##### 



As filed with the
Securities and Exchange Commission on
May 12, 2004 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 20-F [  ]
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 OR [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2003 OR [  ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from N/A to N/A Commission file number: 1-14844 Equant N.V. (Exact name of Registrant as specified in its charter)
 Equant N.V.(Translation of Registrants name into English) The Netherlands(Jurisdiction of incorporation or organization) Heathrowstraat 10
1043 CH Amsterdam,The Netherlands(Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act. Title of each class
    
    Name of each exchange on which registeredOrdinary Shares, nominal value Euro 0.01 per share
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act.None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.None Indicate the number of outstanding shares of each of the issuers classes of
capital or common stock as of the close of the period covered by the annual
report: Ordinary Shares, nominal value Euro 0.01 per share
    
    
    282,813,764Convertible Preference Shares, nominal value Euro 0.01 per share
    
    
    10,000,000
 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 which financial statement item the registrant has
elected to follow. Item 17 [  ] Item 18 [X] 1




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TABLE OF CONTENTS Forward-looking statements
    
    2Presentation of financial information
    
    3PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    3Item 3.
    
    Key Information
    
    3Item 4.
    
    Information on the Company
    
    14Glossary of Selected Telecommunications Terms
    
    36Item 5.
    
    Operating and Financial Review and Prospects
    
    39Item 6.
    
    Directors, Senior Management and Employees
    
    90Item 7.
    
    Major Shareholders and Related Party Transactions
    
    97Item 8.
    
    Financial Information
    
    100Item 9.
    
    The Offer and Listing
    
    101Item 10.
    
    Additional Information
    
    102Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    118Item 12.
    
    Description of Securities Other than Equity Securities
    
    120PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    120Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    120Item 15.
    
    Disclosure Controls and Procedures
    
    120Item 16.
    
    Code of Ethics
    
    121PART IIIItem 17.
    
    Financial Statements
    
    121Item 18.
    
    Financial Statements
    
    121Item 19.
    
    Exhibits
    
    121
 In this document, the Company, Equant, we, us, and our refer to
Equant N.V. The Network refers to the network we operate and which is
described in Item 4. Information on the Company  Business Overview  Our
Skills and Know How. 
 FORWARD-LOOKING STATEMENTS Some of the statements in this document are forward-looking. These
forward-looking statements include statements in Item 4. Information on the
Company relating to competition, trends and anticipated developments in the
industry and the data network services market. These forward-looking statements
also include statements in Item 11. Quantitative and Qualitative Disclosure
About Market Risk and statements relating to our performance in Item 5.
Operating and Financial Review and Prospects. In addition, we may make
forward-looking statements in future filings with the Securities and Exchange
Commission, and in written material, press releases and oral statements issued
by or on behalf of us. Forward-looking statements include statements regarding
our intent, belief or current expectations or those of our officers (including
statements preceded by, followed by or that include forward-looking terminology
such as may, will, should, believes, expects, anticipates,
estimates, continues or similar expressions or comparable terminology) with
respect to various matters. It is important to note that our actual results could differ materially from
those anticipated in these forward-looking statements depending on various
important factors. These important factors include (i) the fact that the
interests of France Telecom, our largest shareholder, may differ from the
interests of our other shareholders (ii) the fact that we may face difficulties
in protecting our minority shareholder rights; (iii) adverse effects of our
relationship with France Telecom, SITA or other indirect sales channels; (iv)
the adverse effects of the vulnerability of the Network to intentional or
unintentional disruption; (v) the effect of, and changes in, regulation and government
policy; (vi) the effects of competition; (vii) the timely development and
acceptance of our new products and services; (viii) the effect of technology
changes in the communications and information technology sector; and (ix) our
success at managing the risks of the foregoing. 2




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All forward-looking statements in this document are based on information
available to us on the date hereof. We do not undertake to update any
forward-looking statements that may be made by us or on our behalf, in this
document or otherwise. In addition, please note that the matters set forth
under the caption Risk Factors constitute cautionary statements identifying
important factors with respect to these forward-looking statements, including
certain risks and uncertainties that could cause actual results to differ
materially from those in such forward-looking statements. 
 PRESENTATION OF FINANCIAL INFORMATION We publish our consolidated financial statements in U.S. dollars. As used in
this document, U.S. dollar, dollar or $ means the currency of the United
States of America, and Euro or  means the Euro, the common currency of
twelve member states of the European Union. Unless otherwise indicated, the
financial information relating to Equant contained in this annual report has
been prepared in accordance with accounting principles generally accepted in
France (French GAAP), which differs in certain significant respects from
accounting principles generally accepted in the United States of America (U.S.
GAAP). See Note 30 to our audited consolidated financial statements for the
years ended December 31, 2001, 2002 and 2003 (together with the notes thereto,
the Consolidated Financial Statements) included elsewhere in this annual
report on Form 20-F for a description of the significant differences between
French GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S.
GAAP of net income, shareholders equity and financial position. Certain
financial information relating to Global One, which is contained in this annual
report has been prepared in accordance with U.S. GAAP. 
 PART I 
 Item 1. Identity of Directors, Senior Management and Advisers This item is not applicable. 
 Item 2. Offer Statistics and Expected Timetable This item is not applicable. 
 Item 3. Key Information SELECTED FINANCIAL DATA You should read the following selected consolidated financial data in
conjunction with Item 5. Operating and Financial Review and Prospects and the
Consolidated Financial Statements, including the notes thereto, found elsewhere
in this document. The following tables present selected financial and other data as of and for
each of the years in the five-year period ended December 31, 2003. We report our results in accordance with French GAAP, which differs in certain
significant respects from U.S. GAAP. Note 30 to the Consolidated Financial
Statements provides a description of the significant differences between French
GAAP and U.S. GAAP as they relate to our business and reconciliations of our
net income for each of the years in the three-year period ended December 31,
2003, shareholders equity and financial position as of December 31, 2002 and
2003 prepared in accordance with French GAAP to those under U.S. GAAP. 3




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The selected French GAAP consolidated financial data for each of the years in
the five-year period ended December 31, 2003 have been derived from the
Consolidated Financial Statements and the notes thereto found elsewhere in this
document and the Companys historical consolidated financial statements and
related notes. PricewaterhouseCoopers, independent accountants, audited the
financial statements for the years ended December 31, 1999 and 2000. The
financial statements for the years ended December 31, 2001 and 2002 were
audited by PricewaterhouseCoopers LLP and Ernst & Young LLP, independent
accountants, as indicated in their joint reports found in the F pages in this
document. Deloitte and Touche LLP, independent accountants, audited the
financial statements for the year ended December 31, 2003, as indicated in
their report found in the F pages in this document. While under French GAAP our combination with Global One is treated as an
acquisition of Global One by us, under U.S. GAAP the transaction is treated as
a reverse acquisition of Equant. Under U.S. GAAP the historical financial data
relate to Global One alone (rather than Equant) in the periods prior to the
date of the business combination. The data for 1999 and 2000 include Global
Ones carrier and calling card services with Global One as the primary obligor
from January 1, 2001 to June 29, 2001 and from June 30, 2001 are included in
the results with Equant undertaking the services as an agent of France Telecom. The selected U.S. GAAP combined financial data for the years ended December 31,
1999 and 2000 have been derived from the combined financial statements of
Global One. The combined financial statements of Global One for the year ended
December 31, 2000 were audited by RSM Salustro Reydel and Ernst & Young Audit,
independent accountants, while the combined financial statements of Global One
for the year ended December 31, 1999 were audited by Ernst & Young Audit,
independent accountants. 4




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Selected Financial Data Presented In Accordance With French GAAP: Year ended December 31,1999(1)
    
    2000(1)
    
    2001(2)
    
    2002
    
    2003(U.S. dollars in millions, except share and per share)Consolidated statement of operations data:Sales of services and products
    
    $
    1,031.3
    
    
    $
    1,473.4
    
    
    $
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    2,948.9Operating profit/(loss)
    
    
    22.3
    
    
    
    15.5
    
    
    
    (267.0
    )
    
    
    (383.9
    )
    
    
    (275.9
    )Net profit/(loss) from continuing operations
    
    
    12.2
    
    
    
    (47.6
    )
    
    
    (387.2
    )
    
    
    (589.7
    )
    
    
    (356.2
    )Discontinued operations
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    10.8
    
    
    
    
    
    
    
    Net profit/(loss)
    
    
    12.0
    
    
    
    (47.9
    )
    
    
    (376.4
    )
    
    
    (589.7
    )
    
    
    (356.2
    )Basic and diluted net loss per share (5)Income/(loss) from continuing operations
    
    
    0.06
    
    
    
    (0.24
    )
    
    
    (1.56
    )
    
    
    (2.01
    )
    
    
    (1.22
    )Discontinued operations, net of tax
    
    
    
    
    
    
    
    
    
    
    0.04
    
    
    
    
    
    
    
    Net income/(loss) per share
    
    
    0.06
    
    
    
    (0.24
    )
    
    
    (1.52
    )
    
    
    (2.01
    )
    
    
    (1.22
    )Weighted average number of shares, basic (5)
    
    
    201,477,046
    
    
    
    201,503,333
    
    
    
    247,985,649
    
    
    
    292,706,013
    
    
    
    292,728,622Weighted average number of shares, diluted (5)
    
    
    203,467,643
    
    
    
    201,503,333
    
    
    
    247,985,649
    
    
    
    292,706,013
    
    
    
    292,728,622Consolidated balance sheet data:Cash and cash equivalents
    
    $
    205.9
    
    
    $
    53.5
    
    
    $
    385.8
    
    
    $
    452.2
    
    
    $
    330.1Accounts receivable and other current assets
    
    
    354.7
    
    
    
    547.2
    
    
    
    1,561.9
    
    
    
    1,277.5
    
    
    
    1,234.0Non-current assets
    
    
    588.3
    
    
    
    1,106.2
    
    
    
    1,771.4
    
    
    
    1,464.5
    
    
    
    1,295.9Total assets
    
    
    1,148.9
    
    
    
    1,706.9
    
    
    
    3,719.1
    
    
    
    3,194.2
    
    
    
    2,860.0Current liabilities
    
    
    289.3
    
    
    
    445.9
    
    
    
    1,305.8
    
    
    
    1,291.8
    
    
    
    1,189.7Long-term liabilities
    
    
    45.6
    
    
    
    519.0
    
    
    
    135.4
    
    
    
    124.4
    
    
    
    141.2Minority interests
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.7
    
    
    
    0.5Capital stock
    
    
    2.4
    
    
    
    2.4
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3Total shareholders equity
    
    
    813.4
    
    
    
    741.6
    
    
    
    2,277.5
    
    
    
    1,777.3
    
    
    
    1,528.6Total liabilities and shareholders
equity
    
    
    1,148.9
    
    
    
    1,706.9
    
    
    
    3,719.1
    
    
    
    3,194.2
    
    
    
    2,860.0Other financial data:Net cash flow provided by/ (used in) operating
activities
    
    $
    96.4
    
    
    $
    69.2
    
    
    $
    (117.4
    )
    
    $
    383.1
    
    
    $
    312.4Net cash flow used in investing
activities
    
    
    (352.0
    )
    
    
    (620.4
    )
    
    
    (129.2
    )
    
    
    (367.8
    )
    
    
    (282.4
    )Net cash flow provided by (used in) financing
activities
    
    
    4.9
    
    
    
    400.9
    
    
    
    574.8
    
    
    
    50.4
    
    
    
    (156.7
    )Operating profit before depreciation,
amortization, share plan and restructuring and
integration (6)
    
    
    158.4
    
    
    
    177.1
    
    
    
    135.3
    
    
    
    192.0
    
    
    
    291.6
 5




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Selected Financial Data Presented In Accordance With U.S. GAAP: Year ended December 31,1999(3)
        
        2000(3)
        
        2001(4)
        
        2002(7)
        
        2003(U.S. dollars in millions, except
          share and per share)Consolidated statement
            of operations data:Sales of services
            and products
        
        $
        1,057.0
        
        
        $
        1,131.7
        
        
        $
        2,102.5
        
        
        $
        2,973.1
        
        
        $
        2,948.9Operating loss
        
        
        (832.6
        )
        
        
        (793.7
        )
        
        
        (8653.2
        )
        
        
        (2,938.5
        )
        
        
        (451.1
        )Net loss from continuing
            operations
        
        
        (904.3
        )
        
        
        (839.0
        )
        
        
        (8726.8
        )
        
        
        (3,105.7
        )
        
        
        (499.4
        )Discontinued operations
        
        
        
        
        
        
        
        
        
        
        14.5
        
        
        
        
        
        
        
        Net loss
        
        
        (904.3
        )
        
        
        (839.0
        )
        
        
        (8712.3
        )
        
        
        (3,105.7
        )
        
        
        (499.4
        )Basic and diluted
            net loss per share (5)Income/(loss) from
            continuing operations
        
        
        (11.22
        )
        
        $
        (10.41
        )
        
        $
        (46.27
        )
        
        $
        (10.99
        )
        
        $
        (1.77
        )Discontinued operations,
            net of tax
        
        
        
        
        
        
        
        
        
        
        0.08
        
        
        
        
        
        
        
        Net income/(loss)
            per share
        
        
        (11.22
        )
        
        $
        (10.41
        )
        
        $
        (46.19
        )
        
        $
        (10.99
        )
        
        $
        (1.77
        )Weighted average
            number of shares, basic (5)
        
        
        80,617,348
        
        
        
        80,617,348
        
        
        
        188,614,419
        
        
        
        282,706,013
        
        
        
        282,728,622Weighted average
            number of shares, diluted (5)
        
        
        80,617,348
        
        
        
        80,617,348
        
        
        
        188,614,419
        
        
        
        282,706,013
        
        
        
        282,728,622Consolidated balance
            sheet data:Cash and cash equivalents
        
        $
        74.4
        
        
        $
        40.6
        
        
        $
        385.8
        
        
        $
        452.2
        
        
        $
        330.1Accounts receivable
            and other current assets
        
        
        476.7
        
        
        
        916.6
        
        
        
        1,560.3
        
        
        
        1,245.7
        
        
        
        1,234.0Non-current assets
        
        
        870.7
        
        
        
        4,908.0
        
        
        
        4,294.7
        
        
        
        1,633.4
        
        
        
        1,454.3Total assets
        
        
        1,421.8
        
        
        
        5,865.2
        
        
        
        6,240.8
        
        
        
        3,331.3
        
        
        
        3,018.4Current liabilities
        
        
        1,273.1
        
        
        
        1,392.3
        
        
        
        1,288.5
        
        
        
        1,303.7
        
        
        
        1,217.3Long-term liabilities
        
        
        17.6
        
        
        
        21.5
        
        
        
        234.0
        
        
        
        186.6
        
        
        
        205.2Minority interests
        
        
        
        
        
        
        
        
        
        
        0.4
        
        
        
        0.7
        
        
        
        0.5Capital stock
        
        
        
        
        
        
        
        
        
        
        3.3
        
        
        
        3.3
        
        
        
        3.3Total shareholders
            equity
        
        
        131.1
        
        
        
        4,451.4
        
        
        
        4,717.9
        
        
        
        1,840.3
        
        
        
        1,595.4Total liabilities
            and shareholders equity
        
        
        1,421.8
        
        
        
        5,865.2
        
        
        
        6,240.8
        
        
        
        3,331.3
        
        
        
        3,018.4Other financial
            data:Net cash flow provided
            by/ (used in) operating activities
        
        $
        (556.1
        )
        
        $
        (555.3
        )
        
        $
        (937.7
        )
        
        $
        242.2
        
        
        $
        167.1Net cash flow used
            in investing activities
        
        
        (369.6
        )
        
        
        (342.0
        )
        
        
        (33.9
        )
        
        
        (367.8
        )
        
        
        (282.4
        )Net cash flow provided
            by/ (used in) financing activities
        
        
        914.4
        
        
        
        869.7
        
        
        
        1,313.1
        
        
        
        191.3
        
        
        
        (11.4
        )
  (1)
    
    Includes the results of Equant only.(2)
    
    Includes the results of Equant for the twelve months ending December 31, 2001 and Global One for the period from June 30, 2001 to December
31, 2001.(3)
    
    Includes the results of Global One, which included the Global One carrier and calling card services with Global One as the primary obligor.(4)
    
    Includes the results of Global One for the twelve months ending December 31, 2001 and Equant for the period from June 30, 2001 through
December 31, 2001. Global Ones carrier and calling card services are included with Global One as the primary obligor from January 1, 2001
to June 29, 2001 and from June 30, 2001 are included in the results with Equant undertaking the services as an agent of France Telecom. 6




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(5)
    
    Basic net loss per share is calculated by dividing net loss by the weighted average number of shares outstanding during each period. Under
U.S. GAAP the weighted average number of shares outstanding in 1999 and 2000 is deemed to be the actual number of shares issued by Equant in
exchange for the contribution of Global One on June 29, 2001 given that Global One did not have consolidated capital stock as it was a
combined entity.(6)
    
    Operating profit before depreciation, amortization, share plan and restructuring and integration should be considered only in conjunction
with all of the information in the Selected Financial Data as well as the Consolidated Financial Statements. You should not consider it to
be an alternative to operating profit/loss as an indicator of our performance or as an alternative to cash flows as a measure of our
liquidity, and it is not a measure of performance calculated in accordance with U.S. GAAP and may not be presented on the face of a U.S.
GAAP income statement. We consider it to be an effective measure of performance as it excludes certain variables that affect net income
(including restructuring activities, asset bases, depreciation policies, financing activities and tax regimes) but may not be directly
related to all financial aspects of our operations.(7)
    
    Under U.S. GAAP, effective January 1, 2002, we adopted the fair value recognition provisions of SFAS No. 123 Accounting for Stock-Based
Compensation (SFAS 123), in accounting for our stock-based compensation plans. Prior to 2002, we applied the intrinsic value method (as
permitted under SFAS 123), defined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations. Under the modified prospective method of adoption for SFAS 123 we selected under the provisions of SFAS 148, Accounting
for Stock-Based Compensation  Transition and Disclosure, compensation cost recognized in 2002 is the same as that which would have been
recognized had the recognition provisions of SFAS 123 been applied from its original effective date. Results for prior years have not been
restated.We also adopted SFAS No. 142 Goodwill and Other Intangible Assets with effect from January 1, 2002, and ceased to amortize goodwill from
that date. Prior to 2002, goodwill was amortized on a straight-line basis over its estimated useful life. 7




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RISK FACTORSYou should carefully consider the risk factors described below in
addition to the other information presented in this document. This document
also contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
we face. Unless otherwise noted, amounts and explanations of disclosures are in
accordance with French GAAP. The Interests Of France Telecom, Our Largest Shareholder, May Differ From The
Interests Of Our Other Shareholders Since acquiring us, France Telecom has taken an active interest in our
business, including operational matters ordinarily decided by our management.
France Telecom, through its subsidiary, Atlas, holds approximately 54.13% of
our voting shares. Accordingly, France Telecom has the ability to control us,
and to determine matters submitted for a vote of shareholders. France Telecom
also has the right to control the appointment and removal of members of the
Management Board and the majority of the members of the Supervisory Board.
Through its control of the Supervisory Board, France Telecom can also require
the Management Board to submit specific matters not specified by the Articles
of Association to the Supervisory Board and direct us to take actions,
including related party transactions, that we may not otherwise take. France
Telecoms interest in exercising these powers may not be consistent with the
interests of our minority shareholders. We have adopted certain corporate governance procedures intended to protect the
interests of minority shareholders, such as requiring the approval of our
independent directors for us to enter into material transactions with France
Telecom or its affiliates. France Telecoms interests as a controlling
shareholder may differ from your interests, and these corporate governance
measures may not adequately protect your interests. You May Face Difficulties In Protecting Your Shareholder Rights Our Articles of Association and Dutch corporate law govern our corporate
affairs. The rights of our shareholders and the responsibilities of our
Supervisory Board directors are distinct from those established under the
statutes or judicial precedent in U.S. jurisdictions. Therefore, our public
shareholders might find it more difficult to protect their interests against
actions of our management, supervisory directors or controlling shareholders
than they would as shareholders of a corporation incorporated in the United
States. Under our Articles of Association, once the general meeting of shareholders
adopts our annual financial statements, the supervisory and management boards
will not be liable with respect to the performance of their duties during the
financial year concerned. This is the case unless the general meeting of
shareholders makes an explicit reservation without prejudice to the Dutch law
provisions. These provisions include those relating to the liability of members
of supervisory and management boards upon the bankruptcy of a company under the
Dutch Civil Code. France Telecom Could Sell Shares Of Ours That It Owns France Telecom could sell our shares at any time, subject to the restrictions
contained in the Contribution Agreement signed by France Telecom, Atlas and
SITA in November 2000. France Telecom currently owns about 54.13% of our
shares. The Contribution Agreement generally prohibits France Telecom from selling or
otherwise disposing of more than an aggregate of 25% of our shares between June
29, 2002 and June 29, 2005. France Telecom can dispose of shares beyond these
limits if our independent directors approve, or if our public shareholders can
participate, or if the transaction would combine us with another company and
France Telecom would hold at least 34% of the voting rights in the new entity.
The Contribution Agreement also prohibits France Telecom from knowingly
permitting a third party to acquire or accumulate an interest in us that makes
that third party our largest shareholder at a level of 34% or more, unless all
of our shareholders are treated the same as France Telecom. 8




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France Telecom could sell shares, within the constraints described above, in
several ways, including public sales or private sales to strategic or other
investors. In addition, because France Telecom controls us, it may be able to
cause us to waive or amend the restrictions of the Contribution Agreement,
although this would require the consent of our independent directors. Any
proposed or actual sale of our shares could cause our share price to decline. We Have A History Of Operating Losses Global One and we have had a history of operating and net losses. In 2001, we had revenues of $2.4 billion, operating losses of $267 million and
net losses of $376 million. As reported under U.S. GAAP, our 2001 revenues were
$2.1 billion, we incurred operating and net losses of $8.7 billion. In
    2002, we had revenues of approximately $3.0 billion, operating losses
    of $384 million and net losses of $590 million. As reported under
    U.S. GAAP, our 2002 revenues were approximately $3.0 billion, we incurred
    operating losses of approximately $2.9 billion and net losses of $3.1 billion. In
    2003, we had revenues of approximately $2.9 billion, operating losses
    of $276 million and net losses of $356 million. As reported under
    U.S. GAAP, our 2003 revenues were approximately $2.9 billion, we incurred
    operating losses of $451 million and net losses of $499 million. We cannot guarantee that we will achieve or maintain profitability by any
measure or, if we do achieve profitability, that we will be able to sustain or
increase it on a quarterly or annual basis in the future. Our Stock Price May Be Volatile Our stock price may be volatile due to a number of factors, including:  
    
    France Telecoms controlling stake in us;
    
    actual or anticipated fluctuations in our operating results or those of comparable companies;
    
    regulatory developments;
    
    technological evolution;
    
    general conditions in the global telecommunications sector or regional economies; or
    
    price and volume fluctuations in the global stock markets. Currency Fluctuations Affect Our Results Currency
    fluctuations can significantly affect our results of operations and financial
    condition. We prepare our Consolidated Financial Statements in U.S. dollars.
    Although the numerous currencies in which we operate have not moved uniformly,
    the U.S. dollar appreciated against all other major currencies during 2001.
    The effect of this appreciation was most pronounced on the Euro, with an appreciation
    of 5.2% in exchange rates during 2001, and an appreciation of 3.0% against
    sterling. In 2002, the U.S. dollar initially continued its upward trend,
    reaching a peak against its major counterparts in the first quarter. After
    a short period of stabilization the dollar started to decline, and overall
    in 2002, the dollar lost 15.4% in value against the Euro, and 10.8% against sterling.
In 2003, this trend continued with the dollar declining by 16.2%
    against the Euro, and 10.1% against sterling and reaching a low point
    against both currencies around year-end. Foreign exchange had a positive effect
    on revenues of approximately $129 million and a negative impact of approximately
    $199 million on costs. In addition, translation adjustments have and will continue to materially
impact our balance sheet. These adjustments resulted in a decrease in our
shareholders equity of $42.4 million in 2001, and increases of $89.5 million
and $107.4 million in 2002 and 2003, respectively. The change in shareholders
equity in each year resulted primarily from the translation of local Network
assets, held in the currency of the countries in which they are located, into
U.S. dollars. We seek to hedge certain exposures from the effect of exchange
rate movements on our results of operations. We might
not effectively hedge our risks and our use of derivative financial
instruments will not have the intended effect of reducing our
foreign exchange exposure. 9




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##### 



We May Require Additional Funding From France Telecom Or External Sources At December 31, 2003, we had $330.1 million of cash and cash equivalents,
including amounts deposited with France Telecom of $138.2 million, which are
accessible to us on demand. We also have an unsecured, short-term
loan receivable of $150 million to France Telecom as of
December 31, 2003. We have signed a $50 million
treasury management agreement with France Telecom. The terms of this agreement
are set forth in Item 5. Operating and Financial Review and Prospects 
Liquidity and Capital Resources. We believe that our existing cash resources will be sufficient to fund our
operations beyond the end of 2004. However, should our expectations regarding
our income and expenses prove incorrect we may require additional cash at an
earlier time, and we may draw down on the treasury agreement from France
Telecom. We do not have financing options in place other than the treasury
management agreement. If we are unable to generate enough cash from our
operations, or to raise additional cash from France Telecom or external
sources, our financial condition would be materially adversely affected and we
might need to reduce our operations. We Are Subject To Network Service Interruptions Like many other data network services providers, we have in the past
experienced, and may in the future experience, interruptions in service. Such
interruptions could be caused either accidentally or intentionally.
Unauthorized use of the network by hackers or others could also potentially
jeopardize the security of confidential information that our customers store or
transmit. In such instances, we may be liable to our customers, although our
customer contracts generally relieve us from liability for consequential
damages. The threat of unauthorized use may also deter potential customers. We
continue to implement what we believe to be industry-standard security and
service continuity protection measures, including the physical protection of
our plant and equipment. Our competitors and we have taken similar measures in
the past, but these measures have from time to time been circumvented. Our
security measures could be circumvented in the future. Addressing security
problems may require interruptions, delays or cessation of services to our
customers, and additional resources. Our customers could cancel their services
if they perceive our Network as being more vulnerable than our competitors, or
if we experience significant Network disruptions. We Are Dependent Upon Our Suppliers We lease transmission capacity from a wide range of suppliers, both to link
customer premises to the Network and for other transmission. We have at times
experienced delays in receiving the transmission capacity we need from
suppliers. We may not be able to obtain these services in the future at a
reasonable cost and within a reasonable time. If we fail to obtain transmission
capacity on a timely basis and at an affordable price in a particular
jurisdiction, or if there is any prolonged interruption to local access
services, or if one of our suppliers fails to honor their obligations to us,
our business, financial condition or results of operations could be adversely
affected. We continually negotiate with a variety of suppliers in order to
reduce our dependency on individual vendors. We rely on a small number of
suppliers (mainly Nortel Networks and Cisco) for the network assets such as
routers and switches we need to operate the Network. We use networking
components that are based on industry standards so that alternate sources of
comparable equipment exist. However, our suppliers also sell products to our
competitors and may become competitors themselves. Our suppliers also might
enter into exclusive arrangements with our competitors or might stop selling
their products to us on commercially reasonable terms or at all. If we are
required to seek alternate suppliers, we would likely experience delays in
obtaining the requisite equipment and pay higher prices for such equipment. We
believe that it is unlikely that delays caused by switching to alternate
suppliers or by the suppliers themselves would adversely affect the provision
of services to our customers. However, we do believe that such delays would be
likely to increase the costs of expanding and maintaining the Network. We purchase capacity on major international routes where it is economically
sensible to do so. The long-term agreements we have entered into (known as
Indefeasible Rights of Use or IRUs) to date qualify as capital leases and
typically involve the prepayment of all lease costs. These payments are included in long-lived assets in our balance sheet. Should the owner of the
capacity fail to honor their contractual commitments, we would be required to
impair the asset and need to record an onerous contract provision for the
operating and maintenance fees we are contractually obligated to pay for the
remaining lease term, but would, in any event, lose the capacity. This could
result in our inability to service customers in part or in full, as well as the
recognition of asset impairment. 10




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Changing Technology Creates Risk For Us Our ongoing success will depend, in part, on our ability to service changing
customer requirements. The data network services industry is characterized by:  
    
    rapidly changing technology;
    
    evolving industry standards;
    
    high levels of competition as information technology integrators enter the market;
    
    frequent new product and service introductions; and
    
    changes in the design and delivery of data network services and customized solutions. We may not successfully identify new product opportunities, bring new products
to market in a timely manner, keep abreast of our customers innovations or
adapt our business to alternate delivery systems. Our inability to
meet evolving industry standards and customer requirements could have a
material adverse effect on our business, financial condition or operational
results. We depend on the ability and willingness of our suppliers to provide us with
the level of service and technology required to offer services to our
customers. Furthermore, we depend on our indirect sales channels ability and
willingness to upgrade their technologies consistently in coordination with us.
Their failure to do so may adversely affect our ability to service our
customers effectively and lead to the loss of customers and revenues. If We Fail To Meet Our Strategic Objectives, We May Not Be Able To Meet Our
Future Business And Revenue Goals We operate in a competitive, rapidly changing environment, and our future
business and operating results depend in part on our ability to adapt to our
customers requirements. In response to the evolving needs of our customers, we
plan to focus on expanding our portfolio of service skills and to
build our consulting, service and project management services, as well as
expanding our integration and managed service businesses, and combine them with
our network services to provide our customers integrated network and IT infrastructure
solutions. The expansion and integration of these service
skills require substantial financial, operational and management resources.
If we do not successfully develop and integrate our portfolio of service skills
or we fail to predict the future service needs of our customers, we may face
competitive disadvantages or be unable to support our clients communications
needs adequately in the future. In addition, if we have underestimated the
cost of this plan, or if we have failed to predict the needs of our
customers in the service sector or are unable to successfully implement this
plan, we may not meet our revenue goals. Our Entry In The Outsourcing Market May Not Be Profitable As we actively pursue opportunities in the communications infrastructure
outsourcing market, we face the risk of reduced short- term profitability
resulting from initial high operating and capital expense required in the first
two years to deliver service to new customers. Our success in this market
depends on our ability to integrate complex and heterogeneous customer
environments; manage our vendors efficiently; reduce the customers cost of operating its communications
services; and successfully migrate the customers communications systems to our
virtual private network. If we are unable to successfully manage all
of these factors, we face the risk of incurring additional losses. If we are successful in winning multiple
outsourcing projects, we may not have the resources to properly manage multiple
outsourcing contracts simultaneously. 11




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We Are Dependent On SITA, Our Largest Customer and Indirect Sales Channel In 2003, SITA accounted for approximately 22%, or $641 million, of our
revenues. SITA is by far our largest customer and indirect sales channel.
SITA derives its revenues almost exclusively from the air transport community.
Ties between SITA and the air transport community are strong, since members of
that community own SITA. The commercial airlines are not, however, required to
use SITA for their communications needs. The ongoing economic downturn in the
air transport industry has already reduced SITAs spending with us. Our
contract with SITA provided minimum revenue guarantees of
$504 million from July 2001 through June 2002 and
$495 million from July 2002 through June 2003. Since the expiration of
the minimum revenue guarantees in June 2003, our revenues from SITA have
decreased by $52 million as compared to the second half of 2002. Now that the
minimum revenue guarantee commitment has expired, we may experience further
significant reductions in SITA revenues, which could adversely affect our
business, financial condition, or results of operations, if we are unable to
generate comparable new revenues from other sources. We Are Dependent On France Telecom, Our Second Largest Customer France Telecom, our second largest customer, accounted for approximately 13%,
or $372 million, of our revenues in 2003. Any significant reductions in France Telecom
revenues could adversely affect our business, financial condition, or results
of operations, if we are unable to generate comparable new revenues from other
sources. None of our other customers (other than SITA) accounted for more than
3% of our revenues in 2003. We Do Not Control Radianz, Our Joint Venture With Reuters, To Which We Have
Certain Obligations We have equal representation on the board of Radianz with Reuters and the
provisions of the shareholders agreement we entered into with Reuters regarding
Radianz suggest that operating decisions are jointly controlled. However, in
practice (and principally due to Radianzs start-up nature), we are unable to
invoke joint control because Reuters remains the dominant customer of Radianz,
and accordingly is in a position to affect significantly the operations of
Radianz without our prior approval. Our ability to affect Radianzs performance is limited by our ability to
influence its operations. Moreover, our ability to generate revenues from
Radianz may be limited if Radianz and we develop conflicting network strategies
in the future or if Reuters ceases to use the Radianz network. Our Failure to Deliver Cost Savings To Reuters Could Adversely Affect Our
Results Of Operations and Our Financial Condition And Cause Us To Lose Our
Investment in Radianz Our agreement with Radianz obligates us to migrate portions of Radianzs
backbone network onto our Network by July 2003. We agreed to deliver cost
savings on the operation of the migrated network. Under the terms of the
agreement with Radianz, we are required to compensate them in cash for any
shortfall in the cost savings anticipated in the agreement (which is calculated
using detailed formulae) if we do not migrate the network by July 2003. We
did not migrate the network by the July 2003 deadline. We have agreed with
Reuters and Radianz to change the nature of the migration due largely to the
more stringent requirements of Reuters. While we cannot now quantify the
amounts we may have to pay to compensate Radianz, this payment could be
material and could adversely affect our results of operations and financial
position. Renegotiation of the Joint Venture Agreement With Reuters May Result In
Additional Costs We have contributed $225 million to Radianz and agreed to provide future
services up to $125 million to Radianz over a period of up to ten years from
the date we entered into these arrangements in July 2000. As of December 31,
2002, we provided Radianz credits of approximately $31 million, in connection
with these future services, and additional $12.5 million in 2003 for a total of
$44 million since inception. We are currently renegotiating the terms of the Radianz joint venture with
Reuters. If these negotiations are unsuccessful or are concluded on terms not
more advantageous to us than the current terms, we may be facing additional
costs. While we cannot now quantify the costs we may incur in connection with
the renegotiation of the joint venture, these costs could be material and could
adversely affect our result of operations and financial position. Moreover, we may fail
to recover our investment in Radianz. 12




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We Are Currently Dependent Upon Sales Through Indirect Channels Indirect channel sales are an important element of our business. The term
indirect channels refers principally to Sprint, Deutsche Telekom, and other
incumbent operators. These indirect channel entities sell our services in
specified regions or market sectors, generally under rebranding arrangements.
Sales through indirect channels other than SITA totaled $345 million, or 12%,
of our revenues in 2003, including approximately $89 million from Radianz, $80
million from Sprint and $24 million from Deutsche Telekom, and an aggregate of
$152 million from other indirect sales channels. Overall
revenues from these indirect sales channels decreased by $70 million in 2003 as compared to
2002. Revenues from these other indirect sales channels will likely decline. We Face Uncertain And Changing Regulatory Restrictions Various restrictive laws, policies, and licensing requirements in the
telecommunications and data network services industries affect our business
operations because they establish regulatory and market access barriers. The
products and services we provide are deregulated and, in some cases, no license
is required. In most of the jurisdictions in which we operate, however, we
generally must obtain licenses or enter into arrangements with locally licensed
operators. Our ability to provide services in those jurisdictions depends on
the continued availability and effectiveness of those licenses or arrangements. In addition, some restrictive telecommunications laws and practices give rise
to constraints, risks and uncertainties. Uncertainty regarding the regulatory
status of managed data network and other services and of our status affects our
ability to offer our full portfolio of services in certain jurisdictions,
particularly in emerging markets. In these jurisdictions, we also face the risk
of a change in the regulatory environment or in our regulatory profile as our
activity level increases. Consequently, we may be subject to fines or other
enforcement actions or onerous licensing obligations. We may also be required
to disconnect customers or introduce new services at a more cautious pace than
might otherwise be the case. Our business, financial condition, or results of
operations could be materially adversely affected if any of these events were
to occur. Our Industry Is Highly Competitive We expect that competition in the data network, integrated and communications
outsourcing services, market will continue to increase as:  
    
    nations further liberalize their telecommunications markets;
    
    the data network industry consolidates;
    
    multinational corporations (MNCs) opt to outsource their communications needs to
reduce their costs;
    
    new technologies emerge; and
    
    excess domestic and international transmission capacity continues to saturate the market. We
expect these factors will continue to place severe downward pressure
on the price of transmission capacity used to deliver our services. In addition, we
will likely face greater competition from competitors with significant
financial and other resources. To compete successfully, we must continue to make our operations more efficient
and find new ways to bring value to our customer base. There is a risk that we
may be unable to maintain or expand our market share as competitive pressures
increase. Failure to do so could harm our revenues and our margins, and
adversely affect our results of operations. 13




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We May Lose Key Employees Our continued success will depend upon the continued efforts of our senior
management team and technical, financial, marketing and sales personnel, as
well as our ability to attract, train, retain and motivate additional highly
skilled and qualified personnel. If we lose the services of key personnel or are unable to attract additional
qualified personnel, this could materially adversely affect our business,
financial condition, and results of operations. 
 Item 4. Information on the Company HISTORY AND DEVELOPMENT OF THE COMPANY Introduction We
provide global, integrated and customized communications
infrastructure solutions,
comprised of data and Internet Protocol (IP) network products and
value-added services as well as network integration services. Our target
customers are MNCs and international institutions such as Ernst & Young, Hanjin
Shipping, Japan Tobacco International, Le Meridien Hotels, Ministry of Foreign
Affairs  Netherlands and Zurich Financial Services. Using our portfolio of
value-added services and the seamless geographic reach of the Network, our
customers can access their own companys information and applications, as well
as applications available from the Internet, anywhere in the world through
direct connections or dial-up from portable computers or other network access
interfaces. Our product portfolio includes:  
    
    managed data and IP network services;
    
    network design and integration services; and
    
    Value-added services such as consulting, project management,
messaging, hosting and security services. Equant N.V. is a corporation organized
under the laws of The Netherlands. Our principal executive office is located at
Heathrowstraat 10, 1043 CH Amsterdam, The Netherlands, and its telephone number
is +31 20 606 9100. We also maintain executive offices in Herndon, Virginia
in the United States and in Paris, France. Our registered office is in
Amsterdam, The Netherlands. Our agent in the United States is Michael Berg,
Senior Vice President and General Counsel, 2355 Dulles Corner Boulevard,
Herndon, Virginia 20171. We define a number of the telecommunications related
terms we use in this document on page 36 in  Glossary of Selected
Telecommunications Terms. Our History The origins of our Network date back to 1949, when major airline companies from
all over the globe formed Société International de Télécommunications
Aéronautiques S.C. (SITA S.C. or SITA) to provide communications and data
processing services to the air transport industry. On March 3, 1995, SITA
formed SITA Telecommunications Holdings N.V. (which we call STH). Later in
1995, SITA restructured its holdings in STH, distributing its stock in STH to a
newly established Dutch foundation, called the SITA Foundation, which held at
that time 85.7% of this stock for the benefit of the SITA member airline
companies and 14.3% of this stock for the benefit of a trust established for
eligible employees of STH and SITA under an employee share award plan. In
October 1995, SITA and STH also entered a joint venture agreement providing for
joint ownership, operation and management of the network and giving each of
SITA and STH indefeasible and exclusive rights of access to the network. Under
the joint venture agreement, STH was given the exclusive right to provide
network services to customers outside the air transport community, while SITA
retained the exclusive right to provide network services to the air transport
community. Early in 1998, we changed our name from STH to Equant N.V. We first offered
our shares to the public in July 1998, with a listing on the New York Stock
Exchange and the Bourse de Paris, now called Paris Euronext. 14




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In
the second quarter of 2000, we formed Radianz with Reuters, a company
that is 51% owned by Reuters and 49% owned by us. Radianz, which commenced
operations on July 1, 2000, provides secure IP network services to the
financial services industry. We contributed $225 million in cash, in addition
to some of our customer contracts, to Radianz and agreed to provide $125
million in services to Radianz over a period of up to ten years. On November 19, 2000, as part of a wider set of separate but interrelated
transactions, we entered into a contribution agreement with France Telecom and
its wholly owned subsidiary, Atlas, which owned Global One. Global One was a
provider of data, voice and IP telecommunications services with its own
backbone network. Global One, which maintained its joint global headquarters in
Reston, Virginia, USA and Paris, France, focused primarily on multinational
businesses and their suppliers, distributors and customers. On completion of
these transactions on June 29, 2001, France Telecom acquired a controlling
interest in us. Pursuant to the execution of numerous contracts among France
Telecom, its subsidiary Transpac, SITA, SITA Information Networking Computing
N.V. (a SITA subsidiary) and us:  
    
    We acquired 100% of Global One in exchange for 80,617,348 newly issued
Equant shares; and
    
    France Telecom subscribed for 10 million of our newly issued convertible preference shares for $1 billion in cash and also acquired
67,950,000 of our shares from the SITA Foundation in exchange for
30,886,364 existing France Telecom shares. France Telecom issued to our shareholders (other than the SITA Foundation) one
Contingent Value Right for each ordinary share held on June 28, 2001. Each CVR
entitles its holder to receive a cash payment from France Telecom of up to 15
at maturity on the third anniversary of the closing of these transactions,
depending on the market value of our ordinary shares at that time. Immediately
following these transactions, France Telecom owned approximately 54.3% of our
voting share capital with the balance held by the public. At the same time, we terminated the Joint Venture Agreement with SITA and
replaced it with several agreements we describe in detail in Item 7. Major
Shareholders and Related Party Transactions. These agreements consisted of
Strategic Relationship Umbrella Agreement, which establishes the general
principles that govern the relationship between us; a Network Services
Agreement, which establishes the terms and conditions that govern our delivery
of network services to SITA; and a Transition and Management Agreement, which
establishes the terms and conditions for the transfer over time of assets and
employees to support the network from SITA to us and our management of the
Network. Under our current arrangement with SITA, we control and manage the
Network. We provide our portfolio of products and services to SITA, who
delivers those services to the air transport community, globally. On June 29, 2001, we also entered into a number of agreements with France
Telecom through its Transpac subsidiary, which establish the legal arrangements
with France Telecom relating to the sale and support of our services in France.
In 2002, we entered into definitive agreements with France Telecom and its
affiliates to support its carrier and voice businesses. These agreements were
contemplated and referenced in Annexes to the Memoranda of Understanding
entered into at the close of the merger in 2001. These new agreements are
described further in Item 7. Redacted copies of these agreements were filed
with our 2002 20-F as Exhibits, 1, 2, and 3. See Item 7. Major Shareholders
and Related Party Transactions. Since
the 2001 merger with Global One, we have offered our products and services
through one centralized organization instead of three operating
divisions. In
addition, following the France Telecom transactions, we now report our results
under French GAAP instead of U.S. GAAP. In 2003, we substantially completed
the legal integration of our and former Global One local country subsidiaries
and branches identified for integration. Capital Expenditures For a discussion of our capital expenditures, see Item 5. Operating and
Financial Review and Prospects  Liquidity and Capital Resources  Capital
Expenditures. 15




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BUSINESS OVERVIEW In response to the evolving needs of our customers, in the latter part of 2003,
we began to develop our nascent consulting, service and
project management services as well as integration and managed services. By
combining these services with our core data and IP network products, we are
able to design customized solutions to enable our customers critical business
processes for delivery on our seamless global Network. In 2004, we will continue to provide high quality data and IP network products
and intensify our focus on delivering customized communications solutions to
MNCs and international institutions designed by our 3000 service
professionals, including fully managing the customers communications needs on an outsourced
basis. Competitive Strengths Todays corporate communications infrastructures are designed to enable
critical business processes and applications to support operations on a global
scale. MNCs demand real-time access to mission critical applications that
require high levels of customization, performance, reliability and security. We
believe that with our global Network reach combined with our services offering,
we are well positioned to meet these demands. Specifically our competitive
strengths include: Global
Network Footprint.Our Network reaches 220 countries and territories. We believe our ability to provide services in
locations where our competitors cannot is a key selling point. Network Strength.The Network is designed to support high bandwidth,
multimedia applications and is continually upgraded to take advantage of new
technology. We have full operational control of the Network, rather than
providing service through a patchwork of interconnected alliances. We believe
that this provides a key advantage over our competitors. Global Support Infrastructure.Many of our customers operate on a global
basis and require us to provide local support to the entirety of their
operations, and not just to their headquarters. We operate five Global Customer
Service Centers, and seven Hosting Centers, with staff based in approximately
165 countries. We believe that our ability to provide direct support to
network management and integration services customers in such a wide range of
locations is a key advantage over our competitors. Combined Network and Services Expertise.Our strategy is to deliver
customized, integrated communications solutions using our seamless global
Network and our portfolio of services. Our IP based network is designed to
support the increasing convergence of data, voice and video. In contrast,
many of our competitors have traditionally focused on voice telephony within
national markets. We believe that our significant experience in operating a
Network combined with our services expertise provide us with a competitive
advantage. Customized Service Offerings.We provide our customers with a wide range
of services that complement our data and IP network products. With our local
support expertise in approximately 165 countries, we are able to deliver
consulting, project management, service management, integration services as
well as messaging, hosting and security to our customers both globally and
locally. The offering of many of these services capitalizes on our
relationships with Cisco, Nortel and Microsoft and we have earned formal global
accreditation from each of these companies. Strong Customer Base.We have a broad and stable base of customers across
a wide range of industries. We serve over 3700 large business customers,
including two-thirds of the top 100 companies in Business Weeks Global 1000
list for 2003, such as Ernst & Young, Hanjin Shipping, Japan Tobacco
International, Le Meridien Hotels, and Zurich Financial Services. Our focus on
building long-term relationships with blue chip organizations has resulted in
an ongoing expansion of the level of business with these customers. 16




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Our Company Today We appointed a new CEO in August 2003, as we completed the integration phase,
which began after the Global One merger in 2001. Our strategic direction is
now focused on using our global Network reach to grow our presence in the
communications services market. Under the leadership of our new CEO, we have
undertaken a number of initiatives to put us on track for growth and
profitability. Chief among these initiatives is an internal reorganization,
which underscores our reinvigorated focus on designing, delivering and managing
customized, integrated solutions for our MNC customers. We have replaced our
Customer Service and Network (CS&N) function with three new functions to
improve customer service, network and management operations. These functions
are Customer Care and Integration Services (CCIS), Network, Managed Services
and Security (NMSS) and Business Operations and Services (BOS). Moreover,
we have organized our service skills into five business practices, 
Consulting, Project Management, Service Management, Field Services, and
IT Services  to optimize the skills of our 3000 service
professionals to meet the
varied needs of our MNC customers. Customer Care and Integration Services CCIS mission is to provide the best customer service in our industry by
reinforcing the concept of customer satisfaction across our company and
enlisting the skills of all customer-facing entities as a means of supporting
the growth of our service revenues and profitability. The CCIS function is
comprised of:  
    
    a new Customer Advocacy organization that works with our Customer
Service Excellence organization to identify and anticipate customer
services needs;
    
    a Field Operations & Integration Services organization to ensure
customers receive first-class service in all of the countries and
territories in which we operate;
    
    a Customer Service Delivery organization to provide our customers
new, changed or additional services they may require to meet their
business needs across the globe;
    
    a Global Customer Service organization to provide around the clock
global support to our customers using the five Global Customer Service
Centers dispersed throughout the world; and
    
    an Operations Support and Customer Process & Tools organization to
support the CCIS function.


Network, Managed Services and Security

NMSS has prime responsibility for managing the network to deliver high
quality, cost-efficient services to our customers and coordinating our network
and physical security, globally. The NMSS function is comprised of:



| |  |  | A Service and Network Evolution organization, responsible for
managing and refining Equants network and services to
cost-effectively support our customers, meet the company business
objectives and align with the product strategy.                                                                                      
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A Service and Network Deployment organization responsible
for establishing required infrastructure for all network platforms to
support activity growth and rollout new services. It is also
accountable for customer and network changes, driving to a
right-the-first-timeobjective for both network and customer
changes;
|
| |  |  | A Network Operations organization comprised of a Global
Network management unit  responsible for managing the
Equant Backbone Network on a 7x24 basis, full
back-up/ immediate disaster recovery;                                                                                                                          
|
| |  |  | A Business Voice Operations organization responsible for driving the
overall operational effort for the Voice
Product & Solutions line of business;                                                                                                                                                                         
|
| |  |  | A IT Services organization responsible for designing, implementing and
      operating our portfolio of Messaging, Server Management and Security solutions,
      in conjunction with Sales & Marketing; and                                                                                                               
|
| |  |  | A Global Programs and Supplier Management organization
responsible for ensuring cross-functional activities within NMS.                                                                                                                                                                                                     

Business Operation and Services

We have consolidated all of our internal logistics and general services under
BOS to achieve the appropriate balance between the quality and cost of our
assets. BOS is comprised of:



| |  |  | a Telco and Access Management organization responsible for the
purchase or lease of circuits, relationship management, access pricing,
access technology in conjunction with NMSS, circuit cost and circuit
inventory management;                                         
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a Purchasing and Supply Chain Management organization responsible
for managing and monitoring the corporate global spend, standardizing
our procurement process and improving just-in-time inventory, including
the transport, security and physical custody of equipment;
|
| |  |  | a Corporate Services organization responsible for real estate and
facilities management, and corporate telecommunications;                                                                                                                                                

17



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
    
    a Business Intelligence and Analysis organization responsible
for delivering
end-to-end operational reporting of our business activities to
management, which includes reporting, analysis, key performance
indicator automation and benchmarking;
    
    a Satellite & Wireless organization responsible for
designing, implementing, and
managing corporate and multimedia satellite and wireless networks for
Internet, voice, data and video applications that extend our
terrestrial backbone and access networks; and
    
    a Training Center of Excellence organization responsible for
technical, management, product and sales training. Other Functions We have consolidated our Brand and Strategy functions as well as streamlined
our Marketing function and combined them under a new function named Business
Development, Marketing and Communications. In addition to this newly formed
function, the Sales and Marketing function will continue to lead our global
sales and operational marketing efforts using a consultative sales engagement
model focused on selling customized solutions including pursuing outsourcing
opportunities to fully leverage our Network reach and our data portfolio. The
Products and Solutions function will continue to manage the lifecycle of our
portfolio of products and solutions, with the Finance, Human Resources,
Information Technology and Systems, and Legal and Regulatory functions
providing global support to the business. Strategy In response to the evolving needs of our MNC customers, in the latter part of
2003, we began to expand our portfolio to develop our nascent consulting,
service and project management services as well as integration and managed
services. To increase our leadership in global, integrated and customized
communication solutions around the world for MNCs, we intend to further expand
our existing portfolio of service skills and combine them with our network
expertise. Our goal is to nearly double the proportion of our service revenues
to 25% of total revenues in 2006 / 2007. In order to drive growth in our
service business, we have reorganized our services skills around five business
practices covering consulting, project management, service management,
integration services and managed services. This focus on the services business
will enable us to address a larger part of the communications services market
and allow us to further differentiate our offerings from competitors. To
execute our strategy, we intend to focus on the following priorities:  
    
    
    targeting the top 5,000 MNCs in our target market;
    
    
    capitalizing on our global Network reach, international business experience and broad data and IP
network product and communications services portfolio;
    
    
    enhancing our outsourcing expertise;
    
    
    optomizing our services expertise in the five new business practices;
    
    
    enhancing our convergence solutions and services, particularly in mobility and voice;
    
    
    reducing our access and transmission costs; and increasing
the efficiency of our back office support organization. Data Network and IP Services Our strategy for growing this part of our business is to expand our network
product portfolio to provide greater flexibility to respond our customers
needs. This will encompass both private and public based VPN networks. In
2003, we added new customers for our IPVPN product and signed our
1000th IP VPN
customer. We also enabled the migration of our legacy data customers to new
IP-based solutions. 18




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In 2004, we will further reinforce our data and IP network products portfolio
with VPN bridge to allow a smooth migration from legacy data to IP, Customer
Managed IP VPN, especially for the North American market and Optical Ethernet
to enhance our high-speed offerings and reporting capabilities for all data and
IP services. We also plan to offer our IP VPN service to our indirect channel
partners for resale in 2004. Services Business We will continue to expand our services business to be able to deliver
integrated network and IT infrastructure solutions to our customer base. To
drive the growth of our services business, we have reorganized our 3,000
service professionals, which include consultants, project managers, service
managers, managed services experts, and field engineers into five business
practices to address the key needs of MNCs. The business practices are: Consulting Practice Our 300 consultants, who are part of the Sales and
Marketing function, assist customers in designing effective communications
infrastructure solutions to support their business operations. Project
Management Practice Our 300 project managers, who are also part of
the Sales and Marketing function, manage the implementation of the solution for
the customer. Service Management Practice Our 350 service managers, who are part of our of
CCIS function, ensure operational efficiency focusing on overall performance,
capacity, change management, availability, and enhanced fault management. Field
Services Practice Our 1500 field engineers, who are part of our
CCIS function, provide local support with global coordination, preventive
maintenance with remote diagnostics and remediation. IT
Services Practice Our 450 engineers, who are part of our NMSS
function, design, deliver and manage solutions in messaging hosting and
security and server management. To implement this strategy, we will leverage our network expertise and the five
newly established business practices to assist our customers in analyzing and
improving their business processes, integrating complex communications
solutions, securing a high level of operational efficiency and accessing a
comprehensive portfolio of network related services. We believe the fact that
we control our global Network is significant in differentiating us from our
competitors in the IT applications and communications services market, who do
not operate a network. We have already experienced some success with this
strategy as evidenced by the fact that MNCs such as Electrolux, Le Meridien,
Lufthansa Systems, and Infratec GmbH among others, have purchased our services. Industry Background Technology Overview Data networks use packet switching technology to transmit both data and voice
as opposed to the circuit switching technology most voice networks employ.
Packet switching technology is particularly suited to the bursty,
error-intolerant nature of data transmission. Compared to circuit switching, it
provides data networks with better bandwidth utilization, improved congestion
control, error detection and correction, powerful addressing facilities and
higher availability in the case of node and line failures. Packet switching
divides data into segments, each of which is enclosed in an individual data
envelope. These data packets contain user data plus information such as
addressing, sequencing and error control. A typical user message can consist of
one or more packets. Packet switching technology today has developed to include
frame and cell switching technology. Data protocols or network languages permit computers to exchange information
using a common software algorithm. Protocols are the critical technology in
data networking because they dictate the speed and flexibility with which data
can be exchanged between computers. Numerous protocols have been developed over
the years, which support digital data transmission. These protocols are
deployed within a network and at the network access level. They fall into two
categories: those conforming to agreed international standards known as open protocols, and others developed
by companies as proprietary protocols. The development of open protocols
permits the seamless migration and integration of different protocols. 19




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The most common data network protocols are:  
    
    Internet Protocol (IP),a set of network access standards
that enable efficient communication across data networks,
particularly the Internet and most Local Area Networks
(LANs). IP is used in our IP Dial; IP VPN; Internet Direct;
Internet VPN; and LAN Access services;
    
    Frame Relay,an open protocol offering both
access to a network and carriage of data
across a network. This protocol is often used
to carry IP and proprietary protocol traffic;
    
    Asynchronous Transfer Mode (ATM),a high-speed open
protocol that has been developed for very high transmission
rates. This is deployed both within core networks and as an
access technology. Many Wide Area Networks (WANs) use this
common protocol to aggregate traffic efficiently, giving
better linking for multimedia type services; and
    
    X.25/X.28,a set of open standard packet switching protocols
that allow low to medium speed terminals to have either
dial-in or permanent access to a network from the users
premises and operate on a network. The most significant development in the data network industry is the
proliferation of the Internet Protocol. IP standards can be used to create
Intranets, which are closely managed networks that operate like the Internet
but are designed for internal corporate use with more consistent performance
and better security. The widespread deployment of IP standards facilitated the
growth of Extranets that link IP-based corporate networks. The development of
IP is especially important, as suppliers of applications increasingly offer
their services to companies across the so-called public Internet. By public
Internet, we mean the services available to anyone via the Internet, as
opposed to intranet and extranet services that only authorized users can
access. Among available protocols, IP is experiencing very strong growth as the
protocol of choice for new networks, while Frame Relay use has stabilized in
developed countries and continues to grow at a steady pace in the developing
countries. X.25, now approaching the end of its life cycle, is still used in
the countries that lack the telecommunications infrastructure of the quality
necessary to deliver high speed and high quality service, while in most
technologically advanced countries, X.25 is used as a legacy WAN service. ISDN is often used as a dial back up to provide connectivity in the event of a
failure of an access circuit. Access to the network is by definition local. To
establish a permanent connection, leased lines are traditionally used and are a
proven means of access. They are widely available, but they can also be
expensive. Other network access options include:  
    
    Digital Subscriber Line(DSL). DSL is a broadband access technology
that enables efficient use of existing copper infrastructure. We offer
this service to our customers who require connectivity to smaller
sites.
    
    Dial-up connections that rely on Public Switched Telephone Network
(PSTN), ISDN to VSAT.
    
    With the combination of second generation of GSM Data and newer
technologies such as Generalized Packet Radio Services (GPRS) now
available in selected countries, mobile access has now reached a good
level of performance in terms of speed and coverage. The Communications Services Market As a result of the global economic slowdown, IT and telecom budgets stayed flat
and cost savings became an imperative for a vast majority of
companies over the past three years. The outlook for IT and telecom budget spending in the next year is
cautiously optimistic. Although some industry analyst consider that
IT and telecom budget spending will likely increase in 2004, we have
planned our activities assuming a stable communications services
market of $26.5 billion.
This includes data and IP networks, voice over IP networks, network equipment
sales and network outsourcing. We will also continue to expand our presence in
the IT services market. 20




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To the extent there is growth in the global data
networking services market it will likely be driven by several factors:  
    
    The growth of traffic due to the continuous growth of Internet usage
and e-business, and the increasing demand for media-rich
applications. These translate to increasing intranets, extranets,
e-mail messaging, collaborative applications, electronic data
interchange and other applications to facilitate electronic
transactions.
    
    The continuing convergence of multiple network infrastructures for
voice, data and video. Multiple network infrastructures have
significantly increased the complexity of implementing and
maintaining, as well as the cost of operating such networks.
    
    Deregulation and liberalization of the worldwide telecommunications
industry. New competition is not limited to domestic providers, as
increasingly companies are seeking new sources of revenue in foreign
markets. These trends have led to the growth of global service
providers and industry consolidation. Increased competition has forced
decreasing and flexible pricing. Increased competition is also
evidenced through the availability of more and varied services, and
the increasing variety of service providers, for example, internet
exchange carriers, internet service providers, broadband providers,
content delivery providers or storage providers.
    
    The growth in the number of telecommuters and mobile workers that need
to collaborate on projects using company resources has created the
need for reliable remote connectivity for multi-national, large,
domestic and even small companies. Business customers requirements for their communications infrastructure
include:  
    
    managing diverse and technically complex network application
functionalities and customized solutions;
    
    managing legacy systems and migration to newer applications
and IP based networks and systems;
    
    managing frequently changing and complex networks, and accommodating
relocations, additions and removal of sites and staff reorganizations;
    
    ensuring remote access to corporate information and communications for
all remote employees
    
    managing increasing complex disaster control and recovery capability; and
    
    working with decreasing networking budgets and reducing the total cost
of ownership for their networks and systems. Another trend in the communication infrastructure business is customer
migration towards a hybrid of public and private IP services in small and
remote locations to reduce the cost of transmitting increasing volumes of data.
Business customers are also concerned with the quality of service and the need
for service level agreements as a means of ensuring availability, latency and
guarantees against loss of application performance. To meet the expanding customer expectations and requirements, communications
network service providers are continuing to improve network infrastructure with
new technology. These networks are often referred to as next-generation optical
networks. These networks reduce the high cost and complexity of traditional
backbone networks, by providing a more efficient way to transmit
large amounts of data as well as coping well with dynamic capacity demands. MPLS is used in
many of these networks to provide virtual private networking capability. 21




---



##### 



Managed services represent an increasingly important part of the communication
infrastructure solutions for MNCs. The management of content, applications, and
servers or the provision of a fully managed messaging service, forms a
significant element of this new paradigm. For communications service providers,
the ability to support critical business processes increasingly require the
network to interact efficiently with other elements of IT infrastructure,
including security. Our Skills and Know-How The focal point of our business, and our key competitive strengths, are the
Network and the skills of our highly specialized employees whose top priority
is customer service. We offer our portfolio of managed data, voice, integrated
voice and data and other value added network services through a single global
network. The Network currently spans 220 countries and territories with local
support in 165 countries. IP is available in 142 countries, either through
native IP or other broadband protocols, Frame Relay at 1040 sites in 186
countries, and ATM at 272 sites in 47 countries. Overall, the network serves
approximately 3700 large business customers, with approximately 42,500 customer
routers and approximately 180,000 customer connections. We operate and manage the Network. SITA, with whom we previously operated the
network under a joint venture agreement prior to the France Telecom
transactions, has become an indirect sales channel and our exclusive partner
for delivering our services to the air transport community, which generally
consists of airlines, airport operators, and related businesses. In some
countries, SITA cannot yet transfer ownership of the network and thus we manage
such networks on SITAs behalf in order to ensure the orderly and seamless
operation of the Network globally. We are responsible to SITA for the cost of
operating in those countries. SITA will continue to operate locally in
countries until we can assume full ownership of all of the local network
assets. We will assume ownership as soon as it becomes possible in each of the
affected countries. Equipment and Systems.The Network makes extensive use of large capacity
communications circuits, including 2.5Gbps wavelength and wide-band circuits
with capacities of up to 622 Mbps. The infrastructure deployed to support our
customer connections includes more than 1930 IP routers, 1,630 Passport nodes,
2,078 Data Packet Nodes, 19742 PPP dial channels and 15498 X.28 dial ports. The
Network supports customer traffic with international bandwidth of more than 39
Gigabits per second and domestic bandwidth of 80 Gigabits per second. The configuration of the Network provides many alternate paths for data packets
to travel to connect points on the Network. This approach is fault tolerant,
since a fault, such as a broken line or switch, will not interrupt traffic, as
intelligent switches in the Network can sense the failure and dynamically
reroute the flow using alternate routes. The Network also uses switches that
are fault tolerant and contain redundant elements that can be brought into
service if one element fails. Nortel Networks and Cisco principally supply our
Network equipment. Local Access.Customers can access the Network either directly or through dial
access services. Dial access service offers access to the Network through the
local public switched telephone network. Direct access is arranged through the
LNO in each country where the customer desires a service. Direct access is
usually arranged through a dedicated facility such as a leased line. We offer different access methods and adapt them to our network backbone for
greater efficiency. Among those offered is ATM at the access layer for
customers requiring high-speed access for multimedia operations. We also offer
SDSL and IDSL access in the United States. Network Development and Integration In 2003, we deployed our optical infrastructure to support traffic flows for
both ATM and IP. In 2004, we will progressively separate ATM and IP traffic
in order to:  
    
    enable our IP traffic to grow beyond the limits of the ATM platform;
    
    reduce the overhead caused by the addition of the ATM layer for
transport of pure IP traffic; and
    
    converge our IP and Optical platforms. 22




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##### 



Global Operations The following table shows our revenues by geographic region. Revenues are
attributed to the region in which the services are invoiced. For the year ended December 31,2001
    
    2002
    
    2003(U.S. dollars in millions, except percentages)Americas
    
    $
    801.7
    
    
    $
    689.8
    
    
    $
    626.7As a percentage of revenues
    
    
    33.5
    %
    
    
    23.2
    %
    
    
    21.3
    %Europe, Middle East and Africa
    
    
    1,348.6
    
    
    
    2,147.4
    
    
    
    2,175.6As a percentage of revenues
    
    
    56.4
    %
    
    
    72.2
    %
    
    
    73.8
    %Asia Pacific and Japan
    
    
    240.4
    
    
    
    135.9
    
    
    
    146.6As a percentage of revenues
    
    
    10.1
    %
    
    
    4.6
    %
    
    
    4.9
    %Total
    
    $
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    2,948.9
 Seasonality.Although our quarterly revenues vary at times, we do not believe
that there is any major seasonal trend in our markets. The integration services
business is subject to a drive by some customers to spend their internal
budgets which in turn leads to a higher than normal level of activity in the
fourth quarter of the year and a corresponding lower level of activity in the
first quarter of the following year. Products and Services We offer network, integration and other services. Our data and IP network
products include Frame Relay, LAN Access, ATM, IPVPN, Internet Direct and
traditional MDNS (X25/X28). Integration services include remote server
management, messaging, hosting, security, fulfillment or equipment sale,
deployment, maintenance and consulting services. Other services includes
convergence solutions and circuit-switched voice services. The following tables
show revenues from the provision of network services, integration services and
other services. 23




---



##### 



For the year ended December 31,2001
    
    2002
    
    2003(U.S. dollars in millions, except percentages)Network services:Frame Relay and IP
    
    $
    947.2
    
    
    $
    1,336.8
    
    
    $
    1,407.1As a percentage of Network Services revenues
    
    
    75.3
    %
    
    
    85.3
    %
    
    
    87.6
    %Traditional MDNS (X.25/SNA/SDLC/X.28)
    
    
    311.3
    
    
    
    230.3
    
    
    
    200.0As a percentage of Network Services revenues
    
    
    24.7
    %
    
    
    14.7
    %
    
    
    12.4
    %Total
    
    $
    1,258.5
    
    
    $
    1,567.1
    
    
    $
    1,607.1Integration services:Fulfillment & System Sales
    
    $
    121.5
    
    
    $
    135.1
    
    
    $
    166.8As a percentage of Integration Services revenues
    
    
    27.2
    %
    
    
    29.8
    %
    
    
    35.0
    %Hosting and applications
    
    
    91.3
    
    
    
    122.5
    
    
    
    133.0As a percentage of Integration Services revenues
    
    
    20.4
    %
    
    
    27.0
    %
    
    
    27.9
    %Other Integrations Services
    
    
    234.3
    
    
    
    195.8
    
    
    
    176.8As a percentage of Integration Services revenues
    
    
    52.4
    %
    
    
    43.2
    %
    
    
    37.1
    %Total
    
    $
    447.1
    
    
    $
    453.4
    
    
    $
    476.6Other services:Convergence solutions
    
    $
    101.0
    
    
    $
    149.6
    
    
    $
    140.0As a percentage of Other revenues
    
    
    71.0
    %
    
    
    62.6
    %
    
    
    62.4
    %Services provided to France Telecom affiliates
    
    
    41.3
    
    
    
    89.3
    
    
    
    84.2As a percentage of Other revenues
    
    
    29.0
    %
    
    
    37.4
    %
    
    
    37.6
    %Total
    
    $
    142.3
    
    
    $
    238.9
    
    
    $
    224.2SITA Contract(1)
    
    $
    542.8
    
    
    $
    713.7
    
    
    $
    641.0Total
    
    $
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    2,948.9




---

|(1) |  | Sales to SITA are not segregated by product line.
|--- |  | -------------------------------------------------

Network Services

We provide a full range of MDNS, using established industry protocols. MDNS is
the generic name given to wide area network data transport services managed by
a supplier with a higher degree of functionality, security, reliability and
cost effectiveness than data transport services traditionally provided by
public telecommunications organizations through leased lines. For any customer,
the availability of a particular access method, transmission speed or service
is dependent upon a combination of factors, including:



| |  |  | the local telecommunications infrastructure;               
| | - |  | -----------------------------------------------------------
|
| |  |  | regulatory considerations in the relevant jurisdiction; and
|
| |  |  | the nature of the customer premises equipment.             

We provide both direct access (i.e.,fixed and continuous connections between
different customer sites) and remote access (i.e.,connections initiated and
terminated by a remote user) via the dial telephone network as well as the
Internet including using DSL connections.

24



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IP Services.

Equant
IP VPN.Equant IP VPN provides a private and secure connections an
MPLS-based architecture. The key features are:



| |  |  | IP VPN Plug  We provide an IP Plug, which delivers all IP services
to the customer through a simple any-to-any connection.                                             
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Fully secured VPN  The MPLS technology affords the customer a unique
and fully secured closed user group, as secure as in a frame relay or
leased line network.          
|
| |  |  | Variety of access methods including native IP, leased line, Frame
Relay, ATM, dial access, dedicated satellite access, Internet access
(bundled with IPSec) and DSL.      
|
| |  |  | Class of service (CoS) management (application awareness) allows
prioritization of customer applications between multimedia and data
traffic with four levels of priority.

We intend to use our MPLS infrastructure to continue to deliver virtual private
networking with differentiated class of service backed by strong service
level agreements, and allowing the path to convergence of voice, data, and
video. In 2004, we will continue to enhance IP VPN access methods, and
introduce satellite access, Wi-fi access for roamers and Optical Ethernet
access for high speeds.

In 2004, we will continue to meet low end site requirements worldwide by
leveraging retail DSL offers from local internet service providers to
complement our existing DSL access coverage and increase availability to over
60 countries. In 2003, we launched our DSL access service to IP VPN in 13
countries. We also plan to launch in 2004, Customer Managed IP VPN services,
and IP VPN Services customized for indirect channel partners; and continue to
strengthen our reporting capabilities and continuity services for IP VPN.

Equant Internet Direct and Internet VPN.Equant Internet Direct is designed
for customers who use the Internet as a strategic resource and require a high
level of Internet reliability and services on a worldwide basis. In 2003, we
launched Network Based Internet Gateways. In 2004, we will introduce an
internet service provider resale solution, which is a one stop management
capability for customers. We will also enhance our Equant Internet VPN
services with VPN bridge capability for IP VPN or frame relay.

Frame Relay Service.Frame Relay is particularly suited to customers who want
to manage their internal networks by acquiring dedicated, but virtual paths
between their locations, and as such, is a cost-effective means of connecting
geographically dispersed office LANs such as those for a multi-site business.
We offer Frame Relay services in a large number of city locations and
countries, including all major business centers in North America, Europe and
the Pacific Rim, with access speeds of up to 45Mbps. Despite the growth of IP
VPN services, Frame Relay continues to be a key WAN service throughout much of
the world, especially for mission-critical applications in the developing
regions of the world.

LAN Access Service.This network offering is based on our robust Frame Relay
network service but also includes Equant managing routers, switches and other
Customer Premises Equipment (CPE). Customers increasingly prefer this managed
CPE option to manage a portfolio of Cisco routers or Nortel switches on the
customers premises, as they better understand how to improve performance and
better reduce their total cost of ownership. Selecting a managed CPE option
avoids the need for customers to invest in maintaining and upgrading their own
hardware.

ATM Service.Our ATM service, which has been on the market since 1999,
provides customers with transport speeds of up to 155 Mbps, which is suitable
for transmitting high volume data applications, as well as integrated voice and
video. Customers who have high-speed mission critical networking requirements
select our ATM service, and use this service to provide full multimedia
integration. In 2003, we grew the number of connections and revenues for this
service.

ATM/Frame Relay/LAN Access Product Developments.We continually enhance our
portfolio of WAN services. In 2003, we continued to integrate our back office
operations to improve productivity in the delivery and maintenance of our
services. In addition, minor feature developments were put in to maintain our
Frame Relay / LAN Access/ATM competitive profile including new access
methodologies using DSL, Internet and satellite technology.

Traditional MDNS (X25/X28).We offer direct access services, providing
LAN-to-LAN connectivity, employing the X.25 protocol. These services provide
flexible, cost-effective connections in a wide number of locations. Although
customers in the United States, Western Europe and Japan are migrating to more
rapid, higher capacity services, X.25 and SNA/SDLC usage continues to be used
in emerging markets in Eastern Europe, Asia and Africa. Equants traditional
MDNS provides the quality required for most modern data-communications
transport protocols. X.28 is a dial access (through the telephone network)
arrangement of the X.25 Managed Service.

25



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##### 



Service Management Tools.We have consolidated our range of service management
tools into one single tool called Equant WebVision. This real-time tool permits
our customers both to monitor performance of the services we provide and
observe our progress in resolving problems. Equant WebVision is a real time
monitoring tool that provides customers with information on traffic,
connections, and configurations and is a PC based on-line browser tool. Equant
WebVision also allows customers to view trouble tickets, or reports of
problems or errors. WebVision includes a suite of services that are offered
over the portfolio of IP and Data services, under the name of Customer Select
Program. With the addition of Equant Application Visualizer, launched at the
end of 2002, we provide access to information on the customers application
usage across their LAN and WAN. We plan to launch a fully managed version of
Equant WebVision for the Asia Pacific region in 2004. Integration Services Our integration services consist of the deployment, monitoring and maintenance
of customers equipment as well as consultancy and professional services to
support our customers beyond their networking requirements. With engineers and
consultants, linked by three of our five global support centers, our
integration services allow us to manage the customers network remotely,
including application performance, monitoring and diagnostics. The integration
services portfolio currently consists of the following services: Deployment Services.Implementing international projects using internal
resources can place a heavy burden on a customers internal team. We focus on
three types of projects: LAN Deployment, Cisco Router Deployment and Nortel
Integration Services. Deployment includes resale of network equipment and
staging and installation of LAN and WAN infrastructure worldwide and general
equipment supply. Maintenance Services.We provide local support with global coordination of
support professionals in more than 80 countries and 200 service locations. By
leveraging our service partnerships such as that with SITA, we are able to
extend service to over 200 countries. Our Global Customer Support Centers
manage any reported incidents, supported by Atlas, our global service
management system. Enterprise Remote Management.We provide remote management capabilities to
address customers SNMP-based devices. Enterprise Network Management provides
an out-tasked solution for customers seeking 24-hour proactive fault management
of their network equipment and servers. Consulting and Professional Services.We provide both consultancy and project
management to take responsibility for every aspect of the deployment of a
customers solution. We have consultants who specialize in Security, Messaging
and IP Telephony consulting who assess the customers current and future
requirements to decide on the best solution for that particular customer.
Project Management services grew steadily in 2003. In 2004, we are
establishing both project management and consultancy services as global
business practices across the company to drive and grow our services business. Managed Services Managed services include a set of solutions related to the management of IT
infrastructure supporting various applications such as: Messaging Applications.We provide managed Exchange, managed Lotus Notes and
managed Sun ONE messaging services including consulting, design, infrastructure
optimization, deployment, migration, operation and maintenance services. We
manage 800,000 mail users. Web Applications. We provide managed services for the infrastructure supporting
major web and thin client technologies. This includes consulting, design,
server consolidation, deployment, application integration and migration,
operation and maintenance of Windows, Unix and Linux platforms. Security Applications. We provide managed services for security infrastructure
as firewalls, antivirus, authentication, filtering and intrusion detection.
This includes consulting, design, deployment, migration, operation and
maintenance on major security related technologies. In 2004, we will introduce additional products based on the existing managed
services portfolio. We will enhance our services with specific consulting
methodologies adapted to a specific customer business need and enhance
solutions to address customer requirements for business continuity 26




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Other Services Convergence Solutions.Our convergence solutions are as follows:  Equant Voice VPN:Equant Voice VPN relies on a switched voice network,
managed by France Telecom, that uses a virtual private network technology
to provide our customers with the functionality of a dedicated private
network combined with the flexibility, resiliency and cost effectiveness
of a shared global network. The services formerly known as Integrated
Voice and Data (iVAD) have been re-packaged as Equant Voice for IP VPN,
Equant Video for IP VPN and Equant Call Center for IP VPN. These comprise
an enhanced alternative to traditional switched voice services.Equant Contact Center:Our Contact Center is a single point of contact
for fault management and reporting for all of our services. In 2003, we
added Equant Contact Center for IP VPN, which provides public access
numbers in 40 countries and directs in-country calls to domestic or
international contact centers through our Network. Unified Enterprise Telephony.In 2002, we launched our IP Telephony portfolio
of services designed to provide customers with an end-to-end voice and data
solution in a limited number of countries in Europe and North America. IP
Telephony involves the real-time transmission of voice traffic over the LAN
through an IP PBX over Equants Voice for IP VPN service. In 2003, we saw
modest growth on IP Telephony and Voice over IP VPN. In 2004, we plan to
extend this service to additional regions. Product developments:We will continue to enhance our convergence services with
more detailed reporting, improved service management and SLAs and small office
solutions with DSL. We also plan to introduce new services based on switchless
resale of domestic voice services in selected countries in 2004. Mobility Services.In 2002, we introduced remote access and mobile access
services, such as DSL and mobile access services. A Mobility Services product
line was introduced in 2003 using existing services such as IP Dial, GSM Dial
and GPRS services (available only in selected countries in 2003), as well as
Access Companion. Product developments:In 2004, we will expand our GPRS coverage, introduce
public Wireless LAN services and develop mobilized applications, like
messaging. We expect to grow our mobility services revenues in 2004. Communications Infrastructure Outsourcing Services: As opportunities arise, we
intend to pursue outsourcing opportunities with existing as well as new
customers using our broad portfolio of data and IP network products and
communications services. Outsourcing involves a long-term relationship where a
company allows an external company to manage all or part of its communications
needs. Companies usually engage in outsourcing to obtain higher levels of
efficiency and user support at reduced operating and management costs through
economies of scale and scope. The service may include parts or all of data,
voice, wireless and hosting services as well as transfer of assets, contracts
and people, and networked application management. Sales and Marketing We sell our products and services through direct and indirect sales channels.
As of December 31, 2003, our sales force was comprised of approximately 430
direct and 45 indirect sales staff, compared with approximately 485 direct and
55 indirect sales staff in 2002. Improvements in efficiency allowed us to
reduce the number of direct sales staff without sacrificing customer service.
We hire sales and technical personnel experienced in communications and related
sectors, and motivate them through a competitive sales compensation scheme. In
the light of our new strategic direction to focus on the communications
services market, in 2004, we will reinforce our sales and consultancy skills by
hiring new staff and training existing staff to ensure we are able to support
these activities. We summarize below the key elements of our marketing and
distribution strategy. Marketing.Our marketing units operate under the guidance of a global marketing
plan, which specifies a set of global programs for press relations, customer
events, and direct mail activities that are delivered through local offices. 27




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Account Management.All customers with significant revenue streams are assigned
an account manager who is responsible for developing the commercial
relationship with that customer. In addition, we have established a dedicated
global account management program for those customers who have articulated a
desire to develop a sustained long-term relationship with us. The account
managers are responsible for developing sustainable commercial relationships
with these customers and coordinating sales and support activity across all
regions. The program currently focuses on about 25 companies as compared to 50
customers in 2002. We have limited this program so that we can divert some
sales staff to cultivating new high potential accounts. The direct business
sales force and account managers work together with professional services staff
in each location to provide cost-effective solutions. The sales force is
encouraged to use a consultative sales approach ensuring that the requirements
are understood and a tailored solution is developed. In some cases the
appropriate solution may require a combination of our products and services as
well as products and services we acquire from others. We actively market
additional products and services from our portfolio to our existing customers.
In some cases the customer migrates into an outsourcing arrangement where we
take ownership of customer contracts, assets or people. This type of
relationship represents a growing market and in 2003, we established a Global
Solutions team to pursue opportunities identified in this market sector. Indirect Sales.Our major indirect sales channels complement our direct sales
force and are an integral part of our strategy. These channels include SITA,
which addresses the air transport community, Radianz, our joint venture with
Reuters, which uses our network and provides enhanced access to the financial
services industry, market specific joint ventures and distributors (such as
Sprint in the United States and Deutsche Telekom in Germany). In total,
indirect channels generated approximately $1.4 billion, or 46%, of our revenues
in 2002, as compared to approximately $1.3 billion, or 43% of our revenues in
2003. Approximately 100 members of our sales staff are focused on indirect
channels and are dedicated to managing and expanding our indirect channel
sales. Our strategy is to focus our resources and efforts on deepening the
relationships with our top indirect sales partners. Outside of these core
strategic relationships, other distributor relationships are being continually
reviewed, assessed and developed. We intend to broaden and increase our revenue streams from indirect sales
channels. In some of the locations where we currently operate, we plan to
revitalize and redirect our existing indirect sales channels and select new
indirect sales channels such as value added resellers, distributors, and
agents. In addition, where appropriate, we also plan to pursue new revenue
opportunities through specific market channels such as mobile providers and to
develop cross-selling relationships via systems integrators, professional or
consultancy firms, telecommunications equipment manufacturers, and related
channels. Sales geography.Our sales force is concentrated in the countries with the
largest markets for telecoms and related services with additional limited
presence in secondary markets. We do not have a direct sales presence in
tertiary markets but where appropriate serve these through partners. Customers In 2003, our ten largest customers accounted for 45% of our revenues, with the
largest customer, SITA, accounting for approximately 22% of revenues as
compared to 24% of our revenues in 2002. Our second largest customer, France
Telecom accounts for approximately 13% of our revenues in 2003 as compared to
10% in 2002. Radianz accounts for about 3% of revenues in 2003, compared to 4%
in 2002, and Sprint accounts for less than 3% of our revenues in 2003
compared to 3.5%
in 2002. We also recognized $142 million of other income from France Telecom
for reimbursement of costs related to switched voice and ancillary services.
See Item 5. Operating and Financial Review and Prospects  Results of
Operations for the Year ended December 31, 2003  Other Operating Income for
more details. Our target customers are global MNCS and other large international institutions
requiring multi-year, multi-service contracts. Our target customers typically
are companies that: 28




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
    
    operate in globalized industries (including finance and
mining);
    
    have a large number of international locations and highly complex business
applications; and
    
    desire to minimize the number of internal staff by outsourcing their managed services. The multinational organizations who make up our target customer base typically
source their telecommunications needs through competitive bidding. Our typical
contract for communications services is for three years, although a few of our
contracts have terms beyond this up to a maximum of 10 years. Competition We operate in a very dynamic, highly competitive, and fragmented market that is
in a constant state of change. The wave of recovery from bankruptcy filings and
consolidation trends highlights the transition the industry is currently
experiencing. Our market place is under transformation and providers have
stated a willingness to move up the value chain. We observe a shift from
providing basic communication services as global network services providers to
becoming communications integration services providers to increase margin. We face competition from both established global service providers and
increasingly from competitors outside the traditional telecommunications realm.
The competitive landscape is becoming increasingly complex as boundaries
between IT and telecoms worlds disappear. IT players are willing to expand
expertise towards networking while network providers are expanding their
portfolio towards integration services. In addition, the equipment providers
continue to partner with network providers but are branching out into other
sectors of the communications market. We
face competition mainly from five types of companies:  
    
    The Global Service Providers Our established competitors in the pure network service market include the
following companies: AT&T Business Services, BT Global Services, and Infonet.
The established global service providers provide a range of data services,
alongside their more entrenched voice services, nevertheless, they are becoming
more competitive in the fast growing data services market.  
    
    Transmission Infrastructure Providers Newer entrants such as COLT Telecom and Level 3 Communications have entered the
market, but do not necessarily offer end-to-end solutions with the same
geographic scope as we provide. These newer competitors are focused on
point-to-point or IP-based network services as well as providing bandwidth to
other carriers.  
    
    National Voice & Data Service providers In the jurisdictions in which we offer services, we also compete with incumbent
providers, such as local public telecommunication organizations (PTOs), some
of which still have special regulatory status and the exclusive rights to
provide certain services, and virtually all of which have historically
dominated their local telecommunications markets.  
    
    New Providers 29




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We compete with equipment vendors and installers and communications software
developers as they move into data networking. We also compete with many of
these providers in the fast growing communications outsourcing market. We
believe that competitiveness in the data network services, integration services
and communications outsourcing sectors is largely a function of the ability to
offer a broad variety of reliable products and services tailored to customer
needs and an effective support structure. As the market becomes more competitive, we believe that price,
end-to-end solutions and a concentration on customer service plays a more
important role.  §
    
    Outsourcing Companies Customers also require design, implementation, and support services for network
and desktop technologies, as well as supply and distribution of desktop and
network equipment. The marketplace for fulfillment, desktop and network
integration services is fragmented both geographically and in terms of
competitor organizations. The main categories of competitors for these services
include computer service companies, virtual network operators, outsourcers,
computer manufacturers and network integrators. Competitors include companies
such as Electronic Data Systems Corporation, IBM Global Services, BT Global
Services/Syntegra, NCR Corporation, Unisys Corporation, and Hewlett Packard.
Competition in fulfillment services is principally price driven while
competition in desktop and network integration services is more a function of
the ability to provide additional services including design, implementation and
support services. REGULATION As with any international network services provider, we face regulatory and
market access barriers in various countries resulting from restrictive laws,
policies and licensing requirements. In our major revenue generating markets,
all of our current and planned data network services are now deregulated, and
in some cases no license at all is required. In most other countries with
significant revenue potential, licenses or arrangements with a local licensed
operator make it possible for us to offer our full range of data network
services. Nevertheless, some restrictive telecommunications laws and practices
in certain countries give rise to constraints, risks and uncertainties which
will for a time affect our ability to develop and market our full portfolio of
existing and future services. Some or all telecommunications services are subject to restrictive or monopoly
regimes in countries that are beginning to deregulate their markets. We are
unable to provide services in such countries without entering into an
arrangement with the incumbent telecommunications operator. We cannot guarantee
that we will be able either to enter into or to maintain the requisite
arrangements with the incumbent provider or will be able to comply with local
regulatory requirements either at a reasonable cost or at all. WTO Agreement and Its Implications On February 15, 1997, 69 countries at the World Trade Organization (WTO)
reached agreement to liberalize market access and introduce national treatment
in basic telecommunications services. In February 1998, the commitments of the
signatory countries became formally binding on their governments. By the end of
2003, 88 countries had made commitments with respect to basic services. Although the WTO agreement on telecommunications services is an encouraging
development it does not overcome continuing regulatory obstacles in many
secondary and tertiary countries. Many countries have made only limited
commitments such as excluding voice services or postponing the opening of any
type of voice competition for many years. Moreover, in less developed countries
that are not well prepared for competition or for effectively regulating a
liberalized market, gaining the requisite experience and expertise is likely to
be a long and difficult process. Indeed, even in liberalized countries,
considerable challenges remain as new regulators learn to administer new
complicated licensing rules, enforce foreign ownership limits, and develop
competition and interconnection safeguards. Corporate Presence In a number of jurisdictions, we are permitted to provide service to local
customers only after first establishing a corporate presence, either through
the incorporation of a subsidiary or the registration of a branch or
representative office. We generally establish such a local presence in each of
the jurisdictions where such a presence is legally required. In jurisdictions
where we have not yet established a corporate presence we usually rely on
indirect channels such as an arrangement with the incumbent PTO. 30




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Regulatory Analysis by Service Type Managed Data/ IP Network Services The core of our network services business is the provision of managed data/IP
network services to corporate customers on an intra-corporate basis. These
services are generally characterized for licensing purposes as data
transmission services or value added services. We are authorized by law or by
license (either individual or class license) to provide these services in the
major and material revenue-generating countries in which we provide network
access. In the European Union, these services may be provided upon a simple
registration, notification or authorization procedure. Countries in which we operate, but are not formally licensed or authorized to
provide managed data/IP services, can be grouped into three categories:  
    
    
    countries in which we temporarily rely on indirect channels pursuant
to contractual arrangements with other operators, pending the approval
of our applications for authority to operate;
    
    
    countries in which we have established arrangements with an incumbent
or local licensed network operator or service provider; and
    
    
    countries in which we are not prohibited from offering certain
services and do so with the acquiescence of the local authorities, but
without holding any formal telecommunications license. This third category of countries generally includes only lower revenue
generating countries. For countries that fall into this category, we only offer
service where the relationships with local authorities and operators are strong
and where we believe that the authority to operate, even where informal, is
reliable. A risk nevertheless exists that local authorities in a country could
deny requests for new Network connections to our customers or require that
customers be disconnected. We believe that this risk is remote and will
diminish over time further with the advance of liberalization. Furthermore, the
impact on our revenues and operating ability would not likely be material. Corporate Voice Services We provide our international corporate voice services (IP VPN for Voice) only
in those countries where the regulatory regime permits us to do so. Most
countries laws fall generally within one of the following four regulatory
categories (in order of the most restrictive to the least restrictive):  
    
    corporate voice services, however defined, are expressly prohibited,
except by the local incumbent telecommunications operator. (In some of
these countries, exceptions may exist for private networks and closed
user groups, enabling SITA, for example, to provide global voice
services to companies in the air transport community);
    
    corporate voice services are permitted, but only insofar as the calls
both originate and terminate on leased circuits (on-net to on-net);
    
    corporate voice services are permitted, but only insofar as calls
either originate or terminate on leased circuits, with or without the
need to restrict the numbers that can be accessed on the public
switched telephone network (PSTN); and
    
    corporate voice services that involve both break-in and break-out on
the PSTN are permitted provided that such services do not have a
public nature. We believe that in jurisdictions in which we are providing corporate voice
services, we are doing so in accordance with applicable regulatory
requirements, in all material respects. Corporate Internet Services With limited exceptions, the corporate Internet services that we provide do not
require any authorization beyond that we already hold for managed data/IP
network services. In the aggregate, these countries account for a very small
percentage of our revenues. Because the regulation of Internet access is ill
defined or in flux in some countries, there is a risk that customers are using
the Network to access the Internet in countries that may prohibit (or wish to
prohibit) such access. We minimize this risk by proactively discontinuing such access when we become aware of any legal
requirements to block such access. The offering of voice services over the
Internet, and the use of the Internet by customers to conduct voice
communications, continues to grow. The regulatory status of these activities is
developing and we are carefully monitoring regulatory pronouncements on this
subject to enable future compliance. 31




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Substantive Regulation in Key Markets United States The regulatory framework governing the offering of telecommunications services
in the United States permits us to offer our complete portfolio of products and
services without significant legal constraints. We may provide these services
either on a facilities or resale basis. To the extent that a future service
requires prior authorization, either by the Federal Communications Commission
(FCC) or by a state public utility commission, we believe there is no
significant risk that such an application would be denied or that we would face
processing delays that would adversely affect us. Nonetheless, the regulatory
classification and treatment of Internet-based services have not been
authoritatively resolved in the United States. Certain Internet-related
services may be subject to regulation in the future. The offering of basic telecommunications services on a common carrier basis
is subject to regulation in the United States. Entities that provide such
services are classified as telecommunications carriers. Interstate and
international common carrier services provided by a telecommunications carrier
are subject to the FCCs jurisdiction under Title II of the Communications Act.
Intrastate telecommunications services (i.e., services that originate and
terminate within the boundaries of a single state or the District of Columbia)
are subject to regulation by the relevant state regulatory body. Equant Inc., our wholly owned U.S. subsidiary, is authorized to provide
interstate and international common carrier services on both a facilities and a
resale basis between the United States and foreign locations, pursuant to its
FCC authorization. Under this authorization, we are subject to classifications
and restrictions on certain international routes because of its affiliation
with France Telecom. Specifically, we are classified as a dominant carrier on
the international routes between the United States and France, Argentina,
Jordan, Poland and Mauritius. As a dominant carrier on these routes, we have
special reporting and compliance obligations. In addition, on the international
routes between the United States and the Central African Republic, Chad, Cote
dIvoire, Djibouti, El Salvador, French Guiana, French Polynesia, Guadeloupe,
Madagascar, Martinique, Mayotte, Reunion Island, New Caledonia, Saint Pierre
and Miquelon, Senegal and Wallis and Futuna. We can only provide international
switched services through the resale of an unaffiliated U.S. facilities-based
carriers international switched services. To the best of our knowledge, we
comply with this authorization. Agreement with FBI and Department of Justice In order to obtain regulatory approval of the Global One/Equant merger, we
entered into an agreement with the Federal Bureau of Investigation (FBI) and
the Department of Justice (DOJ) substantially similar in content to the
agreements that telecom companies operating in the United States are generally
required to execute. The agreement imposes a number of obligations on us
relating to law enforcement and national security concerns related to the
future operation of the merged network. We have taken steps to comply with the
obligations imposed by this agreement and we remain, to the best of our
knowledge, in compliance. European Union In 1999 the European Commission launched a major review of existing EU
telecommunications law that resulted in the adoption of a new regulatory
framework for electronic communications in 2002, to be applied as of July 2003.
The 5 goals of the new framework are:  1.
    
    to promote more effective competition in the electronic
communications markets,2.
    
    to react to technological and market developments,3.
    
    to remove unnessary regulation and simplify associated
administrative procedures,4.
    
    to strengthen the internal market,5.
    
    and to guarantee basic user interests (consumer protection) that
would not be guaranteed by market forces. 32




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Primary Instruments Four Directives and a Decision were adopted by co-decision procedure and
published in April 2002. A fifth Directive, on sector specific data protection,
followed suit in July 2002. Member States were required to transpose the
Directives into national law by July 25, 2003 (October 31, 2003 for the
E-communications privacy Directive). The new regulatory framework consists of the following instruments : Framework Directivesetting out the main principles, objectives and procedures
for an EU regulatory policy regarding the provision of electronic
communications services and networks. Access and Interconnection Directivestipulating procedures and principles,
with emphasis on rules pertaining to operators, for imposing pro-competitive
obligations regarding access to and interconnection of networks on
operators with significant market power. Authorisation Directiveintroducing a system of general authorisation, instead
of individual licences and the like, to facilitate entry in the market and
reduce administrative burdens on operators. Universal Service Directiverequiring a minimum level of availability and
affordability of basic electronic communications services and guaranteeing a
set of basic rights for users and consumers of electronic communications
services. Privacy and Electronic Communications Directivesetting out rules for the
protection of privacy and of personal data processed in relation to
communications over public communication networks. *Radio
    Spectrum*Decisionestablishes principles and procedures for
    the development and implementation of an internal and external EU radio
    spectrum policy. Commission Competition Directiveconsolidating the legal measures based on
Article 86 of the Treaty that have liberalised the telecommunications sector
over the years. In addition to these basic instruments, the Commission adopted additional
measures that will play an important role in the functioning of the new
framework: **Commission
    guidelines on market analysis and the assessment of significant market power**setting out a common methodology and principles for the national regulatory
    authorities charged with these tasks imposed by the new EU regulatory package. **Commission Recommendation
    on Relevant Markets (susceptible to ex ante regulation)** providing
    a recommendation on the different markets (18), retail and wholesale, that
    national regulators are reviewing under new regulatory framework obligations. Implementing the new regulatory framework The European Parliament and Council established a deadline of July 24, 2003 for
member countries to adopt the main provisions of the new framework. As of
November, only eight countries had adopted the Framework, Authorization, Access
and Universal Service Directives into national primary legislation. These are:
Denmark, Spain, Ireland, Italy, Austria, Finland, Sweden and the United
Kingdom. We held operating rights in all of these countries under the old
framework. These rights have been grandfathered under the newly implemented
framework, although both Finland and Ireland required a notification within a
month of implementation. We now operate in all of these countries under a
General Authorization. Infringement proceedings against the Member States that had not adopted
legislation were opened in early October 2003 under Article 226 of the Treaty,
for failure to communicate transposition measures to the Commission. In these
countries we continue to operate under the old framework and will comply with
the necessary requirements to change to the General Authorization once the new
framework is implemented. 33




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Accession Countries On
May 1, 2004, ten countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania,
Malta, Poland, Slovakia, Slovenia) joined the European Union. These accession countries agreed, in the course of the accession negotiations,
to implement the 1998 telecoms acquis. Under this Agreement, once they have
acceded, they will be required to comply with the new framework as from the
date of accession. We are already licensed to provide services in all but two
of these countries, Cyprus and Malta. We are in the process of applying for a
license in Malta. France Under the old framework, only the provision of public voice telephony services
or the operation of infrastructure required individual licenses. Consequently,
our managed data and corporate voice services did not require any form of
authorization. Our subsidiary Equant Telecommunications SA held individual
licenses L33-1 (network infrastructure for the Ile-de-France region) and L34-1
(public voice telephony  national coverage).
These licenses have been succeeded by the General Authorization regime under the new
framework. Another Equant entity in France, Equant France SA, has obtained the
Authorizations under the new authorization regime, covering the same scope as the L33
and L34 licenses. The individual licenses L33-1 and L34-1, held by Equant
Telecommunications SA, will be cancelled in 2004. New telecommunications legislation to implement the new EU framework is
currently under consideration. The French regulator (ART) has published
guidelines on how it will deal with licensing during the period between the
deadline for implementation of the new EU Communications package (July 25,
2003) and the effective date of the new French Communications Act. The ART has
not issued any new telecommunications licenses under the old framework since
July 2003. The current licence holders keep their license(s), which remain in
force for the time being. In case of a new operator, a Declaration has to be
made to ART before commencing activities. Germany Following the merger with Global One and the integration of the German
companies, under the old EU framework we held a nationwide Class 4 license for
the provision of Public Voice Telephony with the right to interconnect with DT
and consequently cost-based call origination and termination throughout the
German PSTN, and a Class 3 license, for the use of dark fiber for selected
intra-network links, in designated areas. All other service activities were
subject only to notification to the regulatory authority and were duly
notified. New draft telecommunications legislation to implement the new EU framework is
currently under consideration but is not expected to come into force before
early 2004. Our license will be automatically transferred
to the General Authorization regime under the new EU framework. United Kingdom Under the old EU framework regime, we provided our managed data services on an
international basis under the Telecommunication Services class license (the
TSL). This authorized the provision of telecommunications services of any
description, other than international switched voice, broadcasting and
conditional access services. The TSL allows the connection of the licensees
telecommunications system to essentially any other licensed UK system, and
allows the commercial supply of services to third parties. EGN B.V. and Global One CHL, our wholly owned subsidiaries, were allowed to own
and operate international transmission facilities, such as transatlantic IRUs,
under licenses for Public Telephone Operators with international facilities (a
combined PTO/IFL license) as part of the rationalization of the United
Kingdom licensing system. These licenses authorized full rights to national and
international interconnection. Our corporate voice services were also provided
under these licenses. 34




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The General Authorization regime under the new EU framework was implemented on
25 July. Both the licences held by EGN B.V. and Global One CHL were
automatically transferred on that date and the General Authorisations permit
the full portfolio of services previously provided under the old framework.
We will continue to operate under both General Authorisations until the
integration of the UK companies is completed. Regulatory Assessment of Other Markets Currently, we are able to offer services in many Asia Pacific, South and
Central American and Central and Eastern Europe jurisdictions, and the
regulatory regimes in many of these countries are liberalizing rapidly. We
continually update our service offerings to comply with the changing regulatory
environment. It is possible that we may not timely conform our service
offerings to the changing regulatory environment. In such an event, we may be
subject to a range of enforcement actions including fines or onerous licensing
obligations. Asia Pacific.Regulatory regimes vary greatly in character throughout the Asia
Pacific region. At the liberalized end of the range, Australia, Hong Kong,
Japan, New Zealand, Singapore, South Korea and Taiwan have liberalized both
international data and voice services, which we provide currently in all seven
countries under the appropriate authorizations. In other countries in the
region, such as China, India, Indonesia, Malaysia, the Philippines, Thailand
and Vietnam, we have for some time provided various services in our portfolio
pursuant to agreements with licensed local operators, since in these countries
licenses are unavailable or difficult to obtain by foreign service providers.
Some of these markets such as India and Malaysia have begun to liberalize their
markets, and we are investigating possibilities to acquire licenses such that
our current agreements with local operators could be supplemented or replaced. South and Central America.Corporate data and voice network services are
relatively liberalized in the major South American countries, including
Argentina, Brazil, Chile, Colombia, Peru and Venezuela, and in parts of Central
America. We currently provide MDNS, switched and packet voice in these
countries, to the extent permitted under our own licenses, through our
arrangements with licensed local operators or through SITA authorizations. Central and Eastern Europe.Telecommunications services are liberalized in
varying degrees in a number of the major countries. Our operations involve all of the Eastern Europe countries, some of which are
aligned with the Western Europe regulatory environment. For example, in the Czech Republic and the
Slovak Republic, where the telecommunications markets have been fully
liberalized, and in Poland and Hungary, we are authorized to provide our full
data service portfolio. In Russia, we hold the necessary licenses for providing
our full service portfolio, including voice. Elsewhere, the Baltic States are on course for membership in the European Union
in 2004 and their telecommunications markets are almost fully liberalized. In
Estonia, Latvia and Lithuania, we are authorized to provide data and corporate
voice services. In the CIS countries we are working on the establishment of legal entities as a
basic requirement for licenses and authorization applications. 35




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ORGANIZATIONAL STRUCTURE Since June 29, 2001, when France Telecoms wholly-owned subsidiary, Atlas,
acquired a 54.3% interest in Equant, N.V., we have been a member of the France
Telecom group. As a result of subsequent dilution, France Telecom now controls
approximately 54.13% of our shares. Our significant subsidiaries are as follows: Shareholder within theName of subsidiary
    
    Country of incorporation
    
    Group
    
    % ownershipEquant Finance B.V.
    
    The Netherlands
    
    Equant N.V.
    
    
    100
    %EGN B.V.
    
    The Netherlands
    
    Equant Finance B.V.
    
    
    100
    %Equant Holdings UK Ltd.
    
    U.K.
    
    EGN B.V.
    
    
    100
    %Equant Network Services Ltd.
    
    U.K.
    
    Equant Holdings UK Ltd.
    
    
    100
    %Equant Holdings U.S., Inc.
    
    Delaware, U.S.A.
    
    Equant Finance B.V.
    
    
    100
    %Equant, Inc.
    
    Delaware, U.S.A.
    
    Equant Holdings U.S., Inc.
    
    
    100
    %Equant S.A.
    
    France
    
    Equant Finance B.V.
    
    
    100
    %Equant Proton Holdings Ltd.
    
    Grand Cayman, B.W.I.
    
    Equant Finance B.V.
    
    
    100
    %Equant Network Services
    
    Ireland
    
    EGN B.V.
    
    
    100
    %International Limited
 PROPERTY, PLANT AND EQUIPMENT At December 31, 2003, the total net book value of our property, plant and
equipment was $1,170 million, of which Network assets, such as packet switches
and routers, accounted for approximately 66%. We lease node sites and other
facility locations and sales and administrative offices throughout the world.
Our principal properties are our executive offices in Herndon, Virginia,
Amsterdam, the Netherlands and other administrative offices and facility
locations in Paris, France and in Slough, England, all of which are leased. We
believe that, taken as a whole, our properties are in good operating condition
and are suitable and adequate for our operations. For a description of our
Network, see  Business Overview  The Network. For a discussion of our
capital expenditure plans, see Item 5. Operating and Financial Review and
Prospects  Liquidity and Capital Resources  Capital Expenditure. 
 GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS The following explanations are not intended as technical definitions, but
rather are intended to assist the general reader in understanding certain terms
as used in this document. Term
    
    DefinitionAsynchronous
    
    A method of data transmission in which data is transmitted one character at a time.ATM
    
    Asynchronous Transfer Mode, a switching and transmission technology that is one of
a general class of packet technologies that relay traffic by way of an address
contained within the first five bits of a standard fifty-three bit long packet or
cell. ATM-based transport was specially developed to allow switching and
transmission of mixed voice, data and video at varying rates. The ATM format can
be used by many different information systems, including Local Area Networks.Bandwidth
    
    The capacity of a communications channel measured in bits per second.Broadband
    
    A generic term for high speed or high capacity connections.Character
    
    A unit equal to one byte (or 8 bits), used as a measurement of data traffic.Circuit Switching
    
    A process that, on demand, connects two or more data or voice terminal equipment
and permits the exclusive use of a circuit between them until the connection is
released.Connections
    
    A dedicated link from the customer to the Network using a variety of access and
network protocols.
 36




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Term
    
    DefinitionCoS
    
    Class of service.CPE
    
    Customer Premises Equipment.Extranets
    
    Managed networks that operate like the Internet but are designed for
inter-corporate use with more consistent performance and better security.Frame Relay
    
    A wide area transport technology that organizes data into units called frames
instead of providing fixed bandwidths as with private lines. Typically used to
connect dispersed LANs.GSM
    
    Global system for mobile communications.GPRS
    
    Generalized Packet Radio Services, data services over GSM.IDSL
    
    ISDN Digital Subscriber Line, which provides line speeds of 128/144 Kbps.Intranets
    
    Managed networks that operate like the Internet but are designed for internal
corporate use with more consistent performance and better security.IP
    
    Internet Protocol, an internetworking standard that enables ready communication
across data networks regardless of the hardware and software used.IPSec
    
    IP security, a set of standards that provides confidentiality and authentication
of packets at the IP layer, which includes a tunneling mode that may be used to
build encrypted, authenticated tunnels in a VPN.IRU
    
    Indefeasible Right of Use. Someone owning an IRU has the right to use the cable
for the time and bandwidth the IRU applies to.ISDN
    
    Integrated Services Digital Network, a generic term for a digital system that
allows a variety of telecommunications services to be carried over the same
digital network.Kbps
    
    One thousand bits per second, a rate used to measure transmission speeds.LAN
    
    Local Area Network. The interconnection of computers for the purpose of sharing
files, programs and peripheral devices such as printers and high speed modems.
LANs may include dedicated computers or file servers that provide a centralized
source of shared files and programs. LANs are generally confined to a single
customers premises and may be extended or interconnected to other locations
through the use of bridges and routers.LNO
    
    Local Network Operator.Mbps
    
    One million bits per second, a rate used to measure transmission speeds.MDNS
    
    Managed Data Network Services is the generic name given to wide area network
direct and dial access data transport services managed by a supplier and given a
higher degree of functionality and security, and cost effectiveness than data
transport services traditionally provided by public telecommunications
organizations through leased lines.MPLS
    
    Multi protocol label switching, a set of technologies that optimizes IP switching
by adding features of traffic, VPN and class of service management.PPP
    
    Point to Point Protocol.PSTN
    
    Public Switched Telephone Network.Router
    
    An interface between two networks often used in wide area or enterprise wide
networks, designed to find the best route between any two networks and to provide
network management capabilities such as load balancing, partitioning of the
network, use statistics, communication priority, and trouble shooting tools that
allow network managers to detect and correct problems even in a complex network
environment.SDLC
    
    Synchronous Data Link Control, a protocol enabling host and terminals using the
IBM SNA protocol to communicate transparently over networks.
 37




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Term
    
    DefinitionSDSL
    
    Symmetric Digital Subscriber Line, on which line speeds are the same in both
directions.SLA
    
    Service Level Agreement.SNA
    
    System network architecture, the network architecture developed by IBM that
defines the protocols used by IBM computers and communication devices.VoIP
    
    Voice over IP, a set of technologies for providing integrated voice traffic over
an IP based infrastructure.VPN
    
    Virtual Private Network.VSAT
    
    Very Small Aperture Terminal.WAN
    
    Wide Area Network, a network connecting devices over long distance, often
extending one Local Area Network to another.X.25
    
    A standard for synchronous access to packet switched networks.X.28
    
    A standard for asynchronous access to packet switched networks over public
switched telephone networks.
 38




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Item 5. Operating and Financial Review and Prospects You should read the following discussion in conjunction with the Consolidated
Financial Statements, including the Notes thereto, found elsewhere in this
document. The Consolidated Financial Statements have been prepared in
accordance with French GAAP, which differs in significant respects from U.S.
GAAP. Note 30 to the Consolidated Financial Statements provides a description
of the significant differences between French GAAP and U.S. GAAP as they relate
to our business and a reconciliation to U.S. GAAP of our net income,
shareholders equity and financial position prepared in accordance with French
GAAP. Note 30 also provides condensed consolidated statements of operations and
cash flows for the three years ended December 31, 2003 prepared in accordance
with U.S. GAAP to assist the reader in assessing our results of operations and
cash flows presented under U.S. GAAP. Given the fundamental difference in the treatment of the business combination
of Equant and Global One under French GAAP and U.S. GAAP, we discuss our
results of operations under U.S. GAAP as well as French GAAP. While under
French GAAP the combination was treated as an acquisition of Global One by
Equant, under U.S. GAAP the transaction was accounted for as a reverse
acquisition of Equant by Global One. A discussion of the results of operations
for the last three financial years under U.S. GAAP therefore requires a review
of the historic performance of Global One (rather than Equant) for the period
from January 1, 2001 to June 29, 2001. Global Ones carrier and calling card
services are included in the results of Global One with Global One as the
primary obligor from January 1, 2001 to June 29, 2001 and from June 30, 2001
are included in the results with Equant undertaking the services as an agent of
France Telecom. Operating and Financial Review under French GAAP Overview Our principal revenue stream continues to
be the provision of MDNS to MNCs that use the Network to carry their mission
critical data. During 2003, we announced many new customers, such as APL,
Baker & McKenzie, Electrolux, and Kuehne and Nagel. We also
announced our
largest direct sales contract ever, a comprehensive
outsourcing solution for Zurich Financial Services. We have direct channels to
market deploying our own sales force in 40 key countries, and we also use
indirect channels, which include SITA, China Netcom,
Japan Telecom, Sprint and Deutsche Telekom. We also provide communications services and solutions comprising consulting,
project management, service management, integration services and managed
services using our 3,000 service professionals around the world. MNCs who make
significant purchases from our services portfolio include Electrolux, Le
Meridien and Lufthansa Systems Infratec GmbH. We also offer deployment
services including resale of network equipment, staging and installation of
local and wide area infrastructure worldwide. In
2003, we continued to enhance our data and IP network product portfolio introducing broadband
DSL access in 13 countries and secure corporate access to the public Internet.
We introduced managed intrusion detection service and a cache management service to
strengthen our services portfolio. We added a remote on-site option to strengthen our messaging
portfolio.
We also offer a range of voice services including circuit-switched voice and
enhanced data and IP based voice services. During the year we added GPRS access
and video over IP to our portfolio. Approximately 13% of our IP VPN customers
already use IP telephony and Voice over IP solutions. Summary of Results and 2004 Expectations Revenues fell approximately 1% in 2003. There was strong growth in Network
Services direct revenue offset by continued weakness in our Network
Services indirect sales channels, mainly due to reduced revenues from Sprint,
Deutsche Telekom and Radianz. In addition, revenues from SITA fell due to the
expiry of the minimum revenue commitment on July 1, 2003. We
expect the environment for corporate business solutions to remain
challenging, particularly in the first half of 2004, but should show
some improvement in the second half. With increased competitive
pricing pressure and customers migrating to lower cost IP-based
connections, we expect full year
2004 revenues will be lower than 2003 revenues. 39




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Gross margins improved from 30.2% in 2002 to 31.1% in 2003 largely as a result
of our continuing focus on cost reduction, integration of the network and
reduction in duplicative transmission capacity. Selling, general and
administrative expenses fell from 23.8% of revenues in 2002 to 21.2% in 2003
reflecting the continuing optimization of the sales force and a reduction in
back office costs. We expect to make further reductions in selling, general and
administrative expenses in 2004 as we maintain pressure on reducing costs. We measure our operating performance based on operating result before
depreciation, amortization, share plans and restructuring and integration,
which increased by 52% to $292 million in 2003, and as a percentage of revenue,
increased from 6.5% to 9.9%. Our operating loss decreased from $384 million in
2002 to $276 million in 2003, a decline of 28%. We consider operating result
before depreciation, amortization, share plans and restructuring and
integration to be an effective measure of performance as it excludes certain
variables that affect net income (including restructuring activities, asset
bases, depreciation policies, financing activities and tax regimes) but may not
be directly related to all financial aspects of our operations. This
improvement arises from higher gross margins and lower selling, general and
administrative expenses as a percentage of revenues. There have been significant movements in exchange rates, particularly in the
dollar/euro rate, during 2003. Foreign exchange had a positive effect on
revenues of approximately $129 million and had a negative impact of
approximately $199 million on costs. We incurred an operating loss of $276
million in 2003, a reduction of 28% from 2002. The reduced operating loss is
due to the significant increase in operating result before depreciation,
amortization, share plans and restructuring and integration. We
incurred a net loss in 2003 of $356 million, which is 40% below the loss
incurred in 2002. Despite a significant improvement in our cost base, we are
facing increased competitive pricing pressure, customer migration to lower
cost IP services, and significant movements in exchange rates that negatively impact on our profitability, which could cause our net loss to deteriorate. Capital Expenditures We invested $280 million in capital expenditures of which $218 million was
incurred to expand and enhance the capabilities of the Network. Approximately
78% of our capital expenditures in 2003 were in network equipment, in line with
previous years, and we expect this trend to continue. Financing Our net cash and loans balance at December 31, 2003 (which is analyzed in Note
2 to the Consolidated Financial Statements), amounted to $479 million. This was
an increase of $34 million compared to the position at December 31, 2002. We
expect our net cash and loans balance to decline during 2004 as a result of
working capital investments to fund future growth opportunities. Restructuring and Integration We
completed the process of restructuring and integrating our
operations, the SITA network Joint Venture and Global One during 2003  as described in the Contribution Agreement. The costs
incurred to date amount to $558 million, of which $192 million was incurred in
2003. Consistent with the Contribution Agreement, we received $113 million
from France Telecom in respect of 2003 restructuring and integration costs. Staffing We had 9,547 employees (full-time and full-time equivalents) at December 31,
2003, compared with 10,132 at December 31, 2002. The reduction reflects the
ongoing reorganization of the business, and is consistent with reductions
anticipated at the time of the merger. We expect our headcount to fall further
in 2004, although at a slower pace. Strategy To
solidify our leadership in global, integrated and customized communication
solutions around the world for MNCs, we intend to further expand our existing
portfolio of services skills and combine them with our network expertise. Our
goal is to nearly double the proportion of our service revenues to 25% of total
revenues in 2006 / 2007. To drive growth in our services business, we
reorganized our services skills around five business practices covering
consulting, project management, service integration, Field services and
IT services. This focus on the services business will enable us to address
a larger part of the communications services market, which will further
differentiate our offering from competitors. 40




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Significant Factors Affecting Our Results Our results over the last three years have been affected primarily by the
following factors: Our Merger With Global One Following completion of the France Telecom transactions in June 2001, we began
to integrate our business with Global One and the SITA/Equant network Joint
Venture. Under the terms of the Contribution Agreement between France Telecom
and us, we agreed to share certain restructuring and integration costs for a
period of two years following June 29, 2001. France Telecom agreed to reimburse
us for half the costs of employment and termination of the first 2,500 of our
employees (including employees to be transferred from SITA to us pursuant to
the SITA/Equant network Joint Venture) or Global One employees that we
identified as not necessary for our long-term operation. For a period of two
years following June 29, 2001, the Contribution Agreement obligated France
Telecom to participate in the non-personnel related integration and
restructuring costs we incurred with respect to the integration of Global One
and the SITA network and the realization of related synergies. France Telecom
was to bear, or reimburse us for, 50% of the first $240 million of these costs
and 100% of the next $90 million of these costs. We incurred approximately $558.3 million of restructuring and integration costs
in the period from June 29, 2001 to December 31, 2003. The major components of
the costs incurred during the period since the transactions are asset write
downs ($166.4 million), lease exit costs ($127.2 million), employee termination
costs ($132.9 million), and integration planning and implementation costs
($64.0 million). France Telecom has reimbursed $286.2 million of the costs
incurred to date, and this contribution has been netted against the expense.
No further amounts will be reimbursed. Full details of our restructuring and
integration activities are provided in Note 7 to the Consolidated Financial
Statements. See Item 7. Major Shareholders and Related
Party Transactions 
Related Party Transactions  Relationship with France Telecom and Item 10.
Additional Information  Material Contracts for further information. The Network integration program launched in July 2001 continued in 2003,
focusing on the completion of the remaining network integration activities.
This mainly involved the closure of redundant sites, the elimination of local
legacy partnerships, the full integration of most domestic networks, and
completing the migration our legacy switched voice customers from the our
switched voice network to the legacy Global One switched voice network, which
is now the responsibility of France Telecom. During 2003, we finalized the integration of the Global One domestic networks,
and completed the post-2002 integration activities of migrating customer
traffic and data to our Ordering/Provisioning system. We also completed the
switched-voice migration from our legacy switched voice network to the legacy
Global One switched voice network on time, with the last 49 of the original 174
customers being migrated in 2003. A total of 31 of our legacy switches of were
phased-out following completion of these activities and our legacy switched
voice network was shut down in 2003. The site integration project also progressed well in 2003, with 56 sites being
closed in 2003, ahead of our internal target. A total of 138 sites having been
closed and 8,765 customer connections migrated since July 1 2001. We plan to
close an additional 26 sites in 2004. The partner rationalization project enabled us to close six partnerships
(representing 140 connections) in the year. Ten smaller partnerships
(representing 90 connections) remain to be closed in 2004
as part of our normal network optimization program. SITA Minimum Revenue Guarantees Following completion of the transactions closing the merger on June 29, 2001,
we terminated the joint venture agreement with SITA, which previously governed
our relationship, and replaced it with the agreements we describe below under
Item 7. Major Shareholders and Related Party Transactions and Item 10.
Additional Information  Material Contracts. The resulting relationship is one
whereby we assume operational control and management of the network and use it
to provide global telecommunications services to SITA to support the Air
Transport Community. Additionally, SITA
agreed to spend a minimum of $504 million and $495 million with us for the two
years ended June 30, 2002 and 2003, respectively. The minimum revenue
guarantee provision expired on June 30, 2003. As anticipated, the revenues
from SITA have decreased since the merger, declining from $729.8 million on a
pro forma basis in 2001 to $713.7 million in 2002 to $641.0 million in 2003. 41




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Pricing Policies The prices we charge for our services vary depending on the nature of the
service being provided, service speed, geographic location and committed
utilization of our capacity. In general, prices are established as either
one-time charges (typically installation charges) or monthly charges. The type
of monthly charges varies based on the product or service being sold. Monthly
charges may be volume sensitive, such as for our voice transmission Internet
dial-up service, or flat rate, such as for Frame Relay Private Virtual Circuits
or for network Ports. The amount of flat rate monthly charges typically varies
according to the bandwidth and customer geographies. Depending on the service,
pricing can be aggregated, offering customers fully packaged solutions. In
such circumstances, the price may include equipment, such as managed routers
and network services. Once we establish base service prices, we consider other factors, such as
charges for additional network services. The pricing decision is then subject
to further adjustment depending on the breadth of the service package. We also
sometimes offer discounts to larger volume customers who are prepared to
guarantee revenue levels over a designated period. In addition, some of our
customer contracts have pricing review clauses to reflect benchmarking against
market prices. Radianz, Our Joint Venture With Reuters In the second quarter of 2000, Reuters and Equant formed Radianz, a company
which is 51% owned by Reuters and 49% owned by us. Radianz, which commenced
operations on July 1, 2000, has developed a secure IP network for extranet
communications in the financial services industry. Radianzs primary customer
is Reuters. Other customers include ABN Amro, Euroclear, HSBC, Merrill Lynch,
Knight Trading Group, Inc. and Computershare. We have equal representation on the board of Radianz with Reuters and certain
provisions of the shareholders agreement we entered into with Reuters
regarding Radianz suggest that operating decisions are jointly controlled.
However, in practice we are unable to invoke joint control because Reuters
remains both the dominant supplier and customer of Radianz, and accordingly is
in a position to affect significantly the operations of Radianz without our
prior approval. We account for our 49% interest in the venture on the equity basis since we are
unable to exercise joint control over Radianz. Our share of the results is
shown as a single line item Equity in loss of affiliate. We provide
supplementary summary information in Note 12 of the Consolidated Financial
Statements, which includes details of our share of the net loss of Radianz, as
well as the gross revenues and costs of the joint venture company. Our agreement with Radianz obligated us to integrate portions of Radianzs
backbone network with our network by July 2003 or we would be obligated to
compensate Radianz in cash for any shortfall in the cost savings anticipated in
the agreement (which is calculated using detailed formulae). The integration
was not completed by the established deadline. We have agreed with Reuters and
Radianz to revise the requirements of the migration due largely to the more
stringent requirements of Reuters. While we cannot now quantify the amounts we
may have to pay to compensate Radianz, this payment could be material and could
adversely affect our results of operations and financial position. We are currently renegotiating the terms of the Radianz joint venture with
Reuters. If these negotiations are unsuccessful or are concluded on terms not
more advantageous to us than the current terms, we may be facing additional
costs. While we cannot now quantify the costs we may incur in connection with
the renegotiation of the joint venture, these costs could be material and could
adversely affect our result of operations and financial position. Moreover, we
may lose our investment in Radianz. Other Factors Affecting Costs There is not an immediate direct relationship between revenues and costs. In
addition to the effect on expenses of the size-related factors impacting our
revenues, several further factors tend to affect our costs. We realize
reductions in unit costs of our network activities as speed and bandwidth
increase and
as increased deregulation and competition in local markets and technological
advancement drive prices downwards. We have not been significantly affected by
inflation. 42




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Critical Accounting Policies As a member of the France Telecom group, we prepare our financial statements in
accordance with French GAAP, which differs in a number of respects from U.S.
GAAP. A detailed description of the more significant differences that apply to
us is provided in Note 30 to the Consolidated Financial Statements. Revenue Recognition Like many companies in the telecommunications industry, revenue recognition is
a critical accounting policy because of its potential effect on our results of
operations and financial position. This policy is critical in two respects: it
determines whether a transaction is treated as an increase in revenues or a
reduction in cost; and it dictates when to record revenue in the income
statement. We
derive our revenue from the sale of data and IP network products, voice and network
connectivity services and other value-added services, such as hosting, security
and professional services. We also sell network hardware products to our
customers. Management judgments and estimates are made in connection with
the revenue recognized in any accounting period. Material differences might
result in the amount and timing of our revenue for any period if our management
made different judgments or utilized different estimates. We recognize revenue when (1) there is persuasive evidence of an arrangement;
(2) delivery of products has occurred or services have been rendered; (3) the
sellers price to the buyer is fixed or determinable; and (4) collectibility
is reasonably assured. Revenues are recognized net of discounts and customer
sales incentives. Unless otherwise stated, revenues are recognized on a
consistent basis under French GAAP and U.S. GAAP. The Companys principal
revenue streams and their respective accounting treatments are discussed below: Network Services Network services revenues are generated from sale of transmission of data
traffic and on-going service charges for managing the customers network
system. Integration services revenues are generated from deployment, monitoring
and maintenance of customer equipment as well as consultancy and professional
services. For all service revenue arrangements, fixed fee elements, which are specified
in the contract are performed continuously over the contractual term of the
arrangement (and any subsequent renewals) and revenue is recognized using the
straight-line method over the term of the contract (and any subsequent
renewals). Variable fee elements, such as volume-based consumption or traffic,
are recognized in the period the service is provided or utilized by the
customer. Connections revenue related to network services are deferred and recognized
over the longer of the term of the contract or expected customer relationship.
Direct and incremental connections costs are deferred over the term of the
contract (and any subsequent renewals). Equipment Sales We recognize revenues from telecommunications equipment sales when the
equipment is delivered and accepted by the end customer. Services Provided to France Telecom & Affiliates We provide services to Transpac. We recognize revenues and cost of sales on a
gross basis. We recognized revenues of $134.7 million, $296.3 million and
$372.0 million, respectively, in 2001, 2002 and 2003. Certain billing, product development, staff costs, branding and human resource
services were provided to affiliates of France Telecom (the affiliates) to
support the switched voice and network services businesses. We charge the
affiliates on a cost recovery basis and invoice the affiliates for such
charges. Under French GAAP, the revenues for such services are classified
within other operating income and the cost of such services are classified
within costs of services and products sold. Under U.S. GAAP,
these services are considered to be peripheral and incidental to our operations
and thus are considered to be a gain, which is classified on a net basis
against the related costs. In 2001, 2002 and 2003, revenues of $146.4 million,
$196.1 million and $142.4 million, respectively, were recognized. 43




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We act as France Telecoms agent on a limited risk basis for its pre-paid and
post-paid calling cards in various countries. We are also the distributor for
France Telecoms carrier business outside France. In light of our limited risk
of providing these services, we earn a fee of cost
plus 0.5 percent for administrative services rendered on these transactions.
The amounts invoiced from suppliers are passed through to France Telecom less
our fees. Revenues and cost of sales are recognized on a net basis
and are classified within costs of services and products sold. Both of these
commercial relationships derive from distribution agreements originally
executed by France Telecom and Global One. As part of our investment in Radianz, we agreed to purchase certain circuits
owned by third parties and leased by Reuters, and to deliver certain cost
savings on the supply of Network services to Radianz following the migration of
the circuits leased by Reuters to us. In exchange we were granted an exclusive
agreement to supply Network services to Radianz. Until the network is
fully migrated to us, We lease the circuits until they could either be replaced
or novated. Reuters bills us for circuit lease charges (which we record in
costs of services and products sold). We recognized revenues of approximately
$26 million in 2003 and $60 million in 2002 on our billing to Radianz for
Network services provided using circuits leased from Reuters. Capacity Purchases The decision whether to classify capacity purchases as capital leases,
operating leases or service contracts has a significant effect on our financial
statements. We purchase capacity on major international routes where it is
economic to do so. The agreements we have entered into to date (known as
Indefeasible Rights of Use or IRUs) qualify as leases. These agreements typically involve the prepayment of all lease costs.
Under French GAAP, capacity purchases qualifying as capital leases are recorded
within long-lived asset in the balance sheet, with an annual amortization
charge recognized in the income statement. Under U.S. GAAP, capacity purchases
qualifying as capital leases are recorded within property, plant and equipment
and are depreciated over the lesser of the lease term or the estimated useful
life of the capacity. As of December 31, 2002 and 2003, $151.9 million and
$139.2 million, respectively, was recognized as the net book value of
intangible assets, under French GAAP, and the net book value of property, plant
and equipment, under U.S. GAAP, for capacity purchases qualifying as capital
leases. We may purchase capacity for a short-term period, typically six months, from a
provider while the terms of a longer-term capacity purchase with the same
provider are finalized. Under French GAAP and U.S. GAAP, such short-term
capacity purchases qualify as service contracts and are deferred within other
current assets and prepaid costs and recognized as an operating expense over
the period of the service contract. As of December 31, 2002 and 2003, the amounts recognized on the balance sheet for purchases of capacity
qualifying as service contracts were not significant. Business Combinations The difference between the French GAAP and U.S. GAAP treatment of our
acquisition of Global One has a fundamental effect on our results of operations
and financial position under the two accounting regimes. Under French
GAAP, we acquired 100% of the shares of Global One and the transaction was
accounted for under the method described in paragraph 215 of Rule 99-02 of the
Comité de la Réglementation Comptable or CRC. The results of Global One were
included in the income statement prospectively from June 30, 2001. Under U.S.
GAAP (EITF 90-13 Accounting for Simultaneous Common Control Mergers), by
contrast, the acquisition was accounted for as a reverse acquisition in which
Global One acquired us, since France Telecom was previously a shareholder of
Global One and became the majority shareholder in the combined entity. Global
One is viewed as the predecessor entity, and our results for the period January
1 to June 29, 2001 are excluded from the income statement for the year ended
December 31, 2001. Under paragraph 215 of CRC Rule 99-02, we carried over the historical carrying
value of Global One in our financial statements. If we had not applied this
accounting treatment we would have been required to recognize goodwill,
calculated on the basis of the excess of the purchase price and the fair value
of assets acquired as an asset, rather than writing it off directly to equity. 44




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The U.S. GAAP treatment for the Global One transaction required recognition of
approximately $6.5 billion of goodwill and $208.6 million of other intangible
assets. On June 29, 2001, approximately $3.9 billion of goodwill and
intangible asset existed in the predecessor entity, Global One from the push
down by France Telecom of goodwill and other intangible assets generated on
the purchase of the interests of Sprint and Deutsche Telekom in Global One. Impairment of Goodwill and Long-Lived Assets Under French GAAP, long-lived assets, including goodwill, are subject to an
impairment review when events or circumstances occur indicating that impairment
might exist. Such events or circumstances include significant declines, other
than temporary, in the market price of our ordinary shares as well as difficult
market conditions in the telecommunications sector. Under
French GAAP, the need to record an impairment is determined by reference
to the sum of discounted cash flows based on economic assumptions and
forecasted operating activities approved by our management. When a write-down
is deemed necessary, it is calculated by reference to the difference between
the carrying value and the fair value. The determination of the fair value is
based on valuations that differ depending on the method used. Under U.S. GAAP, we are required to test long-lived assets, including
intangible assets, for impairment whenever there is an indication of impairment
and, for assets to be held and used, impairment is first measured by reference
to undiscounted cash flows. If impairment exists, we must measure impairment
by comparing the fair value of the asset to its carrying value. Fair value is
either market value (if an active market for the asset exists) or the sum of
discounted future cash flows. The discount rate reflects the risk that is
specific to that asset. For assets to be disposed of, the loss recognized is
the excess of the carrying amount of the asset over its fair value less costs
to sell. Under U.S. GAAP, impairments of intangible assets of $179.2 million,
nil and nil were recognized in the years ended December 2001, 2002 and 2003,
respectively. Under U.S. GAAP, accounting for goodwill was substantially the same as current
French GAAP until the adoption of SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), on January 1, 2002, which addresses the initial and
ongoing financial accounting and reporting for acquired goodwill and intangible
assets with indefinite lives. SFAS 142 requires that goodwill no longer be
amortized but tested for impairment at least annually (or more frequently if
impairment indicators arise) under SFAS 142. We evaluated impairment using a
prescribed two-step process on adoption. First, we screen for potential
impairment by comparing the carrying value of each reporting unit to its fair
value. If the carrying value is determined to be in excess of the fair value,
then a second step is performed to quantify the amount of goodwill impairment,
if any. In the second step, we estimate the fair value of the assets and
liabilities of the reporting unit, including recognized and unrecognized
intangible assets. We estimate the fair value based on reference to the share
price of our publicly traded stock, since it best represents our fair value
given that we have only one reporting unit. To the extent that the carrying
value of the reporting units goodwill is in excess of the fair value, it is
considered impaired. We did not have to recognize an impairment under the
strictures established by SFAS 142. Under
U.S. GAAP, impairment charges of $7,299.5 million, $2,423.5 million and
nil for the years ended December 31, 2001, 2002 and 2003, respectively, were
recorded. The impairment charge in 2001 was recognized
in accordance with reference to our share price. The impairment charge in 2002
was recognized as a result of the first annual goodwill impairment test in
December and resulted in remaining book value of nil given that our share price
was $4.05 at December 31, 2002, compared to $11.65 on December 31, 2001. If
we had used another method to determine fair value, such as a discounted cash
flow model, the amount of the goodwill write off, if any, could have been
significantly different. Valuation methods we use include discounted cash flows using appropriate rates
and considering other opportunities related to the acquisition such as
synergies resulting from the integration as well as the strategic value of the
acquired company to us, or by reference to quoted market prices. Significant
management judgment is involved in determining the discounted cash flows and
the underlying variables. These estimates, as well as the use of certain
valuation methods, are the basis for the evaluation of the value in use of
long-lived assets, and therefore the amount of any impairment. In light of the
continued trading difficulties in the telecommunications market, and
significant declines in telecommunications valuations, we recognized an
exceptional amortization charge of $154.8 million in 2002 to reduce all French
GAAP goodwill to nil. The size and timing of the exceptional amortization
charge was based on our view that the discounted cash flows related to our
investment were not sufficient to recover the carrying value of our investment. 45




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##### 



Control of Affiliates We consolidate companies that we own, or control. Investments in businesses
that we do not control, but have the ability to exercise significant influence
over operating and financial policies, are accounted for using the equity
method. French GAAP requires the proportional consolidation of entities that
are under the joint control of two or more parties. Our investment in Radianz has been accounted for under the equity method of
accounting because we are currently unable to exercise joint control over its
operations although we have equal representation on the board and certain
provisions of the shareholders agreement we entered into with Reuters
regarding Radianz suggest that operating decisions are jointly controlled.
Reuters is both the dominant supplier and customer of Radianz and therefore is
in a position to affect significantly the operations of Radianz without our
prior approval. Our investment in Radianz is also accounted for under the
equity method of accounting under U.S. GAAP. Proportional consolidation is not
permitted under U.S. GAAP except in certain very specific circumstances that do
not apply to Equant. Restructuring and Integration Charges Restructuring and integration charges represent amounts arising from
significant reorganizations and significant asset impairments resulting from
these reorganizations, and are shown as an operating cost on a separate line of
the Consolidated Statement of Operations. Under French GAAP it is possible to
classify restructuring and integration charges as either operating or
non-operating  if we had chosen to classify our restructuring activities as
non-operating our operating loss for the years ended December 31, 2003, 2002
and 2001 would have been reduced by $85.1 million, $98.1 million and $110.2
million, respectively. Our net loss would not have changed in any year. Amounts recoverable from France Telecom under the Contribution Agreement in
respect of restructuring and integration of Equant, Global One and the SITA
Equant network Joint Venture are shown as a reduction of restructuring and
integration charges. Under U.S. GAAP, amounts recoverable are accounted for as
capital contributions and recorded as additional paid-in capital upon receipt -
this difference is included in the reconciliation of French GAAP to U.S. GAAP
in Note 30 to the Consolidated Financial Statements. Restructuring provisions represent costs related to severance and other costs
incurred in connection with a decision to exit non-strategic businesses. These
measures are based on formal management decisions, establishment of agreements
with the employees representatives or individual agreements with the affected
employees as well as the public announcement of the restructuring plan. The
related reserves reflect certain estimates, including those pertaining to
separation costs, settlements of contractual obligations and other closure
costs. We reassess the reserve requirements to complete each individual plan
under our restructuring program at the end of each reporting period. Actual
experience has been and may continue to be different from these estimates. See
Note 7 to the Consolidated Financial Statements for further discussion of
Restructuring provisions. Pension Benefits We have significant pension benefit costs and credits, which are developed
from actuarial valuations. Inherent in these valuations are key assumptions,
including discount rates and expected return on plan assets, which are usually
updated on an annual basis at the beginning of each fiscal year. We are
required to consider current market conditions, including changes in interest
rates, in making these assumptions. Changes in the related pension and
postretirement benefit costs or credits may occur in the future due to changes
in the assumptions. The key assumptions used in developing our 2003 net pension benefit charge were
a weighted average discount rate of 5.30% (2002 was 5.52%), an expected return
on plan assets of 8.03% (2002 was 8.06%) and a rate of compensation increase of
2.89% (2002 was 3.44%). The changes in the assumptions from 2002 reflect
current market conditions in those countries providing the plans. Compared with
2002, our net pension benefit charge in 2003 increased by
$1 million to $12 million.
Our net pension benefit charge is expected to increase to
approximately $15
million during 2004, primarily as a result of exchange rate fluctuations. Holding all other
assumptions constant, a one-half percent increase or decrease in the discount
rate would have increased or decreased
2003 pre-tax loss by approximately $1 million. Likewise, a one-half percent
increase or decrease in the expected return on plan assets would have increased
or decreased 2003 pre-tax loss by $0.5 million. 46




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##### 



Share-Based Compensation We have on various occasions granted awards of our shares to our employees
under an employee share award plan, as well as issuing share options to
management and employees. Under French GAAP Share Plan Costs reflect social
charges payable by the Company on share option and share award plans. Social
charges payable by the Company on the fair value of shares granted are accrued
over the period between the dates of granting and vesting, based on the
expected exercise rates. Under U.S. GAAP, share-based compensation is accounted for using the fair value
based method in accordance with Statement of Financial Accounting Standard No.
123 (SFAS 123) Accounting for Stock-Based Compensation. Under SFAS 123,
compensation cost is measured at the date awards are granted and is recognized
through charges to expense over the employees service period. The compensation
expense under U.S. GAAP does not include social charges until such time that
such charges are payable upon exercise of the awards. We use the Black-Scholes option-pricing model to determine the amount of
share-based compensation cost to recognize in the financial statements. This
requires us to make assumptions on such variables as share price volatility,
expected lives of options and discount rates. Changes in these assumptions
could significantly affect the amount of stock compensation cost recognized. We
adopted SFAS 123 under the modified prospective method under the provisions of
SFAS No. 148 Accounting for Stock-Based Compensation  Transition and
Disclosure in 2002. The effect of adopting this method is that the
compensation cost recognized in 2002 is the same as that which would have been
recognized had the recognition provisions of SFAS 123 been applied from its
original effective date. We were not required to restate results for prior
periods  if we had been required to do so, our net loss for the year ended
December 31, 2001 would have increased by approximately $1 million. Deferred Taxes Deferred tax assets must be assessed based upon the likelihood of
recoverability from future taxable income and to the extent that recovery is
not likely, a valuation allowance is established. The allowance is regularly
reviewed and updated for changes in circumstances that would cause a change in
judgment about the reliability of the related deferred tax assets. These
calculations and assessments involve complex estimates and judgments because
the ultimate tax outcome can be uncertain or future events unpredictable. As of
December 31, 2002 and 2003, a valuation allowance of $554.5 million and $625.4
million, respectively, was recognized against deferred tax assets of $554.5
million and $633.4 million, respectively. Provision for Bad Debts At each balance sheet date, we evaluate the collectibility of trade debtors and
record provisions for bad debts based on experience. These provisions are
based on, amongst other things, comparisons of the relative age of accounts and
consideration of actual write-off history. The actual level of debt collected
may differ from the estimated levels of recovery, which could impact operating
results positively or negatively. As of December 31, 2003 and 2002, our trade
debtors were $630.3 million and $857.9 million, respectively, and the provision
for bad debts was $71.6 million and $101.0 million, respectively. 47




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##### 



Results of Operations for the Year Ended December 31, 2003, compared to the
Year Ended December 31, 2002 based on French GAAP The following table sets forth our statement of operations for the years ended
December 31, 2002 and 2003 and the percentage change between the two periods: For the year endedDecember 31,
    
    % changefrom 2002 to2002
    
    2003
    
    2003(U.S. dollars in millions, exceptpercentages)Revenues
    
    $
    2,973.1
    
    
    $
    2,948.9
    
    
    
    (0.8
    )%Cost of products and services
    
    
    (2,269.9
    )
    
    
    (2,174.4
    )
    
    
    (4.2
    )%Other operating income
    
    
    196.1
    
    
    
    142.4
    
    
    
    (27.4
    )%Gross profit
    
    $
    899.3
    
    
    $
    916.9
    
    
    
    2.0
    %Selling,
general and administrative expenses
    
    $
    (707.3
    )
    
    $
    (625.3
    )
    
    
    (11.6
    )%Operating result before
depreciation, amortization, share
plans and restructuring and
integration charges (1)
    
    $
    192.0
    
    
    $
    291.6
    
    
    
    51.9
    %Depreciation and amortization,
excluding goodwill
    
    
    (487.7
    )
    
    
    (482.4
    )
    
    
    (1.1
    )%Share plan costs (2)
    
    
    9.9
    
    
    
    
    
    
    
    n/aRestructuring and integration
charges (3)
    
    
    (98.1
    )
    
    
    (85.1
    )
    
    
    (13.2
    )%Operating loss
    
    $
    (383.9
    )
    
    $
    (275.9
    )
    
    
    (28.1
    )%Financial income/(charges)
    
    $
    13.3
    
    
    $
    (21.7
    )
    
    
    n/aReversal of loss on impairment of
investments accounted at cost
    
    
    0.3
    
    
    
    
    
    
    
    n/aIncome taxes
    
    
    (11.9
    )
    
    
    (17.0
    )
    
    
    42.9
    %Employee profit sharing
    
    
    (0.6
    )
    
    
    (0.9
    )
    
    
    39.4
    %Equity in loss of affiliate
    
    
    (27.3
    )
    
    
    (40.6
    )
    
    
    48.7
    %Net loss before minority interests
and goodwill amortization
    
    $
    (410.1
    )
    
    $
    (356.1
    )
    
    
    (13.2
    )%Goodwill amortization
    
    $
    (178.9
    )
    
    $
    
    
    
    
    n/aMinority interests
    
    
    (0.7
    )
    
    
    (0.1
    )
    
    
    (85.7
    )%Net loss
    
    $
    (589.7
    )
    
    $
    (356.2
    )
    
    
    (39.6
    )%
  (1)
    
    Operating result before depreciation, amortization, share plans and restructuring and integration
charges should be considered only in conjunction with all of the information in the Consolidated
Financial Statements. You should not consider it to be an alternative to operating profit/loss as an
indicator of our performance or as an alternative to cash flows as a measure of our liquidity, and it is
not a measure of performance calculated in accordance with U.S. GAAP and may not be presented on the face
of a U.S. GAAP income statement. We consider it to be an effective measure of performance as it excludes
certain variables that affect net income (including restructuring activities, asset bases, depreciation
policies, financing activities and tax regimes) but may not be directly related to all financial aspects
of our operations. 48




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##### 



(2)
    
    Share plan costs represent the cost of providing stock to employees under our share-based incentive
compensation plans. Under French GAAP there is no compensation cost if awards and options are satisfied
through the issue of new equity. Social security charges are payable on the fair value of the shares
granted and are recognized over the period between the granting and vesting dates of the awards. These
costs were negative in 2002 (meaning that we reversed costs that were previously incurred) largely
because we recognized an exceptional gain of $9.8 million, which represents cash received following
successful litigation against our former share plan advisers.(3)
    
    Restructuring and integration charges mostly include the costs of integrating the former Global One
businesses. Revenues The following table sets forth our revenues broken down by line of business: Year ended December 31,2002
    
    2003(U.S. dollars in millions,Except percentages)Revenues by Line of Business:Network Services
    
    $
    1,567.1
    
    
    $
    1,607.1As a percentage of revenues
    
    
    52.7
    %
    
    
    54.5
    %Integration Services
    
    
    453.4
    
    
    
    476.6As a percentage of revenues
    
    
    15.3
    %
    
    
    16.2
    %Other Services
    
    
    238.9
    
    
    
    224.2As a percentage of revenues
    
    
    8.0
    %
    
    
    7.6
    %SITA contract
    
    
    713.7
    
    
    
    641.0As a percentage of revenues
    
    
    24.0
    %
    
    
    21.7
    %Total
    
    $
    2,973.1
    
    
    $
    2,948.9
 Our revenues fell by 0.8% to $2,948.9 million for the year ended December 31,
2003 compared to $2,973.1 million for the year ended December 31, 2002. This
reflects declines in Other Services and the SITA contract, partially offset by
increases in revenues from Network Services and Integration Services. On a
constant currency basis, calculated throughout Item 5 by applying the 2003
exchange rates to our 2002 revenues and costs, revenues decreased by
approximately 5%. The following table sets forth our revenues broken down by geographic region: Year ended December 31,2002
    
    2003(U.S. dollars in millions,Except percentages)Revenues by Region:Europe, Middle East and Africa
    
    
    2,153.5
    
    
    
    2,188.8As a percentage of revenues
    
    
    72.4
    %
    
    
    74.2
    %Americas
    
    $
    660.6
    
    
    $
    595.3As a percentage of revenues
    
    
    22.2
    %
    
    
    20.2
    %Asia Pacific
    
    
    159.0
    
    
    
    164.8As a percentage of revenues
    
    
    5.4
    %
    
    
    5.6
    %Total
    
    $
    2,973.1
    
    
    $
    2,948.9
 49




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##### 



Revenues for 2002 and 2003 are attributed to the region in which the ultimate
customer is located, rather than the region in which the related services are
invoiced, as was previously the case. Europe, Middle East and Africa achieved 1.6% revenue growth, Asia Pacific
achieved 3.6% revenue growth, while the Americas experienced a decline of 9.9%
for the year ended December 31, 2003 as compared to 2002. These figures reflect
the positive impact of changes in foreign exchange rates on our
non-dollar-denominated revenues, partially offset by declining revenues in the
increasingly competitive North American market. Network Services The following table sets forth the revenues from each of our Network Services
primary product lines: Revenues by product line: Year ended December 31,2002
    
    2003(U.S. dollars in millions,Except percentages)Revenues by product line:Frame Relay and IP
    
    $
    1,336.8
    
    
    $
    1,407.1As a percentage of
NS revenues
    
    
    85.3
    %
    
    
    87.6
    %Traditional MDNS
    
    
    230.3
    
    
    
    200.0As a percentage of
NS revenues
    
    
    14.7
    %
    
    
    12.4
    %Total
    
    $
    1,567.1
    
    
    $
    1,607.1
 Revenues from network services grew by $40.0 million or 2.6% to $1,607.1
million in 2003, as compared to $1,567.1 million in 2002. On a constant
currency basis, revenues decreased by approximately 2%.
On the same basis, our Network Services business enjoyed
volume increases, but these were more than offset by price declines. These revenue increases were principally the result of increases in volume,
which resulted from the growth in the international data transmission market
and from both new and increased existing customer penetration. We have
experienced increased demand for high speed protocols, but this has been
partially offset by falling demand for low speed protocols, and we expect this
trend to continue in the future as customers continue to seek improved network
performance. The following table sets forth our Network Services revenues split by direct
and indirect channels: Year ended December 31,2002
    
    2003(U.S. dollars in millions, except percentages)Direct
    
    $
    1,244.9
    
    
    $
    1,348.3As a percentage of NS
revenues
    
    
    79.4
    %
    
    
    83.9
    %Indirect
    
    
    322.2
    
    
    
    258.8As a
percentage of NS revenues
    
    
    20.6
    %
    
    
    16.1
    %Total
    
    $
    1,567.1
    
    
    $
    1,607.1
 Direct revenues increased by $103.4 million, or 8.3%, to $1,348.3 million in
2003 compared to $1,244.9 million in 2002. As a percentage of total Network
Services revenues, Direct revenues have increased from 79.4%, in 2002 to 83.9%
in 2003. 50




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Indirect revenues have fallen by $63.4 million,or 19.7%, to $258.8 million in
2003, compared to $322.2 million in 2002. This reflects significant decreases
in the level of revenues from Sprint and Deutsche Telekom, former shareholders
in Global One. Until December 31, 2002, network services billed through France Telecom
Transpac were categorized as indirect revenues. Under the arrangements put in
place at the time of the France Telecom transactions in June 2001, our French
direct sales force was to be transferred to France Telecom Transpac and all
existing network services customers become customers of France Telecom Transpac
at the time of contract renewal. This integration became fully effective on
December 31, 2002 and as a result $100.5 million of revenues previously
categorized as Indirect were transferred to Direct. We have continued to experience price declines on contract renewals due to the
current focus on cost control of our target market, however have continued to
perform well in securing contracts in competitive tenders, winning
approximately 60%, of opportunities. Although our contracts typically average
three years, three of the top ten orders (by total order value) during the
fourth quarter were for terms of more than five years. We signed our largest
direct sale ever in 2003, and will continue to pursue opportunities for
further profitable growth, particularly in the outsourcing market. Integration Services The following table sets forth our Integration Services revenues by product
line. Year ended December 31,2002
    
    2003(U.S. dollars in millions,except percentages)Integration Services revenues by product line:Fulfillment
    
    
    135.1
    
    
    
    166.8As a percentage of IS revenues
    
    
    29.8
    %
    
    
    35.0
    %Hosting and applications
    
    
    122.5
    
    
    
    133.0As a percentage of IS revenues
    
    
    27.0
    %
    
    
    27.9
    %Other integration services
    
    $
    195.8
    
    
    $
    176.8As a percentage of IS revenues
    
    
    43.2
    %
    
    
    37.1
    %Total
    
    $
    453.4
    
    
    $
    476.6
 Revenues for 2003 increased by $23.2 million, or 5.1% to $476.6 million
compared to $453.4 million in 2002. This increase primarily reflects the impact
of movements in foreign exchange rates, which has boosted the U.S. dollar value
of revenues billed in other currencies. On a constant currency basis, revenues
decreased by approximately 1%. Revenues from fulfillment increased by $31.7 million or 23.5%, primarily due to
an extremely strong fourth quarter. On a constant currency basis, revenues
increased by approximately 21%, with most regions showing good growth.
Fulfillment revenues in December 2003 were the highest in Equants history. The $10.5 million or 8.6% increase in revenues from hosting and applications
was entirely due to the impact of foreign exchange rate movements. On a
constant currency basis, revenues decreased by approximately 6%, reflecting
underlying growth in revenues from direct customers but lower revenues from
France Telecom Transpac. Revenues from other integration services have decreased by 9.7%, following a
fall in demand for field services, particularly in North America. On a
constant currency basis, revenues decreased by approximately 12%. 51




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Other Services The following table sets forth our Other Services revenues by type: Year ended December 31,2002
    
    2003(U.S. dollars in millions,except percentages)Revenues by type:Convergence solutions
    
    $
    149.6
    
    
    $
    140.0As a percentage of
Other Services
revenues
    
    
    62.6
    %
    
    
    62.4
    %Services provided to France Telecom
    
    
    89.3
    
    
    
    84.2As a percentage of
Other Services
revenues
    
    
    37.4
    %
    
    
    37.6
    %Total
    
    $
    238.9
    
    
    $
    224.2
 Revenues
from Other Services fell by 6.2% or $14.7 million to $224.2
million in 2003
from $238.9 million in 2002. On a constant currency basis, revenues decreased
by approximately 15%. The underlying drop in revenues reflects a 12% reduction
in revenues from Convergence Solutions (primarily the significant
circuit-switched voice activity we acquired with Global One) as customers are
migrated to voice over IP, as well as 21% drop in product management royalties
from France Telecom Transpac. The reduction in product management royalties
reflects a reduction in the royalty rate from 8.0% to 5.75%, partially offset
by an increase in the range of products covered by the agreements. See Item 7.
Major Shareholders and Related Party Transactions  Related
Party Transactions  Relationship with France Telecom for further information on our arrangements
with France Telecom Transpac. SITA Contract The SITA Contract included a minimum revenue guarantee that expired on July 1,
2003. The expiration of this guarantee accounts for the majority of the
decrease of $72.7 million or 10.2% to $641.0 million in 2003 from $713.7
million in 2002. The proportion of revenue earned on high speed protocols such
as IP-VPN increased by over 50% during 2003, as low-speed connections are
removed from the network. Cost of Products and Services The cost of products and services decreased by 4.2%, or $95.5 million, to
$2,174.4 million in 2003 from $2,269.9 million in 2002. On a constant currency
basis, calculated by applying the 2003 exchange rates to our 2002 expenditure,
costs of products and services decreased by over 10%, notwithstanding increased
costs to support the additional fulfillment and outsourcing revenues discussed
above. We had 5,936 people employed in the Network at December 2003 compared to 6,405
people at December 31, 2002, a reduction of 469 or over 7%. Staff-related
expenditure declined by approximately 3% during the year, and as we continue to
rationalize our Network activities we expect further reductions in staff costs
and headcount in 2004. The network restructuring and integration activities performed since July 2001
have yielded significant cost savings. Our access and data termination costs
for 2003 were approximately 6% below that of 2002, following completion of
initiatives to identify redundant or high cost circuits, and we have seen an
18% reduction in the cost of transmission over the same period. Our total
network costs have fallen by approximately 15% from 2002 to 2003, despite the
adverse impact of foreign exchange. Other Operating Income Other operating income comprises recoveries from France Telecom in respect of
our switched voice services and the provision of ancillary support services
with respect to the network. These recoveries from France Telecom are
classified as Other Operating Income. We recognized $142.4 million of Other
Operating Income in 2003, compared to $196.1 million in 2002, a decrease of
$53.7 million or 27.4%. 52




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Switched Voice Services We have agreed to transfer the operation, management and financial
responsibility for our switched voice business and switched voice platform
(most of which we acquired in the merger with Global One) to France Telecom by
the end of 2005. France Telecom and we have planning and financial arrangements
in place to ensure that the switched voice business does not materially affect
our profitability. We recognized income of $95.4 million from France Telecom in
2003 under these arrangements, compared to $131.1 million in 2002. We expect to
migrate gradually our voice business to a Voice over IP platform by the end of
2005 and accordingly these amounts should fall in the future. Ancillary Support Services We provide transmission capacity and IP services to France Telecom in countries
where France Telecom does not have a presence. Pricing for these services is
based on market price. We also supply ancillary support services to France
Telecom on a cost recovery basis. These commercial relationships will continue
so long as France Telecom continues to own at least 34% of our outstanding
shares; however, the commercial terms can be varied. France Telecom paid us
$47.0 million for these support services in 2003, compared to $65.0 million in
2002. Gross Profit Gross profit grew by 2.0% or $17.6 million to $916.9 million in 2003 from
$899.3 million in 2002. The gross margin increased to 31.1% in
2003 from 30.2%
in 2002. The improvement in gross margin is largely a result of our continued
focus on operational efficiencies and the effects of the Network restructuring
and integration activities described above. The improvement in gross profit arises mainly from a combination of higher
direct Network Services revenues and an improvement in the Network cost
structure, following the integration of the Global One network, offset in part
by the reduction in revenues from SITA and the conditions facing our indirect
Network Services business described above. Our ability to increase margins will depend, among other things, on our ability
to successfully manage our Network costs, continue to increase our Network
Services volumes in the current environment of declining prices, correct the
recent sales declines in our Indirect Network Services business, and market and
sell additional specialist services to our customers. Margins may in fact
remain static or decline. Selling, General and Administrative Costs Selling, general and administrative (SG&A) costs comprises expenses incurred
to promote and sell our products and services, as well as expenses incurred by
central and local management functions to monitor Equants performance. SG&A
costs decreased by 11.6% to $625.3 million in 2003 from $707.3 million in 2002.
As a percentage of total revenues, SG&A costs fell from 23.8% in 2002 to 21.2%
in 2003. On a constant currency basis, calculated by applying the 2003 exchange rates to
our 2002 expenditure, SG&A costs decreased by over 17%, and as a percentage of
total revenues fell from 24.4% in 2002 to 21.2% in 2003. Our bad debt expense fell by $28.0 million or 99.7% to $0.1 million in 2003
compared to $28.1 million in 2002, reflecting the reduced level of customer
bankruptcies and the impact of our improved credit control procedures on the
collectibility of our receivables. Our ongoing focus on indirect costs yielded considerable benefits during 2003. Facilities costs fell by over 19% during 2003, as we closed a further 33 sales
and administrative offices. We intend to close further offices in 2004. We have achieved a 26% reduction in marketing and advertising expenditure, as
we have focused on our Global Large Accounts program. Indirect taxes decreased
by over 50%, as legislation covering certain U.S. sales taxes was changed, and
professional fees fell by almost 9% as we re-evaluated a number of our supplier
arrangements. Both staff-related expenditure and headcount declined by approximately 3%
between 2002 and 2003, as staff numbers fell from 3,727 at the beginning of the
year to 3,611 at the end of the year. 53




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##### 



We expect to make further significant reductions in selling, general and
administrative expenses during 2004, as the ongoing focus on cost control
should enable further efficiencies. We expect SG&A expenses to fall below 20%
of revenues. Operating Result Before Depreciation, Amortization, Share Plans And
Restructuring And Integration Charges Operating result before depreciation, amortization, share plans and
restructuring and integration charges increased by 51.9% to $291.6 million in
2003 from $192.0 million in 2002. As a percentage of revenue, it increased from
6.5% in 2002 to 9.9% in 2003. This improvement reflects the increased gross
margins as well as the reduction in selling, general and administrative costs. On a constant currency basis, calculated by applying the 2003 exchange rates to
our 2002 results, operating result before depreciation, amortization, share
plans and restructuring and integration charges increased by approximately
139%, and a percentage of total revenues rose from 3.9% in 2002 to 9.9% in
2003. Depreciation and Amortization, Excluding Goodwill Depreciation and amortization decreased by $5.3 million or 1.1%, in 2003 to
$482.4 million from $487.7 million in 2002, primarily due to the impact of
$24.1 million charged in 2002 as a result of the failure of certain IRU
suppliers to honor their contractual commitments to us. As a percentage of
revenue, depreciation and amortization remained constant at 16.4%. The depreciation charge is substantially above the current rate of capital
expenditure, reflecting the high levels of capital expenditure in past years.
We expect depreciation to fall slightly in 2004 but then to decline
significantly as the asset base matures and integration and operating benefits
reduce our future capital expenditure expectations. Share Plan Costs Since all our share option exercises have been satisfied with the issue of new
shares, share plan costs represent the social charges expected to be payable on
exercise. These costs were negative in 2002 as a result of the release of
accruals for social charges which will no longer be payable following the
decline in our share price. The credit recognized in 2002 includes an exceptional gain of $9.8 million
following finalization of social charge payments relating to the pre-merger
share option scheme. Restructuring and Integration Charges The following table sets forth the components of our restructuring and
integration charges for the periods indicated. Year ended December 31,2002
    
    2003(U.S. dollars in millions)Restructuring and
integration charges:Restructuring and
integration of Equant,
Global One and SITA Equant
network Joint Venture
    
    $
    193.3
    
    
    $
    191.6Strategic reorganization
    
    
    
    
    
    
    6.1Other
    
    
    (0.8
    )
    
    
    Total
    
    $
    192.5
    
    
    $
    197.7Reimbursement due from FT
    
    $
    (94.4
    )
    
    $
    (112.6
    )Total
    
    $
    98.1
    
    
    $
    85.1
 54




---



##### 



Restructuring and integration charges in 2003 amounted to $197.7 million,
comprised of $191.6 million of restructuring and integration costs following
the France Telecom transactions and $6.1 million of costs incurred in
connection with our strategic reorganization. Restructuring and integration charges in 2002 amounted to $192.5 million,
largely comprised of restructuring and integration costs following the France
Telecom transactions. Following the merger with Global One and the termination of the SITA/Equant
network Joint Venture, we commenced integrating the operations of the three
organizations. We have incurred restructuring and integration costs of $558.3
million during the period since the transactions, the major components of which
are asset write downs ($166.4 million), lease exit costs ($127.2 million),
employee termination costs ($132.9 million), and integration planning and
implementation costs ($64.0 million). Under the terms of the Contribution Agreement, France Telecom reimbursed $286.2
million of the costs incurred since July 2001, and this contribution has been
netted against the expense. See Item 7. Major Shareholders and Related Party
Transactions  Related Party Transactions  Relationship with France Telecom
and Item 10. Additional Information  Material Contracts for further
information. As a result of our restructuring activities, we have experienced improved gross
margins and operating income, and we expect this trend to continue in 2004. A
detailed analysis of our restructuring and integration activities is provided
in Note 7 to the Consolidated Financial Statements. Operating Loss We recorded an operating loss of $275.9 million in 2003 compared to $383.9
million in 2002. This change reflects the significant increase in operating
result before depreciation, amortization, share plans and restructuring and
integration charges, together with a reduction in restructuring and integration
charges partially offset by a small increase in the depreciation charge. Financial Income / (charges) The following table sets forth the components of our financial income/(charges)
for the periods indicated. Year ended December 31,2002
    
    2003(U.S. dollars in millions)Financial income / (charges):Interest income
    
    $
    7.1
    
    
    $
    6.7Interest expense
    
    
    (2.0
    )
    
    
    (6.4
    )Foreign exchange gains/(losses)
    
    
    8.2
    
    
    
    (22.0
    )Total
    
    $
    13.3
    
    
    $
    (21.7
    )
 Net interest income for 2003 was $0.3 million compared to $5.1 million in 2002,
a decrease of $4.8 million. At
December 31, 2003 we had net cash and loans balances of $479.1 million,
(including $138.2 million on deposit with, and $150.0 million on loan to France
Telecom), compared to $445.2 million (including $307.8 million on deposit with
France Telecom) as at December 31, 2002. At December 31, 2003 these deposits
were earning interest at rates between 1.06% and 1.56% per annum, compared to
1.36% per annum on December 31, 2002. We have maintained a positive net cash
and loans balance since June 2001. See   Liquidity and Capital Resources. Interest expense includes the amortization of the discount on the onerous
contract liability associated with services to be provided under the Radianz
contribution agreement, which rose from $1.6 million in 2002 to $2.4 million in
2003, as well as interest on bank loans and overdrafts. The U.S. dollar initially strengthened against all other major currencies in
2002, reaching a peak against its major counterparts in the first quarter.
After a short period of stabilization the dollar started to decline, most
notably in the months May and June and, again, towards year-end. Overall in
2002 the dollar lost 15.4% in value against the Euro, 10.8% against sterling
and 7.6% against the yen. This trend continued in 2003, with the dollar
declining by 16.2% against the Euro, 10.1% against sterling and 9.7% against
the yen and reaching a low point against all three currencies around year-end. 55




---



##### 



We recognized a foreign exchange loss of $22.0 million in 2003 compared to a
gain of $8.2 million in 2002, as the steep decline in the value of the U.S.
dollar during the second half of the year increased the cost of settling our
non-U.S. dollar denominated liabilities that were not covered by forward
contracts. The contracts we enter into are not treated as hedges for
accounting purposes, but are intended to provide cover against fluctuations in
exchange rates. Although we attempt to hedge our foreign currency exposures,
there can be no guarantee that our strategy will be fully successful, and if
there continues to be such volatility in the currency markets, we may
experience significant foreign exchange gains or losses. During 2002, we ended our practice of entering into foreign exchange contracts
to offset certain inter-company foreign exchange balances, and instead
designated these items as long-term inter-company funding balances. The
unwinding of the contracts in place resulted in a $37.0 million cash inflow,
which was not matched by a corresponding cash movement on the inter-company
balances. Our net foreign exchange gain of $8.2 million reflected the impact
of the sudden weakening of the dollar on our non-dollar-denominated net
payables which were not fully covered by forward contracts. Reversal of (loss on) impairment of investments accounted at cost A gain of $0.3 million was recognized in 2002 upon the disposal of our
non-controlling interest in Tripeze.com, which had been fully written down in
2000. We hold a 1.5% stake in iPass, a company that listed on NASDAQ in 2003. In
accordance with French GAAP, we hold this investment at the amount we paid in
2000 for our initial stake, since the investment is not held primarily for
sale. The market value at December 31, 2003 was approximately $13.7 million,
compared to a cost of investment of $5.1 million. Income taxes Our
tax charge increased by 42.9% to $17.0 million in 2003 from $11.9 million
in 2002, largely as a result of improvements in the profitability of a number
of the groups entities following successful restructuring and integration
activities. Our effective tax rate increased from 2.1% to 5.0% due to a change
in the profitability mix of entities. The following table sets forth the calculation of our tax charge for the
periods indicated. Year ended December 31,2002
    
    2003(U.S. dollars in millions)Tax charge:Current tax
    
    $
    11.9
    
    
    $
    25.0Deferred tax
    
    
    
    
    
    
    (8.0
    )Total
    
    $
    11.9
    
    
    $
    17.0
 Our tax charge has varied considerably from year to year as a result of the
varying levels of profitability of our operations in certain countries and the
utilization of tax losses carried forward. We
have a taxable presence in almost 100 countries and, even if an overall loss is
incurred, a taxable profit is typically made in certain countries. Certain of our subsidiaries, in particular the former Global One companies,
have a history of significant losses, resulting in substantial tax losses being
carried forward. These are recorded on the balance sheet as deferred tax assets
net of valuation allowance, reflecting our determination that it is probable
that we will fail to realize our investment in some portion or all of these
assets. 56




---



##### 



Estimated net operating loss carry forwards at December 31, 2002 and 2003 and
their expiration dates as at December 31, 2003 are shown below: Net operating loss
    
    Net operating lossExpiration
    
    2002
    
    2003(U.S. dollars in millions)1 to 4 years
    
    $
    117.9
    
    
    $
    113.55 years or longer
    
    
    378.0
    
    
    
    585.4No expiration
    
    
    1,413.2
    
    
    
    1,802.2$
    1,909.1
    
    
    $
    2,501.1
 Certain jurisdictions apply laws or procedures which attempt to restrict or
eliminate the carry forward of tax losses on amalgamations or where there is a
change of ownership in conjunction with a change in business operations.
Certain of the country amalgamations could give rise to such restrictions or
eliminations. The figures in the table above are without regard to such
possible restrictions or eliminations on the basis they will be resisted. At December 31, 2003 the deferred tax asset was $633.4 million, including those
related to operating losses of $547.0 million and to other temporary timing
differences of $86.4 million. However, we have recorded a valuation allowance
of $625.4 million against the asset to reflect our estimate that it is not
probable that we will realize the full value of the asset in the near future.
While these assets have been provided for, the tax losses remain available for
use in the future. The comparable figures at December 31, 2002 were a deferred tax asset of $554.5
million with a 100% valuation allowance. Employee Profit Sharing The employees of majority-owned French subsidiaries of France Telecom are
eligible to participate in a profit sharing program, the amount of which
depends on the overall performance of the France Telecom group. In 2003, we
incurred $0.9 million, of expense in respect of this program, compared to $0.6
million in 2002. Equity In Loss Of Affiliate Our equity in the loss of Radianz has increased by $13.3 million, or 48.7%, to
$40.6 million in 2003 from $27.3 million in 2002. The 2003 result was adversely
affected by a $7.7 million charge, being our share of an impairment of
long-lived assets recognized by Radianz due to the under-utilization of a
hosting center. Goodwill Amortization In light of the generally depressed state of the telecommunications market, we
reassessed the fair value of goodwill in 2002 and recognized an exceptional
amortization charge resulting in a net book value of goodwill of nil. Net Loss We recorded a net loss of $356.2 million in 2003 compared to $589.7 million in
2002, a reduction of 39.6%. This change reflects reductions in goodwill
amortization and operating loss, partially offset by increased financial
charges, income taxes and equity in loss of affiliate. The net loss per share decreased by 39.3% to $1.22 per share, from $2.01 per
share in 2002. 57




---



##### 



Results of Operations for the Year Ended December 31, 2002, compared to the
Year Ended December 31, 2001 based on French GAAP The following table sets forth our statement of operations for the years ended
December 31, 2001 and 2002. The table includes certain unaudited pro forma
condensed combined financial information for the year ended December 31, 2001
as if the acquisition of Global One and the integration of the SITA Equant
Joint Venture had occurred on January 1, 2001 on a French GAAP basis. We
believe that this unaudited pro forma condensed combined financial information
provides useful disclosure of the effects of the combination because it
compares twelve months activity of each entity. For the year endedDecember 31,2001
    
    2002
    
    2001Actual
    
    Pro Forma(U.S. dollars in
millions)Revenues
    
    $
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    3,064.8Cost of products and services
    
    
    (1,847.0
    )
    
    
    (2,269.9
    )
    
    
    (2,409.2
    )Other operating income
    
    
    146.4
    
    
    
    196.1
    
    
    
    146.4Gross profit
    
    $
    690.1
    
    
    $
    899.3
    
    
    $
    802.0Selling
    
    $
    (293.6
    )
    
    $
    (333.3
    )
    
    $
    (401.8
    )General and Administrative
    
    
    (261.2
    )
    
    
    (374.0
    )
    
    
    (408.9
    )Operating profit before depreciation,
amortization, share plan and
restructuring and integration charges
(1)
    
    $
    135.3
    
    
    $
    192.0
    
    
    $
    (8.7
    )Depreciation and amortization, excluding
goodwill
    
    
    (299.2
    )
    
    
    (487.7
    )
    
    
    (452.8
    )Share plan costs (2)
    
    
    7.1
    
    
    
    9.9
    
    
    
    7.1Restructuring and integration charges (3)
    
    
    (110.2
    )
    
    
    (98.1
    )
    
    
    (109.6
    )Operating loss
    
    $
    (267.0
    )
    
    $
    (383.9
    )
    
    $
    (564.0
    )Finance charges
    
    $
    (17.9
    )
    
    $
    13.3
    
    
    $
    (32.9
    )Reversal of (loss on) impairment of
investments accounted for at cost
    
    
    (13.1
    )
    
    
    0.3
    
    
    
    (13.1
    )Income taxes
    
    
    (41.6
    )
    
    
    (11.9
    )
    
    
    (57.2
    )Employee profit sharing
    
    
    
    
    
    
    (0.6
    )
    
    
    Equity in loss of affiliate
    
    
    (25.3
    )
    
    
    (27.3
    )
    
    
    (25.3
    )Net loss from continuing operations
before minority interests and goodwill
amortization
    
    $
    (364.9
    )
    
    $
    (410.1
    )
    
    $
    (692.5
    )Goodwill amortization
    
    $
    (21.7
    )
    
    $
    (178.9
    )
    
    $
    (21.7
    )Net loss from continuing operations
before minority interests
    
    $
    (386.6
    )
    
    $
    (589.0
    )
    
    $
    (714.2
    )Minority interests
    
    
    (0.6
    )
    
    
    (0.7
    )Net loss from continuing operations
    
    $
    (387.2
    )
    
    $
    (589.7
    )Discontinued operations
    
    $
    10.8
    
    
    $
    Net loss
    
    $
    (376.4
    )
    
    $
    (589.7
    )
 58




---



##### 



Unaudited pro forma statement of operations for the year ended December 31,
2001 The presentation of financial information on a pro forma basis is prepared in
accordance with French GAAP, and the basis for the presentation of these
financial statements is set out in Note 5 of the Consolidated Financial
Statements. There can be no guarantee that Equant would have achieved results
similar to those presented in the pro forma financial information had the
business combination in fact taken place on January 1, 2001. The unaudited pro
forma financial information is not intended to be a substitute for, and should
be read in conjunction with, the Financial Statements included in Item 18,
including the notes thereto. The following table is not intended to replace the Consolidated Financial
Statements prepared in accordance with French GAAP. Global OneEquant as
    
    Global One
    
    Excluded
    
    OtherReported
    
    H1 (4)
    
    businesses (5)
    
    Adjustments (6)
    
    Pro FormaSales of services and
products
    
    $
    2,390.7
    
    
    $
    595.4
    
    
    $
    (95.4
    )
    
    $
    174.1
    
    
    $
    3,064.8Cost of services and
products sold
    
    
    (1,847.0
    )
    
    
    (582.8
    )
    
    
    183.2
    
    
    
    (162.6
    )
    
    
    (2,409.2
    )Other operating income
    
    
    146.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    146.4Gross profit
    
    $
    690.1
    
    
    $
    12.6
    
    
    $
    87.8
    
    
    $
    11.5
    
    
    $
    802.0Selling
    
    
    (293.6
    )
    
    
    (110.8
    )
    
    
    12.0
    
    
    
    (9.4
    )
    
    
    (401.8
    )General and
Administrative
    
    
    (261.2
    )
    
    
    (111.1
    )
    
    
    5.6
    
    
    
    (42.2
    )
    
    
    (408.9
    )Operating result
before depreciation,
amortization, share
plans and
restructuring and
integration charges
(1)
    
    $
    135.3
    
    
    $
    (209.3
    )
    
    $
    105.4
    
    
    $
    (40.1
    )
    
    $
    (8.7
    )Depreciation and
amortization,
excluding goodwill
    
    
    (299.2
    )
    
    
    (85.6
    )
    
    
    
    
    
    
    (68.0
    )
    
    
    (452.8
    )Share plan costs (2)
    
    
    7.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.1Restructuring and
integration charges
(3)
    
    
    (110.2
    )
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    (109.6
    )Operating loss
    
    $
    (267.0
    )
    
    $
    (294.9
    )
    
    $
    105.4
    
    
    $
    (107.5
    )
    
    $
    (564.0
    )Financial
income/(charges)
    
    
    (17.9
    )
    
    
    (34.0
    )
    
    
    
    
    
    
    19.0
    
    
    
    (32.9
    )Loss on impairment of
investments accounted
for at cost
    
    
    (13.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13.1
    )Income taxes
    
    
    (41.6
    )
    
    
    (2.4
    )
    
    
    
    
    
    
    (13.2
    )
    
    
    (57.2
    )Equity in loss of
unconsolidated
affiliate
    
    
    (25.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25.3
    )Net profit/(loss)
from continuing
operations, before
minority interests
and goodwill
amortization
    
    $
    (364.9
    )
    
    $
    (331.3
    )
    
    $
    105.4
    
    
    $
    (101.7
    )
    
    $
    (692.5
    )Goodwill amortization
    
    
    (21.7
    )
    
    
    (2.4
    )
    
    
    2.4
    
    
    
    
    
    
    
    (21.7
    )Net loss from
continuing operations
before minority
interests
    
    $
    (386.6
    )
    
    $
    (333.7
    )
    
    $
    107.8
    
    
    $
    (101.7
    )
    
    $
    (714.2
    )
 59




---



##### 



(1)
    
    Operating result before depreciation, amortization, share plans and
restructuring and integration charges should be considered only in
conjunction with all of the information in the Consolidated Financial
Statements. You should not consider it to be an alternative to
operating profit/loss as an indicator of our performance or as an
alternative to cash flows as a measure of our liquidity, and it is not
a measure of performance calculated in accordance with U.S. GAAP and
may not be presented on the face of a U.S. GAAP income statement. We
consider it to be an effective measure of performance as it excludes
certain variables that affect net income (including restructuring
activities, asset bases, depreciation policies, financing activities
and tax regimes) but may not be directly related to all financial
aspects of our operations.  (2)
    
    Share plan costs represent the cost of providing stock to employees
under our share-based incentive compensation plans. Under French GAAP
there is no compensation cost if awards and options are satisfied
through the issue of new equity. Social security charges are payable
on the fair value of the shares granted and are recognized over the
period between the granting and vesting dates of the awards. These
costs were negative in 2001 and 2002 (meaning that we reversed costs
that were previously incurred). This happened because we released
accruals for social charges which will no longer be payable following
the decline in our share price. The negative cost in 2002 also
includes an exceptional gain of $9.8 million, which represents cash
received following successful litigation against our former share plan
advisers.  (3)
    
    Restructuring and integration charges mostly include the costs of
integrating the former Global One businesses.  (4)
    
    Global One H1 represents the results of Global One for the period
from January 1, 2001 through June 29, 2001.  (5)
    
    Global One excluded businesses primarily represent the carrier voice
and calling card services of Global One which we now undertake as
agents of France Telecom.  (6)
    
    Other adjustments include the revenues and associated incremental
costs of the SITA/Equant network Joint Venture, as well as adjustments
to the results of Global One for the period from January 1, 2001
through June 29, 2001. The pro forma adjustments reflect the inclusion
in our statement of operations of all of the historic costs of the
Network for the period from January 1, 2001 through June 29, 2001,
allocated between cost of revenue and selling, general and
administrative expenses. The pro forma revenues reflect the assumption
that we would have billed SITA for its share of network costs. Any
revenues contained in our historic accounts that had been billed
directly to SITA have been eliminated as these are now inter-company
revenues. 60




---



##### 



Revenues The following tables set forth our revenues, on an actual and a pro forma
basis, broken down by line of business. Year ended December 31,2001
    
    2002
    
    2001Actual
    Pro Forma(U.S. dollars in millions, except percentages)Network Services
    
    $
    1,258.5
    
    
    $
    1,567.1
    
    
    $
    1,551.2As a percentage of
revenues
    
    
    52.6
    %
    
    
    52.7
    %
    
    
    50.6
    %Integration Services
    
    
    447.1
    
    
    
    453.4
    
    
    
    498.9As a percentage of
revenues
    
    
    18.7
    %
    
    
    15.3
    %
    
    
    16.3
    %Other Services
    
    
    142.3
    
    
    
    238.9
    
    
    
    284.9As a percentage of
revenues
    
    
    6.0
    %
    
    
    8.0
    %
    
    
    9.3
    %SITA contract
    
    
    542.8
    
    
    
    713.7
    
    
    
    729.8As a percentage of
revenues
    
    
    22.7
    %
    
    
    24.0
    %
    
    
    23.8
    %Total
    
    $
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    3,064.8
 Our actual revenues increased by 24.4% to $2,973.1 million for the year ended
December 31, 2002 compared to $2,390.7 million for the year ended December 31,
2001. This resulted principally from the inclusion of a full year of revenues
from Global One in 2002 compared to six months in 2001 and from significant
increases in revenues from SITA following the termination of the SITA Equant
network Joint Venture. On a pro forma basis our revenues fell by 3.0% from $3,064.8 million. This
reflects declines in Integration Services, Other Services and the SITA
contract, partially offset by increases in revenues from Network Services.
Our Network Services business enjoyed significant volume increases offset by
price declines. The following table shows our actual revenues broken down by geographic region.
Revenues are attributed to the region in which the related services are
invoiced. 61




---



##### 



Year ended December 31,2001
    
    2002(U.S. dollars in millions, except inpercentages)Revenues by Region:Europe, Middle East and Africa
    
    
    1,348.6
    
    
    
    2,147.4As a percentage of revenues
    
    
    56.4
    %
    
    
    72.2
    %Americas
    
    $
    801.7
    
    
    $
    689.8As a percentage of revenues
    
    
    33.5
    %
    
    
    23.2
    %Asia Pacific
    
    
    240.4
    
    
    
    135.9As a percentage of revenues
    
    
    10.1
    %
    
    
    4.6
    %Total
    
    $
    2,390.7
    
    
    $
    2,973.1
 Europe, Middle East and Africa achieved 59% revenue growth for the year ended
December 31, 2002 as compared to 2001, while the Americas and Asia Pacific
experienced reductions of 14% and 43% respectively. These figures reflect
primarily the concentration of our global billing activities in Dublin,
Ireland. Network Services The following table sets forth the revenues from each of our Network Services
primary product lines. Revenues by product line: Year ended December 31,2001
    
    2002
    
    2001Actual
    
    Pro Forma(U.S. dollars in millions, except percentages)Frame Relay and IP
    
    $
    947.2
    
    
    $
    1,336.8
    
    
    $
    1,231.2As a percentage of NS revenues
    
    
    75.3
    %
    
    
    85.3
    %
    
    
    79.4
    %Traditional MDNS
    
    
    311.3
    
    
    
    230.3
    
    
    
    320.0As a percentage of NS revenues
    
    
    24.7
    %
    
    
    14.7
    %
    
    
    20.6
    %Total
    
    $
    1,258.5
    
    
    $
    1,567.1
    
    
    $
    1,551.2
 62




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##### 



Revenues from network services grew by approximately 25% to $1,567.1 million,
as compared to $1,258.5 million in 2001. These revenue increases were
principally the result of the inclusion of a full year of revenues from Global
One in 2002 compared to six months in 2001. On a pro forma basis Network
Services revenues grew by 1%, driven by the demand for high speed protocols,
but offset by volume declines on low speed protocols and a reduction in the
indirect wholesale channels, particularly Deutsche Telekom and Sprint. Overall
traffic was significantly higher but offset by price declines reflecting the
current weakness in the telecommunications marketplace. The pro forma revenue increase reflects the increases in volume described
above, partially offset by reductions in revenue from our indirect sales
channels, which are shown below. Year ended December 31,2001
    
    2002
    
    2001Actual
    
    Pro Forma(U.S. dollars in millions, except percentages)Direct
    
    $
    931.4
    
    
    $
    1,144.4
    
    
    
    1,081.1As a percentage of NS revenues
    
    
    74.0
    %
    
    
    73.0
    %
    
    
    69.7
    %Indirect
    
    
    327.1
    
    
    
    422.7
    
    
    
    470.1As a percentage of NS revenues
    
    
    26.0
    %
    
    
    27.0
    %
    
    
    30.3
    %Total
    
    $
    1,258.5
    
    
    $
    1,567.1
    
    
    $
    1,551.2
 On a pro forma basis, direct revenues increased by $63.3 million or 5.9%, to
$1,144.4 million compared to $1,081.1 million in 2001. As a percentage of
total Network Services revenues, direct revenues increased from 69.7% in 2001
to 73.0% in 2002, reflecting the higher amount of revenue Global One had
previously earned through wholesale relationships. Indirect revenues fell by $47.4 million or 10.1% to $422.7 million compared to
$470.1 million in 2001. This reflected significant decreases in the level of
revenues from Sprint and Deutsche Telekom, former shareholders in Global One. We continued to experience price erosion on contract renewals, and competition
remained strong in the marketplace. Nonetheless, we continued to be successful
in retaining our customer base  of our direct order intake, nine out of the
top ten orders (by total order value) during the fourth quarter of 2002 were
renewals or extensions. We benefited in part from the financial difficulties
of some of our competitors, with approximately $185 million of orders being
received in 2002 from former customers of KPN Qwest and Worldcom. Contracts
typically average three years, however some of our new customers entered into
contracts for terms of up to five years. 63




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##### 



Integration Services The following table sets forth our Integration Services revenues by product
line. Year ended December 312001
    
    2002
    
    2001Actual
    
    Pro Forma(U.S. dollars in millions, except percentages)Integration Services revenues by product
line:Fulfillment and system sales
    
    
    121.5
    
    
    
    135.1
    
    
    
    141.3As a percentage of IS revenues
    
    
    27.2
    %
    
    
    29.8
    %
    
    
    28.3
    %Hosting and applications
    
    $
    91.3
    
    
    $
    122.5
    
    
    $
    131.5As a percentage of IS revenues
    
    
    20.4
    %
    
    
    27.0
    %
    
    
    26.4
    %Other integration services
    
    
    234.3
    
    
    
    195.8
    
    
    
    226.1As a percentage of IS revenues
    
    
    52.4
    %
    
    
    43.2
    %
    
    
    45.3
    %Total
    
    $
    447.1
    
    
    $
    453.4
    
    
    $
    498.9
 Revenues for 2002 grew by $6.3 million, or 1.4% to $453.4 million compared to
$447.1 million in 2001. This growth was due to the inclusion of a full year of
revenues from Global One in 2002 compared to six months in 2001. On a pro forma basis our integration services revenues fell by 9.1% from $498.9
million in 2001, reflecting the impact of the continued economic slowdown on
our target customers levels of capital expenditures. This has a negative
effect on installation and maintenance income as well as fulfillment and system
sales. The weakening of fulfillment and systems sales was particularly pronounced in
the first half of 2002, with revenues approximately 17% below the levels of the
second half of 2001, however revenues recovered in the second half of 2002,
recording two consecutive quarterly increases. Fulfillment and system sales in
the fourth quarter of 2002 were some 35% above the corresponding period in
2001. Revenues from hosting and applications fell by 6.8% on a pro forma basis,
largely as a result of the loss of a significant client in the financial
services sector. Revenues from other integration services have fallen by 13.4% on a pro forma
basis, and have been broadly flat during each quarter of the year. 64




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##### 



Other Services The following table sets forth our Other Services revenues by type. Year ended December 312001
    
    2002
    
    2001Actual
    
    Pro Forma(U.S. dollars in millions, except percentages)Other Services revenues by type:Convergence solutions
    
    $
    101.0
    
    
    $
    149.6
    
    
    $
    172.8As a percentage of
Other Services
revenues
    
    
    71.0
    %
    
    
    62.6
    %
    
    
    60.7
    %Services provided to France Telecom
affiliates
    
    
    41.3
    
    
    
    89.3
    
    
    
    112.1As a percentage of
Other Services
revenues
    
    
    29.0
    %
    
    
    37.4
    %
    
    
    39.3
    %Total
    
    $
    142.3
    
    
    $
    238.9
    
    
    $
    284.9
 Revenues from Other Services rose by 67.9%, or $96.6 million, to $238.9 million
in 2002 from $142.3 million in 2001. The increase reflects the inclusion of a
full year of revenues from Global One in 2002 compared to six months in 2001. On a pro forma basis revenues from Other Services fell by 16.1% or $46 million
from $284.9 million in 2002. This drop in revenues reflects a reduction in
revenues from Convergence Solutions (primarily the significant circuit switched
voice activity we acquired with Global One) as customers were migrated to voice
over IP, as well as lower second half product management royalties from France
Telecom Transpac. See Item 7. Major Shareholders and Related Party
Transactions  Related Party Transactions  Relationship with France Telecom
for further information on our arrangements with France Telecom Transpac. SITA Contract Our revenues from the SITA contract increased by $170.9 million or 31.5% to
$713.7 million in 2002 from $542.8 million in 2001. This increase reflects the
full year effect of the change in our contractual arrangements with SITA
following the termination of the SITA Equant network Joint Venture. On a pro
forma basis, our revenues from SITA fell by 2.2%, or $16.1 million, from $729.8
million in 2001. This decrease reflects price reductions guaranteed under the
new contract that took effect on July 1, 2001, partially offset by the
resolution of various issues with the new contract. Some of these disputed
items dated back to July 1, 2001. Without these items, SITA revenues would
have fallen by approximately 4% compared with the pro forma 2001 revenues. 65




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##### 



Costs of Products and Services Costs of products and services increased by 22.9% or $422.9 million, to
$2,269.9 million in 2002 from $1,847.0 million in 2001. This was largely due
to the inclusion of a full year of Global One activity in 2002 compared to six
months in 2001. On a pro forma basis costs of products and services fell by
$139.3 million or 5.8% in 2002. Excluding costs of providing switched voice
services and ancillary support services to France Telecom, costs of products
and services fell from a pro forma $2,262.8 million in 2001 to $2,073.8 million
in 2002, a reduction of $189.0 million or 8.4%. There is not an immediate direct relationship between revenues and costs.
Consequently the cost reductions mainly reflect our continued focus on
operational efficiencies and the effects of the Network restructuring and
integration activities. We had 6,933 people (including 528 temporary staff)
employed in the Network at December 31, 2002 compared to 7,891 (including 732
temporary staff) at December 2001, a reduction of 958 or 12%. The integration of Global Ones network into the Network yielded significant
cost savings in 2002. Our access and data termination costs for the fourth
quarter of 2002 were approximately 8% below that of the first quarter, and we
saw similar reductions in the cost of transmission over the same period. Our
total network costs fell by almost 7% from the fourth quarter of 2001 to the
fourth quarter of 2002. Other Operating Income Other operating income comprises recoveries from France Telecom in respect of
our switched voice services and the provision of ancillary services with
respect to the network. These recoveries from France Telecom are classified as
Other Operating Income. We recognized $196.1 million of Other Operating Income
in 2002, compared to $146.4 million in the period from July 1, 2001 to December
31, 2001. Comparing the second half of 2002 to same period in 2001, Other
Operating Income decreased by $94.6 million or 64.6% to $51.8 million. Switched voice services We have agreed to transfer the operation, management and financial
responsibility for our switched voice business and switched voice platform
(most of which we acquired in the merger with Global One) to France Telecom by
the end of 2005. We and France Telecom have planning and financial arrangements
in place to ensure that the switched voice business does not materially affect
our profitability. We received $131.1 million from France Telecom in 2002 under
these arrangements, compared to $97.9 million in the period from July 1, 2001
to December 31, 2001. Ancillary support services We provide transmission capacity and IP services to France Telecom in countries
where France Telecom does not have a presence. Pricing for these services is
based on market price. We also supply ancillary support services to France
Telecom on a cost recovery basis. These commercial relationships will continue
so long as France Telecom continues to own at least 34% of our outstanding
shares; however, the commercial terms can be varied. France Telecom paid us
$65.0 million for these support services in 2002, compared to $48.5 million in
the period from July 1, 2001 to December 31, 2001. Gross Profit Gross profit grew by 30.3% or $209.2 million to $899.3 million in 2002 from
$690.1 million in 2001. This increase reflects the inclusion of a full year of
Global One as opposed to six months in 2001and the termination of the SITA
Equant network Joint Venture in 2001. The gross margin increased to
30.2% in
2002 from 28.9% in 2001. The improvement in gross margin is largely a result of
our continued focus on operational efficiencies and the effects of the Network
restructuring and integration activities described above. Our gross margin in
the last two quarters of 2002 recovered to the levels enjoyed before the merger
with Global One. On a pro forma basis, gross profit grew by 12.1%, or $97.3 million from $802.0
million in 2001. The pro forma gross margin rose from 26.2% in 2001 to 30.2% in
2002. The improvement in gross profit arises mainly from a combination of
higher direct Network Services revenues and an improvement in the Network cost
structure, following the integration of the Global One network, offset in part
by the conditions facing our indirect Network Services business described
above. 66




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##### 



Selling Costs Selling costs consist of expenses incurred to promote and sell our products and
services and to monitor and collect accounts receivable. Selling costs
increased by 13.5% to $333.3 million in 2002 from $293.6 million in 2001. The
rise in expenditure reflects the inclusion of a full year of Global One
activity in 2002 compared to six months in 2001. As a percentage of total
revenues, selling costs fell from 12.3% in 2001 to 11.2% in 2002, reflecting
the consolidation of the sales forces and closure of sales offices as discussed
below. Our bad debt expense fell by $10.4 million or 27.0% to $28.1 million in 2002
compared to $38.5 million in 2001, reflecting the impact of our improved credit
control procedures on the collectibility of our receivables. On a pro forma basis selling costs fell by 17.0%, or $68.5 million from $401.8
million in 2001. We reduced our marketing and sales headcount from 1,905 at the
beginning of 2002 to 1,662 at the year-end, a drop of almost 13%. We continued
to consolidate the sales force, reducing the number of quota bearing
salespersons from 650 at December 31, 2001 to approximately 550 at December 31,
2002, while increasing the average value of direct orders per quota bearing
salesperson during the same period. In addition, we closed a further six
offices during 2002. As a percentage of pro forma revenues, selling costs fell
from 13.1% in 2001 to 11.2% in 2002. General and administrative expenses Our general and administrative expenses increased by $112.8 million, or 43.1%,
to $374.0 million in 2002, from $261.2 million in 2001. The rise in
expenditure reflects the inclusion of a full year of Global One activity in
2002 compared to six months in 2001. As a percentage of total revenues, general
and administrative costs rose from 10.9% in 2001 to 12.6% in 2002. On a pro forma basis, general and administrative expenses fell by 8.5% or $34.9
million from $408.9 million in 2001. This reduction results from our continuing
restructuring and integration program, which reduced headcount and cut
duplicated expenses for premises, equipment and information technology. As a
percentage of pro forma revenues, general and administrative expenses fell from
13.3% in 2001 to 12.6% in 2002. Operating result before depreciation, amortization, share plans and
restructuring and integration charges Operating result before depreciation, amortization, share plan and
restructuring and integration charges increased by 42.0% to $192.0 million in
2002 from $135.3 million in 2001. As a percentage of revenue, it increased from
5.7% in 2001 to 6.5% in 2002. This improvement reflects the increased gross
margins as well as the proportionate reduction in selling costs, partially
offset by proportionate increases in general and administrative costs. On a pro forma basis, operating result before depreciation, amortization, share
plan and restructuring and integration charges in 2001 was a loss of $8.7
million. The pro forma improvement in 2002 reflects the significant increase in
pro forma gross profit, as well as the decreases in pro forma selling, general
and administrative costs. Depreciation and amortization, excluding goodwill Depreciation and amortization increased by $188.5 million, or 63.0%, in 2002 to
$487.7 million from $299.2 million in 2001. As a percentage of revenue,
depreciation and amortization rose from 12.5% in 2001 to 16.4% in 2002. The
increase primarily reflects the increased amount of network assets following
the acquisition of Global One, as well as $24.1 million of asset impairments as
a result of the failure of certain IRU suppliers to honor their contractual
commitments to us. The $24.1 million charge related to capacity previously
provided by KPN Qwest, Pacific Crossing and Pangea. On a pro forma basis, depreciation and amortization increased by $34.9 million
or 7.7% in 2002 from $452.8 million in 2001. Share plan costs Since all our share option exercises have been satisfied with the issue of new
shares, share plan costs represent the social charges expected to be payable on
exercise. These costs were negative in 2001 and
2002 as a result of the release of accruals for social charges which will no
longer be payable following the decline in our share price. 67




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##### 



The credit recognized in 2002 included an exceptional gain of $9.8 million
following finalization of social charge payments relating to the pre-merger
share option scheme. Restructuring and integration charges The following table sets forth the components of our restructuring and
integration charges for the periods indicated. Year ended December 31,2001
    
    2002(U.S. dollars in millions)Restructuring and
integration charges:Restructuring and
integration of Equant,
Global One and SITA Equant
network Joint Venture
    
    $
    173.4
    
    
    $
    193.3Divisional reorganization
    
    
    0.4
    
    
    
    SITA Equant network Joint
Venture restructuring
    
    
    5.1
    
    
    
    Other
    
    
    10.5
    
    
    
    (0.8
    )Total
    
    $
    189.4
    
    
    $
    192.5Reimbursement due from FT
    
    $
    (79.2
    )
    
    $
    (94.4
    )Total
    
    $
    110.2
    
    
    $
    98.1
 Restructuring and integration charges in 2002 amounted to $192.5 million. This
largely comprised restructuring and integration costs following the France
Telecom transactions. Restructuring and integration charges in 2001 amounted to $189.4 million. This
comprised $173.4 million of restructuring and integration costs as well as
$10.5 million of transaction-related expenses that could not be treated as part
of the cost of acquisition. Following the merger with Global One and the termination of the SITA/Equant
network Joint Venture, we commenced integrating the operations of the three
organizations. The major components of the restructuring and integration costs
incurred during the period from July 2001 to December 2002 were asset write
downs ($125.7 million), lease exit costs ($67.6 million), employee termination
costs ($76.2 million), and integration planning and implementation costs ($37.9
million). Under the terms of the Contribution Agreement, certain of the restructuring and
integration costs were to be reimbursed by France Telecom. France Telecom met
$173.6 million of the costs incurred in the period from July 2001 to December
2002, and this contribution has been netted against the expense. Some $140.9
million of the reimbursement had been received at December 31, 2002, and the
remainder was received in 2003. See Item 7. Major Shareholders and Related
Party Transactions  Related Party Transactions  Relationship with France
Telecom and Item 10. Additional Information  Material Contracts for further
information. A further $0.4 million of asset write downs were recognized in the first half
of 2001 in respect of the divisional reorganization which we had commenced in
2000, as well as an additional $5.1 million of employee termination costs
arising from the restructuring of the SITA/Equant Joint Venture Entity we began
in 2000 to create a process driven, rather than regionally focused,
organization. All reserves established to cover the costs of these two
reorganizations had been utilized at December 31, 2001. Operating loss We recorded an operating loss of $383.9 million in 2002 compared to $267.0
million in 2001. This change reflects increases in the cost of products and
services, selling, general and administrative costs
and depreciation charges following the acquisition of Global One, partially
offset by the improved gross margins driven by our integration activities. 68




---



##### 



On a pro forma basis, our operating loss fell by 32.0% or $180.1 million in
2002 from $564.0 million in 2001. This change reflects the increased level of
gross profit and reduced levels of selling, general and administrative costs. Financial income / (charges) The following table sets forth the components of our financial income/(charges)
for the periods indicated. Year ended December 31,2001
    
    2002(U.S. dollars in millions)Financial income / (charges):Cost of early termination of
finance arrangements
    
    $
    (2.1
    )
    
    $
    Interest income
    
    
    20.9
    
    
    
    7.1Interest expense
    
    
    (30.3
    )
    
    
    (2.0
    )Foreign exchange (losses) / gain
    
    
    (6.4
    )
    
    
    8.2Total
    
    $
    (17.9
    )
    
    $
    13.3
 In 2002 the U.S. dollar initially continued to strengthen against all other
major currencies, reaching a peak against its major counterparts in the first
quarter. After a short period of stabilization the dollar started to decline,
most notably in the months May and June and, again, towards year-end. Overall
in 2002 the dollar lost 15.4% in value against the Euro, 10.8% against sterling
and 7.6% against the yen. During 2002, the Company ended its practice of entering into foreign exchange
contracts to offset certain inter-company foreign exchange balances, and
instead designated these items as long-term inter-company funding balances.
The unwinding of the contracts in place resulted in a $37.0 million cash
inflow, which was not matched by a corresponding cash movement on the
inter-company balances. Our net foreign exchange gain of $8.2 million reflects
the impact of the sudden weakening of the dollar on our non-dollar-denominated
net payables which were not fully covered by forward contracts. Net interest income for 2002 was $5.1 million compared to a net expense of $9.4
million in 2001. The cash injection from the France Telecom transaction
allowed us to repay debt, which had built up through June 2001. See  
Liquidity and Capital Resources. In 2001, the U.S. dollar strengthened against all other major currencies, with
increases of 6.3% against the Euro, 3.9% against the British Pound and 12.1%
against the Yen. We incurred a foreign exchange loss in 2001 primarily as a
result of the impact of the strengthening dollar on non-dollar-denominated
loans to former Global One subsidiaries which were not hedged. During the second quarter of 2001, we recognized a charge of $2.1 million as a
result of early repayment fees on the outstanding borrowings under our main
credit line, which we repaid as required on completion of the France Telecom
transactions. Reversal of (loss on) impairment of investments accounted at cost A gain of $0.3 million was recognized in 2002 upon the disposal of our
non-controlling interest in Tripeze.com, which had been fully written down in
2000. The $13.1 million loss on impairment of investments recorded in 2001 represents
the write-down to zero of our non-controlling interest in STSN Inc. Income taxes Our tax charge fell by 71.4% to $11.9 million in 2002 from $41.6 million in
2001, largely as a result of the reduction in deferred tax expense. On a pro
forma basis, our tax charge fell by 79.1% from $57.2 million in 2001. 69




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##### 



The following table sets forth the calculation of our tax charge for the
periods indicated. Year ended December 31,2001
    
    2002(U.S. dollars in millions)Tax charge:Current tax
    
    $
    12.3
    
    
    $
    11.9Deferred tax charge
    
    
    29.3
    
    
    
    Total
    
    $
    41.6
    
    
    $
    11.9
 Our tax charge has varied considerably from year to year as a result of the
varying levels of profitability of our operations in certain countries and the
utilization of tax losses carried forward. We have a taxable presence in almost
100 countries and, even if an overall loss is incurred, a taxable profit is
typically made in certain countries. Certain of our subsidiaries, in particular the former Global One companies,
have a history of significant losses, resulting in substantial tax losses being
carried forward. These are recorded on the balance sheet as deferred tax assets
net of valuation allowance, reflecting our determination that it is probable
that we will fail to realize our investment in some portion or all of these
assets. Estimated net operating loss carry forwards at December 31, 2001 and 2002 and
their expiration dates as at December 31, 2002 are shown below: Net operating loss
    
    Net operating lossExpiration
    
    2001
    
    2002(U.S. dollars in millions)1 to 4 years
    
    $
    129.1
    
    
    $
    117.95 years or longer
    
    
    488.6
    
    
    
    378.0No expiration
    
    
    890.4
    
    
    
    1,413.2$
    1,508.1
    
    
    $
    1,909.1
 At December 31, 2002 the deferred tax asset was $554.5 million, including those
related to operating losses of $495.2 million and to other temporary timing
differences of $59.3 million. However, we have recorded a 100% valuation
allowance against the asset to reflect our estimate that it is not probable
that we will realize the asset in the near future. While these assets have been
provided for, the tax losses remain available for use in the future. The comparable figures at December 31, 2001 were a deferred tax asset of $434.2
million with a 100% valuation allowance. Employee profit sharing The employees of majority-owned French subsidiaries of France Telecom are
eligible to participate in a profit sharing program, the amount of which
depends on the overall performance of the France Telecom group. In the year
ended December 31, 2002, we incurred $0.6 million in respect of this program. Equity in loss of affiliate Our equity in the loss of Radianz increased by $2.0 million, or 8.0%, to $27.3
million in 2002 from $25.3 million in 2001. 70




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##### 



Goodwill amortization Goodwill amortization increased by $157.2 million, or 724.4%, to $178.9 million
in 2002 from $21.7 million in 2001 as a result of an exceptional amortization
charge of $154.8 million recorded in the fourth quarter. In light of the generally depressed state of the telecommunications market, we
reassessed the fair value of goodwill. As a result we wrote the investments
down to fair value. Following this exceptional amortization charge, there is
no goodwill on the balance sheet as at December 31, 2002. Discontinued Operations We disposed of a reportable segment, Equant Application Services, on October 1,
2001 for consideration of $15.6 million, realizing a gain on disposal of $13.4
million. The net losses for the period to disposal amounted to $2.6 million. Net loss We recorded a net loss of $589.7 million in 2002 compared to $376.4 in 2001, an
increase of 56.7%. This change reflects the exceptional goodwill amortization
charge and the increased operating loss, partially offset by increased
financial income, and lower income taxes. The net loss per share increased by 32.2% to $2.01 per share, from $1.52 per
share in 2001. 71




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##### 



Liquidity And Capital Resources The following table summarizes our cash flows. Year ended December 31,2001
    
    2002
    
    2003(U.S. dollars in millions)Cash flow by activity:Operating activities
    
    $
    (117.4
    )
    
    $
    383.1
    
    
    $
    312.4Investing activities
    
    
    (129.2
    )
    
    
    (367.8
    )
    
    
    (282.4
    )Financing activities
    
    
    574.8
    
    
    
    50.4
    
    
    
    (156.7
    )Foreign exchange
impact
    
    
    4.1
    
    
    
    0.7
    
    
    
    4.6Increase (decrease)
in cash
    
    $
    332.3
    
    
    $
    66.4
    
    
    $
    (122.1
    )
 Our cash and cash equivalents balance as at December 31, 2003 totaled $330.1
million. Approximately 69% of this was held in U.S. dollars, 12% in Euros and
19% in other currencies. Operating Activities In 2001, we incurred cash outflows from operating activities of $117.4 million.
This resulted primarily from a net loss for the period of $376.4 million, which
however included the significant non-cash items of $320.9 million for
depreciation and amortization, $41.3 million in respect of the recognition of a
valuation allowance against deferred tax assets and $52.6 million for
impairment losses and equity in loss of affiliates. Our working capital
requirements increased by $141.1 million in the period. In 2002, we generated cash inflows from operating activities of $383.1 million.
This resulted primarily from a net loss for the period of $589.7 million, which
however included the significant non-cash items of $666.6 million for
depreciation and amortization, $74.2 million for non-cash restructuring
expenses and $27.3 million for impairment losses and equity in loss of
affiliates. We received $140.9 million from France Telecom as reimbursement of
restructuring and integration costs during 2002, and incurred related cash
outflows of $134.5 during the same period. Our working capital requirements
decreased by $204.4 million in the period. In 2003, we generated cash inflows from operating activities of $312.4 million.
This resulted primarily from a net loss for the period of $356.2 million, which
however included the significant non-cash items of $482.4 million for
depreciation and amortization, $40.7 million for non-cash restructuring
expenses and $40.6 million equity in loss of affiliates. We received $145.3
million from France Telecom as reimbursement of restructuring and integration
costs during 2003, and incurred related cash outflows of $125.6 during the same
period. Our working capital requirements decreased by $105.0 million in the
period, reflecting a significant reduction in our accounts receivable balance
from our continued focus on initiatives to improve our cash collection cycle
partially offset by a reduction in our accounts payable balance. Investing Activities Net cash used in investing activities consists of cash used for the
purchase of property and equipment and IRUs, less the impact of acquisitions
and proceeds from asset sales. In 2001, we incurred capital expenditure of $412.2 million (we purchased
property and equipment with a value of $346.8 million and IRUs of $65.4
million) and generated $17.1 million of cash from asset disposals. Our capital
expenditure was funded by our debt facilities and the cash received from France
Telecom for the issuance of preference shares. The acquisition of Global One
increased our cash balances by $295.3 million, before transaction costs of
$29.4 million. 72




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##### 



In 2002, we purchased property and equipment with a value of $332.3 million and
IRUs of $36.9 million. These purchases were funded by our existing cash
resources and funds generated from operating activities. We also generated
$1.4 million of cash through the disposal of investments held for resale. In 2003, we purchased property and equipment with a value of $234.0 million and
IRUs of $46.1 million. We also purchased the minority interests in our Egyptian
and Russian businesses for $2.3 million. These purchases were funded by our
existing cash resources and funds generated from operating activities. Financing Activities Net cash provided by financing activities in 2001 represents the cash
received from France Telecom for the issuance of preference shares, net of long
and short-term debt repayment. Net cash provided by financing activities in
2002 primarily represents additional cash received from France Telecom as
reimbursement of amounts due under the Contribution Agreement and proceeds from
the settlement of foreign exchange contracts. Net cash used in financing
activities in 2003 primarily represents the loan of $150 million of our surplus
cash to France Telecom in July 2003 for a period of twelve months, as well as
the repayment of bank loans and overdrafts. We believe that our existing cash resources and funds generated from operations
are sufficient to meet our planned cash needs beyond the end of 2004. Our
subsidiaries and we have a number of available unsecured lines of credit and
other borrowing arrangements. At December 31, 2003, the unutilized portion of
these totaled approximately $80.2 million. The largest facility is a $50
million treasury management agreement with France Telecom. Interest is charged
at 40 basis points above the overnight USD LIBOR on the net balance outstanding
under the agreement. The terms of the agreement are subject to renewal on
December 31 each year. No amounts have been drawn down under this facility. Capital Expenditures The telecommunications industry is generally characterized as highly capital
intensive, although data networks can be significantly less capital intensive
than voice networks. The following table sets forth our capital expenditures in 2001, 2002 and 2003,
by category: Year ended December 31,2001
    
    2002
    
    2003(U.S. dollars in millions)Capital expenditure by category:Network and customer premises
equipment
    
    $
    334.1
    
    
    $
    301.5
    
    
    $
    218.1Computer hardware and software
    
    
    54.2
    
    
    
    40.8
    
    
    
    37.5Other
    
    
    23.9
    
    
    
    26.9
    
    
    
    24.5Total
    
    $
    412.2
    
    
    $
    369.2
    
    
    $
    280.1
 73




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##### 



Our capital expenditures totaled $280.1 million in 2003, primarily relating to
the expansion of the network, the improvement of customer service and the
further development of products and services
including $46.1 million spent on increasing our transmission capacity in the
form of IRUs. We expect to continue to benefit from lower costs of capital
items, including purchased transmission capacity, and from improved network
capital efficiency. We funded these investments from existing cash resources
and funds generated from operations. Our capital expenditures fell by $89 million, or 24%, from 2002 to 2003. This
decrease is primarily due to decreased purchases of network equipment. The
reduction in capital expenditures results from having one integrated network,
more efficient purchasing and equipment deployment, as well as slower growth in
certain revenue lines. As a percentage of revenues, our capital expenditure
fell from 20.2% (on a pro forma basis) in 2001 to 12.4% in 2002, and to 9.5% in
2003. We believe we have one of the lowest ratios of capital expenditure to
revenue in the telecommunications industry. Approximately 78% of our capital expenditures in 2003 were in network equipment
(both switching and transmission) and customer premises equipment, as compared
to 82% in 2002 and 81% in 2001. All significant capital expenditure requires the approval of our Investment
Review Group, and we only incur expenditure to support revenue growth or to
support operational efficiencies. Some 52% of our 2003 capital expenditure was
principally revenue growth-driven, with 31% being efficiency driven and the
remainder supporting the transmission infrastructure. We expect to increase
the proportion of capital expenditure that is revenue growth-driven in 2004,
and to reduce the proportion spent supporting the transmission infrastructure.
We invest in the purchase of transmission capacity between major countries
where it reduces the costs of transmission. We have also invested and we intend
to continue to make significant investments in our computer, management
information, customer service and billing systems. Commitments and contingencies The following summarizes our contractual obligations and commercial commitments
at December 31, 2003, and the effect such obligations are expected to have on
liquidity and cash flow in future periods. Payments due by periodTotal
    
    Less than 1 year
    
    1-3 years
    
    3-5 years
    
    After 5 years(U.S. dollars in millions)Bank loans and overdrafts
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    
    
    
    
    Operating lease obligations (a)
    
    
    1,164.7
    
    
    
    454.5
    
    
    
    415.3
    
    
    
    118.0
    
    
    
    176.9Purchase obligations (b)
    
    
    16.6
    
    
    
    16.6
    
    
    
    
    
    
    
    
    
    
    
    Commitments to SITA in respect
of the network (c)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    1,182.8
    
    
    $
    472.4
    
    
    $
    415.5
    
    
    $
    118.0
    
    
    $
    176.9
  (a)
    
    The amounts stated in respect of operating leases include obligations on
leases where we are currently negotiating with lessors to terminate leases
and for which provisions have been recognized as part of our restructuring
and integration activities. As a result, we do not expect to be required
to settle the entire amount shown above in cash.Access circuit leases, which account for over 60% of circuit lease expense,
are usually entered into solely to support specific customer contracts and
therefore the financial risks associated with these leases are specifically
mitigated by offsetting revenues from customer contracts. Furthermore, we
have historically been able to exchange access circuit leases for
alternative routes with the same supplier without incurring penalties.(b)
    
    We enter into purchase contracts with network equipment manufacturers and
into supply contracts with other suppliers. We believe that there is no
significant risk of financial loss from these contracts.(c)
    
    Under the arrangements with SITA that came into effect on June 29, 2001,
we are responsible for operating and managing the Network. In certain
countries SITA continues to operate the Network locally and we are charged
all the costs of operating in such countries. SITA will continue to
operate locally in certain countries until we can purchase the local
network assets in the affected
countries. See Item 7.  Major Shareholders and Related Party
Transactions and Item 10.  Additional
Information  Material Contracts
for more information. 74




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##### 



Commitments by periodTotal
    
    Less than 1 year
    
    2-3 years
    
    4-5 years
    
    After 5 years(U.S. dollars in millions)Guarantees (a), (b)
    
    $
    181.6
    
    
    $
    181.6
    
    
    $
    
    
    
    $
    
    
    
    $
    Unconditional supply obligations (c)
    
    
    81.3
    
    
    
    12.5
    
    
    
    25.0
    
    
    
    25.0
    
    
    
    18.8Defined benefit schemes (d)
    
    
    67.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67.5Credit lines (e)
    
    
    81.2
    
    
    
    81.2
    
    
    
    
    
    
    
    
    
    
    
    Other commercial commitments
    
    
    82.7
    
    
    
    72.6
    
    
    
    10.1
    
    
    
    
    
    
    
    Total Commercial Commitments
    
    $
    494.3
    
    
    $
    347.9
    
    
    $
    35.1
    
    
    $
    25.0
    
    
    $
    86.3
  (a)
    
    We have contingent liabilities, including guarantees provided to third
parties, totaling $181.6 million at December 31, 2003. The nature of
these guarantees is disclosed in Notes 24 and 30 to the Consolidated
Financial Statements.  (b)
    
    We are party to a number of agreements under which we may be required to
contribute to future commitments of various consortia created to own and
maintain network assets. Should other members of individual consortia
elect not to meet their own commitments, and thereby sacrifice benefits of
consortia membership, the remaining consortia members (including the
Company) may be required to increase their contributions and percentage
membership. It is not possible to quantify this commitment.  Our agreement with Radianz obligates us to integrate portions of the Radianz
backbone network with our Network by July 2003,which we were unable to
complete, or we would be obligated to compensate Radianz in cash for any
shortfall in the cost saving anticipated in the agreement (which are
calculated using detailed formulae). It is not possible to quantify this
contingent liability. We are in negotiation with Reuters and Radianz
regarding the technical requirements of integrating the network as certain
technical applications prevent this cost saving commitment being achieved.
We believe that the likelihood of such a claim being made or succeeding is
remote.  (c)
    
    As part of the contribution agreement, we have agreed to provide $125
million of services to Radianz free of charge over a period of 10 years
from July 1, 2000. We recognized an onerous contract liability associated
with providing such services on formation of Radianz. Approximately $44
million of services were provided in the period from July 1, 2000 through
December 31, 2003.  (d)
    
    We sponsor defined benefit pension schemes in a number of contracts, some
of which were under-funded at December 31, 2003. The amount shown above
represents the excess of the present value of our obligations over the
fair value of plan assets as determined by the actuaries of the respective
schemes.  (e)
    
    Our subsidiaries and we have a number of available unsecured lines of
credit and other borrowing arrangements. At December 31, 2003, the
unutilized portion of these totaled $80.2 million. See 
 Liquidity and
Capital Resources  Financing Activities. Impact of Changes in Exchange Rates Our results of operations and financial condition can be significantly affected
by changes in exchange rates between the U.S. dollar and other currencies,
particularly the Euro, British pound, Swiss Franc and Brazilian Real. We calculate prices for our network services activities in U.S. dollars, and
subsidiaries billing approximately 75% of our network services revenues use
U.S. dollars as their functional currency. We may translate prices for these
products and services at the time of sale or billing into other currencies
using an exchange rate current at that time. We accordingly bear exchange rate
risk during the lives of those contracts, meaning that the U.S. dollar
equivalent of the cash to be received from customers will
either increase or decrease as the exchange rate of the billing currency
against the U.S. dollar decreases or increases. In other lines of business,
other than the SITA network contract, we price and record revenues
predominantly in local currencies. 75




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##### 



Our Network costs are largely denominated in U.S. dollars and Euros, and we
bear an exchange rate risk in respect of contracts that are not U.S.
dollar-denominated. We incur most of our non-network costs in the currency in
which we provide our services. We attempt to match billing currency to the
corresponding costs, but due to our wide geographic coverage, we incur less
U.S. dollar-denominated expenditure than the U.S. dollar-denominated revenues
we earn. To the extent that the local currency used by a subsidiary fluctuates
against the U.S. dollar, the payables in respect of such purchases may increase
or decrease significantly and lead to foreign exchange losses or gains. Although the numerous currencies in which we operate have not moved uniformly,
the U.S. dollar weakened against most major currencies, declining by 16.2%
against the Euro, 10.1% against sterling and 9.7% against the yen and reaching
a low point against all three currencies around year-end. Our 2003 revenues
benefited by approximately $129 million from this depreciation, however our
expenses increased by approximately $199 million over the same period. Our
consolidated net foreign exchange loss for 2003 amounted to $22.1 million. Our reporting currency is U.S. dollars, however, as described above, a sizeable
portion of our revenues were earned through subsidiaries with functional
currencies other than the U.S. dollar. In addition, a substantial portion of
our assets are non-dollar denominated, because we generally carry local Network
assets and provide operation funding in the currency of the countries in which
they are located. Any appreciation of the dollar against the currencies in
which these items are denominated has the effect of reducing their dollar
values in our Consolidated Financial Statements or vice versa. For
consolidation purposes, we translate into U.S. dollars, using the period-end
exchange rate, the assets, shareholders equity and liabilities of those of our
subsidiaries for which the dollar is not the functional currency. We translate
income and expenses at the average exchange rate for the period. We record
adjustments resulting from the translation directly in shareholders equity,
and show them as cumulative foreign currency translation adjustments in our
consolidated balance sheet. The balance sheet impact of such translation
adjustments has been, and may be expected to continue to be, material from
period to period. These adjustments resulted in a decrease in shareholders
equity of $42.4 million in 2001, respectively, increases of $89.5 million and
$107.4 million in 2002 and 2003, respectively. The change in shareholders
equity in each year resulted primarily from the translation of local Network
assets, held in the currency of the countries in which they are located, into
U.S. dollars. Research and Development We do not perform basic research. We engage in a measure of technical research,
focused principally on monitoring emergent technologies and the manner in which
they can be adapted for commercial use. Recent Accounting Pronouncements French GAAP: CRC rule 02-10 on depreciation, amortization and impairment of assets This rule redefines the notions of depreciation, amortization and impairment of
assets and states when impairment tests should be performed in relation to
tangible and intangible assets. It is applicable for accounting periods
starting from January 1, 2005 and earlier adoption from January 1, 2002 is
allowed. We have chosen not to apply this rule in our December 31, 2003
financial statements. CRC rule 03-07 of December 12, 2003 relating to the first time application of
the accounting method by asset component and amending the transitional
application rules set down under CRC rule 02-10 for major repairs In accordance with CRC rule 00-06 (on liabilities), CRC rule 02-10 and CRC rule
03-07, provisions for major repairs are subject to transitional application
rules until January 1, 2005. These rules distinguish between two categories of
major repairs:  
    
    expenditures aiming to fully or partly replace existing fixed assets,  
    
    expenditures scheduled over a number of years through major repair or
revision plans in accordance with the applicable laws or regulations
or with the standard procedures of the company
with the sole aim of verifying the good working order of plant or equipment
and maintaining it, without extending its useful life beyond that originally
assessed. 76




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##### 



For expenses in the first category, i.e. asset replacement, as rule CRC 02-10
had not been adopted at January 1, 2002, for 2003 and 2004 companies may either
maintain their previous accounting treatment or use the method of accounting
for assets by component. For the second category of expenditure, companies may
either record a provision for major repairs or use the method of accounting for
assets by component. We have chosen not to account for assets by component in our December 31, 2003
financial statements. Based on the nature of our business, we are not exposed
to material expenditure under the second category mentioned above. The
application of the rule at December 31, 2003 did not have any material impact
on Net income or Shareholders equity. Recommendation 03-R-01 of April 1, 2003 from the Conseil National de la
Comptabilité relating to accounting for and the measurement of pension
obligations and similar benefits. This recommendation is applicable from January 1, 2004 with earlier adoption
possible from January 1, 2003. It sets out rules relating to the accounting
treatment and measurement of pension obligations. Its scope covers
post-employment benefits, other long-term benefits, compensation indemnities
for employment terminations and the related social charges and tax
contributions. We are currently reviewing the practical implications of this
recommendation for application as at January 1, 2004. CRC rule 03-05 of November 20, 2003 relating to the accounting treatment of
website development costs In line with the asset definition statement exposure draft and rule 02-10
relating to depreciation, amortization and impairment of assets, this rule sets
out the accounting treatment of website design and development costs detailing
the rules and conditions applicable for capitalization thereof. CRC rule 03-05
is applicable to accounting periods commenced since January 1, 2004 and may be
applied in advance as from January 1, 2003. We already apply similar terms and
conditions to those set out in the rule, and therefore its application should
not have a material impact on our results of operations or financial condition. CRC rule 03-01 of October 2, 2003 relating to the accounting treatment of
Internet barter transactions This rule defines the scope of application, valuation principles and the
procedures used to assess the fair value of Internet barter transactions, as
well as the additional information to be disclosed in the notes to the
financial statements. It applies to accounting periods beginning after January
1, 2004 and may be applied in advance as from January 1, 2003. We already apply
similar terms and conditions to those set out in the rule, and therefore its
application should not have a material impact on our results of operations or
financial condition. CNC Recommendation 2003-r02 of October 21, 2003 This recommendation sets out the provisions of the European Commission
Recommendation of May 30, 2001 relating to the recognition, measurement and
disclosure of environmental issues in the annual accounts and annual reports of
companies. The CNC recommendation is applicable to accounting periods
beginning after January 1, 2004. It does not amend the rules applicable to the
accounting treatment of environment-related liabilities but aims to achieve
greater harmonization of the type of environmental disclosures made by
different companies. Implementation of International Financial Reporting Standards In July 2003, the France Telecom group created a project team to manage the
conversion to International Financial Reporting Standards (IFRS). We are
participating in this project. The objective of this project team is to
identify the principal differences between French GAAP and IFRS that impact the
France Telecom group and to prepare comparative financial information for the
year ended December 31, 2004 for disclosure in the 2004 Annual Report. 77




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U.S. GAAP: In November 2002, the Emerging Issues Task Force reached consensus on EITF
Issue 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.
This Issue addresses certain aspects of the accounting by a vendor for
arrangements under which it will perform multiple revenue-generating
activities. In some arrangements, the different revenue-generating activities
(deliverables) are sufficiently separable, and there exists sufficient evidence
of their fair values to separately account for some or all of the deliverables
(that is, there are separate units of accounting). In other arrangements, some
or all of the deliverables are not independently functional, or there is not
sufficient evidence of their fair values to account for them separately. This
Issue addresses when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting. This Issue
does not change otherwise applicable revenue recognition criteria. However,
this Issue does provide guidance with respect to the effect of certain customer
rights due to vendor non-performance on the recognition of revenue allocated to
delivered units of accounting. This Issue also addresses the impact on the
measurement and/or allocation of arrangement consideration of customer
cancellation provisions and consideration that varies as a result of future
actions of the customer or the vendor. Finally, this Issue provides guidance
with respect to the recognition of the cost of certain deliverables that are
excluded from the revenue accounting for an arrangement. The provisions of
this Issue become effective for fiscal periods beginning after June 15, 2003.
We do not anticipate that the adoption of this Issue will have a material
impact on our results of operations, financial position and cash flows. In December 2003, the FASB issued a revision to Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51
(FIN 46R or the Interpretation). FIN 46R clarifies the application of ARB
No. 51, Consolidated Financial Statements, to certain entities in which
equity investors do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support. FIN 46R requires
the consolidation of these entities, known as variable interest entities
(VIEs), by the primary beneficiary of the entity. The primary beneficiary is
the entity, if any, that will absorb a majority of the entitys expected
losses, receive a majority of the entitys expected residual returns, or both. Among other changes, the revisions of FIN 46R (a) clarified some requirements
of the original FIN 46, which had been issued in January 2003, (b) eased some
implementation problems, and (c) added new scope exceptions. FIN 46R deferred
the effective date of the Interpretation for public companies, to the end of
the first reporting period ending after March 15, 2004, except that all public
companies must at a minimum apply the provisions of the Interpretation to
entities that were previously considered special-purpose entities under the
FASB literature prior to the issuance of FIN 46R by the end of the first
reporting period ending after December 15, 2003. The Company does not
anticipate that the adoption of FIN 46 will have a material impact on its
financial position, cash flows and results of operations. In May 2003, the FASB issued SFAS 150 Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability. The changes in this statement will result in a
more complete depiction of an entitys liabilities and equity and will,
thereby, assist investors and creditors in assessing the amount, timing, and
likelihood of potential future cash outflows and equity share issuances. The
majority of the instruments within the scope of SFAS 150 are to be measured
initially and on a continuous basis at fair value, with offsets being charged
to the statement of operations. SFAS 150 is effective for financial instruments
issued or modified after March 31, 2003. We have neither issued nor modified
any instruments within the scope of this Statement since March 31, 2003. Any
financial instruments we issued before March 31, 2003, are subject to this
Statement beginning on January 1, 2004. We do not expect any impact on our
results of operations and financial position for financial instruments existing
before March 31, 2003. In May 2003, the EITF reached a consensus on EITF 01-8 Determining Whether an
Arrangement Contains a Lease, relating to new requirements on identifying
leases contained in contracts or other arrangements that sell or purchase
products or services. The evaluation of whether an arrangement contains a lease
within the scope of SFAS No. 13 Accounting for Leases, should be based on the
evaluation of whether an arrangement conveys the right to use property, plant
and equipment. This consensus is effective prospectively for contracts entered
into or significantly modified after January 1, 2004. We do not expect any
impact on our results of operations and financial position for contracts
entered into before December 31, 2003. 78




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##### 



Operating and Financial Review under U.S. GAAP The following section is a discussion of our results of operations under U.S.
GAAP. The following discussion should be read in conjunction with the financial
information included in Note 30 to the Consolidated Financial Statements. Overview Like us, Global One offered a single source for the provision of seamless data,
voice and IP telecommunications services for businesses, carriers and consumers
around the world. Seamless service combines one-stop shopping or single
contract customer service with uniform quality end-to-end technical and
commercial service. Global One focused primarily on multinational businesses
and their suppliers, distributors and customers. Global One provided data,
voice and/or IP services in more than 120 countries and territories worldwide,
including some of the most important telecommunications markets worldwide. On June 29, 2001 the France Telecom Transactions were completed and the
composition of Global One changed. These transactions had a significant effect
on the operations of both Global One and Equant and are described in Item 4. 
Information on the Company  History and development of the
company  Our
history. The most significant change that occurred on June 29, 2001 was Global Ones
acquisition of us. Following the acquisition, Global Ones consolidated balance
sheet reflected goodwill and other intangible assets of approximately $10.4
billion. This resulted from (i) the push down of goodwill which arose upon
France Telecoms acquisition, in April 2000, of the interests in Global One
held by Sprint and Deutsche Telekom, and (ii) the goodwill and other intangible
assets arising on the reverse acquisition of Equant. On December 31, 2001, we
assessed the carrying value of goodwill and other intangible assets based upon
certain assumptions we made in developing projections of future cash flows.
These projections reflect the financial markets view of the telecommunications
industry and business conditions in general, and suggested that we would not
recover the carrying value of our goodwill and other intangible assets.
Accordingly we recorded an impairment loss of $7.5 billion in our 2001 U.S.
GAAP financial statements to reflect the reduction in anticipated future cash
flows. Following adoption of SFAS 142, we performed our first annual impairment
test on December 31, 2002. Since we are a single reporting unit we have
determined that using the quoted market price of our stock best represents our
fair value. On December 31, 2002 our share price was $4.05, compared to $11.65
on December 31, 2001. As a result, the remaining $2.4 billion of goodwill was
written off in 2002. We continue to carry other intangible assets of
approximately $133 million at December 31, 2003 arising on the acquisition of
Global One, which are being amortized over periods of between four and 20
years. Global Ones relationship with France Telecom altered following completion of
the France Telecom Transactions. These changes comprise (i) entering into new
agreement with France Telecom which change the basis upon which we perform
certain services for France Telecom; (ii) the termination of certain agreements
with affiliates of France Telecom that had previously been combined into Global
One; and (iii) the retention by France Telecom of certain non-operating
entities. From June 30, 2001 we have acted as France Telecoms agent for its pre-paid and
post-paid calling cards in various countries, and are also the distributor for
France Telecoms carrier business outside France. In connection with services
provided under this agency relationship, we earn a fee of cost plus 0.5
percent. Revenues and cost of sales are recognized on a net basis as $3.3
million and $0.2 million for the years ended December 31, 2002 and 2003,
respectively, classified within cost of products and services. 79




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The series of agreements among Global Ones local sales and service units, or
LSSUs, Global Products and Services, or GPS, a division of France Telecom, and
France Telecoms long distance division, or FTLD, which had been implemented in
the second half of 2000 were replaced by new agreements which are described in
Item 7.  Major Shareholders and Related Party
Transactions  Related Party
Transactions  Our relationship with France Telecom. The agreements between
the LSSUs, FTLD and GPS required FTLD to sell switched voice minutes, bandwidth
and IP connectivity to GPS, combining FTLDs resources with the resources owned
by the LSSUs for which FTLD were invoiced by the LSSUs at cost plus a margin.
Under these agreements, all costs invoiced by FTLD, as well as the central
function costs, including global products, global sales, finance and corporate
services, were
accounted for within GPS. The LSSUs then purchased their manufactured global
products and services from GPS at wholesale market prices. Since June 30,
2001, we have conducted all of these activities. In addition, France Telecom retained a number of non-operating entities that
had previously been combined into Global One, resulting in repayments of
investors capital being recorded in the first half of 2001. Following completion of the transactions in June 2001, we began to integrate
the businesses of Equant, Global One and the SITA/Equant network Joint Venture.
Under the terms of the Contribution Agreement between France Telecom and
Equant, we shared certain restructuring and integration costs for a period of
two years following June 29, 2001. France Telecom reimbursed us for half the
costs of employment and termination of the first 2,500 employees of the new
entity (including employees transferred from SITA to us pursuant to the
SITA/Equant network Joint Venture) that we identified as not necessary for our
long-term operation. For a period of two years following June 29, 2001, the
Contribution Agreement obligated France Telecom to participate in the
non-personnel related integration and restructuring costs incurred with respect
to the integration of Equant, Global One and the SITA network and the
realization of related synergies. France Telecom reimbursed us for 50% of the
first $240 million of these costs and 100% of the next $90 million of these
costs. Since July 2001 we have incurred $558.2 million of such costs, of which
France Telecom reimbursed $286.2 million. 80




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##### 



Results of Operations for the Year Ended December 31, 2003, compared to the
Year Ended December 31, 2002 based on U.S. GAAP The following table sets forth our statement of operations on a U.S. GAAP
basis for the years ended December 31, 2002 and 2003 and the percentage change
between the two periods. Year ended December 31,
    
    % changefrom 20022002
    
    2003
    
    to 2003(U.S. dollars in millions)Revenues
    
    $
    2,973.1
    
    
    $
    2,948.9
    
    
    
    (0.8
    )%Cost of products and
services
    
    
    (2,496.9
    )
    
    
    (2,475.3
    )
    
    
    (0.9
    )%Gross profit
    
    $
    476.2
    
    
    $
    473.6
    
    
    
    (0.5
    )%Selling, general and
administrative
expenses
    
    $
    (781.3
    )
    
    $
    (727.0
    )
    
    
    (6.9
    )%Restructuring and
integration charges
    
    
    (192.5
    )
    
    
    (197.7
    )
    
    
    2.7
    %Loss on impairment
of goodwill and
other intangible
assets
    
    
    (2,440.9
    )
    
    
    
    
    
    
    n/aOperating loss
    
    $
    (2,938.5
    )
    
    $
    (451.1
    )
    
    
    (84.6
    )%Equity in loss of
affiliate
    
    
    (168.9
    )
    
    
    (41.1
    )
    
    
    (75.7
    )%Interest income (net)
    
    $
    7.1
    
    
    $
    2.7
    
    
    
    (62.0
    )%Loss before taxes
and minority
interests
    
    $
    (3,100.3
    )
    
    $
    (489.5
    )
    
    
    (84.2
    )%Income taxes
    
    
    (4.7
    )
    
    
    (9.8
    )
    
    
    108.5
    %Minority interests
    
    
    (0.7
    )
    
    
    (0.1
    )
    
    
    (85.7
    )%Net loss
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )
    
    
    (83.9
    )%
 Revenues Revenues decreased $24.2 million or 0.8% to $2,948.9 million for the year ended
December 31, 2003 compared to $2,973.1 million for the year ended December 31,
2002. See   Operating and Financial Review under French
GAAP  Results of
Operations for the Year ended December 31, 2003, compared to the Year ended
December 31, 2002 based on French GAAP  Revenues. Cost of products and services Costs of products and services consist of all costs incurred to provide
services rendered to customers, including access, transmission and termination.
It also includes the costs of network depreciation and maintenance and costs of
goods and services purchased for resale. Costs of products and services for the year ended December 31, 2003 decreased
by $21.6 million or 0.9% to $2,475.3 million compared to $2,496.9 million for
the year ended December 31, 2002. This was largely due to reductions in data
termination and transmission costs and depreciation charges. The network
restructuring and integration activities performed in 2001 and 2002 have
yielded significant cost savings and we expect to enjoy further benefits in the
future. 81




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##### 



The improvement in the gross profit percentage reflects the operational
efficiencies brought about by our Network integration activities, partially
offset by additional depreciation charges to write off network assets. Selling, general and administrative expenses Selling, general and administrative expenses for the year ended December 31,
2003 decreased by $54.3 million or 6.9% to $727.0 million compared to $781.3
million for the year ended December 31, 2002. This was largely due to a
reduction in bad debt expenses (which fell by $28 million during the year due
to the impact of our improved credit control procedures on the collectibility
of our receivables) and an impairment charge of $24.1 million recorded in 2002
as a result of the failure of certain IRU suppliers to honor their contractual
commitments to us. The $24.1 million charge related to capacity previously
provided by KPN Qwest, Pacific Crossing and Pangea. Amortization of intangible assets, which includes customer relationships,
workforce and trade marks, remained unchanged at $20.5 million for the year
ended December 31, 2003. The intangible assets on our balance sheet are being
amortized over periods of between four and 20 years. Restructuring and integration charges The following table sets forth the components of our restructuring and
integration charges for the periods indicated. Year ended December 31,2002
    
    2003(U.S. dollars in millions)Restructuring and integration charges:Restructuring
    
    $
    65.1
    
    
    $
    123.7Integration
    
    
    127.4
    
    
    
    74.0Total
    
    $
    192.5
    
    
    $
    197.7
 Restructuring
and integration charges in 2003 amounted to $197.7 million. This
comprised $123.7 million of restructuring costs and $74.0 million of
integration costs arising from the France Telecom transactions and our
strategic reorganization. Following the merger and the termination of the SITA/Equant network Joint
Venture, we commenced integrating the operations of the three organizations. We
have incurred restructuring and integration costs of $558.3 million during the
period since the transactions, the major components of which are asset write
downs ($166.4 million), lease exit costs ($127.2 million), employee termination
costs ($132.9 million), and integration planning and implementation costs
($64.0 million). Under the terms of the Contribution Agreement, certain of the restructuring and
integration costs were to be reimbursed by France Telecom. France Telecom
reimbursed $286.2 million of the costs incurred since July 2001, and this
contribution has been treated as a capital contribution. See Item 7. Major
Shareholders and Related Party Transactions  Related Party Transactions 
Relationship with France Telecom and Item 10. Additional Information 
Material Contracts for further information. Loss on impairment of goodwill and Other Intangible Assets We recorded an impairment charge of $7,478.7 million in 2001 as a result of the
significant deterioration of the telecommunications market. This charge was
based on the difference between net book value of long-lived assets and fair
value. The fair value of long-lived assets at December 31, 2001 was determined
by reference to the market price of our ordinary shares as at that date,
adjusted for an appropriate control premium, working capital and long-term
liabilities. 82




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##### 



On January 1, 2002 we adopted SFAS 142 which requires all goodwill be reviewed
for impairment at least annually. There was no impairment recognized on
adoption. Since we are a single reporting unit
we have determined that our fair value is best represented by using the quoted
market price of our stock. When we performed our first annual impairment review
on December 31, 2002 our share price was $4.05, compared to $11.65 on December
31, 2001. As a result, all remaining goodwill was written off in 2002. Depreciation In addition to the amortization of intangible assets, we recognized a
depreciation charge in 2003 of $482.4 million compared to $463.6 million in
2002. The increase of $18.8 million, or 4.1%, reflects the impact of reducing
the useful life of certain assets. As a percentage of revenue, depreciation
and amortization increased from 15.6% to 16.4%. The depreciation charge is substantially above the current rate of capital
expenditure, reflecting the high levels of capital expenditure in recent years.
We expect depreciation to fall slightly in 2004 but then to decline
significantly as the asset base matures and integration and operating benefits
reduce our future capital expenditure expectations. The depreciation charge is reflected in the financial statements based on the
nature of costs and related assets as follows: Year ended December 31,2002
    
    2003(U.S. dollars in millions)Cost of revenue
    
    $
    400.5
    
    
    $
    403.2Selling, general and administrative
expenses
    
    
    63.1
    
    
    
    79.2Total
    
    $
    463.6
    
    
    $
    482.4
 Operating loss We recorded an operating loss of $451.1 million in 2003 compared to $2,938.5
million in 2002. This change primarily reflects the impairment charge recorded
in 2002, as well as reductions in selling, general and administrative expenses
and restructuring and integration charges. Equity in loss of affiliate Equity in the loss of affiliate comprises our share of the losses of Radianz. Year ended December 31,2002
    
    2003(U.S. dollars in millions)Share in loss of affiliate
    
    $
    29.0
    
    
    $
    41.1Impairment loss
    
    
    139.9
    
    
    
    Total
    
    $
    168.9
    
    
    $
    41.1
 We determined that there was an other than temporary impairment in our
investment in Radianz in 2002, and accordingly recorded an impairment loss.
The write-down was calculated by reference to the difference
between the carrying value and the fair value, which was based on the sum of
appropriately discounted cash flows. Interest income (net) We recognized interest income of $2.7 million in 2003 compared to $7.1 million
in 2002, a decrease of $4.4 million. 83




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##### 



At
December 31, 2003 we had net cash and loans balances of $479.1 million,
(including $138.2 million on deposit with, and $150.0 million on loan to,
France Telecom), compared to $445.2 million (including $307.8 million on
deposit with France Telecom) as at December 31, 2002. At December 31, 2003
these deposits were earning interest at rates between 1.06% and 1.56% per
annum, compared to 1.36% per annum on December 31, 2002. We have maintained a
positive net cash and loans balance since June 2001. See   Liquidity and
Capital Resources. Loss before taxes Loss before taxes fell by $2,610.8 million or 84.2% to $489.5 million for the
year ended December 31, 2003 compared to $3,100.3 million for the year ended
December 31, 2002. This decrease primarily resulted from the reduced goodwill
impairment charges. Income Taxes Income taxes increased by $5.1 million or 108.5% to $9.8 million for the year
ended December 31, 2003 compared to $4.7 million for the year ended December 31, 2002. Our
effective tax rate increased from 0.3% to 2.2% over the same period. This
primarily reflects the loss on impairment of goodwill recognized in 2002, as
well as the effect of the group reorganization on the mix of profitability by
entity. Net loss We recorded a net loss of $499.4 million in 2003 compared to $3,105.7 million
in 2002, a reduction of 83.9%. This change reflects the reduction in operating
loss and equity in loss of affiliates, partially offset by increased income
taxes and lower interest income. The net loss per share decreased by 83.9% to $1.77 per share, from $10.99 per
share in 2002. 84




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##### 



Results of Operations for the Year Ended December 31, 2002, compared to the
Year Ended December 31, 2001 based on U.S. GAAP The following table sets forth our statement of operations on a U.S. GAAP
basis for the years ended December 31, 2001 and 2002 and the percentage change
between the two periods. Year ended December 31,
    
    % changeFrom 20012001
    
    2002
    
    to 2002(U.S. dollars in millions)Revenues
    
    $
    2,102.5
    
    
    $
    2,973.1
    
    
    
    41.4
    %Cost of products and
services
    
    
    (1,937.7
    )
    
    
    (2,496.9
    )
    
    
    28.9
    %Gross profit
    
    $
    164.8
    
    
    $
    476.2
    
    
    
    189.0
    %Selling, general and
administrative
expenses
    
    $
    (1,168.5
    )
    
    $
    (781.3
    )
    
    
    (33.1
    )%Restructuring and
integration charges
    
    
    (170.8
    )
    
    
    (192.5
    )
    
    
    12.7
    %Loss on impairment of
goodwill and other
intangible assets
    
    
    (7,478.7
    )
    
    
    (2,440.9
    )
    
    
    (67.4
    )%Operating loss
    
    $
    (8,653.2
    )
    
    $
    (2,938.5
    )
    
    
    (66.0
    )%Equity in loss of
affiliate
    
    
    (25.8
    )
    
    
    (168.9
    )
    
    
    554.7
    %Interest (expense)
income (net)
    
    $
    (7.1
    )
    
    $
    7.1
    
    
    
    n/aImpairment of
investments accounted
at cost
    
    
    (13.1
    )
    
    
    
    
    
    
    n/aLoss from continuing
operations before
taxes and minority
interests
    
    $
    (8,699.2
    )
    
    $
    (3,100.3
    )
    
    
    (64.4
    )%Income taxes
    
    
    (27.6
    )
    
    
    (4.7
    )
    
    
    (83.0
    )%Minority interests
    
    
    
    
    
    
    (0.7
    )
    
    
    n/aNet loss from
continuing operations
    
    
    (8,726.8
    )
    
    
    (3,105.7
    )
    
    
    (64.4
    )%Discontinued operations
    
    
    14.5
    
    
    
    
    
    
    
    n/aNet loss
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    
    (64.4
    )%
 Revenues Revenues increased $870.6 million or 41% to $2,973.1 million for the year ended
December 31, 2002 compared to $2,102.5 million for the year ended December 31,
2001. This reflects the inclusion of a whole year of Equant revenues in 2002
compared to six months in 2001. 85




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##### 



Total revenues can be broken down as follows: Revenues by Region Year ended December 31,2001
    
    2002(U.S. dollars in millions,except percentages)Americas
    
    $
    556.2
    
    
    $
    689.8As a percentage of
revenues
    
    
    26.5
    %
    
    
    23.2
    %Europe, Middle East and Africa
    
    
    1,433.2
    
    
    
    2,147.4As a percentage of
revenues
    
    
    68.1
    %
    
    
    72.2
    %Asia Pacific
    
    
    113.1
    
    
    
    135.9As a percentage of
revenues
    
    
    5.4
    %
    
    
    4.6
    %Total
    
    $
    2,102.5
    
    
    $
    2,973.1
 The change in the percentage of revenues generated from individual regions
reflects primarily the concentration of our global billing activities in
Dublin, Ireland. It is not possible to compare revenues by Line of Business, as the basis of
presentation adopted since June 30, 2001 is not consistent with that employed
by Global One before that date and the data required to present Global Ones
pre-combination revenues on the current basis cannot be obtained. Cost of products and services Costs of products and services consists of all costs incurred to provide
services rendered to customers, including access, transmission and termination.
It also includes the costs of network depreciation and maintenance and costs of
goods and services purchased for resale. Costs of products and services for the year ended December 31, 2002 increased
by $559.2 million or 29% to $2,496.9 million (84.0% of revenues) compared to
$1,937.7 million (92.2% of revenues) for the year ended December 31, 2001. This
was largely due to the inclusion of a full year of Equant activity in 2002
compared to six months in 2001. The improvement in the gross profit percentage reflects the operational
efficiencies brought about by our Network integration activities, partially
offset by additional depreciation charges to write off network assets. Selling, general and administrative expenses Selling, general and administrative expenses for the year ended December 31,
2002 decreased by $387.2 million or 33% to $781.3 million compared to $1,168.5
million for the year ended December 31, 2001. This was largely due to a decline
in amortization of goodwill and other intangible assets, partially offset by a
55% increase in depreciation expense and an asset impairment charge of $24.1
million as a result of failure of certain IRU suppliers to honor their
contractual commitments to us. The $24.1 million charge related to capacity
previously provided by KPN Qwest, Pacific Crossing and Pangea. Amortization of goodwill and other intangible assets, which includes customer
relationships, workforce and trade marks, fell by 96% to $20.5 million for the
year ended December 31, 2002 compared to $488.7 million for the year ended
December 31, 2001. The decrease was primarily due to the impact of adopting
SFAS 142, which requires goodwill and intangible assets with indefinite lives
to be tested annually for impairment rather than amortized, as well as the
reduction in the book value of goodwill following the $7,478.7 million
impairment loss recorded in 2001. We recognized a further impairment charge in
2002 to write off our remaining goodwill balances. See Loss on impairment of
goodwill and other intangible assets for more details. The intangible assets
on our balance sheet are being amortized over periods of between four and 20
years. 86




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##### 



Restructuring and integration charges The following table sets forth the components of our restructuring and
integration charges for the periods indicated. Year ended December 31,2001
    
    2002(U.S. dollars in millions)Restructuring and integration charges:Restructuring of Equant, Global One and
SITA Equant network Joint Venture
    
    $
    69.6
    
    
    $
    65.1Integration of Equant, Global One and
SITA Equant network Joint Venture
    
    
    101.2
    
    
    
    127.4Total
    
    $
    170.8
    
    
    $
    192.5
 Restructuring and integration charges in 2002 amounted to $192.5 million. This
comprised $65.1 million of restructuring costs and $127.4 million of
integration costs following the France Telecom transactions. Following the merger and the termination of the SITA/Equant network Joint
Venture, we commenced integrating the operations of the three organizations.
The major components of the restructuring and integration costs incurred during
the period from July 2001 to December 2002 were asset write downs ($125.7
million), lease exit costs ($67.6 million), employee termination costs ($76.2
million) and integration planning and implementation costs ($37.9 million). Under the terms of the Contribution Agreement, certain of the restructuring and
integration costs are to be reimbursed by France Telecom. France Telecom met
$173.6 million of the costs incurred from July 2001 to December 2002, and this
reimbursement has been treated as a capital contribution. Some $140.9 million
of the reimbursement had been received at December 31, 2002. See Item 7.
Major Shareholders and Related Party Transactions  Related Party Transactions
 Relationship with France Telecom and Item 10, Additional Information 
Material Contracts for further information. Loss on impairment of goodwill and Other Intangible Assets We recorded an impairment charge of $7,478.7 million in 2001 as a result of the
significant deterioration of the telecommunications market. This charge was
based on the difference between net book value of long-lived assets and fair
value. The fair value of long-lived assets at December 31, 2001 was determined
by reference to the market price of our ordinary shares as at that date,
adjusted for an appropriate control premium, working capital and long-term
liabilities. On January 1, 2002 we adopted SFAS 142 which requires all goodwill be reviewed
for impairment at least annually. There was no impairment loss recognized on
adoption. Since we are a single reporting unit we have determined that our
fair value is best represented by using the quoted market price of our stock.
When we performed our impairment review on December 31, 2002 our share price
was $4.05, compared to $11.65 on December 31, 2001. As a result, all remaining
goodwill was written off in 2002 as part of the first annual impairment test. Depreciation In addition to the amortization of goodwill and other intangible assets, we
recognized a depreciation charge in 2002 of $463.6 million compared to $351.1
million in 2001, with the increase of $112.5 million due primarily to the
inclusion of a full year of Equant activity in 2002 compared to six months in
2001. The significant level of capital expenditure in recent years also caused
depreciation expense to rise. With the recent and continued forecast reductions in capital expenditure we
expect depreciation and amortization as a percentage of revenue to fall in the
future. 87




---



##### 



The depreciation charge is reflected in the financial statements based on the
nature of costs and related assets as follows: Year ended December 31,2001
    
    2002(U.S. dollars in millions)Cost of revenue
    
    $
    310.5
    
    
    $
    400.5Selling, general and administrative
expenses
    
    
    40.6
    
    
    
    63.1Total
    
    $
    351.1
    
    
    $
    463.6
 Operating loss We recorded an operating loss of $2,938.5 million in 2002 compared to $8,653.2
million in 2001. This change primarily reflects the decreased impairment charge
and increased gross profit, partially offset by increased selling, general and
administrative expenses and restructuring and integration charges. Equity in loss of affiliate Equity in the loss of affiliate comprises the following, relating entirely to
Radianz for the period since the acquisition of Equant. Year ended December 31,2001
    
    2002(U.S. dollars in millions)Share in loss of affiliate
    
    $
    17.8
    
    
    $
    29.0Amortization of goodwill
    
    
    8.0
    
    
    
    Impairment loss
    
    
    
    
    
    
    139.9Total
    
    $
    25.8
    
    
    $
    168.9
 We determined that there was an other than temporary impairment in our
investment in Radianz in 2002, and accordingly recorded an impairment loss.
This was determined by reference to the sum of undiscounted cash flows based on
economic assumptions and forecasted operating activities approved by our
management. The write-down was calculated by reference to the difference
between the carrying value and the fair value, which was based on the sum of
appropriately discounted cash flows. Interest (expense) income (net) We recognized interest income of $7.1 million in 2002 compared to an expense of
$7.1 million in 2001. We have been net cash positive since July 2001, having
repaid all borrowings from France Telecom in March 31, 2001 as part of the
reorganization of Global One prior to the acquisition of Equant. At December 31, 2002 we had cash balances of $452.2 million, including $307.8
million on deposit with France Telecom, compared to $385.8 million (including
$237.5 million on deposit with France Telecom) as at December 31, 2001. Loss on impairment of investments In 2001, we determined that there was an other than temporary impairment of
$13.1 million in our investment in STSN Inc., a company in which we own a 7.1%
non-controlling interest and account for under the cost method. The write-down was calculated by reference to the
difference between the carrying value and the fair value, which was based on
the sum of appropriately discounted cash flows. 88




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##### 



Loss on continuing operations before taxesand minority interests Loss on continuing operations before taxes fell by $5,598.9 million or 64% to
$3,100.3 million for the year ended December 31, 2002 compared to $8,699.2
million for the year ended December 31, 2001. This decrease primarily resulted
from the reduced goodwill amortization and impairment charges, increases in
gross profit, partially offset by increased selling, general and administrative
expenses and restructuring and integration charges. Income Taxes Income taxes fell by $22.9 million or 83% to $4.7 million for the year ended
December 31, 2002 compared to $27.6 million to the year ended December 31, 2001, and our
effective tax rate fell from 0.3% to 0.2% over the same period. This primarily
reflects the reduced loss on impairment of goodwill recognized in 2002, as well
as the effect of the group reorganization on the mix of profitability by
entity. Net loss We recorded a net loss of $3,105.7 million in 2002 compared to $8,712.3 million
in 2001, a reduction of 64%. This change reflects the reduction in operating
loss, income taxes and investment losses, partially offset by increased equity
in loss of affiliates and reductions in income from discontinued operations. The net loss per share decreased by 76.2% to $10.99 per share, from $46.19 per
share in 2001. 89




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##### 



Item 6. Directors, Senior Management and Employees Supervisory Board As a Dutch company, our day-to-day management is entrusted to the Management
Board under the supervision of the Supervisory Board. The Supervisory Board
oversees and advises the Management Board. The Supervisory Board is responsible
for establishing and supervising the policies pursued by the Management Board
and the general course of our business. In addition, certain actions by the
Management Board require the prior approval of the Supervisory Board, and the
Supervisory Board may by resolution specify additional actions that require
such approval. See Management Board. In fulfilling their duties, supervisory
directors must serve our business interests. The Supervisory Board currently consists of nine supervisory directors, all of
whom are appointed and removed by our shareholders at a General Meeting of
shareholders. Our Articles of Association require the retirement of supervisory
directors at the age of 68, although their terms are otherwise unlimited,
except if the General Meeting appointing the director(s) specifies otherwise.
Our Articles of Association provide that the General Meeting of shareholders
must elect five directors nominated by France Telecom, as long as it holds at
least 34% of our outstanding shares, one director nominated by SITA, and three
independent directors nominated by the Nominating Committee. The supervisory
directors do not have service contracts with us and no termination benefits are
payable at the end of their terms. Our Articles of Association provide that the General Meeting of shareholders
will elect supervisory directors from lists of nominees France Telecom, SITA,
and the Nominating Committee present. The lists are binding as long as, with
respect to any particular seat, the list consists of two or more candidates,
although the shareholders can deprive the lists of their binding nature at a
general meeting by two thirds vote representing more than half of our issued
capital. Otherwise, the lists are non-binding. The Nominating Committee has the
right to nominate three independent directors. On February 19, 2003, Fritz
Fröhlich was elected to the Supervisory Board as an independent director, to
fill the seat formerly held by Ricardo Lippi, the SITA Foundations nominee.
Barbara Dalibard, Frank Dangeard and James Meyer were also
elected to the Supervisory Board on February 19, 2003, as France Telecom
representatives, replacing Jean-Yves Gouiffes, Bernard Izerable and Jean-Louis
Vinciguerra. Michel Bon resigned effective October 24, 2002. His seat on the
supervisory board remained vacant until February 19, 2003, when Thierry Breton,
France Telecoms Chief Executive Officer joined our Supervisory Board.
Hans-Peter Kohlhammer was elected to the Supervisory Board on July 24, 2003, as
the SITA representative, replacing John Watson. The supervisory directors appoint a chairperson of the Supervisory Board from
among their ranks. The Supervisory Board appointed Barbara Dalibard, Chairperson
on February 28, 2003. The Supervisory Board meets no less frequently than once
each calendar quarter, and must meet upon request by its Chairperson or by two
or more of its other supervisory directors. Resolutions of the Supervisory
Board require the approval of an absolute majority of the votes cast. The General Meeting of shareholders may suspend or dismiss supervisory
directors. The General Meeting of shareholders establishes the compensation of
supervisory directors upon the recommendation of the compensation committee of
the Supervisory Board. Any holder of a significant percentage of our shares may be able to exercise
more influence at a shareholders meeting than would be apparent from the size
of its holding to the detriment of our public shareholders. This is because the
holders of most of our publicly owned shares hold their shares in book-entry
form, and many of these holders do not give voting instructions to their
depositary institutions. These institutions generally do not vote shares
without instructions. It may be difficult for shareholders holding shares in
book-entry form to deliver voting instructions to us. Our Articles of
Association contain no requirement that a specified percentage of our shares
must be represented at shareholders meetings for the shareholders present at
the meeting to adopt resolutions. 90




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##### 



Our current supervisory directors are: Thierry Breton.Born 1955. He is Chief Executive Officer and Chairman of France
Telecom. He was elected to the Supervisory Board, as a France Telecom Nominee,
on February 19, 2003, for an indefinite term. Barbara Dalibard.
Born 1958. She is in charge of the Entreprise communication
solutions division for France Telecom. She was elected to the Supervisory Board,
as a France Telecom Nominee, on February 19, 2003, for an indefinite term.
She was appointed Chairperson of the Supervisory Board on February 28, 2003. Jacques Champeaux.Born 1948. He is Corporate Senior Vice President, Regulatory Affairs of France Telecom. He
was elected to the Supervisory Board, as a France Telecom Nominee, on June 27,
2001, to be effective at the close of the merger on June 29, 2001, for an
indefinite term. Frank Dangeard.Born 1958. He is a member of the Executive Committee of France
Telecom, in charge of Financial Rebalancing and Value Creation. He was elected
to the Supervisory Board, as a France Telecom Nominee, on February 19, 2003,
for an indefinite term. Fritz Fröhlich.
Born 1942. He was Deputy Chairman/Chief Financial Officer AKZO Akzo Nobel.
He was elected to the Supervisory Board, as an independent director,
on February 19, 2003, for an indefinite term.  He is also a Supervisory
Board member of DRAKA NV, Amsterdam, Netherlands, Allianz Nederland Groep NV,
Rotterdam, Netherlands, Gamma Holding NV, Helmond, Netherlands, and the
Randstad Holding NV, Diemen, Netherlands and ASML, Veldhoven, Netherlands. Hans-Peter Kohlhammer. Born 1947. He is Chief Executive Officer and Director
General of SITA SC. He was elected to the Supervisory Board, as the SITA
Nominee, on July 24, 2003, for an indefinite term. James Meyer. Born 1954. He is President of Aegis Ventures, Inc. He was elected
to the Supervisory Board, as a France Telecom Nominee, on February 19, 2003,
for an indefinite term. Roberto Quarta.Born 1949. He is a Principal in Clayton, Dubilier & Rice, a
private equity firm, and Chairman, BBA Group plc. He was formerly Group Chief
Executive of BBA Group plc and a non-executive director of Powergen plc. He was
elected to the Supervisory Board, as an independent director, on May 23, 2002,
for an indefinite term. He is also a member of the Board of Directors, CD&R
Acquisition plc. Irving Yoskowitz.Born 1945. He is an attorney with Crowell & Moring, and
Senior Partner of Global Technology Partners, LLC. He was elected to the
Supervisory Board, as an independent director, October 15, 1998, for an
indefinite term. He also serves as a director for BBA Group plc. Supervisory Board Resignations. Jean-Yves Gouiffes.Born 1948. He was a France Telecom nominee on the
Supervisory Board until he resigned from the Board on February 19, 2003. He was
elected to the Supervisory Board on June 27, 2001 to be effective at the close
of the merger on June 29, 2001, for an indefinite term. Bernard Izerable.Born 1956. He was a France Telecom nominee on the Supervisory
Board until he resigned from the Board on February 19, 2003. He was elected to
the Supervisory Board on June 27, 2001, to be effective at the close of the
merger on June 29, 2001, for an indefinite term. Jean-Louis Vinciguerra.Born 1944. He was a France Telecom nominee on the
Supervisory Board until he resigned from the Board on February 19, 2003. He was
elected to the Supervisory Board on June 27, 2001, for an indefinite term, to
be effective at the close of the merger on June 29, 2001. He was the Chief
Financial Officer and Executive Vice President in charge of the Resources
Division, France Telecom. John Watson.Born 1944. He was the SITA nominee on the Supervisory Board
until he resigned from the Board on July 24, 2003. He was elected to the
Supervisory Board on June 27, 2001, to be effective at the close of the merger
on June 29, 2001, for an indefinite term. 91




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Strategy Committee In July of 2003, the Supervisory Board established a Strategy Committee to
assist it in exercising its guidance and direction over our long-term business
strategy. Our Strategy Committee is a committee of the Supervisory Board with
five members, one who is the chairperson of the Supervisory Board and at least
two who are independent directors. The current members of our Strategy
Committee are Frank Dangeard, Barbara Dalibard, Fritz Fröhlich, James Meyer and
Roberto Quarta. Mr. Meyer serves as the chairman of the Committee. Nominating Committee The current members of our Nominating Committee are Daniel Caclin, Jacques
Champeaux, Roberto Quarta and Irving Yoskowitz. Didier Delepine resigned from
the Committee effective July 31, 2003. In accordance with our Articles of
Association, our Nominating Committee is a committee of the Supervisory Board
with four members, three of who are supervisory directors and one who is the
Chairman of the Management Board. Two of the delegates from the Supervisory
Board must be independent directors. A majority of the Nominating Committee
must adopt resolutions.. For each vacancy of an independent director to be filled, the Nominating
Committee, under Dutch law, may make a binding nomination of two candidates to
the general meeting of shareholders to fill the vacancy. If it is a binding
nomination, the nominee with the most votes wins the vacancy. The Nominating
Committee may opt, under our Articles of Association, to make a non-binding
nomination of only one candidate for a board vacancy. The candidate must garner
a majority of the shareholder votes to win the vacancy. Audit Committee The Audit Committee is an elected committee of our Supervisory Board, and has
three members. The current members of our Audit Committee are Barbara
Dalibard, Roberto Quarta, and Fritz Fröhlich, a financial expert, who was
elected Chairman by the Committee. Messrs. Quarta and Fröhlich are also
independent directors of the Supervisory Board. Duties of the Audit Committee
include assisting the Supervisory Board in its review of and decision-making
process with respect to financial matters, recommending the appointment and
dismissal of our independent auditors and meeting periodically with them.
Jean-Louis Vinciguerra resigned from the Committee on February 19, 2003. The Audit Committee also reviews the nature and scope of our annual audit, the
results of the annual audit, letters from the auditors to our management and
responses to such letters, our interim and annual financial statements, changes
in our accounting policies and practices, our internal audit function and its
evaluations and recommendations. Our Supervisory Board employs a guidance tool, known as the Terms of Reference,
to outline its expectations and the general duties of our Audit Committee. The
Terms of Reference delineate the general duties of the Audit Committee in
assisting the Supervisory Board in fulfilling its oversight responsibilities
and specifically assigns duties with regards to the external auditor and our
finance, internal audit and risk management functions. The current Terms of
Reference require the Audit Committee to carry out the following duties by
function: Finance Function  
    
    Review the annual report, the annual financial statements, the quarterly or other
interim financial information that we plan to release to the public, and quarterly
financial information to be provided to shareholders for agreement, before
submission to the Supervisory Board, focusing particularly on (a) any changes in
accounting policies and practices; (b) any proposals for changes to our basis for
the valuation of assets and liabilities for the determination of results; and (c)
possible significant adjustments resulting from the audit;  
    
    Ensure compliance with current accounting standards; current stock exchange and
other regulatory requirements; and validate the going concern assumption made by
management;
    
    Evaluate the suitability and effectiveness of the internal control environment; and 92




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
    
    Review the adequacy of our accounting and financial human resources and the
adequacy of our succession planning process. Internal Audit Function  
    
    Review and evaluate the Internal Audit function including independence of its
reporting obligations, the proposed audit plan for the year and the co-ordination
of such plan with the external auditors;  
    
    Review the adequacy of the Internal Audit Departments charter, budget and staffing;  
    
    Review and concur in the appointment, replacement, reassignment or dismissal of the
Head of Internal Audit; and  
    
    Review the results of the Internal Audit Departments work at least twice annually. Compensation Committee The current members of the Compensation Committee are Irving Yoskowitz, Jacques Champeaux and Barbara Dalibard. Mr. Yoskowitz serves as the Chairman
of the Committee. Mr. Jean-Yves Gouiffes resigned from the Committee effective
on February 19, 2003. The Supervisory Board appoints the Compensation Committee and the Chairman, who
must be an independent director. The Committee makes recommendations to the
Board with regard to salary, bonus and other terms and conditions of employment
of the Managing Directors. The Committee also recommends the compensation for
Supervisory Board Directors to the general meeting of shareholders after
consultation with the chairman of the Management Board. Management Board As provided by Dutch law, our day-to-day management is entrusted to the
Management Board under the supervision of the Supervisory Board. Under the
Articles of Association, the Management Board must obtain prior approval from
the Supervisory Board for:  
    
    the issuance, repurchase or redemption of any shares or other equity securities (including
securities convertible into or exchangeable or exercisable for our shares or other equity
securities) that we or a subsidiary issue or that a general or limited partnership in which
we or subsidiary who is a partner issues;  
    
    the making of any application for a registration with a view to a listing or quotation, or
withdrawal of a listing or quotation, on any stock exchange, of any of our securities;  
    
    the entering into or termination of any alliance or long-term agreement for cooperation by
us or any of our affiliates, with any third party, or the entering into or termination of
any material joint venture, partnership or other similar arrangement;  
    
    our acquisition or that by a subsidiary of a material participation in another legal entity;  
    
    the amendment of our Articles of Association;  
    
    a merger, legal split, consolidation or dissolution;  
    
    the filing of any petition for bankruptcy or for a suspension of payment or other
protection pursuant to any applicable law for the protection of creditors;
    
    the adoption of or significant change in, any business plan or budget of ours, or
investment levels in us; 93




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
    
    the reduction of our issued capital;  
    
    the sale of any portion of the shares we hold in any significant subsidiary;  
    
    the accrual of any material debt which exceeds 5% of our consolidated assets (other than
the extension, refinancing or replacement of existing debt);  
    
    capital expenditures in any financial year in excess of the capital expenditures approved
in our approved annual consolidated budget;  
    
    the declaration of any dividends or other distributions on capital stock, other than to any
of our wholly-owned subsidiaries; and  
    
    the approval of the results of any audit. The Supervisory Board may, by majority vote, adopt resolutions requiring its
approval for other specified actions by the Management Board. Under our Articles of Association, the Management Board shall consist of
between three and seven managing directors as resolved by a general meeting of
shareholders, and shall include a Chairman, as Chief Executive Officer, also
appointed at the general meeting of the shareholders. The Chairman is charged
with the general management and administration of our day-to-day affairs and
the oversight and supervision of the affairs of our subsidiaries. The general
meeting of shareholders appoints the managing directors for an indefinite
period from a binding list of nominees proposed by the Supervisory Board.
France Telecom has a right to nominate one seat on the Management Board, so
long as it holds at least 34% of the outstanding of our shares. The general
meeting of shareholders can deprive the Supervisory Boards list of its binding
nature by two-thirds vote representing more than half of our issued capital.
Resolutions of the Management Board require the approval of a majority of the
managing directors, provided that at least two votes, including that of the
Chairman, are cast in favor of resolutions to be validly adopted. The general meeting of shareholders may suspend or remove one or more managing
directors, either at the proposal of the Supervisory Board or its own accord.
The Supervisory Board may suspend managing directors, but if a general meeting
of shareholders does not dismiss the suspended managing director within three
months of such suspension, or if the general meeting of shareholders resolves
to lift the suspension, the suspension will end. The Supervisory Board
determines the compensation and other terms and conditions of employment of the
managing directors. The current managing directors are: Daniel Caclin.Born 1953. Mr. Caclin was appointed our President and Chief
Executive Officer on July 28, 2003, and ratified by the shareholders on October
28, 2003. He was formerly our Chief Operating Officer and elected a managing
director on June 29, 2001. He served as the chief executive officer of Global
One, a position to which he was nominated in March 2000. Prior to that he was
the executive vice president for France Telecoms Data Business and chief
executive officer of Transpac. Previously, he held various positions of
responsibility at France Telecom, primarily in the areas of corporate business
and finance. Jacques Kerrest. Born 1946. Mr. Kerrest was appointed our Chief Financial
Officer effective June 9, 2003 and elected a managing director on July 24,
2003. Before joining us, he served as senior vice president and Chief Financial
Officer of Harte-Hanks Inc., a customer relationship management and business
solutions company based in San Antonio, Texas. At Harte-Hanks, he managed all
financial aspects of the company, including corporate finance, accounting and
control, M&A, pension investing, investor relations and relationships with
bankers. Prior to that, Kerrest was the chief financial officer of the
Chancellor Broadcasting Corp. based in Dallas, Texas. 94




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Howard Ford. Born 1950. Mr. Ford has been our President Sales & Marketing since
February 25, 2002. He was elected as a managing director on October 28, 2003.
He joined us in 1997 as president for the Europe, Middle East and Africa (EUMA)
Region, where he was responsible for the regional P/L, covering this highly
diverse area, that included 1,500 employees in more than 100 countries. Prior
to joining us, he was chief executive of BT/Cellnet, a U.K.-based mobile phone
operator. Prior to joining BT, he held several positions in IBM Europe and
served as general manager of IBMs European PC business. Statement on Corporate Governance as Required by Article 303A-11 of the New
York Stock Exchanges Listed Company Manual We comply with the corporate governance rules applicable to foreign private
issuers listed on the NYSE. Section 303A.11 of the NYSEs Listed Company
Manual requires listed foreign private issuers to disclose any significant ways
in which their corporate governance practices differ from those followed by
U.S. companies under NYSE listing standards. Both the Dutch and NYSE corporate governance regimes were adopted with the goal
of restoring trust and confidence in the honesty, integrity and transparency of
how business is conducted at public companies. Because these corporate
governance regimes are based on the same principles, they are similar in many
respects. However, certain differences exist between Dutch and NYSE corporate
governance rules, as described below. Like many public Dutch companies, we have a two-tier governance structure. Our
Management Board is composed of our principal officers and is responsible for
the day-to-day management of our affairs. The Management Board functions under
the supervision of our Supervisory Board, which must approve specified
decisions of the Management Board. Members of the Management Board and other
officers and employees are excluded from membership of the Supervisory Board.
Members of both the Management Board and the Supervisory Board are appointed by
the general meeting of shareholders. Certain major shareholders, mentioned in
our articles of association, have the right to make a (binding) nomination for
the appointment of Members of the Supervisory Board. Further, Dutch legal requirements concerning director independence differ in
certain respects from the NYSE rules. While under most circumstances both
legal regimes require that a majority of board members be independent, the
definition of this term under Dutch law is not identical to that used by the
NYSE. In some cases the Dutch requirement is more stringent, such as by
requiring a longer look back period for executive directors. In other cases,
the NYSE rule is stricter. For example, directors of a listed company who are
affiliated with a direct or indirect parent company are considered independent
under Dutch law, whereas controlled companies are exempt from the requirement
to have a majority of independent directors under the NYSE rule. In general we
believe that our corporate governance practices are consistent in principle
with those required of U.S. companies listed on the NYSE. A voluntary Dutch code on corporate governance was published on December 9,
2003. The Management Board and Supervisory Board, who are responsible for our
corporate governance structure, believe that the majority of the codes best
practice provisions are already being applied. As suggested by the code,
however, we are currently evaluating any adjustments to our corporate
governance structure needed to comply with the new recommended practices. We
expect that our corporate governance structure will, in part, be modified over
the course of 2004 to reflect these new recommendations. Such
modifications may affect the extent to which our corporate governance practices
compare to NYSE listing standards. Compensation We paid our current managing directors approximately $4.3 million as a group in
2003. The managing directors also received benefits that we provide to all
employees, which are comprised of group life and medical insurance, pension and
retirement programs. We set aside approximately $1.0 million out of the total
compensation paid in 2003 to provide pension, retirement or similar benefits
for our managing directors. The following table summarizes the amounts paid to our Managing Directors in
2003: Payment fromDirector
    
    Base Salary
    
    Bonuses
    
    Trust
    
    Severance
    
    OtherDaniel Caclin
    
    $
    511,802
    
    
    $
    175,879
    
    
    
    
    
    
    
    Jacques
Kerrest
    
    $
    215,385
    
    
    $
    100,000
    
    
    
    
    
    
    
    Howard Ford
    
    $
    459,440
    
    
    $
    156,209
    
    
    $
    300,947Didier
Delepine
    
    $
    466,667
    
    
    $
    320,000
    
    
    $
    797,773
    
    
    $
    3,166,375
    
    
    997,743John Allkins
    
    $
    206,001
    
    
    $
    304,946
    
    
    $
    299,561
    
    
    $
    1,058,271
 Two of our managing directors, Mr. Delepine, our former Chief Executive Officer
and Mr. Allkins, our Chief Financial Officer resigned in 2003 and opted for the
severance packages associated with the change of control clauses in their
respective employment agreements. These directors were entitled to a maximum
severance package of 24 to 26.7 times monthly earnings as compensation,
immediate vesting of all options and 12-24 months of health care upon
termination of employment at our request. The cash compensation was due and
payable within 30 days of the termination. Mr. Delepine, who resigned in
August 2003, was paid $466,667 pro rata salary for 2003, $320,000 in bonus and $3,166,375 in
severance. Mr. Delepine was paid a salary adjustment of $200,000
for 2002, bonus of $464,656 for 2003 and deferred compensation of
$333,087. Mr. Allkins, who resigned in June 2003, was paid
$206,001 pro rata salary for 2003,
$304,946 in bonuses and $1,058,271 in severance. In 2003, we decided to make a discretionary payment from a trust whose
beneficiaries are employees who received share awards in connection with the
initial public offering of our shares. Messrs. Delepine, Allkins and Ford
received $797,773, $299,561 and $300,947 respectively from the trust. In 2003, our shareholders approved a compensation package, which provides for
an annual taxable retainer of $45,000 and a taxable attendance fee of $2,000 per
meeting plus expenses for independent Supervisory Board directors only. We
paid approximately $0.2 million to our Supervisory Board directors as a group
in 2003. All other directors are eligible to receive an annual taxable
retainer of $25,000 and an attendance fee of $2,000 per meeting plus expenses.
Where intercontinental travel is required to attend a meeting, an additional
meeting fee of $2,000 is provided. Supervisory Board directors who are also
employees of France Telecom have declined to accept the retainer and meeting
fees. At the annual general meeting of shareholders in April of 2004,
the shareholders voted to make the 2003 Supervisory Board
compensation package applicable to all directors. In addition, the independent Supervisory Board directors are issued
options valued at two times their annual retainer. The independent Supervisory
Board Directors who served during 2003 received 75,974 options (at a weighted
average price of 4.46). For more detail on the options granted to our
managing directors and supervisory directors, see   Share Ownership.
 95




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Share Option Plans Since 1995, we have had an employee share award plan for the benefit of
eligible employees of Equant, SITA and the Joint Venture Entity. Under the
terms of this plan, November 1998 was the cut-off date for determining general
eligibility for awards. We made awards to our former Managing Directors of an
aggregate of approximately 602,715 shares under this plan. In 2001, this Plan
was split into two separate plans and, SITA and Equant established individual
trusts for the assets previously in the combined trust. There were no grants
made from the Equant Trust under the Share Award Plan in 2003. We adopted a share option plan in 1998 for our employees, including our
executives and senior management. The Option Plan provides that we may grant
options and awards of shares covering up 5% of our shares, which the
Supervisory Board has further limited to 11,000,000 shares. As of December 31,
2003, there were approximately 7,815,390 options outstanding. We made the first
of these grants effective July 21, 1998 to all eligible employees at an
exercise price of $27.00. Since then, we have granted further options on
several occasions to our managing directors and other executive officers,
supervising directors and other employees. The exercise prices for our grants
of options under the Option Plan through September 15, 1999 were no less than
the average price of our shares on the New York Stock Exchange over the five
trading days preceding the grant date, in accordance with the original
definition of exercise price. We have amended the terms of the Option Plan,
as implemented in various countries, to provide that the exercise price for
subsequent grants can be no less than the average price of our shares on the
New York Stock Exchange or Euronext Paris on the date the Management Board
selects. However, with respect to newly hired employees, including employees of
LNOs that SITA may transfer to us or of any businesses we might acquire, we
generally periodically set an exercise price for options we will grant during a
certain period, or exceptionally, we may specify an exercise price for options
granted in the hiring agreement for a newly hired employee. This may lead us to
recognize additional compensation costs relating to these grants depending on
our share price at the time of grant. In some countries we have adopted a
phantom plan based on our share price, rather than an actual share option
plan. The phantom plan is designed to approximate for our employees the
incentives of owning share options without involving the actual transfer of
options or shares. No further benefits were established under the phantom plan
following completion of the France Telecom transactions. We have the right to
issue and sell shares to meet the costs of the phantom plans. We may award
additional options under our share option plans in the future. In 2003, we granted 200,000
options at
6.45 to
Jacques Kerrest and 88,000 options to senior management and other employees (at a
weighted average price of 7.14). Employees We had 9,547 employees at December 31, 2003. The following table shows, at the dates indicated, our employees by
function: 2000
    
    2001
    
    2002
    
    2003Direct
    
    
    2,808
    
    
    
    7,159
    
    
    
    6,405
    
    
    
    5,856Selling, general
and administrative
    
    
    1,592
    
    
    
    4,099
    
    
    
    3,727
    
    
    
    3,691Total
    
    
    4,400
    
    
    
    11,258
    
    
    
    10,132
    
    
    
    9,547
 In addition to the full-time employees referred to above, we had 560
contractors and temporary staff as of December 31, 2003. As of
April 30, 2004, we had 9,306 employees and 540 contractors and temporary staff. The full
time employees are globally dispersed with approximately 2,700 in North
America, 1,230 in Asia Pacific and 5,600 in Europe, Middle East and Africa.  96




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Share Ownership None of our supervisory directors or managing directors beneficially owns, on
an individual basis, shares representing 1% or more of our issued and
outstanding share capital. As of December 31, 2003, our managing and
supervisory directors held the following stock options: Expiry Date
    
    Number of Shares
    
    Exercise PriceJuly 21, 2008
    
    
    131,704
    
    
    $
    27.00October 15, 2008
    
    
    1,346
    
    
    $
    37.14March 25, 2009
    
    
    110,000
    
    
    $
    82.06May 25, 2010
    
    
    2,716
    
    
    $
    36.83May 10, 2011
    
    
    3,568
    
    
    $
    28.03July 20, 2011
    
    
    24,304
    
    
    $
    14.40March 26, 2012
    
    
    400,000
    
    
    
    13.12April 1, 2012
    
    
    30,982
    
    
    
    12.88May 22, 2012
    
    
    6,560
    
    
    
    8.62July 23, 2012
    
    
    1,200,000
    
    
    
    13.12July 23, 2012
    
    
    1,000,000
    
    
    
    30.00March 31, 2013
    
    
    75,974
    
    
    
    4.46June 8, 2013
    
    
    200,000
    
    
    
    6.45
 
 Item 7. Major Shareholders and Related Party Transactions MAJOR SHAREHOLDERS As of December 31, 2003, we had 282,813,764 ordinary shares outstanding and
10,000,000 convertible preference shares outstanding. During the year, we
issued 33,340 ordinary shares in respect of share options that were exercised.
To our knowledge as of April 30, 2004, France Telecom owned approximately
52.51% of our ordinary shares, and public shareholders held 47.49% of our
ordinary shares. The following table shows
information as of April 30, 2004 on the ownership of our shares. Percent ofTitle of Class
    
    Identity of Person or Group
    
    Number Owned
    
    Class/VoteConvertible
Preference Shares
    
    France Telecom
    
    
    10,000,000
    
    
    
    100
    %Ordinary Shares
    
    France Telecom
    
    
    148,567,348
    
    
    
    52.51
    %
 As of December 31, 2003, the Government of the Republic of France controlled
directly or indirectly 54.53% of the voting share capital of France Telecom
S.A. As of December 31, 2003, we had 190 U.S. shareholders of record. U.S.
shareholders of record as of that date held a total of 3,529,009 of our
ordinary shares. This number of shares is based on information from our share
register and may not represent the actual number of shares beneficially held by
U.S. persons. Significant changes in share ownership Immediately following our initial public offering in July 1998, the SITA
Foundation owned approximately 59.6% of our issued ordinary shares. The SITA
Foundation sold ordinary shares in public offerings in February 1999 and
December 1999. Immediately following the December 1999 offering, the SITA
Foundation owned approximately 34% of our issued ordinary shares. 97




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On November 19, 2000, we entered into a Contribution Agreement with France
Telecom and Atlas as part of a wider set of separate but interrelated
transactions. On completion of these transactions on June 29, 2001, France
Telecom acquired a controlling interest in us. Upon execution of numerous
contracts among France Telecom, SITA SC, and SITA INC. and us:  
    
    We acquired 100% of Global One in exchange for 80,617,348 newly issued Equant shares; and
    
    France Telecom, through Atlas, subscribed for 10 million newly issued Equant convertible preference shares for $1 billion in cash and acquired the SITA Foundations 67,950,000 shares in
Equant in exchange for 30,886,364 existing France Telecom shares. Each convertible preference share has the same voting rights as one ordinary
share and automatically converts into one new ordinary share on June 29, 2006.
See Item 10. Additional Information  Material Contracts  Description of
Contribution Agreement. Under Annex 6 of the Contribution Agreement, France Telecom and any of its
affiliates are prohibited from purchasing any more of our shares in the next
five years, if such a purchase would result in beneficial ownership of 70% or
more of our shares. France Telecom is generally prohibited from selling more
than an aggregate of 25% of our shares between June 29, 2002 and June 29, 2005. RELATED PARTY TRANSACTIONS On June 29, 2001, as part of the France Telecom Transactions, we agreed to a
framework for a series of new arrangements, which replaced the existing
SITA-Equant joint venture agreement. The new arrangements with SITA were
originally signed on June 29, 2001, and finalized pursuant to respective Errata
Amendments on November 30, 2001 and, as described below, address all major
aspects of our relationship with SITA. We have also entered into a series of
agreements detailing the contractual basis for France Telecoms supply of a
variety of services to us and for our purchase of transmission capacity from
France Telecom. These arrangements will continue with France Telecom for so
long as France Telecom maintains at least 34% of ownership of our outstanding
shares. Most of the activities governed by the contracts with France Telecom,
its affiliates and SITA are largely administrative and not individually
material. Our Relationship with SITA On June 29, 2001, we terminated the Joint Venture Agreement with SITA and
replaced it with (i) the Strategic Relationship Umbrella Agreement, (ii) the
Network Services Agreement and (iii) the Transition and Management Agreement.
See Item 10. Additional Information  Material Contracts for summaries of the
Strategic Umbrella Agreement, Network Services Agreement and Transition and
Management Agreement. We have also entered into an account management agreement
with SITA. English law governs all of these agreements. Under the new
arrangement with SITA, we control and manage the Network and provide on a
preferred basis our portfolio of products and services to SITA, who delivers
those services globally to airlines, airports, companies in the aerospace
industry, companies in the airline computerized reservation systems, travel
agents and companies whose principal business is the distribution of air
travel, aviation organizations, the airfreight business and certain other
customers. Our Relationship with France Telecom Commercial Relationships Between France Telecom And Us With Respect To End User
Customers On June 29, 2001, we entered into numerous agreements with France Telecoms
subsidiary, Transpac. The Umbrella, Affiliation and Reseller Agreements
summarized below together govern the commercial relationship between Transpac
and us in France. These agreements establish the terms and conditions that
govern the joint business planning and monitoring process between Transpac and
us (with the exception of voice, the carrier business, and calling card
services). We have also entered into agreements with Transpac on particular
hosting, sales, service and trademark licensing arrangements consistent with
the Umbrella, Affiliation and Reseller Agreements. The Transpac Umbrella Agreement The Transpac Umbrella Agreement establishes the overall scope of our
relationship with Transpac and covers the supply of all data products. Transpac
cannot sell to SITA or Radianz within their respective markets, but Transpac
has exclusive rights either to resell our services in France or to act as an
agent for the provision of existing products to our existing customers in
France. Transpac cannot sell outside France except under the terms of the
Global Account Management program. Each year Transpac must commit to aggregate
revenue commitments in the form of minimum revenue guarantees. Such commitments
are a key condition to our grant of various marketing and resale rights within
France to Transpac. 98




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We have agreed with France Telecom and Transpac to establish a steering
committee that is in charge of the execution of the various agreements
contemplated in the Transpac Umbrella Agreement and to resolve any disputes. We are entitled to terminate any of the agreements contemplated by the Transpac
Umbrella Agreement if France Telecoms interest in our voting shares falls
below 34%. The Affiliation Agreement We entered into the Affiliation Agreement with Transpac to provide Transpac
with the exclusive right of resale of certain of our products within France and
to appoint Transpac as our exclusive supplier of certain products for corporate
customers within France. The Reseller Agreement We entered into the Reseller Agreement with Transpac to provide Transpac with
the exclusive right of resale of some of our products within France as detailed
in the Agreement. Transpac may only sell our products to customers other than
our existing customers in France, and any Transpac sales to our existing
customers in France require our prior, written consent. Although Transpac has
reserved the right to establish retail prices at which it may market and sell
our products in France, it may not alter the global pricing structure for our
products. The Reseller Agreement will expire when all of our products have been
converged with products offered by the former Global One. The Voice Distribution Agreement While the above Transpac Umbrella Agreement covers the supply of our
international data services to customers located inside of France, it does not
cover voice. In 2002, we entered into a Voice Distribution Agreement whereby
France Telecom sells to customers located in France our international voice
product. We sell the voice product to France Telecom at a wholesale price. See
Exhibits 12 and 13. Commercial Relationships Between France Telecom And Us with Respect To End User
Customers Outside of France The Contribution Agreement governs the supply of commercial services outside of
France. We have signed a Cross Sales Agreement with France Telecom Long
Distance that allows the parties to resell each others services. The list of
products to be resold is to be agreed from time to time. Commercial Relationships Between France Telecom and Us With Respect to the
Network France Telecom supplies transmission capacity and IP capacity services to us
consistent with our obligations to purchase from them under certain
circumstances. The purchase obligations are subject to France Telecoms
competitiveness with respect to financial, and quality of service criteria. The
purchase obligation applies only to certain countries and the pricing is
established using a benchmarking process. We also provide transmission capacity
and IP services to France Telecom in countries in which it does not have a
presence. In addition, we may also supply ancillary support services such as
installation, trouble shooting, help desk, field operations, maintenance,
equipment and circuit procurement, among other services. These services are
provided on a cost reimbursement basis. For further details on pricing see
Item 10. Additional Information -Material Contracts. We provide human
resources support in the form of dedicated staff made available to France
Telecom to support their activities outside of France. We provide information
systems support in the form of access to and support of various information
systems of interest to France Telecom. These services are provided on a cost
reimbursement basis. These commercial relationships will continue under varying
terms so long as France Telecom continues to own at least 34% of our
outstanding shares. 99




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Supply of Carrier Services to Carriers Business Outside France, we distribute France Telecoms telecommunications services for
other carriers pursuant to distribution agreements originally entered into
between France Telecom and Global One. We agreed with France Telecom to
terminate these agreements by the end of 2002 France Telecom has established
subsidiaries in various countries to operate its carrier business. France
Telecom has requested that we continue to act as its distributor in a few
countries and we are in the process of finalizing new arms length distribution
agreements with standard commercial terms. The prices in these agreements will
date back to January 2003. Our agreement with France Telecom requires them to
keep us financially neutral with respect to this business. Voice Services As prescribed by the Contribution Agreement, we signed a Memorandum of
Understanding with France Telecom at Closing pursuant to which we transferred
the operation, management and financial responsibility for the switched voice
business and the switched voice platform, both of which we acquired in the
merger with Global One, over to France Telecom. The Voice Memorandum of
Understanding contemplated the execution of definitive agreements consistent
with the form of agreements annexed to the Voice Memorandum of Understanding.
These agreements have now been completed. The Agreement for the Supply of Voice
Services provides for the supply by France Telecom to us of commercial voice
services for onward supply to our multinational customers. The Miscellaneous
Voice Services Agreement requires us to supply France Telecom the operational
services that support the voice network globally. Pricing under the latter
agreements is on a cost-plus basis. Pricing under the former agreement is
established pursuant to a joint business plan, which takes our respective usage
and develops a wholesale transfer price, and has the result of transferring the
costs of this voice business to France Telecom. Although we continue to
develop a range of voice solutions such as voice-over IP, we will continue to
maintain our existing voice network. 
 Item 8. Financial Information CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION For our Consolidated Statements and Other Financial Information, see Item 18.
Financial Statements. Legal Proceedings From time to time we have been, and we expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business. We are not
currently aware of any legal proceedings or claims that we believe will have,
individually or in the aggregate, a material adverse effect on our business,
financial position or results of operations. Dividend Policy We have not, to date, paid any dividends on our shares. We expect that we will
retain all available funds for use in the operation and expansion of our
business, and we do not anticipate paying cash dividends in the foreseeable
future. If we declare dividends in the future, we may do so either in Euros or U.S.
dollars. In the event that we declare dividends in Euros, the amount of U.S.
dollars realized by shareholders will vary with the rate of exchange between
U.S. dollars and Euros, as the case may be. See Item 10. Additional
Information  Memorandum and Articles of Association. SIGNIFICANT CHANGES There are no material developments to report since December 31, 2003. 100




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Item 9. The Offer and Listing COMMON SHARE PRICE RANGE Our ordinary shares have been listed on the New York Stock Exchange under the
symbol ENT and on the Paris Stock Exchange (Euronext Paris) under the
symbol EQU (Euroclear France code: 12701) since our initial public offering
in July 1998. The following table sets forth the high and low closing prices of
the ordinary shares as recorded on the New York Stock Exchange Composite Tape
and the high and low closing price in Euros for our shares for the quarters and
months indicated. High
        
        Low
        
        High
        
        LowNew York Stock Exchange
        
        Euronext ParisPrice per Share
        
        Price per Share(in dollars)
        
        (in Euros)(1)1999
        
        $
        112
        
        
        $
        69
        1/2
        
        
        115.50
        
        
        
        60.002000
        
        $
        126
        9/16
        
        $
        23
        13/16
        
        
        128.90
        
        
        
        27.402001
        
        $
        31.88
        
        
        $
        7.86
        
        
        
        34.10
        
        
        
        8.25First Quarter 2002
        
        $
        12.90
        
        
        $
        8.02
        
        
        
        14.47
        
        
        
        9.13Second Quarter 2002
        
        $
        11.23
        
        
        $
        4.41
        
        
        
        12.93
        
        
        
        4.50Third Quarter 2002
        
        $
        7.45
        
        
        $
        2.43
        
        
        
        7.70
        
        
        
        2.39Fourth Quarter 2002
        
        $
        5.89
        
        
        $
        2.35
        
        
        
        5.89
        
        
        
        2.34First Quarter 2003
        
        $
        6.49
        
        
        $
        4.49
        
        
        
        5.74
        
        
        
        4.31Second Quarter 2003
        
        $
        7.50
        
        
        $
        4.76
        
        
        
        6.45
        
        
        
        4.47Third Quarter 2003
        
        $
        8.25
        
        
        $
        6.10
        
        
        
        7.35
        
        
        
        5.54October 2003
        
        $
        9.59
        
        
        $
        7.64
        
        
        
        8.06
        
        
        
        6.48November 2003
        
        $
        9.09
        
        
        $
        8.31
        
        
        
        7.57
        
        
        
        7.13December 2003
        
        $
        9.14
        
        
        $
        8.45
        
        
        
        7.61
        
        
        
        6.85January 2004
        
        $
        11.05
        
        
        $
        9.31
        
        
        
        8.95
        
        
        
        7.34February 2004
        
        $
        11.15
        
        
        $
        10.16
        
        
        
        8.80
        
        
        
        8.20March 2004
        
        $
        10.34
        
        
        $
        8.65
        
        
        
        8.39
        
        
        
        7.10April 2004
        
        $
        9.73
        
        
        $
        7.33
        
        
        
        7.95
        
        
        
        6.20May 2004
(through May 10,
            2004)
        
        $
        7.42
        
        
        $
        6.52
        
        
        
        6.20
        
        
        
        5.40
 MARKET INFORMATION General Our ordinary shares are listed on the New York Stock Exchange and the Euronext
Paris. Euronext Paris Euronext Paris is a self-regulatory organization that oversees the operation of
regulated markets, including the admission of financial instruments. It is
responsible for supervising the trading of listed securities on French stock
exchanges and publishing a daily official price list that includes price
information concerning listed securities. Euronext Paris has introduced
continuous trading during trading hours by computer for most listed securities. 101




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Securities approved for listing by Euronext Paris are traded on one of three
markets. The securities of most large companies are listed on the Premier
Marché, and the Second Marchéis available for small-and medium-sized
companies. Securities may also be traded on the Nouveau Marché, a regulated
electronic market designed primarily for small capitalization and start-up
companies. The Premier Marché, the Second Marchéand the Nouveau Marchéare
operated and managed by Euronext Paris. Our ordinary shares are traded on the
Premier Marché. Official trading of listed securities on the Premier Marché of Euronext Paris
is transacted through investment service providers that are members of Euronext
Paris and takes place continuously on each business day from 9:00 a.m. through
5:25 p.m. (Paris time), with a pre-opening session from 7:15 a.m. through 9:00
a.m. and a post closing session from 5:25 p.m. to 5:30 p.m. (during which
transactions are recorded but not executed until the next opening auction at
9:00 a.m. or closing auction at 5:30 p.m.) Any trade effected after the close
of a stock exchange session is recorded on the next Euronext Paris trading day,
at the closing price for the relevant security at the end of the previous days
session. Euronext Paris places securities listed on the Premier Marché in one of two
categories, depending on their trading volumes. Our shares trade in the Continu
category, which includes the most actively traded securities. Euronext Paris
automatically restricts trading in a security listed in the Premier Marchéin
the Continucategory upon entry in the central order book of an order likely to
result in a trade being executed at a price exceeding the specific price limits
defined by its regulations. In particular, trading is automatically restricted
in a security whose quoted price varies by more than 10.0% from the last price
determined in an auction or by more than 2.0% from the last traded price. If
the order that has caused the restriction is not confirmed within the following
minute, the trading of this security resumes. If the order is confirmed, an
auction is organized after a call phase of four minutes, during which orders
are entered in the central order book but not executed. Euronext Paris may also suspend trading of a security listed on the Premier
Marchéin certain other limited circumstances, including, for example, the
occurrence of unusual trading activity in the security. Trades of securities listed on the Premier Marchéof Euronext Paris are
generally settled in cash (marché au comptant). However, allowance is made for
investors wishing to settle later, since intermediaries offer a Deferred
Settlement Service (Service á Règlement Différé or SRD)for a selection of
stock. Our ordinary shares are eligible for Deferred Settlement orders. In this
system, the transfer of ownership to or from the investor takes place on the
date of settlement, which is the last business day of the month. The deferred
settlement account closes five business days before the end of the calendar
month. When a stock goes ex-dividend between the day of the trade and
settlement day, buyers are not entitled to the related tax credit since they
only acquire ownership at the end of the month. Individual investors may,
provided their intermediaries agree, roll their positions over from one month
to the next on the basis of a referencing price published by Euronext Paris
each month. In the event of a public tender offer, it will not be possible to
place deferred settlement orders for the stock concerned as long as the offer
remains open. A fee is charged for the deferred settlement orders: as with all
other fees, intermediaries set the applicable rate freely, without the
intervention of market authorities. Finally, intermediaries are entitled to
refuse deferred settlement orders, whether to buy or to sell. 
 Item 10. Additional Information MEMORANDUM AND ARTICLES OF ASSOCIATION We were incorporated under the laws of The Netherlands as a public limited
liability company (naamloze vennootschap)by deed dated March 3, 1995, as
amended and restated effective the closing date of our initial public offering
on July 23, 1998. The Articles of Association were further amended and restated
on June 29, 2001. We have our corporate seat in Amsterdam, The Netherlands,
with our principal executive offices at Heathrowstraat 10 1043CH Amsterdam. We
are registered under no. 33267383 with the trade register at the Chamber of
Commerce in Amsterdam, The Netherlands. Certain provisions of our Articles of
Association and certain provisions of Dutch law are summarized below. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the Articles of Association and such law. 102




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Objects Our objects are set forth in Article 3 of the Articles of Association and
entail:  (a)
    
    holding, co-ordinating and managing various interests in the capital stock of
various companies worldwide engaged in the business of selling various
telecommunications services, developing and selling various computer software
products, providing various telecommunications equipment, maintenance and other
related services, and to coordinate and supervise their world-wide management;(b)
    
    undertaking all financial operations and in particular to acquire, dispose of, or
exchange shares and other securities in any commercial, industrial or financial
company, to hold all or part of the capital stock or to own a controlling interest
in various companies and whenever necessary to supervise their management, to
borrow and lend money and to guarantee or grant security in relation to the
obligation of others, to make deposits and establish and carry out all forms of
banking relationships; and to enter into and perform all ancillary agreements and
arrangements for any such purpose;(c)
    
    establishing commercial direction and policy for the various companies described in
subclauses (a) and (b), to provide all forms of management services and to appoint
their management; and(d)
    
    undertaking any action or operation in direct or indirect relation with our objects. Certain Powers of Directors If a managing director, acting in his personal capacity, enters into an
agreement with us or conducts any litigation against us, we may be represented
in that matter either by our Management Board or the other managing directors,
or by a supervisory director to be designated by the Supervisory Board, all the
foregoing unless the general meeting of shareholders designate a person for
that purpose of the law provides for the designation in a different manner.
Such person can also be the managing director with whom there is the conflict
of interest. If a managing director has a conflict of interest with us other
than as referred to in the second preceding sentence, he shall, like the
Management Board or the other managing directors, have the power to represent
us, with due observance of the provisions of our Articles of Association. Among other restrictions, our Management Board may not undertake, propose, or
adopt resolutions, without a resolution or approval by the Supervisory Board
with respect to the entering into:  (i)
    
    any loan agreement,(ii)
    
    incurrence of indebtedness for borrowed money or the guarantee or
granting of any other form of security for the indebtedness of
others, if the relevant transaction is material within the meaning
of the Articles of Association; provided that no such resolution or approval shall be necessary for the
entering into of any loan agreement, incurrence of indebtedness for borrowed
money or the guarantee of or granting any other form of security for the
indebtedness issued to others in exchange for, or the proceeds of which are
used to extend, refinance, renew, replace or refund, any such loan agreement,
indebtedness, guarantee or security in existence on June 29, 2001 and provided,
further, that any such refinancing, renewal, replacement or refund shall not
increase the principal amount of the related indebtedness. Retirement: Members of the Supervisory Board No supervisory director may be 68 years of age or older and each supervisory
director must resign from office no later than on the day on which the annual
general meeting shareholders is held in the financial year in which he becomes
68 years of age. 103




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Dividends We will add the profits made in any financial year to the reserves, unless the
general meeting of shareholders determines otherwise in accordance with the
Articles of Association. Out of our share premium reserve and other reserves
available for shareholder distributions under Dutch law, the general
meeting of shareholders may declare distributions, upon the proposal of the
Management Board and the approval of the Supervisory Board. We may not pay
dividends if the payment would reduce shareholders equity below the paid-up
portion of the share capital, plus the reserves statutorily required to be
maintained. With the approval of the general meeting of shareholders, upon the
proposal of the Management Board and subject to the approval of the Supervisory
Board, we may pay out interim dividends, subject to certain provisions of Dutch
law. We may resolve to pay a dividend in whole or in part in the form of shares
or other assets. Dividends which have not been claimed five years and two days
after becoming payable shall be forfeited to our benefit. We have not, to date, paid dividends in respect of our shares. At present, we
expect that we will retain all available funds for use in the operation and
expansion of the business, and we do not currently anticipate paying cash
dividends in the foreseeable future. In the event that dividends are declared,
however, we expect that we would pay such dividends either in Euros or U.S.
dollars, although we may declare dividends in other currencies. In the event
that we declare dividends in Euros, the amount of U.S. dollars realized by
shareholders will vary with the rate of exchange between U.S. dollars and
Euros. We will pay cash dividends to holders of our shares of Dutch Registry to
the Dutch Transfer Agent and Registrar who will, if necessary, convert such
dividends into Euros, at the rate of exchange on the date such dividends are
paid, for disbursement to such holders. We will pay cash dividends to holders
of our shares of New York Registry to the New York Transfer Agent and
Registrar, who will, if necessary, convert such dividends into U.S. dollars at
the rate of exchange on the date such dividends are paid, for disbursement to
such holders. We will pay dividends on our shares held in registered form to
the person in whose name those shares are registered as of the relevant record
date. Accordingly, so long as a holder elects to hold his or her shares in
book-entry form through the Depository Trust Company (DTC) or Euroclear
France S.A. (Euroclear France), such holder will receive any dividends
through DTC or Euroclear France, and must rely on the procedures of those
organizations to receive such dividends or to enforce any other rights that he
or she may have as a shareholder. Shareholder Meetings and Voting Rights Each shareholder has the right to attend general meetings of shareholders,
either in person or represented by a person holding a written proxy, to address
shareholder meetings, and to exercise voting rights, subject to the provisions
of the Articles of Association. Our annual general meeting of shareholders must
be held within six months after the close of each financial year, in Amsterdam,
Rotterdam, The Hague or in the municipality of Haarlemmermeer (Schiphol
Airport), The Netherlands. We hold extraordinary general meetings of
shareholders as often as the Supervisory Board or the Management Board deems
necessary, or upon the written request of France Telecom or one or more
shareholders representing not less than 10% of our shares to the Management
Board specifying in detail the matters to be addressed at the meeting. We give notice of each meeting of shareholders by mail to registered holders of
our shares and other persons who by law are entitled to attend meetings, at the
address of each shareholder or other person as set forth in the shareholder
register. Alternatively, we may publish notice thereof in a daily distributed
newspaper in The Netherlands and in an internationally distributed financial
daily periodical of international repute and in such other manner as may be
required to comply with the rules of any securities exchange on which our
shares are listed or any automated quotation system on which our shares are
quoted, not later than four weeks prior to the meeting. We are exempt from the
proxy rules under the Exchange Act. Euroclear France will provide notice of
general meetings of shareholders to, and compile voting instructions from,
holders of our shares held directly or indirectly through Euroclear France. The
New York Agent provides notice of general meetings of shareholders to, and
compiles voting instructions from, holders of our shares held directly or
indirectly through DTC. Voting instructions compiled by Euroclear France will
be remitted to the Dutch Transfer Agent and Registrar (as defined herein). The
New York Agent and the Dutch Transfer Agent and Registrar will vote our shares
held by them according to such instructions. In order for holders of our shares
held directly or indirectly through Euroclear France to attend general meetings
of shareholders in person, such holders must withdraw their shares from
Euroclear France and have such shares registered directly in their name or in
the name of their nominee. In order for holders of our shares held directly or
indirectly through DTC to attend general meetings of shareholders in person,
such holders need not withdraw such shares from DTC but must follow rules and
procedures established by the New York Agent. Holders of our shares in bearer
form must deposit those shares as specified in the published notice. It may be
difficult for shareholders holding shares in book-entry form to deliver voting
instructions to us. 104




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Each share is entitled to one vote. Unless otherwise required by the Articles
of Association or Dutch law, resolutions of general meetings of shareholders
require the approval of an absolute majority of the votes cast. For a
description of voting rights relating to directors, see Item 6. Directors,
Senior Management and Employees- Supervisory Board. Adoption of Annual Accounts and Discharge of Management Liability The Management Board must prepare our annual accounts within five months after
the end of each fiscal year (unless the general meeting of shareholders has
extended this period by a maximum of six additional months by reason of special
circumstances). Within six months after the end of such financial year (or
within such additional time), the Management Board shall present the annual
accounts to the general meeting of shareholders, together with the advice it
has received thereon from the Supervisory Board and accompanied by the annual
report. At the General Meeting of Shareholders at which it is resolved to adopt the
financial statements, it shall be separately proposed to release the Managing
Directors and the Supervisory Directors from liability for the performance of
their respective duties, insofar as the performance of such duties is reflected
in the financial statements and/or the annual report. The scope of a release
from liability is subject to limitations by law. Article 20 of our Articles contains provisions with regard to the
indemnification by the Company of current and former members of the Supervisory
Board and Management Board and other persons. Pursuant to these provisions, we
shall indemnify the foregoing persons against certain expenses and other costs.
Any indemnification by us shall (unless otherwise ordered by a court) only be
made upon our determination that indemnification of the relevant person is
proper in the circumstances because the applicable standard of conduct was not
violated. Liquidation Rights In the event of our dissolution and winding up, the assets remaining after
payment of all liabilities shall be distributed among the shareholders in
accordance with the Articles of Association. Issue of Shares; Preemptive Rights Unless limited or excluded by the general meeting of shareholders or the
Management Board as described below, each holder of shares has a pro rata
preemptive right to subscribe for any newly issued shares in Equant, unless
payment must be made other than in cash. The general meeting of shareholders has the power to issue shares and to
determine the terms and conditions of share issuances. The general meeting of
shareholders may also authorize the Management Board, for a period of no more
than five years, to issue shares and to determine the terms and conditions of
share issuances. Any such authorization shall specify the number of shares that
may be issued. Any issuance of shares by the Management Board is subject to the
approval of the Supervisory Board. As long as this power is vested in the
Management Board, the general meeting of shareholders shall neither have the
power to issue shares nor the power to determine the price, conditions or times
of the issuance. The general meeting of shareholders also has the power to limit or exclude
preemptive rights in connection with new issuances of shares, and may authorize
the Management Board, for a period of no more than five years, to limit or
exclude preemptive rights (if the Management Board has been simultaneously
designated as having the authority to issue shares). The Management Board has
been delegated the power to issue shares, and to grant share options and rights
to acquire shares, and to restrict or exclude preemptive rights, in each case
subject to the approval of the Supervisory Board, until July 31, 2003. 105




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Acquisition of Shares We may acquire shares in our own share capital, subject to certain provisions
of Dutch law and of our Articles of Association, if (i) the general meeting of
shareholders has given the Management Board authorization to do so (which
authorization shall be valid for no more than 18 months, and shall specify the
number of shares that may be acquired and the permitted price range); (ii) our
shareholder capital, reduced by the acquisition price, is not less than the sum
of the paid and called-up share capital and the reserves to be maintained pursuant to Dutch law or the Articles of Association;
and (iii) the par value of the shares that we and our subsidiaries already hold
does not exceed one-tenth of our issued share capital. Shares that we hold may
not be voted and may not participate in any distribution of profits or
distribution of surplus assets after liquidation. Cancellation of Shares By resolution of the general meeting of shareholders, we may cancel shares that
we hold, provided that the cancellation may not cause the paid up portion of
the share capital to be reduced to less than one-fifth of the authorized
capital, and subject to certain statutory provisions. Amendment of the Articles of Association The general meeting of shareholders may resolve to amend the Articles of
Association at the proposal of, or with the prior approval of, the Supervisory
Board. Disclosure of Holdings Under the Act of Disclosure of Holdings in Listed Companies 1996 (Wet melding
zeggenschap in ter beurze genoteerde vennootschappen 1996, the Disclosure of
Holdings Act 1996), any person who, directly or indirectly, acquires or
disposes of an interest in the capital or the voting rights of a public limited
liability company incorporated under Dutch law with an official listing on a
stock exchange within the European Economic Area must give a written notice of
such acquisition or disposal to that company and the Dutch Authority for the
Financial Markets (Autoriteit Financiele Makten), if as a result of such
acquisition or disposal the percentage of capital interest or voting rights
held by such person falls within another percentage range as compared to the
percentage range held by such person prior to such acquisition or disposal. The
percentage ranges referred to in the Disclosure of Holdings Act 1996 are 0-5,
5-10, 10-25, 25-50, 50-66 2/3 and over 66 2/3. Non-compliance with the obligations of the Disclosure of Holdings Act 1996
constitutes an economic offense, and may result in criminal sanctions. In
addition, a civil court can issue orders against any person who does not notify
or incorrectly notifies in accordance with the Disclosure of Holdings Act 1996,
including suspension of voting rights in respect of such persons shares. The insider trading rules under the 1995 Act on the Supervision of the
Securities Trade (Wet toezicht effectenverkeer 1995)create an additional
notification duty for shareholders holding, directly or indirectly, a capital
interest of more than 25% in a listed company. Such shareholders must notify
the Dutch Authority for the Financial Markets of any and all transactions from
or within the Netherlands that they carry out, directly or indirectly, in our
securities. If a more than 25% shareholder is a legal entity and not an
individual, the obligation is extended to the managing and supervisory board
members of the legal entity. The Dutch Authority for the Financial Markets can also impose administrative
penalties (bestuurlijke boetes en dwangsommen)in the event of a violation of
the Disclosure of Holdings Act and of the insider trading rules. Violation of
insider trading rules can also lead to criminal sanctions. Limitations on Right to Hold or Vote Shares There are currently no limitations imposed by Dutch law or by our Articles of
Association on the right of non-resident holders to hold or vote our shares. 106




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MATERIAL CONTRACTS The Contribution Agreement The Contribution.On November 19, 2000, we, France Telecom and Atlas entered
into the Contribution Agreement, pursuant to which Atlas contributed to us 100%
of the share capital of Global One, which was required to have net cash of not
less than $300 million. In return, we effected a capital increase and issued to
Atlas 80,617,348 new Equant ordinary shares. Prior to or as soon as practicable
following the closing, France Telecom was required to transfer out of Global
One certain existing businesses of Global One. As a result of these
transactions, we became the owner of Global Ones corporate data services
business. France Telecom has also undertaken to share with us certain
restructuring costs resulting from our combination with Global One. We describe these costs in
Item 5. Operating and Financial Review and Prospects  Overview Factors
Affecting our Business. In addition, Atlas subscribed for 10,000,000 new
Equant convertible preference shares for $1 billion cash. Each Equant
convertible preference share has the same voting rights as one ordinary share
and converts automatically into one Equant ordinary share on the fifth
anniversary of the closing of the transactions. Should any dividends be
declared on our ordinary shares, holders of our convertible preference shares
will receive a preferential dividend of 0.045 new Equant preference shares for
each Equant preference share, as well as the dividend per share paid on our
ordinary shares. Other Business Arrangements.Under the terms of the Contribution Agreement,
France Telecom and we have agreed to manage customer relationships as an
integrated group. Generally, we have account responsibility for multinational
corporations and other corporate customers outside France. France Telecom
generally has account responsibility for customers in France, and any
international data network services it provides to these customers are sourced
exclusively from us. Corporate Governance.Under the terms of the Contribution Agreement, for so
long as France Telecom and its affiliates in the aggregate beneficially own at
least 34% of our outstanding share capital, our Supervisory Board will consist
of, and be maintained at, nine members. For the first 18 months after closing,
five of these members were nominated by France Telecom, one was nominated by
the Foundation, one was nominated by the board of SITA as representative of the
air transport community and two were independent. As of December 2002, the
Foundation lost its right to nominate a Supervisory Board member, and three
members are now independent. Approval of the independent directors is required
before we can enter into any material contract, agreement or transaction with
France Telecom or any of its affiliates other than in the ordinary course of
business and on an arms length basis. Approval of the independent directors is
also required for the Supervisory Board to approve certain amendments to our
Articles of Association, as well as for us to pay dividends. Standstill: Transfer Restrictions.Under the Contribution Agreement, France
Telecom is generally prohibited from: (i) taking any action for five years from
the closing date that would result in its beneficially owning more than 70% of
our outstanding stock; (ii) selling or otherwise disposing of more than an
aggregate of 3% of the Equant shares during the first year after the closing
date or more than an aggregate of 25% of the shares during the three subsequent
years unless our independent directors approve, or shareholders can, or if the
transaction would combine us with another company and France Telecom would hold
at least 34% of the voting rights in the new entity; or (iii) for four years
after closing, knowingly causing or permitting any transaction or series of
related transactions that would involve the acquisition or accumulation of a
controlling interest in us by any party other than France Telecom, unless all
shareholders are accorded the same treatment as France Telecom. Indemnification.From and after the closing, and subject to certain
limitations, we, France Telecom and Atlas have agreed to indemnify and hold
harmless each other party to the Contribution Agreement for certain losses or
other claims arising from or in connection with any breach of warranty,
representation or other covenant or obligation under the Contribution Agreement
or for any untrue statement of material fact or omission to state a material
fact with respect to information provided by or concerning such party in
certain documents in connection with the transactions. Liability (for
indemnification or otherwise) with respect to a breach of any representation or
warranty is subject if true for each party to a minimum per-claim amount of $1
million and a deductible of $115 million. The aggregate liability of France
Telecom and Atlas for indemnification is capped at $1.5 billion, while our
liability for indemnification is capped at $3 billion. We have the option to
pay any net amounts we may owe France Telecom in respect of our indemnification
obligation in cash or, in certain circumstances, in new Equant ordinary shares. The Strategic Relationship Umbrella Agreement (Umbrella Agreement) On June 29, 2001, we signed the Umbrella Agreement with France Telecom, SITA
and SITA INC. to create a new strategic relationship among the parties with
respect to the network previously operated for both our and SITAs benefit. The
objective of the Umbrella Agreement is to ensure that SITA continues to enjoy
access to the Network and support services on a preferred basis so that it can
continue exclusively to deliver its services to the Air Transport Community.
Under the Umbrella Agreement, SITA has become our sole distributor to the air
transport community. 107




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We have established, as required by the Umbrella Agreement, a SITA Relationship
Team to address all of SITAs business needs. Moreover, so long as SITA uses us
as its exclusive supplier of network services, SITA can appoint one
representative to our Supervisory Board. The Umbrella Agreement became
effective on July 1, 2001 and will stay in effect so long as the Network
Services and the Transition and Management Agreements are in effect. To manage this new relationship, the Umbrella Agreement creates a joint
executive committee, comprised of three persons appointed by SITA and three
persons appointed by us, with the following specialized sub-committees: Product
Council, Network Planning Committee and Network Operations Performance
Committee. Our head of network operations must be a member of the Executive
Committee. The executive committee has overall authority to implement and
maintain the Umbrella, the Network Services and the Transition and Management
Agreements, including a significant role in the resolution of all disputes. If the Executive committee is unable to resolve a particular dispute, it is
referred first to our CEO and to the SITA Director General, then to a Board
Committee consisting of the Supervisory Board Chairmen of both Equant and SITA
with a third independent member appointed by the Chairmen. A failure to resolve
the dispute at the Board Committee level results in a referral to formal
binding ICC arbitration in London. Under the terms of the Umbrella Agreement, in the event of a change of control
of one of the parties resulting in that partys being controlled by a
competitor of the other party, the other party will have the right to terminate
the new agreement if the change of control jeopardizes its legitimate business
interests. In addition, in the event that France Telecom knowingly sells 5% or
more of our ordinary shares to a competitor of SITA, France Telecom and we have
agreed to cause that competitor to be bound by any non-solicitation provisions
contained in the agreement in respect of the sale to the air transport
community of our network services. Network Services Agreement General Principles.On June 29, 2001 we entered into a ten year Services
Agreement governed by English law, with SITA, and SITA Inc. requiring us to
provide to SITA all network services necessary for SITAs use or for resale to
the air transport community. Services.We have agreed to provide products and services to SITA consisting of
or, to a partial extent, comprising telecommunications carriage, as well as
certain support services and such other products or services as we and SITA may
agree to from time to time, and we have agreed to provide SITA the same generic
products and services that we offer to our other customers. All products and
services will be branded as SITA products when resold by SITA. Changes in the Scope of the Services.We have agreed with SITA to establish a
product council to make recommendations regarding the development of new
generic products and services and new SITA specific products and services. Upon our acceptance of a product council recommendation, we have agreed to fund
the full cost of the development of any new generic product or service. In the
event we reject the product councils recommendation, SITA may require us to
develop the product or service, but such product or service will be designated
as SITA specific, and the costs for the development of such products and
services shall be borne by SITA. Should we decide to market a SITA-specific product or service to a customer
other than SITA, we must pay SITA a negotiable fee. We may, in our sole
discretion, market a SITA-specific product or service as a standard product or
service across our customer base, but we must refund to SITA the entire cost of
development (or a portion thereof depending on the timing of our decision to
market the product or service). Network, Network Planning and Network Expansion.We have agreed to ensure and
provide continuity of network services in all countries and locations where
SITA provided network services to customers on July 1, 2001, for the duration
of our contract, which terminates on July 1, 2011. We may not make any proposed
change or take any action, which is likely to negatively affect the
functionality of the network services. 108




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We are responsible for funding the acquisition of all network assets used in
the operation and delivery of generic products and services, and we have agreed
to fund and maintain, at our own cost, these generic network assets necessary
to support the Network. Furthermore, we have agreed to fund and implement
certain expansions and modifications of the Network. SITA bears no
responsibility for funding expansions or modifications to the Network, for the
acquisition of any network assets or for the maintenance or routine development
of the Network. We have agreed to fund modifications or expansions to the Network recommended
by the network planning committee. We may, however, under certain
circumstances, refuse to fund such an action. If we fail to fund an action like this such that our failure constitutes a
breach of the Services Agreement, SITA may take such steps as are reasonably
necessary to provide the affected services to the Air Transport Community. If
we consent or if our failure to fund an action like this constitutes a material
breach of the Services Agreement as determined by the Executive Committee, SITA
retains the option, which we call step-in rights, to recover operational
control of sufficient network resources to provide its services to the Airport
Transport Community. These rights terminate once we fulfill our funding
obligation. Service Procedures. SITA and we have agreed that our chief executive officer
and the Director General of SITA SC will meet annually to review the overall
operation of the Services Agreement. Certain agreements existing between Global One and customers in the Air
Transport Community prior to the merger between Global One and us have now been
transferred to or assumed by us. With respect to some of these agreements,
including those agreements with annual revenues exceeding U.S. $100,000, we
have agreed to cooperate fully with SITA to either assign, novate or otherwise
transfer them at the earliest practical date. Confidentiality arrangements
prevented the disclosure of some of these agreements to SITA, and we approached
those customers to obtain their consent. Exclusivity and Non-Solicitation.For five years starting July 1, 2001 (the
Effective Period), we will be the exclusive supplier of network services to
SITA, and, subject to certain limited exceptions, SITA may not purchase network
services from any of our competitors without our prior written consent. Our exclusivity arrangements with SITA under the Services Agreement do not
preclude SITA Inc. or certain of its affiliates from conducting their normal
business activities or engaging in any other activity that may result in the
use of network services obtained from some provider other than us. During the Effective Period, we may not sell our network services to the air
transport community; but these non-solicitation obligations will terminate if
SITA ceases selling network services to the air transport community. During the Effective Period, SITA may not sell network services to customers
outside the air transport community. The exclusivity and non-solicitation
obligations apply only to the provision of network services and do not restrict
SITA or us from providing other services in any market sector or country. In the event of a material breach of the exclusivity or non-solicitation
obligations, the non-breaching party is entitled to terminate those obligations
by providing written notice and is entitled to monetary damages. Service Levels.We have agreed to provide the network services in accordance
with certain service levels and performance targets established in the Services
Agreement. Pricing. Individual services provided under the Services Agreement are
classified as priced services, exception priced services, standard cost
services and pass through services; a further categorization defines services
as cost-base or non-cost base services or as a SITA-specific product/service or
a generic product/service. We have agreed to provide the various network services at diverse price levels,
depending upon the classification of the service provided. The cost sharing
mechanism implemented and performed by SITA and us under the terms of the
previously existing Joint Venture Agreement has now been replaced by the
pricing procedures and classifications listed in the Services Agreement and the
Price Books annexed to that agreement. 109




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We and SITA have agreed that the forecast provided by either SITA SC or SITA
Inc. of its total expected revenues shall be based, in part, on the accuracy
and sufficiency of the historical data provided by us to SITA SC and SITA Inc,
and that SITA shall retain the right to initiate dispute resolution proceedings
to determine the accuracy and sufficiency of the historical data we have
provided. If we fail to meet the requirements for the integration and migration of SITAs
outsourcing arrangements, or we fail to meet the committed delivery date for
the provision of customer orders by more than sixty days, or if we fail to
perform satisfactorily and such failure results in the termination of a
contractual arrangement between SITA and one of its customers, such failure
shall be defined as an event of significant non-performance. In addition, the
implementation by SITA of any right under the Service Agreement to purchase
network services classified as a cost base service from a provider other than
us also constitutes an event of significant non-performance. Benchmarking.We and SITA have agreed to certain arrangements to compare the
prices of the network services provided by us with the prices set out in
comparable third party customer contracts and, if necessary and subject to
certain limitations, to adjust the prices established in the Services Agreement
accordingly. SITA and we have agreed to certain arrangements to conduct a comparison of the
relative weighted average net prices in various regions indexed to various
volume levels for distributors providing services and products similar to those
provided by SITA. SITA and we have also agreed to certain arrangements to compare the prices of
the network services provided by us to SITA with the prices provided by us to
other sales channels. If the comparison fails to satisfy certain most favored
nation standards, then we shall be required to develop a most favored nation
price book to satisfy those standards, to provide SITA with a refund based upon
the differential and to develop a price book to satisfy those standards in the
future. Minimum Revenue Commitment.For the two years of the Services Agreement ending
in June 2003, SITA and we agreed to certain minimum revenues commitments to be
paid by SITA on a quarterly basis. These minimum revenue guarantees are
included in the adjusted cost base service charges. We committed to reduce our
unit costs to SITA by a certain fixed percentage. The minimum revenue
commitment is calculated with reference to the cost base established prior to
the effective date of the Services Agreement, with the deductions from the
minimum revenue commitment provided for in the Services Agreement. In the third
year of the Services Agreement and thereafter, further reductions in unit costs
were linked to the volume of services SITA purchases, and we are not permitted
to increase prices to SITA unless market prices increase. The minimum revenue
commitment expired June 2003. Recognizable Costs. We have the right to require SITA to pay certain costs and
expenses (to the extent greater than U.S. $100,000) associated with certain
network activity forecasts provided to us by SITA, if the value of actual
network activity negatively deviates by a minimum of 10% from the forecasted
network activity within a given financial quarter and our other sales channels
would be unable to accommodate or utilize the activity resulting in the
deviation. These costs shall be invoiced at the end of each month for any given
contract year. Indemnification and Limitation of Liability.We and SITA have agreed to
indemnify and hold harmless each other for any claim asserting any willful or
deliberate breach of the Services Agreement or any claim brought by a third
party arising from the marketing or provision of the network services under the
Services Agreement. No claim under the Services Agreement shall exceed the total service charges
payable by SITA pursuant to the Services Agreement in respect of the 12 months
immediately preceding the date on which the last claim arises; provided,
however, that neither we nor SITA exclude or limit liability for the following:
(i) death or personal injury caused by our or SITAs negligence; (ii) real
property claims caused by our or SITAs negligence; (iii) any claim for which
either we or SITA have been indemnified under the Services Agreement; (iv)
either our or SITAs failure to claim any invoiced amount validly owing to
either us or SITA, respectively, for performance under the Services Agreement;
(v) fraudulent misrepresentation; (vi) any breach of obligations implied by
Section 12 of the Sale of Goods Act 1979 or Section 20 of the Supply of Goods
and Services Act 1982; (vii) any claim relating to the infringement of
intellectual property rights; (viii) any claim relating to the breach of either our or SITAs confidentiality obligations as detailed in the Services
Agreement; (ix) to the extent a limitation is not permitted by law; or (x)
willful or deliberate serious and significant breach of the Services Agreement. 110




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Term and Termination. The Services Agreements term is ten years beginning
July 1, 2001. Both we and SITA may terminate the Services Agreement for cause
in the event the other party materially breaches the agreement and fails to
remedy its breach. In addition, we may terminate this agreement if SITA fails
to pay properly invoiced and undisputed amounts owed under the Services
Agreement that exceed the total service charges payable by the defaulting SITA
party for the three most recent billing periods preceding our notice to
terminate. Both SITA and we may terminate the Services Agreement in the event of
insolvency or bankruptcy of the other party or if a change of control, as
defined in the Umbrella Agreement, occurs. In the event of a delay in the provision of services due to force majeure, SITA
may elect to terminate the provision of those services delayed by the force
majeure or source substitute services to mitigate the delay. We have agreed to use commercially reasonable efforts to facilitate the orderly
and efficient transfer to and assumption of the network services by a
substitute supplier (for a period not to exceed six months) in the event of
expiration or termination of the Services Agreement, to reimburse SITA for any
service charges paid in advance, to provide SITA the option to purchase at net
book value any equipment owned by us and used exclusively by us for the purpose
of providing the network services to SITA and to use commercially reasonable
efforts to procure the assignment or novation of equipment leases and
maintenance and support agreements used exclusively by us for the purpose of
providing the network services to SITA. Transition and Management Agreement General Principles.Under the new arrangements with SITA, we own (where
permitted), operate and manage the Network. In certain countries, SITA cannot
yet transfer ownership of the Network and thus we manage it on SITAs behalf
to ensure the orderly and seamless operation of the global network, and we are
responsible to SITA for the costs of operating in those countries. On June 29,
2001, we entered into the Transition Agreement with SITA governing these
arrangements. We will assume ownership of the network in those countries where
we do not yet have ownership as soon as commercially and legally possible.
English law governs the Transition Agreement. Transfer of Network Resources.To the extent legally possible within each
country and as soon as possible after July 1, 2001, SITA shall transfer to us
the complete network in all countries. SITA may either transfer to us all of
the capital stock owned by SITA in the relevant company holding the Network or
may use other means, as we and SITA may agree, to transfer the Network. The transfer of a given network includes the transfer of employees to maintain
the Network and assets. To the extent commercially and legally possible, we
will employ such staff with contractual and statutory terms of employment
comparable to their existing contracts, although we have reserved the right to
determine subsequent terms and conditions of employment. We will purchase the
assets at a value of the net book value of those assets at the time of
transfer. In cases in which the advance transfer of certain aspects of the Network would,
without any detriment to SITA, improve our status in respect of any relevant
regulatory requirements or would be commercially beneficial to us, the
Transition Agreement permits the partial, advance transfer of network
resources, assets and staff. Prior to the transfer of a network, we must meet all requisite legal and
regulatory conditions, and we must establish the capability to operate the
Network. Access to the Global Network.To enable SITA to continue to provide services
to the air transport community, we have entered into a network access
arrangement detailing SITAs rights of access to our global network. We have
agreed to provide SITA with policies, procedures and instructions relating to
its access to and use of our global Network, and we have agreed to indemnify
and hold SITA harmless for certain losses incurred in respect of actions
performed under this arrangement or in compliance with the policies and
procedures provided by us. 111




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Regulatory Principles.The parties to the Transition and Management Agreement
agreed to cooperate in respect of regulatory issues in order to ensure the
efficient transfer of the global Network and the continued compliance with
regulatory requirements after the transfer of the global Network. SITA has
agreed to use commercially reasonable efforts to maintain any necessary
licenses prior to the transfer of a Network and to assist us in acquiring any
relevant regulatory approvals to operate the global Network. IT Transition.The new arrangements require the separation of our and SITAs IT
infrastructures and systems. Nonetheless, in certain respects, the
compatibility of those systems and their ability to interface with each other
must remain intact. We established with SITA a joint IT taskforce to ensure
the efficient and harmonious transition of information technology. With the
exception of the voice separation project, which should be completed by the end
of 2004, the transition project was completed in 2003. Purchasing and
Procurement Transition.We have agreed to provide SITA with policies,
procedures and instructions relating to the purchase and procurement necessary
to support in-country network operations (ICNO). We bear the cost of
providing purchasing and procurement support to SITA, and reimburse SITAs
costs of supporting ICNO purchasing and procurement. We have agreed to use commercially reasonable efforts to allow SITA to purchase
network equipment and related products and services from our top five suppliers
on the same terms at which we purchase such products and services from our top
five suppliers. SITA indemnifies and holds us harmless from any losses
incurred by us due to SITAs dealings with our top five suppliers. Premises and General Services.We have agreed with SITA to cooperate with
respect to the use of premises currently occupied by in-country network
operations by developing a plan to serve as a framework for formalizing
site-specific arrangements between the parties. The parties have agreed to divide general management activity in respect of the
facilities and premises and other ancillary supporting services (called general
services). SITA In-Country Network Operations Costs.We have agreed to reimburse SITA for
all of the costs it incurs in the course of performing the in-country network
operations (which we called the SITA ICNO costs). SITA provides us, on a
monthly basis, with a statement of the costs, including various costs relating
to the Network and its assets, staff required to maintain the Network, as well
as costs associated with the use of premises and other incidental costs
relating to the in-country network operations. We may in good faith, dispute
any amount by providing written explanation of the dispute to SITA. Costs
relating to the in-country operations incurred prior to July 1, 2001, the
effective date of the Transition Agreement, were accounted for under separate
accounts and were shared by us and SITA in accordance with the cost sharing
ratios applicable under the preexisting Joint Venture Agreement; provided,
however, that any such costs not identified until after the date fourteen (14)
days prior to SITAs cut off date for the acceptance of audit adjustments for
calendar year 2001 will be deemed to be SITA ICNO costs. Reimbursement of Restructuring Costs and Material Financial Detriment Costs Restructuring Costs.Subject to certain limitations, we have agreed to
reimburse SITA for costs and expenses it incurs in connection with the transfer
or partial transfer of a Network, costs and expenses incurred by SITA in
connection with the IT Transition and costs relating to the transactions
necessary to complete the transfer of a local network operation. These costs do
not include the costs relating to the reasonable tax, legal and other agreed
fees of external advisors incurred by SITA or us to complete the network
transfer. Material Financial Detriment Costs.Subject to certain limitations, we have
agreed to reimburse SITA for losses incurred within five years of and due to
the transfer of a Network. Such reimbursement, however, is due for a given five
year period after the transfer of a Network only at such time as, with respect
to any 12 month period after the transfer, a threshold of 10% of the budgeted
costs being transferred has been reached. With respect to the transfers of
Networks which do not exceed the applicable threshold, such transfers are
aggregated, and we have agreed to reimburse SITA for costs it incurs in excess
of 5% of the budgeted costs being transferred. 112




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SITA has agreed to submit eligible restructuring costs and material financial
detriment costs on a monthly basis, and we have a right to audit relevant SITA
records to verify any restructuring costs and material financial detriment
costs submitted for reimbursement. Indemnification.We and SITA have agreed to indemnify and hold each other
harmless for certain losses and claims arising from willful or deliberate
serious and significant breach of the Transition Agreement and for any losses
and claims arising out of or in connection with the services we and SITA,
respectively, provide to each other. No claim under the Transition Agreement shall exceed $250,000,000; provided,
however, that neither we nor SITA exclude or limit liability for the following:
(i) death or personal injury caused by our or SITAs negligence; (ii) real
property claims caused by our or SITAs negligence; (iii) any claim for which
either we or SITA have been indemnified under the Transition Agreement; (iv)
either our or SITAs failure to claim any invoiced amount validly owing to
either us or SITA, respectively, for performance under the Transition
Agreement; (v) fraudulent misrepresentation; (vi) any breach of obligations
implied by Section 12 of the Sale of Goods Act 1979 or Section 20 of the Supply
of Goods and Services Act 1982; (vii) any claim relating to the infringement of
intellectual property rights; (viii) any claim relating to the breach of either
our or SITAs confidentiality obligations as detailed in the Transition
Agreement; (ix) to the extent a limitation is not permitted by law; or (x)
willful or deliberate serious and significant breach of the Transition
Agreement. Limitation of Liability.Our maximum liability for restructuring cost
reimbursements and material financial detriment costs under the Transition and
Management Agreement may not exceed, in the aggregate, $500,000,000. Damages for other claims under the Transition and Management Agreement shall
not exceed, in the aggregate, $250,000,000, provided, however, that neither we
nor SITA exclude or limit liability for the following: (i) death or personal
injury caused by our or SITAs negligence; (ii) real property claims caused by
our or SITAs negligence; (iii) any claim for which either we or SITA have been
indemnified under the Transition and Management Agreement; (iv) either our or
SITAs failure to claim any invoiced amount validly owing to either us or SITA,
respectively, for performance under the Transition and Management Agreement;
(v) fraudulent misrepresentation; (vi) any breach of obligations implied by
Section 12 of the Sale of Goods Act 1979 or Section 20 of the Supply of Goods
and Services Act 1982; (vii) any claim relating to the infringement of
intellectual property rights; (viii) any claim relating to the breach of either
our or SITAs confidentiality obligations as detailed in the Transition and
Management Agreement; (ix) to the extent a limitation is not permitted by law;
or (x) willful or deliberate serious and significant breach of the Transition
and Management Agreement. Dispute Resolution. For a description of the dispute resolution procedures,
see the section on the Strategic Relationship Umbrella Agreement in Item 7.
Major Shareholders and Related Party Transactions  Our Relationship with
France Telecom. Term and Termination The Transition and Management Agreement has a term of ten years beginning on
July 1, 2001. Neither SITA nor we has any right to terminate the Transition
Agreement. The Transition Agreement will terminate solely at the expiration of
its term unless SITA and we agree otherwise. EXCHANGE CONTROLS There are currently no limitations imposed by Dutch law or by our Articles of
Association on the right of non-resident holders to hold or vote our ordinary
shares. Additionally, there are currently no Dutch laws, decrees or regulations
that restrict the export or import of capital, including, but not limited to,
Dutch foreign exchange controls, or that affect the remittance of dividends,
interest or other payments, to non-resident holders of the ordinary shares,
except as otherwise set forth in Taxation. 113




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TAXATION Netherlands Taxation This summary does not purport to be a comprehensive description of all
Netherlands tax consequences of an investment in our shares. Each investor
should consult a professional tax advisor with respect to the tax consequences of an investment in our shares. The discussion of certain
Netherlands taxes set forth below is included for general information only and
does not address every potential tax consequence of an investment in our shares
under the laws of The Netherlands. The following summary is based on the tax legislation, published case law and
other regulations as applicable on December 31, 2003, without prejudice to any
amendments that may be enacted after that date and implemented with or without
retroactive effect. The following summary does not address any tax consequences
for a holder of shares that could arise as a result of the entering into force
of any such proposed legislation. Netherlands taxation of non-resident holders of shares General The summary of certain Netherlands taxes set out in this section Netherlands
taxation of non-resident holders of shares only applies to a holder of shares
who is a Non-Resident holder of shares. A holder of shares is a Non-Resident holder of shares if:  
    
    he is neither resident nor deemed to be resident in The Netherlands
for purposes of Netherlands taxation and, in the case of an
individual, has not elected to be treated as a resident of The
Netherlands for Netherlands income tax purposes; and  
    
    in the case of an individual, he neither is nor has been, nor is
deemed to be nor has been deemed to be an employee of us nor of any
entity related to us; and  
    
    his shares do not form part and are not deemed to form part of a
substantial interest (aanmerkelijk belang) in us, unless such interest
forms part of the assets of an enterprise. If a person holds an interest in us, such interest forms part or is deemed to
form part of a substantial interest in us if any one or more of the following
circumstances is present.  1.
    
    He alone or, in the case of an individual, together with his partner
has, directly or indirectly, the ownership of our shares representing
5% or more of our total issued and outstanding capital (or the issued
and outstanding capital of any class of shares), or rights to acquire,
directly or indirectly, shares, whether or not already issued, that
represent 5% or more of our total issued and outstanding capital (or
the issued and outstanding capital of any class of shares), or the
ownership of profit participating certificates (winstbewijzen) that
relate to 5% or more of our annual profit or to 5% or more of our
liquidation proceeds.2.
    
    His partner or any of his relatives by blood or by marriage in the
direct line (including foster-children) of him or of his partner has a
substantial interest in us.3.
    
    His shares, profit participating certificates or rights to
acquire our shares or profit participating certificates have been acquired by him
or are deemed to have been acquired by him under a non-recognition
provision. For purposes of the above, a person who is only entitled to the benefits from
shares or profit participating certificates (for instance a holder of a right
of usufruct) is deemed to be a holder of shares or profit participating
certificates, as the case may be, and his entitlement to benefits is considered
a share or a profit participating certificate, as the case may be. 114




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Taxes on income and capital gains A Non-Resident holder of shares will not be subject to any Netherlands taxes on
income or capital gains in respect of dividends distributed by us (other than
the dividend withholding tax described below) or in respect of any gain
realized on the disposal of shares, unless:  1.
    
    He derives profits
from an enterprise,
whether as an
entrepreneur or
pursuant to a
co-entitlement to
the net worth of an
enterprise other
than as an
entrepreneur or a
shareholder, which
enterprise is
either managed in
The Netherlands or,
in whole or in
part, carried on
through a permanent
establishment or a
permanent
representative in
The Netherlands,
the shares being attributable to that enterprise; or2.
    
    He (in the case of
an individual)
derives benefits
from shares that
are taxable as
benefits from
miscellaneous
activities in The
Netherlands
(resultaat uit
overige
werkzaamheden in
Nederland). A Non-Resident holder of shares may, inter alia, derive benefits from our shares that are taxable as benefits from
miscellaneous activities in The Netherlands in the following circumstances:  
    
    if his investment activities go beyond
the activities of an active portfolio
investor, for instance in case of the use
of insider knowledge (voorkennis) or
comparable forms of special knowledge; or  
    
    if he makes our shares available or is
deemed to make our shares available,
legally or in fact, directly or
indirectly, to a connected person
(verbonden persoon) as described in
articles 3.91 and 3.92 of the Netherlands
Income Tax Act 2001; if such activities are performed or deemed to be performed in The Netherlands. The concept dividends distributed by us as used in this section includes, but
is not limited to, the following:  
    
    distributions in cash or in kind, deemed and constructive
distributions (including, as a rule, consideration for the repurchase
of our shares (other than a repurchase as a temporary investment) in
excess of the average capital recognized as paid-in for Netherlands
dividend withholding tax purposes), and repayments of capital not
recognized as paid-in for Netherlands dividend withholding tax
purposes;  
    
    liquidation proceeds and proceeds of redemption of our shares in
excess of the average capital recognized as paid-in for Netherlands
dividend withholding tax purposes;  
    
    the par value of shares issued by us to a holder of shares or an
increase of the par value of shares, as the case may be, to the extent
that it does not appear that a contribution, recognized for
Netherlands dividend withholding tax purposes, has been made or will
be made; and  
    
    partial repayment of capital, recognized as paid-in for Netherlands
dividend withholding tax purposes, if and to the extent that there are
net profits (zuivere winst), unless (a) our general meeting of
shareholders has resolved in advance to make such repayment and (b)
the par value of the shares concerned has been reduced by an equal
amount by way of an amendment to our articles of association. Dividend withholding tax Dividends distributed by us to a Non-Resident holder of shares are generally
subject to a withholding tax imposed by The Netherlands at a rate of 25%. See
the sub-section Taxes on income and capital gains for a description of the
concept dividends distributed by us. If a double tax treaty is in effect between The Netherlands and the country of
residence of a Non-Resident holder of shares, such holder may be eligible for a
full or partial relief from the Netherlands dividend withholding tax, provided
that such relief is duly claimed. Pursuant to domestic rules to avoid dividend stripping, dividend withholding
tax relief will only be available to the beneficial owner (uiteindelijk
gerechtigde)of dividends distributed by us. The Netherlands tax authorities
have taken the position that this beneficial ownership test can also be applied
to deny relief from Netherlands dividend withholding tax under double tax
treaties and the Tax Arrangement for the Kingdom of the Netherlands. If a Non-Resident holder of shares is resident in The Netherlands Antilles or
Aruba or in a member state of the European Union or in a country that has
concluded a double tax treaty with The Netherlands, we are not required to
withhold Netherlands dividend withholding tax from a dividend
distributed by us to such holder of shares to the extent that the temporary
special distribution tax, discussed below in the section Distribution tax,
applies to the distribution. 115




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##### 



Under the convention of December 18, 1992, between the Kingdom of The
Netherlands and the United States of America for the Avoidance of Double
Taxation and the prevention of Fiscal Evasion with respect to Taxes on Income
(the U.S./NL Income Tax Treaty), the Netherlands dividend withholding tax
rate on dividends paid by us on shares held by a Non-Resident holder of shares
who is resident in the United States and who is entitled to the benefits of the
U.S./NL Income Tax Treaty will generally be reduced to 15%. The U.S./NL Income
Tax Treaty provides for a complete exemption for dividends received by exempt
pension trusts and exempt organizations, as defined therein. Except in the case
of exempt organizations, the reduced dividend withholding tax rate under the
U.S./NL Income Tax Treaty may be available at source, upon payment of a
dividend in respect of such shares, provided that the holder thereof or, if
applicable, the paying agent, has supplied us with the appropriate Netherlands
tax forms in accordance with the Netherlands implementation regulations under
the U.S./NL Income Tax Treaty. If such forms are not duly and timely supplied,
we will generally be required to withhold the dividend withholding tax at the
Netherlands statutory rate of 25%. In such case, a Non-Resident holder of
shares who is resident in the United States and who is entitled to the benefits
of the U.S./NL Income Tax Treaty may obtain a refund of the difference between
the amount withheld and the amount that The Netherlands was entitled to levy in
accordance with the U.S./NL Income Tax Treaty by filing the appropriate forms
with the Netherlands tax authorities within the established timeframe. Reduction. If we received a profit distribution from a foreign entity or a repatriation of
foreign branch profit that is exempt from Netherlands corporate income tax and
that has been subject to a foreign withholding tax of at least 5%, we may be
entitled to a reduction of the amount of Netherlands dividend withholding tax
withheld that must be paid over to the Netherlands tax authorities in respect
of dividends distributed by us. Non-Resident holders of shares are urged to consult their tax advisors
regarding the general creditability or deductibility of Netherlands dividend
withholding tax and, in particular, the impact to such investors of our
potential ability to receive a reduction as meant in the previous paragraph. Distribution tax We are subject to a temporary special distribution tax at a rate of 20% to the
extent that dividends distributed by us during the period from January 1, 2001
up to and including December 31, 2005 are classified as excessive. For
purposes of this distribution tax, dividends distributed by us are considered
to be excessive to the extent that, during a particular calendar year, the
total thereof exceeds the highest of the following three amounts:  
    
    4% of our market capitalization at the beginning of the relevant calendar year;  
    
    twice the amount of the average annual dividends (exclusive of extraordinary distributions)
distributed in the three calendar years immediately preceding January 1, 2001; and  
    
    our consolidated commercial results for the preceding book year, subject to certain adjustments. See the section Netherlands taxation of non-resident holders of shares  Taxes
on income and capital gains for a description of the concept dividends
distributed by us. The special distribution tax will not be due if and to the extent the aggregate
of dividends distributed by us during the period from January 1, 2001 up to and
including December 31, 2005 exceeds the fair market value of the assets at the
end of the book year ending on December 31, 2000, net of liabilities and
provisions and reduced by the paid-in capital. The special distribution tax
will be reduced in proportion to the percentage of the shares that were held,
at the time of the excessive distribution, during an uninterrupted period of
three years, by individuals or entities (other than investment institutions
(beleggingsinstellingen) as defined in the Netherlands Corporate Income Tax Act
1969) holding at least 5% of the nominal paid-in capital, provided such
shareholders are resident in The Netherlands, The Netherlands Antilles or
Aruba, or in a member state of the EU, or in a country that has concluded a
double tax treaty with The Netherlands. In that connection, shares that were
held on September 14, 1999 are deemed to have been held on that date during an
uninterrupted period of three
years. The special distribution tax is not a withholding tax; it is imposed
directly on us. Therefore, if it is reduced because certain shareholders own at
least 5% of the nominal paid-in capital, we will receive the benefit of the
reduction and it will inure indirectly not only to the shareholders whose
shareholdings caused the reduction to apply. 116




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##### 



Gift and inheritance taxes A person who acquires shares as a gift (in form or in substance) or who
acquires or is deemed to acquire shares on the death of an individual, will not
be subject to Netherlands gift tax or to Netherlands inheritance tax, as the
case may be, unless:  
    
    the donor or the deceased is resident or deemed to be resident in The
Netherlands for purposes of gift or inheritance tax, as the case may
be; or  
    
    the shares are or were attributable to an enterprise or part of an
enterprise that the donor or the deceased carried on through a
permanent establishment or a permanent representative in The
Netherlands at the time of the gift or of the death of the deceased;
or  
    
    the donor makes a gift of shares, then becomes a resident or deemed
resident of The Netherlands, and dies as a resident or deemed resident
of The Netherlands within 180 days after the date of the gift. If the donor or the deceased is an individual who holds Netherlands
nationality, he will be deemed to be resident in The Netherlands for purposes
of Netherlands gift and inheritance taxes if he has been resident in The
Netherlands at any time during the ten years preceding the date of the gift or
his death. If the donor is an individual who does not hold Netherlands
nationality, or an entity, he or it will be deemed to be resident in The
Netherlands for purposes of Netherlands gift tax if he or it has been resident
in The Netherlands at any time during the twelve months preceding the date of
the gift. Furthermore, in exceptional circumstances, the donor or the deceased will be
deemed to be resident in The Netherlands for purposes of Netherlands gift and
inheritance taxes if the beneficiary of the gift, or all beneficiaries under
the estate jointly, as the case may be, make an election to that effect. Other taxes and duties No Netherlands registration tax, transfer tax, stamp duty or any other similar
documentary tax or duty will be payable in The Netherlands in respect of or in
connection with the subscription, issue, placement, allotment or delivery of
our shares. United States Taxation The following is a summary of material U.S. federal income tax considerations
relevant to the purchase, ownership and disposition of the shares by a holder
that is a citizen or resident of the United States or a U.S. domestic
corporation or that otherwise will be subject to U.S. federal income tax on a
net income basis in respect of the shares (a U.S. holder). The summary does
not purport to be a comprehensive description of all of the tax considerations
that may be relevant to a decision to purchase the shares. In particular, this
summary deals only with U.S. holders that will hold the shares as capital
assets, and does not address the tax treatment of U.S. holders that may be
subject to special tax rules, such as banks, tax-exempt entities, insurance
companies, securities dealers, investors liable for alternative minimum tax,
persons that hold the shares as part of a synthetic security or conversion
transaction or as part of an integrated investment (including a straddle)
comprised of shares and one or more other positions, persons whose functional
currency is not the U.S. dollar, and holders of five percent or more of our
voting shares. The summary is based on the U.S.-NL Treaty and the tax laws of
the United States and The Netherlands in effect on the date hereof, which are
subject to change. Prospective purchasers should consult their own advisors as
to the tax consequences of the purchase, ownership and disposition of the
shares in light of their own particular circumstances, including the effect of
any state, local or foreign laws. Taxation of Dividends Distributions paid out of the Companys current or accumulated earnings and
profits (as determined under U.S. federal income tax principles) in respect of
the shares (including the amounts withheld in
respect of Dutch withholding tax) generally will be subject to U.S. federal
income taxation as foreign source dividend income, and will not be eligible for
the dividends received deduction generally allowed to U.S. corporations. 117




---



##### 



Subject to generally applicable limitations and the discussion below, Dutch
withholding tax imposed on dividends at the treaty rate will be treated as a
foreign income tax eligible for credit against a U.S. holders U.S. federal
income tax liability (or, at a U.S. holders election, may be deducted in
computing taxable income). Foreign tax credits will not be allowed for
withholding taxes imposed in respect of certain short-term or hedged positions
in securities or in respect of arrangements in which a U.S. holders expected
economic profit, after non-U.S. taxes, is insubstantial. Holders should consult
their own advisors concerning the implications of these rules in light of their
particular circumstances. We may fund dividend distributions on the shares with dividends received from
its subsidiaries organized outside The Netherlands. Under special Netherlands
tax rules applicable to international holding company structures, we will be
entitled in certain circumstances to reduce the amount of taxes that it
otherwise would be obliged to pay to the Dutch tax authorities by an amount
equal to 3 percent of the lesser of the dividends that it receives from its
foreign subsidiaries and the net dividends that it pays to its shareholders.
There is no authority directly addressing the implications of these special tax
rules for the taxation of dividends paid to U.S. holders. It is possible that
the foreign tax credits otherwise allowable for U.S. tax purposes in respect of
Dutch withholding taxes on dividend income would be reduced by the proportion
of the Dutch tax saving realized by us that is measured by reference to those
dividends. We will advise U.S. holders if we claim the benefit of this
reduction in respect of dividends on the shares. Taxation of Capital Gains Gains or losses realized by a U.S. holder on the sale or other disposition of
the shares generally will be treated for U.S. federal income tax purposes as
capital gains or losses, and generally will be long-term gains or losses if the
shares have been held for more than one year. Long-term capital gain recognized
by an individual holder generally is subject to taxation at a maximum rate of
20 percent. Gain or loss, if any, realized by a U.S. holder on the sale or
other disposition of shares generally will be treated as U.S. source income for
U.S. foreign tax credit purposes. Non-U.S. Holders A holder of shares that is, with respect to the United States, a foreign
corporation or a nonresident alien individual (a Non-U.S. holder) generally
will not be subject to U.S. federal income or withholding tax on dividends
received on the shares unless the dividend income is effectively connected with
the holders conduct of a trade or business in the United States. A Non-U.S.
holder of Shares will not be subject to U.S. federal income tax or withholding
tax in respect of gain realized on the sale or other disposition of the shares,
unless (i) the gain is effectively connected with the holders conduct of a
trade or business in the United States or (ii) in the case of gain realized by
an individual Non-U.S. holder, the Non-U.S. holder is present in the United
States for 183 days or more in the taxable year of the sale and certain other
conditions are met. U.S. Backup Withholding A U.S. holder may be subject to backup withholding at the rate of 30% with
respect to payments of dividends or proceeds from a sale of the shares, unless
the holder (i) is a corporation or other exempt recipient, and demonstrates
this fact when so required, or (ii) provides a correct taxpayer identification
number, certifies that it is not subject to backup withholding, and otherwise
complies with applicable requirements of the backup withholding rules. While
Non-U.S. holders generally are exempt from backup withholding, a Non-U.S.
holder may, in certain circumstances, be required to comply with certain
information and identification procedures in order to prove this exemption. DOCUMENTS ON DISPLAY For documents on display, see Item 19. Exhibits. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk Our principal market risk arises from our exposure to movements in interest
rates and foreign currency exchange rates for our functional currency, the U.S.
dollar. We have used derivative financial instruments to reduce exposure to
market risks resulting from fluctuations in interest rates and foreign currency
exchange rates, but we are currently not party to any interest rate
derivatives. These hedging instruments are classified in a manner consistent
with the item being hedged, meaning that the associated asset and liability
items are recorded at their hedged values rather than the spot value. 118




---



##### 



The authorized foreign exchange hedging instruments are spot and forward
foreign exchange contracts. As a matter of policy, we do not enter into
transactions of a speculative or trading nature. Foreign exchange exposures
are monitored by tracking actual and projected commitments, and through the use
of sensitivity analysis. We Are Also Exposed to Credit risks Our primary credit risk is the risk that our customers will not pay for the
services we have provided. We have procedures in place designed to minimize the
credit risk of new customers. To date, we have not experienced a significant
level of bad debt. We are also exposed to credit risk from the use of derivative financial
instruments should a counterparty default. To minimize credit risk associated
with derivative instruments, we only enter into transactions with high quality
counterparties such as financial institutions that satisfy our established
credit approval criteria. Foreign Exchange Risks We have a policy on currency exposure to protect us against volatility and
adverse movements in exchange rates. In line with this policy, all material
transactional exposures that can be estimated with reasonable certainty are
hedged by executing a transaction in the external market or through the use of
pre-existing natural hedges. We primarily use forward exchange contracts with a
term of less than 3 months. At December 31, 2003, we had foreign exchange contracts outstanding in various
currencies related to both commercial and financial transactions denominated in
currencies other than U.S. dollars. Our primary net foreign currency exposures
at December 31, 2003 included British pounds and Euros. Management does not
foresee or expect any significant changes in foreign currency exposure in the
near future, although, as we describe above in Item 5. Operating and Financial
Review and Prospects  Impact of Changes in Exchange Rates, our results of
operations and financial condition can be significantly affected by changes in
exchange rates. As of December 31, 2003, we had a net unrealized loss of $8.2 million on
outstanding contracts marked to fair market value on that date. As required
under French GAAP, this unrealized loss was recorded as an expense in the
income statement. Unrealized gains/losses in foreign currency exchange
contracts are defined as the difference between the contract rate at the
inception date of the foreign currency exchange contract and the current market
exchange rates. Consistent with the nature of the economic hedge of such
foreign currency exchange contracts, decreases or increases of the underlying
instrument or transaction being hedged would offset the corresponding
unrealized gains or losses on the hedging instrument. In addition, our global
operations include activities in a number of countries with hyperinflationary
economies. Operations in these countries are not significant and do not have a
material effect on our financial statements when taken as a whole. We do not anticipate any material adverse effect on our consolidated financial
position, results of operations or cash flows resulting from the use of
derivative financial instruments. We cannot guarantee, however, that our
hedging strategies will be effective or that translation losses can be
minimized or forecast accurately. See Forward-Looking Statements. The following table provides information about our foreign exchange forward
contracts at December 31, 2003. The table presents the value of the contracts
in U.S. dollars at the contract exchange rate as of the contract maturity date.
The fair value of foreign exchange forward contracts is calculated with market
standard financial software. 119




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##### 



Notional
    
    SettlementAmount At
    
    Amount At Year-
    
    Fair ValueContracted
    
    Contracted
    
    End Rate in U.S.
    
    in U.S.Buying
    
    Selling
    
    Rate
    
    Rate
    
    dollars
    
    dollarsU.S. dollar
    
    Euro
    
    1.18
    
    
    211,782,947
    
    
    
    202,523,662
    
    
    
    9,259,285U.S. dollar
    
    British pound
    
    1.72
    
    
    7,643,810
    
    
    
    7,511,977
    
    
    
    131,833U.S. dollar
    
    Brazilian Real
    
    0.34
    
    
    400,000
    
    
    
    392,999
    
    
    
    7,001Euro
    
    U.S. dollar
    
    0.83
    
    
    15,437,978
    
    
    
    15,794,024
    
    
    
    (356,046
    )British pound
    
    U.S. dollar
    
    0.60
    
    
    11,601,450
    
    
    
    12,231,347
    
    
    
    (629,897
    )British pound
    
    Euro
    
    0.69
    
    
    6,091,282
    
    
    
    5,933,302
    
    
    
    157,980Swiss Franc
    
    U.S. dollar
    
    1.29
    
    
    11,500,000
    
    
    
    11,790,653
    
    
    
    (290,653
    )Swiss Franc
    
    Euro
    
    1.56
    
    
    1,295,680
    
    
    
    1,297,668
    
    
    
    (1,988
    )
 All of these contracts expire in 2004. Interest Rate Risks In prior years we have used interest rate caps to manage interest rate risk
related to certain borrowings. We had no significant interest rate hedging
instruments in effect as of December 31, 2003, as all borrowings outstanding at
this date were short-term in nature. The fair value of short-term debt is
considered insensitive to interest rate variation, due to its short duration. The table below provides information about our risk exposure associated with
our outstanding debt obligations at December 31, 2003. The fair values included
in the table have been based on quoted market values at December 31, 2003. The
table presents principal cash flows and related interest rates. At December 31, 2003Notional Amount
    
    Fair Value(U.S. dollars in millions, except percentages)Debt  short termVariable rate (Brazilian real)
    
    $
    1.0
    
    
    $
    1.0Average interest rate
    
    
    25.90
    %
    
    
    25.90
    %
 
 Item 12. Description of Securities Other than Equity Securities This item is not applicable. 
 PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies This item is not applicable. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds This item is not applicable. 
 Item 15. Disclosure Controls and Procedures We performed an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures. Disclosure controls and procedures are
designed to ensure that the material financial and non-financial information
required to be disclosed in the Annual Report on Form 20-F and periodic reports
on Form 6-K, and filed with the Securities and Exchange Commission is recorded,
processed, summarized and reported timely. The evaluation was performed with
the participation of each senior manager who reports to and is under the
supervision of our CEO, Daniel Caclin, as well as our Disclosure Committee. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, rather than absolute, assurance of
achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. Based on the
foregoing, our management, including our CEO and CFO, concluded that our
disclosure controls and procedures were effective as of December 31, 2003. 
 120




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##### 



Item 16A. Audit Committee Financial Expert Our financial expert is the
chair of our Audit Committee, Fritz Fröhlich. Item 16 B. Code of Ethics In November 2003, our Management Board adopted a Code of Ethical Business
Conduct, which applies to the conduct of all of our directors, officers and
employees. The Code of Ethical Business Conduct is published on our intranet
as well as our external website at www.equant.com. We have not amended or
waived any provision of the Code of Ethical Business Conduct for any directors,
officers or employees. We will publish on our website any amendment or waivers
of any provision of the Code of Ethical Business Conduct in the future. Item 16C. Principal Accountant Fees and Services. Audit Fees In 2002, Ernst & Young LLP and PricewaterhouseCoopers LLP jointly provided
audit services to us. We paid PricewaterhouseCoopers LLP $5,633,000 and Ernst
& Young LLP $4,561,000. In 2003, Deloitte &Touche LLP provided audit services
to us. We paid Deloitte & Touche LLP $5,950,000 in 2003. Audit Related Fees We did not purchase any audit related services in 2002 or 2003 from an
accounting firm. Tax Fees In 2002, Ernst & Young LLP and PricewaterhouseCoopers LLP both provided tax
services to us. We paid PricewaterhouseCoopers LLP $1,089,000, and Ernst &
Young $ 2,592,000. All Other Fees We did not purchase any other services from accounting firms in 2002 or 2003. 
 PART III 
 Item 17. Financial Statements The registrant has responded to Item 18 in lieu of responding to this Item. 
 Item 18. Financial Statements The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement Schedule are filed as part of this annual
report. 
 Item 19. Exhibits The exhibits listed in the accompanying index are filed or incorporated by
reference as part of this annual report. 
 SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all the requirements for filing on
Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized. Equant N.V.By:
    
    /s/ Jacques KerrestName: Jacques KerrestTitle: Managing DirectorDated:
May 12, 2004
 121




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##### 



EXHIBIT INDEX 4(a)
        
        ·
        
        Redacted copies of the Contribution Agreement
          (Incorporated by reference to Exhibit No. 4.1 to our Annual Report on
          Form 20-F filed with the Commission on July 1, 2002)·
        
        Redacted copies of the Strategic Relationship
          Umbrella Agreement (Incorporated by reference to Exhibit No. 4.3 to
          our Annual Report on Form 20-F filed with the Commission on July 1,
          2002)·
        
        Redacted copies of the Transition and Management
          Agreement (Incorporated by reference to Exhibit No. 4.5 to our Annual
          Report on Form 20-F filed with the Commission on July 1, 2002)4 (c)
        
        ·
        
        Remuneration of the Independent Directors
          of the Supervisory Board·
        
        Employment Agreement of Didier Delepine·
        
        Employment Agreement of John Allkins·
        
        Employment Agreement of Daniel Caclin·
        
        Employment Agreement of Jacques Kerrest·
        
        Employment Agreement of Howard Ford12.
        
        
        
        Certifications of Principal Executive Officer
          And Principal Financial Officer.
 122




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##### 



INDEX TO THE FINANCIAL STATEMENTS Reports of the Independent Auditors
    
    F-2Consolidated Statements of Operations
    
    F-4Consolidated Balance Sheets
    
    F-5Consolidated Statements of Cash Flows
    
    F-6Consolidated Statements of Shareholders Equity
    
    F-8Notes to the Consolidated Financial Statements
    
    F-9
 F-1




---



##### 



Report of the
Independent Auditors To the Supervisory Board and Shareholders of Equant N.V. We have audited the accompanying consolidated balance sheet of Equant
N.V. and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, shareholders equity, and
cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. 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 audit
provides a reasonable basis for our opinion. In our opinion, such
consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31,
2003, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally
accepted in France. Accounting principles
generally accepted in France vary in certain significant respects
from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the
determination of net loss for the year ended December 31, 2003 and
the determination of shareholders equity and financial position
at December 31, 2003, to the extent summarised in Note 30 to the
consolidated financial statements. DELOITTE & TOUCHE
LLPLondon, United Kingdom February 10, 2004, except for
Note 30 as to which the date is May 7, 2004 F-2




---



##### 



Report of the Independent Auditors

Auditors Report to the Supervisory Board and Shareholders of Equant N.V.

We have audited the accompanying consolidated balance sheets of Equant N.V. and
its subsidiaries (the
Company) at December 31, 2002 and 2001 and the related consolidated statements
of operations,
shareholdersequity, and cash flows for the years then ended. 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 audits.

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
consolidated financial position of Equant N.V. and its subsidiaries at December
31, 2002 and 2001 and the
consolidated results of their operations and their cash flows for each of the
years then ended in conformity with
accounting principles generally accepted in France.

Accounting principles generally accepted in France vary in certain significant
respects from accounting
principles generally accepted in the United States. The application of the
latter would have affected
shareholders equity as of December 31, 2002 and 2001 and net loss for the
years then ended to the extent
summarized in Note 30 to the consolidated financial statements.

|                                         |  |                                                  
|---------------------------------------- |  | -------------------------------------------------
|Ernst & Young LLP
London, United Kingdom |  | PricewaterhouseCoopers LLP
London, United Kingdom
|February 28, 2003                        |  | February 28, 2003                                

F-3



---



##### 



Equant N.V. Consolidated Statements of Operations
(U.S. dollars in millions, except per share data, unless otherwise stated)
 Years ended December 31,Note
    
    2001
    
    2002
    
    2003Sales of services and products
    
    
    25
    
    
    $
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    2,948.9Cost of services and products sold
    
    
    25
    
    
    
    (1,847.0
    )
    
    
    (2,269.9
    )
    
    
    (2,174.4
    )Other operating income
    
    
    25
    
    
    
    146.4
    
    
    
    196.1
    
    
    
    142.4Gross profit
    
    
    
    
    
    
    690.1
    
    
    
    899.3
    
    
    
    916.9Selling, general and administrative expenses
    
    
    
    
    
    
    (554.8
    )
    
    
    (707.3
    )
    
    
    (625.3
    )Operating result before depreciation, amortization, share
plans and restructuring and integration
    
    
    
    
    
    
    135.3
    
    
    
    192.0
    
    
    
    291.6Depreciation
and amortization, excluding goodwill (1)
    
    
    11
    
    
    
    (299.2
    )
    
    
    (487.7
    )
    
    
    (482.4
    )Share plans
    
    
    23
    
    
    
    7.1
    
    
    
    9.9
    
    
    
    Restructuring and integration (1)
    
    
    7
    
    
    
    (110.2
    )
    
    
    (98.1
    )
    
    
    (85.1
    )Operating loss
    
    
    
    
    
    
    (267.0
    )
    
    
    (383.9
    )
    
    
    (275.9
    )Financial (charges) / income
    
    
    8
    
    
    
    (17.9
    )
    
    
    13.3
    
    
    
    (21.7
    )(Loss on) / reversal of provision for investments accounted
for at cost
    
    
    12
    
    
    
    (13.1
    )
    
    
    0.3
    
    
    
    Income taxes
    
    
    9
    
    
    
    (41.6
    )
    
    
    (11.9
    )
    
    
    (17.0
    )Employee profit sharing
    
    
    6
    
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.9
    )Equity share in loss of affiliate
    
    
    12
    
    
    
    (25.3
    )
    
    
    (27.3
    )
    
    
    (40.6
    )Net loss from continuing operations, before minority
interests and goodwill amortization
    
    
    
    
    
    
    (364.9
    )
    
    
    (410.1
    )
    
    
    (356.1
    )Goodwill amortization
    
    
    10
    
    
    
    (21.7
    )
    
    
    (24.1
    )
    
    
    Exceptional amortization of goodwill
    
    
    10
    
    
    
    
    
    
    
    (154.8
    )
    
    
    Minority interests
    
    
    21
    
    
    
    (0.6
    )
    
    
    (0.7
    )
    
    
    (0.1
    )Net loss from continuing operations
    
    
    
    
    
    
    (387.2
    )
    
    
    (589.7
    )
    
    
    (356.2
    )Net loss from discontinued operations
    
    
    5
    
    
    
    (2.6
    )
    
    
    
    
    
    
    Gain on disposal of discontinued operations
    
    
    5
    
    
    
    13.4
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    $
    (376.4
    )
    
    $
    (589.7
    )
    
    $
    (356.2
    )Per share
data - basic and dilutedNet loss from continuing operations
    
    
    
    
    
    U.S.$
    (1.56
    )
    
    U.S.$
    (2.01
    )
    
    U.S.$
    (1.22
    )Discontinued operations
    
    
    
    
    
    
    0.04
    
    
    
    
    
    
    
    Net loss per share
    
    
    
    
    
    U.S.$
    (1.52
    )
    
    U.S.$
    (2.01
    )
    
    U.S.$
    (1.22
    )Basic weighted average number of shares (thousands)
    
    
    4
    
    
    
    247,985.6
    
    
    
    292,706.0
    
    
    
    292,728.6
 (1) Prior year amounts have been reclassified for comparative purposes The accompanying notes are an integral part of these Consolidated Financial Statements. F-4




---



##### 



Equant N.V. Consolidated Balance Sheet
(U.S. dollars in millions)
 At December 31,Note
    
    2001
    
    2002
    
    2003ASSETSGoodwill and other intangible assets
    
    
    10
    
    
    $
    180.2
    
    
    $
    
    
    
    $
    Long-lived assets, plant property and equipment, net
    
    
    11
    
    
    
    1,193.3
    
    
    
    1,154.4
    
    
    
    1,030.8Long-lived assets, indefeasable rights of use, net
    
    
    11
    
    
    
    197.2
    
    
    
    151.9
    
    
    
    139.2Investments accounted for under the equity method
    
    
    12
    
    
    
    133.6
    
    
    
    101.4
    
    
    
    59.1Investments accounted at cost
    
    
    12
    
    
    
    6.2
    
    
    
    5.1
    
    
    
    5.1Long-term lease receivables
    
    
    15
    
    
    
    25.6
    
    
    
    4.6
    
    
    
    4.9Other non-current assets
    
    
    
    
    
    
    49.9
    
    
    
    47.1
    
    
    
    56.8Total non-current assets
    
    
    
    
    
    
    1,786.0
    
    
    
    1,464.5
    
    
    
    1,295.9Inventories
    
    
    13
    
    
    
    12.0
    
    
    
    17.1
    
    
    
    14.5Trade accounts receivable from related parties
    
    
    14, 25
    
    
    
    688.4
    
    
    
    581.5
    
    
    
    448.3Trade accounts receivable, other
    
    
    14
    
    
    
    578.9
    
    
    
    422.9
    
    
    
    354.6Short-term lease receivables
    
    
    15
    
    
    
    14.1
    
    
    
    13.7
    
    
    
    3.6Deferred income taxes
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    8.0Sales and other taxes recoverable
    
    
    
    
    
    
    90.4
    
    
    
    115.0
    
    
    
    148.2Other current assets and prepaid costs
    
    
    
    
    
    
    163.5
    
    
    
    127.3
    
    
    
    106.8Short-term loan to France Telecom
    
    
    2, 25
    
    
    
    
    
    
    
    
    
    
    
    150.0Cash and cash equivalents
    
    
    2
    
    
    
    385.8
    
    
    
    452.2
    
    
    
    330.1Total current assets
    
    
    
    
    
    
    1,933.1
    
    
    
    1,729.7
    
    
    
    1,564.1Total assets
    
    
    
    
    
    $
    3,719.1
    
    
    $
    3,194.2
    
    
    $
    2,860.0LIABILITIES AND SHAREHOLDERS EQUITYOrdinary shares
    
    
    22
    
    
    $
    3.2
    
    
    $
    3.2
    
    
    $
    3.2Convertible preference shares
    
    
    22
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Additional paid-in capital
    
    
    
    
    
    
    2,912.4
    
    
    
    2,912.4
    
    
    
    2,912.5Accumulated deficit
    
    
    
    
    
    
    (148.2
    )
    
    
    (524.6
    )
    
    
    (1,114.3
    )Net loss for the year
    
    
    
    
    
    
    (376.4
    )
    
    
    (589.7
    )
    
    
    (356.2
    )Statutory reserves
    
    
    
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.8Cumulative foreign currency translation adjustment
    
    
    
    
    
    
    (114.4
    )
    
    
    (24.9
    )
    
    
    82.5Total shareholders equity
    
    
    
    
    
    
    2,277.5
    
    
    
    1,777.3
    
    
    
    1,528.6Minority interests
    
    
    21
    
    
    
    0.4
    
    
    
    0.7
    
    
    
    0.5Provisions for liabilities and charges
    
    
    19
    
    
    
    29.6
    
    
    
    39.8
    
    
    
    70.9Bank loans, less current portion
    
    
    2, 16
    
    
    
    1.0
    
    
    
    
    
    
    
    Long-term capital leases, less current portion
    
    
    16
    
    
    
    3.0
    
    
    
    0.7
    
    
    
    0.2Other non-current liabilities
    
    
    20
    
    
    
    101.8
    
    
    
    83.9
    
    
    
    70.1Total non-current liabilities
    
    
    
    
    
    
    135.4
    
    
    
    124.4
    
    
    
    141.2Bank loans
and overdrafts (1)
    
    
    2, 16
    
    
    
    8.2
    
    
    
    7.0
    
    
    
    1.0Current
portion of capital leases (1)
    
    
    16
    
    
    
    0.6
    
    
    
    0.5
    
    
    
    0.3Trade accounts payable to related parties
    
    
    25
    
    
    
    451.4
    
    
    
    344.6
    
    
    
    280.6Trade accounts payable, other
    
    
    
    
    
    
    127.8
    
    
    
    303.0
    
    
    
    272.0Accrued liabilities (1)
    
    
    
    
    
    
    338.0
    
    
    
    220.8
    
    
    
    176.8Deferred income
    
    
    
    
    
    
    75.6
    
    
    
    78.3
    
    
    
    79.4Employee liabilities (1)
    
    
    
    
    
    
    73.5
    
    
    
    84.0
    
    
    
    150.1Taxation liabilities
    
    
    
    
    
    
    91.2
    
    
    
    134.8
    
    
    
    162.3Other current liabilities
    
    
    
    
    
    
    121.1
    
    
    
    89.9
    
    
    
    43.9Short-term provisions (1)
    
    
    19
    
    
    
    18.4
    
    
    
    28.9
    
    
    
    23.3Total current liabilities
    
    
    
    
    
    
    1,305.8
    
    
    
    1,291.8
    
    
    
    1,189.7Total liabilities and Shareholders equity
    
    
    
    
    
    $
    3,719.1
    
    
    $
    3,194.2
    
    
    $
    2,860.0
 (1) Prior year amounts have been reclassified for comparative purposes The Consolidated Balance Sheet is stated before allocation of the Net loss for the year.
The accompanying notes are an integral part of these Consolidated Financial Statements. F-5




---



##### 



Equant N.V. Consolidated Statements of Cash Flows
(U.S. dollars in millions)
 Years ended December 31,Note
    
    2001
    
    2002
    
    2003OPERATING ACTIVITIESNet loss
    
    
    
    
    
    $
    (376.4
    )
    
    $
    (589.7
    )
    
    $
    (356.2
    )Adjustments to reconcile net loss to net cash provided by
operating activitiesMinority interests
    
    
    21
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.1Loss on sale and impairment of long-lived assets (1)
    
    
    7, 11
    
    
    
    14.2
    
    
    
    
    
    
    
    3.9Depreciation and amortization (1)
    
    
    10, 11
    
    
    
    320.9
    
    
    
    666.6
    
    
    
    482.4Share plans
    
    
    23
    
    
    
    (7.1
    )
    
    
    (0.1
    )
    
    
    Restructuring asset write off
    
    
    7
    
    
    
    3.1
    
    
    
    74.2
    
    
    
    40.7Movement on provisions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25.5Changes in valuation allowances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21.6
    )Gain on disposal of discontinued operations
    
    
    
    
    
    
    (13.4
    )
    
    
    
    
    
    
    Non-operating finance charges
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    Impairment/(write back) of investments carried at cost
    
    
    12
    
    
    
    13.1
    
    
    
    (0.3
    )
    
    
    Equity in loss of affiliate
    
    
    12
    
    
    
    25.3
    
    
    
    27.3
    
    
    
    40.6Deferred income taxes
    
    
    9
    
    
    
    41.3
    
    
    
    
    
    
    
    (8.0
    )Net cash provided by operating activities before changes in
operating assets and liabilities
    
    
    
    
    
    
    23.7
    
    
    
    178.7
    
    
    
    207.4Changes in operating assets and liabilities
    
    
    
    
    
    
    (141.1
    )
    
    
    204.4
    
    
    
    105.0Net cash flows (used in) / provided by operating activities
    
    
    
    
    
    
    (117.4
    )
    
    
    383.1
    
    
    
    312.4INVESTING ACTIVITIESPurchase of property, plant and equipment
    
    
    11
    
    
    
    (346.8
    )
    
    
    (332.3
    )
    
    
    (234.0
    )Proceeds from disposal of equipment
    
    
    
    
    
    
    6.1
    
    
    
    
    
    
    
    Purchase of IRUs
    
    
    11
    
    
    
    (65.4
    )
    
    
    (36.9
    )
    
    
    (46.1
    )Proceeds from disposal of IRUs
    
    
    
    
    
    
    7.4
    
    
    
    
    
    
    
    Net cash effect of acquisitions (including cash in acquired
companies in 2001 $295.3, in 2002 & 2003 $nil )
    
    
    5, 21
    
    
    
    265.9
    
    
    
    
    
    
    
    (2.3
    )Proceeds from disposal of discontinued operations
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    Proceeds from disposal of investments accounted at cost
    
    
    12
    
    
    
    
    
    
    
    1.4
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    (129.2
    )
    
    
    (367.8
    )
    
    
    (282.4
    )FINANCING ACTIVITIESProceeds from issuance of shares
    
    
    
    
    
    
    1,000.0
    
    
    
    
    
    
    
    Short-term loan to France Telecom
    
    
    2, 25
    
    
    
    
    
    
    
    
    
    
    
    (150.0
    )Decrease in bank loans and overdrafts (1)
    
    
    16
    
    
    
    (1.1
    )
    
    
    (2.2
    )
    
    
    (6.0
    )Decrease in capital leases (1)
    
    
    16
    
    
    
    (3.9
    )
    
    
    (2.4
    )
    
    
    (0.7
    )France Telecom reimbursement under Contribution Agreement
    
    
    1
    
    
    
    
    
    
    
    18.0
    
    
    
    Net repayment of short-term borrowings and bank overdrafts (1)
    
    
    
    
    
    
    (19.7
    )
    
    
    
    
    
    
    Proceeds from the settlement of foreign exchange contracts
    
    
    8
    
    
    
    
    
    
    
    37.0
    
    
    
    Proceeds from long-term borrowing
    
    
    
    
    
    
    202.0
    
    
    
    
    
    
    
    Repayment of long-term borrowing (1)
    
    
    16
    
    
    
    (602.5
    )
    
    
    
    
    
    
    Net cash provided by / (used in) financing activities
    
    
    
    
    
    
    574.8
    
    
    
    50.4
    
    
    
    (156.7
    )Effect of changes in exchange rates on cash and cash equivalents
    
    
    
    
    
    
    4.1
    
    
    
    0.7
    
    
    
    4.6Increase / (decrease) in cash and cash equivalents
    
    
    
    
    
    
    332.3
    
    
    
    66.4
    
    
    
    (122.1
    )Cash and cash equivalents at beginning of the year
    
    
    
    
    
    
    53.5
    
    
    
    385.8
    
    
    
    452.2Cash and cash equivalents at end of the year
    
    
    
    
    
    $
    385.8
    
    
    $
    452.2
    
    
    $
    330.1
 (1) The prior year amounts have been reclassified for comparative purposes The accompanying notes are an integral part of these Consolidated Financial Statements. F-6




---



##### 



Equant N.V.
Consolidated Statements of Cash Flows
(U.S. dollars in millions) The table below provides supplemental cash flow information: Years ended December 31,2001
    
    2002
    
    2003Income taxes paid
    
    $
    (6.8
    )
    
    $
    (18.2
    )
    
    $
    (3.7
    )Interest paid
    
    $
    (30.4
    )
    
    $
    (0.4
    )
    
    $
    (4.0
    )Interest received
    
    $
    20.9
    
    
    $
    7.1
    
    
    $
    6.7Non-cash investing activities
    
    $
    (1,484.5
    )
    
    $
    
    
    
    $
    Cash spent on restructuring and integration of Equant, Global One
and SITA Equant network Joint Venture
    
    $
    (85.9
    )
    
    $
    (134.5
    )
    
    $
    (125.6
    )France Telecom reimbursement of restructuring and integration of
Equant, Global One and SITA Equant network Joint Venture
    
    $
    
    
    
    $
    140.9
    
    
    $
    145.3
 The accompanying notes are an integral part of these Consolidated Financial Statements. F-7




---



##### 



Equant N.V. Consolidated Statement of Shareholders Equity
(U.S. dollars in millions, unless otherwise stated)
 CumulativeOrdinary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    foreignand
    
    Additional
    
    
    
    
    
    Net profit /
    
    
    
    
    
    currency
    
    TotalNumber of
    
    preference
    
    paid-in
    
    Accumulated
    
    (loss) for
    
    Statutory
    
    translation
    
    ShareholdersNotes
    
    shares
    
    shares
    
    capital
    
    deficit
    
    year
    
    reserves
    
    adjustment
    
    EquityBalance at January 1, 2001
    
    
    
    
    
    
    201,558,555
    
    
    $
    2.4
    
    
    $
    958.6
    
    
    $
    (103.9
    )
    
    $
    (47.9
    )
    
    $
    0.9
    
    
    $
    (68.5
    )
    
    $
    741.6Transfer of prior year result
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47.9
    )
    
    
    47.9
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year 2001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376.4
    )
    
    
    
    
    
    
    
    
    
    
    (376.4
    )Issuance of common shares
    
    
    5
    
    
    
    80,617,348
    
    
    
    0.8
    
    
    
    1,454.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,455.1Issuance of preference shares
    
    
    5
    
    
    
    10,000,000
    
    
    
    0.1
    
    
    
    999.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000.0Exercise of stock options
    
    
    23
    
    
    
    528,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Difference on acquisition of Global One
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    (500.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (500.4
    )Unrealized translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42.4
    )
    
    
    (42.4
    )Transfers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (3.5
    )
    
    
    Balance at December 31, 2001
    
    
    
    
    
    
    292,704,149
    
    
    $
    3.3
    
    
    $
    2,912.4
    
    
    $
    (148.2
    )
    
    $
    (376.4
    )
    
    $
    0.8
    
    
    $
    (114.4
    )
    
    $
    2,277.5Transfer of prior year result
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376.4
    )
    
    
    376.4
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year 2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (589.7
    )
    
    
    
    
    
    
    
    
    
    
    (589.7
    )Exercise of stock options
    
    
    23
    
    
    
    4,908
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89.5
    
    
    
    89.5Balance at December 31, 2002
    
    
    
    
    
    
    292,709,057
    
    
    $
    3.3
    
    
    $
    2,912.4
    
    
    $
    (524.6
    )
    
    $
    (589.7
    )
    
    $
    0.8
    
    
    $
    (24.9
    )
    
    $
    1,777.3Transfer of prior year result
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (589.7
    )
    
    
    589.7
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356.2
    )
    
    
    
    
    
    
    
    
    
    
    (356.2
    )Exercise of stock options
    
    
    23
    
    
    
    33,340
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Exercise of restricted shares
    
    
    23
    
    
    
    71,367
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Unrealized translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    107.4
    
    
    
    107.4Balance at December 31, 2003
    
    
    
    
    
    
    292,813,764
    
    
    $
    3.3
    
    
    $
    2,912.5
    
    
    $
    (1,114.3
    )
    
    $
    (356.2
    )
    
    $
    0.8
    
    
    $
    82.5
    
    
    $
    1,528.6
 The accompanying notes are an integral part of these Consolidated Financial Statements. F-8




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##### 



Equant N.V. Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)
  1.
    
    Organization and Description of Business Equant N.V. (the Company or Equant) has its statutory seat in Amsterdam,
The Netherlands, and is a recognized industry leader in global communications
services for multinational corporations. Equant combines its network expertise,
including unmatched seamless network reach in 220 countries, and local support
in approximately 165 countries, with its expanded services capabilities to
provide global, integrated and customized communications services that enable
its customers key business processes. Equant serves thousands of the worlds
top companies, with the industrys most extensive portfolio of communications
services and network solutions, including the market-leading IP VPN used by
over 1,000 global businesses today. Initial Public Offering and Secondary Offerings In July 1998, Equant sold 30,048,486 ordinary shares through a public equity
offering on the New York Stock Exchange in the United States and on the Bourse
de Paris in France. On February 17, 1999, the Company completed a secondary public equity offering
of 48,300,000 ordinary shares on behalf of Stichting The SITA Foundation (the
Foundation), certain investment funds which Morgan Stanley Dean Witter
Capital Partners managed (the MSDWCP Funds) and Company employees. The
Foundation consists of the members of Société International de
Télécommunications Aéronautiques S.C. (SITA S.C. or SITA) that had a
shareholding in Equant and is separately constituted and managed from SITA. On December 3, 1999, the Company sold 46 million ordinary shares to the public
on behalf of the Foundation and the MSDWCP Funds. As a result of these offerings, public ownership of the Company increased to
62.1% at December 31, 1999. All shares held by the Foundation until December 2, 1999, formed a class of
shares (the Class A shares) separate from the issued shares held by other
shareholders, as a result of certain additional rights (the Foundation
Rights) granted. The formation of the Class A shares and the accompanying
Foundation Rights terminated on that date. As a result all issued ordinary
shares are of a single class. France Telecom Transactions In November 2000, the Foundation, then the largest shareholder of the Company,
announced that its Board had entered into a Share Purchase Agreement (the
Share Purchase Agreement) with France Telecom S.A. (France Telecom) to sell
its entire shareholding of approximately 68 million ordinary shares in Equant
for France Telecom shares at a ratio of 2.2 Equant shares per France Telecom
share. France Telecom would also acquire ten million new Equant convertible
preference shares for $1 billion in cash. Additionally, France Telecom would
issue to the Companys public shareholders one Contingent Value Right (CVR)
in respect of each Equant ordinary share held by the Companys shareholders. A
CVR entitles shareholders, except France Telecom and the Foundation, to receive
up to 15 in cash per CVR held immediately following the third anniversary
of the closing of these transactions, depending upon the market price of Equant
ordinary shares at that time. Concurrent with this announcement, and subject to completion of the Share
Purchase Agreement, the Company announced that its Board had approved a
Contribution Agreement (the Contribution Agreement) with France Telecom and
Atlas Telecommunications S.A. (Atlas)  a wholly-owned subsidiary of France
Telecom and holding company for both Global One Communications Holdings B.V.
and Global One Communications World Holdings B.V. (collectively referred to as
Global One). Pursuant to the Contribution Agreement, Equant would acquire
100% of the share capital of Global One from Atlas in exchange for 80,617,348
newly issued Equant ordinary shares. In addition, the Company also announced
that it had entered into an agreement with France Telecom and SITA to replace
the Companys joint venture with SITA with a new agreement whereby, among other
things, the Company would assume operational management of the network of SITA
Equant S.C. (the SITA Equant network Joint Venture). Under the terms of the Contribution Agreement, within a two-year period, France
Telecom was to pay to Equant 50% of costs related to the cancellation of up to
2,500 employment contracts for the combined Company and certain restructuring
and integration costs other than those relating to employees up to a maximum of
$210.0 (see Note 7). Under the Contribution Agreement, Atlas agreed to reimburse Equant if the net
working capital and net indebtedness of Global One at June 28, 2001, did not
meet certain targets. In 2002, Equant received $18.0 relating to settlement of
these matters. F-9




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Under the Contribution Agreement, the Calling Card and Voice Carrier Services
of Global One were to be transferred out of Global One to France Telecom within
twelve months of completion of the transactions described above. The Calling
Card and Voice Carrier Services are collectively referred to as Excluded
Businesses. During the year ended December 31, 2003, the Company negotiated an
agreement with France Telecom to continue to provide these services on behalf
of France Telecom (see Calling cards and voice carrier services in Note 25). The above transactions, collectively referred to as France Telecom
Transactions, were completed under the conditions specified above on June 29,
2001. As a result, the Company merged the operations of Equant, Global One and
the SITA Equant network Joint Venture, and France Telecom became the majority
shareholder of the combined Company with an approximate ownership of 54.3%. As
a result of the above transactions, Equant is consolidated in the Financial
Statements of France Telecom. These Financial Statements can be obtained from
France Telecom, 6 Place dAlleray, 75505 Paris Cedex, France. F-10




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  2.
    
    Operating Free Cash Flow and Net Cash and Loans Operating free cash flow and Net cash and loans are metrics that the
Company uses to analyze its results. Equant has minimal external borrowings and therefore believes that operating
free cash flow is the most appropriate indicator of the resources generated
from operations, excluding significant restructuring and integration costs,
working capital movements and other movements that will not necessarily
continue in the long-term. Due to the simplicity of this measure, it excludes
many items that are necessary to reconcile net loss to the increase in cash and
cash equivalents during the year, which are set out in full in the Consolidated
Statements of Cash Flows. Operating free cash flow, which the company defines as Operating result
before depreciation, amortization, share plans and restructuring and
integration, less capital expenditures is set out below: Years ended December 31,2001
    
    2002
    
    2003Operating result before depreciation, amortization, share plans and
restructuring and integration
    
    $
    135.3
    
    
    $
    192.0
    
    
    $
    291.6Purchase of property, plant and equipment
    
    
    (346.8
    )
    
    
    (332.3
    )
    
    
    (234.0
    )Purchase of IRUs
    
    
    (65.4
    )
    
    
    (36.9
    )
    
    
    (46.1
    )Operating free cash flow
    
    $
    (276.9
    )
    
    $
    (177.2
    )
    
    $
    11.5
 The Company defines Net cash and loans as the total of Cash and cash
equivalents and Short-term loans to France Telecom less Bank loans and
overdrafts and Bank loans, less current portion and these are set out below: Years ended December 31,2001
    
    2002
    
    2003Cash and cash equivalents
    
    $
    385.8
    
    
    $
    452.2
    
    
    $
    330.1Short-term loan to France Telecom
    
    
    
    
    
    
    
    
    
    
    150.0Bank loans and overdrafts
    
    
    (8.2
    )
    
    
    (7.0
    )
    
    
    (1.0
    )Bank loans, less current portion
    
    
    (1.0
    )
    
    
    
    
    
    
    Net cash and loans
    
    $
    376.6
    
    
    $
    445.2
    
    
    $
    479.1
 Included in cash and cash equivalents were amounts deposited with France
Telecom of $237.5, $307.8, and $138.2 at December 31, 2001, 2002 and 2003,
respectively. The amounts deposited with France Telecom are available to the
Company on demand. The Company has available a $50.0 treasury management
agreement with France Telecom renewable each year end (see Note 16). Of the Companys total cash and cash equivalents at December 31, 2001, 2002 and
2003, $0.3, $3.5 and $4.3, respectively, related to restricted cash. F-11




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  3.
    
    Significant Accounting Policies Basis of Preparation The Company is registered in the Netherlands. As allowed under article 362.1,
Part 9 of Book 2 of The Netherlands Civil Code (Dutch regulations), the
Company has adopted generally accepted accounting principles in France (French
GAAP). The Companys statutory accounts are filed with the Amsterdam Chamber
of Commerce and include additional supplemental disclosures, where required by
Dutch regulations. These Consolidated Financial Statements have been prepared in accordance with
French GAAP and Rule 99-02 of the Comité de la Réglementation Comptable
(CRC). Presentation of the Consolidated Financial Statements Assets and liabilities are classified based on liquidity or maturity dates,
with short-term balances (due within one year) shown separately from long-term
balances. Unless indicated otherwise, assets and liabilities are stated at
face value. The Consolidated Statements of Operations includes additional disclosure of
Share plans and Restructuring and integration as separate line items. The
results arising from discontinued operations are separately disclosed from
continuing operations. These additional line items are defined in the
accounting policies for Stock-based compensation, Restructuring and
integration and Discontinued operations respectively. The principal accounting policies, which have been presented consistently in
all periods presented in these Consolidated Financial Statements, are stated
below: Consolidation Principles Companies which are fully owned, or which the Company controls, are fully
consolidated. Investments in businesses over which Equant does not have
control, but has the ability to exercise significant influence over operating
and financial policies, are accounted for using the equity method. All
intercompany accounts and transactions have been eliminated. Translation of Foreign Currencies Translation of financial statements of foreign subsidiaries The functional currency of the Company is U.S. dollars. All assets and
liabilities of foreign subsidiaries are translated into U.S. dollars at the
exchange rates in effect at the balance sheet date. Income and expense items of
subsidiaries that do not have the U.S. dollar as the functional currency are
translated at the average exchange rates for the period. Net exchange gains or
losses resulting from such translation are included in Cumulative foreign
currency translation adjustment a component of Shareholders equity. Transactions in foreign currencies Gains and losses from foreign currency transactions are included in Financial
(charges)/income, in the Consolidated Statements of Operations in the period
during which they arise. Exchange gains and losses on foreign currency investments and loans of a
long-term nature are reported as Cumulative foreign currency translation
adjustments in Shareholders equity. The Company maintains its financial records in U.S. dollars. All amounts stated
in these Consolidated Financial Statements are in millions of U.S. dollars
unless otherwise stated, or prefixed U.S.$ in which case the amounts stated
are single units. Approximately 75% of the Companys revenues were accounted
for in U.S. dollars in 2003. F-12




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Revenue Recognition Equants principal sources of revenue are recognized when there is persuasive
evidence of an arrangement, delivery of products has occurred or services have
been rendered, the sellers price to the buyer is fixed or determinable and
collectibility is reasonably assured. Revenues are recognized net of discounts and customer sales incentives. The
Companys principal revenue streams and their respective accounting treatments
are discussed below: Sales of Services Network Services revenues are generated from the sale of transmission of data
traffic and on-going service charges for managing the customers network
system. Integration Services revenues are generated from deployment, monitoring
and maintenance of customer equipment as well as consultancy and professional
services. For all service revenue arrangements, fixed fee elements, which are specified
in the contractual arrangements, are contracted to be performed continuously
over the contractual term of the arrangement (and any subsequent renewals) and
revenue is recognized using the straight-line method over the term of the
contract (and any subsequent renewals). Variable fee elements, such as
volume-based consumption or traffic, are recognized in the period the service
is provided or utilized by the customer. Connections revenue related to Network Services is deferred and recognized over
the expected life of the customer contract (and any subsequent renewals).
Direct and incremental connections costs are deferred over the expected life of
the customer contract (and any subsequent renewals). Equant utilizes the network capacity of its affiliates in certain countries
providing service to its customers and recognizes these network costs within
Cost of services and products sold. The related billing to customers is
recorded as Sales of services and products. Sales of Products Sales of products, which are generally purchased from equipment providers, are
recognized upon delivery and acceptance by the end customer. Other Operating Income Certain costs are incurred on behalf of affiliates of France Telecom (the
affiliates) in respect of network and ancillary support which relates wholly
to the period after the France Telecom Transactions (see Note 25). These costs
are incurred by Equant in those locations where France Telecom does not have
local infrastructure. Costs incurred are recharged to the affiliates in
accordance with contractual agreements. This reimbursement of costs incurred
is recorded as Other operating income. Research and Development Costs The Company does not engage in basic research. The Company engages in a measure
of technical research focused principally on monitoring emerging technologies
and the manner in which they can be adapted for commercial use. The research
and development activities are focused on new applications and product
development using industry-wide protocols and are expensed as incurred. F-13




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Advertising and Marketing Advertising and marketing costs are expensed as incurred. Advertising and
marketing costs incurred in the years ended December 31, 2001, 2002 and 2003,
were $22.9, $19.8 and $14.5, respectively. In the year ended December 31, 2001,
the Company also incurred advertising costs of $6.7 relating to branding the
new organization which were included within Restructuring and integration of
Equant, Global One and SITA Equant network Joint Venture, a component of
Restructuring and integration. Stock-based Compensation Share plans in the Consolidated Statements of Operations relates to the
income or expense arising from the repurchase of shares on the open market, the
issue of shares held in treasury, and social charges payable by the Company on
share option and share award plans. Share option and share award plans are excluded from the balance sheet until
such time as the grant or award is vested. If the Company issues new shares to
satisfy the exercise, then the difference between the par value and the
exercise price is recorded as an addition to Additional paid-in capital, a
component of Shareholders equity, with no impact to the Consolidated
Statements of Operations. If the Company repurchases shares on the open market
or issues shares held in treasury, then the difference between the repurchase
price of the shares and the exercise price is recorded as a charge in the
Consolidated Statements of Operations, within Share plans. Social charges payable by the Company on the fair value of shares granted are
accrued based on estimates of the likely payments to be made over the period
between the dates of granting and vesting, and on the expected exercise rates,
and charged to Share plans. Restructuring and Integration Restructuring and integration costs are shown as a separate line in the
Consolidated Statements of Operations and include amounts arising from
restructuring activities of the Company. Restructuring activities are those
that have a significant effect on the nature and focus of the Companys
operations and include the following: the sale or termination of a line of
business; the closure of business locations in a country or region; relocation
of business activities from one country or region to another; and changes in
management structure. Restructuring activities must be set out in a plan
approved by management and the Company must be committed to a third party in an
irrevocable way. Restructuring costs are costs that arise from a restructuring activity that
have no benefit to the future operations of the Company. Integration costs are
costs that arise from the implementation of restructuring activities that have
a benefit to the future operations of the Company. Amounts recoverable from France Telecom in respect of reimbursement of expenses
incurred due to the restructuring and integration of Equant, Global One and the
SITA Equant network Joint Venture in accordance with the Contribution Agreement
(see Note 7) are shown as a reduction to Restructuring and integration. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized reflecting the differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carry forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in future years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period enacted. Deferred tax assets are recognized to the extent that their
recovery is considered probable. Discontinued Operations Results of discontinued operations are aggregated into a single line and the
results for all periods presented in the Consolidated Statements of Operations
are restated. The results of discontinued operations are stated net of income
taxes (see Note 5). Cash and Cash Equivalents Cash and cash equivalents are defined as highly liquid investments available on
demand and with original maturity of 90 days or less. Cash and cash equivalents
include amounts on deposit with France Telecom of $237.5, $307.8 and $138.2 at
December 31, 2001, 2002 and 2003, respectively. F-14




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Trade Accounts Receivable Trade accounts receivable are reduced to net realizable value by credit note
provisions and allowances for doubtful accounts. The allowances are based on
an individual or statistical assessment of non-recoverability. Inventories Inventories are stated at the lower of cost (determined principally on the
first-in, first-out basis) or market value. Provisions for potentially obsolete
or slow-moving inventory are determined through managements analysis of
inventory levels and future sales or usage forecasts. Goodwill Purchase Accounting The excess of the cost over the fair value of the net assets of purchased
businesses, including unconsolidated affiliates, is recorded as goodwill and is
amortized on a straight-line basis over periods of twenty years or less. The
amortization period is determined by taking into account the specific nature of
each acquisition and has ranged from five to twenty years on historic
acquisitions. Goodwill is treated as an intangible asset. Goodwill is subject to an impairment review when events or circumstances occur
indicating that an impairment might exist. Such events or circumstances include
significant adverse changes, other than temporary, in the assumptions or
expectations considered at the time of the acquisition. The need to recognize
an impairment is assessed with reference to cash flows arising from the
economic and operating assumptions used by the management of the Company. The
impairment charge is recorded as exceptional amortization of goodwill.
Impairment, where necessary, is recorded as the difference between book value
and fair value. Fair value is determined based on estimates of future cash
flows discounted at appropriate rates and on publicly available information,
where appropriate. In the assessment of discounted future cashflows the
following data was used: management plans for a five to ten year period, a
terminal value at the end of this period assuming an inflationary perpetual
growth rate, and a discount rate selected with reference to the Companys cost
of capital. Earnings for acquired companies are included for the period subsequent to the
acquisition date. Acquisition of Global One The acquisition of Global One has been accounted for under the method described
in paragraph 215 of CRC Rule 99-02. Under this method, the historical carrying
value of the acquired business is carried over in the acquirers financial
statements if a company acquires over 90% of the shares of the acquired
business in a single transaction, settled through a share issue by the
acquiring company. These conditions were fulfilled in Equants acquisition of
Global One. Long-lived Assets Long-lived assets consist of Indefeasible rights of use (IRUs) and Property,
plant & equipment. An IRU is a right to use a specified amount of capacity on specific fiber optic
cables and related equipment for a specified time period. The rights that the
Company acquires from the IRU cannot be revoked or voided. IRUs are capitalized
as part of long-lived assets, and are amortized over the shorter of ten years
or the contract term. Long-lived assets are stated at historical cost less depreciation and
amortization, calculated on a straight-line basis over the expected useful
lives of the relevant assets. Major renewals and improvements are capitalized
while maintenance and repairs are expensed when incurred. Depreciation and amortization are calculated with reference to expected useful
lives, which are generally as follows: Owned buildings
    
    Up to 40 yearsLeasehold improvements
    
    Up to 40 yearsNetwork assets
    
    3 to 5 yearsIRUs
    
    Up to 10 yearsComputer equipment
    
    3 to 5 yearsOffice equipment, furniture and motor vehicles
    
    4 yearsSoftware
    
    3 to 5 years
 F-15




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Assets acquired under capital lease arrangements are depreciated in accordance
with the expected useful lives detailed above or the lease terms if shorter.
In addition, network assets acquired under the SITA Equant network Joint
Venture agreement and its successor agreements are capitalized and depreciated
(see Note 11). Equant develops internal-use software, which is defined as software acquired or
internally developed or modified solely to meet the internal needs of Equant.
Equant also capitalizes network development activities. Internal and external
costs incurred during the preliminary project stage are expensed as incurred.
Capitalization of such costs begins upon completion of the preliminary project
stage and upon managements authorization and commitment to fund the project,
and capitalization ceases at the point at which the project is substantially
complete and ready for its intended use. Internal and external costs for data
conversion, training and maintenance are expensed as incurred, and overhead
costs are not capitalized. Long-lived assets are written down when, as a result of events or changes in
circumstances, their recoverable value appears to be permanently less than
their carrying value. For assets to be held and used, the need for impairment
is principally determined for each group of assets by comparing their carrying
value with fair value. Fair value is determined by reference to discounted
future cash flows that are expected to be generated based upon managements
expectations of future economic and operating conditions. At the time such
evaluations indicate that future cash flows are insufficient to recover the
carrying value of such assets, the assets are adjusted to their fair value. The
write down is recorded as accelerated depreciation, or as a restructuring and
integration expense if material and due to exceptional circumstances. Network
assets are reviewed on a collective basis. Assets to be disposed of are written down to their fair value, less costs of
disposal, when such value is lower than their carrying value. Other Investments Other investments consist of Investments accounted for under the equity
method and Investments accounted at cost. Under the equity method, the
investment is initially recorded at Equants share of the net assets of the
affiliate and is increased or decreased by Equants proportionate share of the
entitys respective profits or losses. Dividends received from these investees
reduce the carrying value of the investments. The difference between the cost
of the investment and Equants share of net assets at the date of acquisition
is recorded as goodwill. Investments that are less than 20% owned, or where Equant does not have
significant influence, are stated at cost. Provisions for impairment in value of other investments are recognized where
the recoverable amount is lower than cost. Statutory Reserves In certain countries in which the Company operates, local regulations require a
proportion of the net earnings to be classified as statutory reserves. Where
this is applicable, retained earnings have been set aside at the stipulated
rate. These reserves are for the most part not available for distribution, except on
closure of operations. Statutory reserves are reviewed annually in conjunction
with the preparation of the annual reports of relevant subsidiary companies,
and are separately disclosed in the Consolidated Statements of Shareholders
Equity. Provisions for Liabilities and Charges Provisions are recorded when, at the end of the period, there is an obligation
for the Company with respect to a third party for which it is probable or
certain that this will create an outflow of resources to the third party,
without at least an equivalent return expected from the third party. This obligation may be legal, regulatory or contractual in nature. It may also
be derived from the practices of the Company or from public commitments having
created a legitimate expectation on the part of such third parties that the
Company will assume certain responsibilities. The estimate of the amount in provisions corresponds to the expenditure which
it is likely that the Company is to bear to settle its obligation, discounted
at an appropriate rate. If no reliable estimate of the amount can be made, no
provision is recorded; information is then presented in the notes to the
Consolidated Financial Statements. F-16




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Contingencies, representing an obligation which is neither probable nor certain
at the time of drawing up the Consolidated Financial Statements, or a probable
obligation for which the cash outflow is not probable, are not recorded.
Information about them is presented in the notes to the Consolidated Financial
Statements. Employee Retirement Benefit Plans The Company operates a mixture of defined benefit and defined contribution
pension plans. Such benefit plans vary according to the customary benefit plans
prevailing in the country concerned. In some countries the amount of provision
is determined in accordance with the obligations under statutory post
employment benefit schemes. The contribution to the defined contribution
schemes, and the net periodic cost under the defined benefit schemes as
actuarially determined, are charged to the Consolidated Statements of
Operations. The actuarial determination of defined benefit scheme costs is based on scheme
information and assumptions adopted by management. The liability for end-of-service indemnities is accrued in accordance with
labor legislation in each country where such benefits are required. Equipment on Operating Leases Equant purchases equipment that is subsequently leased to customers under
operating leases. Income from operating leases is recognized over the term of
the lease. Each of the assets is depreciated to the estimated residual value,
determined at the lease inception date, on a straight-line basis over a period
consistent with the term of the lease. Financial Instruments The Company uses derivative financial instruments for the purpose of mitigating
currency risks, which exist as part of ongoing business operations. As a
policy, the Company does not engage in speculative or leveraged transactions,
nor does the Company hold or issue financial instruments for trading purposes. Forward exchange contracts are used to mitigate exposures to currency
fluctuations on certain short-term transactions generally denominated in
currencies other than the Companys functional currency. These contracts are
marked to market at the balance sheet date, and the resultant unrealized gains
and losses are recorded in Financial (charges) / income, together with
realized gains and losses arising on these contracts. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements 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 balance sheet date and
the reported amounts of revenues and expenses in the reporting period. Actual
results could differ from those estimates. Reclassifications Certain reclassifications have been made to prior year balances to conform to
the current years presentation. Implementation of International Financial Reporting Standards In July 2003, the France Telecom Group created a project team to manage the
conversion to International Financial Reporting Standards (IFRS). The
Company, in conjunction with France Telecom, is participating in the process of
identifying the principal differences between French GAAP and IFRS that impact
the Company and will prepare comparative financial information for the year
ended December 31, 2004 for disclosure in the 2005 Annual Report. First Time Application of Accounting Standards CRC Rule 02-10 on depreciation, amortization and impairment of assets This rule redefines the notions of depreciation, amortization and impairment of
assets and states when impairment tests should be performed in relation to
tangible and intangible assets. It is applicable for accounting periods
starting from January 1, 2005 and earlier adoption from January 1, 2002 is
allowed. Equant has chosen not to apply this rule in its Consolidated Financial
Statements for the year ended December 31, 2003. F-17




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  CRC Rule 03-07 of December 12, 2003 relating to the first time application of
the accounting method by asset component and amending the transitional
application rules set down under CRC Rule 02-10 for major
repairs In accordance with CRC Rule 00-06 (on liabilities), CRC Rule 02-10 and CRC Rule
03-07, provisions for major repairs are subject to transitional application
rules until January 1, 2005. These rules distinguish between two categories of
major repairs:  
    
    expenditures aiming to fully or partly replace existing fixed assets,
    
    expenditures scheduled over a number of years through major repair or
revision plans in accordance with the applicable laws or regulations
or with the standard procedures of the company with the sole aim of
verifying the good working order of plant or equipment and maintaining
it, without extending its useful life beyond that originally assessed. For expenses in the first category, i.e. asset replacement, as CRC Rule 02-10
had not been adopted at January 1, 2002, companies may either maintain their
previous accounting treatment or use the method of accounting for assets by
component in 2003 and 2004. For the second category of expenditure, companies
may either record a provision for major repairs or use the method of accounting
for assets by component. Equant has chosen not to account for assets by component in its Consolidated
Financial Statements for the year ended December 31, 2003. Based on the nature
of Equants business, the Company is not exposed to material expenditure under
the second category mentioned above. The application of the rule at December
31, 2003 did not have any material impact on Net income or Shareholders
equity.  Recommendation 2003-r-01 of April 1, 2003 from the Conseil National de la
Comptabilité relating to accounting for and the measurement of pension
obligations and similar benefits This recommendation is applicable from January 1, 2004 with earlier adoption
possible from January 1, 2003. It sets out rules relating to the accounting
treatment and measurement of pension obligations. Its scope covers
post-employment benefits, other long-term benefits, compensation indemnities
for employment terminations and the related social charges and tax
contributions. Equant is currently reviewing the practical implications of this
recommendation within Equant for its application as at January 1, 2004.  CRC Rule 03-05 of November 20, 2003 relating to the accounting treatment of
website development costs In line with the asset definition statement exposure draft and CRC Rule 02-10
relating to depreciation, amortization and impairment of assets, this rule sets
out the accounting treatment of website design and development costs detailing
the rules and conditions applicable for capitalization thereof. CRC Rule 03-05
is applicable to accounting periods commenced since January 1, 2004 and may be
applied in advance as from January 1, 2003. Equant chose not to apply this rule
in its Consolidated Financial Statements for the year ended December 31, 2003.
However, as Equant already applies similar terms and conditions to those set
out in the rule, its application should not have a material impact.  CRC Rule 03-01 of October 2, 2003 relating to the accounting treatment of
Internet barter transactions This rule defines the scope of application, valuation principles and the
procedures used to assess the fair value of Internet barter transactions, as
well as the additional information to be disclosed in the notes to the
financial statements. It applies to accounting periods commenced since January
1, 2004 and may be applied in advance as from January 1, 2003. Equant chose not
to apply this rule in its Consolidated Financial Statements for the year ended
December 31, 2003. However, as Equant already applies similar terms and
conditions to those set out in the rule, its application should not have a
material impact.  CNC Recommendation 2003-r-02 of October 21, 2003 relating to the recognition,
measurement and disclosure of environmental issues in the annual accounts
and annual reports of companies This recommendation sets out the provisions of the European Commission
Recommendation of May 30, 2001. The CNC recommendation is applicable to
accounting periods commenced from January 1, 2004. It does not amend the rules
applicable to the accounting treatment of environment-related liabilities but
aims to achieve greater harmonization of the type of environmental disclosures
made by different companies. F-18




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 4. Basic and Diluted Net Loss per Share The basic and diluted net loss per share is calculated by dividing the net loss
by the weighted average number of shares outstanding during the year. The ten million convertible preference shares issued as part of the France
Telecom Transactions are included in the calculation of the basic weighted
average number of ordinary shares outstanding, as their conversion into
ordinary shares is unconditional and will occur automatically on June 29, 2006.
The rights of the preference shares are set out in Note 22. The impact of unexercised stock options on the diluted weighted average number
of ordinary shares outstanding amounted to 3,944,786, 7,015,034 and 8,144,234
for the years ended December 31, 2001, 2002 and 2003, respectively. These
amounts were not included in the diluted earnings per share calculations in
2001, 2002 and 2003, as they would have been anti-dilutive. F-19




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 5. Acquisition and Disposal of Businesses and Investments Acquisition of Global One On June 29, 2001, the Company completed the acquisition of 100% of the share
capital of Global One in exchange for 80,617,348 new ordinary shares of the
Company, as referred to in Note 1. The transfer of the Global One business
from France Telecom to the Company in exchange for newly issued shares of the
Company has been accounted for under the method set out in paragraph 215 of CRC
Rule 99-02. The excess of the cost of acquisition over the net book value of
Global One assets acquired was taken to Additional paid-in capital. The total cost of acquisition for Global One paid by the Company was as follows: Issue of 80,617,348 new ordinary shares in the Company
    
    $
    1,455.1Transaction costs, net of tax
    
    
    29.4Total cost of acquisition
    
    $
    1,484.5
 The cost of acquisition has been allocated to the following identifiable assets and liabilities: Total cost of acquisition
    
    
    
    
    
    $
    1,484.5Identifiable assets and liabilities acquired (unaudited)Cash and cash equivalents
    
    $
    295.3Accounts receivable (net of provisions of $97.7)
    
    
    541.0Other intangible assets
    
    
    2.9Indefeasible rights of use
    
    
    79.0Property, plant and equipment
    
    
    629.3Accounts payable
    
    
    (207.6
    )Accrued liabilities
    
    
    (176.3
    )Overdraft and short-term debt
    
    
    (1.7
    )Non-current liabilities
    
    
    (20.4
    )Other assets and liabilities
    
    
    (157.4
    )984.1Excess of cost of acquisition over net book value of assets acquired
    
    
    
    
    
    $
    500.4
 At the date of acquisition of Global One, Global One had $79.0 capitalized in
software applications, included in property, plant and equipment. The unaudited pro forma condensed Consolidated Statement of Operations present
the effect of the acquisition of Global One and other effects of the France
Telecom Transactions as if they had occurred on January 1, 2001. The unaudited
pro forma condensed Consolidated Statements of Operations are based on the
historical financial statements of Equant and Global One and are prepared in
accordance with French GAAP. The unaudited pro forma financial information
does not purport to represent the results of operations that actually would
have resulted had the France Telecom Transactions occurred on the date
indicated. It should not be taken as indicative of the future results of the
operations of the combined entities. The pro forma results for the year ended December 31, 2001, include twelve
months each of Equant and Global One. The pro formas also assume that the new
SITA contractual arrangements were in place for the period from January 1,
2001. The income and expenses derived from Excluded Businesses have been
removed from the pro forma Consolidated Statements of Operations. F-20




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The unaudited pro forma condensed Consolidated Statement of Operations for the
year ended December 31, 2001 was as follows: 2001UnauditedSales of services and products
    
    $
    3,064.8Gross profit
    
    
    802.0Operating loss
    
    
    (564.0
    )Financial charges
    
    
    (32.9
    )Loss on impairment of investments accounted at cost
    
    
    (13.1
    )Income taxes
    
    
    (57.2
    )Equity in loss of affiliate
    
    
    (25.3
    )Net loss from continuing operations, before minority interests
and goodwill amortization
    
    
    (692.5
    )Goodwill amortization
    
    
    (21.7
    )Net loss from continuing operations, before minority interests
    
    $
    (714.2
    )Earnings per share, basic and diluted
    
    U.S.$
    (2.44
    )
 Disposal of Equant Application Services (EAS) Division On October 1, 2001, the Company disposed of the EAS division for cash and loan
notes totaling $15.6 recognizing a gain of $13.4 (net of taxes of $0.3). The
net loss of EAS for the nine months ended September 30, 2001 of $2.6 is
disclosed as Discontinued Operations in the year ended December 31, 2001. No material assets or liabilities were transferred as a result of the disposal
of EAS. Local network operations As referred to in Note 25, Related party transactions and cost sharing
agreement, in certain countries, legal ownership of Local Network Operations
groups (LNO groups) is transferred by SITA to the Company upon fulfillment of
certain conditions. During 2003, SITA transferred to the Company five LNO groups (Nicaragua, El
Salvador, Guatemala, Estonia and Italy). These transfers included a total of 36
employees to support the network. During 2002, SITA transferred to the Company 23 LNO groups including Brazil,
Australia, Russia and Switzerland. These transfers included a total of 1,461
employees to support the network. During 2001, SITA transferred to the Company the LNO groups for Puerto Rico,
Singapore, Hungary, Portugal, US Virgin Islands, Guam, Luxembourg, Spain and
Japan. These transfers included a total of 237 employees to support the
network. Pursuant to the transfer of legal ownership of the LNO groups, the assets and
liabilities associated with each LNO group were purchased at net book value for
cash by the Company. F-21




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 6. Personnel Costs and Staff Numbers Set out below is an analysis of personnel costs: Years ended December 31,2001
    
    2002
    
    2003Salaries and wages
    
    $
    556.5
    
    
    $
    671.6
    
    
    $
    692.3Social security contributions
    
    
    79.9
    
    
    
    117.1
    
    
    
    117.4Pension costs (Note 17)
    
    
    21.1
    
    
    
    24.2
    
    
    
    34.8657.5
    
    
    
    812.9
    
    
    
    844.5Temporary staff
    
    
    67.3
    
    
    
    104.1
    
    
    
    51.8$
    724.8
    
    
    $
    917.0
    
    
    $
    896.3
 Set out below is an analysis of staff numbers by function: At December 31,2001
    
    2002
    
    2003Direct
    
    
    7,159
    
    
    
    6,405
    
    
    
    5,936Selling, general and administrative
    
    
    4,099
    
    
    
    3,727
    
    
    
    3,61111,258
    
    
    
    10,132
    
    
    
    9,547
 As a result of the acquisition of Global One, 6,255 employees joined the
Company on June 29, 2001. As a result the personnel costs for the year ended
December 31, 2001, include six months of the combined entities, whilst those
for the year ended December 31, 2002 and 2003, include a full year. The employees of majority owned French subsidiaries of France Telecom are
eligible to participate in a profit sharing program, the amount of which is
dependent on France Telecoms overall group performance. In the years ended
December 31, 2001, 2002 and 2003, respectively, the Company incurred $nil, $0.6
and $0.9 in Employee profit sharing, in respect of this program. F-22




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 7. Restructuring and Integration Restructuring and integration charges / (income) comprise: Years ended December 31,2001
    
    2002
    
    2003Restructuring and integration of Equant, Global One
and SITA Equant network Joint Venture
    
    $
    173.4
    
    
    $
    193.3
    
    
    $
    191.6Strategic reorganization
    
    
    
    
    
    
    
    
    
    
    6.1SITA Equant network Joint Venture restructuring
    
    
    5.1
    
    
    
    
    
    
    
    Divisional reorganization
    
    
    0.4
    
    
    
    
    
    
    
    Other
    
    
    10.5
    
    
    
    (0.8
    )
    
    
    189.4
    
    
    
    192.5
    
    
    
    197.7Reimbursement from France Telecom
    
    
    (79.2
    )
    
    
    (94.4
    )
    
    
    (112.6
    )Net Restructuring and integration charges
    
    $
    110.2
    
    
    $
    98.1
    
    
    $
    85.1Restructuring
    
    $
    88.2
    
    
    $
    65.1
    
    
    $
    123.7Integration
    
    
    101.2
    
    
    
    127.4
    
    
    
    74.0Total Restructuring and integration
    
    $
    189.4
    
    
    $
    192.5
    
    
    $
    197.7
 The nature of restructuring and integration costs incurred during the years
ended December 31, 2002 and 2003 as a result of these transactions and the
provision movement comprises: Liability at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability atDecember 31,
    
    
    
    
    
    Reserves
    
    
    
    
    
    December 31,2001
    
    Additions
    
    Utilized
    
    Other
    
    2002Employee termination
    
    $
    8.4
    
    
    $
    43.9
    
    
    $
    (35.7
    )
    
    $
    
    
    
    $
    16.6Write-down of assets
    
    
    
    
    
    
    74.2
    
    
    
    
    
    
    
    (74.2
    )
    
    
    Integration teams
    
    
    
    
    
    
    24.9
    
    
    
    (24.9
    )
    
    
    
    
    
    
    Lease exit costs
    
    
    25.4
    
    
    
    32.2
    
    
    
    (35.0
    )
    
    
    
    
    
    
    22.6Critical staff retention plan
    
    
    
    
    
    
    3.8
    
    
    
    (3.8
    )
    
    
    
    
    
    
    Legal, consulting and other
    
    
    
    
    
    
    13.5
    
    
    
    (13.5
    )
    
    
    
    
    
    
    $
    33.8
    
    
    $
    192.5
    
    
    $
    (112.9
    )
    
    $
    (74.2
    )
    
    $
    39.2Short-term provisions
    
    $
    11.2
    
    
    $
    160.3
    
    
    $
    (79.6
    )
    
    $
    (74.2
    )
    
    $
    17.7Long-term provisions
    
    
    22.6
    
    
    
    32.2
    
    
    
    (33.3
    )
    
    
    
    
    
    
    21.5$
    33.8
    
    
    $
    192.5
    
    
    $
    (112.9
    )
    
    $
    (74.2
    )
    
    $
    39.2
 Liability at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability atDecember
    
    
    
    
    
    Reserves
    
    
    
    
    
    December31, 2002
    
    Additions
    
    Utilized
    
    Other
    
    31, 2003Employee termination
    
    $
    16.6
    
    
    $
    62.8
    
    
    $
    (65.8
    )
    
    $
    
    
    
    $
    13.6Write-down of assets
    
    
    
    
    
    
    40.7
    
    
    
    
    
    
    
    (40.7
    )
    
    
    Integration teams
    
    
    
    
    
    
    26.1
    
    
    
    (26.1
    )
    
    
    
    
    
    
    Lease exit costs
    
    
    22.6
    
    
    
    59.6
    
    
    
    (31.3
    )
    
    
    
    
    
    
    50.9Legal, consulting and other
    
    
    
    
    
    
    8.5
    
    
    
    (8.5
    )
    
    
    
    
    
    
    $
    39.2
    
    
    $
    197.7
    
    
    $
    (131.7
    )
    
    $
    (40.7
    )
    
    $
    64.5Short-term provisions
    
    $
    17.7
    
    
    $
    137.0
    
    
    $
    (95.9
    )
    
    $
    (40.7
    )
    
    $
    18.1Long-term provisions
    
    
    21.5
    
    
    
    60.7
    
    
    
    (35.8
    )
    
    
    
    
    
    
    46.4$
    39.2
    
    
    $
    197.7
    
    
    $
    (131.7
    )
    
    $
    (40.7
    )
    
    $
    64.5
 F-23




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Restructuring and Integration of Equant, Global One and SITA Equant network
Joint Venture Following the France Telecom Transactions (see Note 1 for further
details), the Company commenced integrating the operations of Equant and Global
One and the SITA assets. Under the terms of the Contribution Agreement between France Telecom and the
Company, the two companies agreed to share certain restructuring and
integration costs, as set out below: For a period of two years following June 29, 2001, France Telecom was to
reimburse Equant for half the financial costs of employment and termination of
the Excess Equant Employees, being the first 2,500 employees of Equant
(including employees transferred from SITA to Equant pursuant to the SITA
Equant network Joint Venture) or Global One that Equant management identified
as not necessary for the long-term operation of Equant. For a period of two years following June 29, 2001, France Telecom was to
reimburse Equant for non-personnel related integration and restructuring costs
(the Integration Costs) with respect to the integration of Equant, Global One
and the SITA Equant network Joint Venture, as follows:  
    
    with respect to the first $240.0 of Integration Costs,
each of France Telecom and Equant was to pay half on an equal
basis; and,
    
    France Telecom was to bear the next $90.0 of Integration
Costs. At December 31, 2001, 2002 and 2003, the amounts due for reimbursement by France
Telecom but not yet paid amounted to $79.2, $31.8 and $nil, respectively. Employee termination costs include severance and contractual benefits
determined in accordance with an approved plan, and also the costs for
outplacement services, medical and supplemental vacation. In the years ended
December 31, 2001, 2002 and 2003, the Company identified 898, 1050 and 606
positions to be eliminated, respectively. The Company anticipates completion of
identified terminations early in 2004. In the year ended December 31, 2002, the Company incurred $21.0 of capital
expenditure that was eligible for reimbursement under the Contribution
Agreement. The reimbursable amount of $10.5 was deferred within Other
non-current liabilities and was to be amortized over the life of the related
assets. During the year ended December 31, 2003, the Company exceeded the
limits on non-personnel integration and restructuring costs and therefore was
not reimbursed for integration capital expenditure. As a result the $10.5
deferred within Other non-current liabilities was released unused against
amounts due for reimbursement from France Telecom (see Note 20). The Company does not expect to incur further costs to restructure and integrate
Equant, Global One and the SITA Equant network Joint Venture, except for the
settlement of long-term lease obligations that may be finalized at a different
amounts to those already expensed. Strategic Reorganization During 2003, the Company announced a change of its strategic focus to put
additional resources into its integrated services businesses and at the same
time reorganized various internal support functions to make them more
efficient. In the year ended December 31, 2003, 80 people had been notified that they
would be made redundant as a result of this process and the Company had accrued
$6.1 in respect of these costs. The costs of this reorganization are likely to
continue into 2004. F-24




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) SITA Equant network Joint Venture Restructuring During the third and fourth quarters of 2000, Equant and SITA initiated the
restructuring of the SITA Equant network Joint Venture. The purpose of this
restructuring was to create a process driven organization, better aligned to
customer requirements. In the fourth quarter of 2000, this led to plans to
rationalize certain global operations such as help desks and network control
centers. The rationalization began in the fourth quarter of 2000 and continued
during 2001. As described in Note 1, one of the agreements within the France Telecom
Transactions resulted in Equant assuming operational management of the network
of the SITA Equant network Joint Venture. As the benefits of this restructuring
were expected to accrue principally to Equants future operating results,
Equant agreed to absorb 100% of the charges recorded before June 29, 2001. The
Company recorded within Restructuring and integration, a restructuring charge
of $5.1 in 2001 primarily for severance costs and other costs related to
headcount reduction and consolidation of operations. Costs of restructuring and integrating the SITA Equant network Joint Venture
after June 29, 2001 are included under Restructuring and integration of
Equant, Global One and SITA Equant network Joint Venture. Divisional Reorganization During the fourth quarter of 2000, the Company initiated a plan to integrate
two of its divisions - Equant Network Services and Equant Integration Services
- into a single organization. This integration became effective on January 1,
2001. As a result of this reorganization, the Company recorded a charge of $0.4
in 2001. Other Restructuring and integration Other restructuring and integration in the year ended December 31,
2001 include costs
incurred on advisory
fees arising from transactions that were abandoned during the year. F-25




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 8. Financial (Charges) / Income Financial (charges) / income consists of the following: Years ended December 31,2001
    
    2002
    
    2003Foreign exchange (loss) / gain (Note 18)
    
    $
    (6.4
    )
    
    $
    8.2
    
    
    $
    (22.0
    )Early termination of financing arrangements
    
    
    (2.1
    )
    
    
    
    
    
    
    Interest income
    
    
    20.9
    
    
    
    7.1
    
    
    
    6.7Interest expense
    
    
    (30.3
    )
    
    
    (2.0
    )
    
    
    (6.4
    )Total
    
    $
    (17.9
    )
    
    $
    13.3
    
    
    $
    (21.7
    )
 The foreign exchange (loss) / gain above arise from the foreign exchange
exposures on transactions that were not covered by forward contracts. During the year ended December 31, 2002, the Company ended its practice of
entering into foreign exchange contracts to offset the foreign exchange
exposures on certain intercompany foreign currency balances, and instead
designated these items as long-term intercompany funding balances. The gains
or losses on these instruments were classified in Foreign exchange (loss) /
gain. The unwinding of the contracts in place resulted in a $37.0 cash
inflow, which was not matched by a corresponding cash movement on the
intercompany balances (see Note 18). During the year ended December 31, 2001, the Company recognized a charge of
$2.1 as a result of early repayment fees and expensing of previously deferred
arrangement fees on the outstanding borrowings under the Companys main credit
facility. The early repayment was mandatory on completion of the France
Telecom Transactions. In the years ended December 31, 2001, 2002 and 2003, interest expense included
amounts in respect of unwinding the discount on the Radianz commitments (see
Note 20) of $0.9, $1.6 and $2.4, respectively. F-26




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 9. Income Taxes The income tax charge / (benefit) consists of the following: Years ended December 31,2001
    
    2002
    
    2003Current income taxesThe Netherlands
    
    $
    (11.4
    )
    
    $
    (0.1
    )
    
    $
    Other
    
    
    23.7
    
    
    
    12.0
    
    
    
    25.0Total current
    
    
    12.3
    
    
    
    11.9
    
    
    
    25.0Deferred income taxesThe Netherlands
    
    
    6.2
    
    
    
    
    
    
    
    Other
    
    
    23.1
    
    
    
    
    
    
    
    (8.0
    )Total deferred
    
    
    29.3
    
    
    
    
    
    
    
    (8.0
    )Total tax charge
    
    $
    41.6
    
    
    $
    11.9
    
    
    $
    17.0
 The source of net loss from continuing operations before minority interests and
income taxes for the years ended December 31, 2001, 2002 and 2003, is as
follows: Years ended December 31,2001
    
    2002
    
    2003The Netherlands
    
    $
    (54.4
    )
    
    $
    64.5
    
    
    $
    88.5Other countries
    
    
    (290.6
    )
    
    
    (641.6
    )
    
    
    (427.6
    )Net loss from continuing operations before minority
interests and income taxes
    
    $
    (345.0
    )
    
    $
    (577.1
    )
    
    $
    (339.1
    )
 The tax charge for the year has been reconciled to the standard tax rate
applicable in The Netherlands for corporate income. A reconciliation of
Equants statutory and effective income tax rate for the years ended December
31, 2001, 2002 and 2003, is as follows: Years ended December 31,2001
    
    2002
    
    2003Statutory rate applicable in The Netherlands
    
    
    35.0
    %
    
    
    34.5
    %
    
    
    34.5
    %Jurisdictional differences in tax rates
    
    
    (15.6
    )%
    
    
    (19.3
    )%
    
    
    (29.9
    )%Goodwill write off and amortization
    
    
    (0.8
    )%
    
    
    (10.7
    )%
    
    
    Change in valuation allowance
    
    
    (27.1
    )%
    
    
    (9.1
    )%
    
    
    (18.5
    )%Equity in loss of affiliate
    
    
    (4.6
    )%
    
    
    (1.6
    )%
    
    
    (4.1
    )%Non-taxable / deductible items and prior year adjustments
    
    
    2.9
    %
    
    
    (1.5
    )%
    
    
    1.5
    %Valuation adjustment on integration
    
    
    (12.0
    )%
    
    
    
    
    
    
    Loss on impairment of investments accounted at cost
    
    
    (1.3
    )%
    
    
    
    
    
    
    Transaction-related expenses
    
    
    0.5
    %
    
    
    
    
    
    
    Share plan costs
    
    
    2.9
    %
    
    
    
    
    
    
    Reimbursement of restructuring costs
    
    
    8.0
    %
    
    
    5.6
    %
    
    
    11.5
    %Effective tax rate
    
    
    (12.1
    )%
    
    
    (2.1
    )%
    
    
    (5.0
    )%
 Jurisdictional differences in the tax rates have an adverse impact on the
effective tax rate due to substantial amounts of book loss arising in countries
with tax rates lower than the statutory rate applicable in The Netherlands. Changes in valuation allowances have an adverse effect due to the substantial
amounts of tax losses arising which are not recognized for deferred tax
purposes. F-27




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The deferred tax assets by nature of temporary difference are analyzed as
follows: At December 31,2001
    
    2002
    
    2003Operating losses carried forward
    
    $
    374.1
    
    
    $
    495.2
    
    
    $
    547.0Other temporary differences
    
    
    60.1
    
    
    
    59.3
    
    
    
    86.4Total deferred tax asset
    
    
    434.2
    
    
    
    554.5
    
    
    
    633.4Less: valuation allowances
    
    
    (434.2
    )
    
    
    (554.5
    )
    
    
    (625.4
    )Total deferred tax asset, net
    
    $
    
    
    
    $
    
    
    
    $
    8.0
 Valuation allowances are required to be made against deferred tax assets
relating to tax losses and other timing differences unless there is a very high
degree of probability that taxable profits will arise in the immediate future
against which those deferred tax assets will be used. As at December 31, 2001 and 2002, deferred tax assets were therefore subject to
a 100% valuation allowance. As at December 31, 2003, most of the deferred tax assets shown above are
unlikely to be utilized or reversed against taxable profits in 2004 and
therefore are subject to full valuation allowance. However there is a strong
probability that taxable profits will arise in certain countries and
accordingly $8.0 of valuation allowances have been released. The estimated net operating losses carried forward at December 31, 2003, and
their expiration dates are as follows: Net operating loss carried forwardat December 31,Expiration period
    
    2001
    
    2002
    
    20031 to 4 years
    
    $
    129.1
    
    
    $
    117.9
    
    
    $
    113.55 years or longer
    
    
    488.6
    
    
    
    378.0
    
    
    
    585.4No expiry
    
    
    890.4
    
    
    
    1,413.2
    
    
    
    1,802.2$
    1,508.1
    
    
    $
    1,909.1
    
    
    $
    2,501.1
 Certain jurisdictions apply laws or procedures which attempt to restrict or
eliminate the carry-forward of tax losses on amalgamations or where there is a
change of ownership in conjunction with a change in business operations.
Certain of the country amalgamations could give rise to such restrictions or
eliminations. The figures stated above are without regard to such possible
restrictions or eliminations on the basis that they will be resisted. Equant operates in a large number of countries, governed by changing tax
regulations on both national and international levels, giving rise to potential
tax exposures against which provisions have been made. At December 31, 2003, no deferred income taxes have been provided on
undistributed earnings of foreign subsidiaries as they are not expected to be
remitted in the foreseeable future. F-28




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 10. Goodwill and Other Intangible Assets Goodwill and other intangible assets, stated at cost less accumulated
amortization, consist of the following: At December 31,2001
    
    2002
    
    2003Net book
    
    Net book
    
    
    
    
    
    Accumulated
    
    Net bookvalue
    
    value
    
    Cost
    
    amortization
    
    valueGoodwill
    
    $
    177.5
    
    
    $
    
    
    
    $
    225.1
    
    
    $
    (225.1
    )
    
    $
    Other intangible assets
    
    
    2.7
    
    
    
    
    
    
    
    2.9
    
    
    
    (2.9
    )
    
    
    $
    180.2
    
    
    $
    
    
    
    $
    228.0
    
    
    $
    (228.0
    )
    
    $
    
 The gross book value of Goodwill at December 31, 2001, 2002 and 2003, included
amounts of $163.3, $50.5, $9.2 in relation to the acquisition of Radianz,
TechForce Inc., and Rhone-Poulenc Telecom S.A., respectively. Changes in the net book value of goodwill and other intangible assets are as
follows: Years ended December 31,2001
    
    2002
    
    2003Balance at beginning of the year
    
    $
    199.2
    
    
    $
    180.2
    
    
    $
    Effect of acquisitions (see Note 5)
    
    
    2.9
    
    
    
    
    
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    Amortization expense
    
    
    (21.7
    )
    
    
    (24.1
    )
    
    
    Exceptional amortization
    
    
    
    
    
    
    (154.8
    )
    
    
    Translation adjustment
    
    
    (0.2
    )
    
    
    (1.3
    )
    
    
    Balance at end of the year
    
    $
    180.2
    
    
    $
    
    
    
    $
    
 Prior to the exceptional amortization of goodwill in the year ended December
31, 2002, goodwill was amortized over its estimated useful life of seven to ten
years. During the year ended December 31, 2002, in light of the continuing
trading difficulties in the telecoms market, and significant declines in
telecoms valuations, the Company recorded an exceptional amortization charge
against the carrying value of all goodwill in accordance with the Companys
stated accounting policies. F-29




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 11. Long-lived Assets Long-lived assets are defined as property, plant and equipment and IRUs.
Long-lived assets, stated at cost less accumulated depreciation and
amortization, consist of the following: At December 31,2001
    
    2002
    
    2003Net book
    
    Net book
    
    
    
    
    
    Accumulated
    
    Net bookvalue
    
    value
    
    Cost
    
    depr / amort
    
    valueOwned land and buildings
    
    $
    1.0
    
    
    $
    1.2
    
    
    $
    2.2
    
    
    $
    (0.3
    )
    
    $
    1.9Leasehold improvements
    
    
    94.8
    
    
    
    108.2
    
    
    
    243.4
    
    
    
    (141.5
    )
    
    
    101.9Network assets (1)
    
    
    752.2
    
    
    
    752.6
    
    
    
    2,143.4
    
    
    
    (1,508.7
    )
    
    
    634.7Computer equipment
    
    
    91.3
    
    
    
    66.5
    
    
    
    334.8
    
    
    
    (285.7
    )
    
    
    49.1Office equipment, furniture and motor
vehicles
    
    
    64.9
    
    
    
    34.4
    
    
    
    107.3
    
    
    
    (82.7
    )
    
    
    24.6Assets in course of construction
    
    
    87.8
    
    
    
    64.9
    
    
    
    58.1
    
    
    
    
    
    
    
    58.1Software applications
    
    
    101.3
    
    
    
    126.6
    
    
    
    372.5
    
    
    
    (212.0
    )
    
    
    160.5Property, plant and equipment
    
    
    1,193.3
    
    
    
    1,154.4
    
    
    
    3,261.7
    
    
    
    (2,230.9
    )
    
    
    1,030.8IRUs
    
    
    197.2
    
    
    
    151.9
    
    
    
    208.0
    
    
    
    (68.8
    )
    
    
    139.2Total long-lived assets
    
    $
    1,390.5
    
    
    $
    1,306.3
    
    
    $
    3,469.7
    
    
    $
    (2,299.7
    )
    
    $
    1,170.0
 (1) Tools, test and demonstration equipment have been included in network
assets. An analysis of the cost and accumulated depreciation and amortization for the
years ended December 31, 2001, 2002 and 2003, is set out below: At December 31,2001
    
    2002
    
    2003Cost
    
    $
    2,560.5
    
    
    $
    3,032.2
    
    
    $
    3,469.7Accumulated depreciation and amortization
    
    
    (1,170.0
    )
    
    
    (1,725.9
    )
    
    
    (2,299.7
    )Net book value
    
    $
    1,390.5
    
    
    $
    1,306.3
    
    
    $
    1,170.0
 Changes in the net book value of long-lived assets are as follows: Years ended December 31,2001
    
    2002
    
    2003Balance at beginning of the year
    
    $
    665.7
    
    
    $
    1,390.5
    
    
    $
    1,306.3Additions of property, plant and equipment
    
    
    346.8
    
    
    
    332.3
    
    
    
    234.0Additions to IRUs
    
    
    75.5
    
    
    
    36.9
    
    
    
    46.1Effect of acquistions
    
    
    708.3
    
    
    
    
    
    
    
    Write down of assets (1)
    
    
    (78.7
    )
    
    
    (74.2
    )
    
    
    (44.6
    )Depreciation of property, plant and equipment (1)
    
    
    (232.8
    )
    
    
    (417.2
    )
    
    
    (461.0
    )Amortization of IRUs (1)
    
    
    (66.4
    )
    
    
    (70.5
    )
    
    
    (21.4
    )Translation adjustment
    
    
    (27.9
    )
    
    
    108.5
    
    
    
    110.6Balance at end of the year
    
    $
    1,390.5
    
    
    $
    1,306.3
    
    
    $
    1,170.0
 (1) Prior year amounts have been reclassified for comparative purposes F-30




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) As a result of the continuing difficult economic environment in the telecoms
market, a number of IRU providers entered bankruptcy or similar arrangements
during 2002. In 2002 the Company recognized $24.1 of accelerated amortization
in the carrying value of its IRUs where capacity providers confirmed to the
Company that the Companys rights under the IRUs would not be honored. The
Company has placed these assets beyond economic use. This amount has been
reclassified from Non recurring charges in 2002 for comparative purposes. Capital Leases The Company has capital leases on all classes of property, plant and equipment
except owned land and buildings and assets in the course of construction. The net book value of assets under capital leases, excluding SITA assets, are
as follows: At December 31,2001
    
    2002
    
    2003Cost
    
    $
    30.7
    
    
    $
    32.8
    
    
    $
    15.1Accumulated depreciation
    
    
    (14.6
    )
    
    
    (23.1
    )
    
    
    (11.0
    )Net book value
    
    $
    16.1
    
    
    $
    9.7
    
    
    $
    4.1
 Under the terms of Equants contractual agreements with SITA, Equant is
required to finance all capital expenditures on the network, except for those
assets that are to be used solely for SITAs customers. Furthermore, Equant is
responsible for the management of the entire network and approves all network
capital spending, however, it does not legally own the SITA LNOs, where some of
these assets are deployed. Equant accounts for these expenditures as capital
leases. The net book value of SITA assets are as follows: At December 31,2001
    
    2002
    
    2003Cost
    
    $
    243.0
    
    
    $
    238.6
    
    
    $
    237.2Accumulated depreciation
    
    
    (117.1
    )
    
    
    (142.9
    )
    
    
    (173.7
    )Net book value
    
    $
    125.9
    
    
    $
    95.7
    
    
    $
    63.5
 Operating Leases The network assets balance includes equipment purchased by the Company which is
subsequently leased to customers under operating leases. Income from operating
leases is recognized over the term of the lease. Each of these assets is
depreciated to the estimated residual value, determined at the lease inception
date, on a straight-line basis over a period of time consistent with the
economic life of the asset. Although realization is not assured, management
believes that it is more likely than not that the estimated residual values
will be realized. The net book value of owned assets, leased to customers under operating leases,
are as follows: At December 31,2001
    
    2002
    
    2003Cost
    
    $
    11.9
    
    
    $
    12.6
    
    
    $
    17.9Accumulated depreciation
    
    
    (10.7
    )
    
    
    (11.0
    )
    
    
    (5.8
    )Net book value
    
    $
    1.2
    
    
    $
    1.6
    
    
    $
    12.1
 Depreciation expense on equipment under operating leases to customers totaled
$0.6, $0.4 and $1.6 for the years ended December 31, 2001, 2002 and 2003,
respectively. Expenditures for maintenance and repairs are the responsibility
of the lessee. F-31




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 12. Investments Accounted for Under the Equity Method and at Cost Investments accounted for under the equity method and at cost, net of
provisions for impairment, consist of the following: At December 31,2001
    
    2002
    
    2003Investments accounted for under the equity method
    
    $
    133.6
    
    
    $
    101.4
    
    
    $
    59.1Investments accounted for at cost
    
    
    6.2
    
    
    
    5.1
    
    
    
    5.1Total investments
    
    $
    139.8
    
    
    $
    106.5
    
    
    $
    64.2
 Investments Accounted for Under the Equity Method On February 3, 2000, Equant announced its participation in a joint venture with
Reuters Group PLC (Reuters) forming Radianz Limited (Radianz), a company
offering a secure Internet Protocol network to the financial services industry.
Radianz is owned 49% by the Company and 51% by Reuters and started operations
on July 1, 2000. Equant contributed $225 in cash, a number of employees, and certain customer
contracts. Equant also agreed to provide $125 in services to Radianz over ten
years, (see Note 20) and agreed not to pursue new customers in the financial
services industry for the provision of extranet network services. Reuters
contributed to Radianz network assets and employees responsible for the
operations and maintenance of the Reuters internal network. Reuters purchases
network services from Radianz. The excess of consideration over Equants share
of the fair value of the net assets of Radianz at formation was included in
Goodwill and amortized over ten years. During the year ended December 31,
2002, Equant recognized an exceptional charge against the carrying value of the
remaining goodwill in Radianz in accordance with Equants stated accounting
policy. Radianz is accounted for under the equity accounting method as management
considers Equants ability to invoke joint control is not currently achieved
because Reuters remains both the dominant supplier and customer of Radianz, and
accordingly is in a position to affect significantly the operations of Radianz
without the prior approval of Equant. Included in the accumulated deficit of the Company at December 31, 2002 and
2003, are retained deficits relating to Radianz of $227.9 and $270.2,
respectively. Year ended December 31,2002
    
    2003Initial investment
    
    
    
    $
    329.3
    
    
    $
    329.3Share of loss
    
    At January 1
    
    
    (34.8
    )
    
    
    (62.1
    )Result for the year
    
    
    (27.3
    )
    
    
    (40.6
    )At December 31
    
    
    (62.1
    )
    
    
    (102.7
    )Goodwill Amortization
    
    At January 1
    
    
    (24.9
    )
    
    
    (163.3
    )Result for the year
    
    
    (138.4
    )
    
    
    At December 31
    
    
    (163.3
    )
    
    
    (163.3
    )Cumulative foreign currency translation adjustment
    
    
    (2.5
    )
    
    
    (4.2
    )Amount included in accumulated deficit
    
    
    (227.9
    )
    
    
    (270.2
    )Closing investment
    
    $
    101.4
    
    
    $
    59.1
 F-32




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The summarized Balance Sheet and Statements of Operations of Radianz for the
years ended December 31, 2001, 2002 and 2003 are set out below: At December 31,2001
    
    2002
    
    2003Current assets
    
    $
    308.1
    
    
    $
    257.1
    
    
    $
    82.8Non-current assets
    
    
    155.4
    
    
    
    193.4
    
    
    
    163.3Current liabilities
    
    
    (206.2
    )
    
    
    (250.6
    )
    
    
    (110.3
    )Non-current liabilities
    
    
    (17.6
    )
    
    
    (26.3
    )
    
    
    (41.0
    )Net assets and shareholders equity
    
    $
    239.7
    
    
    $
    173.6
    
    
    $
    94.8
 Years ended December 31,2001
    
    2002
    
    2003Net revenues
    
    $
    421.4
    
    
    $
    496.1
    
    
    $
    531.3Operating loss
    
    $
    (83.0
    )
    
    $
    (70.0
    )
    
    $
    (89.4
    )Net loss
    
    $
    (69.5
    )
    
    $
    (72.2
    )
    
    $
    (85.8
    )Equants share accounted for under the
equity method in the year
    
    $
    (25.3
    )
    
    $
    (27.3
    )
    
    $
    (40.6
    )
 The Company has made adjustments, where considered significant, to the Radianz
financial information to align their basis of preparation to the Companys
French GAAP accounting policies, and to eliminate the Companys share of the
deferred service obligations that Radianz recognizes as an expense (see Note
20). Investments accounted at Cost Investments at cost at December 31, 2003, consist of the following: Net carrying
    
    MarketHolding
    
    Cost
    
    Provision
    
    value
    
    valueSTSN, Inc.
    
    
    1.2
    %
    
    $
    30.1
    
    
    $
    (30.1
    )
    
    $
    
    
    
    $
    iPass, Inc.
    
    
    1.5
    %
    
    
    5.1
    
    
    
    
    
    
    
    5.1
    
    
    
    13.7Total investments
    
    
    
    
    
    $
    35.2
    
    
    $
    (30.1
    )
    
    $
    5.1
    
    
    $
    13.7
 In 2000, the Company invested $30.1 for a non-controlling interest of 7.1% in
STSN, $5.1 for a 5.5% non-controlling interest in iPass and $5.1 for a
non-controlling interest of 18.0% in Tripeze. These investments have been
written-down to their recoverable amount. In the year ended December 31, 2000,
this resulted in an impairment loss of $17.0 related to STSN and $5.1 related
to Tripeze. A further amount of $13.1 was provided against the remaining
carrying value of STSN in the year ended December 31, 2001. The write-downs
are included in the Consolidated Statements of Operations as Loss on
impairment of investments accounted for at cost. In 2001, the Companys share of iPass were diluted to 1.8% as a result of
equity issues in which the Company did not participate. In 2002, the Companys
shares in STSN and iPass were diluted to 1.2%, and 1.7%, respectively. The
Company also purchased marketable securities of $1.1, which were disposed of in
2002 at their net book value. In 2002, the Company disposed of its investment in Tripeze for $0.3. This gain
was recognized as a write back to Loss on impairment of investments accounted
for at cost. In 2003, iPass was listed on the Nasdaq. The Companys share of the ordinary
shares outstanding reduced to 1.5%, and at December 31, 2003 the market value
exceeded the carrying value by $8.6. In accordance with French GAAP this
unrealized gain has not been recognized since the investments at cost were
neither purchased nor held primarily for trading. Equant does not control and cannot exercise significant influence on these
companies. No dividends were received from these investments in years ended
December 31, 2001, 2002 or 2003. F-33




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 13. Inventories Inventories consist of the following: At December 31,2001
    
    2002
    
    2003Finished goods for resale
    
    $
    12.9
    
    
    $
    20.1
    
    
    $
    27.7Provision for obsolete and slow-moving inventory
    
    
    (0.9
    )
    
    
    (3.0
    )
    
    
    (13.2
    )Total inventories, net
    
    $
    12.0
    
    
    $
    17.1
    
    
    $
    14.5
 F-34




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 14. Trade Accounts Receivable A summary of trade accounts receivable is as follows: At December 31,2001
    
    2002
    
    2003Trade accounts receivable from related parties
    
    $
    688.4
    
    
    $
    581.5
    
    
    $
    448.3Trade accounts receivable, other
    
    
    578.9
    
    
    
    422.9
    
    
    
    354.6$
    1,267.3
    
    
    $
    1,004.4
    
    
    $
    802.9
 At December 31,2001
    
    2002
    
    2003Trade accounts receivable
    
    $
    1,152.7
    
    
    $
    857.9
    
    
    $
    630.3Unbilled receivables
    
    
    227.2
    
    
    
    247.5
    
    
    
    244.2Total trade accounts receivable
    
    
    1,379.9
    
    
    
    1,105.4
    
    
    
    874.5Less: provisions against trade accounts receivable
    
    
    (112.6
    )
    
    
    (101.0
    )
    
    
    (71.6
    )Trade accounts receivable, net
    
    $
    1,267.3
    
    
    $
    1,004.4
    
    
    $
    802.9
 The majority of unbilled receivables represents revenues earned in the year,
not yet invoiced. Such amounts are generally billed in the next month.
Accounts receivable are reported net of accrued credit notes to be issued to
customers. The charge for doubtful accounts included in Selling, general and
administrative expenses totaled $38.5, $28.1 and $0.1 for the years ended
December 31, 2001, 2002 and 2003, respectively. At December 31, 2001, 2002 and 2003, respectively, $nil, $1.9 and $5.3 of trade
receivables were due for payment after more than one year. Trade accounts receivable from related parties are further described in Note
25 Related party transactions and cost sharing agreement. F-35




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 15. Lease Receivables Lease receivables consists of the following: At December 31,2001
    
    2002
    
    2003Gross finance lease receivables
    
    $
    41.9
    
    
    $
    18.7
    
    
    $
    8.7Unearned income
    
    
    (2.2
    )
    
    
    (0.4
    )
    
    
    (0.2
    )Net finance lease receivables
    
    
    39.7
    
    
    
    18.3
    
    
    
    8.5Less: current portion
    
    
    (14.1
    )
    
    
    (13.7
    )
    
    
    (3.6
    )Long-term finance lease receivables
    
    $
    25.6
    
    
    $
    4.6
    
    
    $
    4.9
 Gross finance lease receivables represent sales-type and direct financing
leases of network equipment assets. These receivables have remaining lease
terms ranging from one to five years. Maturities of lease payments due to Equant for equipment on rentals under
non-cancelable finance leases at December 31, 2003, are as follows: 2004
    
    $
    3.62005
    
    
    3.02006
    
    
    1.32007
    
    
    0.52008
    
    
    0.3Total lease receivables, gross
    
    
    8.7Less: Unearned finance charges
    
    
    (0.2
    )Total lease receivables, net
    
    $
    8.5
 F-36




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 16. Debt and Borrowing Arrangements Debt and borrowing arrangements consist of the following: At December 31, 2001Current
    
    Long-term
    
    Totalmaturity
    
    maturity
    
    maturityBank loans and overdrafts
    
    $
    8.2
    
    
    $
    1.0
    
    
    $
    9.2Capital leases
    
    
    0.6
    
    
    
    3.0
    
    
    
    3.6Debt and borrowings
    
    $
    8.8
    
    
    $
    4.0
    
    
    $
    12.8
 At December 31, 2002Current
    
    Long-term
    
    Totalmaturity
    
    maturity
    
    maturityBank loans and overdrafts
    
    $
    7.0
    
    
    $
    
    
    
    $
    7.0Capital leases
    
    
    0.5
    
    
    
    0.7
    
    
    
    1.2Debt and borrowings
    
    $
    7.5
    
    
    $
    0.7
    
    
    $
    8.2
 At December 31, 2003Current
    
    Long-term
    
    Totalmaturity
    
    maturity
    
    maturityBank loans and overdrafts
    
    $
    1.0
    
    
    $
    
    
    
    $
    1.0Capital leases
    
    
    0.3
    
    
    
    0.2
    
    
    
    0.5Debt and borrowings
    
    $
    1.3
    
    
    $
    0.2
    
    
    $
    1.5
 The denominations of bank loans and overdrafts by currency at December 31, 2003
are as follows: Interest
    
    Amount of
    
    AmountMaturity
    
    rate
    
    facility
    
    drawn downU.S. Dollar 50 million treasury management agreement
    
    
    
    
    
    
    
    
    
    $
    50.0
    
    
    $
    Brazilian Real 2.9 million facility
    
    
    2004
    
    
    
    25.90
    %
    
    
    1.0
    
    
    
    1.0On demand credit lines, other currencies
    
    
    
    
    
    
    
    
    
    
    30.2
    
    
    
    $
    81.2
    
    
    $
    1.0
 Bank loans and overdrafts The carrying value of bank loans and overdrafts, denominated in Brazilian Real
and Japanese Yen at December 31, 2001, 2002 and 2003, approximated fair value.
The weighted average interest rates charged on bank loans and the overdrafts
for the years ended December 31, 2001, 2002 and 2003, were 3.8%, 3.5% and
25.9%, respectively. As of January 1, 2001, the Company had available a revolving credit facility
pursuant to an agreement among Equant, certain of its subsidiaries and a
syndicate of fifteen banks named therein, entered into on October 23, 1998. The
facility agreement provided a $400 unsecured revolving credit facility. The
facility agreement had a final maturity on October 23, 2003. The Company and
certain of its subsidiaries were able to borrow funds under the facility
agreement. The Company (with certain subsidiaries) guaranteed all amounts
borrowed under the facility. The Company had drawn down the full amount under
the facility agreement as of January 1, 2001. The interest rate was 37.5 basis
points above LIBOR. The facility agreement was fully repaid and terminated as
a result of the France Telecom Transactions. F-37




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) On January 9, 2001, the Company entered into
a $300.0 unsecured revolving credit
facility pursuant to an agreement among Equant, certain of its subsidiaries and
three banks. The revolving credit facility had a final maturity on January 8,
2002, with an option to convert borrowings or amounts outstanding at maturity
into term loans for an additional period of 180 days. With the exception of the
margin, which was 75 basis points over LIBOR until June 30, 2001 and 90 basis
points over LIBOR thereafter until final maturity, all other terms and
conditions were substantially the same as those of the $400.0 revolving credit
facility dated October 23, 1998. At June 29, 2001, the Company had drawn down
$202.5 of this facility agreement. The facility agreement was fully repaid and
terminated as a result of the France Telecom Transactions. At January 1, 2001, a subsidiary of Equant in France
had entered into a $20.0
multi-currency revolving credit and bank guarantee facility available until
December 31, 2001. The interest rate applicable to amounts drawn down under the
facility was at a variable margin over the applicable inter bank rate. As at
January 1, 2001, $17.2 of the facility - mainly denominated in pounds sterling
and Euros, was drawn down. The entire amount was repaid in 2001 and the
facility was canceled. On May 2, 2002, the Company entered into a $250.0
revolving credit facility
agreement and a $50.0 treasury management agreement with France Telecom. Under
the revolving credit facility, France Telecom made available to the Company a
maximum of $250.0. Draw downs were available in a variety of currencies during
the period June 3, 2002 until September 30, 2003. However no draw downs were
made and this facility was not renewed. Under the treasury management
agreement, France Telecom has made available to the Company an uncommitted
credit facility of $50.0. Interest will be charged at LIBOR plus 40 basis points
on the net balance outstanding under the agreement. The agreement is subject
to renewal on December 31 each year, and was renewed on December 31, 2003. Capital Leases The Company leases certain items of property, plant and equipment under
long-term capital leases. At December 31, 2001, 2002 and 2003, the present
value of minimum lease payments was $3.6, $1.2 and $0.5, respectively. Future
minimum lease payments for assets held under capital lease arrangements at
December 31, 2003 are as follows: 2004
    
    $
    0.32005
    
    
    0.12006
    
    
    0.1Total minimum lease payments
    
    
    0.5Less: amount representing interest
    
    
    Present value of minimum lease payments
    
    
    0.5Less: capital lease obligations included in current portion of long-term debt
    
    
    (0.3
    )Long-term capital lease obligations
    
    $
    0.2
 F-38




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 17. Employee Benefits Pension Plans The Company sponsors various retirement and pension plans including defined
benefit and defined contribution schemes that cover the majority of worldwide
employees. An analysis of movement on these pension plan provisions is shown
below: Liability at
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability atDecember
    
    
    
    
    
    Reserves
    
    
    
    
    
    December31, 2002
    
    Additions
    
    Utilized
    
    Other
    
    31, 2003Short-term provisions
    
    $
    11.2
    
    
    $
    1.6
    
    
    $
    (5.8
    )
    
    $
    (1.8
    )
    
    $
    5.2Long-term provisions
    
    
    18.3
    
    
    
    12.4
    
    
    
    (3.2
    )
    
    
    (3.0
    )
    
    
    24.5$
    29.5
    
    
    $
    14.0
    
    
    $
    (9.0
    )
    
    $
    (4.8
    )
    
    $
    29.7
 Defined Contribution Plans Defined contribution plans cover the majority of Company employees where
defined benefit plans are not in operation. In addition, employees in the
United States are eligible to participate in a voluntary 401(k) savings plan.
The Company matches a percentage of each employees contributions. In certain
territories the Company contributes a fixed percentage of each employees
salary based on local requirements in that country. Defined Benefit Plans Plan benefits are primarily based on the employees compensation during the
last three to five years before retirement and the number of years of service.
The three largest defined benefit arrangements at December 31, 2003 were in the
United Kingdom, United States and France. The cost to the Company of the
defined benefit plans for the years ended December 31, 2001, 2002 and 2003, can
be analyzed as follows: (Cost) / benefit
    
    Years ended December 31,2001
    
    2002
    
    2003Service cost for benefits earned during year
    
    $
    (8.1
    )
    
    $
    (10.2
    )
    
    $
    (11.7
    )Interest cost on projected benefits
    
    
    (4.1
    )
    
    
    (5.6
    )
    
    
    (7.1
    )Expected return on plan assets
    
    
    3.7
    
    
    
    5.6
    
    
    
    5.6Recognized actuarial gain/(loss )
    
    
    
    
    
    
    (0.4
    )
    
    
    2.8Net amortization and deferral
    
    
    
    
    
    
    (0.7
    )
    
    
    (2.0
    )Net periodic pension costs
    
    $
    (8.5
    )
    
    $
    (11.3
    )
    
    $
    (12.4
    )
 The following assumptions were utilized in determining the funded status of the
Companys defined benefit pension plans: Years ended December 31,2001
    
    2002
    
    2003Weighted average discount rate
    
    
    5.70
    %
    
    
    5.52
    %
    
    
    5.30
    %Weighted average rate of compensation increase
    
    
    3.30
    %
    
    
    3.44
    %
    
    
    2.89
    %Expected long-term rate of return
    
    
    8.20
    %
    
    
    8.06
    %
    
    
    8.03
    %
 The changes in the actuarial assumptions reflect movements in interest rates,
salary increases, and expected rates of return in the respective local
countries where the defined benefit plans reside. These assumptions are used in
the actuarial calculation of the benefit obligation and components of the net
periodic pension cost for the following year. F-39




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The status of the Companys post-retirement benefit plans, both funded and
unfunded, at December 31, 2001, 2002 and 2003 is reported in the tables below: Years ended December 31,2001
    
    2002
    
    2003Benefit obligation at beginning of year
    
    $
    (34.9
    )
    
    $
    (84.4
    )
    
    $
    (126.8
    )Service cost
    
    
    (8.1
    )
    
    
    (10.2
    )
    
    
    (11.7
    )Interest cost
    
    
    (4.1
    )
    
    
    (5.6
    )
    
    
    (7.1
    )Employees contributions
    
    
    (2.4
    )
    
    
    (2.8
    )
    
    
    (3.1
    )Acquisition
    
    
    (43.1
    )
    
    
    (7.8
    )
    
    
    Actuarial increase/(decrease)
    
    
    6.0
    
    
    
    (10.4
    )
    
    
    (14.3
    )Benefits paid
    
    
    3.0
    
    
    
    4.2
    
    
    
    9.0Currency translation adjustment
    
    
    1.9
    
    
    
    (9.8
    )
    
    
    (16.7
    )Plan amendments/curtailments
    
    
    (2.7
    )
    
    
    
    
    
    
    4.5Actuarial present value of benefit obligation at end of year
    
    $
    (84.4
    )
    
    $
    (126.8
    )
    
    $
    (166.2
    )
 The increase in the benefit obligation and the net periodic pension cost for
the fiscal year ending December 31, 2003 is mainly attributable to adverse
currency movements and a change in actuarial assumptions. Years ended December 31,2001
    
    2002
    
    2003Fair value of plan assets at beginning of year
    
    $
    28.7
    
    
    $
    58.5
    
    
    $
    66.1Actual return on plan assets
    
    
    (6.1)
    
    
    (7.4
    )
    
    
    13.3Employers contributions
    
    
    5.4
    
    
    
    10.7
    
    
    
    16.8Employees contributions
    
    
    2.4
    
    
    
    2.8
    
    
    
    3.1Acquisition
    
    
    29.6
    
    
    
    0.1
    
    
    
    Benefits paid
    
    
    (3.0
    )
    
    
    (4.2
    )
    
    
    (9.0
    )Currency translation adjustment
    
    
    1.5
    
    
    
    5.6
    
    
    
    8.4Fair value of plan assets at end of year
    
    $
    58.5
    
    
    $
    66.1
    
    
    $
    98.7
 The funded status of the defined benefit plans and amounts recognized in the
Consolidated Balance Sheets consist of the following: At December 31,2001
    
    2002
    
    2003Funded status
    
    $
    (25.9
    )
    
    $
    (60.7
    )
    
    $
    (67.5
    )Unrecognized net asset
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )Unamortized prior service cost
    
    
    2.2
    
    
    
    2.3
    
    
    
    1.6Unrecognized net actuarial loss
    
    
    14.0
    
    
    
    32.2
    
    
    
    36.7Net defined benefit pension accrued liability
    
    $
    (9.7
    )
    
    $
    (26.5
    )
    
    $
    (29.5
    )
 In the year ended December 31, 2003, the return on plan assets exceeded the
assumptions used by the actuaries. However, in previous years there was a
shortfall in performance. The difference between the minimum liability (which
differs from the total benefit obligation) and the funded status has not been
recognized in the balance sheet, and will be recognized in the income statement
over the expected service lives of employees. The amounts not recognized
amounted to $3.9, $12.3 and $7.2 at December 31, 2001, 2002 and 2003,
respectively. F-40




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Compensation of the Members of the Supervisory Board and Management Board The aggregate amount of compensation paid to members of the Supervisory Board
of the Company, as a result of their position on that Board and excluding
reimbursement of expenses incidental to their attendance at such Board
meetings, amounted to $0.5, $0.3 and $0.3 in the years ended December 31, 2001,
2002 and 2003, respectively. Members of the Management Board of the Company receive no incremental
compensation as a result of their position on that Board, other than
reimbursement of expenses incidental to their attendance at such Board
meetings. A portion of their remuneration is payable and subject to taxation
in The Netherlands. F-41




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 18. Financial Instruments Derivative Financial Instrument Risk The Company uses derivative financial instruments to reduce exposures to market
risks resulting from fluctuations in interest rates and foreign exchange. The
Company does not enter into financial instruments for trading or speculative
purposes. The Company has a policy of only entering into contracts with financial
institutions that have at least an A (or equivalent) credit rating. The
Company does not have significant exposure to any one financial institution.
Management believes that the risk of a loss arising due to failure of a
counterparty to honor its contract is remote and in any event would be
immaterial. Interest Rate Risk Management At December 31, 2001, 2002 and 2003, the Company had no interest rate
derivative instruments outstanding. The Company is not exposed to material interest rate risks as the Company has
no material borrowing requirements, and amounts on deposit and on loan to
France Telecom and third parties bear interest at market rates (Note 25). Exchange Risk Management The Company enters into forward exchange contracts maturing within one year to
offset foreign exchange exposures on certain costs and revenues that are
denominated in foreign currencies. Realized and unrealized gains and losses
are recorded within the Consolidated Statements of Operations are set out
below: Years ended December 31,2001
    
    2002
    
    2003Foreign exchange (loss) / gain
    
    $
    (6.4
    )
    
    $
    8.2
    
    
    $
    (22.0
    )
 The Company had forward exchange contracts outstanding at December 31, 2001,
2002 and 2003, in various currencies, principally against U.S. dollars. The
Company has recognized the net unrealized losses in its accounts. Gains and
losses,based on dealer-quoted prices,from marking these contracts to market
are as follows: Impact of markingNotional
    
    contracts to marketamounts
    
    Gains
    
    LossesForward exchange contracts at December 31, 2001
    
    $
    187.8
    
    
    $
    1.6
    
    
    $
    (0.5
    )Forward exchange contracts at December 31, 2002
    
    $
    227.0
    
    
    $
    
    
    
    $
    (3.8
    )Forward exchange contracts at December 31, 2003
    
    $
    265.7
    
    
    $
    1.3
    
    
    $
    (9.5
    )
 Fair Value of Financial Instruments The carrying amount of cash and cash equivalents approximates fair value due to
the short-term maturities of these instruments. The fair value of foreign
currency contracts (used for hedging purposes) was estimated based on quoted
market prices at year-end. The fair value of long-term debt, including current
portion, is estimated based on the current rates offered to the Company for
debt of the same maturities. F-42




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The estimated fair values of the Companys financial instruments at December
31, 2001, 2002 and 2003, are as follows: At December 31, 2001
    
    At December 31, 2002
    
    At December 31, 2003Carrying
    
    Fair
    
    Carrying
    
    Fair
    
    Carrying
    
    Fairamount
    
    value
    
    amount
    
    value
    
    amount
    
    valueNon-derivativesLong-term lease receivables (Note 15)
    
    $
    25.6
    
    
    $
    25.6
    
    
    $
    4.6
    
    
    $
    4.6
    
    
    $
    4.9
    
    
    $
    4.9Long-term debt and borrowings (Note 16)
    
    $
    (4.0
    )
    
    $
    (4.0
    )
    
    $
    (0.7
    )
    
    $
    (0.7
    )
    
    $
    (0.2
    )
    
    $
    (0.2
    )DerivativesForward exchange contracts
    
    $
    1.1
    
    
    $
    1.1
    
    
    $
    (3.8
    )
    
    $
    (3.8
    )
    
    $
    (8.2
    )
    
    $
    (8.2
    )
 Accounts receivable, accounts payable and accrued expenses are reflected in the
financial statements at cost which approximates fair value due to the
short-term maturity of these instruments. Concentration of Credit Risk The Company invests its excess cash with France Telecom under a centralized
cash management program and with major banks throughout the world. When making
investments with banks, the Company has a policy that they must have at least
an A ,or equivalent, credit rating. These deposits generally mature within
three months and, to date, the Company has not incurred any related losses.
Cash deposits held with France Telecom are further described in Related party
transactions and cost sharing agreement, Note 25. Concentrations of credit risk, excluding related parties, with respect to trade
receivables are limited due to the large number of independent customers
comprising the Companys customer base. Accounts receivable due from related
parties are further described in Note 25. Ongoing credit evaluations of
customers financial condition are performed and, generally, no collateral is
required. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded managements expectations. F-43




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 19. Provisions for Liabilities and Charges Provisions for liabilities and charges consist of the following: At December 31, 2001Short-term
    
    Long-term
    
    TotalPension and retirement
    
    $
    7.2
    
    
    $
    6.9
    
    
    $
    14.1Restructuring and integration
    
    
    11.2
    
    
    
    22.6
    
    
    
    33.8Share plans
    
    
    
    
    
    
    0.1
    
    
    
    0.1$
    18.4
    
    
    $
    29.6
    
    
    $
    48.0
 At December 31, 2002Short-term
    
    Long-term
    
    TotalPension and retirement
    
    $
    11.2
    
    
    $
    18.3
    
    
    $
    29.5Restructuring and integration
    
    
    17.7
    
    
    
    21.5
    
    
    
    39.2$
    28.9
    
    
    $
    39.8
    
    
    $
    68.7
 At December 31, 2003Short-term
    
    Long-term
    
    TotalPension and retirement
    
    $
    5.2
    
    
    $
    24.5
    
    
    $
    29.7Restructuring and integration
    
    
    18.1
    
    
    
    46.4
    
    
    
    64.5$
    23.3
    
    
    $
    70.9
    
    
    $
    94.2
 Movement on pension and retirement and restructuring and integration provisions
are shown in Notes 17 and 7, respectively. Long-term provisions related to pension and retirement provisions are released
over the expected service lives of employees, which are greater than twelve
months. Long-term provisions related to restructuring and integration will be
utilized in line with lease payments, which are typically greater than twelve
months. 20. Other Non-current Liabilities Other non-current liabilities consist of the following: At December 31,2001
    
    2002
    
    2003Radianz commitments (Notes 8, 12, 24 and 25)
    
    $
    59.7
    
    
    $
    51.2
    
    
    $
    41.8Long-term deferred revenues
    
    
    15.7
    
    
    
    13.1
    
    
    
    27.9Other non-current liabilities
    
    
    26.4
    
    
    
    19.6
    
    
    
    0.4$
    101.8
    
    
    $
    83.9
    
    
    $
    70.1
 Long-term deferred revenue arises from invoicing of customers for certain
services that have not been earned at the start of multi-year contracts. Radianz commitments represent discounted onerous contract liabilities entered
into at the formation of Radianz. These onerous contract liabilities initially
amounted to an obligation to provide $125 in services over a ten year period
from June 2001. In addition to the Non-current liabilities set out above,
$12.5, $10.1 and $9.5 are included within Other current liabilities at
December 31, 2001, 2002 and 2003, respectively. At December 31, 2002, $10.5 of other non-current liabilities represented
deferred reimbursement of restructuring and integration capital expenditure
that was released against a receivable from France Telecom (see Note 7). F-44




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

21. Minority interests

Changes in minority interests are as follows:



Years ended December 31,2001
    
    2002
    
    2003Balance at beginning of the year
    
    $
    0.4
    
    
    $
    0.4
    
    
    $
    0.7Charge for the year
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.1Other changes
    
    
    (0.6
    )
    
    
    (0.4
    )
    
    
    (0.3
    )Balance at end of the year
    
    $
    0.4
    
    
    $
    0.7
    
    
    $
    0.5


During the year ended December 31, 2003, the Company purchased the outstanding
minority interest of entities in Egypt and Russia. No goodwill arose on the
purchase of the outstanding minority interests.

F-45



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

22. Shareholders Equity

Authorized Share Capital

The composition of authorized and issued share capital as at December 31, 2003
is as follows:

|                              |  |                   |      |                  |  |               |             |           |  |            |             |                       |  |  |       |  |  |  |       | 
|----------------------------- |  | ----------------- | ---- | ---------------- |  | ------------- | ----------- | --------- |  | ---------- | ----------- | --------------------- |  |  | ----- |  |  |  | ----- | 
|                              |  | Nominal value per |      |                  |  |               |             |           |  |            |             | Issued and fully paid
|                              |  | share             |      | Number of shares |  | share capital
|                              |  |                   |      |                  |  |              
|                              |  | Euro              |      | Authorized       |  | Issued        |             | Euro 000 |  | U.S.$ 000
|                              |  |                   |      |                  |  |               |             |           |  |           
|Ordinary shares               |  |                   | 0.01 |                  |  |               | 989,000,000 |           |  |            | 282,813,764 |                       |  |  | 2,828 |  |  |  | 3,258 | 
|Convertible preference shares |  |                   | 0.01 |                  |  |               | 11,000,000  |           |  |            | 10,000,000  |                       |  |  | 100   |  |  |  | 85    | 

During the year ended December 31, 2001, the composition of the share capital
was changed as follows: the denomination of the share capital was changed to
Euros resulting in Ordinary shares with a nominal value of NLG 0.02 being
converted to shares with a nominal value of Euro 0.01; the Company increased
the authorized share capital by 469 million ordinary shares and eleven million
preference shares; and the Company issued 80,617,348 ordinary shares and ten
million convertible preference shares to Atlas as a part of the France Telecom
Transactions. On June 29, 2006, the fifth anniversary of their issue, each
preference share will automatically convert into one ordinary share. In the
event that the Company declares a dividend on the ordinary shares, the holders
of preference shareholders are entitled to receive a number of newly issued
preference shares equal to 0.045 times the number of preference shares held.

The Company issued 528,246, 4,908 and 104,707 ordinary shares relating to the
exercising of options and restricted shares during the years ended December 31,
2001, 2002 and 2003, respectively.

Under the Articles of Association of the Company, if preference shares are
outstanding on the date of termination of the Company, all that remains after
paying all debts of the terminated company will be divided equally amongst all
shareholders, based on the number of shares held at that time, regardless of
the type of shares.

Statutory Reserves

In certain countries in which the Company operates, the local regulations
require a proportion of the net earnings to be classified as statutory
reserves. Where this is applicable, accumulated reserves have been set aside
at the stipulated rate. These reserves are for the most part not available for
distribution, except on closure of operations.

F-46



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

23. Stock-based Compensation

Amounts Expensed

The Company will pay social security contributions and other charges related to
the share awards and share option plans in the years in which the awards vest
or the options are exercised. These charges will depend on various factors,
including the employees tax jurisdiction, local laws in these countries and
the share price at the time of vesting. The Company accrues the cost of the
social charges over the period between the dates of granting and vesting of
the options and awards based on estimates of the likely payments.

Charges/(income) in relation to the stock-based compensation are set out below:

|               |  |                          |      |      |  |      |      |   |  |   |   | 
|-------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | - | - | 
|               |  | Years ended December 31,
|               |  |                         
|               |  | 2001                     |      | 2002 |  | 2003
|               |  |                          |      |      |  |     
|Social charges |  | $                        | (9.0 | )    |  | $    | (9.9 | ) |  | $ |  | 
|Option buyback |  |                          | 1.9  |      |  |      |     |   |  |   |  | 
|               |  |                          |      |      |  |      |      |   |  |   |   | 
|               |  | $                        | (7.1 | )    |  | $    | (9.9 | ) |  | $ |  | 
|               |  |                          |      |      |  |      |      |   |  |   |   | 

In the year ended December 31, 2002, the Company received $9.8 from the
settlement of litigation in regard to social charges and also released of a
$0.1 surplus provision. Income is recognized when the estimated social charge
liability reduces as a result of a decline in the estimated fair value of the
options and share awards.

Employee Share Award Plan

Under the terms of an agreement between SITA and the Company, 850,000
certificates in the SITA Foundation (which was, until the France Telecom
Transactions, the largest holder of ordinary shares in the Company), were
transferred to an Employee Trust for the benefit of eligible employees of SITA,
the SITA Equant network Joint Venture, the Company and its respective
subsidiary companies (the Participating Employers). Each certificate
represented the right to obtain twenty Equant ordinary shares. The independent
trustees of the Employee Trust were empowered to use these certificates for the
granting of ordinary and discretionary awards of certificates.

All permanent employees who work on a full-time or part-time basis are eligible
to participate, subject to being employed by one of the participating employers
on the eligibility date. The award of certificates to eligible employees is
free of charge. The number of shares included in ordinary awards to each
eligible employee is calculated as a proportion of their annual salary to the
total annual salary cost of all participating employers at each award date. The
selection of participants and the number of shares for the grant of
discretionary awards is discretionary.

One third of the shares granted vest to the employees on each twelve month
anniversary of the date of the grant, unless this vesting period is reduced by
the trustees of the Employee Trust. The award of shares to eligible employees
is free of charge.

As a result of the France Telecom Transactions, 18.7 million Equant shares
representing the unvested awards at the date of the France Telecom
Transactions, were sold by the SITA Foundation, on behalf of the Employee
Trust, to France Telecom in exchange for 8.5 million France Telecom shares. On
November 15, 2001, as a result of the closing of the France Telecom
Transactions, Equant and SITA established their own company-specific employee
trusts to govern the disposition of all awards granted after November 30, 1998.

The Equant Employee Trust retains the right to the first U.S.$8.556 per
Discretionary France Telecom share or the first U.S.$3.889 per Discretionary
Equant share. There have been no awards granted since December 31, 2001.

F-47



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

The assets of the Equant Employee Trust, which are held for the benefit of
eligible employees, consist of the following:

|                               |  |                 |         |      |  |   |         | 
|------------------------------ |  | --------------- | ------- | ---- |  | - | ------- | 
|                               |  | At December 31,
|                               |  |                
|                               |  | 2002            |         | 2003
|                               |  |                 |         |     
|France Telecom shares (number) |  |                 | 568,586 |      |  |   | 137,260 | 
|Equant shares (number)         |  |                 | 36,116  |      |  |   |        | 
|Cash                           |  | $               | 4.9     |      |  | $ | 6.7     | 

In the year ended December 31, 2003, the Company paid out surplus cash of $3.6,
held by the Equant Employee Trust, to permanent employees who had previously
exercised Discretionary Awards. These payments were accounted for by the
Company as a bonus expense, as part of Salaries and wages.

The movement in the number of unvested France Telecom share awards are set out
in the table below:

|                               |  |           |        |  
|------------------------------ |  | --------- | ------ | -
|                               |  | Number of
|                               |  | shares   
|                               |  |          
|At December 31, 2001           |  |           | 36,443 |  
|Transfer of SITA LNO employees |  |           | 42,978 |  
|Shares vested during the year  |  |           |       |  
|                               |  |           |        |  
|At December 31, 2002           |  |           | 79,421 |  
|Transfer of SITA LNO employees |  |           |       |  
|Shares vested during the year  |  |           |       |  
|Shares lapsed during the year  |  |           | (2,652 | )
|                               |  |           |        |  
|At December 31, 2003           |  |           | 76,769 |  
|                               |  |           |        |  

Share Option Plan

The Company has a Share Option Plan (the Option Plan) that enables the
Company to grant options and restricted share awards covering up to 5% of its
shares outstanding. As of December 31, 2003, the Company had granted options
and awards under the option plan, less forfeitures, covering 8,463,393 shares
or 2.9% of the Companys outstanding shares. Under the terms of the Option
Plan, the exercise price of options can be no less than the average price of
the Companys shares on the New York Stock Exchange on the date of grant.
However, with respect to newly hired employees, including employees of LNO
groups that SITA transfers to the Company or of any business the Company
acquires, the exercise price for options granted is generally set during a
specific period. In certain circumstances the exercise price may be specified
within the terms of the hiring agreement for a newly hired employee.

On March 27, 2002, the Company awarded 25,000 options on restricted shares to a
member of the management team. These awards are included in the total granted
options and awards described above.

During the year ended December 31, 2003, the company issued 104,707 shares
relating to the exercise of 33,340 options and grant of 71,367 restricted
shares.

F-48



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

The table below provides details of unexercised options granted and weighted
average exercise prices as of December 31, 2001, 2002 and 2003:

|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |        | 
|----------------------------------------------- | ----------------------------------------------------- |  | --------- | ---------- | - |  | ----- |  | -------- |  | -------- | ------ | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  | Weighted
|                                                |                                                       |  |           |            |   |  |       |  |          |  | Average 
|                                                |                                                       |  | Number of |            |   |  |       |  | Exercise
|                                                |                                                       |  | shares    |            |   |  |       |  | Price   
|                                                |                                                       |  |           |            |   |  |       |  |         
|Unexercised options granted  December 31, 2000 |                                                       |  | 4,598,694 |            |   |  | U.S.$ |  |          |  | 49.35    |       
|Options granted                                 |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | At exercise price range of U.S.$nil to U.S.$50.00     |  |           | 233,809    |   |  |       |  |          |  |          | 15.58  | 
|Options exercised                               |                                                       |  | (528,246  | )          |   |  |       |  |          |  | 0.06     |       
|Options forfeited                               |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | At exercise price range of U.S.$nil to U.S.$50.00     |  |           | (160,746   | ) |  |       |  |          |  |          | 26.11  | 
|                                                | At exercise price range of U.S.$50.01 to U.S.$100.00  |  |           | (981,753   | ) |  |       |  |          |  |          | 90.09  | 
|                                                | At exercise price range of U.S.$100.01 to U.S.$150.00 |  |           | (32,961    | ) |  |       |  |          |  |          | 106.51 | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | Total options forfeited in year                       |  |           | (1,175,460 | ) |  |       |  |          |  |          | 81.80  | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|Unexercised options granted  December 31, 2001 |                                                       |  | 3,128,797 |            |   |  | U.S.$ |  |          |  | 42.96    |       
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|Options granted                                 |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | At exercise price range of U.S.$nil to U.S.$50.00     |  |           | 6,512,698  |   |  |       |  |          |  |          | 13.49  | 
|Options exercised                               |                                                       |  | (4,908    | )          |   |  |       |  |          |  |         |       
|Options forfeited                               |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | At exercise price range of U.S.$nil to U.S.$50.00     |  |           | (899,284   | ) |  |       |  |          |  |          | 32.72  | 
|                                                | At exercise price range of U.S.$50.01 to U.S.$100.00  |  |           | (79,697    | ) |  |       |  |          |  |          | 85.10  | 
|                                                | At exercise price range of U.S.$100.01 to U.S.$150.00 |  |           | (1,964     | ) |  |       |  |          |  |          | 107.78 | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | Total options forfeited in year                       |  |           | (980,945   | ) |  |       |  |          |  |          | 37.13  | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|Unexercised options granted  December 31, 2002 |                                                       |  | 8,655,642 |            |   |  | U.S.$ |  |          |  | 21.47    |       
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|Options granted                                 |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | At exercise price range of U.S.$nil to U.S.$50.00     |  |           | 285,974    |   |  |       |  |          |  |          | 6.52   | 
|Options exercised                               |                                                       |  | (33,340   | )          |   |  |       |  |          |  | 3.64     |       
|Options forfeited                               |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | At exercise price range of U.S.$nil to U.S.$50.00     |  |           | (1,036,384 | ) |  |       |  |          |  |          | 23.82  | 
|                                                | At exercise price range of U.S.$50.01 to U.S.$100.00  |  |           | (55,825    | ) |  |       |  |          |  |          | 84.73  | 
|                                                | At exercise price range of U.S.$100.01 to U.S.$150.00 |  |           | (677       | ) |  |       |  |          |  |          | 102.13 | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|                                                | Total options forfeited in year                       |  |           | (1,092,886 | ) |  |       |  |          |  |          | 26.98  | 
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       
|Unexercised options granted  December 31, 2003 |                                                       |  | 7,815,390 |            |   |  | U.S.$ |  |          |  | 20.23    |       
|                                                |                                                       |  |           |            |   |  |       |  |          |  |          |       

The exercise dates of the number of options outstanding at December 31, 2003 are as follows:

|                     |  |  |           | 
|-------------------- |  |  | --------- | 
|At December 31, 2003 |  |  | 3,092,563 | 
|2004                 |  |  | 345,841   | 
|2005                 |  |  | 1,950,736 | 
|2006                 |  |  | 2,015,372 | 
|2007                 |  |  | 410,878   | 
|                     |  |  |           | 
|                     |  |  | 7,815,390 | 
|                     |  |  |           | 

Of the options exercised in the year ended December 31, 2002, 4,908 related to
the early vesting of restricted shares. During the year ended December 31,
2003, 33,340 options were exercised.

F-49



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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

24. Contingent Liabilities and Commitments

Set out below is a summary of contingent liabilities and commitments at
December 31, 2003:

|                             |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |         | 
|---------------------------- | --------------------------------------------- |  | -------------------------------------------- | ----- | --------- | ---- | ----------- | ----- | ---------- | ---- | ----- | ----- |  | - | ----- | ----- |  | ---- | ------- | ------- | 
|                             |                                               |  | Timing of obligation / commercial commitment
|                             |                                               |  |                                             
|                             |                                               |  | Note                                         |       | Less than |      | One to five |       | More than  |      |       |       | 
|                             |                                               |  | reference                                    |       | one year  |      | years       |       | five years |      | Total
|                             |                                               |  |                                              |       |           |      |             |       |            |      |      
|Contractual commitments      |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |        
|                             | Bank loans and overdrafts                     |  |                                              | 16    |           |      | $           | 1.0   |            |      | $     |      |  |   | $     |      |  |      | $       | 1.0     | 
|                             | Capital lease commitments                     |  |                                              | 16    |           |      |             | 0.3   |            |      |       | 0.2   |  |   |       |      |  |      |         | 0.5     | 
|                             | Operating lease commitments                   |  |                                              | 24    |           |      |             | 454.5 |            |      |       | 533.3 |  |   |       | 176.9 |  |      |         | 1,164.7 | 
|                             | Irrevocable purchase commitments              |  |                                              | 24    |           |      |             | 16.6  |            |      |       |      |  |   |       |      |  |      |         | 16.6    | 
|                             | Commitments to SITA in respect
of the network |  |                                              | 25    |           |      |             |      |            |      |       |      |  |   |       |      |  |      |         |        | 
|                             |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |        
|                             |                                               |  |                                              |       |           | $    | 472.4       |       |            | $    | 533.5 |       |  | $ | 176.9 |       |  | $    | 1,182.8 |        
|                             |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |        
|Other commercial commitments |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |        
|                             | Credit lines                                  |  |                                              | 16    |           |      | $           | 81.2  |            |      | $     |      |  |   | $     |      |  |      | $       | 81.2    | 
|                             | Guarantees                                    |  |                                              | 24    |           |      |             | 181.6 |            |      |       |      |  |   |       |      |  |      |         | 181.6   | 
|                             | Defined benefit schemes                       |  |                                              | 17    |           |      |             |      |            |      |       |      |  |   |       | 67.5  |  |      |         | 67.5    | 
|                             | Radianz commitments                           |  |                                              | 12,25 |           |      |             | 12.5  |            |      |       | 50.0  |  |   |       | 18.8  |  |      |         | 81.3    | 
|                             | Other commercial commitments                  |  | na                                           |       |           | 72.6 |             |       |            | 10.1 |       |       |  |  |       |       |  | 82.7 |        
|                             |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |        
|                             |                                               |  |                                              |       |           | $    | 347.9       |       |            | $    | 60.1  |       |  | $ | 86.3  |       |  | $    | 494.3   |        
|                             |                                               |  |                                              |       |           |      |             |       |            |      |       |       |  |   |       |       |  |      |         |        

Radianz commitments shown in the table above represent the undiscounted future
obligations. The present value of these obligations is held in Other non-current liabilities in
the balance sheet (see Note 20).

Credit lines shown in the table above represent total facilities available,
which have been partially utilized (see Note 16).

Operating Lease Commitments

Operating lease expense consists of the following:

|                                                     |  |                          |         |      |  |      |         |  |  |   |       | 
|---------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  | - | ----- | 
|                                                     |  | Years ended December 31,
|                                                     |  |                         
|                                                     |  | 2001                     |         | 2002 |  | 2003
|                                                     |  |                          |         |      |  |     
|Office space, equipment and motor vehicles           |  | $                        | 101.9   |      |  | $    | 156.9   |  |  | $ | 117.1 | 
|Circuits and IRU operating and maintenance
contracts |  |                          | 926.0   |      |  |      | 1,001.6 |  |  |   | 854.6 | 
|                                                     |  |                          |         |      |  |      |         |  |  |   |       | 
|                                                     |  | $                        | 1,027.9 |      |  | $    | 1,158.5 |  |  | $ | 971.7 | 
|                                                     |  |                          |         |      |  |      |         |  |  |   |       | 

F-50



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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

At December 31, 2003, the approximate future minimum lease payments under
non-cancelable operating leases are as follows:

|                    |  |                |       |                   |  |         |      |       |  |   |       |  |  |   |         | 
|------------------- |  | -------------- | ----- | ----------------- |  | ------- | ---- | ----- |  | - | ----- |  |  | - | ------- | 
|                    |  | Office space,  |       | IRU operating and |  |         |      |       |  |   |       | 
|                    |  | equipment and  |       | maintenance       |  | Circuit |      |       |  |  
|                    |  | motor vehicles |       | commitments       |  | leases  |      | Total
|                    |  |                |       |                   |  |         |      |      
|2004                |  | $              | 126.7 |                   |  | $       | 8.1  |       |  | $ | 319.7 |  |  | $ | 454.5   | 
|2005                |  |                | 90.7  |                   |  |         | 8.1  |       |  |   | 125.0 |  |  |   | 223.8   | 
|2006                |  |                | 78.5  |                   |  |         | 7.7  |       |  |   | 105.3 |  |  |   | 191.5   | 
|2007                |  |                | 57.8  |                   |  |         | 7.7  |       |  |   | 4.6   |  |  |   | 70.1    | 
|2008                |  |                | 40.2  |                   |  |         | 7.7  |       |  |   |      |  |  |   | 47.9    | 
|2009 and thereafter |  |                | 141.3 |                   |  |         | 35.6 |       |  |   |      |  |  |   | 176.9   | 
|                    |  |                |       |                   |  |         |      |       |  |   |       |  |  |   |         | 
|                    |  | $              | 535.2 |                   |  | $       | 74.9 |       |  | $ | 554.6 |  |  | $ | 1,164.7 | 
|                    |  |                |       |                   |  |         |      |       |  |   |       |  |  |   |         | 

Access circuit leases which account for over 60% of circuit lease expense, are
usually entered into solely to support specific customer contracts and
therefore the financial risks associated with these leases are specifically
mitigated by offsetting revenues from the customer contracts. Furthermore,
historically the Company has been able to exchange access circuit leases for
alternative routes with the same supplier without incurring penalties. The
financial risks associated with the IRU commitments and other circuit leases
are expected to be offset by long-term customer contracts for at least the next
three years. Of the gross IRU and maintenance commitments shown above, $25.6
are included on the balance sheet at December 31, 2003, in Provisions relating
to IRUs that the company has placed beyond economic use, but still has
operating and maintenance obligations to pay to suppliers.

Of the Companys total Cash and cash equivalents at December 31, 2001, 2002 and
2003, $0.3, $3.5 and $4.3, respectively, related to restricted cash. These
amounts relate primarily to commitments provided to third parties for
facilities rental agreements.

Irrevocable purchase commitments

In the ordinary course of business the Company enters into purchase contracts
with network equipment manufacturers and into supply contracts with other
suppliers. Management believes that there is no significant risk of financial
loss from these contracts.

The Company has entered into commitments lasting over one year to purchase IRUs
that will result in payments by the Company of $16.6 in the year ended December
31, 2004. These commitments are purchase commitments with France Telecom.

As part of an outsourcing contract entered into during the year ended December
31, 2003, the Company has committed to purchase, in 2004, approximately $10.0
of network assets.

Defined Benefit Pension Schemes

As described in Note 17, the Company sponsors defined benefit pension schemes
in a number of countries. At December 31, 2001, 2002 and 2003, the present
value of the Companys obligations exceeded the fair value of plan assets by
$25.9, $60.7 and $67.5, respectively. Of this amount $9.7, $26.5 and $29.5 is
included in the balance sheet at December 31, 2001, 2002 and 2003,
respectively.

F-51



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

Other Commercial Commitments and Contingent Liabilities

The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Management does not
believe that there are currently any asserted or unasserted claims that will
have a material adverse effect on the financial position, results of operations
or cash flows of the Company.

The agreement with Radianz obligated the Company to migrate portions of the
Radianz backbone network onto the Companys own network by July 2003. The
Company has agreed to deliver cost savings on the operation of the migrated
network. The Company is required to compensate Radianz if the cost saving
targets are not met. It is not possible to quantify this contingent liability.
The Company is in negotiation with Reuters and Radianz regarding the technical
requirements of the Reuters applications as these applications prevent this
cost saving commitment being achieved.

The Company and its subsidiaries have provided guarantees to non-consolidated
entities, totaling $181.6 at December 31, 2003. The majority of this guarantee
is in respect of operating lease commitments.

Management considers, to the best of its current knowledge, that there are no
existing commitments likely to have a significant impact on the current or
future financial situation of the Company other than those listed above.

F-52



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

25. Related Party Transactions and Cost Sharing Agreement

The company considers SITA, Radianz, and members of the France Telecom group as
related parties. Key trading transactions with these parties are set out below:

|              |  |                |  |   |       |                          |       |      |       |      |         |   |       |   |         | 
|------------- |  | -------------- |  | - | ----- | ------------------------ | ----- | ---- | ----- | ---- | ------- | - | ----- | - | ------- | 
|              |  |                |  |   |       | Years ended December 31,
|              |  |                |  |   |       |                         
|              |  |                |  |   |       | 2001                     |       | 2002 |       | 2003
|              |  |                |  |   |       |                          |       |      |       |     
|Revenues      |  | SITA           |  | $ | 654.0 |                          |       | $    | 714.0 |      |         | $ | 641.0 |  
|              |  | Radianz        |  |   | 85.2  |                          |       |      | 109.4 |      |         |   | 88.6  |  
|              |  | France Telecom |  |   | 134.7 |                          |       |      | 296.3 |      |         |   | 372.0 |  
|              |  |                |  |   |       |                          |       |      |       |      |         |   |       |   |         | 
|              |  |                |  |   |       | $                        | 873.9 |      |       | $    | 1,119.7 |   |       | $ | 1,101.6 | 
|Cost of sales |  | SITA           |  | $ | 512.8 |                          |       | $    | 475.2 |      |         | $ | 233.9 |  
|              |  | France Telecom |  |   | 194.8 |                          |       |      | 221.2 |      |         |   | 172.0 |  
|              |  |                |  |   |       |                          |       |      |       |      |         |   |       |   |         | 
|              |  |                |  |   |       | $                        | 707.6 |      |       | $    | 696.4   |   |       | $ | 405.9   | 

|                    |  |                |  |   |       |                 |       |      |       |      |       |   |       |   |       | 
|------------------- |  | -------------- |  | - | ----- | --------------- | ----- | ---- | ----- | ---- | ----- | - | ----- | - | ----- | 
|                    |  |                |  |   |       | At December 31,
|                    |  |                |  |   |       |                
|                    |  |                |  |   |       | 2001            |       | 2002 |       | 2003
|                    |  |                |  |   |       |                 |       |      |       |     
|Accounts Receivable |  | SITA           |  | $ | 297.4 |                 |       | $    | 188.0 |      |       | $ | 183.5 |  
|                    |  | Radianz        |  |   | 67.0  |                 |       |      | 37.0  |      |       |   | 10.9  |  
|                    |  | France Telecom |  |   | 324.0 |                 |       |      | 356.5 |      |       |   | 253.9 |  
|                    |  |                |  |   |       |                 |       |      |       |      |       |   |       |   |       | 
|                    |  |                |  |   |       | $               | 688.4 |      |       | $    | 581.5 |   |       | $ | 448.3 | 
|Accounts Payable    |  | SITA           |  | $ | 235.9 |                 |       | $    | 109.6 |      |       | $ | 72.0  |  
|                    |  | Radianz        |  |   |      |                 |       |      |      |      |       |   | 5.8   |  
|                    |  | France Telecom |  |   | 215.5 |                 |       |      | 235.0 |      |       |   | 202.8 |  
|                    |  |                |  |   |       |                 |       |      |       |      |       |   |       |   |       | 
|                    |  |                |  |   |       | $               | 451.4 |      |       | $    | 344.6 |   |       | $ | 280.6 | 

SITA and SITA Equant network Joint Venture

As of January 1, 2001, the Company held a 50% interest in the SITA Equant
network Joint Venture (the Joint Venture), a co-operative registered in
Belgium, in which SITA, also registered in Belgium, held the remaining 50%
interest. Under a separate agreement, the Company and SITA shared the costs of
the jointly owned and operated telecommunications network according to an
agreed formula linked to network usage, or by negotiated agreement. The cost
sharing arrangement was applied from January 1, 1996 to June 29, 2001. Under
the agreement, the Company funded future expansion of this common network on
the basis of an annual jointly agreed budget. SITA provided various services to
the Company, which included the provision of technical services, equipment
purchases, secondment of staff and provision of office space. Joint Venture
network costs included network circuits and the related costs, and also certain
central services. The Companys non-Joint Venture costs included access
circuits, the costs of customer premises equipment, selling costs and general
and administrative costs. For the period ended June 29, 2001, the Companys
total network cost was $187, of which $168 was the Companys share of the Joint
Venture network costs.

As a result of the France Telecom Transactions, Equant and SITA terminated the
existing SITA Equant network Joint Venture and replaced it with a series of new
agreements (see Note 1). The resultant relationship is one where Equant
assumed full operational control and management of the network and now provides
telecommunications services to SITA to support the air transport community.

Under these revised agreements that came into effect on June 29, 2001, the
Company is responsible for operating and managing the network. However, in
certain countries SITA continues to operate the network locally. The Company is
charged all the costs of operating in such countries by SITA. SITA will
continue to operate locally in certain countries until the Company can assume
full legal ownership of all of the local network assets. The Company will
assume legal ownership as soon as it becomes possible in each of the affected
countries (see Note 5). The Company invoices SITA for use of the Companys
global network. For the period from July 1, 2001 to June 30, 2003, the
invoicing to SITA was subject to minimum revenue commitments.

F-53



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

Radianz and Reuters

As described in Note 12, on February 3, 2000, the Company set up a joint
venture with Reuters called Radianz. Equant contributed approximately $225 in
cash at the incorporation of the joint venture, in June 2000. In addition,
Equant has agreed to provide approximately $125 in services to Radianz over a
period of up to ten years, of which $12.5 were provided during each of the
years ended December 2001, 2002 and 2003, respectively. The net present value
of the outstanding commitment, included in Other liabilities is as follows:

|                                          |  |                 |      |      |  |      |      |  |  |   |      | 
|----------------------------------------- |  | --------------- | ---- | ---- |  | ---- | ---- |  |  | - | ---- | 
|                                          |  | At December 31,
|                                          |  |                
|                                          |  | 2001            |      | 2002 |  | 2003
|                                          |  |                 |      |      |  |     
|Falling due within twelve months          |  | $               | 12.5 |      |  | $    | 10.1 |  |  | $ | 9.5  | 
|Falling due after twelve months (Note 20) |  |                 | 59.7 |      |  |      | 51.2 |  |  |   | 41.8 | 
|                                          |  |                 |      |      |  |      |      |  |  |   |      | 
|                                          |  | $               | 72.2 |      |  | $    | 61.3 |  |  | $ | 51.3 | 

The Company is charged by Reuters for costs it bills on to Radianz that relate
to the costs of network capacity which has yet to be migrated over to the
companys network. These amounted to $45.6, $60.4, and $25.5 during the years
ended December 2001, 2002 and 2003, respectively.

France Telecom

Following the France Telecom Transactions the Company received reimbursement
for restructuring and integration expenses (see Note 7). The Company also has
trading transactions with France Telecom. During the year ended December 31,
2003, these were as follows:

|                                                            |  |                  |       |                |       |                  |  |                  |                  |  |  |  |  |  |  | 
|----------------------------------------------------------- |  | ---------------- | ----- | -------------- | ----- | ---------------- |  | ---------------- | ---------------- |  |  |  |  |  |  | 
|                                                            |  | Income           |       | Expense       
|                                                            |  |                  |       |               
|                                                            |  | Amount           |       | Classification |       | Amount           |  | Classification  
|Equant sales to France Telecom                              |  | $                | 372.0 |                |       | Revenue          |  | -Not applicable-
|France Telecom sales to Equant                              |  | -Not applicable- |       | $              | 172.0 |                  |  | Cost of Services
|Ancillary support services with respect to the network      |  | $                | 47.0  |                |       | Other income     |  | -Not applicable-
|Switched voice services                                     |  | $                | 95.4  |                |       | Other income     |  | -Not applicable-
|Pre-paid & Post-paid calling cards & voice carrier services |  | $                | 4.6   |                |       | Cost of Services |  | $                | -Not applicable- | 

Commercial Relationships between the Company and France Telecom with Respect to
End User Customers and the Network

On June 29, 2001, the Company and France Telecom, through its France-based
subsidiary, Transpac S.A. (Transpac), entered into numerous agreements, three
of which (Umbrella, Affiliation and Reseller) together govern the commercial
relationship between the Company and France Telecom in France. These agreements
establish the terms and conditions that govern the joint business planning and
monitoring process between the Company and Transpac as well as the sale and
support of each others products and services (except voice carrier and calling
card services) in their respective markets. Transpac agreed to a minimum
revenue guarantee to the Company of $185 for 2003. Revenues from these sales
will be included in revenues as accrued. For 2004 and subsequent years the
minimum revenue guarantees will be negotiated between the parties. Various
ancillary agreements establish the terms and conditions for support services
including trademark licensing and product development. These commercial
relationships will continue under varying terms so long as France Telecom
continues to own at least 34% of the Companys outstanding shares.

France Telecom supplies transmission capacity and IP services to the Company in
certain geographic regions where France Telecom has competitive prices and
services. The Company provides transmission capacity and IP services to France
Telecom in countries where France Telecom does not have a presence. Pricing
for these services is based on market price.

Ancillary support services with Respect to the Network

The Company may also supply ancillary support services on a cost recovery
basis. These commercial relationships will continue under varying terms so long
as France Telecom continues to own at least 34% of the Companys outstanding
shares. Reimbursement for these ancillary support services is included within
Other operating income.

F-54



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

Switched Voice Services

The Company and France Telecom have agreed to transfer the operation,
management and financial responsibility for the Companys switched voice
business and switched voice platform (most of which was acquired in the merger
with Global One) to France Telecom. The Company and France Telecom have
planning and financial arrangements in place to ensure that the switched voice
business does not materially affect the Companys profitability. The Company
expects to migrate gradually its voice business to a voice over IP platform by
the end of 2005. Reimbursements from France Telecom in relation to these
arrangements for voice services are shown within Other operating income.

Calling Cards and Voice Carrier Services

The Company acts as France Telecoms agent on a limited risk basis for its
pre-paid and post-paid calling cards in various countries. The Company is also
the distributor for France Telecoms voice carrier business outside France. In
light of this limited risk to the Company of providing these services, the
Company earns a fee of 0.5 %. The amounts invoiced are passed through to
France Telecom less the Companys fees. In view of the limited risk the
revenues from this activity of $51.3, $65.3 and $4.6 for the years ended
December 31, 2001, 2002 and 2003, respectively, are netted against costs. Both
of these commercial relationships derive from distribution agreements
originally executed by France Telecom and Global One. The Company has agreed
with France Telecom to continue servicing the calling cards and voice carrier
services businesses.

Cash on deposit and loans with France Telecom

At December 31, 2001, 2002 and 2003, respectively, the Company had deposited
$237.5, $307.8 and $138.2, of surplus funds with France Telecom under a
centralized cash management program. Amounts on deposit are repayable on
demand by the Company. Additionally, the Company has placed $150.0 on
short-term loan with France Telecom. This loan is unsecured and repayable in
July 2004.

Funds on deposit and on short-term loan bear interest at market rates.
Interest earned on amounts on deposit with France Telecom totaled $5.6, $3.8
and $3.2 in the years ended December 31, 2001, 2002 and 2003, respectively.

Other Related Party Transactions

Included in Accounts receivable at December 31, 2001, was a receivable from a
former Management Board member of $0.4 due to taxes paid on his behalf
following his departure from the Company ($nil at December 31, 2002).

In 2002, the Company generated revenue from iPass, Tripeze and STSN of $4.1,
$nil and $0.5, respectively. Accounts receivable from these companies at
December 31, 2002 were $nil, $nil and $0.3, respectively.

In 2003, the Company generated revenue from iPass and STSN of $4.5 and $nil,
respectively. Accounts receivable from these companies at December 31, 2003
were $0.4 and $nil, respectively. Tripeze was sold during 2002 (see Note 12).

F-55



---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 26. Segmental Information The Company has reorganized its business according
to function and
specialization, rather than geographic or divisional reporting lines, and as a
result the Company has a single reportable segment, although revenues continue
to be measured by lines of business. Revenues by Lines of Business Years ended December 31,2001
    
    2002
    
    2003Network Services
    
    $
    1,258.5
    
    
    $
    1,567.1
    
    
    $
    1,607.1Integration Services
    
    
    447.1
    
    
    
    453.4
    
    
    
    476.6Other services
    
    
    142.3
    
    
    
    238.9
    
    
    
    224.2SITA contract
    
    
    542.8
    
    
    
    713.7
    
    
    
    641.0$
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    2,948.9
 Revenues Split Between Products and Services Years ended December 31,2001
    
    2002
    
    2003Services revenues
    
    $
    2,249.4
    
    
    $
    2,838.0
    
    
    $
    2,779.6Product revenues
    
    
    141.3
    
    
    
    135.1
    
    
    
    169.3$
    2,390.7
    
    
    $
    2,973.1
    
    
    $
    2,948.9
 Geographic Information The following table presents revenue by country,
based on country of invoice
origin, and long-lived assets by country, based on the location of the assets: The
    
    United
    
    United
    
    OtherIreland
    
    Netherlands
    
    States
    
    Kingdom
    
    countries
    
    TotalDecember 31, 2003Revenues from external customers
    
    $
    1,094.5
    
    
    $
    16.0
    
    
    $
    549.5
    
    
    $
    596.8
    
    
    $
    692.1
    
    
    $
    2,948.9Long-lived assets
    
    $
    28.3
    
    
    $
    88.2
    
    
    $
    249.4
    
    
    $
    137.1
    
    
    $
    667.0
    
    
    $
    1,170.0December 31, 2002Revenues from external customers
    
    $
    1,079.7
    
    
    $
    20.6
    
    
    $
    608.0
    
    
    $
    576.5
    
    
    $
    688.3
    
    
    $
    2,973.1Long-lived assets
    
    $
    4.6
    
    
    $
    92.5
    
    
    $
    262.6
    
    
    $
    157.9
    
    
    $
    788.7
    
    
    $
    1,306.3December 31, 2001Revenues from external customers
    
    $
    573.0
    
    
    $
    52.7
    
    
    $
    636.5
    
    
    $
    609.8
    
    
    $
    518.7
    
    
    $
    2,390.7Long-lived assets
    
    $
    12.3
    
    
    $
    152.6
    
    
    $
    339.4
    
    
    $
    183.2
    
    
    $
    703.0
    
    
    $
    1,390.5
 The Company invoices a number of global customers,
including SITA, from a legal
entity in Ireland. F-56




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Reliance on Major Customers The following table presents sales of services and
products to customers that
contribute over 10% of revenues: FranceSITA
    
    Telecom(1)
    
    Other
    
    TotalDecember 31, 2003
    
    $
    641.0
    
    
    $
    372.0
    
    
    $
    1,935.9
    
    
    $
    2,948.9As a percentage of total revenues
    
    
    21.7
    %
    
    
    12.6
    %
    
    
    65.7
    %December 31, 2002
    
    $
    714.0
    
    
    $
    296.3
    
    
    $
    1,962.8
    
    
    $
    2,973.1As a percentage of total revenues
    
    
    24.0
    %
    
    
    10.0
    %
    
    
    66.0
    %December 31, 2001
    
    $
    654.0
    
    
    $
    134.7
    
    
    $
    1,602.0
    
    
    $
    2,390.7As a percentage of total revenues
    
    
    27.4
    %
    
    
    5.6
    %
    
    
    67.0
    %
 (1)  
France Telecom revenues in 2001 are for the period from June 29 to December 31, 2001 27. Subsequent Events There have been no events subsequent to
December 31, 2003, which require
disclosure in these Consolidated Financial Statements. 28. Publicly Available Financial Information The Company files an annual report with the
Securities and Exchange Commission
in the United States on form 20-F. This filing includes a reconciliation to
accounting principles generally accepted in the United States. A copy of this
document can be obtained from the Companys website, www.equant.com. F-57




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 29. List of Subsidiaries and Affiliates The main changes in the scope of consolidation in
2003 are stated in Note 5.
The subsidiaries and affiliates of the Company at December 31, 2003 are stated
below: Fully Consolidated Subsidiaries Country
    
    Name of Company
    
    Control
    
    InterestArgentina
    
    Equant Argentina S.A.
    
    
    100
    %
    
    
    100
    %Armenia
    
    Equant Armenia LLC.
    
    
    100
    %
    
    
    100
    %Australia
    
    Equant Australia Pty. Ltd.
    
    
    100
    %
    
    
    100
    %Australia
    
    Equant Services Australia Pty. Ltd.
    
    
    100
    %
    
    
    100
    %Austria
    
    Equant Austria Telekommunikations Dienste GmbH.
    
    
    100
    %
    
    
    100
    %Belarussia
    
    Equant Ltd.
    
    
    100
    %
    
    
    100
    %Belgium
    
    Equant Belgium S.A.
    
    
    100
    %
    
    
    100
    %Bermuda
    
    Equant (Bermuda) Ltd.
    
    
    100
    %
    
    
    100
    %Bermuda
    
    Equant (Bermuda) II Ltd.
    
    
    100
    %
    
    
    100
    %Brazil
    
    Equant Holding Brasil Ltda.
    
    
    100
    %
    
    
    100
    %Brazil
    
    Equant Brasil  Ltda.
    
    
    100
    %
    
    
    100
    %Brazil
    
    Equant Services Brasil  Ltda.
    
    
    100
    %
    
    
    100
    %British West Indies
    
    Equant Proton Holdings Ltd.
    
    
    100
    %
    
    
    100
    %Bulgaria
    
    Equant Bulgaria Ltd.
    
    
    100
    %
    
    
    100
    %Canada
    
    Equant Canada, Inc.
    
    
    100
    %
    
    
    100
    %Chile
    
    Equant Chile S.A.
    
    
    100
    %
    
    
    100
    %China
    
    Equant Telecommunications Technology (Beijing) Ltd.
    
    
    100
    %
    
    
    100
    %Colombia
    
    Equant Colombia S.A.
    
    
    100
    %
    
    
    100
    %Cyprus
    
    Equant Telecommunications Cyprus Ltd.
    
    
    100
    %
    
    
    100
    %Czech Republic
    
    Equant Czech Republic  s.r.o.
    
    
    100
    %
    
    
    100
    %Denmark
    
    Equant Denmark  A/S
    
    
    100
    %
    
    
    100
    %Egypt
    
    Equant Egypt
    
    
    100
    %
    
    
    100
    %El Salvador
    
    Equant El Salvador, S.A. de C.V.
    
    
    100
    %
    
    
    100
    %Estonia
    
    Equant Eesti OU.
    
    
    100
    %
    
    
    100
    %Finland
    
    Equant Finland OY.
    
    
    100
    %
    
    
    100
    %France
    
    Equant S.A.
    
    
    100
    %
    
    
    100
    %France
    
    Equant Holdings France S.A.S.
    
    
    100
    %
    
    
    100
    %France
    
    Equant France S.A.
    
    
    100
    %
    
    
    100
    %Georgia
    
    Equant Georgia Ltd.
    
    
    100
    %
    
    
    100
    %Germany
    
    Equant Deutschland GmbH.
    
    
    100
    %
    
    
    100
    %Ghana
    
    Equant Ghana Ltd.
    
    
    100
    %
    
    
    100
    %Gibraltar
    
    Equant Gibraltar Ltd.
    
    
    100
    %
    
    
    100
    %Greece
    
    Equant Communications Hellas S.A.
    
    
    100
    %
    
    
    100
    %Guam
    
    Equant Guam LLC
    
    
    100
    %
    
    
    100
    %Guatemala
    
    Equant  S.A.
    
    
    100
    %
    
    
    100
    %Honduras
    
    Equant Honduras S.A.
    
    
    100
    %
    
    
    100
    %Hong Kong
    
    Equant Hong Kong Ltd.
    
    
    100
    %
    
    
    100
    %Hungary
    
    Equant Hungary Telecommunications Services Ltd.
    
    
    100
    %
    
    
    100
    %Iceland
    
    Equant Iceland Ehf
    
    
    100
    %
    
    
    100
    %India
    
    Global One Private (India) Ltd.
    
    
    100
    %
    
    
    99.99
    %Ireland
    
    Equant Network Services International Ltd.
    
    
    100
    %
    
    
    100
    %
 F-58




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Country
    
    Name of Company
    
    Control
    
    InterestIreland
    
    Equant Network Systems Ltd.
    
    
    100
    %
    
    
    100
    %Ireland
    
    Global One Communications Limited
    
    
    100
    %
    
    
    100
    %Israel
    
    Equant Israel Ltd.
    
    
    100
    %
    
    
    100
    %Italy
    
    Equant Italy SpA.
    
    
    100
    %
    
    
    100
    %Ivory Coast
    
    Equant Ivory Coast S.A.
    
    
    100
    %
    
    
    100
    %Japan
    
    Equant Japan Co. Ltd.
    
    
    100
    %
    
    
    100
    %Kazakstan
    
    Equant Kazakstan Ltd.
    
    
    100
    %
    
    
    100
    %Korea
    
    Equant Global One Korea Ltd.
    
    
    100
    %
    
    
    100
    %Krgyzstan
    
    Equant Krgyz Ltd.
    
    
    100
    %
    
    
    100
    %Latvia
    
    Equant Latvia Ltd.
    
    
    100
    %
    
    
    100
    %Lithuania
    
    Equant Lithuania Ltd.
    
    
    100
    %
    
    
    100
    %Luxembourg
    
    Equant S.A.
    
    
    100
    %
    
    
    100
    %Malaysia
    
    Equant Services (Malaysia) Sdn. Bhd.
    
    
    100
    %
    
    
    100
    %Malaysia
    
    Equant Malaysia  Sdn. Bhd.
    
    
    100
    %
    
    
    100
    %Mauritius
    
    Equant Mauritius Holdings Ltd.
    
    
    100
    %
    
    
    100
    %Mauritius
    
    Equant (Mauritius) Services Ltd.
    
    
    100
    %
    
    
    100
    %Mexico
    
    Equant S.A. de C.V.
    
    
    100
    %
    
    
    100
    %Mexico
    
    Equant Mexico S.A. de C.V.
    
    
    100
    %
    
    
    100
    %Mexico
    
    Equant Holding Mexico S.A. de C.V.
    
    
    100
    %
    
    
    100
    %Mexico
    
    Equant Operations Mexico S.A. de C.V.
    
    
    100
    %
    
    
    100
    %Mexico
    
    Equant Services Mexico, S.A. de C.V.
    
    
    100
    %
    
    
    100
    %Morocco
    
    Equant Morocco Inc.
    
    
    100
    %
    
    
    100
    %The Netherlands
    
    Equant Finance B.V.
    
    
    100
    %
    
    
    100
    %The Netherlands
    
    EGN B.V.
    
    
    100
    %
    
    
    100
    %The Netherlands
    
    Equant European Networks B.V.
    
    
    100
    %
    
    
    100
    %The Netherlands
    
    Equant Netherlands B.V.
    
    
    100
    %
    
    
    100
    %New Zealand
    
    Equant New Zealand Ltd.
    
    
    100
    %
    
    
    100
    %Nicaragua
    
    Equant Nicaragua S.A.
    
    
    100
    %
    
    
    100
    %Nigeria
    
    Equant Nigeria Ltd.
    
    
    100
    %
    
    
    100
    %Norway
    
    Equant Norway A.S.
    
    
    100
    %
    
    
    100
    %Panama
    
    Equant Panama Inc.
    
    
    100
    %
    
    
    100
    %Paraguay
    
    Equant Paraguay S.A.
    
    
    100
    %
    
    
    100
    %Peru
    
    Equant Peru, S.A.
    
    
    100
    %
    
    
    100
    %Philippines
    
    Equant Philippines Inc.
    
    
    100
    %
    
    
    100
    %Poland
    
    Equant Communications Poland Sp.z.o.o.
    
    
    100
    %
    
    
    100
    %Portugal
    
    Global One Communicaçoes S.A.
    
    
    100
    %
    
    
    100
    %Puerto Rico
    
    Equant Puerto Rico
    
    
    100
    %
    
    
    100
    %Romania
    
    Equant Romania S.A.
    
    
    100
    %
    
    
    99.5
    %Russia
    
    Equant LLC.
    
    
    100
    %
    
    
    100
    %Russia
    
    Equant O.O.O.
    
    
    100
    %
    
    
    100
    %Saudi Arabia
    
    Equant Co. Ltd. Saudi Arabia
    
    
    75
    %
    
    
    75
    %Senegal
    
    Equant Senegal Ltd.
    
    
    100
    %
    
    
    100
    %Singapore
    
    Equant Pte. Ltd.
    
    
    100
    %
    
    
    100
    %Singapore
    
    Equant Integration Services Pte. Ltd.
    
    
    100
    %
    
    
    100
    %Slovakia
    
    Equant Slovakia s.r.o.
    
    
    100
    %
    
    
    100
    %Slovenia
    
    Equant d.o.o.
    
    
    100

    %
    
    
    100
    %
 F-59




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Country
    
    Name of Company
    
    Control
    
    InterestSouth Africa
    
    Equant South Africa Pty. Ltd.
    
    
    100
    %
    
    
    100
    %Spain
    
    Equant Spain S.A.U.
    
    
    100
    %
    
    
    100
    %Sweden
    
    Equant Sweden A.B.
    
    
    100
    %
    
    
    100
    %Switzerland
    
    Equant Integration Services S.A..
    
    
    100
    %
    
    
    100
    %Switzerland
    
    Equant Communications Service S.A..
    
    
    100
    %
    
    
    100
    %Tanzania
    
    Equant Tanzania Ltd.
    
    
    100
    %
    
    
    100
    %Thailand
    
    Equant Holding (Thailand) Ltd.
    
    
    100
    %
    
    
    100
    %Thailand
    
    Global One Communications Ltd.
    
    
    100
    %
    
    
    100
    %Thailand
    
    Equant (Thailand) Ltd.
    
    
    100
    %
    
    
    100
    %Turkey
    
    Equant Istanbul Telekomünikasyon Ltd. Sirkati
    
    
    100
    %
    
    
    99.9
    %Ukraine
    
    Equant Ukraine Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Equant Holdings UK Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Equant Security Services Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Equant Network Services Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Equant Network Services (Europe) Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Equant Integration Services, Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Equant UK Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Global One Communications Holding Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Global One Communications Operations
    
    
    100
    %
    
    
    100
    %UK
    
    Global One Communications Ltd.
    
    
    100
    %
    
    
    100
    %UK
    
    Global One Communications Services
    
    
    100
    %
    
    
    100
    %UK
    
    Global One (UK) Limited
    
    
    100
    %
    
    
    100
    %US
    
    Equant Holdings U.S., Inc.
    
    
    100
    %
    
    
    100
    %US
    
    Equant Inc.
    

    
    100
    %
    
    
    100
    %US
    
    Global One Communications Central America Inc.
    
    
    100
    %
    
    
    100
    %US
    
    Global One Communications Technical Operation & Management Services Co.
    
    
    100
    %
    
    
    100
    %US
    
    Equant  Service Inc.
    
    
    100
    %
    
    
    100
    %US
    
    Global One Communications (Australia) Ltd, Inc.
    
    
    100
    %
    
    
    100
    %Uruguay
    
    Equant Telecommunications Uruguay S.A.
    
    
    100
    %
    
    
    100
    %Uzbekistan
    
    Equant Global Networks Uzbekistan
    
    
    100
    %
    
    
    100
    %Venezuela
    
    Equant Venezuela S.A..
    
    
    100
    %
    
    
    100
    %US Virgin Islands
    
    Equant U.S. Virgin Islands Inc.
    
    
    100
    %
    
    
    100
    %Zambia
    
    Equant Zambia Limited
    
    
    100
    %
    
    
    100
    %
 Affiliates Accounted for Under the Equity Method UK
    
    Radianz Ltd.
    
    
    50
    %
    
    
    49
    %US
    
    Radianz Inc.
    
    
    50
    %
    
    
    49
    %
 F-60




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 30. Summary of Differences between Accounting
Principles Generally Accepted in
France and in the United States of America. Reconciliation to U.S. GAAP The Consolidated Financial Statements of Equant
have been prepared in
accordance with French accounting principles (French GAAP) which differ in
certain respects from generally accepted accounting principles in the United
States of America (U.S. GAAP). The effect of applying U.S. GAAP principles to
Net loss, Shareholders equity and Financial position is set out below along
with an explanation of applicable differences between French GAAP and U.S.
GAAP. Effect on Net Loss on differences between French
GAAP and U.S. GAAP The following is a reconciliation of Net loss as
reported in the Consolidated
Statements of Operations of Equant under French GAAP to Net loss as adjusted
for the effects of the application of U.S. GAAP for the three years ended
December 31, 2001, 2002 and 2003. Years ended December 31,Note
    
    2001
    
    2002
    
    2003Net loss as reported in the Consolidated Statement of Operations
    
    
    
    
    
    $
    (376.4
    )
    
    $
    (589.7
    )
    
    $
    (356.2
    )Adjustments to conform to U.S. GAAP:Exclusion of Equant net loss under French GAAP for period
from January 1 to June 29, 2001
    
    
    A
    
    
    
    22.8
    
    
    
    
    
    
    
    Inclusion of Global One net loss under U.S. GAAP for period
from January 1 to June 29, 2001
    
    
    A
    
    
    
    (532.7
    )
    
    
    
    
    
    
    Business combination adjustments:Impairment of intangible assets
    
    
    D
    
    
    
    (179.2
    )
    
    
    
    
    
    
    Impairment of goodwill
    
    
    B
    
    
    
    (7,299.5
    )
    
    
    (2,423.5
    )
    
    
    Amortization of goodwill arising on acquisition of Equant
    
    
    B
    
    
    
    (162.5
    )
    
    
    
    
    
    
    Amortization of intangible assets arising on acquistion
of Equant
    
    
    C
    
    
    
    (10.3
    )
    
    
    (20.5
    )
    
    
    (20.5
    )Amortization of historical Global One goodwill and intangible assets
    
    
    B, C
    
    
    
    (120.4
    )
    
    
    
    
    
    
    Reverse exceptional amortization of goodwill under French GAAP
    
    
    B
    
    
    
    
    
    
    
    21.6
    
    
    
    Reimbursement of restructuring and integration costs
    
    
    E
    
    
    
    (79.2
    )
    
    
    (94.4
    )
    
    
    (112.6
    )Share-based compensation
    
    
    F
    
    
    
    (7.1
    )
    
    
    (8.8
    )
    
    
    (12.1
    )Income taxes
    
    
    J
    
    
    
    33.4
    
    
    
    7.2
    
    
    
    7.2Pension accounting and other
    
    
    I
    
    
    
    (1.2
    )
    
    
    2.4
    
    
    
    (5.2
    )Net loss as adjusted for U.S. GAAP
    
    
    
    
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )Loss per share as adjusted for U.S. GAAP
    
    
    HContinuing operations
    
    
    
    
    
    U.S.$
    (46.27
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )Discontinued operations
    
    
    
    
    
    
    0.08
    
    
    
    
    
    
    
    Net loss per share, basic and diluted
    
    
    
    
    
    U.S.$
    (46.19
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )Weighted average number of shares (thousand)
    
    
    
    
    
    
    188,614
    
    
    
    282,706
    
    
    
    282,729
 F-61




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Set out below is an analysis of comprehensive
income under U.S. GAAP for the
years ended December 31, 2001, 2002 and 2003: Years ended December 31,Note
    
    2001
    
    2002
    
    2003Net loss adjusted for U.S. GAAP
    
    
    
    
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )Other comprehensive (loss) / income:Foreign currency translation adjustments
    
    
    
    
    
    
    (45.9
    )
    
    
    89.5
    
    
    
    107.4Unrealised gain on investment held for sale
    
    
    G
    
    
    
    
    
    
    
    
    
    
    
    8.6Additional minimum pension liability
    
    
    I
    
    
    
    (3.9
    )
    
    
    (8.4
    )
    
    
    (4.0
    )Comprehensive income
    
    
    
    
    
    $
    (8,762.1
    )
    
    $
    (3,024.6
    )
    
    $
    (387.4
    )
 F-62




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Cumulative effect on Shareholders Equity
of Differences between French GAAP and U.S. GAAP The following is a reconciliation of
Shareholders equity as reported in the
Consolidated Balance Sheets of Equant to Shareholders equity as adjusted for
the effects of the application of U.S. GAAP as of December 31, 2001, 2002 and
2003: As at December 31,Note
    
    2001
    
    2002
    
    2003Shareholders equity as reported in the Consolidated Balance Sheet
    
    
    
    
    
    $
    2,277.5
    
    
    $
    1,777.3
    
    
    $
    1,528.6Adjustments to conform to U.S. GAAP:Historical Global One goodwill and intangible assets
    
    
    B, C
    
    
    
    3,682.6
    
    
    
    3,682.6
    
    
    
    3,682.6Amortization of historical Global One goodwill and intangible assets
    
    
    B, C
    
    
    
    (120.4
    )
    
    
    (120.4
    )
    
    
    (120.4
    )Business combination adjustments:Goodwill gross cost
    
    
    A, B
    
    
    
    6,502.5
    
    
    
    6,502.5
    
    
    
    6,502.5Goodwill accumulated amortization
    
    
    B
    
    
    
    (162.5
    )
    
    
    (162.5
    )
    
    
    (162.5
    )Impairment of goodwill
    
    
    B
    
    
    
    (7,299.5
    )
    
    
    (9,723.0
    )
    
    
    (9,723.0
    )Intangible assets gross cost
    
    
    C
    
    
    
    208.6
    
    
    
    208.6
    
    
    
        184.6Intangible assets accumulated amortization
    
    
    C
    
    
    
    (10.3
    )
    
    
    (30.8
    )
    
    
    (51.3
    )Impairment of intangible assets
    
    
    D
    
    
    
    (179.2
    )
    
    
    (179.2
    )
    
    
    (179.2
    )Deferred tax
    
    
    A
    
    
    
    (69.4
    )
    
    
    (62.2
    )
    
    
        (31.0
    )Write-off of existing Equant goodwill(1)
    
    
    B
    
    
    
    (29.6
    )
    
    
    
    
    
    
    Reimbursement of restructuring and integration
    
    
    E
    
    
    
    (79.2
    )
    
    
    (31.8
    )
    
    
    Share-based compensation
    
    
    F
    
    
    
    (7.1
    )
    
    
    (16.0
    )
    
    
    (28.0
    )Pension accounting and other(1)
    
    
    A
    
    
    
    3.9
    
    
    
    (4.8
    )
    
    
    (16.1
    )Unrealised gain on investment held for sale
    
    
    G
    
    
    
    
    
    
    
    
    
    
    
    8.6Shareholders equity as adjusted for U.S. GAAP
    
    
    
    
    
    $
    4,717.9
    
    
    $
    1,840.3
    
    
    $
    1,595.4
 (1) Prior year amounts have been reclassified for comparative purposes F-63




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) U.S. GAAP Condensed Consolidated Financial
Statements Condensed Consolidated Statements of Operations
under U.S. GAAP Set out below are condensed Consolidated Statements
of Operations and Cash
Flows for the three years ended December 31, 2001, 2002 and 2003, presented
under U.S. GAAP, after reflecting the differences between U.S. GAAP and French
GAAP set out in Note 30. Years ended December 31,2001
    
    2002
    
    2003Revenues
    
    
    
    
    
    $
    2,102.5
    
    
    $
    2,973.1
    
    
    $
    2,948.9Cost of products and services
    
    
    
    
    
    
    (1,937.7
    )
    
    
    (2,496.9
    )
    
    
    (2,475.3
    )Gross Profit
    
    
    
    
    
    
    164.8
    
    
    
    476.2
    
    
    
    473.6Selling, general & administrative expenses
    
    
    
    
    
    
    (1,168.5
    )
    
    
    (781.3
    )
    
    
    (727.0
    )Impairment of goodwill and intangible assets
    
    
    
    
    
    
    (7,478.7
    )
    
    
    (2,440.9
    )
    
    
    Restructuring and other charges
    
    
    
    
    
    
    (170.8
    )
    
    
    (192.5
    )
    
    
    (197.7
    )Total operating costs and expenses
    
    
    
    
    
    
    (8,818.0
    )
    
    
    (3,414.7
    )
    
    
    (924.7
    )Operating loss
    
    
    
    
    
    
    (8,653.2
    )
    
    
    (2,938.5
    )
    
    
    (451.1
    )Interest (net)
    
    
    
    
    
    
    (7.1
    )
    
    
    7.1
    
    
    
    2.7Impairment of investments accounted for at cost
    
    
    
    
    
    
    (13.1
    )
    
    
    
    
    
    
    Loss from continuing operations before taxes, minority interests
and equity loss in affiliate
    
    
    
    
    
    
    (8,673.4
    )
    
    
    (2,931.4
    )
    
    
    (448.4
    )Income taxes
    
    
    
    
    
    
    (27.6
    )
    
    
    (4.7
    )
    
    
    (9.8
    )Equity in loss of affiliate
    
    
    
    
    
    
    (25.8
    )
    
    
    (168.9
    )
    
    
    (41.1
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (0.7
    )
    
    
    (0.1
    )Net loss from continuing operations
    
    
    
    
    
    
    (8,726.8
    )
    
    
    (3,105.7
    )
    
    
    (499.4
    )Net income from, and gain on disposal of, discontinued operations
    
    
    
    
    
    
    14.5
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )Loss per share as adjusted for U.S. GAAPContinuing operations
    
    
    
    
    
    U.S.$
    (46.27
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )Discontinued operations
    
    
    
    
    
    
    0.08
    
    
    
    
    
    
    
    Loss per
share - basic and diluted
    
    
    
    
    
    U.S.$
    (46.19
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )Weighted average number of shares (thousand)
    
    
    
    
    
    
    188,614
    
    
    
    282,706
    
    
    
    282,729
 Included in the net loss above for the years ended
December 31, 2001, 2002 and
2003 are amounts charged for rent expense of $108.0, $135.1 and $118.6,
respectively, and bad debt expense of $46.9, $28.1 and $0.1, respectively. F-64




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Condensed Consolidated Statements of Cash Flows under U.S. GAAP Years ended December 31,2001
    
    2002
    
    2003Net loss
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation
    
    
    351.1
    
    
    
    463.6
    
    
    
    482.4Amortization
    
    
    488.7
    
    
    
    20.5
    
    
    
    20.5Loss on impairment of goodwill
    
    
    7,478.7
    
    
    
    2,440.9
    
    
    
    Other adjustments to reconcile net loss to funds generated from operations
    
    
    49.7
    
    
    
    362.3
    
    
    
    48.5Funds generated from operations
    
    
    (344.1
    )
    
    
    181.6
    
    
    
    52.0Changes in operating assets and liabilities (net)
    
    
    (593.6
    )
    
    
    60.6
    
    
    
    115.1Net cash provided by / (used in) operating activities
    
    
    (937.7
    )
    
    
    242.2
    
    
    
    167.1Cashflow from investing activities:Purchase of property, plant and equipment
    
    
    (454.3
    )
    
    
    (369.2
    )
    
    
    (280.1
    )Proceeds from retirement and disposal of property, plant and equipment
    
    
    235.0
    
    
    
    
    
    
    
    Net cash effect of acquisitions
    
    
    181.8
    
    
    
    
    
    
    
    (2.3
    )Other investing activities (net)
    
    
    3.6
    
    
    
    1.4
    
    
    
    Net cash used in investing activities
    
    
    (33.9
    )
    
    
    (367.8
    )
    
    
    (282.4
    )Cashflow from financing activities:Proceeds from issuance of preference shares
    
    
    1,000.0
    
    
    
    
    
    
    
    Capital contribution from France Telecom
    
    
    835.9
    
    
    
    158.9
    
    
    
    145.3Short-term loan to France Telecom
    
    
    
    
    
    
    
    
    
    
    (150.0
    )Repayment of loans payable to affiliates
    
    
    (511.4
    )
    
    
    
    
    
    
    Proceeds from the settlement of foreign exchange contracts
    
    
    
    
    
    
    37.0
    
    
    
    Other financing activities (net)
    
    
    (11.4
    )
    
    
    (4.6
    )
    
    
    (6.7
    )Net cash provided by / (used in) financing activities
    
    
    1,313.1
    
    
    
    191.3
    
    
    
    (11.4
    )Effect of changes in exchange rates on cash and cash equivalents
    
    
    3.7
    
    
    
    0.7
    
    
    
    4.6Increase / (decrease) in cash and cash equivalents
    
    
    345.2
    
    
    
    66.4
    
    
    
    (122.1
    )Cash and cash equivalents at beginning of the year
    
    
    40.6
    
    
    
    385.8
    
    
    
    452.2Cash and cash equivalents at end of the year
    
    $
    385.8
    
    
    $
    452.2
    
    
    $
    330.1
 The only significant non-cash investing and
financing activity in the year
ended December 31, 2001 was the reverse acquisition of Equant by Global One. As
set out in the next section, the Global One companies were contributed in
exchange for 80.6 million ordinary shares of Equant, and also France Telecom
issued CVRs to the holders of Equant shares. There were no significant non-cash
investing or financing activities in the years ended December 31, 2002 and
2003. During the years ended December 31, 2001, 2002
and 2003, the Company paid
interest of $23.2, $0.3 and $4.0, respectively, and paid income taxes of $7.3,
$18.2 and $3.7, respectively. F-65




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Major cash flow items under U.S. GAAP The following table discloses significant
differences in cash flow items from
French GAAP to U.S. GAAP for the years ended December 31, 2001, 2002 and 2003
respectively: 2001
    
    2002
    
    2003Funds generated by / (used in) operations:French GAAP
    
    $
    23.7
    
    
    $
    178.7
    
    
    $
    207.4U.S. GAAP
    
    $
    (344.1
    )
    
    $
    181.6
    
    
    $
    52.0Net cash provided by / (used in) operating activities:French GAAP
    
    $
    (117.4
    )
    
    $
    383.1
    
    
    $
    312.4U.S. GAAP
    
    $
    (937.7
    )
    
    $
    242.2
    
    
    $
    167.1Net cash used in investing activities:French GAAP
    
    $
    (129.2
    )
    
    $
    (367.8
    )
    
    $
    (282.4
    )U.S. GAAP
    
    $
    (33.9
    )
    
    $
    (367.8
    )
    
    $
    (282.4
    )Net cash provided by / (used in) financing activities:French GAAP
    
    $
    574.8
    
    
    $
    50.4
    
    
    $
    (156.7
    )U.S. GAAP
    
    $
    1,313.1
    
    
    $
    191.3
    
    
    $
    (11.4
    )Effects of changes in exchange rates on cash and cash equivalentsFrench GAAP
    
    $
    4.1
    
    
    $
    0.7
    
    
    $
    4.6U.S. GAAP
    
    $
    3.7
    
    
    $
    0.7
    
    
    $
    4.6Cash and cash equivalents at beginning of periodFrench GAAP
    
    $
    53.5
    
    
    $
    385.8
    
    
    $
    452.2U.S. GAAP
    
    $
    40.6
    
    
    $
    385.8
    
    
    $
    452.2Cash and cash equivalents at end of periodFrench GAAP
    
    $
    385.8
    
    
    $
    452.2
    
    
    $
    330.1U.S. GAAP
    
    $
    385.8
    
    
    $
    452.2
    
    
    $
    330.1
 The major differences noted above in the
Consolidated Statements of Cash Flows
under U.S. GAAP for the year ended December 31, 2001 relate to the inclusion of
twelve months results of Global One, and six months of Equant. Under French
GAAP, the cash flow statement for the year ended December 31, 2001 includes six
months results of Global One, and twelve months of Equant. Amounts received from France Telecom in respect of
reimbursement of
restructuring and integration are included under U.S. GAAP as Capital
contributions from France Telecom, a component of Financing Activities. Under
French GAAP, these amounts are included as a component of operating activities. F-66




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Differences in accounting policies between
French and U.S. GAAP A) Basis of Business Combination The fundamental difference relates to the
accounting treatment of the merger
between Equant and Global One:  -
    
    Under French GAAP, this business combination has been accounted for
under the purchase method of accounting based on net book values (see
Note 5). Equant is treated as the accounting acquirer. As a result, the
Consolidated Statements of Operations for the year ended December 31,
2001 includes those of Equant for the whole year, and those of Global
One for the period from June 29, 2001 to December 31, 2001.-
    
    Under U.S. GAAP, this business combination is accounted for as a
reverse acquisition of Equant by Global One in accordance with EITF
90-13 Accounting for Simultaneous Common Control Mergers, since France
Telecom, the former sole shareholder of Global One, acquired a majority
interest in the merged Company. The historic financial statements of the
registrant prior to the merger are those of Global One. Consequently,
the combined Consolidated Statement of Operations for the year ended
December 31, 2001 includes the operations of Global One for the whole
year, and those of Equant for the period from June 29, 2001 to December
31, 2001. The combined Consolidated Financial Statements reflect the
acquisition of Equant under the purchase method of accounting.-
    
    Under U.S. GAAP, the difference between the cost of acquisition and
the fair value Global Ones interest in the assets and liabilities of
Equant is recorded as goodwill. The cost of acquisition of the 54.27% of
Equant acquired by Global One is set out in the table below. The nature
of these concurrent transactions is set out in the description of the
France Telecom Transactions in Note 1. The purchase price was
determined based on the fair value of the business acquired which was
determined as follows: Consideration and transaction costs:Contribution of Global One companies with net cash of $300
    
    
    
    
    
    $
    5,168.0
    (1)Cash paid for issue of Equant preference shares
    
    
    
    
    
    
    1,000.0
    (2)Restructuring and integration reimbursement
    
    
    
    
    
    
    270.0
    (3)$
    6,438.0Interest attributable to Equant minority shareholders
    
    
    45.73
    %
    
    
    
    
    
    $
    2,944.1Purchase of Equant shares held by SITA
    
    
    
    
    
    
    
    
    
    
    2,837.6
    (4)Value of Contingent Value Rights
    
    
    
    
    
    
    
    
    
    
    1,107.6
    (5)Transaction costs
    
    
    
    
    
    
    
    
    
    
    33.2Total consideration
    
    
    
    
    
    
    
    
    
    $
    6,922.5
 F-67




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The purchase price was allocated as follows: Fair value of Equant assets and liabilities as at June 29, 2001Cash and cash equivalents
    
    
    
    
    
    $
    81.8Receivables from customers, net
    
    
    
    
    
    
    492.3Land, buildings, equipment and furniture and fixtures
    
    
    
    
    
    
    684.1Investment in affiliated company
    
    
    
    
    
    
    310.6Other assets
    
    
    
    
    
    
    220.0Accounts payable and accrued liabilities
    
    
    
    
    
    
    (383.7
    )Bank loans payable
    
    
    
    
    
    
    (603.7
    )Other liabilities
    
    
    
    
    
    
    (277.2
    )524.2
    (6)Identified intangibles assets and liabilitiesCustomer contracts
    
    
    
    
    
    
    93.0Licenses
    
    
    
    
    
    
    1.3Trademarks
    
    
    
    
    
    
    290.0384.3
    (7)Deferred tax liability
    
    
    
    
    
    
    (134.5
    )(8)249.8Total fair value of identified assets and liabilities
    
    
    
    
    
    
    774.0Interest attributable to France Telecom
    
    
    54.27
    %
    
    
    
    
    
    
    420.0Goodwill
    
    
    
    
    
    
    
    
    
    
    6,502.5
    (9)$
    6,922.5
  1.
    
    France Telecom contributed to Equant, through Atlas, 100% of the
share capital of Global One Communications World Holding B.V. and Global
One Communications Holding B.V., in exchange for 80,617,348 newly issued
Equant ordinary shares. France Telecom retained Global Ones carrier
voice and the majority of its calling card business lines which were
excluded from the transaction. This contribution has been valued on the
basis of discounted future cash flows of Global One at $5,168.0,
including contributed cash amounting to $300.0.2.
    
    France Telecom, through Atlas, subscribed for 10 million newly issued
Equant convertible preference shares for $1,000.0 in cash; each
preference share has the same voting rights as one Equant ordinary share
and will automatically convert into one new Equant ordinary share on
June 29, 2006.3.
    
    Under the terms of the Contribution Agreement, within a two-year
period, France Telecom shall pay to Equant 50% of costs related to the
cancellation of up to 2,500 employment contracts for the combined
Company and certain restructuring and integration costs other than those
relating to employees up to a maximum of $210. The Company received
$286.2 reimbursement for these costs (see Note 7).4.
    
    France Telecom acquired 67,950,000 Equant ordinary shares from the
SITA Foundation for France Telecom shares at a ratio of 2.2 Equant
shares per France Telecom share. Based on an average share price for
the
period of 2 trading days before and after November 19, 2000, the date of
the Share Purchase Agreement, or
108.5 per share, the price per Equant
share paid to SITA equals
49.3 per share.5.
    
    France Telecom issued CVRs to the holders of Equant ordinary shares.
The CVRs entitle the holder to receive a cash payment from France
Telecom on June 29, 2004, equal to the excess, if any, of 60 over
Equants average share price, subject to a maximum of 15 per CVR.
Equants average share price is calculated as the average of the closing
Euronext price for 30 trading days prior to June 29, 2004. The fair
value of CVRs has been estimated at U.S.$8 per CVR as of November 19,
2000, based on an option pricing model.6.
    
    Fair value adjustments were recorded on the acquisition of Equant to
record unfunded pension liabilities of Equant, and to write off goodwill
on the balance sheet of Equant at the date of acquisition. The Company
provided a valuation allowance for the acquired deferred tax assets
where it was considered more likely than not that such assets would not
be recoverable. F-68




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  7.
    
    An independent valuation was performed on the intangible assets
acquired by Global One within the Equant business. These intangible
assets comprised customer contracts, trade names and licenses, and their
book values are being amortized on a straight line basis over their
estimated useful lives of 4, 20 and 20 years respectively. The value of
customer contracts was based on the discounted expected future debt free
net income of individual contracts in excess of the returns on requisite
assets over the life of the customer base. The value of trade name was
based on an estimate of the royalties the Company would have to pay to
use the trade names if it did not already own them. The value of
licenses was based on the estimated cost to acquire existing licenses.8.
    
    Deferred taxes have been computed on the excess of fair value over
book value of assets, using the applicable weighted average statutory
tax rates.9.
    
    The excess of total consideration over the fair value of net assets
acquired represents goodwill. Goodwill was amortized up to December 31,
2001 over its expected economic life of 20 years. See accounting for
goodwill under U.S. GAAP in the discussion of Goodwill below. The following selected unaudited pro forma combined
results of operations of
Global One and Equant for the year ended December 31, 2001 has been prepared
assuming that the acquisition occurred on January 1, 2001, the beginning of the
fiscal year prior to the acquisition on June 29, 2001. The following selected
unaudited pro forma financial information, prepared in accordance with U.S.
GAAP, is not necessarily indicative of the results that would have occurred had
the acquisition been completed on January 1, 2001 nor is it indicative of
future operating results: YearendedDecember31,2001Revenues
    
    $
    3,064.8Net loss
    
    $
    (8,862.1
    )Net loss per share
    
    U.S.$
    (31.38
    )Shares used in calculation of net loss per share (thousand)
    
    
    282,425
 B) Goodwill Under U.S. GAAP, accounting for goodwill and
intangible assets was
substantially the same as current French GAAP until the adoption of SFAS 141,
Business Combinations (SFAS 141), and SFAS 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires all business combinations
consummated after June 30, 2001 to be accounted for under the purchase method.
SFAS 141 also sets forth guidelines for applying the purchase method of
accounting in the determination of intangible assets, including goodwill,
acquired in a business combination. SFAS 142 addresses the initial and ongoing
financial accounting and reporting
for acquired goodwill and intangible assets with indefinite lives. SFAS 142
requires that goodwill be separately disclosed from other intangible assets in
the balance sheet, and no longer be amortized but tested for impairment at
least annually (or more frequently if impairment indicators arise) including
goodwill included in the carrying value of equity method investments.
Intangible assets with finite lives will continue to be amortized over their
useful lives. The Company performed its annual impairment test in December.
SFAS 142 is effective for financial statements for periods beginning on or
after December 15, 2001. The Company has no intangible assets with indefinite
lives. The Company adopted SFAS 142 with effect from
January 1, 2002. From that date
all goodwill is no longer amortized. Prior to this date, goodwill was amortized
on a straight-line basis over its estimated useful life of 20 years under U.S.
GAAP. For periods prior to 2002, the need for recording an impairment was made
to with reference to discounted cash flows. Under SFAS 142, goodwill is tested
using a prescribed two-step process. The first step screens for potential
impairment by comparing the carrying value of each reporting unit to its fair
value. If the carrying value is determined to be in excess of the fair value,
then a second step is performed to quantify the amount of goodwill impairment,
if any. The second step is performed by estimating the fair values of the
assets and liabilities of
the reporting unit, including recognized and unrecognized intangible assets.
The Company estimates fair value based on reference to the share price of the
Companys publicly traded stock given that the Company has only one reporting
unit. To the extent that the carrying value of the reporting units goodwill is
in excess of the fair value, it is considered impaired. With the adoption of
SFAS 142 in 2002, no impairment was recognized. F-69




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The following table provides pro forma results as
if the provisions of SFAS 142
regarding non-amortization of goodwill had been applied in earlier periods. Years ended December 31,2001
    
    2002
    
    2003Net loss, adjusted for U.S. GAAP
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    
    (499.4
    )Adjustment: Amortization of Goodwill
    
    
    478.5
    
    
    
    
    
    
    
    Pro forma net loss
    
    $
    (8,233.8
    )
    
    $
    (3,105.7
    )
    
    
    (499.4
    )Pro forma loss per shareContinuing operations
    
    U.S.$
    (43.73
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )Discontinued operations
    
    
    0.08
    
    
    
    
    
    
    
    Loss per
share - basic and diluted
    
    U.S.$
    (43.65
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )
 Under U.S. GAAP, goodwill as of December 31, 2002 and 2003 is as follows: Years ended December 31,2002
    
    2003Goodwill
    
    $
    799.1
    
    
    $
    799.1Accumulated amortization
    
    
    (799.1
    )
    
    
    (799.1
    )Net book value
    
    $
    
    
    
    $
    
 At the date of the Global One transaction, goodwill
represented that which was
recognized in purchase accounting in conjunction with the reverse acquisition
of Equant by Global One and historical goodwill included on the books of Global
One. Under French GAAP, the Company did not recognize goodwill given that the
acquisition of Global One by Equant was accounted for under the method set out
in paragraph 215 of CRC Rule 99-02. Thus the excess of purchase price of net
assets acquired over the estimated fair value was recognized as a reduction to
Additional paid in capital. There was goodwill on the books of Equant
existing prior to the Global One transaction recognized under French GAAP. Under U.S. GAAP, impairment charges of $7,299.5,
$2,423.5 and $nil for the
years ended December 31, 2001, 2002 and 2003, respectively, were recorded as
impairment charges. The impairment charge in 2001 was recognized based on a
discounted cash flow analysis. The impairment charge in 2002 was recognized as
a result of the annual goodwill impairment test and resulted in remaining book
value of nil. Under French GAAP, goodwill was amortized on a
straight-line basis over a
useful life of up to ten years. Goodwill is subject to an impairment review
when facts and circumstances indicate goodwill may not be recoverable and the
need for recording an impairment and measuring such impairment was made to with
reference to discounted cash flows. Under French GAAP, the decline in
valuations in the telecommunications market resulted in a need to assess the
carrying value of goodwill. In the year ended December 31, 2002, under French
GAAP, exceptional amortization of goodwill of $154.8 was recorded, of which
$139.9 related to goodwill resulting from the equity method investment in
Radianz. Under U.S. GAAP, such goodwill is classified as part of the
investment in Radianz and impairment of the investments is discussed in the
Equity in Loss of Affiliate section (Note 12). In the year ended December 31, 2002, $21.6 of
exceptional amortization of
goodwill that had been recognized in the year under French GAAP was reversed
for U.S. GAAP purposes as the related predecessor goodwill was written off in
the business combination. F-70




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) C) Intangible Assets Under U.S. GAAP, intangible assets consist of the following: Years ended December 31,2002
    
    2003Contracts
    
    $
    50.5
    
    
    $
        44.7Licences
    
    
    0.7
    

    
    
        0.6Trademarks
    
    
    157.4
    
    
    
        139.3Intangible pension asset
    
    
    
    
    
    
    1.2Total intangible assets
    
    
    208.6
    
    
    
        185.8Accumulated amortization
    
    
    (30.8
    )
    
    
    (51.3
    )Other
intangible assets, net
    
    $
    177.8
    
    
    $
        134.5
 Intangible assets represent trademarks, customer contracts and licenses
acquired as part of the reverse acquisition of Equant by Global One. Under
French GAAP, the Company did not recognize intangible assets given that the
acquisition of Global One by Equant was accounted for under the method set out
in paragraph 215 of CRC Rule 99-02 and thus there were no fair value
adjustments. Under U.S. GAAP, the aggregate intangible amortization expense was
$40.8, $20.5, and $20.5 for the years ended December 31, 2001, 2002, and 2003,
respectively. The estimated amortization expense for intangible assets, for the years ended
December 31, is as follows: 2004
        
        $
        15.62005
        
        $
        11.22006
        
        $
        6.92007
        
        $
        6.92008
        
        $
        6.9
 D) Impairment of Long-Lived Assets Under French GAAP, long-lived assets are subject to an impairment review when
events or circumstances occur indicating impairment exist. The need for
recording an impairment and measuring such impairment is made with reference to
discounted cash flows. Under U.S. GAAP, the Company is required to test for impairment whenever there
is an indication of impairment. For assets to be held and used, impairment if
first measured by reference to undiscounted cash flows. If there is no
impairment by reference to undiscounted cash flows, no further action is
required but the useful life of the asset must be reconsidered. If impairment
exists, the Company must measure impairment by comparing the fair value of the
asset to its carrying value. Fair value is either market value (if an active
market for the asset exists) or the sum of discounted future cash flows. The
discount rate reflects the risk that is specific to that asset. For assets to
be disposed of, the loss recognized is the excess of the carrying amount of the
asset over its fair value less costs to sell. For long-lived assets to be held
and used, the reversal of previously recognized impairment losses is
prohibited. Intangible assets on Global Ones books until June 29, 2001
consisted of customer base, workforce and trade name and had useful lives
ranging from 3 to 20 years. Under U.S. GAAP, impairments of such intangible
assets of $179.2 were recognized in the year ended December 31, 2001 resulting
in a net book value of such intangible assets of nil. F-71




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
 (U.S. dollars in millions, unless otherwise stated) E) Reimbursement of Restructuring and Integration Costs Under French GAAP, amounts to be recovered from France Telecom under Annex 4 of
the Contribution Agreement (see Note 7) are recorded as a reduction of
restructuring and integration costs. Under U.S. GAAP these amounts are
accounted for as capital contributions when received and recorded as an
increase in Additional paid-in-capital, contained within Shareholders
equity. F) Share-Based Compensation Under French GAAP, stock option and share award plans are not accounted for
until such time as the grant or award is vested. If the Company issues new
shares to satisfy the exercise, then the difference between the par value and
the exercise price is recorded as an addition to Additional paid-in capital, a
component of Shareholders equity, with no impact to the Consolidated
Statements of Operations. If the Company repurchases shares on the open market
or issues shares held in treasury, the difference between the repurchase price
of the shares and the exercise price is recorded as a charge to income on the
Consolidated Statements of Operations, within Share plan. Social charges
payable by the Company on the fair value of shares granted are accrued over the
period between the dates of granting and vesting, based on the expected
exercise rates, and are charged to Share plan. Effective January 1, 2002, the Company adopted the fair value recognition
provisions of SFAS 123, Accounting for Stock-Based Compensation (SFAS 123).
Under the modified prospective method of adoption selected by the Company under
the provisions of SFAS 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, compensation cost recognised in 2002 is the same as
that which would have been recognized had the recognition provisions of SFAS
123 been applied from its original effective date. The Company recognizes
share-based compensation expense partially in Costs of products and services
and partially in Selling, general and administrative expenses, depending on
the position of the employee. Results for prior years have not been restated Prior to 2002, the Company applied the intrinsic value method (as permitted
under SFAS 123), defined in Accounting Principles Board Opinion 25, Accounting
for Stock Issued to Employees (APB 25) and related Interpretations. SFAS 123
indicates that the fair value method is the preferable method of accounting.
Under APB 25, compensation expense is recognized as the difference between the
quoted market price of the stock, at the measurement date, and the exercise
price of the award. Any compensation cost under APB 25 is charged to expense
over the period in which the related services are provided. No stock-based
employee compensation cost was reflected in 2001, as all options granted under
those plans had an exercise price equal to the market value of the underlying
common stock on the date of grant. F-72




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The following table illustrates the effect on net loss and loss per share if
the fair value based method had been applied to all outstanding
awards in each period: Years ended December 31,2001
    
    2002
    
    2003Net Loss, adjusted for U.S. GAAP
    
    $
    (8,712.3
    )
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )Add: Share-based employee compensation expense
included in reported net income net of related tax effects
    
    
    
    
    
    
    8.8
    
    
    
    12.1Deduct: Total share-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    (0.8
    )
    
    
    (8.8
    )
    
    
    (12.1
    )Pro forma net loss
    
    $
    (8,713.1
    )
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )Pro forma loss per shareContinuing operations
    
    U.S.$
    (46.28
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )Discontinued operations
    
    
    0.08
    
    
    
    
    
    
    
    Loss per
share - basic and diluted
    
    U.S.$
    (46.20
    )
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )
 The compensation expense under U.S. GAAP does not include social charges until
such time that such charges are payable upon exercise of the awards. The Companys portion of share-based compensation recognized by Radianz is
included in the share-based compensation adjustments included on the
reconciliations of net income and shareholders equity. F-73




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) G) Investments The Company holds an investment in iPass, which in the year ended December 31,
2003 became publicly traded. Under French GAAP, the investment is held at the
lower of recoverable amount or historic cost. Under U.S. GAAP, the Companys investment in iPass was accounted for as a cost
method investment in accordance with APB 18 The Equity method of Accounting
for Investments, until July 2003 when iPass became publicly traded. It is now
classified as an available for sale security. Thus, unrealized gains and
losses, measured by comparison with the market value at the reporting period
end, which are temporary are recorded as a separate component of shareholders
equity. Unrealized losses that are other than temporary are charged to income
and any write-down is considered permanent. At December 31, 2003, the fair
value of iPass had increased by $8.6, and this unrealized gain has been
recorded in Other comprehensive income. H) Earnings per Share Under French GAAP, the ten million convertible preference shares issued as part
of the France Telecom Transactions are included in the calculation of the basic
weighted average number of ordinary shares outstanding. However, under U.S.
GAAP, the preference shares are not potential common stock and
would not be included in the basic weighted average number of ordinary shares
outstanding. The preference shares are not included in the calculation of the
diluted earnings per share as they were anti-dilutive for years presented. I) Pensions U.S. GAAP requires each significant assumption to determine annual pension cost
to be a best estimate with respect to that individual assumption. For example,
the discount rate used should be that for AA rated bonds with a similar
maturity to the pension obligations and the value of the scheme assets should
be based upon market values at each balance sheet date. Whilst U.S. GAAP also
adopts a spreading approach to allocating variations, it is more restrictive.
As a result, certain variations, for example refunds from the scheme, would be
recognized immediately rather than being spread forward. The accounting for
pensions is similar under French GAAP, except for treatment of the
additional minimum
pension liability. U.S. GAAP requires a liability, the minimum pension
liability to be recognized that is at least equal to the unfunded accumulated
benefit obligation. The corresponding entries are to intangible assets, to the
extent of the unrecognized prior service cost, and to Other comprehensive
income. The additional minimum pension liability is not recognized under French GAAP. The pension adjustment also includes the impact of recognizing the unfunded
pension obligation in the Global One business combination under U.S. GAAP but
not under French GAAP Under U.S. GAAP, the Company has recognized an additional pension liability of
$2.0 and $7.2 at December 31, 2002 and 2003, respectively, of which $2.0 and
$6.0 have been recorded within accumulated other comprehensive income as of
December 31, 2002 and 2003, respectively. Nil and $1.2 have been recorded as
intangible assets at December 31, 2002 and 2003, respectively. J) Taxes Under French GAAP, the Company had deferred tax assets that were written off
through the tax charge in the year ended December 31, 2001, by recognizing a
valuation allowance. Under U.S. GAAP, these assets were written off in the
business combination. U.S. GAAP adjustments related to different taxes represent different tax assets
and liabilities for temporary differences which exist only under U.S. GAAP. F-74




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  K)
    
    Classification Differences Between French GAAP and U.S. GAAP  Other Operating Income  Under French GAAP, income that the Company provides to France Telecom related
to service agreements in place as a result of the merger between Equant and
Global One, such as switched voice and other network service contracts are
shown as Other operating income and for the years ended December 31, 2001,
2002 and 2003 totaled $146.4, $196.1 and $142.4, respectively. The costs of
such services are included within Cost of services and products sold under
French GAAP. Under U.S. GAAP, these activities are considered peripheral and
incidental to the Companys operations and have been reported as a net gain
classified against the related cost  Goodwill Amortization  In accordance with French GAAP, goodwill amortization has been classified as a
non-operating expense whereas it would have been considered as an operating
expense under U.S. GAAP prior to the adoption of SFAS 142.  The amortization of goodwill related to the investment in Radianz was included,
under French GAAP, in Goodwill amortization whereas it was included as part of
the equity in loss of affiliate in the Consolidated Statements of Operations
and as part of the Investments accounted for under the equity method under U.S.
GAAP.  Indefeasible Rights of Use  The Company purchases capacity on major international routes where it is
economic to do so. The agreements entered into (known as Indefeasible Rights of
Use or IRUs) qualify as leases as the capacity path is defined. These
agreements typically involve the prepayment of all lease costs. Under French
GAAP, capacity purchases qualifying as capital leases are recorded within
long-lived assets in the balance sheet, with an annual amortization charge
recognized in the income statement. Under U.S. GAAP, capacity purchases
qualifying as capital leases are recorded within property, plant and equipment
and are depreciated over the lesser of the term of the lease or the estimated
useful life of the asset. As of December 31, 2002 and 2003, $151.9 and $139.2,
respectively, was recognized as the net book value of intangible assets, under
French GAAP, and the net book value of property, plant and equipment, under
U.S. GAAP, for capacity purchases qualifying as capital leases.  The Company may purchase capacity for a short-term period, typically six
months, from a provider while the terms of a longer term capacity purchase with
the same provider are finalized. Under French GAAP and U.S. GAAP, such
short-term capacity purchases qualify as service contracts and are deferred
within Other current assets and prepaid costs and recognized as an operating
expense over the period of the service contract. As of December 31, 2002 and
2003, there were no amounts recognized in the Balance sheet for purchases of
capacity qualifying as service contracts.  Discount on Onerous Contract Liability  As discussed in note 20, the Company has recognized a discounted onerous
contract liability associated with commitments to provide future services to
Radianz. Under French GAAP, unwinding of the discount is classified in
Interest expense. Under U.S. GAAP unwinding of the discount is classified
within operating expenses in the year ended December 31, 2003, and within
Equity in loss of affiliate in the years ended December 31, 2001 and 2002.
Unwinding of the discount was $0.9, $1.6 and $2.4 in the years ended December
31, 2001, 2002 and 2003, respectively.  Foreign Exchange Gains / (Losses)  In the years ended December 31, 2001, 2002 and 2003, the Company recognized
foreign exchange gains / (losses) of $(6.4), $8.2, and $(22.0). Under French
GAAP, these amounts were recognized within Financial income / (charges) and
under U.S. GAAP, these amounts were recognized within operating expenses. F-75




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Supplemental Disclosure under U.S. GAAP As stated above, under U.S. GAAP, Global One acquired Equant in a reverse
acquisition and therefore the results for the year ended December 31, 2001
presented in the Summarized Consolidated Statement of Operations include the
results of Global One for the full year in 2001, and the results of Equant
since June 29, 2001. Set out below are supplementary disclosures under U.S.
GAAP. a) Restructuring and Other Charges The analysis of restructuring and integration costs under French GAAP incurred
in the year ended December 31, 2003 is set out in Note 7. The restructuring costs related to Equant, Global One and SITA Equant network
Joint venture of $579.0 pursuant to the exit plan related to the terms of the
Contribution Agreement between France Telecom and the Company on June 29, 2001.
The provisions of EITF 94-3 shall continue to apply for an exit activity
initiated under an exit plan that met the criteria of EITF 94-3 prior December
31, 2002. The lease exit provisions have been estimated on the basis of
discounted future payments in all years presented. The Company adopted SFAS 146, Accounting for Costs Associated with Exit or
Disposal Activities (SFAS 146), on January 1, 2003. The employee termination
costs related to the strategic reorganization of $6.1 have been recognised
under SFAS 112, Employers Accounting for Post employment
Benefits - an amendment of FASB Statements No. 5 and 43 because the termination payments are
related to the Companys post retirement benefit plan of paying the required
statutory termination benefits. Restructuring and other charges consist of the following: Years ended December 31,2001
    
    2002
    
    2003Restructuring related to Equant, Global One and
SITA Equant network Joint Venture
    
    $
    69.6
    
    
    $
    65.1
    
    
    $
    117.6Strategic reorganization
    
    
    
    
    
    
    
    
    
    
    6.1Integration related to Equant, Global One and
SITA Equant network Joint Venture
    
    
    101.2
    
    
    
    127.4
    
    
    
        74.0$
    170.8
    
    
    $
    192.5
    
    
    $
    197.7
 The analysis of restructuring costs incurred in the three years ended December
31, 2001, 2002 and 2003 is set out below: Balance at
    
    
    
    
    
    
    
    
    
    Balance atDecember
    
    
    
    
    
    Reserves
    
    December31, 2000
    
    Additions
    
    Utilized
    
    31, 2001Employee termination
    
    $
    
    
    
    $
    32.3
    
    
    $
    (23.9
    )
    
    $
    8.4Lease exit costs
    
    
    
    
    
    
    35.4
    
    
    
    (10.0
    )
    
    
    25.4Legal, consulting and other
    
    
    
    
    
    
    1.9
    
    
    
    (1.9
    )
    
    
    $
    
    
    
    $
    69.6
    
    
    $
    (35.8
    )
    
    $
    33.8
 F-76




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Balance at
    
    
    
    
    
    
    
    
    
    Balance atDecember
    
    
    
    
    
    Reserves
    
    December31, 2001
    
    Additions
    
    Utilized
    
    31, 2002Employee termination / Other
    
    $
    8.4
    
    
    $
    43.9
    
    
    $
    (35.7
    )
    
    $
    16.6Lease exit costs
    
    
    25.4
    
    
    
    21.2
    
    
    
    (24.0
    )
    
    
    22.6$
    33.8
    
    
    $
    65.1
    
    
    $
    (59.7
    )
    
    $
    39.2
 Balance at
    
    
    
    
    
    
    
    
    
    Balance atDecember
    
    
    
    
    
    Reserves
    
    December31, 2002
    
    Additions
    
    Utilized
    
    31, 2003Employee termination / Other
    
    $
    16.6
    
    
    $
    40.1
    
    
    $
    (43.1
    )
    
    $
    13.6Lease exit costs
    
    
    22.6
    
    
    
    83.6
    
    
    
    (55.3
    )
    
    
    50.9$
    39.2
    
    
    $
    123.7
    
    
    $
    (98.4
    )
    
    $
    64.5
 Employee termination costs include severance and contractual benefits
determined in accordance with an approved plan, and also the costs for
outplacement services, medical and supplemental vacation. An analysis of the
movement in the number of positions to be terminated is as follows: Year ended December 31,2002
    
    2003Positions to be terminatedOpening balance
    
    
    201
    
    
    
    408Positions identified in the year
    
    
    1,050
    
    
    
    686Terminations paid out in the year
    
    
    (843
    )
    
    
    (989
    )Closing balance
    
    
    408
    
    
    
    105
 Strategic Reorganization Plan In order to drive growth in the service business, Equant is reorganizing its
services skills around five business practices covering consulting, project
management, service integration, integration services and managed services.
This reinforced services business will enable Equant to address a larger part
of the communications services market. Under U.S. GAAP, except for employee
termination costs included above, no other exit costs are required to be
recognized under SFAS 146. b) Interest (net) Interest (net) consists of the following: Years ended December 31,2001
    
    2002
    
    2003Interest income
    
    $
    17.5
    
    
    $
    7.4
    
    
    $
    6.7Interest expense
    
    
    (24.6
    )
    
    
    (0.3
    )
    
    
    (4.0
    )$
    (7.1
    )
    
    $
    7.1
    
    
    $
    2.7
 F-77




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) c) Income Taxes The tax charge / (benefit) consists of the following: Years ended December 31,2001
    
    2002
    
    2003Current income taxesThe Netherlands
    
    $
    (5.6
    )
    
    $
    (0.1
    )
    
    $
    Other
    
    
    25.3
    
    
    
    12.0
    
    
    
    25.0Total current
    
    
    19.7
    
    
    
    11.9
    
    
    
    25.0Deferred income taxesThe Netherlands
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    7.9
    
    
    
    (7.2
    )
    
    
    (15.2
    )Total deferred
    
    
    7.9
    
    
    
    (7.2
    )
    
    
    (15.2
    )Total tax charge
    
    $
    27.6
    
    
    $
    4.7
    
    
    $
    9.8
 F-78




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The source of net loss from continuing operations before taxes, minority
interests, and equity loss in affiliate is as follows: Years ended December 31,2001
    
    2002
    
    2003The Netherlands
    
    $
    (114.0
    )
    
    $
    (29.9
    )
    
    $
        (53.3
        )Other countries
    
    
    (8,559.4
    )
    
    
    (2,901.5
    )
    
    
        (395.1
        )Loss from continuing operations before taxes,
minority interests
and equity loss in affiliate
    
    $
    (8,673.4
    )
    
    $
    (2,931.4
    )
    
    $
        (448.4
    )
 The tax charge for the year has been reconciled to the standard tax rate
applicable in The Netherlands for corporate income. A reconciliation of the
Companys statutory and effective income tax rate for the three years ended
December 31, 2001, 2002 & 2003 are as follows: Years ended December 31,2001
    
    2002
    
    2003Statutory rate applicable in The Netherlands
    
    
    35.0
    %
    
    
    34.5
    %
    
    
    34.5
    %Loss on impairment of goodwill
    
    
    (30.8
    )%
    
    
    (28.5
    )%
    
    
    Change in valuation allowance
    
    
    (1.9
    )%
    
    
    (1.8
    )%
    
    
        (14.4
    )%Jurisdictional differences in tax rates
    
    
    (0.6
    )%
    
    
    (3.8
    )%
    
    
    (22.6
    )%Other permanent differences
    
    
    (2.0
    )%
    
    
    (0.6
    )%
    
    
    0.3
    %Effective tax rate
    
    
    (0.3
    )%
    
    
    (0.2
    )%
    
    
        (2.2
    )%
 The deferred tax assets by nature of temporary difference are analyzed as
follows: At December 31,2002
    
    2003Operating losses carried forward
    
    $
    495.2
    
    
    $
    547.0Other temporary differences
    
    
    59.3
    
    
    
    93.0Total deferred tax asset
    
    
    554.5
    
    
    
    640.0Less: valuation allowances
    
    
    (554.5
    )
    
    
        (616.3
    )Total deferred tax asset, net
    
    $
    
    
    
    $
        23.7Total deferred tax liability
    
    $
    62.2
    
    
    $
        46.7
 F-79




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  d)
    
    Equity in Loss of Affiliate  Equity in loss of affiliate comprises the following, relating entirely to
Radianz (see note 12): Years ended December 31,2001
    
    2002
    
    2003Share of loss of Radianz
    
    $
    17.8
    
    
    $
    29.0
    
    
    $
    41.1Amortization of goodwill
    
    
    8.0
    
    
    
    
    
    
    
    Impairment of equity investments
    
    
    
    
    
    
    139.9
    
    
    
    $
    25.8
    
    
    $
    168.9
    
    
    $
    41.1
  Results for the period from July 1, 2001 to December 31, 2001,
        and the years ended December 31, 2002 and 2003, are set out below:  Years ended December 31,2001
        
        2002
        
        2003Net revenues
        
        $
        223.6
        
        
        $
        496.1
        
        
        $
        531.3Operating loss
        
        
        (42.0
        )
        
        
        (70.0
        )
        
        
        (90.4
        )Net Loss
        
        
        (38.7
        )
        
        
        (72.2
        )
        
        
        (86.8
        )
  In accordance with SFAS 142, the Company ceased amortization of goodwill under
U.S. GAAP in 2002. The Company also recorded a charge of $139.9 in the year
ended December 31, 2002 to reduce the carrying value of the investment to its
estimated fair value due to an other than temporary impairment.  Management reviews the future forecasts and the historical results of Radianz
to determine whether there has been an other than temporary impairment.  The carrying value of investment at December 31, 2002 and 2003,
        was $101.4 and $58.6 respectively.  e)
    
    Share-Based Compensation  Employee Share Award Plan  On November 15, 2001 as a result of the closing of the France Telecom
Transactions, Equant and SITA terminated the SITA / Equant Employee Trust in
order to establish their own company specific Employee Trusts to govern the
disposition of all Awards granted after November 30, 1998. Coincident with the
formation of the Equant Employee Trust the Company resolved to vest all Awards
granted between December 1, 1998 and December 31, 2000. This resulted in an
accelerated vesting compensation cost of $9.1.  Under U.S. GAAP, the formation of the Equant Employee Trust was treated as a
modification of the original awards. This modification resulted in the
recognition of additional compensation cost for the incremental value of the
new award over the old award at the modification date. The related additional
compensation expense of $9.1 was recognized immediately on November 15, 2001 as
options fully vested upon formation of the Trust. Also under U.S. GAAP, a
Management Board resolution in December 2001 by the Company to change the
vesting date of 40,000 Equant discretionary shares was treated as a
modification of the original award which resulted in additional compensation
expense of $0.7 recognized immediately on the new vesting date of December 21,
2001.The Company pays social security contributions and other charges related to the
Share Awards in the years in which the awards vest or the options are
exercised. These contributions and charges will depend on various factors,
including the employees tax jurisdiction, local laws in these countries and
the share price at the time of vesting. In the year ended December 31, 2002,
the Company recorded a social charges credit to the Consolidated Statements of
Operations due to the receipt of $9.8 from the settlement of litigation in
regards to social charges.The total compensation costs expensed for the years ended December 31, 2001,
2002 and 2003, respectively relating to the Employee Share Award Plan are
$12.7, $1.6 and $nil. F-80




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)

Share Option Plan

The total compensation cost expensed for the years ended December 31, 2001,
2002 and 2003, respectively relating to the share option plan are $6.3, $7.2
and $12.7 (including Radianz cost of $0.5 in 2003).

The movement on outstanding options during the years ended December 31, 2001,
2002 and 2003, respectively are set out below:

Weighted AverageNumber of shares
    
    
    
    Exercise PriceUnexercised options granted  January 1, 2001
    
    
    
    
    
    
    U.S.$
    
    
    
    -Unexercised options assumed as a result of purchase of Equant
    
    
    3,654,603
    
    
    
    
    
    
    
    39.97Options grantedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    170,864
    
    
    
    
    
    
    
    11.24Options exercised
    
    
    (500,184
    )
    
    
    
    
    
    
    -Options forfeitedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    (81,711
    )
    
    
    
    
    
    
    35.87At exercise price range of U.S.$50.01 to U.S.$100.00
    
    
    (95,850
    )
    
    
    
    
    
    
    90.02At exercise price range of U.S.$100.01 to U.S.$150.00
    
    
    (18,925
    )
    
    
    
    
    
    
    106.53Total options forfeited in year
    
    
    (196,486
    )
    
    
    
    
    
    
    69.07Unexercised options granted  December 31, 2001
    
    
    3,128,797
    
    
    
    U.S.$
    
    
    
    42.96Options grantedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    6,512,698
    
    
    
    U.S.$
    
    
    
    13.49Options exercised
    
    
    (4,908
    )
    
    
    
    
    
    
    -Options forfeitedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    (899,284
    )
    
    
    
    
    
    
    32.72At exercise price range of U.S.$50.01 to U.S.$100.00
    
    
    (79,697
    )
    
    
    
    
    
    
    85.10At exercise price range of U.S.$100.01 to U.S.$150.00
    
    
    (1,964
    )
    
    
    
    
    
    
    107.78Total options forfeited in year
    
    
    (980,945
    )
    
    
    
    
    
    
    37.13Unexercised options granted  December 31, 2002
    
    
    8,655,642
    
    
    
    U.S.$
    
    
    
    21.47Options grantedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    285,974
    
    
    
    U.S.$
    
    
    
    6.52Options exercised
    
    
    (33,340
    )
    
    
    
    
    
    
    3.64Options forfeitedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    (1,036,384
    )
    
    
    
    
    
    
    23.82At exercise price range of U.S.$50.01 to U.S.$100.00
    
    
    (55,825
    )
    
    
    
    
    
    
    84.73At exercise price range of U.S.$100.01 to U.S.$150.00
    
    
    (677
    )
    
    
    
    
    
    
    102.13Total options forfeited in year
    
    
    (1,092,886
    )
    
    
    
    
    
    
    26.98Unexercised options granted  December 31, 2003
    
    
    7,815,390
    
    
    
    U.S.$
    
    
    
    20.23
 F-81




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  The following table provides, per range of exercise price, the weighted average
exercise price of unexercised options outstanding at December 31, 2001, 2002
and 2003, respectively: Outstanding
    
    Of which exercisableWeighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    averageNumber of
    
    exercise
    
    Number of
    
    exerciseshares
    
    price
    
    shares
    
    priceAt December 31, 2001$nil to $50
    
    
    2,643,197
    
    
    U.S.$
    35.11
    
    
    
    2,406,946
    
    
    U.S.$
    37.01$50.01 to $100
    
    
    474,799
    
    
    
    85.22
    
    
    
    474,799
    
    
    
    85.22$100.01 to $150
    
    
    10,801
    
    
    
    106.20
    
    
    
    10,801
    
    
    
    106.203,128,797
    
    
    U.S.$
    42.96
    
    
    
    2,892,546
    
    
    U.S.$
    45.19At December 31, 2002$nil to $50
    
    
    8,251,703
    
    
    U.S.$
    18.33
    
    
    
    1,783,887
    
    
    U.S.$
    35.68$50.01 to $100
    
    
    395,102
    
    
    
    85.25
    
    
    
    395,102
    
    
    
    85.25$100.01 to $150
    
    
    8,837
    
    
    
    105.85
    
    
    
    8,837
    
    
    
    105.858,655,642
    
    
    U.S.$
    21.47
    
    
    
    2,187,826
    
    
    U.S.$
    44.92At December 31, 2003$nil to $50
    
    
    7,467,953
    
    
    U.S.$
    16.92
    
    
    
    2,503,828
    
    
    U.S.$
    32.91$50.01 to $100
    
    
    339,277
    
    
    
    85.33
    
    
    
    339,277
    
    
    
    85.33$100.01 to $150
    
    
    8,160
    
    
    
    106.16
    
    
    
    8,160
    
    
    
    106.16
  The fair value of the Companys stock-based awards to employees for 2003 was
estimated assuming no expected dividends and the following weighted-average
assumptions:  Years ended December 31,2001
    
    2002
    
    2003Risk-free interest rate
    
    
    4.47%
    
    
    
    4.76%
    
    
    
    2.45%Weighted average volatility factor
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.8Weighted
average expected life
    
    
    4.25 years
    
    
    
    4.3 years
    
    
    
    3.2 years
  f)
    
    Pensions  Defined contribution plans  Total contributions charged to income for defined contribution plans was $13.8
and $21.7 for the years ended December 31, 2002 and 2003, respectively.  Defined benefit plans  Plan benefits are primarily based on the employees compensation during the
last three to five years before retirement and the number of years of service. F-82




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  The cost of these defined benefit plans for the years ended December 31, 2001,
2002 and 2003 can be analyzed as follows: Years ended December 31,Gain / (cost)
    
    2001
    
    2002
    
    2003Components of net benefit costService cost
    
    $
    (6.3
    )
    
    $
    (10.2
    )
    
    $
    (11.7
    )Interest cost
    
    
    (3.7
    )
    
    
    (5.6
    )
    
    
    (7.1
    )Expected return on assets
    
    
    3.4
    
    
    
    5.6
    
    
    
    5.6Amortization of prior service cost
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    (0.1
    )Amortization of loss / (gain)
    
    
    
    
    
    
    0.2
    
    
    
    (1.2
    )Plan closure
    
    
    
    
    
    
    (0.4
    )
    
    
    2.8Net benefit cost
    
    $
    (6.7
    )
    
    $
    (10.6
    )
    
    $
    (11.7
    )
 The following weighted average assumptions were utilized in determining the
funded status of the Companys defined benefit pension plans: Years ended December 31,2001
    
    2002
    
    2003Discount rate
    
    
    5.70
    %
    
    
    5.52
    %
    
    
    5.30
    %Long-term rate of compensation increase
    
    
    3.30
    %
    
    
    3.44
    %
    
    
    2.89
    %Long-term rate of return on funded assets
    
    
    8.20
    %
    
    
    8.06
    %
    
    
    8.03
    %
 The changes in the actuarial assumptions reflect movements in interest rates,
salary increases, and expected rates of return in the respective local
countries where the benefit plans reside. These assumptions are used in the
actuarial calculation of the benefit obligation and fair value of plan assets
for the following year. The changes in status of the Companys defined benefit plans for the years
ended December 31, 2001, 2002 and 2003 are reported in the tables below. Years ended December 31,2001
    
    2002
    
    2003Change in plan assetsFair value at January 1
    
    $
    24.2
    
    
    $
    58.5
    
    
    $
    66.1Actual return on assets
    
    
    (4.6
    )
    
    
    (7.4
    )
    
    
    13.3Foreign exchange rate changes
    
    
    (0.1
    )
    
    
    5.6
    
    
    
    8.4Employer contributions
    
    
    5.1
    
    
    
    10.7
    
    
    
    16.8Employee contributions
    
    
    1.3
    
    
    
    2.8
    
    
    
    3.1Benefits paid
    
    
    (2.7
    )
    
    
    (4.2
    )
    
    
    (9.0
    )Payments made directly to participants
    
    
    1.5
    
    
    
    
    
    
    
    Acquisitions & other
    
    
    33.8
    
    
    
    0.1
    
    
    
    Fair value at December 31
    
    $
    58.5
    
    
    $
    66.1
    
    
    $
    98.7
 F-83




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The status of the Companys defined benefit pension plans, both funded and
unfunded, at December 31, 2001, 2002 and 2003 is reported in the tables below: Years ended December 31,Gain / (cost)
    
    2001
    
    2002
    
    2003Change in benefit obligationBenefit obligation at January 1
    
    $
    (29.7
    )
    
    $
    (84.4
    )
    
    $
    (126.8
    )Service cost
    
    
    (6.3
    )
    
    
    (10.2
    )
    
    
    (11.7
    )Interest cost
    
    
    (3.7
    )
    
    
    (5.6
    )
    
    
    (7.1
    )Plan amendments
    
    
    (0.3
    )
    
    
    
    
    
    
    Actuarial loss / (gain)
    
    
    4.4
    
    
    
    (10.4
    )
    
    
    (14.3
    )Benefits paid
    
    
    2.7
    
    
    
    4.2
    
    
    
    9.0Foreign exchange rate changes
    
    
    1.0
    
    
    
    (9.8
    )
    
    
    (16.7
    )Acquisitions & other
    
    
    (52.5
    )
    
    
    (10.6
    )
    
    
    1.4Benefit obligation at December 31
    
    $
    (84.4
    )
    
    $
    (126.8
    )
    
    $
    (166.2
    )
 The funded status of the defined benefit plans and amounts recognized in the
Consolidated Balance Sheets consist of the following: Years ended December 31,2001
    
    2002
    
    2003Prepaid Benefit Cost
    
    $
    1.3
    
    
    $
    2.4
    
    
    $
    Accrued Benefit Liability
    
    
        (27.2
    )
    
    
    (40.4
    )
    
    
    (46.8
    )Intangible Asset
    
    
    
    
    
    
    
    
    
    
    1.2Accumulated Other Comprehensive Income
    
    
    0.8
    
    
    
    2.0
    
    
    
    6.0Net Amount Recognized
    
    $
        (25.1
    )
    
    $
    (36.0
    )
    
    $
    (39.6
    )
 As at December 31, 2003, the expected future benefits to be paid over the next
five years and in aggregate for the succeeding five years thereafter translated
at closing exchange rates as at December 31, 2003 are as follows: United
    
    United
    
    WeightedBelgium
    
    France
    
    Japan
    
    Kingdom
    
    States
    
    Average2004
    
    $
    1,056
    
    
    $
    299
    
    
    $
    56
    
    
    $
    1,223
    
    
    $
    500
    
    
    $
    3,1342005
    
    
    
    
    
    
    
    
    
    
    58
    
    
    
    1,592
    
    
    
    500
    
    
    
    2,1502006
    
    
    
    
    
    
    441
    
    
    
    59
    
    
    
    2,485
    
    
    
    500
    
    
    
    3,4852007
    
    
    
    
    
    
    205
    
    
    
    60
    
    
    
    5,126
    
    
    
    500
    
    
    
    5,8912008
    
    
    
    
    
    
    679
    
    
    
    61
    
    
    
    6,895
    
    
    
    500
    
    
    
    8,1352009-2014
    
    
    
    
    
    
    8,568
    
    
    
    324
    
    
    
    44,068
    
    
    
    2,500
    
    
    
    55,460Total
    
    $
    1,056
    
    
    $
    10,192
    
    
    $
    618
    
    
    $
    61,389
    
    
    $
    5,000
    
    
    $
    78,255
 F-84




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The major asset categories for the defined benefit pension plan at December 31,
2003 are as follows: United
    
    United
    
    WeightedBelgium
    
    Kingdom
    
    States
    
    AverageActual allocationEquity securities
    
    
    0
    %
    
    
    32
    %
    
    
    46
    %
    
    
    34
    %Debt securities
    
    
    100
    %
    
    
    65
    %
    
    
    24
    %
    
    
    58
    %Real Estate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Other (e.g. cash)
    
    
    0

    %
    
    
    3
    %
    
    
    30
    %
    
    
    8
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Target allocationEquity securities
    
    
    0
    %
    
    
    32
    %
    
    
    46
    %
    
    
    34
    %Debt securities
    
    
    100
    %
    
    
    68
    %
    
    
    24
    %
    
    
    60
    %Real Estate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Other (e.g. cash)
    
    
    0
    %
    
    
    0
    %
    
    
    30
    %
    
    
    6
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 The defined benefit plans in France and Japan are unfunded. F-85




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  The expected rate of return on plan assets by asset category are as
follows: United
    
    United
    
    WeightedBelgium
    
    Kingdom
    
    States
    
    AverageExpected return on plan assetsEquity securities
    
    
    8.00
    %
    
    
    8.00
    %
    
    
    9.00
    %
    
    
    8.19
    %Debt securities
    
    
    5.25
    %
    
    
    5.00
    %
    
    
    5.50
    %
    
    
    5.10
    %Real Estate
    
    
    7.00
    %
    
    
    7.00
    %
    
    
    7.50
    %
    
    
    7.10
    %Other (e.g. cash)
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %Total
    
    
    5.25
    %
    
    
    8.00
    %
    
    
    7.00
    %
    
    
    7.73
    %
  g)
    
    Related Party Transactions  France Telecom, SITA, Reuters and Radianz are considered to be related parties
of the Company for the years ended December 31, 2001, 2002 and 2003.  Details of related party transactions with France Telecom, SITA, Reuters and
Radianz for the year ended December 31, 2001, 2002 and 2003 are set out in Note
25. Details of related party transactions with France Telecom for the period
from January 1 to June 29, 2001 are set out below, Details of related party
transactions with France Telecom for the period from June 29, 2001 to December
31, 2001 are set out in Note 25. Details of related party transactions with
SITA, Reuters and Radianz for the period from June 29, 2001 to December 31,
2001 are set out below.  SITA  In the normal course of business, the Company engages in transactions with
SITA. The Company received revenues from SITA for providing goods and services
to its customers of $345.5 for the period from June 29, 2001 to December 31,
2001. The Company also recognized $338.2 related to goods and services provided
by SITA under the revised arrangements for network management and ownership in
the equivalent period.  Radianz and Reuters  In the normal course of business, the Company earned revenues from Radianz for
providing core-bandwidth and other services totaling approximately $40.5 for
the period from June 29 to December 31, 2001.  In the normal course of business, the Company earned revenues from Reuters for
providing core-bandwidth and other services totaling approximately $2.6 during
the period from June 29 to December 31, 2001. The Company was also charged
$29.5 by Reuters in for the period from June 29 to December 31, 2001 related to
the costs of network access and transmission capacity which has yet to be
migrated over to the Companys network. These costs are included in the amount
charged to Radianz during the year.  France Telecom  The global products and services of Global One were produced and rendered
through a set of entities: mainly FTLD, the long distance division of France
Telecom; GPS; and Global Ones local sales and services units (LSSUs). All
these entities provided services to the others based on a series of agreements
implemented in the second half of 2000.  These agreements require FTLD to sell switched voice minutes, bandwidth and IP
connectivity to GPS, combining FTLDs resources with the resources owned by the
LSSUs for which FTLD is invoiced by the LSSUs. Under these agreements, all
costs invoiced by FTLD, as well as the central function costs, including global
products, global sales, finance and corporate services, were accounted for
within GPS. The LSSUs then purchased their manufactured global products and
services from GPS. The net effect of these agreements totaled $64.6 for the
period ended June 29, 2001, which is recorded as a reduction of cost of
revenues in the combined Consolidated Statements of Operations. F-86




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  For the period ended June 29, 2001, Global One recorded $31.9 in
telecommunications services revenue from France Telecom. The services provided
to France Telecom primarily represent the use of Global Ones network by France
Telecom. In addition, Global One had arrangements in place such that when
Global One sold France Telecom telecommunication services to an external
customer, Global One earned commission on such sales. In the aggregate, Global
One recorded $1.0 in revenues for the period ended June 29, 2001, related to
these commissions. Such commissions were recorded on a net basis as Global One
was acting as an agent for France Telecom.  For the period ended June 29, 2001, Global One recorded $39.8 in cost of
revenue from France Telecom. The services provided France Telecom primarily
represented the use of its network by Global One. Also included within the cost
of revenue amounts disclosed above, is rental expense for transmission line
leases with France Telecom totaling $7.1 for the period ended June 29, 2001.  For the period ended June 29, 2001, Global One recorded $23.2 in interest
expense on loans from France Telecom.  Under the terms of the Contribution Agreement dated November 19, 2000, the
Global One companies, which were indirectly wholly owned by France Telecom,
were contributed to Equant along with other consideration in exchange for newly
issued shares of Equant. A summary of the related transactions is set out in
Note 1. France Telecom acquired Global Ones calling card, carrier voice and
GIP-IPL (access to the world-wide web through international private lines for
carrier customers) businesses as they were excluded from the transaction.  As part of the transaction, France Telecom also retained a number of non
operating legal entities that had previously been included in the Combined
Financial Statements of Global One.  On June 20, 2001, France Telecom entered into an agreement with Global One to
purchase certain submarine cables and related assets from Global One. The
total purchase price of the cables was $139.2, which approximated the net book
value of the cables transferred as of that date.  h)
    
    Segment Disclosure  The effect of the France Telecom Transactions and the disposal of Equant
Application Services when combined with the Companys reorganization of its
management according to function and specialization, rather than geographic or
divisional reporting lines, resulted in the Company having a single operating
segment for the period subsequent to June 29, 2001, although revenues continue
to be measured by lines of business.  Revenues by Lines of Business  The following table presents revenue by line of business: Years ended December 31,2001
    
    2002
    
    2003Network Services
    
    $
    1,100.8
    
    
    $
    1,567.1
    
    
    $
    1,607.1Integration Services
    
    
    292.5
    
    
    
    453.4
    
    
    
    476.6Other services
    
    
    345.4
    
    
    
    238.9
    
    
    
    224.2SITA network contract
    
    
    268.4
    
    
    
    713.7
    
    
    
    641.0Card and Carrier services
    
    
    95.4
    
    
    
    
    
    
    
    $
    2,102.5
    
    
    $
    2,973.1
    
    
    $
    2,948.9
  Revenues split by Products and Services Years ended December 31,2001
    
    2002
    
    2003Service revenues
    
    $
    1,961.2
    
    
    $
    2,838.0
    
    
    $
    2,779.6Product revenues
    
    
    141.3
    
    
    
    135.1
    
    
    
    169.3$
    2,102.5
    
    
    $
    2,973.1
    
    
    $
    2,948.9
 F-87




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  Geographic Information  The following table presents revenue by region, based on country of invoice
origin: AsiaYears ended
    
    Pacific
    
    Americas
    
    Europe
    
    TotalDecember 31, 2003Revenues from external customers
    
    $
    146.6
    
    
    $
    626.7
    
    
    $
    2,175.6
    
    
    $
    2,948.9As a percentage of total revenues
    
    
    5.0
    %
    
    
    21.3
    %
    
    
    73.7
    %December 31, 2002Revenues from external customers
    
    $
    135.9
    
    
    $
    689.8
    
    
    $
    2,147.4
    
    
    $
    2,973.1As a percentage of total revenues
    
    
    4.6
    %
    
    
    23.2
    %
    
    
    72.2
    %December 31, 2001Revenues from external customers
    
    $
    113.1
    
    
    $
    556.2
    
    
    $
    1,433.2
    
    
    $
    2,102.5As a percentage of total revenues
    
    
    5.4
    %
    
    
    26.4
    %
    
    
    68.2
    %
  Reliance on Major Customers  The following table presents sales of services and products to customers that
represent over 10% of revenues: FranceYears ended
    
    SITA
    
    Telecom
    
    Other
    
    TotalDecember 31, 2003
    
    $
    641.0
    
    
    $
    372.0
    
    
    $
    1,935.9
    
    
    $
    2,948.9As a percentage of total revenues
    
    
    21.7
    %
    
    
    12.6
    %
    
    
    65.7
    %December 31, 2002
    
    $
    714.0
    
    
    $
    296.3
    
    
    $
    1,962.8
    
    
    $
    2,973.1As a percentage of total revenues
    
    
    24.0
    %
    
    
    10.0
    %
    
    
    66.0
    %December 31, 2001
    
    $
    345.5
    
    
    $
    167.6
    
    
    $
    1,589.4
    
    
    $
    2,102.5As a percentage of total revenues
    
    
    16.4
    %
    
    
    8.0
    %
    
    
    75.6
    %
  i)
    
    Guarantees  The Company has entered into agreements that contain features which meet
the definition of a guarantee under FIN 45. FIN 45 defines a guarantee as a
contract that contingently requires the Company to pay a guaranteed party as a
result of changes in an underlying asset, liability or equity security of the
guaranteed party or a third partys failure to perform under a specified
agreement. As at December 31, 2003, the fair value of the Companys outstanding
guarantees subject to the recognition and measurement provisions of FIN 45 was
insignificant. A description of the major types of the Companys outstanding
guarantees as at December 31, 2003 is provided below.  Lease guarantees  The Company has guaranteed lease commitments to third parties in respect of
sites that may be sublet by the Company to third parties. These amounts are
included in the guarantees disclosed in Note 24, but are shown net in the
amount of future lease commitments. The Company generally has the ability to
attempt to recover such lease payments from the defaulting party through rights
of subrogation. Historically, the Company has not made any significant payments
under these types of guarantees and no liability has been recorded with
respect to the lease guarantee as of December 31, 2003. F-88




---



##### 



Equant N.V.

Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Performance guarantees Under many of its contracts with customers, the Company is obliged to meet
certain service levels and performance targets for their subcontractor
performances. These types of guarantees typically have definite terms and
generally require the Company to compensate the other party for certain damages
and costs incurred as a result of default. The maximum amount of future
payments that the Company could be required to make under these performance
targets is material, however the nature of the performance guarantee generally
prevents the Company from making a reasonable estimate of the maximum potential
amount it could be required to pay to its customers. Historically, the Company
has not made any significant indemnification payments under such agreements and
as at December 31, 2003, no amount has been accrued. Financial guarantees Financial guarantees provided by the Company relate primarily to a letter of
support to Radianz for the next 12 months. The maximum potential amount of
future payments, which the Company may be required to be make under this
guarantee, is $15.0 and has been included in the guarantees disclosed in Note
24. At December 31, 2003, Radianz has not required any such financial support
from the Company. No liability has been recorded with respect to the financial
guarantee as of December 31, 2003 as management believes the fair value of the
guarantee to be nil. Indemnifications From time to time, the Company enters into indemnification agreements with
certain contractual parties in the ordinary course of business, including
agreements with lessors, customers and certain vendors. All such
indemnification agreements are entered into in the context of the particular
agreements and are provided in an attempt to properly allocate risk of loss in
connection with the consummation of the underlying contractual arrangements.
Although the maximum amount of future payments that the Company could be
required to make under these indemnification agreements is material, management
believes that the Company maintains adequate levels of insurance coverage to
protect the Company with respect to most claims arising from such agreements
and that such agreements do not otherwise have value separate and apart from
the liabilities incurred in the ordinary course of the Companys business.
Historically, the Company has not made any significant indemnification payments
under such agreements and no significant amount has been accrued in the
accompanying Consolidated Financial Statements with respect to the contingency
associated with these guarantees. No liabilities have been recorded with
respect to such indemnification agreements as of December 31, 2003. From and after the closing of the Contribution Agreement, and subject to
certain limitations, the Company, France Telecom and Atlas agreed to indemnify
and hold harmless each other party for certain losses or other claims arising
from or in connection with any breach of warranty, representation or other
covenant or obligation under the Contribution Agreement or for any untrue
statement of material fact or omission to state a material fact with respect to
information provided by or concerning such party in certain documents in
connection with the transactions. Liability (for indemnification or otherwise)
with respect to a breach of any representation or warranty is subject if true
for each party to a minimum per-claim amount of $1 million and a deductible of
$115 million. The aggregate liability of France Telecom and Atlas for
indemnification is capped at $1.5 billion, while our liability for
indemnification is capped at $3 billion. The Company has the option to pay any
net amounts owing to France Telecom in respect of the Companys indemnification
obligation in cash or, in certain circumstances, in new Equant ordinary shares.
No liabilities have been recorded with respect to such indemnification
agreements as of December 31, 2003. F-89




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The Company and SITA agreed to indemnify and hold harmless each other for any
claim asserting any willful or deliberate breach of the Services Agreement or
any claim brought by a third party arising from the marketing or provision of
the network services under the Services Agreement. No claim under the Services Agreement shall exceed the total service charges
payable by SITA pursuant to the Services Agreement in respect of the 12 months
immediately preceding the date on which the last claim arises; provided,
however, that neither the Company nor SITA exclude or limit liability for the
following: (i) death or personal injury caused by the Companys or SITAs
negligence; (ii) real property claims caused by the Companys or SITAs
negligence; (iii) any claim for which either the Company or SITA have been
indemnified under the Services Agreement; (iv) either the Companys or SITAs
failure to claim any invoiced amount validly owing to either the Company or
SITA, respectively, for performance under the Services Agreement; (v)
fraudulent misrepresentation; (vi) any breach of obligations implied by Section
12 of the Sale of Goods Act 1979 or Section 20 of the Supply of Goods and
Services Act 1982; (vii) any claim relating to the infringement of intellectual
property rights; (viii) any claim relating to the breach of either the
Companys or SITAs confidentiality obligations as detailed in the Services
Agreement; (ix) to the extent a limitation is not permitted by law; or (x)
willful or deliberate serious and significant breach of the Services Agreement. j) Valuation Allowances Set out below is an analysis of the movement in bad debt provisions and
deferred tax allowances under French GAAP, over the three years ended December
31, 2003. Bad debt
    
    Deferred taxprovision
    
    allowanceBalance at January 1, 2001
    
    $
    88.0
    
    
    $
    459.9Utilized
    
    
    (22.3
    )
    
    
    (25.7
    )Charged to costs and expenses
    
    
    46.9
    
    
    
    Balance at December 31, 2001
    
    
    112.6
    
    
    
    434.2Utilized
    
    
    (39.7
    )
    
    
    Charged to costs and expenses
    
    
    28.1
    
    
    
    120.3Balance at December 31, 2002
    
    
    101.0
    
    
    
    554.5Utilized
    
    
    (29.5
    )
    
    
    Charged to costs and expenses
    
    
    0.1
    
    
    
    70.9Balance at December 31, 2003
    
    $
    71.6
    
    
    $
    625.4
 F-90




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) k) Property, Plant and Equipment Property, plant and equipment stated at cost less accumulated depreciation
consist of the following: At December 31,2002
    
    2003Gross costOwned land and buildings
    
    $
    1.3
    
    
    $
    2.2Leasehold improvements
    
    
    212.0
    
    
    
    243.4Network assets
    
    
    1,960.8
    
    
    
    2,143.4Computer equipment
    
    
    249.1
    
    
    
    334.8Office equipment, furniture and motor
vehicles
    
    
    90.3
    
    
    
    107.3Assets in course of construction
    
    
    64.9
    
    
    
    58.1Software applications
    
    
    268.3
    
    
    
    372.52,846.7
    
    
    
    3,261.7IRUs
    
    
    185.5
    
    
    
    208.0$
    3,032.2
    
    
    $
    3,469.7Accumulated depreciation
    
    $
    (1,725.9
    )
    
    $
    (2,299.7
    )Net book value
    
    $

    1,306.3
    
    
    $
    1,170.0
 F-91




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) New accounting pronouncements  
    
    In November 2002, the Emerging Issues Task Force reached consensus on
EITF 00-21 Accounting for Revenue Arrangements with Multiple
Deliverables. This Issue addresses certain aspects of the accounting by
a vendor for arrangements under which it will perform multiple
revenue-generating activities. In some arrangements, the different
revenue-generating activities (deliverables) are sufficiently separable,
and there exists sufficient evidence of their fair values to separately
account for some or all of the deliverables (that is, there are separate
units of accounting). In other arrangements, some or all of the
deliverables are not independently functional, or there is not
sufficient evidence of their fair values to account for them separately.
This Issue addresses when and, if so, how an arrangement involving
multiple deliverables should be divided into separate units of
accounting. This Issue does not change otherwise applicable revenue
recognition criteria. However, this Issue does provide guidance with
respect to the effect of certain customer rights due to vendor non
performance on the recognition of revenue allocated to delivered units
of accounting. This Issue also addresses the impact on the measurement
and/or allocation of arrangement consideration of customer cancellation
provisions and consideration that varies as a result of future actions
of the customer or the vendor. Finally, this Issue provides guidance
with respect to the recognition of the cost of certain deliverables that
are excluded from the revenue accounting for an arrangement. The
provisions of this Issue become effective for fiscal periods beginning
after June 15, 2003. The Company does not anticipate that adoption of
this Issue will have a material impact on its results of operations,
financial position or cash flows.  
    
    In December 2003, the FASB issued a revision to Interpretation No. 46,
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51 (FIN 46R or the Interpretation). FIN 46R clarifies the
application of ARB No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional
subordinated financial support. FIN 46R requires the consolidation of
these entities, known as variable interest entities (VIEs), by the
primary beneficiary of the entity. The primary beneficiary is the entity,
if any, that will absorb a majority of the entitys expected losses,
receive a majority of the entitys expected residual returns, or both.  Among other changes, the revisions of FIN 46R (a) clarified some
requirements of the original FIN 46, which had been issued in January
2003, (b) eased some implementation problems, and (c) added new scope
exceptions. FIN 46R deferred the effective date of the Interpretation for
public companies, to the end of the first reporting period ending after
March 15, 2004, except that all public companies must at a minimum apply
the provisions of the Interpretation to entities that were previously
considered special-purpose entities under the FASB literature prior to
the issuance of FIN 46R by the end of the first reporting period ending
after December 15, 2003. The Company does not anticipate that the
adoption of FIN 46 will have a material impact on its financial position,
cash flows and results of operations.  
    
    In May 2003 the Financial Accounting Standards Board issued SFAS 150
Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity, (SFAS 150). This Statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within
its scope as a liability. The changes in this statement will result in a
more complete depiction of an entitys liabilities and equity and will,
thereby, assist investors and creditors in assessing the amount, timing,
and likelihood of potential future cash outflows and equity share
issuances. The majority of the instruments within the scope of SFAS 150
are to be measured initially and on a continuous basis at fair value,
with offsets being charged to the Consolidated Statements of Operations.
SFAS 150 is effective for financial instruments issued or modified after
March 31, 2003. No such instruments within the scope of this Statement
were issued or modified by the Company since March 31, 2003 and until
December 31, 2003. Financial instruments existing before March 31, 2003
are subject to this Statement beginning on January 1, 2004 for the
Company. The Company does not expect any impact on its results of
operations and financial position for financial instruments existing
before March 31, 2003.In May 2003, the EITF reached a consensus on EITF 01-8 Determining
Whether an Arrangement Contains a Lease, relating to new requirements on
identifying leases contained in contracts or other arrangements that sell
or purchase products or services. The evaluation of whether an arrangement
contains a lease within the scope of SFAS No. 13 Accounting for Leases,
should be based on the evaluation of whether an arrangement conveys the
right to use property, plant and equipment. This consensus is effective
prospectively for contracts entered into or significantly modified after
January 1, 2004. The Company does not expect the adoption of this
consensus to have any impact on its results of operations, financial
position and cashflows. F-92