<PAGE>

================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

 /X/       QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934

 / /       TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
           OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission File No.: 0-29207

                       For the quarter ended June 30, 2000

                          FLAG TELECOM HOLDINGS LIMITED

                                     BERMUDA
         (State or Other Jurisdiction of Incorporation or Organisation)

                                NOT APPLICABLE
                        (IRS Employer Identification No.)

                                   CEDAR HOUSE
                                 41 CEDAR AVENUE
                             HAMILTON HM12, BERMUDA
                     (Address of principal executive office)

                               [++1-441-296-0909]
              (Registrant's Telephone Number, Including Area Code)


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 and 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 [ ]

133,944,057 common shares were outstanding as of August 10, 2000.

The Exhibit Index, filed as a part of this report, appears on page 22.

================================================================================


<PAGE>

                          FLAG TELECOM HOLDINGS LIMITED

                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>

                                                                                      Page
                                                                                      ----

<S>                                                                                     <C>
PART I     FINANCIAL INFORMATION .................................................        1

ITEM 1:    FINANCIAL STATEMENTS...................................................        1
         1.A  Consolidated Balance Sheets as of June 30, 2000 and
              December 31, 1999...................................................        1
         1.B  Consolidated Statements of Operations for the three
              months and six months ended June 30, 2000, the three months ended
              June 30, 1999, the period from incorporation to 30 June, 1999 and
              the period from January 1, 1999 to February 26, 1999 (FLAG
               Limited)..........................................................         2
         1.C  Consolidated Statement of Comprehensive Income for the three
              months and six months ended June 30, 2000, the three months ended
              June 30, 1999, the period from incorporation to 30 June, 1999 and
              the period from January 1, 1999 to February 26, 1999 (FLAG
              Limited)............................................................        3
         1.D  Consolidated Statements of Cash Flows for the six  months ended
              June 30, 2000, the period from incorporation to 30 June, 1999 and
              the period from January 1, 1999 to February 26, 1999 (FLAG
              Limited))...........................................................         4
         1.E  Notes to Consolidated Financial Statements..........................         5

ITEM 2:    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS..............................................        10

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............        19

PART II    ADDITIONAL INFORMATION.................................................        21

ITEM 1:    LEGAL PROCEEDINGS......................................................        21
ITEM 2:    CHANGES IN SECURITIES AND USE OF PROCEEDS..............................        21
ITEM 3:    DEFAULTS UPON SENIOR SECURITIES........................................        21
ITEM 4:    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................        21
ITEM 5:    OTHER INFORMATION......................................................        21
ITEM 6:    EXHIBITS AND REPORTS FILED ON FORM 8-K.................................        22

SIGNATURES .......................................................................        23

</TABLE>


<PAGE>


PART I
Item 1.A
                          FLAG TELECOM HOLDINGS LIMITED

                           CONSOLIDATED BALANCE SHEETS
                    AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
          (EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                            June 30,             December 31,
                                                                              2000                   1999
                                                                          (UNAUDITED)             (AUDITED)
                                                                      ---------------------  ---------------------
<S>                                                                         <C>                 <C>
ASSETS:
     Current assets:
         Cash                                                               $ 1,085,992         $     3,191
         Accounts receivable, net of allowance for doubtful accounts
              Of $5,831 (1999 - $6,827)                                          95,591              90,065
         Due from affiliate                                                       2,000               2,000
         Prepaid expenses and other assets                                       16,320               3,460
                                                                            -----------         -----------
                                                                              1,199,903              98,716
     Funds held by collateral trustee or in escrow                              260,059             134,066
     Capacity available for sale                                                     --             774,366
     Capitalized financing costs, net of accumulated
         Amortization of $4,340 (1999 - $3,142)                                  13,759              11,678
     Investment in FLAG Atlantic Limited                                          9,726               7,162
     Fixed assets, net                                                        1,057,529             299,743
     Construction in progress                                                    15,182                  --
     Other long-term assets                                                       8,000                  --
                                                                            -----------         -----------
                                                                            $ 2,564,158         $ 1,325,731
                                                                            ===========         ===========
LIABILITIES:
     Current liabilities:
         Accrued construction costs                                         $    50,067         $    52,411
         Accrued liabilities                                                     51,145              39,152
         Accounts payable                                                        42,628               7,807
         Income taxes payable                                                     4,585               4,531
         Deferred revenue                                                        55,321              48,501
                                                                            -----------         -----------
                                                                                203,746             152,402
     Senior notes,  net of unamortized
         Discount of $15,861 (1999 - $5,173)                                    999,528             425,270
     Other long-term debt                                                       150,000             190,000
     Deferred revenue and other                                                 170,935             100,724
     Deferred taxes                                                               3,925               3,973
                                                                            -----------         -----------
                                                                              1,528,134             872,369

MINORITY INTEREST                                                                    --             154,817
SHAREHOLDERS' EQUITY:
     Common shares, $.0006 par value                                                 80                  42

     Additional paid-in capital                                               1,106,979             313,848
     Foreign currency translation adjustment                                        303                 141
     Accumulated deficit                                                        (71,338)            (15,486)
                                                                            -----------         -----------
                                                                              1,036,024             298,545
                                                                            -----------         -----------
                                                                            $ 2,564,158         $ 1,325,731
                                                                            ===========         ===========
</TABLE>

                                       1
<PAGE>

PART I
ITEM 1.B

                          FLAG TELECOM HOLDINGS LIMITED

                      CONSOLIDATED STATEMENT OF OPERATIONS
            FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000,
                      THE THREE MONTHS ENDED JUNE 30, 1999,
             THE PERIOD FROM INCORPORATION TO JUNE 30, 1999 AND THE
         PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 (FLAG LIMITED)
     (EXPRESSED IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>


                                                                              SIX MONTHS       PERIOD FROM   |     FLAG LTD
                                                 THREE MONTHS ENDED             ENDED         INCORPORATION  |    PERIOD FROM
                                                       JUNE 30,                 JUNE 30,        TO JUNE 30,  |   JAN 1 TO FEB 26,
                                                2000             1999            2000             1999       |       1999
                                            (UNAUDITED)       (UNAUDITED)     (UNAUDITED)      (UNAUDITED)   |     (AUDITED)
                                            -----------       -----------     -----------      -----------   |     ---------
<S>                                       <C>               <C>              <C>             <C>             |  <C>
REVENUES                                        24,687           59,501           43,873           64,070    |         30,012
                                                                                                             |
SALES AND OTHER OPERATING COSTS:                                                                             |
  Cost of capacity sold                             --           24,748               --           25,211    |          8,294
                                                                                                             |
  Network expenses                               2,324               --            3,602               --    |            --
                                                                                                             |
  Operations and maintenance                                                                                 |
  (including non-cash compensation                                                                           |
  expense of $335, nil, $1166, nil, nil)         8,905            7,771           16,971            9,925    |          5,114
                                                                                                             |
  Sales and marketing                                                                                        |
  (including non-cash compensation                                                                           |
  expense of $225, nil, $706, nil, nil)          2,581            1,625            6,390            2,898    |            637
                                                                                                             |
  General and administrative                                                                                 |
  (including non-cash compensation                                                                           |
  expense of $765, nil, $2,675, nil, nil)        9,129            6,487           17,687            8,053    |          2,870
                                                                                                             |
  Depreciation and amortization                 19,890            2,018           39,998            2,117    |            233
                                            ----------        ---------      -----------        ---------    |     ----------
                                                42,829           42,649           84,648           48,204    |         17,148
                                                                                                             |
OPERATING (LOSS)/INCOME                        (18,142)          16,852          (40,775)          15,866    |         12,864
                                                                                                             |
INCOME FROM AFFILIATES                           1,582               --            2,188               --    |             --
INTEREST EXPENSE                               (28,073)         (12,982)         (43,762)         (17,728)   |         (9,758)
INTEREST INCOME                                 20,205            2,013           27,271            2,836    |          1,825
                                            ----------        ---------      -----------        ---------    |     ----------
(LOSS)/INCOME BEFORE MINORITY INTEREST                                                                       |
AND INCOME TAXES                               (24,428)           5,883          (55,078)             974    |          4,931
                                                                                                             |
MINORITY INTEREST                                   --           (2,048)              --             (333)   |             --
                                            ----------        ---------      -----------        ---------    |     ----------
                                                                                                             |
(LOSS)/INCOME BEFORE INCOME TAXES              (24,428)           3,835          (55,078)             641    |          4,931
                                                                                                             |
PROVISION FOR INCOME TAXES                         338              393              771              479    |            171
                                            ----------        ---------      -----------        ---------    |     ----------
NET (LOSS)/INCOME                              (24,766)           3,442          (55,849)             162    |          4,760
                                            ----------        ---------      -----------        ---------    |     ----------
                                                                                                             |
Basic and diluted (loss)/income per                                                                          |
common share                                $    (0.18)       $    0.05      $    (0.44)       $       -     |      $    0.01
                                                                                                             |
Weighted average common shares                                                                               |
outstanding                                133,941,344       69,709,935      127,638,252       69,709,935    |    635,796,338

</TABLE>

                                       2
<PAGE>

PART I
ITEM 1.C
                          FLAG TELECOM HOLDINGS LIMITED

                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
            FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000,
                       THE THREE MONTHS ENDED JUNE 30, 1999,
             THE PERIOD FROM INCORPORATION TO JUNE 30, 1999 AND THE
         PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26, 1999 (FLAG LIMITED)
                       (EXPRESSED IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>


                                                                              SIX MONTHS       PERIOD FROM  |        FLAG LTD
                                                 THREE MONTHS ENDED             ENDED         INCORPORATION |       PERIOD FROM
                                                       JUNE 30,                 JUNE 30,        TO JUNE 30, |     JAN 1 TO FEB 26,
                                                2000             1999            2000             1999      |         1999
                                            (UNAUDITED)       (UNAUDITED)     (UNAUDITED)      (UNAUDITED)  |       (AUDITED)
                                            -----------       -----------     -----------      -----------  |       ---------
<S>                                       <C>               <C>              <C>             <C>            |   <C>
NET (LOSS)/INCOME                              (24,766)           3,442          (55,849)             162   |           4,760
                                                                                                            |
Foreign currency translation adjustment             90             (173)             162              (13)  |             178
                                            ----------        ---------      -----------        ---------   |       ----------
                                                                                                            |
COMPREHENSIVE (LOSS)/INCOME                    (24,676)           3,269          (55,687)             149   |           4,938
                                            ===========       =========      ===========        =========   |       ==========
</TABLE>

                                      3
<PAGE>

PART I
ITEM 1.D
                          FLAG TELECOM HOLDINGS LIMITED

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                  FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2000,
             THE PERIOD FROM INCORPORATION TO JUNE 30, 1999 AND THE
         PERIOD FROM JANUARY 1, 1999 TO FEBRUARY 26,1999 (FLAG LIMITED)
                       (EXPRESSED IN THOUSANDS OF DOLLARS)



<TABLE>
<CAPTION>

                                                                                                       |     FLAG LIMITED
                                                                                          PERIOD FROM  |     PERIOD FROM
                                                                                         INCORPORATION |     JANUARY 1 TO
                                                                      JUNE 30,            TO JUNE 30,  |     FEBRUARY 26
                                                                       2000                  1999      |         1999
                                                                    (UNAUDITED)           (UNAUDITED)  |       (AUDITED)
                                                                   -------------         ------------- |     -----------
<S>                                                                <C>                   <C>           |     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                  |
  Net (loss)/income applicable to common shareholders             $    (55,849)         $        162   |    $    4,760
  Adjustments to reconcile net income to net cash                                                      |
     provided by/(used in) operating activities:                                                       |
     Amortization of financing costs                                     1,197                    197  |            274
     Provision for doubtful accounts                                      (996)                    --  |             --
     Senior debt discount                                                  639                    548  |             98
     Non-cash stock compensation                                         4,549                     --  |             --
     Depreciation and amortization                                      39,998                  2,117  |            233
     Loss on disposal of fixed assets                                       84                     --  |             --
     Deferred taxes                                                         34                     --  |             --
     Minority interest                                                      --                    333  |             --
     Add (deduct) net changes in assets and liabilities:                                               |
        Accounts receivable                                             (4,559)                (4,442) |          1,710
        Prepaid expenses and other assets                              (20,959)                   127  |          (645)
        Capacity available for sale                                         --                 29,318  |         8,664
        Accounts payable and accrued liabilities                        47,423                 10,613  |       (16,541)
        Income taxes payable                                                60                 (1,300) |           168
        Due to affiliate                                                    --                   (271) |          (668)
        Deferred revenue and other                                      77,031                 18,003  |       (21,157)
                                                                   ------------          ------------- |      ---------
           Net cash provided by (used in) operating activities          88,652                 55,405  |       (23,104)
                                                                   ------------          ------------- |      ---------
                                                                                                       |
CASH FLOWS FROM FINANCING ACTIVITIES:                                                                  |
  Financing costs incurred                                              (3,278)                    --  |            --
  Net proceeds from issuance of 11 5/8% senior notes                   576,649                     --  |            --
  Repayment of long-term debt                                          (40,000)               (15,000) |       (15,000)
  Capital contributions - initial public offering                      633,803                     --  |            --
  (Increase)/decrease in funds held by collateral trustee                                              |
     or in escrow                                                     (125,993)                48,331  |        36,230
                                                                   ------------          ------------- |      ---------
           Net cash provided by financing activities                 1,041,181                 33,331  |        21,230
                                                                   ------------          ------------- |      ---------
                                                                                                       |
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                  |
  Cash paid for construction                                           (17,527)               (89,016) |           788
  Investments in FLAG Atlantic                                          (2,564)                    --  |            --
  Proceeds from disposal of assets                                          32                     --  |            --
  Investment in fixed assets and networks (incl L/T Asset)             (23,789)                  (586) |          (200)
                                                                   ------------          ------------- |     ----------
           Net cash (used in)/provided by investing activities         (43,848)               (89,602) |           588
                                                                   ------------          ------------- |     ----------
                                                                                                       |
NET INCREASE/(DECREASE) IN CASH                                      1,085,985                   (866) |        (1,286)
  Effect of foreign currency movements                                  (3,184)                   (27) |           178
CASH, beginning of period                                                3,191                  1,916  |          3,024
                                                                   ------------          ------------- |     -----------
CASH, end of period                                                $ 1,085,992           $      1,023  |     $    1,916
                                                                   ============          ============= |     ===========
SUPPLEMENTAL INFORMATION ON NON-CASH INVESTING                                                         |
  ACTIVITIES:                                                                                          |
  Costs incurred for construction in progress                      $   17,527            $     89,016  |     $     (788)
                                                                   ==========            ============  |     ===========
SUPPLEMENTAL INFORMATION DISCLOSURE OF                                                                 |
  CASH FLOW INFORMATION:                                                                               |
  Interest paid                                                    $   22,484            $      3,735  |     $   22,688
                                                                   ==========            ============  |     ===========
  Interest capitalized                                             $       --            $         --  |     $       --
                                                                   ==========            ============  |     ===========
  Taxes paid                                                       $      541            $      1,771  |     $       --
                                                                   ==========            ============  |     ===========


</TABLE>

                                       4
<PAGE>

PART I
ITEM 1.E


                          FLAG TELECOM HOLDINGS LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                          AS OF JUNE 30, 2000 AND 1999

1.       GENERAL

         The interim consolidated financial statements presented herein have
         been prepared on the basis of U.S. generally accepted accounting
         principles and include the accounts and balances of the Company and its
         wholly-owned subsidiaries. All significant intercompany transactions
         have been eliminated in consolidation. In the opinion of management,
         the unaudited consolidated financial statements reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results of operations for the three months and six
         months ended June 30, 2000, the three months ended June 30, 1999, the
         period from incorporation to June 30, 1999 and the period from January
         1, 1999 to February 26, 1999 (FLAG Limited), the balance sheets as of
         June 30, 2000 and December 31, 1999, and the cash flows for the six
         months ended June 30, 2000, the period from incorporation to June 30,
         1999 and the period from January 1, 1999 to February 26, 1999 (FLAG
         Limited). Our interim consolidated financial statements should be read
         in conjunction with our audited consolidated financial statements for
         the year ended December 31, 1999. The results of operations for any
         interim period are not necessarily indicative of results for the full
         year.

         FLAG Telecom Holdings Limited ("FLAG Telecom" or the "Company") was
         incorporated on February 3, 1999 to serve as the holding company for
         the FLAG Telecom group of companies (the "Group"). On February 26, 1999
         FLAG Telecom acquired approximately 65.79% of FLAG Limited by
         exchanging 69,709,935 shares of FLAG Limited common stock for the same
         number of shares of FLAG Telecom common stock. The minority shareholder
         of FLAG Limited exchanged its remaining holdings in FLAG Limited for
         shares in FLAG Telecom on January 4, 2000 such that on that date FLAG
         Limited became a wholly owned subsidiary of FLAG Telecom. This
         acquisition has been accounted for as a recapitalisation such that no
         goodwill arises and assets and liabilities are reflected at their
         carryover basis.

         The results of the operations of FLAG Limited have been included in the
         consolidated results of FLAG Telecom's operations since the date of
         recapitalisation.

2.       REVENUE RECOGNITION

         Capacity contracts are accounted for as leases. For contracts that
         satisfy sales type lease accounting, revenues are recognized upon the
         date the risks and rewards of ownership are transferred to the
         purchaser, which is the date the capacity is made available for
         activation and the customer becomes responsible for maintenance
         charges. As a result of the issuance of FASB Interpretation No. 43,
         with effect

                                       5
<PAGE>

         from July 1, 1999, certain sales of capacity may no longer be
         recognized as current revenue because they do not satisfy the
         requirements for sales-type lease accounting. Revenues from these
         capacity sales are now deferred and amortized over the term of the
         contracts. The change to the accounting treatment has no impact on cash
         flows. Until June 30, 1999 revenues from operating lease transactions
         were considered incidental and recorded as a reduction of the capacity
         available for sale.

3.       CAPACITY AVAILABLE FOR SALE

         Historically capacity for sale has been recorded at the lower of cost
         or fair value less cost to sell and charged to cost of sales as
         capacity is sold. Until contracts were entered into that precluded
         sales type lease accounting for a particular segment, the cost of such
         segment remained in capacity available for sale.

         As a result of extending the range of products and services offered by
         FLAG Telecom, the greater part of future revenue is expected to arise
         under agreements that will be accounted for as operating leases or
         service contracts and will require the recognition of revenues over the
         relevant term of the agreements. The remaining cost of the FLAG Telecom
         Network has therefore been reclassified from capacity available for
         sale to fixed assets on January 1, 2000. This cost will be depreciated
         over the remaining estimated economic life of the system.

4.       EQUITY ISSUE

         Direct third party costs incurred as a result of the issuance of equity
         are offset against the proceeds from the issue and debited against
         additional paid in capital.

5.       DEBT ISSUE

         New debt issues are recorded net of any discount on the offering.
         Direct third party costs incurred during an issuance are capitalised
         and classified as non current assets. Capitalized costs and discounts
         are amortized as an adjustment to interest expense over the lives of
         the relevant instruments.

6.       DEBT MODIFICATION

         Fees paid to the lender as a result of a credit facility amendment are
         offset against the modified debt instrument and amortized as an
         adjustment to interest expense over the remaining term of the modified
         debt instrument along with any existing unamortized premium or
         discount.

7.       CONTINGENCIES

         The Company is involved in litigation from time to time in the ordinary
         course of business. In management's opinion, the litigation in which
         the Company is currently involved, individually and in the aggregate,
         is not material to it.

                                       6
<PAGE>

8.       NET INCOME \(LOSS)PER COMMON SHARE

         Basic net income \ (loss) per common share is computed by dividing net
         income \ (loss) applicable to common shareholders by the weighted
         average number of common shares outstanding in the period. Diluted net
         income \ (loss) per common share is computed by dividing net income by
         the weighted average number of common shares and common share
         equivalents outstanding during the period. For the three and six month
         periods ended June 30, 2000 presented, no potentially dilutive
         securities have been included in the calculation of diluted net loss
         per share as such amounts would be antidilutive in periods in which a
         loss has been reported. The aggregate number of potential common share
         equivalents that have been excluded from the diluted net loss per share
         calculation was 1,737,257 and 1,742,624 for the three and six month
         periods ended June 30, 2000, respectively, and related entirely to
         stock options.

9.       SEGMENTAL INFORMATION

         The Company has prepared segmental information using accounting
         policies that are consistent across segments.

         As a result of extending the range of products and services offered by
         FLAG Telecom, management now reviews financial results of the Group on
         the basis of the following two business segments: Capacity Sales and
         Operations and Network Services. The Network Services business now
         makes a material and growing contribution to the Company's revenue. The
         segments include revenues from the various types of products and
         services as noted:

         Capacity Sales and          Traditional carrier services, involving
         Operations                  dispositions of capacity by sale, right
                                     of use or lease

                                     Operations and maintenance
                                     revenues

         Network Services            Managed bandwidth services

                                     Other value added and related
                                     services


         Details of the financial results of the two business segments for
         the quarter ended June 30, 2000 are summarized below reconciled to
         the totals for the Group as a whole. Substantially all the revenues
         and operating results in earlier periods arose from Capacity Sales
         and Operations.

         (Numbers in $'000's)
<TABLE>
<CAPTION>
                                  Capacity Sales  Network      Total
                                  and Operations  Services
<S>                               <C>              <C>        <C>
Revenues from external parties
Capacity Sale                         10,221          --        10,221
Operations & Maintenance              10,364          --        10,364
Network Services                          --        4,102        4,102
                                      ------        -----       ------
                                      20,585        4,102       24,687

Operating Loss                       (17,647)        (495)     (18,142)

Adjusted EBITDA(1)                    34,754         (252)      34,502
</TABLE>

                                       7

<PAGE>
         Details of the financial results of the two business segments for the
         six months ended June 30, 2000 are summarized below reconciled to the
         totals for the Group as a whole. Substantially all the revenues and
         operating results in earlier periods arose from Capacity Sales and
         Operations.

         (Numbers in $'000's)

                                  Capacity Sales  Network      Total
                                  and Operations  Services
Revenues from external parties

<TABLE>

<S>                               <C>              <C>         <C>
- Capacity Sale                       18,036          --        18,036
- Operations & Maintenance            19,716          --        19,716
- Network Services                        --        6,121        6,121
                                     -------       -------      -------

                                      37,752        6,121       43,873

Operating Loss                       (38,933)      (1,842)     (40,775)

Adjusted EBITDA(1)                    82,151       (1,318)      80,833
</TABLE>

----------
(1)  Adjusted EBITDA is operating income/(loss) plus the following
     non-cash items: depreciation/cost of capacity sold, non-cash stock
     compensation and changes in deferred revenues.


         SEGMENTAL ASSETS

       (Numbers in $'000's)

<TABLE>
<CAPTION>

                                            Capacity Sales     Network            TOTAL
                                            and Operations     Services
<S>                                           <C>             <C>               <C>
         Fixed Assets and Construction
         in Progress                          1,054,680.2     18,030.4          1,072,710.6

</TABLE>

         All fixed assets in earlier periods were held in Capacity Sales and
         Operations. All other assets/liabilities are managed on a unified basis
         and, therefore, no segmental analysis is prepared.

10.      OTHER INFORMATION

         On February 16, 2000, FLAG Telecom completed an initial public offering
         of its common shares. Approximately $633.8 million net proceeds were
         received from that offering. On March 17, 2000, FLAG Telecom completed
         a private placement of 300 million dollar denominated and 300 million
         Euro denominated 11 5/8% Senior Notes due 2010. Approximately $576
         million net proceeds were received from that offering.

         On February 16, 2000, FLAG Limited amended its existing credit
         facilities to consist of a $150 million six-year term loan facility
         (all of which is outstanding) and a $10 million revolving credit
         facility (none of which is outstanding).

         The undersea survey for the FLAG Pacific-1 (FP-1) cable system has
         begun. Upon completion of FP-1, scheduled for 2002, the multi-terabit
         dual cable system is designed to link the major internet hub cities of
         Seattle, Vancouver, San Francisco, Los Angeles and Tokyo. With FP-1,
         the FLAG Telecom network will extend over 64,500 km route.

11.      PENDING ACCOUNTING STANDARDS

         The Financial Accounting Standards Board has issued Statement of
         Financial Accounting Standard No. 133, "Accounting for Derivative
         Instruments and Hedging Activities" (SFAS 133) and Statement of

                                       8
<PAGE>

         Financial Accounting Standard No. 138, "Accounting for Certain
         Derivative Instruments and Certain Hedging Activities - an Amendment of
         FASB Statement No. 133" (SFAS 138). Following the amendment made by
         SFAS No. 137, SFAS 133 and SFAS 138 is effective for periods beginning
         after June 15, 2000. Management is currently assessing the impact of
         the adoption of SFAS 133 and SFAS 138 on the Company's financial
         position and results of operations, which may be material.

         The Securities and Exchange Commission (SEC) issued Staff Accounting
         Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB
         101). SAB 101 outlines the SEC's views on applying generally accepted
         accounting principles to revenue recognition in financial statements.
         Specifically, the bulletin provides both general and specific guidance
         as to the periods in which companies should recognize revenues. In
         addition, SAB 101 also highlights factors to be considered when
         determining whether to recognize revenues on a gross or net basis.
         SAB 101, as amended by SAB 101/A and SAB 101/B, is effective
         beginning no later than their fourth fiscal quarter of the fiscal
         year beginning after December 15, 1999. The Group believes that its
         policies in regards to the recognition of revenues are in compliance
         with the guidance of SAB 101 and does not expect that the adoption of
         this standard will have any material effects on its results of
         operations, cash flows or financial position.

         The Emerging Issues Task Force (EITF) has recently issued EITF 00-2
         ("Accounting for Web Site Development Costs"). The Task Force has
         reached a consensus that all costs associated with the planning of
         web site development projects should be expensed as incurred, while
         costs incurred in the application and development stage should
         generally be capitalized in accordance with American Institute of
         Certified Public Accountants Statement of Position 98-1. "Accounting
         for the Costs of Computer Software Developed or Obtained for
         Internal Use", or other relevant pronouncements. Costs incurred in
         the operations of the web site are generally expensed as incurred.
         The EITF has not yet reached a consensus as to the accounting for the
         costs of developing and displaying content or other information on a
         web site, but the Task Force plans further discussion on this issue.
         EITF 00-2 is effective for web site development costs incurred for
         fiscal quarters beginning after June 30, 2000. As the Company's
         current policy is substantially consistent with the consensuses
         reached in EITF 00-2, the Company does not expect that the issuance
         of this pronouncement will have a material effect on its financial
         condition or results of operations.

                                       9
<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PART I
ITEM 2

QUARTER ENDED JUNE 30, 2000 COMPARED WITH THE QUARTER ENDED JUNE 30, 1999

RESULTS OF OPERATIONS

REVENUES

Total revenue recognized by the Company during the quarter ended June 30, 2000,
was $24.7 million compared to $59.5 million total revenue for the quarter ended
June 30, 1999.

Revenue recognized from the sale of capacity was $10.2 million for the quarter
ended June 30, 2000 compared to $52.4 million during the quarter ended June 30,
1999. As a result of the issuance of FASB Interpretation No. 43, with effect
from July 1, 1999, certain sales of capacity may no longer be recognized as
current revenue because they do not satisfy the requirements for sales-type
lease accounting. Revenues from these capacity sales are now deferred and
amortized over the term of the contracts. The change to the accounting treatment
has no impact on cash flows.

As of June 30, 2000, the Company had entered into sales transactions with in
excess of 100 international telecommunication carriers, compared to 88 as of
June 30, 1999.

Revenue recognized from operations and maintenance was $10.4 million for the
quarter ended June 30, 2000 compared to $7.1 million for the quarter ended June
30, 1999, reflecting the increased cumulative sales on the FLAG Telecom Network.

Revenue recognized from Network Services was $4.1 million for the quarter ended
June 30, 2000. No Network Services revenue was generated for the quarter ended
June 30, 1999.

OPERATING EXPENSES

For the quarter ended June 30, 2000 the Company recorded $19.9 million in
respect of depreciation compared to $26.8 million for depreciation and cost of
capacity sold recorded in the quarter ended June 30, 1999. The adoption of FASB
Interpretation No. 43 discussed above, has meant that the remaining capacity
available for sale has been reclassified to fixed assets on January 1, 2000 and
is being depreciated over the remaining economic life of the network.

During the quarter ended June 30, 2000 the Company incurred $2.3 million in
network services costs. No network services costs were incurred for the quarter
ended June 30, 1999.

During the quarter ended June 30, 2000 the Company incurred $8.9 million in
operations and maintenance costs compared to $7.8 million for the quarter ended
June 30, 1999. Operations and maintenance costs relate primarily to

                                       10
<PAGE>

the provision of standby maintenance under Maintenance Zone Agreements as well
as salaries and overheads directly associated with operations and maintenance
activities. The increase is primarily due to additional costs arising from
increased activity plus increased use of contracted services.

During the quarter ended June 30, 2000, $2.6 million in sales and marketing
costs were incurred compared to $1.6 million incurred during the quarter ended
June 30, 1999. Sales and marketing costs are comprised of all sales and
marketing activities that are directly undertaken by the Group. The increase in
sales and marketing costs in the quarter ended June 30, 2000 over the quarter
ended June 30, 1999 is due to greater employment and related costs associated
with the increased world-wide sales and marketing activity and non-cash stock
compensation costs.

During the quarter ended June 30, 2000, $9.1 million of general and
administrative expenses were incurred compared to $6.5 million during the
quarter ended June 30, 1999. Increases are primarily due to non-cash stock
compensation costs incurred plus additional staff and office related costs.

Costs for the quarter ended June 30, 2000 include charges for non-cash stock
compensation expense in respect of certain awards under our long term incentive
plan. These charges are required under US accounting standards and are purely
accounting charges having no effect on cash flows.

INTEREST EXPENSE AND INTEREST INCOME

Interest expense on borrowings increased from $13.0 million for the quarter
ended June 30, 1999 to $28.1 million for the quarter ended June 30, 2000. The
increase in interest expense of $15.1 million is attributable to additional
borrowings obtained. See also "Liquidity and Capital Resources."

Interest income of $20.2 million was earned during the quarter ended June 30,
2000 compared to $2.0 million earned during the quarter ended June 30, 1999. The
interest income was earned on cash balances, short term investments and cash
held by the Collateral Trustee (with respect to FLAG Limited's 81/4% Senior
Notes) or in escrow arising from ongoing business operations. These amounts have
increased significantly due to proceeds received from the initial public
offering of our shares and further borrowings, including the issuance of our
Senior Notes, which are currently held on deposit.

PROVISION FOR TAXES

The provision for taxes was $0.3 million for the quarter ended June 30, 2000
compared to $0.4 million for the quarter ended June 30, 1999. The tax provisions
for periods consists of taxes on income derived from capacity sales and standby
maintenance revenue from customers in certain jurisdictions along the FLAG
Telecom Network where the Group is deemed to have a taxable presence or is
otherwise subject to tax. At the present time, no income, profit, capital or
capital gains taxes are levied in Bermuda. In the event that such taxes are
levied, the Group of companies incorporated in Bermuda received an undertaking
from the Bermuda Government exempting it from all such taxes until March 28,
2016.

NET LOSS AND LOSS PER COMMON SHARE

For the quarter ended June 30, 2000 the Company recorded a net loss of $(24.8)
million compared to net income of $3.4 million for the quarter ended
June 30, 1999. This is attributable primarily to reduced accounting revenue and
increased depreciation costs caused by the adoption of FASB Interpretation No.
43 with effect from July 1, 1999.

Basic and diluted loss per common share was $(0.18) for the quarter ended
June 30, 2000 compared to income per common share of $0.05 for the quarter
ended June 30, 1999.

                                       11
<PAGE>

SIX MONTHS ENDED 30 JUNE, 2000 COMPARED WITH THE SIX MONTHS ENDED 30 JUNE, 1999

RESULTS OF OPERATIONS

ADJUSTED CONSOLIDATED RESULTS

The table below shows the significant income statement amounts, in thousands,
for the six months ended June 30, 1999, being a combination of the results of
FLAG Limited for the period from January 1, 1999 to February 26, 1999 and the
results of FLAG Telecom for the period from incorporation to June 30, 1999.

<TABLE>
<CAPTION>

                                         Adjusted
                                    six months ended
                                      June 30, 1999
                                      (Expressed in
                                   thousands of dollars)
                                    ------------------
<S>                                      <C>
REVENUE                                  $ 94,082

SALES AND OTHER OPERATING COSTS:
    Cost of capacity sold                  33,505
    Operations and maintenance             15,039
    Sales and marketing                     3,535
    General and administrative             10,923
    Depreciation and amortization           2,350

INTEREST EXPENSE                          (27,486)

INTEREST INCOME                             4,661
                                         --------
INCOME BEFORE MINORITY INTEREST
 AND INCOME TAXES                           5,905

PROVISION FOR INCOME TAXES                    650

</TABLE>

                                       12
<PAGE>

Statement of Cash Flow Data:

<TABLE>
<CAPTION>

                                          Adjusted
                                       six months as
                                        of June 30,
                                            1999
                                        (Expressed in
                                     thousands of dollars)
                                         ----------
<S>                                        <C>
Cash flow from operating activities         32,301

Cash flow from financing activities         54,561

Cash flow from investing activities        (89,014)

</TABLE>

REVENUES

Total revenue recognized by the Company during the six months ended June 30,
2000 was $43.9 million compared to $94.1 million in total revenue for the six
months ended June 30, 1999.

Revenue recognized from the sale of capacity was $18.1 million for the six
months ended June 30, 2000 compared to $80.3 million during the six months ended
June 30, 1999. As a result of the issue of FASB Interpretation No. 43, with
effect from July 1, 1999, certain sales of capacity may no longer be recognized
as current revenue because they do not satisfy the requirements for sales-type
lease accounting. Revenues from these capacity sales are deferred and amortized
over the term of the contracts. The change to the accounting treatment has no
impact on cash flows.

As of June 30, 2000, the Company had entered into sales transactions with in
excess of 100 international telecommunication carriers, compared to 88 as of
June 30, 1999.

Revenue recognized from operations and maintenance was $19.7 million for the Six
months ended June 30, 2000 compared to $13.8 million for the six months ended
June 30, 1999, reflecting the increased cumulative sales on the FLAG Telecom
Network.

Revenue recognized from Network Services was $6.1 million for the six months
ended June 30, 2000. No Network Services revenue was generated for the six
months ended June 30, 1999.

OPERATING EXPENSES

For the six months ended June 30, 2000, the Company recorded $40.0 million in
respect of depreciation compared to $35.9 million for depreciation and cost
of capacity sold recorded in the six months ended June 30, 1999. The adoption
of FASB Interpretation No. 43 discussed above, has meant that the remaining
capacity available for sale has been reclassified to fixed assets on January
1, 2000 and is being depreciated over the remaining economic life of the
network.

                                       13
<PAGE>

During the six months ended June 30, 2000 the Company incurred $3.6 million in
network services costs. No network services costs were incurred for the six
months ended June 30, 1999.

During the six months ended June 30, 2000 the company incurred $17.0 million in
operations and maintenance costs compared to $15.0 million for the six months
ended June 30, 1999. Operations and maintenance costs relate primarily to the
provision of standby maintenance under Maintenance Zone Agreements as well as
salaries and overheads directly associated with operations and maintenance
activities. The increase is primarily due to additional costs arising from
increased activity plus increased use of contracted services.

During the six months ended June 30, 2000, $6.4 million in sales and marketing
costs were incurred compared to $3.5 million incurred during the six months
ended June 30, 1999. Sales and marketing costs are comprised of all sales and
marketing activities that are directly undertaken by the Group. The increase in
sales and marketing costs in the six months ended June 30, 2000 over the six
months ended June 30, 1999 is due to the greater employment and related costs
associated with the increased world-wide sales and marketing activity and
non-cash stock compensation costs.

During the six months ended June 30, 2000, $17.7 million of general and
administrative expenses were incurred compared to $10.9 million during the six
months ended June 30, 1999. Increases are primarily due to non-cash stock
compensation costs incurred plus additional staff and office related costs.

Costs for the six months ended June 30, 2000 includes charges for non-cash stock
compensation expense in respect of certain awards under our long term incentive
plan. These charges are required under US accounting standards and are purely
accounting charges having no effect on cash flows.

INTEREST EXPENSE AND INTEREST INCOME

Interest expense on borrowings increased from $27.5 million for the six months
ended June 30, 1999 to $43.8 million for the six months ended June 30, 2000. The
increase in interest expense of $16.3 million is attributable to additional
borrowings obtained. See also "Liquidity and Capital Resources."

Interest income of $27.3 million was earned during the six months ended June 30,
2000 compared to $4.7 million earned during the six months ended June 30, 1999.
Interest was earned on cash balances and short term investments and cash held by
the Collateral Trustee (with respect to FLAG Limited's 81/4% Senior Notes) or in
escrow arising from ongoing business operations. These amounts have increased
significantly due to proceeds received from the initial public offering of our
shares and further borrowings, including the issuance of our Senior Notes, which
are currently held on deposit.

PROVISION FOR TAXES

The provision for taxes was $0.8 million for the six months ended June 30, 2000
compared to $0.7 million for the six months ended June 30, 1999. The tax
provisions for periods consists of taxes on income derived from capacity sales
and standby maintenance revenue from customers in certain jurisdictions along
the FLAG Telecom Network where the Group is deemed to have a taxable presence or
is otherwise subject to tax. At the present time, no income, profit, capital or
capital gains taxes are levied in Bermuda. In the event that such taxes are
levied, the Group of companies incorporated in Bermuda

                               14
<PAGE>

received an undertaking from the Bermuda Government exempting it from all such
taxes until March 28, 2016.

NET LOSS AND LOSS PER COMMON SHARE

For the six months ended June 30, 2000 the Company recorded a net loss of
$(55.8) million compared to net income of $4.9 million for the six months ended
June 30, 1999. This is attributable primarily to reduced accounting revenue and
increased depreciation costs caused by the adoption of FASB Interpretation No.
43 with effect from July 1, 1999.

Basic and diluted loss per common share was $(0.44) for the six months ended
June 30, 2000 compared to nil for the six months ended June 30, 1999.

                                       15
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations to date through a combination of equity
contributions, bank debt, the proceeds of debt offerings, and the proceeds of an
initial public offering of our common shares.

On February 16, 2000 we completed an initial public offering (IPO) of our common
shares. We received $633.8 million in net proceeds from that offering. On March
17, 2000 we completed the issue of 11 5/8% Senior Notes in the US and Europe,
raising net proceeds of $576.6 million.

On February 16, 2000, FLAG Limited amended its existing credit facilities to
consist of a $150 million six-year term loan facility (all of which remained
outstanding at June 30, 2000) and a $10 million revolving credit facility
(none of which is outstanding). Dresdner Kleinwort Benson and Barclays
Capital acted as joint lead arrangers. These facilities bear interest at a
rate of 225 basis points over LIBOR for the first six months and thereafter
at a rate of between 150 and 250 basis points over LIBOR, depending on the
credit rating of the 8 1/4% Senior Notes of FLAG Limited. The facilities are
secured by a pledge by us of all of the capital stock of FLAG Limited and by
assignment of FLAG Limited's contracts and a security interest in its bank
accounts and intangible property. In connection with this amendment, FLAG
Limited paid fees and expenses to the joint lead arrangers totaling
approximately $3.3 million.

At the end of March 1998, we entered into two interest rate swap agreements to
manage our exposure to interest rate fluctuations on FLAG Limited's credit
facilities. Under the swap agreements, we pay a fixed rate of 5.6% on a notional
amount of $60 million and a fixed rate of 5.79% on a notional amount of $100
million and the swap counterparty pays the floating rate based on LIBOR. One
swap agreement terminated in January 2000 and the other swap agreement
terminated in July 2000. We will be putting a further interest rate hedge
agreement into effect by August 31, 2000 as required by the bank loan facility.
We recognize the net cash amount received or paid on interest rate hedging
instruments as an adjustment to interest cost on the related debt.

We are developing the FLAG Atlantic-1 cable system under a 50/50 joint venture
between GTS TransAtlantic and FLAG Atlantic Holdings. FLAG Atlantic Limited has
a $575 million construction/term loan facility and a $25 million revolving
credit facility. These facilities have a term of 7.5 years and bear interest at
LIBOR plus 125 basis points for that portion of the loans (not to exceed 50% of
the outstanding loans) which are backed by investment grade receivables and
LIBOR plus 300 basis points for the balance of the loans. Commitment fees accrue
on the undrawn balance of the loans at between 37.5 basis points and 75 basis
points.

FLAG Atlantic Limited's bank facility is secured by an assignment of all of FLAG
Atlantic Limited's assets, a pledge of all of the stock in FLAG Atlantic Limited
and a commitment by each of its shareholders to contribute $100 million in
equity.

The undersea survey for the FLAG PACIFIC-1 (FP-1) cable system has

                                       16
<PAGE>

begun. Upon completion of FP-1, scheduled for 2002, the multi-terabit dual cable
system will link the hub internet cities of Seattle, Vancouver, San Francisco,
Los Angeles and Tokyo. We expect to fund the costs required to complete the
project from some of the proceeds from our IPO and the proceeds from our 11 5/8%
Senior Notes offering and other debt financings and pre-sales.

As of June 30, 2000 and December 31, 1999, the Company had a working capital
surplus of $996.2 million and a deficit of $53.7 million respectively. The
working capital deficit was primarily a result of the current accounts payable
to the contractors which is classified as a current liability but for which the
associated funds held in escrow are classified as a non-current asset and are
hence excluded from the measure of working capital.

Total cash provided by operating activities and used in investing activities
during the six months ended June 30, 2000 was $88.7 million and $(43.8) million
respectively. As of June 30, 2000, cash on deposit, or with the collateral
trustee or in escrow had increased to $1,346.1 million from $137.3 million at
December 31, 1999, primarily as a result of the additional funds obtained from
the IPO of $633.8 million and from the 11 5/8% Senior Notes offering of $576.6
million.

Total cash provided by operating activities and used in investing activities
during the six months ended June 30, 1999 was $32.3 million and $(89.0) million
respectively.

ASSETS

Our major asset is the remaining capital cost of the FLAG Telecom Network
recorded in fixed assets totalling $1,049.9 million.

As a result of the application of FASB Interpretation No. 43, the costs of
certain segments of the FLAG Telecom Network were reclassified at July 1, 1999
and during the six months ended December 31, 1999 from capacity available for
sale to fixed assets and are being depreciated over their remaining useful life.

As a result of extending our range of products and services, we expect the
greater part of our future revenue to be under agreements that will be accounted
for as operating leases or service contracts and will require us to recognize
revenues over the relevant terms of the agreements. We have therefore
reclassified the remaining cost of the FLAG Telecom Network from capacity
available for sale to fixed assets in the first quarter of 2000. This cost will
be depreciated over the remaining estimated economic life of the system.

Our other fixed assets consist primarily of office furniture, leasehold
improvements, computer equipment and motor vehicles totaling $22.8 million.

OTHER INFORMATION

The interpretation and application of FASB Interpretation No. 43 and also the
accounting for sales of capacity are evolving within the telecom industry. A

                                       17
<PAGE>

number of questions and issues are being taken to the accounting standard
setting boards and different accounting treatments may ultimately be approved,
which may change the timing and methods of the recognition of revenues and the
related costs. We do not, however, anticipate any impact on our current
accounting treatment or that there will be an impact on our cash flows.

                  SAFE HARBOR STATEMENT UNDER
            THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The statements included in this Quarterly Report regarding future financial
performance and results and the other statements that are not historical facts
are forward-looking statements. The words "believes," "intends," "expects,"
"anticipates," "projects," "estimates," "predicts" and similar expressions are
also intended to identify forward-looking statements. Such statements reflect
various assumptions by the Company concerning anticipated results and are
subject to significant business, economic and competitive risks, uncertainties
and contingencies, including, without limitation, the risks, uncertainties and
contingencies described in registration statements, reports and other documents
filed by the Company from time to time with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended. Accordingly, there can be no
assurance that such statements will be realized. Such risks, uncertainties and
contingencies could cause the Company's actual results for the quarter ended
June 30, 2000 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. The Company
makes no representation or warranty as to the accuracy or completeness of such
statements contained in this Quarterly Report.

                                       18
<PAGE>

PART I
ITEM 3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Currency Risk.

We do not believe that we are exposed to significant risk from movements in
foreign currency exchange rates. All revenues from the disposition of capacity
and billings of standby maintenance and restoration services are payable in U.S.
dollars. All contracts for the provision by third parties of restoration are
invoiced to us in U.S. dollars. Some vendor contracts for the provision to the
FLAG Europe-Asia cable system of operations and maintenance services and local
operating expenses of our subsidiary companies are payable in currencies other
 than U.S. dollars. Management believes that these exposures are not material to
our financial position. Whenever deemed appropriate, we may hedge our exposure
to foreign currency movements.

Interest Rate Risk.

We are exposed to interest rate risk in our financing instruments. Our long-term
financing is provided by fixed rate senior notes and floating rate bank debt. We
use derivative financial instruments for the purpose of reducing our exposure to
fluctuations in interest rates. We do not utilize derivative financial
instruments for trading or other speculative purposes. The counterparties to
these instruments are major financial institutions with high credit quality. We
are exposed to credit loss in the event of nonperformance by these
counterparties.

                                       19
<PAGE>

FLAG TELECOM HOLDINGS LIMITED

LONG TERM DEBT AS OF JUNE 30, 2000

<TABLE>
<CAPTION>

                                                                        CURRENCY
                                                                           AND
                                                                        PRINCIPAL     CURRENCY AND
                       PRINCIPAL                                          AMOUNT        FAIR VALUE      FLAG OPTION
TYPE OF INSTRUMENT   PAYMENTS DUE     MATURITY DATE    INTEREST RATE    (MILLION)       (MILLION)        TO REDEEM
------------------   ------------     -------------    -------------    ---------       ---------        ---------
<S>                  <C>                <C>             <C>               <C>            <C>               <C>
                                                                                                            Any time
 11 5/8% Senior      Semi-annually      March 2010      Fixed 11 5/8%        $300.0         $289.9         after March
      Notes                                                                                                   2005
                                                                                                            Any time
 11 5/8% Senior      Semi-annually      March 2010      Fixed 11 5/8%     Euro300.0      Euro273.9         after March
      Notes                                                                                                   2005

</TABLE>

FLAG LIMITED

LONG-TERM DEBT AS OF JUNE 30, 2000

<TABLE>
<CAPTION>

                                                                              PRINCIPAL
                             PRINCIPAL                                         AMOUNT         FAIR VALUE   FLAG OPTION
TYPE OF INSTRUMENT         PAYMENTS DUE     MATURITY DATE    INTEREST RATE  ($, MILLION)      ($, MILLION)    TO REDEEM
------------------         ------------     -------------    -------------  ------------      ------------    ---------
<S>                       <C>              <C>                <C>                 <C>             <C>        <C>
                                                                                                              Any time
 8 1/4% Senior Notes      Semi-annually     January 2008      Fixed 8 1/4%        430.0           381.6      after January
                                                                                                                2003
                                                                Floating
FLAG Limited              Quarterly        January 2006       LIBOR + 150         150.0           150.0       At any time
  credit facility                                              to 250 basis
                                                                 points

</TABLE>


INTEREST RATE SWAPS OF JUNE 30, 2000

<TABLE>
<CAPTION>

                                                                              NOTIONAL                  COUNTERPARTY'S
 TYPE OF               PAYMENTS       MATURITY        RATE        RATE         AMOUNT      FAIR VALUE      OPTION TO
INSTRUMENT                DUE           DATE         PAYABLE    RECEIVABLE  ($, MILLION)  ($, MILLION)    EXTEND UNTIL
----------                ---           ----         -------    ----------  ------------  ------------    ------------
<S>                    <C>            <C>             <C>         <C>           <C>            <C>        <C>
                                                                  Three-
Pay fixed, receive     Quarterly      July 2000       5.79%       month         100.0          0.2        January 2001
Floating                                                          LIBOR

</TABLE>

The three-month LIBOR rate at June 30, 2000 was 6.76938%

                                       20
<PAGE>

PART II
ITEM 1. LEGAL PROCEEDINGS

         We are involved in litigation from time to time in the ordinary course
of business. In management's opinion, the litigation in which we are currently
involved, individually and in the aggregate, is not material to us.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

         (a)  Not applicable.

         (b)  Not applicable.

         (c)  Not applicable.

         (d) Proceeds to us from our initial public offering, after deduction of
the underwriting discounts and commissions of approximately $33.6 million and
offering expenses of approximately $3.8 million, totaled approximately $633.8
million. Of the $633.8 million raised by us, approximately $105 million has been
used to fund our equity contribution to FLAG Atlantic Limited, $25 million has
been used to repay long term indebtedness, $40 million has been used for working
capital purposes and the balance of the offering proceeds to us remains
available to use to fund additional expansions of the FLAG Telecom network and
to develop additional wholesale and bundled product and service offerings and
for general corporate purposes. The occurrence of unforseen events or changed
business conditions could cause us to use the proceeds of our initial public
offering in a manner other than as described above.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         During the second quarter of 2000, no meetings of our shareholders were
held.

ITEM 5.  OTHER INFORMATION

         On March 29, 2000, we announced plans to begin construction of FLAG
Pacific-1, a system designed to link the cities of Seattle, Vancouver, San
Francisco, Los Angeles and Tokyo. We recently entered into a supply agreement
for the subsea portion of the proposed cable project and announced the lead
banks providing underwritten loan financing to help fund the construction of the
project. We cannot assure you, however, that we will successfully complete the
project.

         On July 10, 2000, we completed our registered offer to exchange up to
U.S.$300,000,000 aggregate principal amount of our privately placed 11-5/8%
Senior Notes due 2010 (which we refer to as the Initial Dollar Notes) and
300,000,000 Euro aggregate principal amount of our privately placed 11-5/8%
Senior Notes due 2010 (which we refer to as the Initial Euro Notes and, together
with the Initial Dollar Notes, our Initial Notes) for like principal amounts of
registered 11-5/8% Senior Notes due 2010. Our exchange agent advised us that, as
of the expiration of the offer to exchange on June 26, 2000, an aggregate of
U.S.$300,000,000 principal amount of the Initial Dollar Notes had been tendered
for exchange in the offer and that an aggregate of 291,950,000 Euro principal
amount of the Initial Euro Notes had been tendered for exchange in the offer. We
have executed, and the Bank of New York, as Trustee, has authenticated,
U.S.$300,000,000 aggregate principal amount of our 11-5/8% Senior Notes due 2010
(which we refer to as the Dollar Exchange Notes) and 291,950,000 Euro aggregate
principal amount of our 11-5/8% Senior Notes due 2010 (which we refer to as our
Euro Exchange Notes and, together with the Dollar Exchange Notes, our Exchange
Notes) to be issued pursuant to the exchange. The Exchange Notes issued in the
offer to exchange have substantially the same terms and conditions as the
Initial Notes, except that

                                       21
<PAGE>

the Exchange Notes are not subject to the restrictions on resale or transfer
which applied to the Initial Notes and which continue to apply to the
outstanding Initial Notes that were not tendered in the offer to exchange. The
Exchange Notes have been accepted for listing on the Luxembourg Stock Exchange.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

         Not applicable

(b)      REPORTS ON FORM 8-K.

         We did not file any Reports on Form 8-K during the quarter to which
this Quarterly Report relates.

                                       22
<PAGE>


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 14th day of August 2000.


                                                   FLAG Telecom Holdings Limited

                                                   BY: /s/ EDWARD MCCORMACK
                                                   -----------------------------
                                                   Edward McCormack
                                                   CHIEF OPERATING OFFICER AND
                                                   CHIEF FINANCIAL OFFICER


                                                   BY: /s/ STUART RUBIN
                                                   -----------------------------
                                                   Stuart Rubin
                                                   GENERAL COUNSEL AND
                                                   SECRETARY

                                       23