cash.



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Indebtedness

At September 30, 2006, we had $816 million of indebtedness outstanding consisting of $392 million GCUK Notes, including $6 million classified as current portion of long term debt, $268 million of Mandatory
Convertible Notes with our controlling shareholder, $144 million 5% Convertible Notes, and $12 million of other debt, including $7 million classified as current portion of long term debt. On June 30, 2006, approximately $6 million of accrued
interest related to the Mandatory Convertible Notes was converted to additional Mandatory Convertible Notes. This represents accrued interest through June 29, 2006 calculated at the 4.7% annual rate that applies in absence of a Conversion
Restriction.

See Note 3, Financing Activities, to the accompanying unaudited condensed consolidated financial statements for a
description of the 5% Convertible Notes. See Item 7, Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources, of our 2005 annual report on Form 10-K, for a
description of the GCUK Notes and the Mandatory Convertible Notes. We are in compliance with all covenants under the indentures for the GCUK Notes, the Mandatory Convertible Notes with controlling shareholder, the Working Capital Facility, and the
5% Convertible Notes.

Cash Management Impacts and Working Capital

Our working capital deficit decreased $173 million to a working capital deficit of $79 million at September 30, 2006 compared to a working capital
deficit of $252 million at December 31, 2005. This decrease is primarily the result of the net cash proceeds from the concurrent public offerings on May 30, 2006 partially offset by operating cash flow losses and capital expenditures.

Cash Flow Activity for the nine months ended September 30, 2006

Cash and cash equivalents increased by $193 million during the nine months ended September 30, 2006 to $417 million from $224 million at
December 31, 2005. The increase resulted from the net cash proceeds from the concurrent public offerings on May 30, 2006 partially offset by operating cash flow losses and payments made for capital expenditures and restructuring costs.

The following table is a summary of our condensed consolidated statements of cash flows for the nine months ended September 30, 2006
and 2005:



|                                                             |  |                                 |     |   |      |   |      |          |  |   |     |  
|------------------------------------------------------------ |  | ------------------------------- | --- | - | ---- | - | ---- | -------- |  | - | --- | -
|                                                             |  | Nine Months Ended September 30, |     |   |      |  
|                                                             |  | 2006                            |     |   | 2005 |   |      | $ Change | 
|                                                             |  | (in millions)                   |     |   |      |  
|Net cash flows used in operating activities                  |  | $                               | (86 | ) |      | $ | (86  | )        |  | $ |    |  
|Net cash flows used in investing activities                  |  |                                 | (76 | ) |      |   | (1   | )        |  |   | (75 | )
|Net cash flows provided by (used in) financing activities    |  |                                 | 352 |   |      |   | (12  | )        |  |   | 364 |  
|Effect of exchange rate changes on cash and cash equivalents |  |                                 | 3   |   |      |   | (6   | )        |  |   | 9   |  
|                                                             |  |                                 |     |   |      |   |      |          |  |   |     |  
|Net increase (decrease) in cash and cash equivalents         |  | $                               | 193 |   |      | $ | (105 | )        |  | $ | 298 |  
|                                                             |  |                                 |     |   |      |   |      |          |  |   |     |  

Our net increase in cash and cash equivalents in the nine months ended September 30, 2006
compared with the nine months ended September 30, 2005 is due to an increase in cash provided by financing activities partially offset by an increase in cash used in investing activities.

Cash flows from financing activities increased primarily as a result of receiving the net proceeds, after underwriting fees and other direct costs, from
the issuance of common stock and 5% Convertible Notes related to our public offerings on May 30, 2006.

Cash flows used in investing
activities increased primarily due to (i) a $20 million purchase of U.S. Treasury securities to collateralize the first six interest payments due semi-annually on the 5% Convertible Notes, and (ii) $55 million proceeds received in the
second quarter of 2005 related to the sale of our Trader Voice assets and the prepayment of a portion of the purchase price for our SBG assets.



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Cash flows used by operating activities were consistent in each period.

Contractual Cash Commitments

During the nine
months ended September 30, 2006 we entered into the following material contractual cash commitments: (i) two agreements renewing our purchase commitments with existing access providers to purchase at least $83 million of access services
over the next 4 years. (ii) two equipment leasing agreements, totaling approximately $37 million, which require us to make lease payments over a base period of 48 months; (iii) an agreement to purchase, for approximately $13 million, the
shares of an entity whose primary asset is a technical facility for which payment was made on July 4, 2006; and (iv) additional interest payments of approximately $36 million assuming the $144 million 5% Convertible Notes are held to
maturity (see Indebtedness for further information on the 5% Convertible Notes).

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 receivables from our carrier sales channels are generated from sales of services to other carriers in the telecommunications industry. At September 30, 2006 and December 31, 2005, our
receivables related to our carrier sales channels represented approximately 52% and 57%, respectively, of our consolidated receivables, net. Also at September 30, 2006 and December 31, 2005, our receivables due from various agencies of the
U.K. Government together represented approximately 13%and 18%, respectively, of our consolidated receivables, net.

Off-Balance Sheet
Arrangements

During the nine months ended September 30, 2006, under the Working Capital Facility, Bank of America issued
approximately $11 million of commercial letters of credit on our behalf to financial institutions. The financial institutions previously held cash collateral accounts (classified as restricted cash in our condensed consolidated balance sheet)
primarily to secure our obligations to such financial institutions in respect of guarantees they issued on our behalf to cover rental deposits for various administrative and technical facilities. Upon issuance of the letters of credit, the amounts
included in the cash collateral accounts were released to us. See Note 3, Financing Activities, to the accompanying unaudited condensed consolidated financial statements for further information on the Working Capital Facility.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

See the Companys 2005 annual
report on Form 10-K 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

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by a public
company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms.

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 under the Exchange Act. Based upon managements evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2006.



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Changes in Internal Control Over Financial Reporting

During the third quarter of 2006, there were no material changes in our internal control over financial reporting.



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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 10, Contingencies, to the accompanying unaudited condensed
consolidated financial statements for a discussion of certain legal proceedings affecting the Company.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes in the most
significant factors that make an investment in the Company speculative or risky from those set forth in Item 1A., Risk Factors, to the Companys annual report on Form 10-K for the year ended December 31, 2005:



| | We have a substantial overhang of common stock, which increased as a result of the issuance of the 5% Convertible Notes. Future issuances of common stock (upon conversion of
derivative securities or otherwise) will cause substantial dilution which may negatively affect the market price.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We will require a significant amount of cash to service our indebtedness, which increased as a result of the issuance of the 5% Convertible Notes. We may not be able to meet our
debt obligations without significant improvements in operating cash flows.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Our 5% Convertible Notes are not guaranteed by our subsidiaries and are therefore structurally subordinated to all future liabilities of our subsidiaries. Furthermore, the indenture
governing the 5% Convertible Notes does not limit us or our subsidiaries from incurring additional secured or unsecured indebtedness.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | The proposed acquisition of Impsat Fiber Networks may not be completed due to the failure of a closing condition, the making of a superior offer by another bidder or the failure to
obtain acquisition financing as contemplated by the existing financing commitment.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | We may encounter difficulties in integrating acquired businesses and realizing anticipated operational and capital expense synergies.
|- | -------------------------------------------------------------------------------------------------------------------------------------



| | Acquired businesses may have weaknesses in internal controls, and we may encounter difficulties in integrating internal controls of acquired businesses with our own internal
controls.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 6. Exhibits

Exhibits filed as part of this report are listed below.



|4.1 | Amendment No. 1, dated as of June 23, 2006, to Loan and Security Agreement dated as of May 10, 2006 among certain North American subsidiaries of the Registrant, the
financial institutions party thereto from time to time as lenders, and Bank of America, N.A., as agent for the lenders (filed herewith).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.2 | Amendment No. 2, dated as of September 27, 2006, to Loan and Security Agreement dated as of May 10, 2006 among certain North American subsidiaries of the Registrant,
the financial institutions party thereto from time to time as lenders, and Bank of America, N.A., as agent for the lenders (filed herewith).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4.3 | Amendment No. 3, dated as of October 31, 2006, to Loan and Security Agreement dated as of May 10, 2006 among certain North American subsidiaries of the Registrant,
the financial institutions party thereto from time to time as lenders, and Bank of America, N.A., as agent for the lenders (incorporated by reference to Exhibit 99.1 to the Registrants current report on Form 8-K filed on November 3,
2006).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|10.1 | Employment Agreement dated as of August 15, 2006 between John J. Legere and the Registrant (filed herewith).
|---- | ------------------------------------------------------------------------------------------------------------



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|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 (furnished 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 (furnished 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 9, 2006 by the undersigned thereunto duly authorized.



|                        |  |                               
|----------------------- |  | ------------------------------
|GLOBAL CROSSING LIMITED
|                        | 
|By:                     |  | /S/ JEAN F.H.P. MANDEVILLE    
|                        |  | Jean F.H.P. Mandeville        
|                        |  | Chief Financial Officer       
|                        |  | (Principal Financial Officer) 
|                        | 
|By:                     |  | /S/ ROBERT A. KLUG            
|                        |  | Robert A. Klug                
|                        |  | Chief Accounting Officer      
|                        |  | (Principal Accounting Officer)



33