<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-K/A
                               (AMENDMENT NO. 1)

   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
   ACT OF 1934

                  For the fiscal year ended December 31, 1998

                                      OR

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
   EXCHANGE ACT OF 1934
                       Commission File Number: 333-61457

                         GLOBAL CROSSING HOLDINGS LTD.

                BERMUDA                                 98-0186828
    (State or other jurisdiction of           (I.R.S. Employer Identification
    incorporation or organization)                         No.)


                                 WESSEX HOUSE
                                45 REID STREET
                            HAMILTON HM12, BERMUDA
                   (Address Of Principal Executive Offices)
                                (441) 296-8600
             (Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: None.

  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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Not applicable.

  The number of shares of the Registrant's common stock, par value $0.01 per
share, outstanding as of September 2, 1999, was 1,200,000.

  The Registrant meets the conditions set forth in General Instructions
I(1)(a) and (b) of Form 10-K and is therefore filing this form with the
reduced disclosure format.
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

                  For The Fiscal Year Ended December 31, 1998

                                     INDEX

                                                                           Page
                                                                           ----

 Part I.
 Information Regarding Forward-Looking Statements........................    1
 Item 1.   Business......................................................    1
 Item 2.   Properties...................................................    20
 Item 3.   Legal Proceedings............................................    20
 Item 4.   Submission of Matters to a Vote of Security Holders..........    20

 Part II.
 Item 5.   Market for the Registrant's Common Stock and Related
           Shareholder Matters..........................................    21
 Item 6.   Selected Financial Data......................................    22
 Item 7.   Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................    24
 Item 7A.  Quantitative and Qualitative Disclosures about Market Risk...    32
 Item 8.   Financial Statements and Supplementary Data..................    32
 Item 9.   Changes in and Disagreements With Accountants on Accounting
            and Financial Disclosure....................................    32

 Part III.
 Item 10.  Directors and Executive Officers of the Registrant...........    33
 Item 11.  Executive Compensation.......................................    33
           Security Ownership of Certain Beneficial Owners and
 Item 12.  Management...................................................    33
 Item 13.  Certain Relationships and Related Transactions...............    33

 Part IV.
 Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
           8-K..........................................................    34

 Consolidated Financial Statements.......................................  F-1

 Signatures..............................................................  S-1



<PAGE>

                                     PART I

     In this Annual Report on Form 10-K, "GCH" refers to Global Crossing
Holdings Ltd., "GCL" refers to Global Crossing Ltd. and the "Company," "Global
Crossing," "We," "Our" and "Us" refers to GCH and its consolidated subsidiaries
(unless the context otherwise requires).

     In this Annual Report on Form 10-K, share amounts and values relating to
GCL common stock have been adjusted (unless the context otherwise requires) for
the 2-for-1 stock split of GCL common stock, in the form of a stock dividend,
effectuated on March 9, 1999.

     Throughout this Annual Report on Form 10-K, references to "dollars" and
"$" are to United States dollars.

                INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

     We have included "forward-looking statements" throughout this Annual
Report on Form 10-K. These statements describe our attempt to predict future
occurrences. We use the words "believe," "anticipate," "expect," "intend" and
similar expressions to identify forward-looking statements. Forward-looking
statements are subject to a number of risks, assumptions and uncertainties,
such as:

  .  our ability to complete our systems within currently estimated time
     frames and budgets,

  .  our ability to sell capacity on our systems,

  .  our successful transition from a system development company to an
     operating company, and

  .  our ability to compete effectively in a rapidly evolving and price
     competitive marketplace.

     This list is only an example of some of the risks, uncertainties and
assumptions that may affect our forward-looking statements. If any of these
risks or uncertainties materialize (or fail to materialize), or if the
underlying assumptions prove incorrect, actual results may differ materially
from those projected in the forward-looking statements.

ITEM 1. BUSINESS

Overview

     We are the world's first independent global provider of state-of-the-art
Internet and long distance telecommunications facilities and related services
utilizing a network of undersea and terrestrial digital fiber optic cable
systems (the "Global Crossing Network"). We believe we are the first to offer
"one-stop shopping" for our customers to multiple destinations worldwide. We
currently operate as a "carriers' carrier", providing tiered pricing and
segmented products to licensed providers of international telecommunications
services. Capacity on the Global Crossing Network is offered to all customers
on an open, equal access basis. The systems completed or under development will
form a state-of-the-art interconnected worldwide high capacity fiber optic
network: Atlantic Crossing ("AC-1") and Atlantic Crossing-2 ("AC-2"), undersea
systems connecting the United States and Europe; Pacific Crossing ("PC-1"), an
undersea system connecting the United States and Asia; Mid Atlantic Crossing
("MAC"), an undersea system connecting the eastern United States and the
Caribbean; Pan American Crossing ("PAC"), an undersea system connecting the
western United States, Mexico, Panama, Venezuela and the Caribbean; South
American Crossing ("SAC"), an undersea and terrestrial system connecting the
major cities of South America to MAC, PAC and the rest of the Global Crossing
Network; Pan European Crossing ("PEC"), a terrestrial system connecting 24
European cities to AC-1; and a terrestrial system to be operated by Global
Access Ltd. connecting certain cities in Japan to PC-1 ("GAL"). The undersea
component of this initial portion of the Global Crossing Network totals
68,100 km and the terrestrial component adds 13,300 km for a total of 81,400
km. We are in the process of developing several new undersea and terrestrial
cable systems and evaluating other business development opportunities which
will complement the Global Crossing Network.

                                       1
<PAGE>

Recent Developments--Frontier Transaction

     On March 16, 1999, our parent, GCL, entered into a definitive agreement
and plan of merger with Frontier Corporation, a New York corporation
("Frontier"), that will result in Frontier becoming a wholly-owned subsidiary
of GCL or of a new parent holding company of GCL. The board of directors of
each company has approved the merger.

     The combined companies had 1998 annual sales in excess of $3 billion, 1998
earnings before interest, taxes, depreciation and amortization (EBITDA) of more
than $1 billion and have a total current equity market capitalization of nearly
$30 billion. The merger enables the Frontier nationwide customer base to fully
leverage the capabilities and efficiencies of the Global Crossing Network and
allows us to take full advantage of Frontier's sales and marketing expertise,
distribution channels, intelligent network platform and Frontier's customer
care and billing system. In addition, the merger adds Frontier's state-of-the-
art digital fiber optic cable system located in the United States to the Global
Crossing Network.

     Completion of the transaction is anticipated to occur during the third
quarter of 1999. The transaction is subject to the majority vote of the
shareholders of GCL and the vote of two-thirds of the common shareholders of
Frontier and to other customary conditions such as receipt of regulatory
approvals. Shareholders of GCL representing more than a majority of the voting
power of GCL common stock have agreed to vote in favor of the transaction.

Business Activity

     Our business is designed to meet the varying needs of the global
telecommunications market. We offer customers the ability to purchase capacity
on demand, thereby (i) eliminating their need to commit the substantial capital
which would be required to build cable capacity and (ii) decreasing the risks
associated with forecasting their future capacity requirements. Compared with
traditional cable systems, we offer more comprehensive, flexible and low-cost
purchasing alternatives designed to meet current market requirements of
international carriers and Internet Service Providers ("ISPs"), including
direct international city-to-city connectivity, the ability to purchase
capacity periodically and discounts based upon aggregate volume purchased on
the Global Crossing Network.

     Each of the systems completed or under development is upgradeable through
the addition of optical and electronic equipment to capacities significantly
beyond its initial capacity at a fraction of the original system cost. These
upgrades are expected to lead to lower unit cost of capacity and lower prices,
resulting in significant growth in market demand for telecommunications
capacity. In addition, we are currently evaluating other undersea and
terrestrial cable projects intended to further our strategy of developing an
integrated global network to serve approximately 100 of the largest
metropolitan communications markets worldwide.

     We anticipate that future revenues, beyond those obtained from the sale of
the initial capacity on our first eight cable systems, will come from several
sources. First, since each of the systems we are building is upgradeable, this
additional capacity can be sold. We also expect to build new systems providing
service to additional geographic areas. In addition, if the full upgradeable
capacity of our initial systems is reached, we expect to build or acquire
additional systems to meet future demand. As our global network is developed,
we expect to generate additional revenues by broadening our product line to
include many forms of bandwidth services.

                                       2
<PAGE>

     GCL's predecessor, Global Crossing Ltd., LDC ("Old GCL"), was formed in
March 1997 to capitalize on the accelerating growth of international voice and
data telecommunications traffic. The significant increase in Internet usage and
other bandwidth-intensive applications and the growing use of corporate
networks have substantially increased the demand for international fiber optic
cable capacity. The proliferation of telecommunications service providers due,
in large part, to industry deregulation and privatization of foreign
telecommunications companies has further contributed to increased demand for
such international cable capacity. Additionally, we believe other technological
developments, such as improvements in "last mile" access technology, including
xDSL, cable modems, broadband wireless technology, and the increasing video
content of Internet applications, will result in further capacity demand
growth.

     We started development of the Global Crossing Network in March 1997, when
we contracted for the construction of AC-1, a 14,300 km digital fiber optic
undersea cable system that links New York, the United Kingdom, the Netherlands
and Germany. This system offers 40 Gbps of initial service capacity,
upgradeable to a minimum of 80 Gbps. AC-1 started service on its United States
to United Kingdom segment in May 1998, and the full system, consisting of a
four fiber pair self-healing ring, was completed in February 1999.

     In April 1998, we entered into a joint venture which contracted for the
construction of PC-1, a 21,000 km digital fiber optic undersea cable system
that will link the United States and Japan and will initially offer 80 Gbps of
service capacity, upgradeable to a minimum of 160 Gbps. PC-1, consisting of a
four fiber pair self healing ring, is scheduled to start initial service in
March 2000. In June 1998, we contracted for the construction of MAC, a 7,300 km
digital fiber optic undersea cable system consisting of a two fiber pair self-
healing ring that will connect New York, Florida and the Caribbean and will
initially offer 20 Gbps of service capacity, upgradeable to a minimum of 40
Gbps. In addition, in July 1998, we contracted for the construction of PAC, a
9,500 km two fiber pair digital undersea cable that will connect California,
Mexico, Panama, Venezuela and the Caribbean and will initially offer 20 Gbps of
service capacity, upgradeable to a minimum of 40 Gbps. In March 1999, we
announced SAC, a 16,000 km, four fiber pair self-healing ring undersea cable
and 2,000 km four fiber pair terrestrial system that upon completion will link
the major cities of South America to the rest of the Global Crossing Network
through MAC and PAC and will initially offer 40 Gbps of service capacity
upgradeable to a minimum of 80 Gbps. We are also developing PEC, a 10,000 km
terrestrial system with 24 to 72 fiber pairs that, upon completion, will be a
self-healing ring linking 24 European cities with AC-1. We also recently
obtained a 49% economic interest in Global Access Ltd., which is constructing
GAL, a 1,300 km fiber optic terrestrial system that will connect PC-1 at its
landing points in Shima and Ajigaura with Tokyo, Osaka and Nagoya. Finally, in
March 1999, we announced our intention to develop and construct AC-2, an
additional eight fiber pair cable connecting the United States to Europe. AC-2
will be integrated with the two cables of AC-1, adding a third high-capacity
cable across the Atlantic for the Global Crossing Network and providing AC-2
with self-healing capabilities.

     Once completed, the undersea and terrestrial segments of the Global
Crossing Network will form an integrated worldwide network with multiple access
points offering low-cost wholesale capacity. In addition to the announced
segments of the Global Crossing Network, we have made, and expect to continue
to make, acquisitions of fiber capacity which complement our fiber optic
network and which address customer demands for global city-to-city
connectivity. We intend to pursue such connectivity in approximately 100 of the
largest metropolitan communications markets worldwide.

Business Strategy

     Our mission is to create the world's first independent, global, state-of-
the-art fiber optic network designed to offer our customers the highest quality
city-to-city communications connectivity among approximately 100 of the largest
metropolitan communications markets worldwide. The principal elements of our
business strategy are to:

     Create a Worldwide Network. Upon completion, the currently announced
segments of the Global Crossing Network will directly connect Asia, North
America, Europe, Central America, South America and the Caribbean utilizing
state-of-the-art fiber optic technology. By developing or acquiring terrestrial
capacity, we offer

                                       3
<PAGE>

customers low-cost global city-to-city connectivity. We also intend to
actively pursue additional opportunities for the expansion and utilization of
the Global Crossing Network, including complementary businesses and
facilities.

  We have entered into contractual arrangements to provide terrestrial service
between our landing stations in the United States and the United Kingdom, New
York City and London, respectively, as well as other arrangements to provide
terrestrial capacity in Germany and the Netherlands.

  In addition, through PEC we plan to provide terrestrial services to 24
European cities; through SAC we intend to provide terrestrial capacity to the
major South American cities; and through a 49% investment in Global Access
Ltd., which owns GAL and is being constructed by Marubeni Corp. of Japan
("Marubeni"), we intend to offer terrestrial services to PC-1 customers from
PC-1's Japanese landing stations directly to Tokyo, Osaka and Nagoya at prices
lower than existing alternatives.

  Maintain Position as a Leading Wholesale Service Provider. We are the
world's first independent global provider of state-of-the-art Internet and
long distance telecommunications facilities and related services utilizing a
network of undersea and terrestrial digital fiber optic cable systems. We also
offer our customers a combination of volume-based purchasing flexibility,
typically according to a tiered scale with various incentive levels, and
volume discounts for purchases of capacity on our network.

  Utilize State-of-the-Art Technology. The Global Crossing Network is being
engineered and constructed using advanced fiber optic technology, self-healing
ring structures, erbium doped fiber amplifier repeaters, dense wave division
multiplexing ("DWDM") and redundancies of capacity to ensure instantaneous
restoration. We are also developing state-of-the-art network architecture to
provide our customers flexibility in managing their bandwidth needs. We
believe that incorporating such technology in the Global Crossing Network
will:

  .  provide, upon system completion, a seamless, high capacity global
     network with flexible management of bandwidth,

  .  provide a cost advantage over existing alternatives,

  .  make it more reliable than competing systems,

  .  allow us to offer substantially more capacity than existing cable
     systems, and

  .  enable the capacity of each of our cable systems to be upgraded rapidly
     and at a fraction of the initial system cost.

  Maintain Position as Low-Cost Provider. We plan to maintain our position as
a low-cost provider of facilities and services to our customers relative to
our competitors. We believe that this low-cost position results from a
combination of:

  .  low sales, marketing and general and administrative costs,

  .  ownership of state-of-the-art facilities, resulting in low unit costs
     and low operating and maintenance costs that will be passed on to our
     customers, and

  .  purchasing efficiencies.

  Provide "One-Stop" Sales and Service. Through both our marketing and sales
force, as well as our ongoing operations, administrative and maintenance
support, we plan to offer one-stop sales and service support to customers
worldwide. We currently employ 21 marketing professionals located in
Morristown, New Jersey; Los Angeles, California; London, England; and other
major cities throughout the world to facilitate the sales of our
telecommunications capacity and increase market awareness and name
recognition. The efforts of the sales

                                       4
<PAGE>

   force have resulted in significant contractual arrangements with
international telecommunications carriers. In addition, we are developing
centralized operations, administration and maintenance work centers to serve
the entire Global Crossing Network, including a customer care center, network
operations center and technical support center. Through such agreements, we
will provide our customers with a single point of contact regarding capacity
sales through regional sales and marketing offices in Morristown, New Jersey;
Los Angeles, California; London, England; and in Asia, and provisioning and
billing on the Global Crossing Network through our customer care center and
network operations center.

     Leverage Extensive Management Experience. We have assembled and will
continue to build a strong management team comprised of executives with
extensive operating experience in the telecommunications industry and in the
development of cable systems. Robert Annunziata, GCL's Chief Executive Officer,
came to us from a position as head of the Business Services Division of AT&T
Corp. ("AT&T"). For 15 years, prior to joining AT&T, Mr. Annunziata served at
Teleport Communications Group, most recently as Chairman and Chief Executive
Officer. Teleport was the first large competitive local exchange carrier in the
United States, laying 10,000 miles of fiber optic cable and installing 50 local
switches connecting 85 major United States metropolitan service areas. Jack
Scanlon, one of GCL's Vice Chairmen of the Board, was President and General
Manager of the Cellular Networks and Space Sector of Motorola, Inc.,
responsible for approximately $6 billion in annual revenues and 16,000
employees. Mr. Scanlon has over 30 years of experience in the
telecommunications industry, including 24 years with AT&T and Bell
Laboratories. In addition, William Carter, our senior executive in charge of
system development, was formerly the President and Chief Executive Officer of
AT&T Submarine Systems International ("SSI"), overseeing the research and
development, engineering, implementation and integration of AT&T's
international cable and satellite facilities. Mr. Carter had been at AT&T for
30 years prior to joining us. During Mr. Carter's tenure, SSI had the leading
worldwide market share in the undersea cable industry. Thomas J. Casey, one of
GCL's Vice Chairmen of the Board and GCL's Managing Director, was co-head of
Merrill Lynch & Co.'s global communications investment banking group, where Mr.
Casey oversaw equity, debt and merger and acquisition assignments for U.S.,
European and Asian telecommunications, media and technology information
services companies. Robert B. Sheh, GCL's Executive Vice President--
Construction and Operations, joined us from a position as Chief Executive
Officer of Stone and Webster Engineering Ltd. and was previously President of
the Ralph M. Parsons Company, a worldwide engineering and construction firm,
where for over 20 years Mr. Sheh oversaw many large turnkey engineering and
construction programs and projects. Dan J. Cohrs, GCL's Chief Financial
Officer, was formerly Vice President and Chief Planning and Development Officer
at GTE Corp. ("GTE"), where he was responsible for corporate development
activities, including mergers and acquisitions and strategic transactions, as
well as strategic planning and competitive analysis. In addition, our system
development team includes several individuals with extensive experience with
major undersea cable and telecommunications industry participants.

The Global Crossing Network

     As part of our mission to create an independent, global, state-of-the-art
fiber optic cable network, connecting major cities worldwide, the Global
Crossing Network is being engineered and constructed as an integrated network
along the most heavily trafficked international corridors in the world with
undersea networks including AC-1 and AC-2 (United States to Europe) and PC-1
(United States to Asia). Furthermore, during 1998 we announced plans to build
and integrate terrestrial networks into this global network structure including
PEC (trans-Europe) and GAL (trans-Japan). MAC, SAC and PAC will directly
connect the Caribbean, South America and Central America to the network. Of the
fiber optic cable systems currently operational or under development, AC-1, AC-
2, MAC, PAC and PEC are wholly-owned projects, while PC-1 and GAL are being
developed through joint ventures with one or more partners, principally
Marubeni. We have a 58% economic interest in PC-1 and a 49% economic interest
in Global Access Ltd., which is constructing GAL. Marubeni will manage the
development, sales and operations associated with GAL. The undersea portion of
SAC is currently planned to be wholly-owned, while the terrestrial portion is
expected to be constructed through joint-venture arrangements.

     We have successfully marketed capacity on our systems to licensed
telecommunications providers, including post, telephone and telegraph companies
("PTTs"), ISPs and established and emerging telecommunications companies. Sales
on our systems commenced in October 1997 and, through December 31,

                                       5
<PAGE>

1998, we had entered into Capacity Purchase Agreements ("CPAs") with customers
providing for contract sales of $1,052 million, of which $364 million of
payments (including deposits) have been received. The $1,052 million includes
over $100 million related to the sale of dark fiber on PEC. The balances of
the payments are scheduled to be collected over approximately the next three
years. Our customers now total more than 33 international telecommunications
carriers, including AT&T, MCI Worldcom Inc., Deutsche Telekom AG, GTE, Cable &
Wireless PLC ("Cable & Wireless"), Equant NV, Qwest Communications
International Inc. ("Qwest"), Teleglobe Canada Inc., Swisscom AG, PTT Telecom
BV, Telia AB, Level 3 Communications, Inc. and a number of emerging
telecommunications companies.

  The following table contains information regarding the system cost, initial
Ready For Service ("RFS") date and ownership structure of our systems.
Information relating to AC-1 is based upon historical results, while
information for all other systems is estimated.

<TABLE>
<CAPTION>
              System Cost(1)                                      Ownership
     System     (millions)           RFS Date(1)                  Structure
     ------   -------------- --------------------------- ---------------------------
     <S>      <C>            <C>                         <C>
     AC-1         $  750                                 Wholly-Owned
                              February 1999 (Full Ring)
     AC-2            750                                 Wholly-Owned
                                     March 2001
     PC-1          1,200        March 2000 (Initial)     Joint Venture
                                July 2000 (Full Ring)
     MAC             330            December 1999        Wholly-Owned
     PAC             495            February 2000        Wholly-Owned
     SAC           1,130     December 2000 (First Phase) Wholly-Owned (undersea)
                               March 2001 (Full Ring)    Joint Venture (terrestrial)
     PEC             850     December 1999 (First Phase) Wholly-Owned
     GAL             190     December 1999 (First Phase) Joint Venture
                  ------
                  $5,695
                  ======
</TABLE>
--------
(1) Total system costs include anticipated financing costs, but exclude the
    costs of potential future upgrades and any amount capitalized with respect
    to the warrants issued in exchange for the rights to certain of such
    systems (the "PCG Warrants"). See Note 9 to our consolidated financial
    statements. Certain factors, such as increases in interest rates and
    delays in construction, could result in higher actual costs or later RFS
    dates than currently estimated.

Atlantic Crossing

  AC-1, our first undersea fiber optic cable in the Atlantic region, is a
14,300 km four fiber pair self-healing ring that connects the United States
and Europe with landing stations in the United States, the United Kingdom, the
Netherlands and Germany. AC-1 is equipped with state-of-the-art DWDM, and the
full ring initially offers 40 Gbps of service capacity, which is upgradeable
to a minimum of 80 Gbps using DWDM technology. AC-1 started service on its
United States to United Kingdom segment during May 1998, and the full system
was completed during February 1999.

  The total cost of AC-1 excluding upgrade payments was approximately $750
million. Furthermore, we recently entered into a $50 million contract with
Tyco Submarine System Ltd. ("TSSL") to upgrade AC-1 capacity from 40 Gbps to
80 Gbps. In addition to the contract with TSSL for construction of the system,
we have entered into other agreements with TSSL for services and support
associated with operations, administration and maintenance of the system.

  We have successfully marketed capacity on AC-1 and entered into CPAs with
customers providing for contract sales representing approximately 35% of the
sales capacity of 512 circuits on the AC-1 system as of December 31, 1998. In
the case of AC-1, we generally grant customers who have entered into CPAs
options to acquire additional capacity on AC-1. The amount of such future
capacity depends upon a number of factors, including upgrades to the system,
future prices for AC-1 capacity and the amount of unsold capacity on certain

                                       6
<PAGE>

   future dates. The timing of payments by purchasers under CPAs generally
depends on when customers request activation of the capacity acquired.

     On March 24, 1999, we announced our intention to develop and construct AC-
2, an additional eight fiber pair cable connecting the United States to Europe.
AC-2 will be integrated with the two cables of AC-1, adding a third high-
capacity cable across the Atlantic for the Global Crossing Network and
providing AC-2 with self-healing capabilities. The new cable will cost
approximately $750 million and is expected to be in service in the first
quarter of 2001. AC-2 would significantly increase the capacity that we would
be able to offer customers on the transatlantic route.

Pacific Crossing

     PC-1, our first undersea fiber optic cable in the Pacific region, is being
developed as a 21,000 km, four fiber pair self-healing ring. When completed, it
will connect California and Washington in the western United States with two
landing sites in Japan. PC-1 is designed to operate initially at 80 Gbps of
service capacity, upgradeable to a minimum of 160 Gbps, using DWDM technology.

     In April 1998, we executed a construction contract with TSSL for the
construction of PC-1, which provides for a system completion date of July 2000
at a total cost of approximately $1,200 million (excluding potential future
upgrades and amounts capitalized with respect to the PCG Warrants). Equity
investments in PC-1 are currently estimated at $400 million (of which we will
provide approximately $231 million), with the remaining $800 million to be
financed through incurrence of non-recourse project indebtedness. The credit
agreement for the financing of such indebtedness was executed in July 1998.

Mid-Atlantic Crossing

     MAC is being developed as a 7,300 km two fiber pair self-healing ring
that, upon completion, will connect New York, the Caribbean and Florida. MAC
will be connected to AC-1 via its cable station in Brookhaven, New York and to
SAC via its cable station anticipated to be constructed in St. Croix, United
States Virgin Islands, providing connectivity between Europe, the eastern
United States, the Caribbean and South America. This system is being designed
to operate initially at 20 Gbps of service capacity, upgradeable to a minimum
of 40 Gbps using DWDM technology.

     In June 1998 and October 1998, we executed a contract with Alcatel
Submarine Networks ("Alcatel") and TSSL, respectively, for the construction of
MAC, which provides for a system completion date of December 1999 at a total
cost of approximately $330 million (excluding potential future upgrades and
amounts capitalized with respect to the PCG Warrants). We intend to finance MAC
with an approximately $110 million equity contribution along with approximately
$220 million of non-recourse project indebtedness obtained during November
1998.

Pan American Crossing

     PAC is being developed as a 9,500 km two fiber pair cable that, upon
completion, will connect California, Mexico, Panama, Venezuela and the
Caribbean. PAC is being designed to interconnect with PC-1 through our landing
station anticipated to be constructed in Grover Beach, California, with MAC
through our landing station anticipated to be constructed in St. Croix, United
States Virgin Islands and with SAC through our landing station anticipated to
be constructed in Fort Amador, Panama. We anticipate that PAC will cross Panama
via an existing terrestrial right-of-way. PAC is being designed to operate
initially at 20 Gbps of service capacity, upgradeable to a minimum of 40 Gbps
using DWDM technology.

     In July 1998, we executed a contract with TSSL for the construction of PAC
which provides for a system completion date of February 2000 at an estimated
total cost of $495 million (excluding potential future upgrades and amounts
capitalized with respect to the PCG Warrants). We intend to finance PAC with an
approximately $200 million equity contribution and non-recourse project
indebtedness of approximately $295 million. The contractual commitment for this
project indebtedness was obtained in July 1998.

                                       7
<PAGE>

South American Crossing

     On March 11, 1999, GCL announced plans for the development of SAC, an
18,000 km undersea and terrestrial fiber optic network directly linking the
major cities of South America through MAC and SAC to the United States, Mexico,
Central America, the Caribbean, Asia and Europe. The Company expects that SAC
will cost approximately $1,130 million to construct and will commence service
in 2000. The Company plans to build SAC in three phases. The first two phases,
providing Argentina and Brazil with connectivity to the Global Crossing
Network, are scheduled to commence service in the fourth quarter of 2000. The
final phase, completing the loop around the continent, is scheduled for
completion in the first quarter of 2001. The undersea portion of SAC is
currently planned to be wholly-owned, while the terrestrial portion is expected
to be constructed through joint-venture arrangements.

     Upon construction, the undersea portion of SAC will constitute a state-of-
the-art four-fiber pair, self-healing ring, built using advanced DWDM
technology. Undersea portions of the ring are expected to connect to landing
sites at St. Croix (United States Virgin Islands), Fortaleza (Brazil), Rio de
Janeiro (Brazil), Santos (Brazil), Las Toninas (Argentina), Valparaiso (Chile),
Lurin (Peru), Buenaventura (Colombia) and Fort Amador (Panama). Terrestrial
segments are expected to connect to most major South American cities, including
Rio de Janeiro, Sao Paulo (Brazil), Buenos Aires (Argentina), Santiago (Chile),
Lima (Peru), Cali (Colombia) and Bogota (Colombia). The SAC ring is expected to
be completed on its southern-most end by a terrestrial link across the Andes
between Las Toninas and Valparaiso. The PAC system from Panama to St. Croix is
expected to complete the ring. Initially, SAC is expected to have a capacity of
40 Gbps and to be upgradable, using DWDM technology, to a minimum of 80 Gbps.

Terrestrial Capacity

     In addition to the undersea segments of the Global Crossing Network, we
have acquired or constructed, and expect to continue to acquire or construct,
terrestrial fiber capacity to complement our undersea cable systems and
complete a global network to meet customer demands for worldwide city-to-city
connectivity.

     Pan European Crossing. We recently announced plans to build PEC which,
upon completion, will be a self-healing ring offering connectivity between AC-1
and 24 European cities, including London, Paris, Strasbourg, Amsterdam,
Rotterdam, Antwerp, Brussels, Berlin, Frankfurt, Munich, Stuttgart, Hamburg,
Hanover, Dusseldorf, Cologne and Copenhagen. We also plan to connect additional
European cities to this system. PEC is initially planned as a 10,000 km system
with 24 to 72 fiber pairs as well as spare conduits. We are currently
negotiating with various parties for the acquisition of rights of way and the
acquisition or construction of conduits. Furthermore, Lucent Technologies, Inc.
("Lucent") will supply fiber and equipment as well as project management and
integration services. Based on these arrangements, we believe that the
construction costs for the system will be approximately $850 million (excluding
potential future upgrades). We will develop PEC in several phases, initially
providing connectivity among 24 cities. The initial phase has an anticipated
completion date during December 1999. The second phase will add five cities and
has an anticipated completion date in 2000.

     Global Access Ltd. We recently obtained a 49% interest in Global Access
Ltd., a company which will own and operate GAL, a fiber optic terrestrial
system being developed in Japan that, among other things, will connect the PC-1
cable stations with three cities in Japan. Through GAL, we intend to offer
terrestrial services to PC-1 customers at prices substantially lower than those
currently available. GAL is initially planned as a 1,300 km system. Global
Access Ltd. is currently negotiating with various parties for the construction
of GAL and, based on those negotiations, we believe that the construction costs
for GAL will be approximately $190 million. The initial expected RFS date for
the first phase of GAL's development is December 1999.

     Purchased Capacity. We have acquired terrestrial connectivity between AC-1
landing stations in the United States and the United Kingdom to provide city-
to-city service from New York City to London, and have also entered into
agreements to provide terrestrial service in Germany and the Netherlands.

                                       8
<PAGE>

Additional Network Expansion Opportunities

     We are in the process of planning several new cable systems and evaluating
other business development opportunities which will complement the Global
Crossing Network. There can be no assurance that we will ultimately elect to
proceed with such opportunities or, if we do so, that such opportunities will
help us achieve and sustain operating profitability.

     Further Expansion Opportunities. The demand for capacity on the routes
served by the Global Crossing Network and other cable systems are projected to
have substantial growth, greatly exceeding current usage and available
capacities. To address such demand, we plan to evaluate and, as appropriate,
build or acquire additional systems on such routes. It is anticipated that such
systems, where possible, will be restored on the existing systems and will
achieve further cost efficiencies through the use of existing landing stations.

Other Activities

     Neptune Acquisition. During November 1998, our indirect subsidiary, GC
Pacific Landing Corp., entered into an agreement and plan of merger with
Neptune Communications, L.L.C. ("Neptune") and its wholly-owned subsidiary,
Neptune Communications Corp. ("NCC"), whereby GC Pacific Landing will merge
with and into NCC in exchange for 2,239,642 shares of GCL common stock. Neptune
is controlled by The Carlyle Group, an international investment firm
("Carlyle"), and was formed to pursue opportunities in the undersea cable
business. Carlyle's managing director William Conway serves on GCL's Board of
Directors.

     Possible Investments. GCL's Board of Directors has approved in principle
the making of minority investments in telecommunications companies and ISPs
that do not compete with us in our core business and that are current or
prospective purchasers of capacity on the Global Crossing Network. Such
investments may consist of purchases of equity securities for either cash or
exchanges of capacity on the Global Crossing Network. Such investments may be
managed either by us directly or, if GCL's Board of Directors deems advisable,
by one or more third-party investment advisers so as to minimize potential
conflicts of interest and the amount of time allocated by our senior management
to such investments.

Financing Plan

     As of December 31, 1998, the approximately $750 million initial cost of
AC-1 had been fully financed. The first contracted upgrade will be funded
through operating cash flow.

     We estimate the total cost of developing and deploying AC-2, PC-1, MAC,
PAC, SAC, PEC and GAL to be approximately $4,945 million (excluding costs of
potential future upgrades and the amounts capitalized with respect to the PCG
Warrants) which is comprised of $750 million for AC-2, $1,200 million for PC-1,
$330 million for MAC, $495 million for PAC, $1,130 million for SAC, $850
million for PEC and $190 million for GAL. PC-1 will be financed by total equity
investments of $400 million (we expect to provide approximately $231 million),
with the remaining $800 million of estimated costs to be financed initially
through non-recourse project indebtedness at the PC-1 level. With respect to
MAC and PAC, we intend to make equity investments of approximately $110 million
in MAC and $200 million in PAC. We have obtained $220 million in non-recourse
project financing from certain lenders to finance the initial construction
costs of MAC. We expect to finance the remaining estimated $295 million in
costs for PAC through non-recourse indebtedness and have negotiated a
contractual commitment for such financings.

     During October 1998, we announced the development of PEC for which the
construction costs are estimated to be $850 million. A portion of these costs
will be paid from the proceeds of our recent issuance of 10 1/2% Senior
Exchangeable Preferred Stock due 2008 ("GCH Preferred Stock"). Further, we
expect to raise additional capital required to finance this system through a
combination of commercial bank borrowings, non-recourse

                                       9
<PAGE>

   project debt, vendor financing and sales of dark fiber. In this regard, we
signed an agreement with Cable & Wireless for the sale of more than
$100 million of dark fiber on PEC. During January 1999, we entered into a
supply contract with Lucent to provide fiber and equipment for this system and,
as part of this contract, Lucent will also furnish financing along with project
management and integration services.

     We have traditionally secured project indebtedness for approximately 65%
of system costs. The actual amounts of our future capital requirements
(including with respect to AC-2 and SAC) will depend on certain factors
including the cost of developing our cable systems, the speed of developing our
systems and the pricing of our services. There can be no assurance that
financing for such systems will be available to us or, if available, that such
financing can be obtained on a timely basis or on acceptable terms.

System Performance

     AC-1, AC-2, PC-1, MAC, SAC, PEC and GAL are each designed to be installed
with self-healing ring technology to optimize system availability and
performance. Both span and ring switching protection are provided. Span
switching protects a system against failures which affect individual fibers.
Ring switching protects a system against complete failures between terminating
landing sites. Because such technology will protect any single system failure
in less than 300 milliseconds, no single system failure would have any material
effect on customer service. Accordingly, the estimated system availability on
any point-to-point link on such systems is 99.995%. The AC-1 system has
experienced, mostly prior to RFS, a number of faults, generally resulting from
commercial fishing activity or shipping, causing the system to rely on its ring
switching protection capability. Because of the self-healing ring architecture
of the AC-1 system and the proper performance of its ring switching protection
capability, which protects and reroutes traffic from single failures, such
faults did not result in any loss of customer traffic. Similar failures could
occur in the future and, in the event of simultaneous failures on two or more
segments, loss of customer traffic would occur.

     As undersea and terrestrial cable systems achieve greater capacities
(i.e., carry more traffic along their transmission paths), it is important to
provide a "self-restoration solution" because existing systems do not have
enough capacity to provide restoration for these new high performance cable
systems. Single span systems must enter into reciprocal arrangements either
with other fiber-optic operators or with satellite carriers to pick up and
deliver a portion or all of the traffic if a system failure should occur.
Providing self-restoration through our ring design with the switching
techniques described above offers a distinguishing advantage over single span
systems with external restoration.

     With respect to PAC, which does not employ self-healing ring technology,
we are exploring options to enter into restoration arrangements with
terrestrial fiber optic cable operators to protect against traffic
interruptions. We may enter into similar arrangements to protect against
catastrophic system malfunction on our other cable systems.

Sales and Marketing

     We market capacity on our systems to telecommunications providers,
including PTTs, ISPs and established and emerging telecommunications companies.
Our current customers represent a broad array of telecommunications companies.

     Our initial sales strategy emphasizes the sale of capacity on an
Indefeasible Right of Use ("IRU") basis, whereby the customer purchases a unit
of capacity for the remaining design life of a particular cable system. On AC-
1, we are selling capacity in an increment of 155 megabits per second (Mbps),
known as an STM-1, for the 25-year design life of the system. For the other
Global Crossing cable systems, we expect to sell capacity to customers at the
STM-1 level, as well as in smaller increments, based upon the demand levels
along certain routes. We have instituted a tiered pricing schedule for all of
our systems which provides for volume discounts, as well as allowing customers
to reduce their average circuit cost as more circuits are purchased.

                                       10
<PAGE>

     We have made selective wholesale acquisitions of terrestrial capacity,
thereby enabling customers to achieve city-to-city connectivity through the
Global Crossing Network at prices significantly lower than if such customers
had attempted to purchase such terrestrial capacity independently. For AC-1
customers, we enter into contractual arrangements providing terrestrial
capacity between our landing stations in the United States and the United
Kingdom, and New York City and London, respectively. In addition, Deutsche
Telekom and Royal PTT Nederland ("KPN") provide terrestrial capacity directly
to our AC-1 customers in Germany and the Netherlands, respectively.
Furthermore, through SAC, GAL and PEC, we plan to provide terrestrial
connectivity directly on our own network to cities in South America, Japan and
Europe.

     To facilitate sales of capacity on the Global Crossing Network as well as
to increase market awareness and name recognition, we are establishing regional
sales and marketing companies initially in the United States, the United
Kingdom and Asia. Customers will soon be able to purchase capacity anywhere on
our Global Crossing Network system by signing a single CPA with any of the
regional sales and marketing companies. We have been able to recruit and train
a full-service sales and marketing team of professionals who had previously
worked at traditional telecommunications companies, emerging telecommunications
companies and submarine cable design and construction companies. In total, we
have employed 21 marketing professionals as of December 31, 1998, with offices
in: Hamilton, Bermuda; Los Angeles and San Francisco, California; Morristown,
New Jersey; Miami, Florida; London, England; Amsterdam, the Netherlands; Tokyo,
Japan; and Buenos Aires, Argentina.

     During the pre-operational period for AC-1, in which we generated
significant pre-sales of capacity, we held project information meetings
(otherwise known as data gathering meetings) in order to better educate
potential customers about AC-1 and our other planned cable systems. Attendees
of such meetings were affiliated with both existing and prospective customers
and represented a variety of sectors of the telecommunications industry. We
expect to continue to organize at least one major international conference per
year in order to provide customers with updated information on the Global
Crossing Network. We will also continue to host regional project information
meetings focusing on specific regions as we expand coverage in new geographic
areas.

     We plan to reinforce customer awareness through a variety of marketing
campaigns, including international conferences and regional marketing events,
participation in key industry and user group conferences, trade shows, speaking
engagements, press conferences and promotional campaigns. In addition, our
marketing team engages in regular visits to current and prospective customers
to obtain a greater understanding of their individual needs and promote the
advantages of the Global Crossing Network.

     Due to the breadth of the Global Crossing Network, we are uniquely
positioned to offer worldwide capacity to our customers. Many customers
acknowledge that their need for large bandwidth is increasing, but they are
often doubtful with regard to the precise routes where their particular growth
will take place. In order to stimulate customer loyalty and leverage this
uncertainty, we have developed the Global Crossing Network Offer ("GCNO"). The
GCNO allows customers who can make a multi-year dollar denominated commitment
to our network with the flexibility to activate capacity where they need it in
a "just-in-time" manner in return for volume discounted pricing. As our network
continues to expand, we are exploring other marketing programs that will
provide further benefits to our customers and position Global Crossing as the
broadband infrastructure provider of choice.

     We are also planning to offer our customers wholesale services in addition
to the long term IRUs which we currently sell to our customers. Such offerings
may include intermediate term capacity leases, metered bandwidth and internet
transit services. We expect to begin offering these products and services
before the end of 1999.

Summary of Principal Terms of Standard Contractual Documentation

 Capacity Purchase Agreements (CPAs)

     In general, a CPA provides for the sale of capacity on an IRU basis,
whereby the purchaser acquires a unit of capacity for the remaining design life
of a particular system, generally 25 years from the RFS date of the

                                       11
<PAGE>

   system. Upon execution of a CPA we generally receive cash for 10% of the
purchase price immediately, with the balance of the purchase price due upon
activation of the capacity. A limited number of CPAs provide for payment of the
purchase price in installments over two to four years. Each customer is
required to pay its allocable share of the cost of operating, maintaining and
repairing the system each year. Performance under CPAs is conditioned upon
achieving the RFS date for a system and upon the obtaining of certain
approvals, consents, governmental authorizations, licenses and permits. In some
CPAs, customers who have purchased capacity on systems prior to the date the
system has self-healing ring capacity have contractually required full self-
healing ring capability as a legal condition which, if not satisfied, would
enable them to terminate the CPA and require us to refund capacity payments.

     In general, neither party is liable to the other under a CPA for
consequential, incidental, indirect or special damages sustained by reason of
(i) any failure in or breakdown on the system or the facilities associated with
the system, (ii) the failure of any inland carrier to perform the terms and
conditions of any agreement to which it and the purchaser are parties or (iii)
for any interruption of service, whatever the cause and however long it shall
last. CPAs are generally subject to an arbitration clause.

 Inland Services Agreements (ISAs)

     We have entered into agreements with certain terrestrial fiber cable
providers to purchase terrestrial capacity on such systems for resale to our
customers. In general, the term of each ISA is 25 years starting in 1998 or
until the system is retired, whichever occurs first. In certain cases, we have
the option to extend the term of each ISA for an additional five years. Neither
party to an ISA is responsible for any loss, damage, delay or failure of
performance resulting from an event of "force majeure."

Operations, Administration and Maintenance Support

     We are developing our own worldwide operations, administration and
maintenance ("OA&M") support center to serve each of our cable systems. Such
support will be handled through three work centers: a Customer Care Center
("CCC"), a Network Operations Center ("NOC") and a Technical Support Center
("TSC"). We currently anticipate that the CCC will be located in Bermuda and
that both the NOC and TSC will be located in the United Kingdom.

     Customer Care Center. The CCC will provide capacity purchasers with a
single point of contact for service provisioning, interconnect coordination
support, billing and billing inquiries and adjustments.

     Network Operations Center. The NOC will handle operations, administrative
and maintenance activities for each of our cable systems, including new
services provisioning, network performance, repair and restoration activities.
Capacity provisioning which relates to activation of overall capacity on our
system, or allocation of capacity to large users, is also performed by the NOC.
Management of network performance entails detection and response to system
degradation and other performance parameters, as well as preventative
activities.

     Technical Support Center. The TSC will be a 24-hour center managed by
highly-trained experts to handle technical inquiries from purchasers regarding
project management, status of services provisioning, system performance and
interconnection arrangements.

     Pursuant to the AC-1 Operations, Administration & Maintenance agreement,
TSSL will provide OA&M support on behalf of AC-1 for a term of eight years
following the commencement of commercial operations. As of December 31, 1998,
we were committed under the AC-1 OA&M agreement to make payments totaling
approximately $247 million. This agreement is extendable at our option for two
additional periods of 8 1/2 years each.


                                       12
<PAGE>

Competition

  Existing and Planned Cable Systems

     The routes addressed by our planned systems are currently served by
several cable systems as well as satellites. Currently, there are several fiber
optic transatlantic cable systems, each of which competes directly with AC-1.
Primary future sources of transatlantic competition for us may result from,
among others, (i) TAT-14, a transatlantic cable system which is being developed
by its consortium members, including British Telecom, AT&T, France Telecom and
Deutsche Telekom, (ii) Flag Atlantic-1, a transatlantic system which is being
developed by Flag Telecom and Global Telesystems Group Inc. and (iii) Gemini, a
transatlantic cable system being operated and marketed by MCI WorldCom, Inc.
and Cable & Wireless. We believe that such other cable systems will compete
directly with our Atlantic capacity and the commitments of the developers and
other carriers on these systems could substantially reduce estimated demand for
capacity on our systems.

     Similarly, there are several cable systems currently operating between the
United States and Asia, the route to be served by PC-1. PC-1 may face
competition in the transpacific market from, among others, (i) the China--U.S.
Cable Network, a transpacific system being developed as a "private cable
system" by fourteen large carriers, including SBC Communications Inc. ("SBC"),
MCI WorldCom Inc., AT&T and Sprint, most of which have traditionally sponsored
consortium cables and (ii) the Japan--U.S. Cable Network, a transpacific system
being developed by a consortium of major telecommunications carriers, including
MCI WorldCom Inc., AT&T, Kokusai Denshin Denwa Co. Ltd. ("KDD"), Nippon
Telegraph and Telephone Corp. ("NTT"), Cable & Wireless and GTE. Although we
believe that such other cable systems will not satisfy the demand for capacity
between the United States and Japan and that there is currently enough demand
projected to accommodate all such systems, such other cable systems will
receive commitments for capacity that PC-1 could have received in their
absence. Moreover, while a number of the participants in these cable systems
have purchased capacity on our other systems, it is likely that these
participants will seek to satisfy their capacity requirements for traffic
between the United States and Asia with the systems they are sponsoring and not
with PC-1.

     In addition, we will face competition on our planned trans-European
network. There are several carriers, including Viatel, KPN-Qwest, MCI WorldCom,
Inc., a joint venture between Deutsche Telekom and France Telecom, British
Telecom and Hermes, which are currently planning or building trans-European
network assets.

     Other regional and global systems are being considered by developers,
including Project Oxygen, a global system being evaluated by the CTR Group,
Ltd. In addition, we may face competition from existing and planned regional
systems and satellites on our MAC, PAC and SAC routes, where entrants are vying
for purchases from a small but rapidly growing customer base.

  Satellite Transmission

     When comparing cable transmission against satellite transmission, we
believe that cable has a distinct advantage with respect to latency (i.e.,
transmission delay) and voice quality. Cable transmission has a lower cost per
circuit, attributable in part to higher capacity and longer expected equipment
life than satellite transmission. Satellite transmission is generally
considered to have a comparative advantage versus cable transmission for mobile
communications only in the area of point-to-multipoint broadcast and "thin
route" transmission, as opposed to the more common point-to-point, high volume
transmission for which cable usage is considered to be preferable.

     In early 1997, the Federal Communications Commission ("FCC") granted Ka-
band licenses and orbital locations to 13 companies. The firms developing
future satellite technology envision a network of satellites that will provide
broadband data transmission with data rates of 2 Mbps, 20 Mbps, and even 155
Mbps. Potential participants in the field include Astrolink, Skybridge,
Teledesic, CyberStar and SpaceWay, which are seeking to provide high bandwidth
transmission networks. Due to (i) the significant initial costs related to
these systems, (ii) the risks relating to satellite launch systems and (iii)
the significantly lower transmission capacity versus current fiber optic
systems, we believe that the new satellite systems will not be able to offer
competitive cost per unit of transmission capacity in the dense metropolitan
markets we are targeting. Further, we believe we will

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<PAGE>

   have at least four years lead time to help us solidify a sustainable
competitive market position before true broadband satellite service commences.

Suppliers

     There are currently three major supply companies in the undersea cable
industry: TSSL, Alcatel and Kokusai Denshin Denwa--Submarine Cable Systems
("KDD--SCS"). Cable & Wireless and Pirelli also have a presence in the industry
and there are a number of smaller suppliers which have focused primarily on
regional routes or non-repeatered systems. TSSL completed construction of AC-1,
is responsible for the design and installation of PAC, and together with KDD-
SCS (as a subcontractor), is responsible for design and installation of PC-1.
Alcatel and TSSL are responsible for the design and construction of MAC. There
are multiple suppliers available for terrestrial systems.

Regulation

     In the ordinary course of development, construction and operation of our
fiber optic cable systems, we will be required to obtain and maintain various
permits, licenses and other authorizations both in the United States and in
international jurisdictions where our cables land or in the territories in
which terrestrial fiber optic systems are being constructed, and we will be
subject to applicable telecommunications regulations in such jurisdictions. In
particular, submarine cable landing or similar licenses as well as other
infrastructure construction authorizations will be required in many of the
jurisdictions where our planned undersea cable systems will land or terrestrial
segments will be constructed. We are both filing applications for cable landing
licenses with the FCC (and, where necessary, regulatory agencies in other
countries) and, where available, seeking private carriage status for these
systems. These licenses are typically issued for a term of years (in the case
of the FCC-issued cable landing licenses, 25 years) and are subject to renewal.
The law of several international jurisdictions limits foreign ownership, direct
or indirect, of entities holding cable landing licenses, or building
terrestrial infrastructures. In connection with the implementation of the World
Trade Organization ("WTO") Basic Telecommunications Agreement, the FCC adopted
regulations establishing an open entry standard for applicants from WTO member
countries, including a rebuttable presumption that applications from carriers
from WTO member countries do not pose concerns that would justify denial of an
application on competitive grounds. In addition, we and, in some cases, our
joint venture partners, are obtaining licenses from a number of jurisdictions
to construct, operate, and sell capacity on terrestrial fiber optic cable
systems.

     Construction of each of our cable systems also requires the acquisition
and maintenance of various environmental and other construction related permits
and licenses in the ordinary course of business. Our undersea construction
contracts are generally "turnkey" arrangements, whereby the contractor is
obligated to obtain and maintain all such licenses and permits. Although we
expect that the construction contracts for each of our other planned undersea
cable systems will impose the burden of acquiring and maintaining construction
licenses and permits on the contractor for each of such systems, there can be
no assurance that such contractor will successfully obtain such permits and
licenses.

Employees

     As of December 31, 1998, we had approximately 142 employees. We consider
our relations with our employees to be good.

Financial Information by Business Segment and Geographic Area

     See Note 3 of our consolidated financial statements for information
regarding our revenues and assets by business segment and geographic region.

Risk Factors

     Statements contained in this Annual Report on Form 10-K regarding our
expectations with respect to the Global Crossing Network, related financings,
future operations and other information, which can be identified by

                                       14
<PAGE>

   the use of forward-looking terminology, such as "may," "will," "expect,"
"anticipate," "intend," "estimate," "believe," "seek" or "continue," or the
negative thereof or other variations thereon or comparable terminology, are
forward-looking statements. The discussions set forth below constitute
cautionary statements identifying important factors with respect to such
forward-looking statements, including risks and uncertainties, that could cause
actual results to differ materially from results referred to in the forward-
looking statements. There can be no assurance that our expectations regarding
any of these matters will be fulfilled.

 Limited Operating History

     We were organized in March 1997 and have a limited operating history. Our
financial information relates principally to a period in which we were
constructing and developing AC-1 and, until May 1998, had minimal revenues and
operating costs. Despite recognizing approximately $424 million in revenues, we
have incurred a net loss applicable to common shareholder of approximately $109
million for the period from March 19, 1997 (Date of Inception) through December
31, 1998, due primarily to the termination of certain advisory services
agreements, the incurrence of stock-related expense, the extraordinary loss on
the retirement of certain senior notes, preferred stock dividends and the
redemption of certain preferred stock. We have financed our net losses, debt
service, capital expenditures and other cash needs to date through operations,
cash contributions from GCL from the proceeds of sales of common stock of GCL
and proceeds of sales of mandatorily redeemable preferred stock and the
issuance of debt, including non-recourse indebtedness of Atlantic Crossing Ltd.
("ACL"), Pacific Crossing Ltd. ("PCL") and Mid-Atlantic Crossing Ltd. ("MACL").
We will require substantial additional capital in order to carry out our
business plan.

     Our success will depend substantially on sales of capacity on our systems.
Our sales and marketing efforts (primarily on AC-1) have resulted in executed
CPAs as of December 31, 1998 to purchase capacity totaling $1,052 million,
including related sales of third party terrestrial capacity and approximately
$100 million of dark fiber sales on PEC. We cannot be certain that we will
continue to be successful in selling capacity on AC-1 or our other systems
under development. Additionally, we cannot be certain that we will be able to
realize our business plan. Furthermore, even if we realize our plan, we still
may not be able to sustain operating profitability or generate sufficient cash
flow to service our indebtedness.

Leverage

     We have incurred a high level of debt. As of December 31, 1998, we had a
total of $1,374 million of total liabilities, including approximately $1,112
million in senior indebtedness, of which $276 million was secured. We also have
mandatorily redeemable preferred stock outstanding with a face value of $500
million. In addition, PCL entered into a $850 million non-recourse credit
facility with respect to PC-1, under which PCL had incurred $200 million of
indebtedness as of December 31, 1998. We have also entered into a $300 million
commitment letter for project financing for PAC.

     The amount of our debt could have important consequences for our future,
including, among other things:

  .  cash from operations may be insufficient to meet the principal and
     interest on our indebtedness as it becomes due,

  .  payments of principal and interest on borrowings may leave us with
     insufficient cash resources for our operations, and

  .  restrictive debt covenants may impair our ability to obtain additional
     financing.

     Our ability to repay our debt depends upon a number of factors, many of
which are beyond our control. In addition, we rely on dividends, loan
repayments and other intercompany cash flows from our subsidiaries to repay our
obligations. Our operating subsidiaries intend to enter into various credit
arrangements. Accordingly, once they enter into these credit arrangements, the
payment of dividends from our operating subsidiaries and the making and
repayments of loans and advances will become subject to statutory, contractual
and other restrictions.

                                       15
<PAGE>

     In addition, if we are unable to generate sufficient cash flow to meet our
debt service requirements, we may have to renegotiate the terms of our long
term debt. There can be no assurance that we would be able to successfully
renegotiate such terms or refinance our indebtedness when required or that
satisfactory terms of any such refinancing would be available. If we were not
able to refinance our indebtedness or obtain new financing under these
circumstances, we would have to consider other options, such as:

     .  sales of certain assets to meet our debt service obligations,

     .  sales of equity,

     .  negotiations with our lenders to restructure applicable indebtedness,
  or

     .  other options available to us under applicable law.

Substantial Future Capital Requirements

     We will require substantial capital investment to implement our business
plan. Because we anticipate that each of our systems will require separate
financing in addition to our equity investment in each system, we intend to
raise additional non-recourse debt or equity capital at the system level to
meet these financing requirements. We currently estimate that our capital
resources, together with the additional capital that we intend to raise at the
system level, will be sufficient to fund our currently planned systems. If we
are unable to fund the development of our systems, our business, financial
condition and results of operations will be materially adversely affected.

Risks Related to Completing our Cable Systems

     Our ability to achieve our strategic objectives will depend in large part
upon the successful, timely and cost-effective completion of our planned cable
systems as well as on achieving substantial capacity sales on these systems
once they become operational. The construction of our systems will be affected
by a variety of factors, uncertainties and contingencies, many of which are
beyond our control. There can be no assurance that each of these systems will
be completed at the cost and in the time frame currently estimated by us, or
even at all. Although we will be awarding contracts for construction of our
systems to certain suppliers who in most cases are expected to be bound by a
fixed-price construction cost schedule, and to provide guarantees in respect of
completion dates and system design specifications, there can be no assurance
that the actual construction costs or the time required to complete these
systems will not exceed our current estimates. Such circumstances could have a
material adverse effect on our results of operations or financial condition.

     Our successful completion of our cable systems will depend, among other
things, upon:

     .  our ability to manage their construction effectively,

     .  our ability to obtain all construction and operating permits and
  licenses,

     .  third-party contractors performing their obligations on schedule, and

     .  our ability to enter into favorable construction contracts with a
  limited number of suppliers.

     Failure with respect to any of the foregoing may significantly delay or
prevent completion of one or more of our systems, which could have a material
adverse effect on our business, financial condition and results of operations.

Sales of Capacity; Realization of Other Revenues

     Our ability to achieve our business objectives will also depend in large
part upon our sales and marketing capabilities. We have assembled a dedicated
sales and marketing force. We depend upon the ability of such employees to
effectively market and sell capacity. We cannot be certain that we will be able
to effectively sell capacity on our cable systems. If we are unable to
effectively sell capacity on our cable systems, our results of operations could
be materially adversely affected.

                                       16
<PAGE>

     We intend to grow revenues and profits by:

     .  upgrading capacity on our planned systems,

     .  developing additional undersea cable projects,

     .  developing or purchasing additional terrestrial fiber capacity, and

     .  introducing new services.

     If we are unable to effect these upgrades, develop additional cable
projects, develop or obtain additional terrestrial capacity or introduce new
services, our business, financial condition and results of operations could be
adversely affected.

Termination of Capacity Purchase Agreements

     Under some AC-1 CPAs, the customer may terminate the agreement if we do
not obtain and hold certain governmental authorizations, approvals, consents,
licenses and permits. CPAs for our other systems may contain similar
provisions. If a substantial number of CPAs are terminated for any of the
foregoing reasons, our business, financial condition and results of operations
could be materially adversely affected.

Competition

     The international telecommunications industry is highly competitive. We
face competition from existing and planned systems along each of our planned
routes. We also compete with satellite providers, including existing
geosynchronous satellites and low- and medium-earth orbit systems now under
construction. We compete primarily on the basis of price, availability,
transmission quality and reliability, customer service and the location of our
systems. Traditionally, carriers have made substantial long term investments
in ownership of cable capacity. There can be no assurance that we will be able
to compete successfully against systems to which prospective customers have
made long term commitments.

Relationship with Principal Shareholders; Conflicts of Interest

     As of March 12, 1999, Pacific Capital Group, Inc. ("PCG") had a 23.14%
beneficial ownership interest in GCL. We have entered into various
transactions with PCG and have assumed the on-going development of PC-1, PAC
and MAC from an affiliate of PCG. Mr. Gary Winnick, Co-Chairman of GCL's Board
of Directors, controls PCG and its subsidiaries. In addition, several of GCL's
other officers and directors are affiliated with PCG. Furthermore, Canadian
Imperial Bank of Commerce ("CIBC") had a 22.15% beneficial ownership interest
in GCL as of March 12, 1999. CIBC and its affiliates have acted as
underwriter, lender or initial purchaser in several of our financial
transactions in connection with the development and construction of our
systems. Several members of GCL's Board of Directors are employees of an
affiliate of CIBC.

     As of March 12, 1999, PCG and CIBC collectively, beneficially, owned
45.29% of GCL's outstanding common stock. Accordingly, PCG and CIBC may be
able to materially influence the outcome of matters submitted to a vote of
GCL's shareholders, including the election of directors.

  Certain of GCL's directors and executive officers also serve as officers and
directors of other companies. Additionally, certain of GCL's officers and
directors are active investors in the telecommunications industry. Service as
a director or officer of GCL and as a director or officer of another company
could create conflicts of interest when the director or officer is faced with
decisions that could have different implications for us and the other company.
A conflict of interest could also exist with respect to allocation of time and
attention of persons who are directors or officers of both GCL and another
company. The pursuit of these other business interests could distract these
officers from pursuing opportunities on our behalf. Such conflicts of interest
could have a material adverse effect on our financial condition.


                                      17
<PAGE>

Transition to Operating Company

  The transition from a development stage company to an operating company
places significant demands on our management and operations. We are in the
process of expanding the management and operational capabilities necessary for
this transition.

  Our ability to manage this transition successfully will depend on, among
other things:

  .  expanding, training and managing our employee base, including
     attracting, retaining and motivating highly skilled personnel,

  .  taking over or outsourcing our customer interface and operations,
     administrative and maintenance systems,

  .  procuring terrestrial capacity to provide connectivity to inland cities,
     and

  .  controlling expenses.

  There can be no assurance that we will succeed in developing all or any of
these capabilities, and any failure to do so could have a material adverse
effect on our results of operations.

Rapid Growth in a Changing Industry; Pricing Uncertainties

  Part of our strategy is to construct several cable systems in a short time
frame in order to take advantage of the supply and demand imbalance that
currently exists and is projected to exist in the global marketplace. Each of
our currently announced systems is expected to be operational between now and
2000. As a result of this aggressive strategy, we are experiencing rapid
expansion and expect it to continue for the foreseeable future. This growth
has increased our operating complexity. At the same time, the international
telecommunications industry is changing rapidly due to, among other things:

  .the easing of regulatory constraints,

  .the privatization of established carriers,

  .the expansion of telecommunications infrastructure,

  .the globalization of the world's economies, and

  .the changing technology for wireless and satellite communication.

  Much of our planned growth is predicated upon the growth in demand for
international telecommunications capacity. There can be no assurance that such
anticipated demand growth will occur.

  The fiber optic cable transmission industry has experienced significant per
circuit price declines resulting from technological advances in fiber optic
technology. Recent changes in technology caused prices for circuits to go down
even further. If there is less demand than we project or a bigger drop in
prices per circuit than we project, there could be a material adverse effect
on our business, financial condition and results of operations. There can be
no assurance, even if our projections with respect to such factors are
realized, that we will be able to implement our strategy or that our strategy
will be successful in the rapidly evolving telecommunications market.

Rapid Technological Change

  The telecommunications industry is subject to rapid and significant changes
in technology. For instance, recent technological advances permit substantial
increases in the transmission capacity of both new and existing fiber. The
introduction of new products or the emergence of new technologies also may
reduce the cost and increase the supply of certain services similar to those
provided by us. While we believe that being the first to construct and to
market cable systems with significant capacity on certain routes may stop
competitors from

                                      18
<PAGE>

   overbuilding in those situations, we cannot predict the behavior of
potential competitors who might otherwise build a system even if it would be
uneconomical. We believe that for the foreseeable future, technology changes
will neither materially affect the continued use of fiber optic cable nor
materially hinder our ability to deploy the state-of-the-art technology.
However, we cannot predict the effect of technological changes on our
operations and such changes could have a material adverse effect on our
business, financial condition and results of operations.

Operations Risks

     Each of our systems will be subject to the risks inherent in a large-
scale, complex fiber optic telecommunications system. The operations,
administration, maintenance and repair of these systems requires the
coordination and integration of sophisticated and highly specialized hardware
and software technologies and equipment located throughout the world. There can
be no assurance that, even if built to specifications, our systems will
function as expected in a cost-effective manner. The failure of the hardware or
software to function as required could render a cable system unable to perform
at design specifications.

     AC-1 has, and each of our other systems are expected to have, a design
life of generally 25 years; however, there can be no assurance of the actual
useful life of any of these systems. A number of factors will affect the useful
life of each of our systems, including, among other things:

     .  quality of construction,

     .  unexpected deterioration, and

     .  technological or economic obsolescence.

     Failure of any of our systems to operate for its full design life could
have a material adverse effect on our business, financial condition and results
of operations.

Dependence on Key Personnel

     Our future success depends on the skills, experience and efforts of the
officers and key technical and sales employees. As some of these officers and
employees are new, we cannot be certain that we will be able to integrate new
management into our existing operations. In addition, competition for these
individuals is intense, and we may not be able to attract, motivate and retain
highly skilled qualified personnel. We do not have "key person" life insurance
policies covering any of our employees.

Risks Associated with International Operations

     We will derive substantial revenues from international operations. We
intend to have substantial physical assets in several jurisdictions along the
routes of our planned systems.

     Accordingly, our business is subject to certain risks inherent in
international operations. These risks include:

     .  political and economic conditions,

     .  unexpected changes in regulatory environments,

     .  exposure to different legal standards, and

     .  difficulties in staffing and managing operations.

     We have not experienced any material adverse effects with respect to our
foreign operations arising from such factors. However, problems associated with
such risks could arise in the future. Finally, managing operations in multiple
jurisdictions will place further strain on our ability to manage our overall
growth.


                                       19
<PAGE>

Effect of Government Regulation

  We will, in the ordinary course of development, construction and operation
of our fiber optic cable systems, be required to obtain and maintain various
permits, licenses and other authorizations in both the United States and in
international jurisdictions where our cables land and exist. In particular,
undersea cable landing or similar licenses will be required in many of the
jurisdictions where our systems will land and exist. Such licenses are
typically issued for a term of years, subject to renewal. Moreover, the
licenses may subject our business and operations to varying forms of
regulation, which could change over the course of time. If we fail to obtain
or renew a license or if there is a material change in the nature of the
regulation to which we are subject, there could be a material adverse effect
on our business, financial condition and results of operations. Specifically,
we must obtain construction and operating licenses during the construction
phase of each of our cable systems. Although we intend that the construction
contracts for each of our cable systems impose the burden of acquiring and
maintaining construction licenses and permits on the contractor for each of
such systems, there can be no assurance that such contractor will successfully
obtain such permits and licenses. If we or the contractor fail to obtain or
maintain any construction or operating license, there could be a material
adverse effect on our business, financial condition and results of operations.

Dependence on Third Parties

  We depend and will continue to depend upon third parties to:

  . construct systems and provide equipment and maintenance,

  . provide access to certain origination and termination points of our
    systems in various jurisdictions,

  . construct and operate landing stations in certain of such jurisdictions,

  . acquire rights of way,

  . provide terrestrial capacity to our customers through contractual
    arrangements, and

  . act as joint venture participants with regard to PC-1, GAL and,
    potentially, with regard to other future systems, including potentially
    the terrestrial portion of SAC.

  There can be no assurance that such third parties will perform their
contractual obligation or that they will not be subject to political or
economic events which may have a material adverse effect on our business,
financial condition and results of operations.

  We entered into commission sharing agreements providing for the payment to
third parties of commissions with respect to marketing of capacity on the AC-1
and PC-1 systems. Payments of these commissions is fully contingent upon our
receipt of cash payment under the related CPAs and, accordingly, payment by us
of these commissions has no material effect on our liquidity.

ITEM 2.  PROPERTIES

  We lease executive and administrative offices at our headquarters in
Hamilton, Bermuda. We own a cable station in Brookhaven, New York and a cable
station in White Sands, United Kingdom. We lease cable station space in Sylt,
Germany and cable station space in Beverwijk, the Netherlands. Such cable
station leases run for the anticipated 25-year term of AC-1. We also lease
office space in Amsterdam, the Netherlands; Los Angeles and San Francisco,
California; Morristown, New Jersey; London, England; New York, New York; Coral
Gables, Florida; and Buenos Aires, Argentina.

ITEM 3.  LEGAL PROCEEDINGS

  We are not presently subject to any material legal claims or proceedings.

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

  Not Applicable.

                                      20
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
        MATTERS

Recent Sales of Unregistered Securities

     In 1998 we issued the following equity securities that were not registered
under the Securities Act of 1933, as amended: 5,000,000 shares of GCH Preferred
Stock issued on December 2, 1998 and sold to each of Salomon Smith Barney,
Merrill Lynch & Co., CIBC Oppenheimer, Deutsche Bank Securities, Goldman, Sachs
& Co., Morgan Stanley Dean Witter, Chase Securities Inc. and Donaldson, Lufkin
& Jenrette.

     The GCH Preferred Stock was resold only to institutional investors that
are "qualified institutional buyers" within the meaning of Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") or pursuant to
Regulation S under the Securities Act. The GCH Preferred Stock was sold in
reliance upon an exemption from the registration provisions of the Securities
Act set forth in Section 4(2) thereof relative to transactions by an issuer not
involving any public offering or the rules and regulations thereunder. The GCH
Preferred Stock was exchanged in March 1999 for identical securities registered
under the Securities Act.

                                       21
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated financial data as of December 31, 1998 and 1997,
for the year ended December 31, 1998 and for the period from March 19, 1997
(Date of Inception) to December 31, 1997, respectively, are derived from our
audited consolidated financial statements and should be read in conjunction
with the audited consolidated financial statements and notes included in this
Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                               Period from
                                                              March 19, 1997
                                           Year Ended      (Date of Inception)
                                        December 31, 1998  to December 31, 1997
                                        -----------------  --------------------
                                                    (In thousands)
<S>                                     <C>                <C>
Statement of Operations Data:
Revenues...............................    $  424,099            $    --
                                           ----------            --------
Expenses:
Cost of capacity sold..................       178,492                 --
Operations, administration and
 maintenance...........................        18,056                 --
Sales and marketing....................        26,194               1,366
Network development....................        10,962                  78
General and administrative.............        15,719               1,657
Stock related expense(1)...............        10,340                 --
Provision for doubtful accounts........         4,233                 --
Termination of advisory services
 agreement(2)..........................       139,669                 --
                                           ----------            --------
                                              403,665               3,101
                                           ----------            --------
Operating income (loss)................        20,434              (3,101)
Equity in loss of affiliates...........        (2,508)                --
Interest income (expense):
  Interest income......................        28,615               2,941
  Interest expense.....................       (42,880)                --
Provision for income taxes(3)..........       (33,067)                --
                                           ----------            --------
Loss before extraordinary item.........       (29,406)               (160)
Extraordinary loss on retirement of
 senior notes(4).......................       (19,709)                --
                                           ----------            --------
Net loss...............................       (49,115)               (160)
Preferred stock dividends(5)...........       (12,681)            (12,690)
Redemption of preferred stock(6).......       (34,140)                --
                                           ----------            --------
Net loss applicable to common
 shareholder...........................    $  (95,936)           $(12,850)
                                           ==========            ========
<CAPTION>
                                                     December 31,
                                        ---------------------------------------
                                              1998                 1997
                                        -----------------  --------------------
                                                    (In thousands)
<S>                                     <C>                <C>
Balance sheet data:
Current assets including cash and cash
 equivalents and restricted cash and
 cash equivalents......................        $1,007,838        $ 27,744
Long term restricted cash and cash
 equivalents...........................           367,600             --
Long term accounts receivable..........            43,315             --
Construction in progress and capacity
 available for sale(7).................         1,003,056         518,519
Deferred finance and organization
 costs, net of accumulated
 amortization..........................            45,757          25,934
Investment in affiliates(8)............           177,334             --
                                               ----------        --------
                                                                 $572,197
 Total assets..........................        $2,644,900
                                               ==========        ========
Current liabilities....................        $  248,253        $ 90,817
Long term debt.........................           269,598         162,325
Senior notes...........................           796,495         150,000
Long term deferred revenue.............            25,325             --
Obligations under inland service
 agreements and capital leases ........            24,520           3,009
Deferred income taxes..................             9,654             --
                                               ----------        --------
 Total Liabilities.....................         1,373,845         406,151
Mandatorily redeemable preferred
 stock(9)..............................           487,375          91,925
Shareholder's equity...................
 Common stock..........................                12              12
 Other shareholder's equity............           832,943          74,269
 Accumulated deficit...................           (49,275)           (160)
                                               ----------        --------
Total shareholder's equity.............           783,680          74,121
                                               ----------        --------
Total liabilities and shareholder's
 equity................................        $2,644,900        $572,197
                                               ==========        ========
</TABLE>

                                       22
<PAGE>

--------
(1) During the year ended December 31, 1998, we recognized $10 million from a
    total of $31 million of stock related expense relating to stock options
    and rights to purchase stock, issued during such period, which entitle the
    holders to purchase common stock. The remaining $21 million will be
    recognized as follows: $11 million in 1999, $8 million in 2000 and $2
    million in 2001.

(2) Includes a charge for the termination of the advisory services agreement
    as of June 30, 1998. GCL acquired the rights from those entitled to fees
    payable under the advisory services agreements in consideration for the
    issuance of common stock having an aggregate value of $135 million and the
    cancellation of approximately $3 million owed to GCL under a related
    advance agreement. GCL contributed this cost to GCH and as a result of
    these transactions, GCH recorded a non-recurring charge in the approximate
    amount of $138 million during the year ended December 31, 1998. In
    addition, we recognized approximately $2 million of advisory fees incurred
    prior to termination of the contract.

(3) Reflects income taxes on profits earned during the year ended December 31,
    1998 in jurisdictions where we have a taxable presence. A significant
    portion of our operating losses have been incurred in non-taxable
    jurisdictions and, therefore, these operating losses cannot be applied to
    offset our future taxable earnings.

(4) On May 18, 1998, a portion of the proceeds from the issuance of the GCH
    Senior Notes was used to repurchase the 12% Senior Notes Due 2004 of
    Global Telesystems Holdings Ltd. ("GTH") , a subsidiary of GCH. We
    recognized an extraordinary loss of $20 million in connection with this
    repurchase, comprising a repurchase premium of approximately $10 million
    and the write-off of approximately $10 million of unamortized deferred
    financing costs.

(5) The preferred stock dividends for the year ended December 31, 1998 include
    dividends from both the GCH Preferred Stock and the 14% senior increasing
    rate redeemable exchangeable preferred stock of GTH (the "GTH Preferred
    Stock"). The GCH Preferred Stock is mandatorily redeemable on December 1,
    2008 and exchangeable at any time by GCH into notes at the option of GCH.
    The GCH Preferred Stock entitles the holders to receive cumulative
    compounding dividends at an annual rate of 10 1/2%. The dividends can be
    paid in cash or prior to June 1, 2002 with the issuance of additional GCH
    Preferred Stock at the option of GCH.

    The holders of the GTH Preferred Stock were entitled to receive cumulative,
    compounding dividends at an initial annual rate of 14%. Preferred stock
    dividends include cumulative 14% dividends and amortization of the discount
    and issuance costs. Effective June 17, 1998, we used proceeds from the GCH
    Senior Notes to redeem all outstanding GTH Preferred Stock. All dividends
    prior to the redemption had been paid through the issuance of additional
    preferred stock and charged against additional paid-in capital.

(6) As a result of the redemption of the GTH Preferred Stock, we incurred a
    one time $34 million charge against additional paid-in capital. The charge
    consisted of: (i) a $16 million charge for redemption premium and (ii) a
    write-off of $18 million of unamortized discount and unamortized deferred
    financing costs.

(7) Construction in progress and capacity available for sale includes direct
    and indirect expenditures for construction of AC-1 and other systems and
    is stated at cost. Included are costs incurred under (i) the construction
    contracts; (ii) advisory, consulting and legal fees; (iii) interest
    (including amortization of debt issuance costs incurred during the
    construction phase); and (iv) other costs necessary for developing AC-1
    and other systems. Additionally, GCL granted the PCG Warrants to PCG, a
    shareholder of GCL, for the PC-1, MAC and PAC systems and related rights.
    The $275 million value of the common stock was contributed to GCH and was
    allocated to Construction in Progress in the amount of $112 million and as
    Investment in affiliates in the amount of $163 million.

(8) Includes $163 million as of December 31, 1998, as described above,
    representing the value of the PCG Warrants applicable to PCL.

(9) The December 31, 1998 amount includes (i) $500 million of GCH Preferred
    Stock, less (ii) $17 million reflecting the unamortized issue costs, plus
    $4 million of accrued dividends. The December 31, 1997 amount includes (i)
    $100 million of the GTH Preferred Stock originally issued, plus (ii) $10
    million of GTH Preferred Stock issued as dividends thereon, less (iii) $19
    million reflecting the unamortized discount and issue costs, plus $1
    million of accrued dividends. We redeemed all of the outstanding GTH
    Preferred Stock effective as of June 17, 1998.

                                      23
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Overview

  We are the world's first independent global provider of state-of-the-art
Internet and long distance telecommunication facilities and related services
utilizing a network of undersea and terrestrial digital fiber optic cable
systems. We started development in March 1997, when we entered into a contract
with TSSL for the design, development, construction and installation of AC-1,
and obtained commitments for its initial financing.AC-1, our first fiber optic
cable system, is a four fiber pair self-healing ring connecting (i) the United
States to the United Kingdom, (ii) the United Kingdom to the Netherlands and
Germany, (iii) the Netherlands to Germany and (iv) Germany to the United
States. The first segment of AC-1, the United States to United Kingdom route,
was completed and commenced operations in May 1998, and the entire AC-1 system
commenced operations in February 1999.

  Until May 1998, when the United States to United Kingdom segment of AC-1
reached RFS, we were a development stage company and since inception have been
involved in the planning, financing, marketing, organization, development,
design and construction of the AC-1 system and seven other planned systems
(AC-2, PC-1, MAC, PAC, SAC, PEC and GAL). We achieved a number of significant
milestones, including (i) the recruitment of experienced professionals in
undersea cable and telecommunications operations, (ii) the signing of
construction contracts on AC-1, PC-1, MAC and PAC, (iii) the execution of the
AC-1, PC-1 and MAC credit facilities and the execution of a financing
commitment with respect to PAC, (iv) completion of the AC-1 ring, (v) the
issuance of $800 million in principal amount of GCH Senior Notes, (vi) the
initial public offering of common stock of our parent, GCL, (vii) the issuance
of $500 million in principal amount of GCH Preferred Stock and (viii) the
execution of $1,052 million of CPAs for undersea and terrestrial capacity and
dark fiber sales.

Revenues and Deferred Revenues

    Sales Revenue and Deferred Revenue

     Customers may enter into CPAs to purchase an IRU in units of capacity on
any of our fiber optic cable systems. The purchase price for such capacity is
non-refundable once the applicable segment purchased is RFS. The IRU purchased
entitles the customer to all rights and obligations of ownership of the
capacity for a period of 25 years after the system RFS date. Where available
on a specific system, our CPAs generally provide that the system will have
self-healing ring capability, which means that, in the event of interruption,
capacity on any segment of a system will be instantaneously restored either on
another system segment or within the same segment so that the same point-to-
point connectivity is maintained.

     Revenues from the sale of capacity are recognized in the period that the
rights and obligations of ownership transfer to the purchaser, which occurs
when (i) the purchaser obtains the right to use the capacity, which can only
be suspended if the purchaser fails to pay the full purchase price or fulfill
its contractual obligations, (ii) the purchaser is obligated to pay OA&M costs
and (iii) the segment of the system related to the capacity purchased is
available for service. Customers who have entered into CPAs for capacity have
paid deposits toward the purchase price, and such amounts have been included
as deferred revenue in the consolidated financial statements. In some CPAs,
customers who have purchased capacity on systems prior to the date the system
has self-healing ring capacity have contractually required full self-healing
ring capability as a legal condition which, if not satisfied, would enable
them to terminate the CPA and requires us to refund capacity payments.

  Operating Lease Revenue and Deferred Revenue

     In addition to sales type leases, we may enter into operating lease
agreements to lease capacity on our systems. These agreements may grant the
customer a right to use capacity for periods of time which may be
substantially less than the design life of the capacity (generally 25 years).
We will amortize revenues from these operating lease agreements over the lives
of the agreements, with cash received but not yet recognized as operating
revenues, recorded in the consolidated financial statements as deferred
revenue.

                                      24
<PAGE>

  OA&M Revenue

     Pursuant to the terms of our existing CPAs, we are obliged to use
commercially reasonable efforts to cause the AC-1 system to be maintained in
efficient working order and in accordance with industry standards. In exchange
for the operating, administration and maintenance services provided by ACL
through the OA&M agreement with TSSL, customers are obligated for the term of
their IRU to pay for their allocable share of the costs for operating and
maintaining the system. Customers appoint members to a System Advisory
Committee, which is charged with the responsibility of directing the
operations and maintenance of AC-1. Customers pay 110% of ACL's cost to
operate and maintain the system based on their pro-rata share of total
capacity subject to annual maximum amounts per circuit purchased of $250,000
per transatlantic circuit and $50,000 per European circuit. Each customer's
pro-rata share is effectively calculated by taking the weighted average of
their purchased capacity over total capacity sold multiplied by 110% of actual
costs incurred to customers quarterly in advance based on the prior year's
actual costs. These amounts are non-refundable, and should a customer fail to
make an OA&M payment, ACL may suspend all rights to capacity granted under the
IRU. Undersea OA&M revenues are recognized in the period that the related
services are provided. On an annual basis, the actual OA&M costs we incur are
accumulated and an adjustment is made to true up actual OA&M revenues so that
they equal 110% of actual costs incurred, provided specified contractual
limits have not been reached.

    Construction in Progress; Capacity Available for Sale; Cost of Capacity
Sold

     Construction costs incurred with respect to each segment of a cable
system are reflected as "Construction in Progress" in our consolidated balance
sheets until a segment becomes operational, at which time such costs are
reflected as Capacity Available for Sale. Capacity Available for Sale is
recorded at the lower of cost or fair value less cost to sell and is charged
to Cost of Capacity Sold in the period the related revenues are recognized.
Fair value of capacity is derived from a third party consultant's market study
of expected sales of capacity.

     We record the cost of acquiring terrestrial capacity in Capacity
Available for Sale in amounts equal to the present value of future payment
obligations associated with the acquisition of such terrestrial capacity
(excluding from such payments amounts attributable to operations and
maintenance costs).

  Construction in Progress includes direct expenditures for construction of
systems, including advisory, consulting and legal fees, interest during
construction and amortized debt issuance costs incurred during the
construction phase.

   Cost of sales

     Cost of undersea sales in any period is calculated based on the ratio of
capacity revenues recognized in the period to total expected capacity revenues
over the life of the systems multiplied by the total costs incurred to
construct the system. This calculation of the cost of sales amount matches
costs with the value of each sale relative to total expected revenues. Until
the entire system is completed, for purposes of calculating cost of sales, the
total system costs incurred will include an estimate of remaining costs to be
incurred to complete the entire system. The calculation of cost of undersea
sales is based on total system cost including both the initial system cost and
the cost of system upgrades that management has the intent and ability to
complete, provided the need for such upgrades is supported by an independent
consultant's revenue forecast. Changes in management's estimate of the total
expected revenues to be derived from sales of capacity will result in
adjustments to the calculation of cost of sales. These adjustments will be
recorded on a prospective basis over future periods commencing with the period
during which management revises its estimate. The cost of terrestrial capacity
directly related to undersea sales is charged to cost of sales in the period
that the related revenue is recognized.

  Operating type lease cost of sales

     Costs relating to operating type lease revenue will be classified as a
depreciable asset and depreciated over the estimated useful life of the
capacity.

                                      25
<PAGE>

Operating Expenses

     In addition to cost of capacity sold, our operating expenses principally
comprise of sales and marketing, operations and maintenance, general and
administrative and network development costs. Costs relating to the evaluation
of possible additional systems are expensed as incurred.

Results of Operations for the Year Ended December 31, 1998 and the Period from
March 19, 1997 (Date of Inception) to December 31, 1997

  Revenues

     During the year ended December 31, 1998, we executed commitments with our
customers to purchase capacity on our systems plus the sale of dark fiber on
PEC totaling $911 million, bringing the total since inception to $1,052
million. Of this amount, we recognized revenues of $418 million on sales of
capacity relating to AC-1 for the year ended December 31, 1998, in addition to
revenues from operations and maintenance services of $6 million. The remaining
$634 million of capacity sales has not yet been reflected as revenue in the
consolidated financial statements because either the segment has not reached
RFS or the purchaser has not obtained the right to use the capacity. During
the year ended December 31, 1998, we entered into CPAs with 33 international
telecommunications carriers and sold approximately 35% of the sales capacity
of 512 circuits on the AC-1 system.

  Expenses

  Cost of capacity sold. For the year ended December 31, 1998, we recognized
$178 million in cost of capacity sold, resulting in a gross margin on capacity
sales of 57%. Cost of capacity sold for the year ended December 31, 1998 also
includes $38 million relating to terrestrial capacity sold which we had
purchased from third parties. We calculate undersea cost of capacity sold for
AC-1 based on the ratio of the period's actual revenue to total expected
revenues, assuming minimum projected sales capacity of 512 circuits,
multiplied by the construction cost of the system. This calculation of cost of
sales matches costs with the relative value of each sale. There were no sales
or related costs recognized during the period from March 19, 1997 (Date of
Inception) to December 31, 1997, as we were in our development stage.

  Operations, administration and maintenance ("OA&M"). We incurred OA&M costs
of $18 million during the year ended December 31, 1998. We entered into an
agreement with TSSL relating to operations, administration and maintenance of
AC-1, which limits our total OA&M expense for the system. We anticipate that
our OA&M costs will be largely recovered through charges to our customers
under the terms of CPAs. There were no OA&M costs during the period from March
19, 1997 (Date of Inception) to December 31, 1997, as we were in our
development stage.

     Sales and marketing. During the year ended December 31, 1998, we incurred
sales and marketing expenses of $26 million, including selling commissions of
$20 million incurred on capacity sales recognized during this period. During
the period from March 19, 1997 (Date of Inception) to December 31, 1997, we
incurred sales and marketing costs of approximately $1 million. The increase
from 1997 was due to additions in personnel and occupancy costs, plus
marketing, commissions paid and other promotional expenses to support our
rapid growth.

  Network development. We incurred network development costs during the year
ended December 31, 1998 of $11 million relating to the development of systems.
During the period from March 19, 1997 (Date of Inception) to December 31,
1997, these costs were $0.1 million. The increase from 1997 was due to
additional personnel, and costs to explore new projects.

     General and administrative. General and administrative expenses totaled
$16 million during the year ended December 31, 1998 and were comprised
principally of salaries, employee benefits and recruiting fees for staffing of
multiple systems, travel, insurance costs and rent expenses, plus depreciation
and amortization. During the period from March 19, 1997 (Date of Inception) to
December 31, 1997, we incurred general and administrative costs of $2 million.

                                      26
<PAGE>

     Termination of Advisory Services Agreement with PCG Telecom Services
LLC. In connection with the development and construction of AC-1, we entered
into an Advisory Services Agreement with PCG Telecom Services LLC, an
affiliate, providing for the payment by us of an advisory fee of 2% of the
gross revenues of ACL over a 25 year term. GCL's Board of Directors also
approved similar advisory fees and authorized GCL to enter into similar
agreements with respect to other cable systems under development by us. GCL
acquired the rights of the persons entitled to the fees payable under these
agreements in consideration for the issuance to such persons of shares of GCL
common stock, which had at the time of issuance an aggregate value of $135
million, and the cancellation of approximately $3 million owed to us under a
related advance agreement. This charge of $138 million relating to the
termination of the Advisory Services Agreement was contributed to the Company
and is reflected in the statement of operations for the year ended December 31,
1998. In addition, we recognized approximately $2 million of advisory fees
incurred prior to termination of the contract.

     Stock related expense. Through December 31, 1998, we recorded as a charge
to paid-in capital $31 million of unearned compensation relating to awards
under GCL's stock incentive plan plus the grant of certain economic rights and
options to purchase common stock granted to a senior executive. The unearned
compensation is being recognized as an expense over the vesting period of these
options and economic rights.

     For the year ended December 31, 1998, we recognized as an expense $10
million of stock related compensation relating to GCL's stock incentive plan.
The remaining $21 million of unearned compensation will be recognized as
follows: $11 million in 1999, $8 million in 2000 and $2 million in 2001. GCL's
stock incentive plan commenced in January 1998, and therefore no issuances were
made during the period from March 19, 1997 (Date of Inception) to December 31,
1997.

     Equity in loss of Affiliates. During 1998, we entered into joint venture
agreements to construct and operate PC-1 and GAL. PC-1 is owned and operated by
PCL. We have an economic interest in PCL represented by a 50% direct voting
interest and, through one of the joint venture partners, a further 8% economic
non-voting interest. We have a 49% interest in Global Access Ltd., which
operates GAL. Our equity in the loss of PC-1 for the year ended December 31,
1998 was $3 million.

  Interest Income and Interest Expense

     Interest income. We reported interest income of $29 million during the
year ended December 31, 1998 and $3 million during the period from March 19,
1997 (Date of Inception) to December 31, 1997. Such interest income represents
earnings on cash raised from financings, contributions to us from GCL in
connection with its Initial Public Offering of Common Stock ("IPO"), the
issuance of the GCH Preferred Stock, operations and CPA deposits.

     Interest expense. During the year ended December 31, 1998, we incurred $93
million in interest costs, including the amortization of finance costs and debt
discount. Of this amount, we capitalized to construction in progress interest
of $50 million and expensed $43 million. During the period from March 19, 1997
(Date of Inception) to December 31, 1997, we incurred interest expense of $10
million, which was capitalized to construction in progress.

  Provision for income taxes

     The income tax provision of $33 million for the year ended December 31,
1998 provides for taxes on profits earned from capacity sales and OA&M revenues
where our subsidiaries have a presence in taxable jurisdictions. During the
period from March 19, 1997 (Date of Inception) to December 31, 1997, we
incurred operating losses, which relate to non-taxable jurisdictions and
therefore cannot be applied against future taxable earnings. Accordingly, no
tax provision or deferred tax benefit was recorded as of December 31, 1997.

  Extraordinary item

     During May 1998, we recognized an extraordinary loss of $20 million in
connection with the repurchase of GTH's outstanding senior notes ("GTH Senior
Notes"), comprising of a premium of $10 million and a write-off of $10 million
of unamortized deferred financing costs.

                                       27
<PAGE>

  Preferred stock dividends

     During the year ended December 31, 1998, we recorded preferred stock
dividends of approximately $13 million. Preferred stock dividends for the
period from March 19, 1997 (Date of Inception) to December 31, 1997 were $13
million. Of the $13 million recorded in 1998, $4 million relates to the GCH
Preferred Stock issued during December 1998.

  Redemption of preferred stock

     The redemption of GTH's outstanding preferred stock ("GTH Preferred
Stock") occurred in June 1998 and resulted in a $34 million charge against
equity. This amount was comprised of a $16 million redemption premium and a
write-off of $18 million of unamortized discount and issuance costs. The
redemption premium and write-off of unamortized discount and issuance costs are
treated as a deduction to arrive at net loss applicable to common shareholder
in the consolidated statements of operations.

  Net loss and Net loss applicable to common shareholder

     We incurred a net loss of $49 million for the year ended December 31,
1998, compared to a net loss of $0.2 million in the period from March 19, 1997
(Date of Inception) to December 31, 1997. The net loss for the year ended
December 31, 1998 reflects an extraordinary loss on retirement of the GTH
Senior Notes of $20 million and a non-recurring charge of $140 million relating
to the termination of the Advisory Services Agreement. Our net income before
these items was $111 million.

     During the year ended December 31, 1998, we reported a net loss applicable
to common shareholder of $96 million. This loss reflects preferred stock
dividends of $13 million and the redemption cost of GTH Preferred Stock of $34
million. During the period from March 19, 1997 (Date of Inception) to December
31, 1997, we incurred a net loss applicable to common shareholder of $13
million after GTH Preferred Stock dividends of $13 million.

 Balance Sheet as of December 31, 1998

     Restricted cash and cash equivalents (current and long term). At December
31, 1998, current and long-term restricted cash and cash equivalents included:
(i) $231 million restricted for PC-1 construction, (ii) $89 received pursuant
to CPAs on AC-1 which may be used only in accordance with the terms of the AC-1
Credit Facility, (iii) $66 million restricted for MAC construction, (iv) $38
million reserved for funding future interest payable on the GCH Senior Notes
and (v) $21 million restricted for miscellaneous items.

     Capacity available for sale, construction in progress and investment in
affiliates. Our investment in capacity available for sale, construction in
progress and investment in affiliates totaled approximately $1,180 million as
of December 31, 1998. This amount includes the value of system development
contributed to us by PCG. Upon GCL's IPO, each PCG Warrant then outstanding was
converted into a fraction of GCL common stock based upon the ratio of the per
share valuation at the time of conversion less the per share exercise price of
the warrants, divided by the per share valuation at the time of conversion,
together with a new warrant ("New PCG Warrants") to purchase the remaining
fraction of shares at an exercise price equal to $9.50 (the price to public per
share of GCL's IPO). These amounts were contributed to the Company and
increased additional paid-in capital by $275 million. The contribution was then
allocated on a pro rata basis to PCL, PAC and MAC according to the estimated
cost of each system. Accordingly, we recorded $163 million as an investment in
PCL and $64 million and $48 million as Construction in Progress for PAC and
MAC, respectively.

     Long term debt and senior notes. The long term debt of $270 million as of
December 31, 1998 represents primarily the long term portion of our outstanding
balance on the AC-1 Credit Facility. The senior notes balance of $796 million
represents the net proceeds from our issuance of the GCH Senior Notes, adjusted
for the unamortized amount of the debt discount.

                                       28
<PAGE>

     Mandatorily redeemable preferred stock. The mandatorily redeemable
preferred stock of $487 million as of December 31, 1998 represents the net
proceeds received from our $500 million offering of GCH Preferred Stock
offering during December 1998, less $17 million in fees and issuance costs plus
$4 million in accrued dividends. These fees and issuance costs are being
amortized over the term of the obligation.

     During the year ended December 31, 1998, we reimbursed an amount of $7
million to GCL, who in turn reimbursed PCG, a shareholder of GCL, relating to
system evaluation costs incurred by PCG. This amount was treated as a dividend
and charged against additional paid-in capital.

Liquidity and Capital Resources

     Our principal capital expenditures involve the construction of the Global
Crossing Network as well as purchases of terrestrial capacity. As of
December 31, 1998, we incurred approximately $750 million  of capital
expenditures for AC-1. Furthermore, we entered into a $50 million contract with
TSSL to upgrade AC-1 capacity. As of December 31, 1998, the remaining unpaid
construction costs of $75 million will be paid from cash on hand. As of
December 31, 1998, we had borrowings outstanding of $267 million  under the AC-
1 Credit Facility.

     In addition to AC-1, we are currently developing seven additional systems
(AC-2, PC-1, MAC, PAC, SAC, PEC and GAL) and estimate the total construction
cost of such systems to be approximately $4,945 million (excluding costs of
potential future upgrades and the amounts capitalized with respect to the PCG
Warrants, but including financing and operating costs while the systems are
under construction).

     We entered into a supply contract with TSSL to construct PC-1 for which
the estimated cost is $1,200 million. Equity investments in PC-1 will be
$400 million, of which we will provide $231 million and our joint venture
partners will provide the balance. We placed our equity portion in escrow and
included it in restricted cash and cash equivalents. Effective July 1998, we
entered into a credit agreement for $850 million ($800 million for construction
and $50 million for the initial upgrade) of non-recourse project debt for PC-1.

     We also entered into supply contracts with Alcatel and TSSL requiring
payments of approximately $243 million to construct MAC (the total project cost
will also include approximately $87 million for financing and start-up costs
while MAC is under construction). In November 1998, we obtained $260 million of
non-recourse bank financing for MAC. The remaining costs will be funded from
cash on hand.

     Further, we entered into a supply contract with TSSL requiring payments of
approximately $418 million to construct PAC (the total project cost will also
include approximately $77 million for financing and start-up costs while PAC is
under construction). During July 1998, we signed a commitment letter for up to
$300 million of non-recourse project debt financing for this system. The
balance will be funded from cash on hand.

     In March 1999, we announced AC-2 and SAC, for which the construction costs
are estimated to be $750 million and $1,130 million, respectively. We expect to
finance such costs through a combination of commercial bank borrowings, non-
recourse debt, vendor financing and cash on hand.

     During October 1998, we announced the development of PEC for which the
construction costs are estimated to be $850 million. A portion of these costs
will be paid from cash on hand. Further, we expect to raise additional capital
required to finance this system through a combination of commercial bank
borrowings, non-recourse project debt, vendor financing and sales of dark
fiber. In this regard, we signed an agreement with Cable & Wireless for the
sale of more than $100 million of dark fiber on PEC. During January 1999, we
entered into a supply contract with Lucent Technologies Inc. to provide fiber
and equipment for this system and, as part of this contract, Lucent will also
furnish financing.

  Lastly, we entered into a joint venture contract with Marubeni to construct
GAL at an estimated cost of $190 million. We have funded our 49% interest in
this system from cash on hand.

     Because the cost of developing and constructing our systems, as well as
operating our business, will depend on a variety of factors (including our
ability to successfully negotiate construction supply contracts at favorable

                                       29
<PAGE>

   prices, our ability to generate sufficient sales, changes in the
competitive environment of the markets we serve, the levels of participation
by our joint venture partners, and changes in technology), actual costs and
revenues may vary, possibly materially, from expected amounts. Such variations
may impact our future capital requirements. The development of additional
systems, which we may pursue, would lead to additional future capital
requirements.

     Cash provided by operating activities was $209 million for the year ended
December 31, 1998 and $5 million for the period from March 19, 1997 (Date of
Inception) to December 31, 1997, which principally represents cash received
from deposits and payments for activated capacity pursuant to signed CPAs,
plus interest income, less sales and marketing, network development and
general and administrative expenses paid.

     During the first quarter of 1999, we will adopt Statement of Position 98-
5, "Reporting on the Cost of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. This statement requires that
certain start-up expenditures previously capitalized during system development
must now be expensed; however, our cash flow will not be affected.

     Cash provided by financing activities was $1,024 million for the year
ended December 31, 1998, primarily represents borrowings under the AC-1 and
MAC Credit Facilities, proceeds from the issuance of GCH Senior Notes, the GCH
Preferred Stock and contributions from GCL's IPO, less amounts paid for
finance and organization costs, the issuance of preferred stock, the repayment
of long term debt, the redemption of the GTH Preferred Stock, the retirement
of the GTH Senior Notes and the increase in amounts held in restricted cash
and cash equivalents. At December 31, 1998, our working capital amounts to
$760 million.

  During May 1998, we obtained $796 million in net proceeds from the issuance
of the GCH Senior Notes due 2008. These proceeds were used (i) to purchase all
of the $150 million aggregate principal amount of outstanding GTH Senior
Notes, (ii) to redeem all of the $100 million aggregate principal amount of
outstanding GTH Preferred Stock, (iii) to repay in full the $67 million then
outstanding under a bridge credit facility, (iv) to make approximately
$315 million of equity investments in PC-1, MAC and PAC and (v) for general
corporate purposes, including $74 million to fund a one-year interest reserve
on the GCH Senior Notes. In August 1998, GCL completed its IPO, from which GCL
contributed to us net proceeds of $391 million, and during December 1998, we
issued GCH Preferred Stock, from which we received net proceeds of
approximately $483 million. We have or intend to use these proceeds for
(i) construction of the Global Crossing Network, (ii) investment in
telecommunications companies and ISPs, (iii) investments in GAL and
(iv) general corporate purposes. As of December 31, 1998, unused proceeds were
invested in short-term, interest-bearing U.S. Government securities and
certain other short term, investment grade securities.

     Cash provided by financing activities of $425 million for the period from
March 19, 1997 (Date of Inception) to December 31, 1997, relates to net
proceeds from contributions from GCL's IPO, the issuance of GTH Preferred
Stock and GTH Senior Notes, and borrowings under the AC-1 Credit Facility,
less finance and organization costs related to the issuance of preferred stock
and the increase in proceeds held in restricted cash and cash equivalents. At
December 31, 1997, our working capital deficit was $63 million.

     Cash used in investing activities was approximately $431 million and
$429 million for the year ended December 31, 1998, and the period from
March 19, 1997 (Date of Inception) to December 31, 1997, respectively, and
represents cash paid for construction in progress, capacity available for sale
and investments in affiliates.

     We have extended financing to a small number of customers in connection
with certain CPAs. The financing terms provide for installment payments over a
period of up to four years. We believe that our extension of financing to our
customers will not have a material effect on our liquidity.

     We believe that our current cash and cash equivalents, credit facilities
and cash generated from operations will satisfy our expected working capital
and capital expenditure requirements through December 31, 1999.


                                      30
<PAGE>

Inflation

     Management does not believe that its business is impacted by inflation to
a significantly different extent than the general economy.

Year 2000 Compliance

     We believe that our computer information systems are Year 2000 ("Y2K")
compliant. We have established a Y2K compliance task force. The task force has
identified no potential material adverse effect on the two core components of
our services: (i) transmission of capacity and (ii) management and maintenance
of the transmission paths. Our anticipated worst case scenario is failure of
our Network Operations Center. In the event the worst case scenario occurs
management of the network can be performed at the terminal stations with the
network element managers or at the equipment bays with the craft interface
terminal. No or minimal additional cost would be incurred as we have already
included the cost for back-up management of the network into the AC-1 business
case analysis.

     We are also subject to external forces that generally affect industry and
commerce, such as utility, transportation or other infrastructure failures and
interruptions. In addition to reviewing our own systems, we are submitting
requests to third party service providers to obtain information as to their
compliance efforts. We have received assurances from our major suppliers, TSSL
and Lucent, stating Y2K compliance status of their respective systems regarding
AC-1 (our only active system at this time). In addition, we received assurance
from Alcatel, a supplier to MAC, that Alcatel is also Y2K compliant. In the
event that any of our material third party service providers do not
successfully and timely achieve Y2K compliance, our business or operations
could be adversely affected. We are developing contingency plans to address any
potential Y2K compliance failure due to significant third party failures,
although no such failure is expected. To date, response from material third
party service providers has not shown any of them to be non-compliant with Y2K
readiness plans.

     We believe that costs of addressing our Y2K compliance will not have a
material adverse impact on our financial condition or results of operations.

Euro Conversion

     On January 1, 1999, a single currency called the Euro was introduced in
Europe. Eleven of the fifteen member countries of the European Union agreed to
adopt the Euro as their common legal currency on that date. Fixed conversion
rates between these countries' existing currencies (legacy currencies) and the
Euro were established as of that date. The legacy currencies are scheduled to
remain legal tender in these participating countries between January 1, 1999
and January 1, 2002 (not later than July 1, 2002). During this transition
period, parties may settle transactions using either the Euro or a
participating country's legacy currency.

     As most of our sales and expenditures are denominated in United States
dollars, management does not believe that the Euro conversion will have a
material adverse impact on our business or financial condition. We do not
expect the cost of system modifications to be material and we will continue to
evaluate the impact of the Euro conversion.


                                       31
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

     The table below provides information about our market sensitive financial
instruments and constitutes a "forward-looking statement." Our major market
risk exposure is changing interest rates. Our policy is to manage interest
rates through use of a combination of fixed and floating rate debt. Interest
rate swaps may be used to adjust interest rate exposures when appropriate,
based upon market condition.

<TABLE>
<CAPTION>
                                                                                            Fair Value
Expected maturity dates    1999     2000      2001     2002    2003  Thereafter  Total   December 31, 1998
-----------------------   -------  -------  --------  -------  ----- ---------- -------- -----------------
                                                         (In thousands)
<S>                       <C>      <C>      <C>       <C>      <C>   <C>        <C>      <C>
DEBT
Non Current -- US$
 denominated
AC-1 Credit Facility....  $ 6,393  $99,555  $141,600  $19,251    --       --    $266,799     $266,799
 Average interest rates
  -- variable...........       (1)      (1)       (1)      (1)
MAC Credit Facility.....      --       --      9,192      --     --       --       9,192        9,192
 Average interest rates
  -- variable...........       (2)      (2)       (2)      (2)
Senior notes............      --       --        --       --     --   800,000    800,000      834,000
 Average interest rates
  -- fixed..............                                                 9.6%
Mandatorily Redeemable
 Preferred Stock........      --       --        --       --     --   500,000    500,000      484,375
 Average interest rates
  -- fixed..............                                                10.5%
Obligations under ISAs
 and capital lease
 obligations
US$ denominated.........   13,934    9,654     1,076    1,075  1,073   20,826     47,638       47,638
 Average interest rates
  -- fixed..............    10.5%    10.5%     10.5%    10.5%  10.5%    10.5%
Sterling, German Mark
 and Dutch Guilder
 denominated............    4,367    3,974     4,437    4,602  4,775  143,115    165,270      165,270
 Average interest rates
  -- fixed..............    10.8%    10.8%     10.8%    10.8%  10.8%    10.8%
DERIVATIVE INSTRUMENTS
Interest rate swap
 floating for fixed - ..
 Contract notional
  amount (3)............  200,000      --        --       --     --       --     200,000           26
 Fixed rate assumed by
  GCH...................     5.8%
 Variable rate assumed
  by counterparty.......       (4)
</TABLE>
--------
  (1) The interest rate is one month LIBOR plus 2.0% which was 7.0% as of
December 31, 1998.
  (2) The interest rate is one month LIBOR plus 3.0% which was 8.0% as of
December 31, 1998.
  (3) Expired January 31, 1999.
  (4) The interest rate is one month LIBOR.

Foreign Currency Risk

     Most of our sales and expenditures are denominated in United States
dollars. Assets and liabilities denominated in foreign currencies at year end
are translated into United States dollars at the rate of exchange at the
balance sheet date and income and expense accounts are translated at the
average exchange rates during the period. Resulting translation adjustments are
recorded directly to a separate component of shareholder's equity. Such
translation adjustments were not material as of and for the year ended December
31, 1998 and as of and for the period from March 19, 1997 (Date of Inception)
to December 31, 1997.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  See the index included on page F-1, Index to Consolidated Financial
Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                       32
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Not applicable.

ITEM 11. EXECUTIVE COMPENSATION

     Not applicable.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Not applicable.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Not applicable.

                                       33
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

     (a) List of documents filed as part of this report:

     1. Financial Statements--Included in Part II of this Form 10-K:

         Consolidated Balance Sheets as of December 31, 1998 and 1997

      Consolidated Statements of Operations for the year ended December
       31, 1998 and for the period from March 19, 1997 (Date of Inception)
       to December 31, 1997

      Consolidated Statements of Shareholder's Equity for the year ended
       December 31, 1998 and for the period from March 19, 1997 (Date of
       Inception) to December 31, 1997

      Consolidated Statements of Cash Flows for the year ended December
       31, 1998 and for the period from March 19, 1997 (Date of Inception)
       to December 31, 1997

         Notes to Consolidated Financial Statements

     2. Financial Statement Schedules:

         None.

     3. Exhibit Index:

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                 EXHIBIT
 -------                                -------
 <C>     <S>
 2.1f    Agreement and Plan of Merger, dated March 16, 1999, among Global
         Crossing Ltd., Frontier Corporation and GCF Acquisition Corp.
 3.1b    Memorandum of Association of Global Crossing Holdings Ltd.
 3.2e    Bye-Laws of Global Crossing Holdings Ltd.
 3.3e    Memorandum of Increase of Share Capital for Global Crossing Holdings
         Ltd.
 4.1e    Form of Certificate for Preferred Stock.
 4.2e    Form of Indenture relating to Exchange Notes.
 4.3e    Registration Rights Agreement, dated as of December 2, 1998, among
         Global Crossing Holdings Ltd. and the other parties named therein.
 4.4b    Indenture, dated as of May 18, 1998, between Global Crossing Holdings
         Ltd. and United States Trust Company of New York, as Trustee.
 4.6a    Credit Agreement, dated as of June 27, 1997 (the "Credit Agreement"),
         among Global Telesystems Ltd., various financial institutions named
         therein, Deutsche Bank AG, New York Branch and Canadian Imperial Bank
         of Commerce, as Lead Agents, Deutsche Bank AG, New York Branch, as
         Administrative Agent, Canadian Imperial Bank of Commerce, as
         Syndication Agent, Documentation Agent and the Issuing Bank and
         Deutsche Morgan Grenfell Inc. and CIBC Gundy Securities Corp., as
         Arrangers.
 4.7a    First Amendment and Consent, dated as of December 15, 1997, to the
         Credit Agreement, among Global Telesystems Ltd., the lenders named
         therein, Deutsche Bank AG, New York Branch and Canadian Imperial Bank
         of Commerce, as Lead Agents, Deutsche Bank AG, New York Branch, as
         Administrative Agent, Canadian Imperial Bank of Commerce, as
         Syndication Agent, Documentation Agent and the Issuing Bank and
         Deutsche Morgan Grenfell Inc. and CIBC Gundy Securities Corp., as
         Arrangers.
</TABLE>


                                      34
<PAGE>

<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                                  EXHIBIT
 -------                                 -------
 <C>     <S>
 4.8a    Second Amendment and Consent, dated as of June 12, 1998, to the Credit
         Agreement, among Atlantic Crossing Ltd., (formerly know as Global
         Telesystems Ltd.), the lenders named therein, Deutsche Bank AG, New
         York Branch and Canadian Imperial Bank of Commerce, as Lead Agents,
         Deutsche Bank AG, New York Branch, as Administrative Agent, Canadian
         Imperial Bank of Commerce, as Syndication Agent, Documentation Agent
         and the Issuing Bank and Deutsche Morgan Grenfell Inc. and CIBC Gundy
         Securities Corp., as Arrangers.
 4.9e    Credit Agreement, dated as of November 25, 1998, among Mid-Atlantic
         Crossing Ltd., various financial institutions named therein, Deutsche
         Bank AG, New York Branch and CIBC Inc., as lead agents, Deutsche Bank
         AG, New York Branch, as administrative agent, Canadian Imperial Bank
         of Commerce, as syndication agent and CIBC Inc., as documentation
         agent.
 10.1c   1998 Global Crossing Ltd. Stock Incentive Plan.
 10.2a   Project Development and Construction Contract, dated as of March 18,
         1997, among AT&T Submarine Systems, Inc. and Global Telesystems Ltd.
 10.3a   Project Development and Construction Contract, dated as of April 21,
         1998, among Tyco Submarine Systems, Ltd. and Pacific Crossing Ltd.
 10.4a   Project Development and Construction Contract, dated as of June 2,
         1998, among Alcatel Submarine Networks and Mid-Atlantic Crossing Ltd.
 10.5d   Project Development and Construction Contract, dated as of July 21,
         1998, among Tyco Submarine Systems, Ltd. and Pan American Crossing
         Ltd.
 10.6f   Stock Option Agreement, dated March 16, 1999, between Global Crossing
         Ltd. and Frontier Corporation.
 10.7f   Voting Agreement, dated March 16, 1999, among certain shareholders of
         Global Crossing Ltd. parties thereto, Frontier Corporation and, for
         certain purposes only, Global Crossing Ltd.
 27.1    Financial Data Schedule.
</TABLE>
--------
(a)  Incorporated by reference to Global Crossing Ltd. Registration Statement
     on Form S-1 (File No. 333-53393).
(b)  Incorporated by reference to Global Crossing Holdings Ltd. Registration
     Statement on Form S-4 (File No. 333-61457).
(c)  Incorporated by reference to Global Crossing Ltd. Registration Statement
     on Form S-8 filed on December 11, 1998 (File No. 333-68825).
(d)  Incorporated by reference to Global Crossing Ltd. Quarterly Report on
     Form 10-Q filed for the quarter ended September 30, 1998.
(e)  Incorporated by reference to Global Crossing Holdings Ltd. Registration
     Statement on Form S-4 (File No. 333-69459).
(f)  Incorporated by reference to Global Crossing Holdings Ltd. Current Report
     on Form 8-K filed on March 18, 1999.

     (b) Reports on Form 8-K.

     No reports on Form 8-K were filed by the Registrant during the last
quarter of the period covered by this report.

     (c) See Item 14(a)(3) above.

     (d) See Item 14(a)(2) above.

                                      35
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Public Accountants..................................  F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997..............  F-3
Consolidated Statements of Operations for the year ended December 31, 1998
 and for the period from March 19, 1997 (Date of Inception) to December
 31, 1997.................................................................  F-4
Consolidated Statements of Shareholder's Equity for the year ended
 December 31, 1998 and for the period from March 19, 1997 (Date of
 Inception) to December 31, 1997..........................................  F-5
Consolidated Statements of Cash Flows for the year ended December 31, 1998
 and for the period from March 19, 1997 (Date of Inception) to December
 31, 1997.................................................................  F-6
Notes to Consolidated Financial Statements................................  F-7
</TABLE>

Global Crossing (Cayman) Ltd. (formerly Global Crossing Ltd., LDC) ("Old GCL")

        Prior to the Old GCL Exchange, equity ownership in GCH and its
subsidiaries was held through Old GCL, with Old GCL holding all of the shares of
common stock of GCL, which owns all of the shares of GCH.  In connection with
the Old GCL Exchange, which occurred on August 13, 1998, each shareholder of Old
GCL, (other than affiliates of Canadian Imperial Bank of Commerce (collectively,
"CIBC")) agreed to exchange their interests in Old GCL for shares of common
stock of GCL at a rate of 1.5 shares of common stock of GCL per share of common
stock of Old GCL.  Immediately following the Old GCL Exchange, CIBC became the
sole beneficial owner of Old GCL.

        Since the consummation of the Old GCL Exchange, Old GCL's only asset is
its ownership interest in GCL.  Old GCL engages in no business activities other
than holding GCL shares.  As of December 31, 1998, Old GCL was also a guarantor
under GCH's 9-5/8% Senior Notes due 2008.

        Audited financial information for Old GCL for the year ended December
31, 1998 is hereby incorporated by reference to the Annual Report on Form 10-K
of Old GCL for the year ended December 31, 1998 (File No. 333-61457-08).

                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

   To Global Crossing Holdings Ltd.:

     We have audited the accompanying consolidated balance sheets of Global
Crossing Holdings Ltd. (a Bermuda company) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholder's equity and cash flows for the year ended December 31, 1998 and
for the period from March 19, 1997 (Date of Inception) to December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Global Crossing Holdings
Ltd. and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the year ended December 31, 1998 and
for the period from March 19, 1997 (Date of Inception) to December 31, 1997, in
conformity with accounting principles generally accepted in the United States.

Arthur Andersen & Co.

   Hamilton, Bermuda
   February 1, 1999
   (Except with respect to the matters
    discussed in Note 13, as to which
    the dates are March 9, 1999, March 16, 1999, and May 16, 1999)

                                      F-2
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
             (In thousands, except share and per share information)

<TABLE>
<CAPTION>
                                            December 31, 1998 December 31, 1997
                                            ----------------- -----------------
<S>                                         <C>               <C>
ASSETS:
 Current assets:
   Cash and cash equivalents...............    $  803,427         $  1,453
   Restricted cash and cash equivalents....        77,190           25,275
   Accounts receivable, net of allowance
    for doubtful accounts of $4,233........        71,195              --
   Other assets and prepaid costs..........        56,026            1,016
                                               ----------         --------
   Total current assets....................     1,007,838           27,744
 Restricted cash and cash equivalents......       367,600              --
 Accounts receivable.......................        43,315              --
 Capacity available for sale...............       574,849           21,200
 Construction in progress..................       428,207          497,319
 Deferred finance and organization costs,
  net of accumulated amortization of
  $10,130
  as of December 31, 1998 and $2,247 as of
  December 31, 1997........................        45,757           25,934
 Investment in affiliates..................       177,334              --
                                               ----------         --------
   Total assets............................    $2,644,900         $572,197
                                               ==========         ========
LIABILITIES:
 Current liabilities:
   Accrued construction costs..............    $  129,081         $ 52,004
   Accounts payable and accrued
    liabilities............................        28,353            1,658
   Accrued interest........................        10,053            1,641
   Deferred revenue........................        44,197            5,325
   Income taxes payable....................        15,604              --
   Current portion of long term debt.......         6,393              --
   Current portion of obligations under
    inland services agreements and capital
    leases.................................        14,572           30,189
                                               ----------         --------
   Total current liabilities...............       248,253           90,817
 Long term debt............................       269,598          162,325
 Senior notes..............................       796,495          150,000
 Deferred revenue..........................        25,325              --
 Obligations under inland services
  agreements and capital leases............        24,520            3,009
 Deferred income taxes.....................         9,654              --
                                               ----------         --------
   Total liabilities.......................     1,373,845          406,151
                                               ----------         --------
MANDATORILY REDEEMABLE PREFERRED STOCK
 (5,000,000 shares issued and outstanding
 as of December 31, 1998, $100 liquidation
 preference per share (including $4,375 in
 accrued dividends and net of unamortized
 issuance costs of $17,000))...............       487,375              --
MANDATORILY REDEEMABLE PREFERRED STOCK
 (109,830 shares issued and outstanding as
 of December 31, 1997, $1,000 liquidation
 preference per share (including $1,281 in
 accrued dividends and net of unamortized
 discount and issuance costs of $12,224 and
 $6,962, respectively))....................           --            91,925
SHAREHOLDER'S EQUITY:
 Common stock, 1,200,000 shares
  authorized, par value $.01,
  1,200,000 shares issued and outstanding
  as of December 31, 1998 and 1997.........            12               12
 Other shareholder's equity................       832,943           74,269
 Accumulated deficit.......................       (49,275)            (160)
                                               ----------         --------
                                                  783,680           74,121
                                               ----------         --------
   Total liabilities and shareholder's
    equity.................................    $2,644,900         $572,197
                                               ==========         ========
</TABLE>


                            See accompanying notes.

                                      F-3
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                              Period from
                                                             March 19, 1997
                                           Year Ended     (Date of Inception)
                                        December 31, 1998 to December 31, 1997
                                        ----------------- --------------------
<S>                                     <C>               <C>
REVENUES...............................     $424,099            $    --
                                            --------            --------
EXPENSES:
  Cost of capacity sold................      178,492                 --
  Operations, administration and
   maintenance.........................       18,056                 --
  Sales and marketing..................       26,194               1,366
  Network development..................       10,962                  78
  General and administrative...........       15,719               1,657
  Stock related expense................       10,340                 --
  Provision for doubtful accounts......        4,233                 --
  Termination of Advisory Services
   Agreement...........................      139,669                 --
                                            --------            --------
                                             403,665               3,101
                                            --------            --------
OPERATING INCOME (LOSS)................       20,434              (3,101)
EQUITY IN LOSS OF AFFILIATES...........       (2,508)                --
INTEREST INCOME (EXPENSE):
  Interest income......................       28,615               2,941
  Interest expense.....................      (42,880)                --
                                            --------            --------
INCOME (LOSS) BEFORE PROVISION FOR
 INCOME TAXES AND EXTRAORDINARY ITEM...        3,661                (160)
  Provision for income taxes...........      (33,067)                --
                                            --------            --------
LOSS BEFORE EXTRAORDINARY ITEM.........      (29,406)               (160)
  Extraordinary loss on retirement of
   senior notes........................      (19,709)                --
                                            --------            --------
NET LOSS...............................      (49,115)               (160)
  Preferred stock dividends............      (12,681)            (12,690)
  Redemption of preferred stock .......      (34,140)                --
                                            --------            --------
NET LOSS APPLICABLE TO COMMON
 SHAREHOLDER...........................     $(95,936)           $(12,850)
                                            ========            ========
</TABLE>


                            See accompanying notes.

                                      F-4
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
                    (In thousands, except share information)

<TABLE>
<CAPTION>
                                               Common Stock     Other shareholder's equity
                                             ----------------- ----------------------------                 Total
                                                                 Additional      Unearned   Accumulated Shareholder's
                                              Shares   Amount  Paid-in Capital Compensation   Deficit      Equity
                                             --------- ------  --------------- ------------ ----------- -------------
<S>                                          <C>       <C>     <C>             <C>          <C>         <C>
Issuance of common stock for cash on March
 19, 1997 (Date of Inception).............   1,200,000 $   12     $    --        $    --     $    --      $     12
Preferred stock dividends.................         --     --       (12,690)           --          --       (12,690)
Contribution of investment in subsidiary
 originally held by Global Crossing Ltd. ..        --     --        86,959            --          --        86,959
Net loss for the period...................         --     --           --             --         (160)        (160)
                                             --------- ------     --------       --------    --------     --------
Balance, December 31, 1997................   1,200,000     12       74,269            --         (160)      74,121
Cash reimbursement to
 Global Crossing Ltd. ....................         --     --        (7,047)           --          --        (7,047)
Unearned compensation.....................         --     --        31,707        (31,707)        --           --
Amortization of compensation expense......         --     --           --          10,340         --        10,340
Global Crossing Ltd. common stock and PCG
 Warrants issued in exchange for project
 rights...................................         --     --       275,298            --          --       275,298
Global Crossing Ltd. common stock issued
 in exchange for termination of Advisory
 Services Agreement.......................         --     --       135,000            --          --       135,000
Preferred stock dividends.................         --     --       (12,681)           --          --       (12,681)
Premium on redemption of preferred stock..         --     --       (34,140)           --          --       (34,140)
Cash contribution from
 Global Crossing Ltd. ....................         --     --       392,671            --          --       392,671
Assumption of debt of
 Global Crossing Ltd. ....................         --     --       (15,055)           --          --       (15,055)
Contribution of investment in subsidiary
 originally held by
 Global Crossing Ltd. ....................         --     --        11,493            --          --        11,493
Contribution of related party receivable
 from Global Crossing Ltd. ...............         --     --         2,795            --          --         2,795
Net loss..................................         --     --           --             --      (49,115)     (49,115)
                                             --------- ------     --------       --------    --------     --------
Balance, December 31, 1998................   1,200,000 $   12     $854,310       $(21,367)   $(49,275)    $783,680
                                             ========= ======     ========       ========    ========     ========
</TABLE>



                            See accompanying notes.

                                      F-5
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               Period From
                                                              March 19, 1997
                                            Year Ended     (Date of Inception)
                                         December 31, 1998 to December 31, 1997
                                         ----------------- --------------------
<S>                                      <C>               <C>
CASH FLOWS PROVIDED BY OPERATING
 ACTIVITIES:
 Net loss applicable to common
  shareholder..........................      $ (95,936)          $(12,850)
 Adjustments to reconcile net loss to
  net cash provided by operating
  activities:
 Equity in loss of affiliates..........          2,508                --
 Depreciation and amortization.........            333                 39
 Provision for doubtful accounts.......          4,233                --
 Termination of Advisory Services
  Agreement ...........................        137,795                --
 Stock related expenses................         10,340                --
 Preferred stock dividends.............         12,681             12,690
 Redemption of preferred stock.........         34,140                --
 Extraordinary loss on retirement of
  senior notes.........................         19,709                --
 Capacity available for sale excluding
  cash expenditures for investing
  activities...........................        123,329            (21,200)
 Provision for deferred income taxes...          9,654                --
 Changes in operating assets and
  liabilities:
  Increase in accounts receivable......       (118,743)               --
  Increase in other assets and prepaid
   costs...............................        (55,343)            (1,032)
  Increase in deferred revenue.........         64,197              5,325
  Increase in income taxes payable ....         15,604                --
  Increase in accounts payable and
   accrued liabilities.................         26,695              1,249
  Increase in obligations under inland
   services agreements.................         17,554             20,900
                                             ---------           --------
  Net cash provided by operating
   activities..........................        208,750              5,121
                                             ---------           --------
CASH FLOWS PROVIDED BY FINANCING
 ACTIVITIES:
 Proceeds from issuance of common stock
  and contribution of capital from
  Global Crossing Ltd..................        404,164             73,736
 Proceeds from issuance of preferred
  stock, net...........................        483,000             92,470
 Proceeds from issuance of senior
  notes................................        796,495            150,000
 Proceeds from long term debt..........        290,556            162,325
 Repayment of long term debt...........       (176,890)               --
 Retirement of 1997 issued senior
  notes................................       (159,750)               --
 Redemption of 1997 issued preferred
  stock................................       (134,372)               --
 Finance and organization costs
  incurred.............................        (37,665)           (28,181)
 Cash reimbursement to Global Crossing
  Ltd..................................         (7,047)               --
 Repayment of debt.....................        (15,055)               --
 Increase in restricted cash and cash
  equivalents..........................       (419,515)           (25,275)
                                             ---------           --------
  Net cash provided by financing
   activities..........................      1,023,921            425,075
                                             ---------           --------
CASH FLOWS USED IN INVESTING
 ACTIVITIES:
 Cash paid for construction in progress
  and capacity available for sale......       (413,996)          (428,743)
 Investment in affiliates..............        (16,701)               --
                                             ---------           --------
  Net cash used in investing
   activities..........................       (430,697)          (428,743)
                                             ---------           --------
NET INCREASE IN CASH AND CASH
 EQUIVALENTS...........................        801,974              1,453
CASH AND CASH EQUIVALENTS, beginning of
 period................................          1,453                --
                                             ---------           --------
CASH AND CASH EQUIVALENTS, end of peri-
 od....................................      $ 803,427           $  1,453
                                             =========           ========
SUPPLEMENTAL INFORMATION ON NON-CASH
 FINANCING ACTIVITIES:
 Common stock distributed to holders of
  preferred stock......................      $     --            $ 13,235
                                             =========           ========
SUPPLEMENTAL INFORMATION ON NON-CASH
 INVESTING ACTIVITIES
 Costs incurred for construction in
  progress and capacity available for
  sale.................................      $ 607,865           $497,319
 Increase in accrued construction
  costs................................        (77,077)           (52,004)
 Increase in accrued interest..........         (8,412)            (1,641)
 Amortization of deferred finance and
  organization costs...................         (7,883)            (2,223)
 (Increase) decrease in obligations
  under capital leases.................         11,660            (12,298)
 PCG Warrants..........................       (112,157)               --
 Increase in accrued liabilities.......            --                (410)
                                             ---------           --------
 Cash paid for construction in progress
  and capacity available for sale            $ 413,996           $428,743
                                             =========           ========
SUPPLEMENTAL INFORMATION ON NON-CASH
 INVESTING ACTIVITIES:
 Cost of investments in affiliates.....      $(179,842)          $    --
 PCG Warrants..........................        163,141           $    --
                                             ---------           --------
                                             $ (16,701)            $  --
                                             =========           ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
 INFORMATION:
 Interest paid and capitalized.........      $  39,424           $  8,136
                                             =========           ========
 Interest paid (net of capitalized
  interest)............................      $  33,854           $    --
                                             =========           ========
 Cash paid for taxes...................      $   7,809           $    --
                                             =========           ========
</TABLE>

                            See accompanying notes.

                                      F-6
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Throughout these consolidated financial statements, references to "dollars" and
                                      "$"
                         are to United States dollars.

1. BACKGROUND AND ORGANIZATION

     On April 30, 1998, Global Crossings Holdings Ltd. (together with its
subsidiaries, "GCH" or the "Company"), a Bermuda company, was formed as a
wholly-owned subsidiary of Global Crossing Ltd. (together with its
subsidiaries, "GCL"), a Bermuda company which was a wholly-owned subsidiary of
Global Crossing Ltd., LDC ("Old GCL"). Because Old GCL, GCL and GCH are
entities under common control, GCH's financial statements are presented as if
it were in existence on March 19, 1997, the date of inception of Old GCL,
similar to a pooling of interest. (See Note 12 for a summary of GCL's
consolidated financial information.)

     GCL is an independent provider of global Internet and long distance
telecommunications facilities and services utilizing a network of undersea and
terrestrial digital fiber optic cable systems (the "Global Crossing Network").
The Company operates as a "carriers' carrier", providing tiered pricing and
segmented products to licensed providers of international telecommunications
services. Capacity on the Global Crossing Network is offered to all customers
on an open, equal access basis. The systems under development by the Company
will form a state-of-the-art interconnected worldwide high capacity fiber optic
network.

     During March 1997, Old GCL, formerly GT Parent Holdings LDC, was
incorporated as an exempted limited duration company in the Cayman Islands. In
March 1998, GCL was formed as a wholly-owned subsidiary of Old GCL. At that
time, Old GCL contributed its investment in Global Telesystems Holdings Ltd.
("GTH") to GCL. During April 1998, GCL formed a wholly-owned subsidiary, GCH
and contributed its investment in GTH to GCH upon its formation.

     In January 1998, Old GCL effected a 100-for-1 stock split of each of its
Class A, B, C and D common stock and undesignated stock and amended the par
value of each share of common stock from $.0001 per share to $.000001 per
share. Prior to GCL's Initial Public Offering ("IPO") in August 1998, GCL
declared a stock dividend to Old GCL resulting in Old GCL holding 1.5 shares of
common stock of GCL for each share of common stock of Old GCL outstanding.
Pursuant to the terms of the Articles of Association of Old GCL and prior to
the Company's IPO, each holder of Class D shares of Old GCL converted such
shares into a fraction of a Class E share of Old GCL based upon a valuation at
the time of such conversion, together with a warrant to purchase the remaining
fraction of such Class E share at an exercise price based upon such market
valuation. In addition, each holder of Class E shares of Old GCL had such Class
E shares converted into Class B shares of Old GCL. Accordingly, each holder of
Class D and Class E shares ultimately received Class B shares, with the
warrants to purchase Class E shares received by former Class D shareholders
then cancelled in exchange for warrants ("New GCL Warrants") to purchase shares
of Common Stock of GCL at an exercise price equal to the IPO price of $9.50 per
share.

     Subsequent to the above transaction and prior to the Company's IPO, each
shareholder of Old GCL (other than Canadian Imperial Bank of Commerce ("CIBC"),
a major shareholder) exchanged their interests in Old GCL for shares of common
stock of GCL held by Old GCL at a rate of 1.5 shares of common stock of GCL for
each share of common stock of Old GCL ("Old GCL Exchange"). CIBC did not
participate in the above mentioned transaction and continues to maintain such
ownership of GCL through Old GCL, which is now a wholly owned subsidiary of
CIBC.

     Because Old GCL, GCL and GCH were entities under common control, the
transfers by Old GCL to GCL and GCL to GCH and the Old GCL Exchange were
accounted for similar to a pooling of interests. The consolidated financial
statements presented have been retroactively restated to reflect these
transactions as if they had occurred as of March 19, 1997 (Date of Inception).
(See Note 12.)


                                      F-7
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

2. SIGNIFICANT ACCOUNTING POLICIES

     These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The significant
accounting policies are summarized as follows:

  a) Principles of Consolidation

     The consolidated financial statements include the accounts of GCH and its
wholly owned subsidiaries. All significant intercompany transactions have been
eliminated. Investments in affiliates, in which GCH has significant influence
but does not exercise control, are accounted for using the equity method.

  b) Development Stage Company

     The Company was in its development stage until May 1998 when the United
States to United Kingdom segment of the AC-1 system was placed into service and
the Company began generating significant revenues.

     Successful future operations are subject to several risks, including the
ability of the Company to ensure the successful, timely and cost-effective
completion of fiber optic cable systems as well as to successfully market and
generate significant revenue from the sale of capacity of the systems. GCH may
encounter problems, delays and expenses, many of which may be beyond its
control. There can be no assurance that the cable systems will be completed
within the time frame and that capacity sales will meet expectations, or that
substantial delays would not adversely affect GCH's achievement of profitable
operations.

  c) Cash and Cash Equivalents, Restricted Cash and Cash Equivalents (Current
 and Long Term)

     The Company considers cash in banks and short term highly liquid
investments with an original maturity of three months or less at the date of
purchase to be cash equivalents.

     Current and long term restricted cash and cash equivalents includes the
following:

<TABLE>
<CAPTION>
                                                                December 31,
                                                                -------------
                                                                1998    1997
                                                                ------ ------
                                                                    (in
                                                                 millions)
     <S>                                                        <C>    <C>
     Funds restricted for PC-1 construction.................... $ 231  $  --
     Funds restricted under the AC-1 Credit Facility...........    89       5
     Funds restricted for MAC construction.....................    66     --
     Funding for future interest on senior notes...............    38      20
     Other.....................................................    21     --
                                                                -----  ------
     Total.....................................................   445      25
     Less: Current portion of restricted cash and cash
      equivalents..............................................   (77)    (25)
                                                                -----  ------
     Long term restricted cash and cash equivalents............ $ 368   $ --
                                                                =====  ======
</TABLE>

                                      F-8
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 d) Revenue and Deferred Revenue, Cost of Sales and Maintenance Costs

  i) Revenue and Deferred Revenue

  Sales Type Lease Revenue and Deferred Revenue

     Customers of the Company can enter into Capacity Purchase Agreements
("CPAs") to purchase an Indefeasible Right of Use ("IRU") in units of capacity
on any of the Company's fiber optic cable systems ("Systems") described in Note
3. The purchase price for capacity on a System is non-refundable once the
applicable segment purchased on a System is Ready For Service ("RFS"). The IRU
purchased entitles the customer to all rights and obligations of ownership of
the capacity for a period of 25 years after the System RFS date. The Company's
CPAs generally provide that the System will have self-healing ring capability,
which means capacity on any segment of a System will be instantaneously
restored either on another System segment or within the same segment in the
event of interruption so that the same point-to-point connectivity is
maintained.

     Revenues from the sale of capacity are recognized in the period that the
rights and obligations of ownership transfer to the purchaser, which occurs
when (i) the purchaser obtains the right to use the capacity, which can only be
suspended if the purchaser fails to pay the full purchase price or fulfill its
contractual obligations, (ii) the purchaser is obligated to pay Operations,
Administration and Maintenance ("OA&M") costs and (iii) the segment of a System
related to the capacity purchased is available for service. Customers who have
entered into CPAs for capacity have paid deposits toward the purchase price and
such amounts have been included as deferred revenue in the accompanying
consolidated balance sheets. In some CPAs, customers who have purchased
capacity on a System prior to the date the System has self-healing ring
capacity have contractually required full self-healing ring capability as a
legal condition which, if not satisfied, would enable them to terminate the CPA
and require the Company to refund capacity payments. Payments received relating
to such CPAs on AC-1 are included in deferred revenue in the accompanying
consolidated balance sheets.

     The Company has entered into contracts, called Inland Services Agreements
("ISAs"), to obtain IRUs for terrestrial capacity. The Company in turn sells
this third party terrestrial capacity under separate CPAs to certain customers
for the purpose of extending capacity from certain System landing stations to
major telecommunication cities. The purchase price for terrestrial capacity is
non-refundable and grants the customer an IRU, which entitles the customer to
all rights and obligations of ownership for terms of 25 years after the RFS
date of the related System.

  Operating Type Lease Revenue and Deferred Revenue

     In addition to sales type leases, the Company may enter into operating
lease agreements to lease capacity on its Systems. These agreements may grant
the customer a right to use capacity for periods of time which may be
substantially less than the design life of the capacity (generally 25 years).
The Company will amortize revenues from these operating lease agreements over
the lives of the agreements, with cash received but not yet recognized as
operating revenue, recorded in the accompanying consolidated balance sheets as
deferred revenue.

  OA&M Revenue

     Pursuant to the terms of its existing CPAs, the Company is obliged to use
commercially reasonable efforts to cause AC-1 to be maintained in efficient
working order and in accordance with industry standards. In exchange for the
OA&M services provided by Atlantic Crossing Ltd. ("ACL") through the OA&M
agreement with Tyco Submarine Systems Ltd. ("TSSL"), customers are obligated
for the term of the IRU to pay for their allocable share of the costs for
operating and maintaining the System. Customers appoint members to a System
Advisory Committee, which is charged with the responsibility of directing the
operations and maintenance of the System. Customers pay for 110% of ACL's cost
to operate and maintain AC-1 based on their pro-rata share of total capacity
subject to annual maximum amounts per circuit purchased of $250,000 per
transatlantic circuit and $50,000 per European circuit. Their pro-rata share is
effectively calculated by taking the weighted average of

                                      F-9
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   purchased capacity over total capacity multiplied by 110% of actual costs
incurred. These OA&M costs are billed to customers quarterly in advance based
on the prior year's actual costs. Payments are non-refundable, and should a
customer fail to make an OA&M payment, ACL may suspend all rights to capacity
granted under the IRU. Undersea OA&M revenues are recognized in the period the
services are provided. On an annual basis, the actual OA&M costs incurred by
the Company are accumulated and an adjustment is made to true up actual OA&M
revenues so that they equal 110% of actual costs incurred, provided specified
contractual limits have not been reached.

  ii) Cost of Sales

  Sales Type Lease Cost of Sales

     Cost of undersea sales in any period is calculated based on the ratio of
capacity revenues recognized in the period to total expected capacity revenues
over the life of the System multiplied by the total costs incurred to construct
the System. This calculation of cost of sales matches costs with the value of
each sale relative to total expected revenues. Until the entire System is
completed, for purposes of calculating cost of sales, the total System costs
incurred will include an estimate of remaining costs to be incurred to complete
the entire System plus the cost of System upgrades that management has the
intent and ability to complete, provided the need for such upgrades is
supported by a third party consultant's independent revenue forecast.

     During 1998, the Company entered into ISAs to obtain IRUs for terrestrial
capacity for terms of 25 years. Under the IRUs, the Company is required to pay
an up-front non-recurring charge plus, in certain cases, monthly recurring
charges over a 25 year period and, in exchange, obtains all rights and
obligations of ownership. The Company has accounted for the IRUs as capital
leases. The cost of acquiring this terrestrial capacity is charged to cost of
sales in the period that the related revenue is recognized. The Company
capitalized the present value of total future payments (excluding OA&M costs)
in capacity available for sale and recorded an equal amount as an obligation
under ISAs in the accompanying consolidated balance sheets.

     Customers who purchased AC-1 capacity prior to February 22, 1999 ("AC-1
RFS date") were granted 80% of the unsold capacity ("residual capacity"), if
any, 12 1/2 years after the AC-1 RFS date. However, based on sales projections
provided by a third party consultant, management believes it is highly unlikely
that there will be a material amount of unsold capacity on AC-1 at such time.
The Company has no constraints on the pricing or structure of sales of residual
capacity and the Company would expect that if such capacity had any remaining
value, it would enter into one or more transactions to dispose of such capacity
prior to such date to realize such remaining value. As a result, the right to
residual capacity is not a substantive right.

     In the period in which management has the intent and ability to complete a
System upgrade, the total expected System capacity revenues and cost of the
System used in the cost of sales calculation will change to take into account
the further increase in System cost and in System capacity. The intent and
ability of management to complete a System upgrade is demonstrated by the fact
that (i) the Board of Directors has authorized the purchase of the upgrade,
(ii) the Company has the financial ability to purchase the upgrade and (iii)
there are no regulatory or technology hurdles preventing the completion of the
upgrade. The total expected System capacity revenues used by the Company in its
cost of sales calculation will always be limited by total sales forecasted by a
third party consultant which is updated on an annual basis. The AC-1 System was
designed to be upgradable so as to increase the initial design capacity of 256
circuits available for sale. The Company has contracted with TSSL to upgrade
capacity on AC-1 to 512 circuits. Based on the current third party consultant's
sales forecast, the Company expects to sell all 512 circuits available for sale.

     In addition to capacity upgrades, management's estimate of future expected
capacity revenues may change due to a number of factors, including possible
variances in actual sales prices and volume from management's estimates.
Management will continually evaluate these factors in conjunction with the
updated third party

                                      F-10
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   consultant's sales forecast and, as necessary, revise its estimate of the
total expected revenues to be derived over the life of a System. Changes in
management's estimate of the total expected revenues to be derived from sales
of capacity result in adjustments to the calculations of cost of sales which
are recorded on a prospective basis over future periods commencing in the
period management revises its estimate.

     Under their respective CPAs, certain customers have been provided options
to purchase additional capacity at specified prices for specified future
periods as well as the option to purchase additional capacity should the
Company upgrade the AC-1 capacity in the future. In many cases, prices under
the options to purchase capacity during these specified periods are lower than
the current price for capacity charged to the customer. Management's estimate
of future revenues for purposes of calculating cost of sales takes into
consideration prices under these options.

  Operating Type Lease Cost of Capacity

     Costs relating to operating type lease revenues will be classified as a
depreciable asset and depreciated over the estimated useful life of the
capacity.

  iii) Maintenance Costs

     The Company has entered into an OA&M agreement with TSSL whereby TSSL is
obligated to provide operating, administration and maintenance functions to
AC-1, which include management and maintenance of a Network Operating Center,
assumption of vessel costs, obtaining and renewing all operating permits,
providing repair equipment, providing cable protection and ordering and
restocking equipment spares. The OA&M agreement is for an initial term of
eight years with two renewal periods of eight and one half years each at the
Company's option. The OA&M costs related to this agreement are expensed as
incurred.

     OA&M costs relating to ISAs are expensed as incurred and the related
revenue is recognized in the period the services are provided.

 e) Commissions and Advisory Services Fees

     The Company's policy is to record sales commissions and advisory fee
expenses and related payable upon the recognition of revenue so as to
appropriately match these costs with the related revenue. Under the Advisory
Services Agreement ("ASA"), which was terminated by December 31, 1998, the
Company paid PCG Telecom Services LLC ("PCG Telecom") and its affiliates 2% of
revenues for advisory services performed. Under the Sales Agency Agreement
("SAA") the Company pays TSSL a commission based on a percentage of capacity
revenues.

 f) Construction in Progress

     Costs incurred prior to a segment's completion are reflected as
construction in progress in the accompanying consolidated balance sheets and
recorded as capacity available for sale or at the date each segment of the
System becomes operational. Capacity available for sale is recorded at the
lower of cost or fair value less costs to sell and is charged to costs of
sales in the period the related revenues are recognized. Fair value of
capacity is derived from a third party consultant's market study of expected
sales of capacity.

  Construction in progress includes direct expenditures for construction of a
System and is stated at cost. Capitalized costs include costs incurred under
the construction contract; advisory, consulting and legal fees; interest; and
amortized finance costs incurred during the construction phase. Once it is
probable that a cable

                                     F-11
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

system will be constructed, costs directly identifiable with the cable system
under development are capitalized. Costs relating to the evaluation of new
projects incurred prior to the date the development of the System becomes
probable are expensed as incurred.

     Interest incurred, which includes the amortization of deferred finance
fees and issuance discount ("interest cost"), are capitalized to construction
in progress in accordance with Statement of Financial Accounting Standards No.
34, "Capitalization of Interest Costs" ("SFAS 34"). Total interest cost
incurred and interest capitalized to construction in progress during the
periods were:
<TABLE>
<CAPTION>
                                                                Period from
                                                              March 19, 1997
                                                                 (Date of
                                              Year Ended       Inception) to
                                           December 31, 1998 December 31, 1997
                                           ----------------- -----------------
                                                     (In thousands)
<S>                                        <C>               <C>
Interest cost incurred....................      $92,813           $9,777
                                                =======           ======
Interest cost capitalized to construction
 in progress..............................      $49,933           $9,777
                                                =======           ======
</TABLE>

 g) Deferred Finance and Organization Costs

  Costs incurred to obtain financing through the issuance of senior notes and
long term debt have been reflected as an asset in the accompanying
consolidated balance sheets. Costs incurred to obtain financing through the
issuance of preferred stock have been reflected as a reduction in the carrying
value of the issued preferred stock. The financing costs relating to the debt
are amortized over the shorter of the stated long term or, where the terms of
the loan require earlier repayment, the expected period over which the debt
obligation will be repaid. In 1998, certain preferred stock was redeemed at
which time the remaining balance of unamortized discount and offering costs was
charged against additional paid-in capital. During the construction period, the
amortized portion of deferred financing costs relating to the senior notes and
the long term debt are included in construction in progress as a component of
interest capitalized or recorded as interest expense in accordance with SFAS 34.
The amortized portion of the deferred financing costs relating to the preferred
stock is included as a component of preferred stock dividends.

 h) Translation of Foreign Currencies

  Substantially all of the Company's international subsidiaries use their
local currency as their functional currency. For those subsidiaries using the
local currency as their functional currency, assets and liabilities are
translated at exchange rates in effect at the balance sheet date, and income
and expense accounts at average exchange rates during the period. Resulting
translation adjustments are recorded directly to a separate component of
shareholder's equity. Where the U.S. dollar is the functional currency,
translation adjustments are recorded in the accompanying consolidated
statements of operations. None of the Company's translation adjustments were
material as of and for the year ended December 31, 1998 and as of and for the
period from March 19, 1997 (Date of Inception) to December 31, 1997.

 i) Stock Option Plan

     As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), the Company has
chosen to account for employee stock options under Accounting Principles Board
Opinin No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and,
accordingly, recognizes compensation expense for stock option grants to the
extent that the estimated fair value of the stock exceeds the exercise price of
the option at the measurement date. The compensation expense is charged against
operations ratably over the vesting period of the options. In addition, the
Company records compensation expenses for options granted to individuals other
than employees using the fair value approach consistent with SFAS No. 123.

  j) Interest Rate Derivatives

     The Company uses a derivative financial instrument for the purpose of
reducing its exposure to adverse fluctuations in interest rates. The
counterparty to the only derivative financial instrument in effect as of
December

                                     F-12
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   31, 1998 is CIBC. The Company is exposed to credit loss in the event of
nonperformance by CIBC. As of December 31, 1998 the Company does not utilize
derivative financial instruments for trading or other speculative purposes.

     For interest rate derivatives to qualify for hedge accounting, the debt
instrument being hedged must expose the Company to interest rate risk and, at
the inception of the derivative instrument and throughout the period the
derivative is held, there must be a high correlation of changes in the market
value of the derivative and interest expense of the hedged item. Gains and
losses on interest rate derivatives and other derivative instruments which do
not meet this criteria would be recorded in the statement of operations.

     As discussed in Note 5, the Company has entered into an interest rate swap
agreement to hedge its exposure to interest rates on its long term debt. Since
this agreement qualifies for hedge accounting, the net cash amounts paid or
received on the agreement are accrued and recognized as an adjustment to
interest expense on the related debt.

  k) Net Loss Per Share

     GCL's basic net loss per share is computed using the weighted average
number of shares of GCL Common Stock outstanding. GCL's diluted net loss per
share is computed using the weighted average number of shares of GCL Common
Stock outstanding and GCL Common Stock equivalents including shares issuable
under options and warrants that are dilutive using the treasury stock method
(see Note 12).

     Since the Company is a wholly-owned subsidiary of GCL, per share and
quarterly per share information is not presented.

  l) Income Taxes

     The Company recognizes current and deferred income tax assets and
liabilities based upon all events that have been recognized in the consolidated
financial statements as measured by the provision of the enacted tax laws.

  m) Recently Adopted and New Accounting Standards

     The Financial Accounting Standards Board has recently issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 is effective for periods beginning after December 15, 1997.
There was no impact to the consolidated financial statements due to the
adoption of SFAS 130 in 1998. The Financial Accounting Standards Board has also
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which is effective
for periods beginning after June 15, 1999. Management does not expect the
impact of the adoption of SFAS 133 on the Company's consolidated financial
position or results of operations to be material.

     The American Institute of Certified Public Accountants recently issued
Statement of Position 98-5, "Reporting on the Cost of Start-Up Activities"
("SOP 98-5"). The Company is required to adopt SOP 98-5 during January, 1999.
The adoption of SOP 98-5 will result in a charge against net income in the
statement of operations of the first quarter of 1999 which management estimates
will be approximately $15 million. This charge is comprised primarily of costs
incurred for System startup activities that were previously capitalized to
Systems not yet ready for service. The $15 million charge represents less than
1% of the projected total costs of the Systems currently under development by
the Company.

  n) Reclassifications

     Certain prior year amounts have been reclassified in the consolidated
financial statements for consistent presentation.

                                      F-13
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


3. GLOBAL CROSSING NETWORK

     GCH is a provider of Internet and long distance telecommunications
facilities and related services supplying its customers with global "point-to-
point" connectivity. As such, the Company is engaged in only one business
segment worldwide, and derives its revenues from customers located in the
following geographic regions: the Americas, Europe and Asia Pacific. The
Company also maintains long-lived assets in these regions; however, the
majority of these assets are in international waters. In addition, the Company
derives all of its revenues from companies in the Internet and long distance
telecommunications industry and, as a result, has concentration of credit risk
in this industry.

     Financial information relating to the Company's consolidated operations
by geographic area was as follows:

<TABLE>
<CAPTION>
                                               1998                 1997
                                      ---------------------- -------------------
                                                  Long-Lived          Long-Lived
                                      Revenues(a) Assets(b)  Revenues Assets(b)
                                      ----------- ---------- -------- ----------
                                                    (In thousands)
<S>                                   <C>         <C>        <C>      <C>
North America
  United States......................  $200,489   $   70,555 $    --   $ 50,169
  Canada.............................    68,351          --       --        --
                                            ------------------------------------
                                        268,840       70,555      --     50,169
                                            ------------------------------------
Europe
  The Netherlands....................    46,832                   --
  Germany............................    35,933                   --
  Other..............................    72,494                   --
                                            ------------------------------------
                                        155,259      161,535      --    107,412
                                            ------------------------------------
Asia Pacific.........................       --           --       --        --
International waters.................       --       770,966      --    360,937
                                            ------------------------------------
Consolidated.........................  $424,099   $1,003,056 $    --   $518,518
                                       ========   ========== ========  ========
</TABLE>
--------
   (a) Revenues for the year ended December 31, 1998 by region are classified
according to the location of the customer. During 1998, there was one customer
located in the United States that accounted for 16% of consolidated revenue,
another customer located in Canada that accounted for 16% of consolidated
revenue, and one customer located in the Netherlands that accounted for 11% of
consolidated revenue.
   (b) Long-lived assets include capacity available for sale and construction
in progress as of December 31.

Atlantic Crossing ("AC-1")

     ACL, formerly Global Telesystems Ltd., an indirect wholly-owned
subsidiary of GCH, entered into a fixed price contract with TSSL for the
construction of AC-1, an upgradeable undersea fiber optic cable ring,
connecting New York, the United Kingdom, the Netherlands and Germany. AT&T
Corp. provided ACL with a guarantee in respect of TSSL's obligations under the
contract. Certain segments of AC-1 were accepted by ACL and made available for
commercial service during 1998. TSSL retains title ownership of segment assets
in United States territory until GT Landing Corp., a United States wholly-
owned subsidiary of ACL, exercises its $10,000 bargain purchase option to
purchase title. Pursuant to the contract, TSSL granted GT Landing Corp. an IRU
for the estimated 25 year life of the system. GT Landing Corp. accounted for
the IRU as a capital lease, since the IRU transfers the risks and rewards of
ownership to GT Landing Corp. The United States assets governed by this IRU
includes all landing station assets (with the exception of the building and
land, to which GT Landing Corp. has title), fiber optic cable located in the
United States and the landing license. The Company entered into a

                                     F-14
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   capital lease for the landing station building and conduit in both Germany
and the Netherlands. ACL entered into a $482 million credit facility to
finance, in part, the construction and financing of AC-1.

Mid-Atlantic Crossing ("MAC")

     Mid-Atlantic Crossing Ltd. ("MACL"), an indirect wholly-owned subsidiary
of GCH, entered into fixed price contracts with Alcatel Submarine Networks in
June 1998 and TSSL in October 1998 for the construction of MAC, an upgradeable
undersea fiber optic cable ring connecting New York, the Caribbean and Florida.
The estimated cost of the System is $330 million and is expected to be ready
for service in December 1999 ("MAC RFS date"). Companies have been incorporated
in each country in which the cable will land in order to own the portion of the
System located in each country and the related territorial waters. MACL entered
into a $260 million credit facility to finance, in part, the construction and
financing of MAC. See Note 5.

Pan American Crossing ("PAC")

     In July 1998, the Company, through its indirect wholly-owned subsidiary,
Pan American Crossing Ltd. ("PACL"), entered into a fixed price contract with
TSSL for the construction of PAC, an upgradeable undersea fiber optic cable
System connecting California, Mexico and Panama and the Caribbean. The
estimated cost of the System is $495 million. PACL signed a commitment letter
to obtain up to $300 million of non-recourse indebtedness to finance, in part,
the construction and financing of PAC.

Pan European Crossing ("PEC")

     The Company is also developing PEC, a 10,000 km upgradeable terrestrial
fiber optic system connecting 24 European cities to each other and to AC-1. The
construction costs of PEC are estimated to be $850 million. In October 1998,
the Company entered into an agreement with VersaTel Telecom Europe B.V.
("VersaTel") whereby the Company will secure ownership of optical fiber
conduits on VersaTel's routes connecting Amsterdam, Brussels and the French
border by March 1999 in exchange for capacity and dark fiber on PEC. In
addition, in October 1998, the Company executed an agreement with Cable &
Wireless PLC for the sale of dark fiber on PEC for a purchase price of over
$100 million. Furthermore, in November 1998, the Company executed an agreement
with GasLINE for the construction of a portion of PEC located in Germany. The
Company is currently negotiating with other parties for the acquisition of
rights of way and the acquisition or construction of conduits. Lucent will
supply fiber and equipment for PEC as well as project management and
integration services.

4. INVESTMENT IN AFFILIATES

     In addition to the wholly-owned Systems discussed in Note 3, GCH has
invested in Pacific Crossing Ltd. and Global Access Ltd. (together
"affiliates") which are developing Pacific Crossing ("PC-1") and GAL
respectively, which are also part of the Global Crossing Network.

 Investment in Pacific Crossing Ltd. ("PCL")

     In April 1998, a wholly-owned subsidiary of GCH entered into a joint
venture to construct PC-1 which is owned and operated by PCL. The Company has
an economic interest in PCL represented by a 50% direct voting interest and,
through one of the joint venture partners, owns a further 8% economic non-
voting interest. PCL entered into a contract in April 1998 with TSSL to
construct PC-1 for a total price of approximately $1,200 million, which will be
financed through a $400 million equity contribution by the joint venture
partners and an $850 million credit facility. In July 1998, an $850 million
aggregate senior secured non-recourse loan facility

                                      F-15
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   (the "PCL Credit Facility") was executed for the construction and financing
costs of PC-1. The PCL Credit Facility is comprised of an $840 million
multiple drawdown term loan facility and a $10 million working capital
facility. In July 1998, an initial drawdown was made on the term loan facility
to repay a $104 million promissory note used for initial construction costs on
PC-1 as well as fees incurred to secure the credit facility. The Company also
placed $231 million into a restricted cash collateral account to satisfy its
equity funding commitment for its 58% joint venture economic interest in PCL.

 Investment in Global Access Ltd.

     In December 1998, a wholly-owned subsidiary of GCH entered into a joint
venture, Global Access Ltd., to construct and operate GAL, a terrestrial cable
system connecting Tokyo, Osaka and Nagoya with PC-1. The Company has a 49%
interest in Global Access Ltd.

   The investment in affiliates as of December 31, 1998 consists of the
following items:

<TABLE>
      <S>                                                       <C>
                                                                (In thousands)
      Carrying value of investment in PCL...................... $       (2,502)
      PC-1 development costs...................................        163,141
      Carrying value of investment in Global Access Ltd. ......         16,695
                                                                --------------
      Investment in affiliates................................. $      177,334
                                                                ==============
</TABLE>

     The PC-1 development costs represent the estimated unamortized value of
the PCG Warrants as of December 31, 1998 which were granted to Pacific Capital
Group ("PCG") in exchange for the PC-1 system and related rights. In
connection with the formation of PCL, the Company agreed to make available to
PCL the consideration received by the Company in connection with the grant of
the PCG Warrants in addition to the $231 million cash investment to be made by
the Company. See Note 9 for a description of PCG Warrants.

5. LONG TERM DEBT, OBLIGATIONS UNDER INLAND SERVICES AGREEMENTS AND CAPITAL
   LEASES

 AC-1 Credit Facility

  During 1997, ACL entered into a $410 million aggregate senior secured non-
recourse loan facility (the "AC-1 Credit Facility") with a group of banks led
by an affiliate of CIBC and Deutsche Bank AG, for the construction and
financing costs of AC-1. During 1997, the AC-1 Credit Facility was amended to
increase it to $482 million, comprised of a $472 million multiple draw down
term loan facility (the "Term Facility") and a $10 million working capital
facility (the "Working Capital Facility"), to extend AC-1 to include, among
other things, a Netherlands landing site. The AC-1 Credit Facility is secured
by pledges of the stock of ACL and its subsidiaries and security interests in
its assets and revenues. The unused portion of the AC-1 Credit Facility as of
December 31, 1998 was approximately $38 million. Any amounts repaid to the
lenders cannot be re-borrowed, and are effectively permanent reductions in the
AC-1 Credit Facility.

     Under the AC-1 Credit Facility, ACL may select loan arrangements as
either a Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The
Eurodollar interest rate is LIBOR plus 2.0% and the ABR interest rate is the
greatest of (a) the Prime Rate, (b) the Base CD Rate plus 1% and (c) the
Federal Funds Effective Rate plus 0.5%, plus 1.0%. As of December 31, 1998,
all outstanding loans were Eurodollar loans. ACL pays a commitment fee of 0.5%
per annum on the unused portion of the AC-1 Credit Facility. The AC-1 Credit
Facility contains various covenants that (i) limit further indebtedness by ACL
and its subsidiaries, (ii) limit the ability of ACL to pay dividends,
(iii) require ACL to meet certain minimum capacity sales levels and (iv)
require ACL to

                                     F-16
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   meet a minimum interest coverage ratio for the years 1999 through to
maturity of the AC-1 Credit Facility. The AC-1 Credit Facility is repayable in
eight semi-annual installments ("Mandatory Repayments"). All revenues received
as of December 31, 1998 have been used to fund reserve accounts (see Note 2c),
and thereafter were applied against the borrowings. The amount repaid prior to
the AC-1 RFS date was used to reduce the Mandatory Repayments for 1999 to $7
million. The remaining balance is repayable through installments of $100
million in 2000, $141 million in 2001 and $19 million in 2002. Furthermore, ACL
is required to apply against the borrowings 50% of excess cash flows received
after the AC-1 RFS date. If any Mandatory Repayment amount exceeds the
outstanding loan balance, then the outstanding loan balance will be repaid.
Excess cash flow is defined under the terms of the AC-1 Credit Facility as all
cash received from revenues during the period reduced by the payment of OA&M
expenses, commissions under the Sales Agency Agreement, and transfers to
certain reserve accounts.

     Effective December 31, 1997, ACL entered into an interest rate swap
transaction based on one month LIBOR to minimize its exposure to increases in
interest rates on its borrowings. The swap transaction was amended on February
2, 1998 and currently fixes ACL's floating interest rate at 5.7825% on a
notional amount of borrowings ranging between $200 million and $310 million
until January 31, 1999.

  MAC Credit Facility

     During November 1998, MACL entered into a $260 million aggregate senior
secured non-recourse loan facility (the "MAC Credit Facility") with a group of
banks led by CIBC and Deutsche Bank AG, for the construction and financing
costs of MAC. The MAC Credit Facility is comprised of a $250 million multiple
draw down term loan facility (the "MAC Term Facility") and a $10 million
working capital facility (the "MAC Working Capital Facility"). Of the $250
million MAC Term Facility, $31 million is restricted for purposes of funding
the first System upgrade. The MAC Credit Facility is secured by pledges of the
stock of MACL and its subsidiaries and security interests in its assets and
revenues.

     Under the MAC Credit Facility, MACL may select loan arrangements as either
a Eurodollar loan or an Alternative Base Rate ("ABR") Loan. The Eurodollar
interest rate is LIBOR plus 3.0% and the ABR interest rate is the greater of
(a) the Prime Rate and (b) the Federal Funds Effective Rate plus 0.5%, plus
2.0%. As of December 31, 1998, all outstanding loans were Eurodollar loans. MAC
Credit Facility contains various covenants that (i) limit further indebtedness
by MACL and its subsidiaries, (ii) limit the ability of MACL to pay dividends,
(iii) require MACL to meet certain minimum capacity sales levels and (iv)
require MACL to meet a minimum interest coverage ratio for the years 2000
through to the maturity of the MAC Credit Facility. The MAC Credit Facility is
repayable in ten semi-annual installments commencing on the first August 31,
November 30, February 28, or May 31 occurring 165 days after the MAC RFS date,
with $38 million of the principal amount due in the initial year, $45 million
due in the second year, and $59 million due in each of the third, fourth, and
fifth years. If at any semi-annual installment date the outstanding loan
balance is lower than the installment amounts noted in the previous sentence,
then the outstanding loan balance amount will be repaid.

                                      F-17
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  Long Term Debt

     Long term debt consists of the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                                            -------------------
                                                              1998      1997
                                                            --------- ---------
                                                              (In thousands)
   <S>                                                      <C>       <C>
   AC-1 Credit Facility.................................... $ 266,799 $ 162,325
   MAC Credit Facility.....................................     9,192       --
                                                            --------- ---------
   Total debt..............................................   275,991   162,325
   Less: current portion of long term debt.................   (6,393)       --
                                                            --------- ---------
   Long term debt.......................................... $ 269,598 $ 162,325
                                                            ========= =========
   Maturities of long term debt are as follows:
<CAPTION>
   Year Ending December 31,                                 (In thousands)
   <S>                                                      <C>       <C>
   1999.................................................... $   6,393
   2000....................................................    99,555
   2001....................................................   150,792
   2002....................................................    19,251
                                                            ---------
   Total................................................... $ 275,991
                                                            =========
</TABLE>

  Capital Leases and Obligations under Inland Service Agreements

     As described in Note 3, the Company has capitalized the minimum lease
payments of the IRU held by GT Landing Corp. on AC-1 assets held in the United
States The Company has been granted a bargain purchase option to purchase for
$10,000 all rights and title to these assets at any time during the term of
this contract which is 25 years from the AC-1 RFS date. The Company has also
capitalized to construction in progress in the accompanying balance sheets
building and conduit leases in the Netherlands and Germany. As of December 31,
1998, the present value of the payments under these capital leases is $8
million ($12 million as of December 31, 1997).

     Contracts to purchase terrestrial capacity have a duration of 25 years
which represents more than 75 percent of the economic life of the asset being
purchased. Certain of these contracts require payments over the 25 year
period. As of December 31, 1998, the present value of the payments under these
contracts (excluding amounts attributable to operations and maintenance) has
been recorded as obligations under ISAs in the accompanying consolidated
balance sheets in the amount of $31 million ($21 million as of December 31,
1997).

     At December 31, 1998 future minimum payments under these ISAs and capital
leases are as follows:

<TABLE>
<S>                                                              <C>
Year Ending December 31,                                         (In thousands)
1999............................................................ $       18,301
2000............................................................         13,628
2001............................................................          5,513
2002............................................................          5,677
2003............................................................          5,848
Thereafter until 2023...........................................        163,941
                                                                 --------------
Total minimum lease payments....................................        212,908
Less: Amount representing maintenance payments..................       (131,515)
                                                                 --------------
                                                                         81,393
Less: Amount representing interest..............................        (42,301)
                                                                 --------------
Present value of net minimum lease payments..................... $       39,092
                                                                 ==============
</TABLE>

                                     F-18
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. SENIOR NOTES

  New Senior Notes

  The 9 5/8% senior notes due May 15, 2008 issued by GCH, with a face value of
$800 million ("New Senior Notes"), are general unsecured obligations of GCH
and rank senior to any future subordinated indebtedness of GCH and are equal
in right of payment with any future unsecured senior indebtedness of GCH. GCL
and several of GCH's subsidiaries have issued guarantees in respect of these
New Senior Notes, see Note 12. The first interest payment of $38 million on
the New Senior Notes was paid during November 1998. The Company has set aside
$38 million to fund the second interest payment due May 15, 1999. Interest is
payable semi-annually in arrears on each May 15 and November 15. The New
Senior Notes are redeemable at the option of GCH on May 15, 2003 at 104.813%,
May 15, 2004 at 103.208%, on May 15, 2005 at 101.604% and on May 15, 2006 and
thereafter at par. The New Senior Notes are redeemable at the option of the
holders thereof only upon the occurrence of a change in control in GCL. The
indenture governing the New Senior Notes imposes certain limitations on the
ability of GCH and its subsidiaries to, among other things, (i) incur
additional indebtedness (including senior indebtedness) and (ii) pay certain
dividends and make certain other restricted payments and investments.

  Old Senior Notes

  The 12% senior notes issued by GTH with a face value of $150 million, due
March 31, 2004, were repurchased in May 1998 with the proceeds from the
issuance of the New Senior Notes. The Company recognized an extraordinary loss
of $20 million on repurchase comprising a premium of approximately $10 million
and a write-off of approximately $10 million of unamortized deferred financing
costs.

7. MANDATORILY REDEEMABLE PREFERRED STOCK

 10 1/2% Mandatorily Redeemable Preferred Stock

     In December 1998, GCH authorized the issuance of 7,500,000 shares of
preferred stock at a liquidation preference of $100.00 per share plus
accumulated and unpaid dividends. In December 1998, 5,000,000 shares of GCH
Preferred Stock were issued for $500 million in cash and as of December 31,
1998, 5,000,000 shares were issued and outstanding. The Company reserved for
future issuances up to 2,500,000 shares to pay dividends.

  The holders of the preferred stock are entitled to receive cumulative, semi-
annual compounding dividends at an annual rate of 10 1/2% of the $100.00
liquidation preference per share. At the Company's option, accrued dividends
may be paid in cash or paid by issuing additional preferred stock (i.e. pay-
in-kind) until June 1, 2002, at which time they must be paid in cash.
Dividends are payable semi-annually in arrears on each June 1 and December 1.
The preferred stock ranks senior to all common stock of GCH with respect to
dividend rights, rights of redemption or rights on liquidation and on priority
with any future preferred stock of GCH. The preferred stock is junior in right
of payment of all indebtedness of GCH and its subsidiaries. The preferred
stock is non-voting unless the accumulation of unpaid dividends (or if,
beginning on June 1, 2002, such dividends are not paid in cash) on the
outstanding preferred stock is an amount equal to three semi-annual dividend
payments.

  The preferred stock has a mandatory redemption on December 1, 2008 at a
price in cash equal to the then effective liquidation preference thereof, plus
all accumulated and unpaid dividends thereon to the date of redemption. The
preferred stock can be redeemed, in whole or in part, at the Company's option
at redemption prices starting at 105.25% of the liquidation preference in
2003, declining to 103.5% in 2004, 101.75% in 2005 and 100% thereafter. During
the period ended December 31, 1998, no dividends were paid and $4 million in
cumulative dividends were accrued and included in preferred stock as of
December 31, 1998.

  The certificate of designation governing the preferred stock imposes certain
limitations on the ability of the Company to, among other things, (i) incur
additional indebtedness and (ii) pay certain dividends and make certain other
restricted payments and investments.

                                     F-19
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 14% Mandatorily Redeemable Preferred Stock

     In March 1997, GTH authorized 500,000 shares of preferred stock at a
liquidation preference of $1,000 per share. Effective March 25, 1997, 100,000
shares were issued by GTH and there were 109,830 shares as of December 31, 1997
issued and outstanding.

     In connection with the issuance of the preferred stock, the holders
thereof purchased an aggregate of 22,500,000 shares of Old GCL's Class A common
stock for total proceeds of $8 million. Additionally, in connection with the
issuance of the preferred stock, the initial purchaser of the preferred stock
received 39,705,900 shares of Old GCL's Class A common stock for no additional
consideration representing 15% of the aggregate number of Old GCL's Class A, B
and C shares outstanding, after giving effect to the issuance. The initial
purchaser had the right to distribute these Class A shares to purchasers of the
preferred stock.

     The fair value of the 39,705,900 shares of Old GCL's Class A common stock
distributed to preferred shareholders was based on the $.33 per share paid by
the holders of preferred stock for the 22,500,000 Old GCL's Class A shares
purchased for cash. The Company recorded the $13 million estimated fair value
of the Old GCL's Class A common stock issued to the purchasers as a discount in
the carrying value of the preferred stock as of December 31, 1997.

     In June 1998, proceeds from the issuance of the New Senior Notes were used
to redeem this preferred stock. The redemption resulted in a $34 million charge
against additional paid-in capital comprised of a $16 million redemption
premium and $18 million of unamortized discount and issuance cost on the
preferred stock on the date of the redemption. The redemption premium and
write-off of unamortized discount and issuance costs on the preferred stock
were treated as a deduction to arrive at the net loss applicable to common
shareholder in the consolidated statement of operations.

  Preferred stock dividends included the following:
<TABLE>
<CAPTION>
                                                                Period from
                                                                 March 19,
                                                               1997 (Date of
                                              Year Ended       Inception) to
                                           December 31, 1998 December 31, 1997
                                           ----------------- -----------------
                                                     (In thousands)
<S>                                        <C>               <C>
Preferred stock dividends.................      $11,712           $11,112
Amortization of discount on preferred
 stock....................................          618             1,011
Amortization of preferred stock issuance
 costs....................................          351               567
                                                -------           -------
                                                $12,681           $12,690
                                                =======           =======
</TABLE>
 8. FINANCIAL INSTRUMENTS

     The carrying amounts for cash and cash equivalents, restricted cash and
cash equivalents, accounts receivable, accrued construction costs, accounts
payable and accrued liabilities, accrued interest, obligations under inland
services agreements and capital leases and long term debt approximate their
fair value. The fair value of the senior notes, mandatorily redeemable
preferred stock and the interest rate swap are based on market quotes and the
fair values are as follows:

<TABLE>
<CAPTION>
                             December 31, 1998           December 31, 1997
                         --------------------------  --------------------------
                         Carrying Amount Fair Value  Carrying Amount Fair Value
                         --------------- ----------  --------------- ----------
                               (In thousands)              (In thousands)        ---
<S>                      <C>             <C>         <C>             <C>         <C>
Senior notes............    $(796,495)   $(834,000)     $(150,000)   $(150,000)
Mandatorily redeemable
 preferred stock........     (487,375)    (484,375)       (91,925)     (91,925)
Interest rate swap......          --           (26)           --          (115)
</TABLE>


                                      F-20
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

 9. RELATED PARTY TRANSACTIONS

  Advisory Services Agreement ("ASA")

  ACL entered into the ASA with PCG Telecom, an affiliate of PCG which is a
shareholder of GCL. Under the ASA, PCG Telecom provided ACL with advice in
respect of the development and maintenance of AC-1, development and
implementation of marketing and pricing strategies and the preparation of
business plans and budgets. As compensation for its advisory services, PCG
Telecom received a 2% fee on the gross revenues of the Company over a 25 year
term, subject to certain restrictions, with the first such payment to occur at
the AC-1 RFS date. Advances on fees payable under the ASA were being paid to
PCG Telecom at a rate of 1% on signed CPAs until the ASA was terminated, as
described below. Fees paid under the ASA to PCG Telecom were shared amongst
Union Labor Life Insurance Company ("ULLICO"), PCG, CIBC, and Messrs. Winnick,
Cook, Brown, Lee and Porter, all of whom are shareholders of GCL. Effective
June 1998, GCL acquired the rights under the ASA on behalf of the Company for
common stock and contributed such rights to the Company as the ASA was
terminated. This transaction was recorded in the consolidated financial
statements as an increase in additional paid-in capital of $135 million and a
charge against operations in the amount of $138 million. GCL contributed this
cost to GCH and as a result of these transactions, GCH recorded a non-
recurring charge of $138 million. The $138 million is comprised of a $135
million settlement of the fees that would have been payable and the
cancellation of $3 million owed to the Company under a related advance
agreement. The $135 million amount was calculated by applying the 2% advisory
services fee to projected future revenues and discounting the amount relating
to AC-1 revenues by 12% and the amount relating to all other system's revenues
by 15%. The result of this calculation was $156 million, which amount was
subsequently reduced to $135 million. Both the discount rates and the ultimate
valuation were determined as a result of a negotiation process including a non
management director of the Company and the various persons entitled to fees
under the ASA. The Company obtained a fairness opinion from an independent
financial advisor in connection with this transaction. In addition, the
Company incurred approximately $2 million of advisory fees prior to
termination of the contract, for a total expense of $140 million for the year
ended December 31, 1998.

  PCG Warrants

     Prior to January 21, 1998, PCG and its affiliates began development of
systems other than AC-1, namely PC-1, MAC and PAC. Through January 21, 1998,
such development included assembling a management team, negotiating with
potential suppliers, partners, financing sources, obtaining preliminary market
and feasibility studies and developing technical requirements. During January
1998, GCL's Board determined that it was in GCL's best interests to pursue
these new systems, obtain the results of the work and the employees then
within the scope of activity of PCG and broaden the goals, objectives and
business plan of the Company. In consideration of PCG transferring the results
of its activities and becoming limited in its future activities in fiber optic
telecommunications other than through GCL, GCL's Board approved and the
shareholders subsequently ratified a transaction whereby PCG received
approximately $7 million (representing PCG's costs related thereto) and Old
GCL entered into a warrant agreement ("PCG Warrants") under which PCG was
issued three separate warrants permitting PCG to purchase (i) 18,453,184 of
Old GCL's Class B shares for an aggregate price of $50 million; (ii) an
additional 9,226,594 of Old GCL's Class B shares for an aggregate price of $31
million; and (iii) an additional 9,226,594 of Old GCL's Class B shares for an
aggregate price of $38 million. The PCG Warrants were granted in exchange for
the rights to commence the development of the new projects that previously had
been under development by an affiliate of PCG.

     PCG Warrants became exercisable upon the completion of the IPO. The PCG
Warrants give each holder the option to convert each share under warrant into
a fraction of a Class B share based upon the ratio of the current per share
valuation at the time of conversion less the per share exercise price of the
warrant divided by the current per share valuation at the time of conversion
multiplied by the 36,906,372 shares available under the

                                     F-21
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   PCG Warrants, together with a new warrant ("New PCG Warrants") to purchase
the remaining fraction of such Class B share at an exercise price equal to the
then current per share valuation. Prior to the IPO, the holders of the PCG
Warrants exercised their warrants to acquire Class B shares by way of the
cashless conversion and the New PCG Warrants were issued with an exercise price
based on the per share valuation at the conversion date.

     The Company accounted for the cashless conversion of the PCG Warrants,
which occurred as of June 1998, using the current estimated per share valuation
at the expected conversion date, multiplied by the number of Class B shares
estimated to be converted in exchange for the PCG Warrants. The value
attributed to the PCG Warrants as described below was contributed to the
Company by the Company's parent, GCL. The resulting value under this
calculation is approximately $213 million, which was allocated to the new
systems in exchange for the PCG Warrants. In connection with the formation of
PCL, the Company agreed to make available to PCL the consideration received by
the Company in connection with the grant of the PCG Warrants, in addition to
the $231 million cash investment made by the Company. Therefore, the Company
recorded an increase in its investment in PCL in the amount of approximately
$127 million and an increase in construction in progress for PAC and MAC in the
amounts of approximately $50 million and $36 million, respectively, with a
corresponding increase of $213 million in additional paid-in capital. The $213
million was allocated on a pro rata basis to the three projects according to
the estimated cost of each system. The Company's accounting for the PCG
Warrants is pursuant to Emerging Issues Task Force 96-18, "Accounting for
Equity Instruments with Variable Terms that are Issued for Consideration other
than Employee Services under FASB Statement No. 123" ("EITF 96-18"). Under EITF
96-18, the fair value of equity instruments issued for consideration other than
employee services should be measured using the stock price or other measurement
assumptions as of the date at which a firm commitment for performance level has
been reached. The Company has recorded the estimated value of the PCG Warrants
as of June 1998, since the IPO was probable at that date. The $213 million
value attributed to the PCG Warrants as of June 1998 was adjusted to the actual
value of $275 million on the date of the IPO based upon the $9.50 price per
share of the IPO.

     The Company gave accounting recognition for the New PCG Warrants on the
date these warrants were issued, which was the date of the IPO. The Company
valued each of the New PCG Warrants at $3.48 based on an independent valuation
based on the IPO price of $9.50 per share. The New PCG Warrants had a total
value of approximately $43 million. The Company recorded the actual value of
the New PCG Warrants in a manner similar to that described above whereby the
total value was allocated to the investment in PC-1, MAC and PAC based on their
relative total contract costs.

  Other transactions

     In 1998, an affiliate of CIBC was one of the initial purchasers of the New
Senior Notes and preferred stock, a member of the PC-1 and MAC credit facility
syndicates, and was also one of the underwriters of the IPO. CIBC and its
affiliates were paid $19 million in fees and credit facility interest during
the year ended December 31, 1998. In 1997, the Company paid an affiliate of
CIBC approximately $25 million in fees related to the financing obtained under
the Old Senior Notes, the AC-1 Credit Facility, and the issuance of the GCH
Preferred Stock. Of the fees incurred, approximately $6 million related to
underwriting and commitment fees pertaining to the issuance of the GTH
Preferred Stock and was recorded as a reduction in the carrying value of the
GTH Preferred Stock, approximately $9 million related to underwriting,
commitment and advisory fees in connection with the issuance of the Old Senior
Notes and approximately $10 million related to fees associated with obtaining
the AC-1 Credit Facility which was recorded as deferred finance costs.

     In 1998, the Company signed a CPA with Worldport Communications, Inc.
("Worldport"), to acquire capacity on AC-1. Certain officers and directors of
the GCL have direct or indirect equity ownership positions in Worldport,
aggregating less than 10% of the current common stock of Worldport. This
transaction occurred in

                                      F-22
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   the ordinary course of business of the Company and on terms and conditions
no less favorable to the Company than in its other CPAs. The Company
recognized $8 million in revenue from their CPAs with the remaining $50
million to be recognized in future periods.

     In 1997, the Company paid $6 million in fees to PCG and certain of its
key executives, who are shareholders of GCL, and another shareholder for
services provided in respect of obtaining the AC-1 Credit Facility, Old Senior
Notes and the GTH Preferred Stock financing. Of the fees paid, $5 million was
allocated to the AC-1 Credit Facility and Old Senior Notes and recorded as
deferred finance costs and $1 million was allocated to the GCH Preferred Stock
and recorded as a reduction in the carrying value of the preferred stock.

10. TAXES

     The Company accounts for income taxes in accordance with Statement of
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The
provision for income taxes is composed of the following:

<TABLE>
<CAPTION>
                                                               Period from
                                                              March 19, 1997
                                           Year Ended     (Date of Inception) to
                                        December 31, 1998   December 31, 1997
                                        ----------------- ----------------------
                                                     (In thousands)
   <S>                                  <C>               <C>
   Current.............................      $23,413             $   --
   Deferred............................        9,654                 --
                                             -------             -------
   Total income tax expense............      $33,067             $   --
                                             =======             =======
</TABLE>

     Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.

     Bermuda does not impose a statutory income tax and consequently the
provision for income taxes recorded relates to income earned by certain
subsidiaries of the Company which are located in jurisdictions which impose
income taxes.

     Since the Company did not recognize any income for the period March 19,
1997 (Date of Inception) to December 31, 1997, no tax provision was reflected
in earlier periods.

     The following is a summary of the significant items giving rise to
components of the Company's deferred tax assets and liabilities:

<TABLE>
<CAPTION>
                                                      December 31,
                                         ---------------------------------------
                                                1998                1997
                                         ------------------- -------------------
                                         Assets  Liabilities Assets  Liabilities
                                         ------- ----------- ------- -----------
                                           (In thousands)      (In thousands)
<S>                                      <C>     <C>         <C>     <C>
Revenue recognition..................... $   --    $ 6,116   $   --    $   --
Fixed assets............................     --      4,042       --        --
Stock related compensation..............     504       --        --        --
                                         -------   -------   -------   -------
                                         $   504   $10,158   $   --    $   --
                                         =======   =======   =======   =======
</TABLE>

11. COMMITMENTS

  As of December 31, 1998, ACL was committed under contracts with TSSL for
remaining construction costs of AC-1 and its upgrades totaling approximately
$75 million and is committed under the OA&M contract with TSSL to quarterly
payments, over the next eight years, totaling approximately $247 million which
will be borne by the Company's customers.

                                     F-23
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

  ACL is committed to paying TSSL commissions ranging from 3% to 7% on
revenues received until 2002, subject to certain reductions. The Company also
has a commission sharing agreement with TSSL whereby GCH has primary
responsibility for the marketing and sale of capacity of AC-1 and PC-1 and
will share a percentage of commissions payable to TSSL as consideration for
assuming primary responsibility for the sales effort and marketing of the
Company's projects. The SAA with TSSL will terminate in March 2002 with an
option by the Company to extend it until March 2005.

  As of December 31, 1998, MACL was committed under its contracts with Alcatel
Submarine Networks and TSSL for future construction costs totaling
approximately $204 million and as of December 31, 1998 and PACL was committed
under its contract with TSSL for future construction costs totaling
approximately $218 million.

     GCH and its subsidiaries have commitments under various operating leases.
Estimated future minimum lease payments on operating leases are approximately
as follows:

<TABLE>
<CAPTION>
      Year Ending December 31,                                  (In thousands)
      <S>                                                       <C>
      1999.....................................................    $ 4,137
      2000.....................................................      4,261
      2001.....................................................      3,897
      2002.....................................................      3,581
      2003.....................................................      3,380
      Thereafter...............................................     19,911
                                                                   -------
         Total.................................................    $39,167
                                                                   =======
</TABLE>

12. FINANCIAL INFORMATION OF GCL CONSOLIDATED, GCH, GUARANTOR SUBSIDIARIES AND
   NON-GUARANTORS

     As described in Note 1, because Old GCL, GCL and GCH were entities under
common control, the transfers by Old GCL to GCL and GCL to GCH and the Old GCL
Exchange were accounted for similar to a pooling of interests. Accordingly, the
summarized financial information of GCH presented below reflects the accounts of
GTH and its subsidiaries retroactive to inception of GTH (March 24, 1997). Old
GCL, GCL and GTH each provide a guarantee of the New Senior Notes described in
Note 6. Additionally, Global Crossing International, Inc. ("GCI"), a wholly
owned subsidiary of GCH that provides marketing and development services to GCL,
along with its wholly owned subsidiaries, also provide guarantees of the New
Senior Notes. All guarantees are full, unconditional, joint and several. To the
extent companies providing a guarantee have excess cash, dividends or loans of
this cash can be made to GCH without restriction. Two of the Company's non-
guarantor subsidiaries are restricted under long term debt agreements from
making any dividends or loans to GCH effectively for the duration of such long
term debt agreements. Separate financial statements of each subsidiary guarantor
have not been provided because they would not be meaningful to investors.

     We have presented the Balance Sheets, Statements of Operations and
Statements of Cash Flows for GCL Consolidated, GCH, Guarantors and Non-
Guarantors as of and for the year ended December 31, 1998 and as of and for
the period from March 19, 1997 (Date of Inception) to December 31, 1997. We
have also included the GCL Consolidated Statements of Changes in Shareholders'
Equity for the periods from March 19, 1997 (Date of Inception) to December 31,
1997 and for the year ended December 31, 1998. In addition, the reconciliation
of the numerator and denominator for the basic and diluted net loss per share
has been presented along with notes to the GCL financial statements, which are
not applicable to GCH.

     In February 1999, the Board of Directors of GCL declared a 2-for-1 split
of the GCL's common stock in the form of a stock dividend which was effective
on March 9, 1999. All share information presented for GCL gives retroactive
effect to the 100-for-1 stock split in January 1998, 1.5-for-1 stock dividend
in August 1998 and 2-for-1 stock dividend on March 9, 1999.

                                     F-24
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                   Financial Information of GCL Consolidated,
                GCH, Guarantors and Non-Guarantors--(Continued)

<TABLE>
<CAPTION>
                                                                          Elimination
     (In thousands)         GCL        GCH      Guarantors Non-guarantors   Entries    Consolidated
------------------------  --------  ----------  ---------- -------------- -----------  ------------
Balance Sheet as of
December 31, 1998
<S>                       <C>       <C>         <C>        <C>            <C>          <C>
Current assets..........  $  5,270  $  828,279   $ 17,266    $  156,431   $    (5,131)  $1,002,115
Restricted cash and cash
 equivalents............       --          --       3,590       364,010           --       367,600
Accounts receivable,
 net....................       --          --         --         43,315           --        43,315
Capacity available for
 sale...................       --        6,175     11,771       556,903           --       574,849
Construction in
 progress...............       --        2,139      3,134       423,889          (955)     428,207
Deferred finance and
 organization costs,
 net....................       --       30,922        --         17,434        (2,599)      45,757
Investments in and
 advances to
 subsidiaries...........   772,685   1,211,795    460,728       372,104    (2,817,312)         --
Investment in
 affiliates.............       --          --         --        177,334           --       177,334
                          --------  ----------   --------    ----------   -----------   ----------
Total assets............  $777,955  $2,079,310   $496,489    $2,111,420   $(2,825,997)  $2,639,177
                          ========  ==========   ========    ==========   ===========   ==========
Current liabilities.....  $  3,635  $   11,760   $  5,965    $  224,730   $     5,800   $  251,890
Long term debt..........       --          --         --        269,598           --       269,598
Senior notes............       --      796,495        --            --            --       796,495
Deferred revenue........       --          --         --         25,325           --        25,325
Obligations under inland
 services agreements and
 capital leases.........       --          --         --         24,520           --        24,520
Deferred income taxes...       --          --         --          9,654           --         9,654
Mandatorily redeemable
 preferred stock........       --      487,375        --            --            --       487,375
Shareholders' equity....   774,320     783,680    490,524     1,557,593    (2,831,797)     774,320
                          --------  ----------   --------    ----------   -----------   ----------
Total liabilities and
 shareholders' equity...  $777,955  $2,079,310   $496,489    $2,111,420   $(2,825,997)  $2,639,177
                          ========  ==========   ========    ==========   ===========   ==========
<CAPTION>
                                                                          Elimination
     (In thousands)         GCL        GCH      Guarantors Non-guarantors   Entries    Consolidated
------------------------  --------  ----------  ---------- -------------- -----------  ------------
Statement of Operations
For the Year Ended
 December 31, 1998
<S>                       <C>       <C>         <C>        <C>            <C>          <C>
Revenues................  $    --   $       45   $ 14,004    $  423,356   $   (13,306)  $  424,099
                          --------  ----------   --------    ----------   -----------   ----------
Cost of capacity sold...       --          552      3,110       174,830           --       178,492
Operations,
 administration and
 maintenance............       --          --         --         18,056           --        18,056
Termination of Advisory
 Services Agreement.....       --       82,194        --         57,475           --       139,669
Stock related expense...    29,033          59      4,851         2,179         3,252       39,374
Selling, general and
 administrative.........    11,126       1,161     18,169        40,810        (3,033)      68,233
                          --------  ----------   --------    ----------   -----------   ----------
                            40,159      83,966     26,130       293,350           219      443,824
                          --------  ----------   --------    ----------   -----------   ----------
Operating income
 (loss).................   (40,159)    (83,921)   (12,126)      130,006       (13,525)     (19,725)
Other income (expense),
 net....................     1,371     (16,834)    (6,723)        7,743          (959)     (15,402)
Provision for income
 taxes..................       --          --      (1,132)      (31,935)          --       (33,067)
Extraordinary loss on
 retirement of senior
 notes..................       --       (9,750)    (9,959)          --            --       (19,709)
                          --------  ----------   --------    ----------   -----------   ----------
Net income (loss) before
 equity income (loss) of
 subsidiaries...........   (38,788)   (110,505)   (29,940)      105,814       (14,484)     (87,903)
Equity in income (loss)
 of subsidiaries........   (49,115)     61,390    107,389           --       (119,664)         --
                          --------  ----------   --------    ----------   -----------   ----------
Net income (loss).......   (87,903)    (49,115)    77,449       105,814      (134,148)     (87,903)
Preferred stock
 dividends..............       --      (12,681)       --            --            --       (12,681)
Redemption of preferred
 stock..................       --          --     (34,140)          --            --       (34,140)
                          --------  ----------   --------    ----------   -----------   ----------
Net income (loss)
 applicable to common
 shareholders             $(87,903) $  (61,796)  $ 43,309    $  105,814   $  (134,148)  $ (134,724)
                          ========  ==========   ========    ==========   ===========   ==========
</TABLE>

--------------------------------------------------------------------------------

                                      F-25
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                   Financial Information of GCL Consolidated,
                GCH, Guarantors and Non-Guarantors--(Continued)
<TABLE>
<CAPTION>
                                                                         Elimination     GCL
     (In thousands)         GCL       GCH     Guarantors  Non-guarantors   Entries   Consolidated
-----------------------  ---------  --------  ----------  -------------- ----------- ------------
Statement of Cash Flow
<S>                      <C>        <C>       <C>         <C>            <C>         <C>
For the Year Ended
 December 31, 1998
Cash flows from
 operating activities..  $     (22) $(19,991) $ (19,159)     $247,125      $   774    $ 208,727
                         ---------  --------  ---------      --------      -------    ---------
Cash flows from
 financing activities:
 Finance and
  organization costs
  incurred.............        --    (32,232)       --         (5,433)         --       (37,665)
 Investment in and
  advances from (to)
  subsidiaries.........   (382,063) (224,765)   150,815       471,710      (15,697)         --
 Proceeds from issuance
  of common stock,
  net..................    392,298        12         24            96         (132)     392,298
 Proceeds from issuance
  of preferred stock,
  net..................        --    483,000        --            --           --       483,000
 Cash reimbursement to
  certain
  shareholders.........     (7,047)      --         --            --           --        (7,047)
 Redemption of
  preferred stock......        --        --    (134,372)          --           --      (134,372)
 Proceeds from long
  term debt............        --        --         --        290,556          --       290,556
 Repayment of long term
  debt.................        --        --         --       (176,890)         --      (176,890)
 Proceeds from issuance
  of senior notes......        --    796,495        --            --           --       796,495
 Retirement of senior
  notes................        --   (159,750)       --            --           --      (159,750)
 Repayment of debt.....        --    (15,055)       --            --        15,055          --
 (Increase) decrease in
  restricted cash and
  cash equivalents,
  current and long
  term.................        --    (37,861)    16,242      (397,896)         --      (419,515)
                         ---------  --------  ---------      --------      -------    ---------
  Net cash provided by
   financing
   activities..........      3,188   809,844     32,709       182,143         (774)   1,027,110
                         ---------  --------  ---------      --------      -------    ---------
Cash flows from
 investing activities:
 Cash paid for
  construction in
  progress and capacity
  available for sale ..        --        --      (7,205)     (406,791)         --      (413,996)
 Investment in
  affiliates...........        --        --         --        (16,701)         --       (16,701)
                         ---------  --------  ---------      --------      -------    ---------
  Net cash used in
   investing
   activities..........        --        --      (7,205)     (423,492)         --      (430,697)
                         ---------  --------  ---------      --------      -------    ---------
Net increase in cash
 and cash equivalents..      3,166   789,853      6,345         5,776          --       805,140
Cash and cash
 equivalents, beginning
 of year...............        --        --       1,299           154          --         1,453
                         ---------  --------  ---------      --------      -------    ---------
Cash and cash
 equivalents, end of
 year..................  $   3,166  $789,853  $   7,644      $  5,930      $   --     $ 806,593
                         =========  ========  =========      ========      =======    =========
</TABLE>

<TABLE>
<CAPTION>
                            Old                                    Non-    Elimination
     (In thousands)         GCL      GCL      GCH    Guarantors Guarantors   Entries   Consolidated
------------------------  -------  -------  -------  ---------- ---------- ----------- ------------
<S>                       <C>      <C>      <C>      <C>        <C>        <C>         <C>
Balance Sheet as of
 December 31, 1997
Current assets..........  $    33  $    12  $    12   $ 21,307   $  6,597   $    (217)   $ 27,744
Capacity available for
 sale...................      --       --                  --      21,200         --       21,200
Construction in
 progress...............      --       --       --       9,014    488,305         --      497,319
Investments in and
 advances to
 subsidiaries...........   73,964   73,952   73,940    276,897        --     (498,753)        --
Deferred finance and
 organization costs,
 net....................      208      --       169     10,619     15,107        (169)     25,934
                          -------  -------  -------   --------   --------   ---------    --------
Total assets............  $74,205  $73,964  $74,121   $317,837   $531,209   $(499,139)   $572,197
                          =======  =======  =======   ========   ========   =========    ========
Current liabilities.....  $    72  $   --   $   --    $  1,972   $ 88,978   $    (205)   $ 90,817
Long term debt..........      --       --       --         --     162,325         --      162,325
Senior notes............      --       --       --     150,000        --          --      150,000
Obligations under inland
 service agreements and
 capital leases.........      --       --       --         --       3,009         --        3,009
Mandatorily redeemable
 preferred stock........      --       --       --      91,925        --          --       91,925
Shareholders' equity....   74,133   73,964   74,121     73,940    276,897    (498,934)     74,121
                          -------  -------  -------   --------   --------   ---------    --------
Total liabilities and
 shareholders' equity...  $74,205  $73,964  $74,121   $317,837   $531,209   $(499,139)   $572,197
                          =======  =======  =======   ========   ========   =========    ========
Statement of Operation
Period from March 19,
 1997 (Date of
 Inception) to December
 31, 1997
Interest income.........  $   --   $   --   $   --    $    556   $  2,385   $     --     $  2,941
Selling, general and
 administrative.........       42      --       --         200      2,859         --        3,101
                          -------  -------  -------   --------   --------   ---------    --------
Net income (loss) before
 equity income (loss) of
 subsidiaries...........      (42)     --       --         356       (474)        --         (160)
Equity in loss of
 subsidiaries...........     (118)    (118)    (118)      (474)       --          828         --
                          -------  -------  -------   --------   --------   ---------    --------
Net loss................     (160)    (118)    (118)      (118)      (474)        828        (160)
Preferred stock
 dividends..............      --       --       --     (12,690)       --          --      (12,690)
                          -------  -------  -------   --------   --------   ---------    --------
Net loss applicable to
 common shareholders....  $  (160) $  (118) $  (118)  $(12,808)  $   (474)  $     828    $(12,850)
                          =======  =======  =======   ========   ========   =========    ========
</TABLE>

--------------------------------------------------------------------------------

                                      F-26
<PAGE>

                 GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                   Financial Information of GCL Consolidated,
                GCH, Guarantors and Non-Guarantors--(Continued)

<TABLE>
<CAPTION>
                             Old                                        Non-    Elimination
     (In thousands)          GCL       GCL       GCH     Guarantors  Guarantors   Entries   Consolidated
-------------------------  --------  --------  --------  ----------  ---------- ----------- ------------
<S>                        <C>       <C>       <C>       <C>         <C>        <C>         <C>
Statement of Cash Flows
For the Period from March
19, 1997
(Date of Inception) to
December 31, 1997
Cash flows from operating
 activities..............  $    --   $    --   $     --  $     528    $  4,593   $     --    $   5,121
                           --------  --------  --------  ---------    --------   ---------   ---------
Cash flows provided by
 financing activities:
  Finance and
   organization costs
   incurred..............       --        --        --     (16,456)    (11,725)        --      (28,181)
  Investment in and
   advances to
   subsidiaries..........   (75,000)  (75,000)  (75,000)  (272,468)        --      497,468         --
  Proceeds from issuance
   of common stock and
   additional paid-in
   capital...............    75,000    75,000    75,000     73,736     272,468    (497,468)     73,736
  Proceeds from issuance
   of preferred stock....       --        --        --      92,470         --          --       92,470
  Proceeds from long term
   debt..................       --        --        --         --      162,325         --      162,325
  Proceeds from issuance
   of senior notes.......       --        --        --     150,000         --          --      150,000
  Increase in restricted
   cash and cash
   equivalents, current
   and long term ........       --        --        --     (19,851)     (5,424)        --      (25,275)
                           --------  --------  --------  ---------    --------   ---------   ---------
  Net cash provided by
   financing activities..       --        --        --       7,431     417,644         --      425,075
                           --------  --------  --------  ---------    --------   ---------   ---------
Cash flows from investing
  activities:
Cash paid for
 construction in progress
 and capacity available
 for sale................       --        --        --      (6,660)   (422,083)        --     (428,743)
                           --------  --------  --------  ---------    --------   ---------   ---------
  Net cash used in
   investing activities..       --        --        --      (6,660)   (422,083)        --     (428,743)
                           --------  --------  --------  ---------    --------   ---------   ---------
Net increase in cash and
 cash equivalents........       --        --        --       1,299         154         --        1,453
Cash and cash
 equivalents, beginning
 of period...............       --        --        --         --          --          --          --
                           --------  --------  --------  ---------    --------   ---------   ---------
Cash and cash
 equivalents, end of
 period..................  $    --   $    --   $    --   $   1,299    $    154   $     --    $   1,453
                           ========  ========  ========  =========    ========   =========   =========
</TABLE>

<TABLE>
<CAPTION>

     (In thousands)
------------------------
Statement of Changes in                                              Other Shareholders'
Shareholders' Equity For     Common Stock       Treasury Stock             Equity
the Period from March     ------------------ --------------------  ------------------------
19, 1997 (Date of                                                  Additional                               Total
Inception) to December                                              Paid-in      Unearned   Accumulated Shareholders'
31, 1997 and the Year       Shares    Amount   Shares    Amount    Capital(a)  Compensation   Deficit      Equity
Ended December 31, 1998   ----------- ------ ---------- ---------  ----------  ------------ ----------- -------------
<S>                       <C>         <C>    <C>        <C>        <C>         <C>          <C>         <C>
Issuance of common stock
 for cash in March 1997
 (Date of Inception),
 net of $1,264 issuance
 costs..................  325,773,934 $3,258        --  $     --   $   83,713    $    --     $    --      $ 86,971
Preferred stock
 dividends..............          --     --         --        --      (12,690)        --          --       (12,690)
Net loss for the period.          --     --         --        --          --          --         (160)        (160)
                          ----------- ------ ---------- ---------  ----------    --------    --------     --------
Balance, December 31,
 1997...................  325,773,934  3,258        --        --       71,023         --         (160)      74,121
Issuance of common stock
 for cash...............    1,575,000     16        --        --        2,772         --          --         2,788
Cash reimbursement to
 certain shareholders...          --     --         --        --       (7,047)        --          --        (7,047)
Unearned compensation...          --     --         --        --       93,758     (93,758)        --           --
Amortization of
 compensation expense...          --     --         --        --                   37,111         --        37,111
PCG Warrants............   24,406,340    244        --        --      275,054         --          --       275,298
Issuance of common stock
 in exchange for
 termination of Advisory
 Services Agreement.....   14,210,526    142        --        --      134,858         --          --       135,000
Preferred stock
 dividends..............          --     --         --        --      (12,681)        --          --       (12,681)
Premium on redemption of
 preferred stock........          --     --         --        --      (34,140)        --          --       (34,140)
Common stock
 transactions with
 certain shareholders...   21,733,758    217 22,033,758  (209,415)    209,198         --          --           --
Issuance of common stock
 in connection with
 initial public
 offering, net of
 $30,916 issuance costs.   44,420,000    444        --        --      390,630         --          --       391,074
Issuance of common stock
 from exercise of stock
 options................      656,688      7        --        --          692         --          --           699
Net loss................          --     --         --        --          --          --      (87,903)     (87,903)
                          ----------- ------ ---------- ---------  ----------    --------    --------     --------
Balance, December 31,
 1998...................  432,776,246 $4,328 22,033,758 $(209,415) $1,124,117    $(56,647)   $(88,063)    $774,320
                          =========== ====== ========== =========  ==========    ========    ========     ========
</TABLE>
--------
(a) Additional Paid-in Capital has been charged retroactively for the par value
    of the shares issued as a result of the 2-for-1 stock split effected in the
    form of a stock dividend effective on March 9, 1999.



                                      F-27
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

                   Financial Information of GCL Consolidated


<TABLE>
<CAPTION>
                                                                Period from
                                                               March 19, 1997
                                             Year Ended     (Date of Inception)
                                          December 31, 1998 to December 31, 1997
                                          ----------------- --------------------
<S>                                       <C>               <C>
NET LOSS PER COMMON SHARE
Loss applicable to common shareholders
 before extraordinary item
 Basic and diluted......................     $     (0.32)       $     (0.04)
                                             ===========        ===========
Extraordinary item
 Basic and diluted......................     $     (0.06)       $       --
                                             ===========        ===========
Net loss applicable to common
 shareholders
 Basic and diluted......................     $     (0.38)       $     (0.04)
                                             ===========        ===========
Shares used in computing basic and
 diluted loss per share.................     358,735,340        325,773,934
                                             ===========        ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                               Period from
                                                              March 19, 1997
                                            Year Ended     (Date of Inception)
                                         December 31, 1998 to December 31, 1997
                                         ----------------- --------------------
                                              (In thousands, except share
                                               and per share information)
<S>                                      <C>               <C>
Basic and Diluted
 Loss before extraordinary item.........    $   (68,194)       $      (160)
 Preferred stock dividends..............        (12,681)           (12,690)
 Redemption of preferred stock..........        (34,140)               --
                                            -----------        -----------
 Loss applicable to common shareholders
  before extraordinary item.............    $  (115,015)       $   (12,850)
                                            ===========        ===========
Weighted average share outstanding:
 Basic and diluted......................    358,735,340        325,773,934
                                            -----------        -----------
Loss applicable to common shareholders
 before extraordinary item:
 Basic and diluted......................    $     (0.32)       $     (0.04)
                                            ===========        ===========
</TABLE>

  Dilutive options and warrants did not have an effect on the computation of
diluted loss per share in 1998 and 1997 since they were anti-dilutive.

  All footnotes in these GCH consolidated financial statements are applicable
to both GCH and GCL. Footnotes (i) through (iv) below are applicable to GCL
only:

(i) RELATED PARTY TRANSACTIONS

  In 1998, GCL purchased all common shares owned by Telecommunications
Development Corporation ("TDC") in GCL in exchange for 300,000 fewer newly
issued shares of common stock based upon the per share value at the repurchase
date. The transaction benefited GCL since 300,000 fewer shares were
outstanding after the repurchase without any cost to GCL. This transaction was
accounted for by GCL as the acquisition of treasury stock and was recorded as
$209 million, the fair value of the consideration given. Certain officers and
directors of GCL held direct or indirect equity ownership positions in TDC,
resulting in these officers and directors having a majority of the outstanding
common stock of TDC. Following this transaction, TDC distributed all of its
shares of common stock and GCL warrants to the holders of its common stock and
was then liquidated.

(ii) EMPLOYEE BENEFIT PLANS

  During 1998, GCL adopted a stock option plan under which options to acquire
up to 33,215,730 shares may be granted to directors, officers, employees and
consultants of GCL. GCL accounts for this plan under APB Opinion No. 25, under
which compensation cost is recognized only to the extent that the market price
of the stock exceeds the exercise price. Options issued to consultants are
accounted for under SFAS 123. Terms and conditions of GCL's options, including
exercise price and the period in which options are exercisable, generally are
at the discretion of the Compensation and Stock Option Committee of the Board
of Directors; however, no options are exercisable more than ten years after
date of grant.

                                     F-28
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            Financial Information of GCL Consolidated--(Continued)

  Additional information regarding options granted and outstanding for the
year ended December 31, 1998 is summarized below:

<TABLE>
<CAPTION>
                                                                      Weighted
                                               Options                Average
                                              Available   Number of   Exercise
                                              For Grant    Options     Price
                                             -----------  ----------  --------
   <S>                                       <C>          <C>         <C>
   Balances as of December 31, 1997.........         --          --      --
    Authorized .............................  33,215,730
    Granted................................. (30,762,466) 30,762,466   $2.85
    Exercised...............................                (656,688)   1.06
    Cancelled...............................   3,253,000  (3,253,000)   1.11
                                             -----------  ----------   -----
   Options outstanding as of December 31,
    1998....................................   5,706,264  26,852,778   $3.11
</TABLE>

  The following tables summarize information concerning outstanding and
exercisable options at December 31, 1998.

<TABLE>
   <S>                <C>         <C>                   <C>              <C>         <C>
                                     Options Outstanding                     Options Exercisable
                      -------------------------------------------------- ----------------------------
                                    Weighted Average    Weighted Average             Weighted Average
       Range of         Number    Remaining Contractual  Exercise Price    Number     Exercise Price
    Exercise Prices   Outstanding    Life (in years)       per Share     Exercisable    per Share
   ----------------   ----------- --------------------- ---------------- ----------- ----------------
        $0.83          15,717,280          9.2          $ 0.83             4,803,833 $ 0.83
     2.00 to 3.33       6,844,598          9.5            3.13             1,625,000   3.33
    9.50 to 13.26       4,290,900          9.7           11.44               302,834  11.34
   ----------------   ----------- --------------------- ---------------- ----------- ----------------
   Total               26,852,778          9.3          $ 3.11             6,731,667 $ 1.91
                      =========== ===================== ================ =========== ================
</TABLE>

  During 1998, GCL entered into an employment arrangement with a key
executive, and granted him economic rights to purchase 533,334 shares of
common stock and options to purchase 1,066,667 shares of common stock, in each
case at $2.00 per share. The economic rights vested immediately and the
options will vest over two years. GCL recorded the excess of the fair market
value of these options and rights over the purchase price as unearned stock
compensation in the amount of $15 million during the year ended December 31,
1998. The unearned compensation is being recognized as an expense over the
vesting period of the rights and options.

  Through December 31, 1998, GCL recorded in additional paid-in capital $94
million of unearned compensation, relating to awards under the stock incentive
plan plus the grant of certain economic rights and options to purchase common
stock granted to a senior executive as discussed above. During the year GCL
recognized expense of $31 million of stock related compensation relating to
the stock incentive plan and $6 million for the vested economic rights to
purchase common stock. The remaining $57 million of unearned compensation will
be recognized as follows: $28 million in 1999, $21 million in 2000 and $8
million in 2001. In addition, GCL recognized $2 million in stock related
expense for shares issued during the year.

  As permitted by SFAS No. 123, GCL accounted for employee stock options under
APB 25 and is recognizing compensation expense over the vesting period to the
extent that the fair value of the stock on the date the options were granted
exceeded the exercise price. Had compensation cost for GCL's stock-based
compensation plans been determined consistent with the SFAS No. 123 fair value
approach, the impact on GCL's loss applicable to common shareholders and loss
per share would be as follows:

<TABLE>
<CAPTION>
                                                            Period from
                                                           March 19, 1997
                                        Year Ended     (Date of Inception) to
                                     December 31, 1998   December 31, 1997
                                     ----------------- ----------------------
                                            (In thousands, except per
                                                share information)
     <S>                             <C>               <C>
     Net loss applicable to common
      shareholders:
       As reported..................     $(134,724)           $(12,850)
       Pro forma....................     $(141,585)           $(12,850)
       Basic and diluted net loss
        per share:
       As reported..................        $(0.38)             $(0.04)
       Pro forma....................        $(0.39)             $(0.04)
</TABLE>

                                     F-29
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            Financial Information of GCL Consolidated--(Continued)

  Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using the Black-Scholes option-pricing model assuming a four year
expected life with the following assumption:

<TABLE>
<CAPTION>
                                                                Weighted
                       Expected     Expected    Risk Free   Average Estimated
     Date Granted   Dividend Yield Volatility Interest Rate    Fair Value
    -------------------------------------------------------------------
     <S>            <C>            <C>        <C>           <C>
     1998
      January 21 *        0%           0%         5.45%           $0.16
      April 03 *          0%           0%         5.45%            3.77
      June 12 *           0%           0%         5.45%            4.92
      August 09           0%          32%         5.45%            3.19
      September 14        0%          32%         5.45%            9.51
      September 18        0%          32%         5.45%            3.44
      December 01         0%          42%         5.45%            9.77
</TABLE>

    -------------------------------------------------------------------

* Option granted prior to GCL's IPO

  During 1998, the weighted average fair value of options issued at market
value was $0.88 and those issued less than market value was $5.33.

  The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because GCL's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of GCL's options.

 401(k) Plan

  GCL offers its qualified employees the opportunity to participate in a
defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue Code. Each eligible employee may
contribute on a tax-deferred basis a portion of their annual earnings not to
exceed certain limits. GCL matches one-half of individual employee
contributions up to a maximum level not exceeding 7.5% of the employee's
compensation. GCL's contributions to the plan vest immediately.

  Expenses recorded by GCL relating to its 401(k) plan were approximately $0.2
million for the year ended December 31, 1998, the first year of the 401(k)
plan.

(iii) OLD GCL COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

  Information with respect to Old GCL common stock and additional paid-in
capital prior to the Old GCL Exchange is as follows:

  Common Stock:

    Authorized:

      1,000,000,000 Class A common stock of $.00000067 par value

      1,000,000,000 Class B common stock of $.00000067 par value

      1,000,000,000 Class C common stock of $.00000067 par value

      3,000,000,000 Class D common stock of $.00000067 par value

      1,000,000,000 Class E common stock of $.00000067 par value

      43,000,000,000 undesignated common stock of $.00000067 par value

  As discussed in Note 1, in January 1998, Old GCL effected a 100 for 1 stock
split of each of the Class A, B, C and D common stock and undesignated stock
and amended the par value of each share of common stock from $.0001 per share
to $.000001 per share. Shares of common stock of Old GCL outstanding have been
retroactively restated to reflect the equivalent number of shares of GCL that
were issued in the Old GCL Exchange as discussed in Note 1. Class A shares,
Class B shares and Class C shares all had voting rights. On March 25, 1997,
Old GCL issued 22,500,000 Class A shares, 101,250,000 Class B shares,
101,250,000 Class C shares for $.33 per share, resulting in aggregate proceeds
of $75 million. In addition to the 22,500,000 Class A shares issued to the
preference shareholders for cash in connection with the issuance of the
preference shares, a total of 39,705,900 Class A shares were distributed to
the initial preference shareholder representing 15% of the aggregate number of
Class A, B and C shares outstanding. In addition, warrants to acquire a
maximum of 92,880 shares of common stock of Old GCL were issued into escrow
for the benefit of the holders of preferred stock. Effective January 21, 1998,
Old GCL authorized 1,000,000,000 new Class E non-voting shares.

                                     F-30
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

            Financial Information of GCL Consolidated--(Continued)

  Certain of the Class B shareholders were issued a total of 66,176,400 Class
D shares on March 25, 1997. Of the $34 million of proceeds received from the
issuance of Class B shares, $3 million was allocated to the Class D shares
representing the estimated fair value of the Class D shares based on an
independent valuation. Class D shares were non-voting shares which carried
special preference rights on the cash distributions made by Old GCL. Class D
shareholders were to receive 10% of cash distributions to common shareholders
once the internal rate of return to Class C shareholders exceeded 10%, and
then increasing to 20% of cash distributions to common shareholders once the
internal rate of return to Class C shareholders exceeded 30%. Effective
January 1998, Class D share rights were amended such that Class D shareholders
received the option to convert each Class D share into one Class E share upon
payment to Old GCL of $.74 per share or to a fraction of a Class E share based
upon a valuation at the time of such conversion, together with a warrant to
purchase the remaining fraction of such Class E share at an exercise price
based upon such market valuation. By granting to holders of the Class D shares
an option to convert such shares into Class E shares, Old GCL obtained
effective assurance that it could effect a change to a corporate structure in
the event of a major equity event, such as a merger or other business
combination or in the event of an IPO by GCL, of its common stock, since the
holders of the Class D shares would need to exercise their options in order to
participate directly in benefits of a merger or acquisition of Old GCL or in
order to obtain the benefits of any trading market for the common stock of Old
GCL; no trading market was expected to develop for the Class D shares. The
grant of the options to Class D shareholders represents an equity transaction
since Old GCL granted these shareholders amended share rights in the form of
options with new warrants. Since Old GCL had an accumulated deficit, the
charge was made against additional paid in capital, which had no impact on the
consolidated financial statements. Old GCL accounted for the new warrants as
an equity transaction on the date the warrants were issued, which was the IPO
date of August 13, 1998.

  In 1998, Old GCL issued, at a price of $0.33 per share, 900,000 Class B
shares and 675,000 Class E shares. Since the estimated fair value of shares
exceeded the issue price, Old GCL increased stock related expense and
shareholders' equity by $2 million in 1998.

(iv) QUARTERLY FINANCIAL DATA (UNAUDITED)

  GCL's unaudited quarterly results are as follows:

<TABLE>
<CAPTION>
                                              1998 Quarter Ended
                                 ----------------------------------------------
                                 March 31   June 30    September 30 December 31
                                 --------  ----------  ------------ -----------
                                    (In thousands, except per share data)
<S>                              <C>       <C>         <C>          <C>
Revenues.......................  $    --   $  101,256    $117,693    $205,150
Operating income (loss)........    (3,794)   (123,649)     31,994      75,724
Income (loss) before
 extraordinary loss............    (3,722)   (135,725)     15,229      56,024
Net income (loss)..............    (3,722)   (155,434)     15,229      56,024
Net income (loss) applicable to
 common shareholders...........  $ (8,129) $ (193,473)   $ 15,229    $ 51,649
                                 ========  ==========    ========    ========
Income (loss) per common share
 before extraordinary item,
 basic.........................  $  (0.02) $    (0.52)   $   0.04    $   0.13
                                 ========  ==========    ========    ========
Net income (loss) per common
 share, basic..................  $  (0.02) $    (0.58)   $   0.04    $   0.13
                                 ========  ==========    ========    ========
Income (loss) per common share
 before extraordinary item,
 diluted.......................  $  (0.02) $    (0.52)   $   0.04    $   0.12
                                 ========  ==========    ========    ========
Net income (loss) per common
 share, diluted................  $  (0.02) $    (0.58)   $   0.04    $   0.12
                                 ========  ==========    ========    ========
</TABLE>

<TABLE>
<CAPTION>
                             Period from
                           March 19, 1997             1997 Quarter Ended
                         (Date of Inception) --------------------------------------
                          to March 31, 1997  June 30   September 30 December 31
                         ------------------- --------  ------------ -----------
                                 (In thousands, except per share data)
<S>                      <C>                 <C>       <C>          <C>         <C>
Revenues................        $ --         $    --     $    --     $    --
Operating loss..........          --             (142)       (669)     (2,290)
Income (loss) before
 extraordinary loss.....          --            1,205         485      (1,850)
Net income (loss).......          --            1,205         485      (1,850)
Net loss applicable to
 common shareholders....        $(195)       $ (2,836)   $ (3,692)   $ (6,127)
                                =====        ========    ========    ========
Net loss per common
 share, basic and
 diluted................        $ --         $  (0.01)   $  (0.01)   $  (0.02)
                                =====        ========    ========    ========
</TABLE>

                                     F-31
<PAGE>

                GLOBAL CROSSING HOLDINGS LTD. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. SUBSEQUENT EVENTS

 Lucent Agreement

  On January 26, 1999, GCH signed a technology agreement with Lucent
Technologies Inc. that will give the Company access to Lucent's terrestrial
and undersea fiber optic technology. In addition, the Company entered into a
supply contract with Lucent to provide fiber and equipment for PEC. As part of
the supply contract, Lucent will provide certain financing for PEC. The
agreement with Lucent also provides for financing of future systems if they
are selected as the contractor.

 South American Crossing

  On March 11, 1999, GCH announced plans for the development of South American
Crossing ("SAC"), an 18,000 km undersea and terrestrial fiber optic network
directly linking the major cities of South America through MAC and PAC to the
United States, Mexico, Central America, the Carribean, Asia and Europe. GCH
expects that SAC will cost approximately $1,130 million to construct. Service
is scheduled to commence in the fourth quarter of 2000, with full ring
completion expected in the first quarter of 2001. The Company plans to build
SAC in three phases. The first two phases, providing Argentina and Brazil with
connectivity to the Global Crossing Network, are scheduled to commence service
in the fourth quarter of 2000. The final phase, completing the loop around the
continent, is scheduled for completion in the first quarter of 2001. The
undersea portion of SAC is currently planned to be wholly-owned, while the
terrestrial portion is expected to be constructed through joint-venture
arrangements.

 Frontier Acquisition

  On March 16, 1999, GCL entered into a definitive agreement and plan of
merger with Frontier Corporation, a New York corporation ("Frontier"), that
will result in Frontier becoming a wholly-owned subsidiary of GCL or a new
parent holding company of GCL. Frontier is one of the leading providers of
facilities-based integrated communications and Internet services in the United
States. The board of directors of each company has approved the merger.
Completion of the transaction is anticipated to occur during the third quarter
of 1999. The transaction is subject to approval by the shareholders of GCL and
Frontier and to other customary conditions, such as receipt of regulatory
approvals. The Company expects the merger will be accounted for using the
purchase method of accounting.

 Atlantic Crossing-2

  On March 24, 1999, GCH announced its intention to develop and construct
Atlantic Crossing-2 ("AC-2"), an additional eight fiber pair cable connecting
the United States to Europe. AC-2 will be integrated with the two cables of
AC-1, adding a third high-capacity cable across the Atlantic for the Global
Crossing Network and providing AC-2 with self-healing capabilities. The new
cable will cost approximately $750 million and is expected to be in service in
the first quarter of 2001.

Global Marine Acquisition

  On July 2, 1999, the Company acquired the Global Marine business of Cable &
Wireless plc for approximately $868 million. Global Marine currently provides
services, including maintenance under a number of long-term contracts, to cables
built by more than 100 carriers and is the world's largest undersea cable
installation and maintenance company with a fleet of 13 cable ships,
representing approximately 33 percent of the world's total, 21 submersible
vehicles and 1,200 employees servicing approximately 35 percent of the world's
undersea cable miles. Global Crossing initially financed the acquisition with
committed bank financing in the amount of $600 million and the remainder with
cash on hand. The acquisition will be accounted for using the purchase method of
accounting.

Termination of the U S WEST Merger Agreement

  On May 16, 1999, the Company entered into a definitive agreement to merge with
U S WEST, Inc., a Delaware corporation (U S WEST). The new company would have
been 50% owned by Global Crossing/Frontier shareholders and 50% owned by U S
WEST shareholders. As part of the transaction U S WEST made a cash tender offer
for approximately 9.49% of Global Crossing common stock. The tender offer was
completed, with U S WEST acquiring 39,259,305 shares, on June 21, 1999. On July
18, 1999, Global Crossing and U S WEST agreed to terminate their merger
agreement, and U S WEST agreed to merge with Qwest Communications International
Inc. (Qwest). As a result, U S WEST paid Global Crossing a termination fee of
$140 million in cash and returned 2,231,076 shares of Global Crossing Network
common stock purchased in the tender offer, and Qwest committed to purchase
capacity on the Global Crossing at established market unit prices for delivery
over the next four years and committed to make purchase price payments to Global
Crossing for this capacity of $140 million over the next two years. The Company
will record in the third quarter of 1999 the receipt of the termination fee and
Global Crossing common stock, net of expenses in the statement of operations as
other income, net.

Senior Secured Credit Facility

  On July 2, 1999, Global Crossing Holdings Ltd. (GCH), the direct wholly owned
subsidiary of Global Crossing Ltd., entered into a $3 billion Senior Secured
Credit Facility. The Senior Secured Credit Facility is comprised of a $1 billion
5-year Revolving Credit Facility with an initial interest rate of LIBOR plus
2.25%, a $1 billion 5-year Multi-Draw Term Loan A with an initial interest rate
of LIBOR plus 2.25% and a $1 billion 8-year Term Loan B with an initial interest
rate of LIBOR plus 2.75%. The initial commitment fee on undrawn funds is 0.75%.
The purpose of the Senior Secured Credit Facility is to finance or refinance
construction of certain Global Crossing cable systems previously anticipated to
be financed on a per-system basis, to partially finance the Global Marine
acquisition, to fund future growth of Global Crossing and for general corporate
purposes. In connection with the transaction, the Senior Secured Credit Facility
became structurally senior to the Senior Notes for a consent fee of
approximately $32 million, paid directly to the Senior Note holders.

  On July 7, 1999, GCH borrowed approximately $1.5 billion under the Senior
Secured Credit Facility ($1 billion under the 8-year Term Loan B and $500
million under the 5-year Multi-Draw Term Loan A), sufficient to retire the
outstanding obligations under the AC-1 Credit Facility, the MAC Credit Facility
and the financing provide under the Lucent Agreement relating to the PEC and SAC
systems, to refinance the debt incurred in connection with the Global Marine
acquisition as well as to provide for current working capital requirements. As a
result of the Senior Credit Facility, the Company has classified all refinanced
debt in the condensed consolidation balance sheet as of June 30, 1999 as long
term debt.

Republic of Ireland Agreement

  On July 5, 1999 Global Crossing announced an agreement with the government of
the Republic of Ireland to build and maintain an undersea fiber optic cable
system that will link two telehouses in Dublin, via two diverse fiber cables, to
cities in Europe and North America through the Global Crossing Network. The
Irish government will be the system's anchor customer under an $80 million
capacity purchase agreement. This agreement will add an additional city to PEC.

                                     F-32
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf on September 2, 1999 by the undersigned, thereunto duly
 authorized.

                                         Global Crossing Holdings Ltd.

                                         By: /s/ Robert Klug
                                            --------------------
                                             Robert Klug
                                             Controller

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 2, 1999 by the following persons on
behalf of the registrant and in the capacities indicated.


<TABLE>
<S>  <C>
</TABLE>
             Signatures                      Title

     /s/ S. Wallace Dawson, Jr.       Chief Executive Officer and
------------------------------------   Director
       S. Wallace Dawson, Jr.

       /s/ K. Eugene Shutler          President and Director
------------------------------------
         K. Eugene Shutler

          /s/ Robert Klug             Controller and Director
------------------------------------
            Robert Klug

           /s/ Ian McLean             Senior Vice President, Chief
------------------------------------   Operating Officer and Director
             Ian McLean

                                      S-1