##### 



As filed with the Securities and Exchange Commission on 2005 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
 FORM 20-F o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2004 OR o
    
    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: I-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
    
    
    282,926,881Convertible 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 þ No o Indicate by check mark which financial statement item the registrant has elected to follow. Item 17
þ Item 18 o




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TABLE OF CONTENTS Forward-looking statements
Presentation of financial information PART IItem 1.
    
    Identity of Directors, Senior Management and Advisers
    
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    3Item 3.
    
    Key Information
    
    
    4Item 4.
    
    Information on the Company
Glossary of Selected Telecommunications Terms
    
    
    1129Item 5.
    
    Operating and Financial Review and Prospects
    
    
    31Item 6.
    
    Directors, Senior Management and Employees
    
    
    73Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    81Item 8.
    
    Financial Information
    
    
    92Item 9.
    
    The Offer and Listing
    
    
    93Item 10.
    
    Additional Information
    
    
    95Item 11.
    
    Quantitative and Qualitative Disclosures About Market
Risk
    
    
    110Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    111PART IIItem 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    111Item 14.
    
    Material Modifications to the Rights of Security
Holders and Use of Proceeds
    
    
    111Item 15.
    
    Disclosure Controls and Procedures
    
    
    111Item 16.
    
    Code of Ethics
    
    
    111PART IIIItem 17.
    
    Financial Statements
    
    
    112Item 18.
    
    Financial Statements
    
    
    112Item 19.
    
    Exhibits
    
    
    112
 2




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In this document, the Company, Equant, we, us, and our refer to Equant N.V. The Network
refers to the network we operate. 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, an anticipated combination between Equant and France
Telecom, 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 potential that a recent Combination Agreement approved by our Management and
Supervisory Boards and subject to approval by a majority of our Shareholders at an extraordinary
general meeting to be held on May 24, 2005, that would allow our majority shareholder, France
Telecom, to purchase substantially all of our assets, assume of all of our liabilities, and pay us
a cash amount to be distributed to our Shareholders may fail to successfully conclude; (ii) adverse
effects of our relationship with France Telecom as a major customer and supplier that may result if
the combination with France Telecom does not conclude, including the effects on our relationship
with SITA or other indirect sales channels; (iii) the adverse effects that may occur if the Network
succumbed to an intentional or unintentional disruption; (iv) the effect of, and changes in,
regulation and government policy; (v) the effects of competition; (vi) the successful development
and acceptance of our new products and services; (vii) the broad effect of technology changes in
the communications and information technology sector; and (viii) our success at managing the risks
of the foregoing. 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. 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, 2002, 2003 and 2004 (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 of net income, shareholders equity, and our
financial position to U.S. GAAP. 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. 3




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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 selected French GAAP consolidated financial data for each of the years in the five-year period
ended December 31, 2004 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. The financial statements for the year
ended December 31, 2000 were audited by PricewaterhouseCoopers,
independent auditors. The financial statements for the years ended
December 31, 2001 and 2002 were
audited by PricewaterhouseCoopers LLP and Ernst & Young LLP,
independent auditors. Deloitte and
Touche LLP, independent registered public accounting firm, audited the financial statements for the
years ended December 31, 2003 and 2004, as indicated in their report found in Item 17 of this
document. The selected U.S. GAAP
combined financial data for the year ended December 31, 2000
have been derived from the combined financial statements of Global
One, which were audited by RSM Salustro and Ernst & Young
Audit, independent accountants. 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, 2004. Selected Financial Data Presented In Accordance With French GAAP: Year ended December 31,2004 (8)
    
    
    2003
    
    
    2002
    
    
    2001(2)
    
    
    2000(1)(U.S. dollars in millions, except share and per share)Consolidated statement of operations data:Sales of services
and products
    
    $
    2,913.9
    
    
    $
    2,948.9
    
    
    $
    2,973.1
    
    
    $
    2,390.7
    
    
    $
    1,473.4Operating
profit/(loss)
    
    
    (375.0
    )
    
    
    (275.9
    )
    
    
    (383.9
    )
    
    
    (267.0
    )
    
    
    15.5Net loss from
continuing
operations
    
    
    (274.2
    )
    
    
    (356.2
    )
    
    
    (589.7
    )
    
    
    (387.2
    )
    
    
    (47.6
    )Discontinued
operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.8
    
    
    
    (0.3
    )Net loss
    
    
    (274.2
    )
    
    
    (356.2
    )
    
    
    (589.7
    )
    
    
    (376.4
    )
    
    
    (47.9
    )Basic and diluted
net loss per share
(5)Loss from
continuing
operations
    
    
    (0.94
    )
    
    
    (1.22
    )
    
    
    (2.01
    )
    
    
    (1.56
    )
    
    
    (0.24
    )Discontinued
operations, net of
tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.04
    
    
    
    Net loss per share
    
    
    (0.94
    )
    
    
    (1.22
    )
    
    
    (2.01
    )
    
    
    (1.52
    )
    
    
    (0.24
    )Weighted average
number of shares,
(thousands)
basic and diluted (5)
    
    
    292,904
    
    
    
    292,729
    
    
    
    292,706
    
    
    
    247,986
    
    
    
    201,503Consolidated balance sheet data:Cash and cash
equivalents
    
    $
    404.4
    
    
    $
    330.1
    
    
    $
    452.2
    
    
    $
    385.8
    
    
    $
    53.5Accounts receivable
and other current
assets
    
    
    977.8
    
    
    
    1,234.0
    
    
    
    1,277.5
    
    
    
    1,561.9
    
    
    
    547.2Non-current assets
    
    
    1,021.3
    
    
    
    1,295.9
    
    
    
    1,464.5
    
    
    
    1,771.4
    
    
    
    1,106.2Total assets
    
    
    2,403.5
    
    
    
    2,860.0
    
    
    
    3,194.2
    
    
    
    3,719.1
    
    
    
    1,706.9Current liabilities
    
    
    1,037.2
    
    
    
    1,189.7
    
    
    
    1,291.8
    
    
    
    1,305.8
    
    
    
    445.9Long-term
liabilities (8)
    
    
    126.5
    
    
    
    141.2
    
    
    
    124.4
    
    
    
    135.4
    
    
    
    519.0Minority interests
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    0.4Capital stock
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    2.4Total shareholders
equity
    
    
    1,239.5
    
    
    
    1,528.6
    
    
    
    1,777.3
    
    
    
    2,277.5
    
    
    
    741.6Total liabilities
and shareholders
equity
    
    
    2,403.5
    
    
    
    2,860.0
    
    
    
    3,194.2
    
    
    
    3,719.1
    
    
    
    1,706.9Other financial data:Net cash flow
provide by (used in)
operating activities
    
    $
    53.6
    
    
    $
    312.4
    
    
    $
    383.1
    
    
    $
    (117.4
    )
    
    $
    69.2Net cash flow used
in investing
activities
    
    
    (125.2
    )
    
    
    (282.4
    )
    
    
    (367.8
    )
    
    
    (129.2
    )
    
    
    (620.4
    )Net cash flow
provided by (used
in) financing
activities
    
    
    151.8
    
    
    
    (156.7
    )
    
    
    50.4
    
    
    
    574.8
    
    
    
    400.9Operating result
before depreciation,
amortization, share
plans and
restructuring and
integration (6)
    
    
    132.3
    
    
    
    291.6
    
    
    
    192.0
    
    
    
    135.3
    
    
    
    177.1
 4




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Selected Financial Data Presented In Accordance With U.S. GAAP: Year ended December 31,2004
    
    
    2003
    
    
    2002 (7)
    
    
    2001 (4)
    
    
    2000 (3)(U.S. dollars in millions, except share and per share)Consolidated statement of operations data:Sales of services and products
    
    $
    2,913.9
    
    
    $
    2,948.9
    
    
    $
    2,973.1
    
    
    $
    2,102.5
    
    
    $
    1,131.7Operating loss
    
    
    (516.6
    )
    
    
    (451.1
    )
    
    
    (2,938.5
    )
    
    
    (8653.2
    )
    
    
    (793.7
    )Net loss from continuing
operations
    
    
    (420.8
    )
    
    
    (499.4
    )
    
    
    (3,105.7
    )
    
    
    (8726.8
    )
    
    
    (839.0
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14.5
    
    
    
    Net loss
    
    
    (420.8
    )
    
    
    (499.4
    )
    
    
    (3,105.7
    )
    
    
    (8712.3
    )
    
    
    (839.0
    )Basic and diluted net loss
per share (5)Loss from continuing
operations
    
    $
    (1.49
    )
    
    $
    (1.77
    )
    
    $
    (10.99
    )
    
    $
    (46.27
    )
    
    $
    (10.41
    )Discontinued operations, net
of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.08
    
    
    
    Net loss per share
    
    $
    (1.49
    )
    
    $
    (1.77
    )
    
    $
    (10.99
    )
    
    $
    (46.19
    )
    
    $
    (10.41
    )Weighted average number of
shares (thousands),
basic and diluted (5)
    
    
    282,904
    
    
    
    282,729
    
    
    
    282,706
    
    
    
    188,614
    
    
    
    80,617Consolidated balance sheet
data:Cash and cash equivalents
    
    $
    404.4
    
    
    $
    330.1
    
    
    $
    452.2
    
    
    $
    385.8
    
    
    $
    40.6Accounts receivable and other
current assets
    
    
    977.8
    
    
    
    1,234.0
    
    
    
    1,245.7
    
    
    
    1,560.3
    
    
    
    916.6Non-current assets
    
    
    1,027.8
    
    
    
    1,454.3
    
    
    
    1,633.4
    
    
    
    4,294.7
    
    
    
    4,908.0Total assets
    
    
    2,410.0
    
    
    
    3,018.4
    
    
    
    3,331.3
    
    
    
    6,240.8
    
    
    
    5,865.2Current liabilities
    
    
    1,044.3
    
    
    
    1,217.3
    
    
    
    1,303.7
    
    
    
    1,288.5
    
    
    
    1,392.3Long-term liabilities
    
    
    138.9
    
    
    
    205.2
    
    
    
    186.6
    
    
    
    234.0
    
    
    
    21.5Minority interests
    
    
    0.3
    
    
    
    0.5
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    Capital stock
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    3.3
    
    
    
    Total shareholders equity
    
    
    1,226.5
    
    
    
    1,595.4
    
    
    
    1,840.3
    
    
    
    4,717.9
    
    
    
    4,451.4Total liabilities and
shareholders equity
    
    
    2,410.0
    
    
    
    3,018.4
    
    
    
    3,331.3
    
    
    
    6,240.8
    
    
    
    5,865.2Other financial data:Net cash flow provided by/
(used in) operating
activities
    
    $
    53.6
    
    
    $
    167.1
    
    
    $
    242.2
    
    
    $
    (937.7
    )
    
    $
    (555.3
    )Net cash flow used in
investing activities
    
    
    (125.2
    )
    
    
    (282.4
    )
    
    
    (367.8
    )
    
    
    (33.9
    )
    
    
    (342.0
    )Net cash flow provided by/
(used in) financing
activities
    
    
    151.8
    
    
    
    (11.4
    )
    
    
    191.3
    
    
    
    1,313.1
    
    
    
    869.7
  (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 us
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 us undertaking
the services as an agent of France Telecom.(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 2000 is deemed to be the actual number of shares issued by
us 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 result before depreciation, amortization, share plans 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, 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 in 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 what 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 an effective date
of 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.  (8)
    On January 1, 2004, we changed our French GAAP accounting policy for pensions and
post-retirement benefits to adopt CRC recommendation 2003-r-01. We recorded a cumulative
adjustment in equity of $38.0 million to recognize the fair value of the assets and pension
benefit obligations as at January 1, 2004. The new French GAAP policy requires the
following: (a) using actuarial techniques to make a reliable estimate of the amount of
benefit that employees have earned in return for their service in the current and prior
periods; (b) discounting that benefit using the Projected Unit Credit Method in order to
determine the present value of the defined benefit obligation and the current service cost;
(c) determining the fair value of any plan assets; (d) determining the total amount of
actuarial gains and losses and the amount of those actuarial gains and losses that should be
recognized; (e) determining the resulting past service cost where a plan has been introduced
or changed, and; (f) determining the resulting gain or loss where a plan has been curtailed
or settled. 5




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RISK FACTORS Our business is affected by a number of factors, not all of which are wholly within our control.
Although many of the factors influencing our performance are market specific and likely to affect
the performance of businesses generally, some aspects of our business make us particularly
sensitive to certain areas of business risk. This section highlights some of those specific areas.
However it does not purport to be an extensive analysis or disclosure and should be considered in
addition to the other information presented in this document. Some risks, currently believed to be
immaterial, could turn out to be material, and some risks may be unknown to us. This document also
contains forward-looking statements that involve risks and uncertainties. Our business, turnover,
profits, assets, liquidity, and capital resources may differ materially from the results
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. We Have Entered Into A Combination Agreement With France Telecom, Pending Shareholder Approval,
That May Be Prevented From Successfully Closing Due To Unforeseen Regulatory, Legal, Or Other
Practical Obstacles On February 9, 2005, our Supervisory and Management Boards signed a combination agreement with our
majority shareholder, France Telecom, for France Telecom to purchase substantially all of our
assets in exchange for the assumption of all of our liabilities and a cash payment. This
combination agreement specifies that following the closing of this transaction, we will distribute
the cash payment we receive from France Telecom to our Shareholders in substitution and
satisfaction of their ownership interests in us, will suspend our shares from trading and delist
from the New York Stock Exchange and the Euronext Paris, and will deregister from the U.S.
Securities and Exchange Commission. An extraordinary general meeting is scheduled for May 24, 2005
for our shareholders to vote on the February 9, 2005 combination agreement, the selection of a
liquidator, and our ultimate liquidation after the distribution of the cash proceeds from France
Telecom to our shareholders among other items. While we expect to close this transaction in a
timely manner, the transaction may not close due to unforeseen legal or regulatory matters. If the Combination With France Telecom Does Not Successfully Close, The Interests Of
France Telecom, Our Largest Shareholder, May Differ From The Interests Of Our Other Shareholders If the transactions contemplated by our combination agreement with France Telecom do not
successfully close, then France Telecom will still own a majority of our shares, and will have the
ability to control us by determining matters submitted for a vote to our minority shareholders.
France Telecom will also continue to have the right to control the appointment and removal of
members of our Management Board and the majority of the members of our Supervisory Board. Given
this possibility, France Telecom may also require our Management Board to submit specific matters
to our Supervisory Board not specified by our Articles of Association and direct us to take
actions, including related party transactions with France Telecom 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. 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 of Directors are distinct from those
established under the statutes or judicial precedent in U.S. jurisdictions. Our public shareholders
might find it more difficult to protect their interests from actions of our management, supervisory
directors, or controlling shareholders than they would as shareholders of a corporation
incorporated in the United States. This is exemplified by France Telecoms agreement to vote or
cause to be voted at the upcoming extraordinary general meeting all of our shares it or its
affiliates own in favor of the sale of our assets to it in accordance with the combination
agreement. Because France Telecom or its affiliates own approximately 54.1% of the voting power of
all our shares, the approval of the resolutions at the extraordinary general meeting approving this
transaction is assured without the affirmative vote of any other shareholders. Additionally, 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. 6




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If the Combination With France Telecom Does Not Successfully Close, France Telecom Could
Sell All Or Part Of Its Shares In Us That It Owns If the combination is not completed, France Telecom would most likely re-evaluate our role within
its overall corporate strategy. A contribution agreement signed by France Telecom, Atlas, and SITA
on November 19, 2000 contains restrictions disallowing France Telecom from selling or disposing of
more than 25% of our shares expires on June 29, 2005. France Telecom currently owns about 54.1% of
our shares. Among other options, France Telecom could sell our shares and its controlling interest
in us to a third party if it chose. In such an event, the proposed or actual sale of our shares
could cause our share price to decline. We May Require Additional Funding From France Telecom Or External Sources As of December 31, 2004, we had $404 million in cash and cash equivalents, including $ 289 million
deposited with France Telecom, which is available to us on demand. Concurrent with the execution of our combination agreement with France Telecom, we entered into a
$250 million revolving credit facility agreement with France Telecom. Under the revolving credit
facility, we have access to a maximum of $250 million from France Telecom. Draw-downs are available
in a variety of currencies during the period from February 9, 2005 until June 30, 2008. We may be
required to make draw downs on this credit facility in the future, however no draw-downs have been
made as of this date. Any amounts drawn down under the facility are repayable in the event that
France Telecom ceases to hold at least 34% of our outstanding shares. We Are Dependent On Our Ability To Exploit Technological Advances Quickly We operate in an industry with a recent history of fast technological changes. We expect that new
products and technologies will emerge and that existing products and services will develop further.
Our ongoing success will depend, in part, on our ability to continually develop our services and
products to exploit next generation technologies. 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 alternative delivery systems. Our inability to meet evolving
industry standards and customer requirements could have a material adverse effect on our business,
financial condition, or operating results. We also 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. Our Transformation Strategy, Focusing On Significant Growth In Our Integrated Services and
Solutions Offerings May Not Be Successful We are implementing a transformation strategy to offer new products, services, markets, and culture
as well as enter into new partner and distribution relationships to galvanize our growth. We expect
to grow by expanding our portfolio of service offerings comprised of our consulting, project
management, integration, messaging and security services, and to combine them with our network
services to provide our customers with integrated network and IT infrastructure solutions. The
expansion and integration of these service skills within our organization require substantial
financial, operational, and management resources. In view of the likely level of competition and
uncertainties regarding the level of economic activity, there can be no certainty that we will meet
our growth targets in these new areas. If our transformation strategy is unsuccessful, we may be
unable to achieve our goal of becoming profitable. 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 customer environments with a mixture of
different technologies; manage our vendors efficiently; reduce the customers cost of operating
their communications services; and successfully migrate our customers 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. Moreover, if we are successful in winning multiple
outsourcing projects, we may not have the resources to properly and simultaneously manage multiple
outsourcing contracts. 7




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We Have A History Of Operating Losses 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. In 2004, we had revenues of approximately $2.9 billion, operating losses of $375 million and net
losses of $274 million. As reported under U.S. GAAP, our 2004 revenues were approximately $2.9
billion, we incurred operating losses of $516 million and net losses of $421 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 affected by a number of factors, including:  
    potential success or failure of the transactions contemplated in our combination agreement with France Telecom;
    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. Since 2002 the dollar has lost
value against the euro and against sterling. 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. In the first half of 2004, the dollar increased in value against the euro,
while depreciating against sterling. In the second half of 2004 the dollar resumed its longer
term downward trend against all major counterparts, resulting in net losses for the year of 6.9%
against the euro and 9.5% against sterling. In 2004, foreign exchange had a positive
effect on revenues of approximately $82 million and a negative impact of approximately $165 million
on costs. In addition, translation adjustments have in the past and will continue to materially impact our
balance sheet. These adjustments increased our shareholders equity by $89.5 million, $107.4
million, and $20.3 million in 2002, 2003, and 2004 respectively. The change in shareholders equity
in each year resulted primarily from the conversion of local Network assets, held in the currency
of the countries in which they are located, into U.S. dollars. 8




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We May Experience Network Or Systems Failures Or Interruptions Among other factors, our business is dependent upon our ability to transfer substantial volumes of
data quickly. Any significant failure or interruption of such data transfer could have a material
adverse effect on our business. 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 needs. 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 its
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 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 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 on our balance sheet. Should the owner of the capacity fail to
honor its 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. We Are Dependent On SITA, Our Largest Customer and Indirect Sales Channel In 2004, SITA accounted for approximately 19%, or $550 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, and we may experience further significant reductions in
SITA revenues that could adversely affect our business, financial condition, or results of
operations if we are unable to generate new revenues from other sources. We Are Dependent On France Telecom, Our Second Largest Customer France Telecom, our second largest customer, accounted for approximately 16%, or $451 million, of
our revenues in 2004. 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 2004. If the transactions contemplated by the Combination Agreement with
France Telecom do not close for any reason, France Telecom is likely to reevaluate our position
within its group and our commercial relationship with France Telecom to potentially divest its
ownership of us and reduce or sever its commercial ties to us. See If the Combination With France Telecom Does Not Successfully Close, The Interests Of France Telecom, Our Largest
Shareholder, May Differ From The Interests Of Our Other Shareholders, earlier in this Item. 9




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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 $321 million or
11% of our revenues in 2004, compared to $345 million, or 12%, of our revenues in 2003. Overall
annual revenues from these indirect sales channels decreased by $44 million in 2004 as compared to
a $70 million decrease in 2003. Revenues from these other indirect sales channels will likely
continue to decline. We Face Uncertain And Changing Regulatory Restrictions Various restrictive laws, policies, and licensing requirements in the telecommunications and data
network services industries may affect our business operations because they potentially establish
regulatory and market access barriers. In our major revenue generating countries, most of our
current and future services are de-regulated, 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 networks and
other services may affect our ability to offer our full portfolio of services in certain
jurisdictions, particularly in emerging markets. In these jurisdictions, we also risk changes in
the regulatory environment or in our regulators perceptions of us 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 without regulatory burdens. 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 competition in the data network, integrated, and communications outsourcing services
market to 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 to continue to place severe downward pressure on the price of transmission
capacity used to deliver our services. In addition, we will most 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 customers. 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, margins,
and results of operations. 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 adversely affect
our business, financial condition, and results of operations. 10




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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 through our numerous, globally dispersed subsidiaries. We deploy our own sales
force in 40 key countries as well as using distributors, which include SITA, France Telecom
Transpac, China Netcom, Japan Telecom, Sprint, and Deutsche Telekom. Our target customers are MNCs
and international institutions such as 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 our 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 from portable computers or other
network access interfaces. In addition to data network services, we also provide communications
services and solutions comprising consulting, project management, service management, integration
services, and managed services, delivered by a core group of service professionals, engineers, and
project managers. We also offer deployment services including the resale of network equipment and
the worldwide staging and installation of local and wide area networks. We are 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.
Our agent in the United States is Michael Berg, Senior Vice President, General Counsel and
Secretary, 2355 Dulles Corner Boulevard, Herndon, Virginia 20171. We define a number of the
telecommunications related terms we use in this document on page 28 in  Glossary of Selected
Telecommunications Terms. OUR HISTORY The origins of our company date to 1949, when major airline companies from around the world formed
Société Internationale de Télécommunications Aéronautiques, which is referred to herein as 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 is referred to herein as 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. In October 1995, SITA and STH entered
into a joint venture agreement providing for joint ownership, operation and management of the
communication network and giving each of SITA and STH indefeasible and exclusive rights of access
to the network. In 1998, STH changed its name 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 Euronext Paris. On November 19, 2000, we entered into a contribution agreement with France Telecom and its
subsidiary, Atlas Telecommunications (subsequently renamed Atlas Services Belgium) to transfer
France Telecoms entire shareholding in Global One, a provider of data, voice and IP
telecommunications services with a proprietary backbone network reaching more than 850 cities
worldwide, to us in exchange for our newly-issued shares. Concurrently with this agreement, the
SITA Foundation, then our largest shareholder, entered into a share purchase agreement with France
Telecom pursuant to which SITA agreed to sell its entire shareholding in us to France Telecom. Upon completion of these transactions, France Telecom became our majority shareholder with an
approximate ownership of 54.3% of all of the issued and outstanding ordinary shares of us. At the
same time, France Telecom issued to our shareholders (other than the SITA Foundation) one
contingent value right, which is referred to herein as a Contingent Value Right (CVR), for each
ordinary share held on June 28, 2001. Each CVR entitled its holder to receive a cash payment from
France Telecom of up to 15 at maturity. The CVRs were paid by France Telecom on July 8, 2004
for an aggregate amount of 2,015 million. In addition, our articles of association were
amended to reflect certain corporate governance arrangements agreed in the contribution agreement
regarding France Telecoms investment in us. These arrangements included, in each case for so long
as France Telecom holds, directly or indirectly, at least 34% of our outstanding shares of capital
stock, the following:  
    Representation on Equants Boards.France Telecom has the right to nominate five of the
nine members of our Supervisory Board and one of the three members of our Management Board;
and
    Related Party Transactions. Neither France Telecom nor any of its affiliates may enter
into any material contract, agreement or transaction with us, other than in the ordinary
course of business and on an arms-length basis that is no less favorable to us than a
similar transaction with a third party, unless the contract, agreement or transaction has
been approved unanimously by the independent directors of the Supervisory Board on the
basis that it is in the interest of all of our shareholders and fair, from a financial
point of view, to us and all of our shareholders. 11




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See Item 7. 
Major Shareholders and Related Party Transactions and
Item 10. Additional Information  Material Contracts
of our Annual Report on Form 20-F for the year ended December
31, 2003 filed with the Commission on May 12, 2004 for a
detailed description of these and other related corporate governance arrangements. On the same date, we entered into a number of agreements with France Telecom, through its Transpac
subsidiary, which established the legal arrangements with France Telecom relating to the sale and
support of our services in France. These agreements are described in
 Item 7.  Major Shareholders and Related Party Transactions   Arrangements with
France Telecom of our Annual Report on Form 20-F for the year ended December
31, 2003 filed with the Commission on May 12, 2004. In November 2004, due to declining revenue trends in the telecommunications business overall, and
in our own business in particular, our Management and Supervisory
Boards began exploring various
strategic alternatives. These alternatives included, among others, a standalone turnaround of the
business through a focus on improving operating cash flows and a radical business transformation; a
sale of the company to, or merger with, a strategic buyer; or engaging France Telecom in a buy-out
of the minority shareholders. On February 9, 2005, we entered into a definitive combination agreement with France Telecom
pursuant to which we will sell to France Telecom all of our assets, other than (1) the
consideration to be received by us from France Telecom pursuant to the combination agreement, (2)
our rights under the combination agreement, (3) our employee option plan and the proceeds of any
exercise of options thereunder, and (4) records relating to our corporate organization. In exchange, France Telecom will (1) assume of all of our liabilities other than those relating to
our obligations in respect to making a liquidating distribution to our shareholders of the
consideration for the combination, withholding taxes, outstanding stock options, and agreements and
covenants contained in the combination agreement to be performed by us, and (2) pay us
1,259,585,588.30, or approximately $1.6 billion, plus additional cash payments equal to the sum
of the proceeds that are payable by us under the terms of the combination agreement in respect to
outstanding stock options. Our closing on the combination agreement is subject to several conditions, including the approval
by our shareholders of the resolutions by our Management Board to enter into the combination
agreement. Under the combination agreement, the resolutions will be validly adopted upon their
approval by an absolute majority of the votes cast at the extraordinary general meeting scheduled
for May 24, 2005. France Telecom has agreed to vote, or cause to be voted, all of the shares owned
by it or its affiliates to approve the transactions contemplated in the combination agreement.
Accordingly, given that France Telecom or its affiliates own our shares representing approximately
54.1% of the voting power of our shares, the approval of the resolutions at the extraordinary
general meeting is assured without the affirmative vote of any other shareholders. As promptly as practicable after the completion of the asset sale and pursuant to the combination
agreement, we will make one liquidating distribution of money we received from France Telecom for
our assets to our shareholders, which represents an implied consideration of 4.30 for each
share. Once the money is distributed, we will liquidate, deregister and delist from the New York
Sotck Exchange and Euronext Paris. Capital Expenditures For a discussion of our capital expenditures, see Item 5. Operating and Financial Review and
Prospects  Liquidity and Capital Resources  Capital Expenditures. 12




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BUSINESS OVERVIEW Our extensive global communications network and strong strategic partnerships enable us to serve
customers around the world. Our global communications portfolio includes from desktop and network
equipment and software, transport and connectivity, managed LAN (local area network) and IPVPN (internet protocol virtual private network) services, applications hosting, storage and security services, through to business transformation,
outsourcing, and change management. In 2004, we successfully expanded our services and outsourcing business while we continued to
experience revenue erosion in our historic network businesses. In 2005, we will continue to adjust
our processes and intensify our focus on delivering customized communications solutions to MNCs and
international institutions as designed by our service professionals to fully manage all of the
customers communications needs on an outsourced basis if desired. Changes in Strategy and Business Our strategy is to evolve from a network provider to a communications infrastructure solution
provider. We believe that this transformation of our business is necessary to address the
challenging and rapidly changing business environment in which we operate. Although market and
technological evolutions have fueled a growing demand in volume for data networking, cheaper and
more reliable IP solutions are becoming available to enterprises than those traditionally offered
by us and our competitors. Moreover, new means of accessing computer networks such as DSL,
high-speed wireless services, and broadband over cable, combined with existing network transmission
overcapacity have resulted in very substantial price decreases. Concurrently, enterprise customers
increasingly require differentiated levels of service and quality, advanced mobile computing
services, and integration of a broad range of network and service components. A direct network
point of presence is no longer a key requirement where DSL is available, and as a consequence,
Virtual Private Network (VPN) providers like us are moving towards a variable cost
environment with low barriers to entry and limited cost advantages derived from scale. As a result
of these trends and the expected continued growth in Internet-based connectivity, low cost access
technologies like DSL, and intense competition with increased pricing pressure not compensated by
higher volumes, we believe that our addressable market for connectivity by way of traditional,
legacy solutions will shrink substantially over the next several years. Consistent with this
strategy to become a leading communications infrastructure solutions provider, we sold our 49
percent equity stake in Radianz, our joint venture with Reuters to provide extranet and related
telecommunications services to the financial community, to Reuters in November 2004. In light of these projected declines in pricing and in our addressable market, our intention is to
transform our business by substantially reducing costs while growing our services business by
increasing our focus on consulting, project management, and service management to deliver
customized, integrated services to our customers. This new strategy will focus on (a) offsetting
revenue lost in our core connectivity business by growing market share in adjacent segments and by
capturing market growth in mobility and convergence, and (b) substantially reducing the fixed cost
base of the connectivity business. We further expect that the decline in connectivity revenues can
be partially offset by aggressively rolling out DSL, rationalizing our direct network points of
presence and international backbone through outsourcing in non-contributive countries, and by
progressively closing our legacy network when economically justified. Changes in our Organization In July 2004, we appointed Hervé Kauffmann as our new Chief Operating Officer (COO). In December
2004, we appointed Charles Dehelly as our new Chief Executive Officer (CEO) after our former CEO,
Daniel Caclin resigned. Under Mr. Dehellys leadership, we substantially completed an internal
reorganization, underscoring our reinvigorated focus on designing, delivering and managing
profitable, customized, telecommunications solutions for our MNC customers. Our business is now
organized into two divisions, each with its own profit and loss (P&L) accountability. Equant
Network Services (ENS) focuses on traditional network services business and Equant Solutions &
Services (ESS) focuses on our growing services business. These two business divisions are
complemented by four sales channels supported by one marketing and one Customer Services &
Operations (CS&O) function. ENS We have consolidated and formed Equant Network Services (ENS) to optimize the skills of our network
professionals to meet the varied needs of our MNC customers. ENS is structured around three core
P&L driven business units:  1.
    VPN Business is expected to drive us to profitable growth by providing Global
Enterprises Hybrid Network Solutions serving the unique needs of each and every customer
location. The VPN Business portfolio includes our IP VPN Services, New Ethernet services,
and Small Office Solutions based on ISP and DSL connectivity, as well as our traditional
data services. 13




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2.
    Mobility Business is responsible for transforming and growing our Remote Access
services with the new Equant Business Everywhere offering and will be expanding it into a
full suite of Managed Mobile Services and Solutions.3.
    Voice and Video Business is responsible for leading our renewed delivery of
voice services and developing our unique capabilities in IP Telephony and Voice over IP.
This organization will also support the IP Video business to meet the growing need of video
solutions in the market. These core business units are supported by the following functions:  
    Circuit and Connectivity Management, which delivers reliable and cost-effective
transmission infrastructure for both network and access.
    Network Design and Deployment, which designs, engineers, and deploys cost-effective
network platforms to meet the needs of the highly competitive and rapidly evolving network
business.
    Network Business Transformation and Innovation, which ensures continued design,
development and lifecycle management of our and France Telecoms Network Services portfolio
and Customer Solutions. This function also supports the ENS division in the reshaping of
its key business processes, including pricing, Direct, and Indirect Sales engagement.
    Global Programs and Supplier Management, which ensures effective Global Supplier
Management for robust, coherent, and cost-effective solutions with our prime suppliers for
our customers. ESS We have consolidated our
services skills into a newly created ESS division. ESS comprises
four core business units in charge of growing our Solutions and Services business on a profitable
basis:  1.
    Equant Global Solutions (EGS) is responsible for the outsourcing business and
for designated complex solutions.2.
    Integration Services (IS) is responsible for the integration business, covering
customer managed solutions, Build-Operate-Transfer (BOT) solutions, field services as well
as equipment sales.3.
    IT Services (ITS) is responsible for network-related IT services such as
messaging, server management and security services.4.
    Professional Services (PS) is responsible for its 3 main service components
consisting of consulting, project management, service management constituting the principle
portion our solutions and services business. EGS
Communications Infrastructure Outsourcing Services: Our outsourcing service offering to MNCs
includes the management of all or part of the MNCs communications needs on a global, regional or
local basis. Our outsourcing services include data services from WANs to LANs, voice services,
mobility services, video services, hosting services, and the management of IT infrastructure
supporting all networked applications, such as messaging and security applications. These services
may include the transfer of assets, third-party contracts, and people for our customers. EGS skills
and experts are organized into competence centers comprised of the following: joint opportunity
assessment, due diligence, engineering and operations of end-state solutions, life cycle
management, managed vendor services, and innovation development. Each outsourcing contract is
managed by a fully dedicated Account Business Unit (ABU) that has complete responsible for contract
execution and customer satisfaction. 14




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IS
Globally connected through our worldwide support centers, our engineers and consultants are
remotely able to deliver our integration services and manage the customers networks. Our
integration services currently consist of the following:  
    Deployment Services.Our deployment services focus assist LAN Deployment, Cisco Router
Deployment, and Nortel Integration Services to reduce the burden on our customers internal
technical staff implementing international projects. These services also include the resale
of network equipment, the staging and installation of LAN and WAN infrastructure, and the
general supply of equipment.
    Maintenance Services.Our maintenance services are provided locally with global
coordination of support professionals in more than 80 countries and 200 service locations.
Our Global Customer Support Centers manage any reported incidents via global fault
management tools also used by our Network Management, Change Management, and Field Services
functions.
    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. ITS
IT services include solutions related to the management of IT infrastructure supporting various
applications such as:  
    Messaging Applications.We provide managed Microsoft Exchange, Lotus Notes, and Sun ONE
messaging services, which include consulting, design, infrastructure optimization,
deployment, migration, operation, and maintenance services.
    Web Applications. We provide managed infrastructure services supporting web and thin
client technologies. These include consulting, design, server consolidation, deployment,
application integration, and the migration, operation and maintenance of Windows, Unix, and
Linux platforms.
    Security Applications. We provide managed services for security infrastructure
components such as firewalls, antivirus, authentication, filtering and intrusion detection.
These services include the consulting, design, deployment, migration, operation, and
maintenance of major security related technologies. PS
Through our Professional Services function, we take responsibility for every aspect of a customers
information technology needs through consulting and project management. We have consultants who
specialize in Security, Messaging and IP Telephony to assess a customers current and future
requirements. We have established both project management and consultancy services as global
business practices across the company to drive and grow our services business. PS consists of three
skills-based practices of consulting, project management, and service management. CS&O CS&O supports and is accountable to ENS and ESS for costs, capital expenses, and delivery of
best-in-class customer services and infrastructure operations. CS&O delivers network and field
services, ensures service management, and provides customer service. We currently operate Global
Customer Service Centers in Atlanta, London, Cairo, Sydney, and Rio, and maintain Global Network
Management Centers in Reston, Paris, and Singapore. The key responsibilities of CS&O include:  
    Customer Service Excellence: The customer service excellence function manages the
customers and partner relationships. It promotes and develops customer service attitudes
and enhances customer satisfaction through the customization of our processes via Customer
Services Managers.
    Field Operations & Integration Services: The Field Operations organization is
responsible for delivering our services to end users.
    Global Customer Services: Ensures customer satisfaction by offering a single interface
for fault management processes and performance management to our customers. We work with
customers wherever they may happen to be regardless of when they might require assistance.
    Customer Implementation Management: We offer a single interface for delivery processes
and performance management. We focus on data integrity and revenue collection, and we
manage the delivery of services for all regions in which we operate. 15




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
    Customer Network Operations:We provide life cycle management for standard, extended,
and customized service layers, and manage all customer change implementations. We monitor
and manage the performance of the network, focusing on continuous proactive improvement.
    IT Operations & Security:We deliver our portfolio of value added services in Messaging
and Hosting and Security (MHS) services, with the goal of being reliable, secure and
cost-effective, while taking advantage of our extensive private data network and server
centers. We further optimize our messaging, hosting and security services by focusing on
increased productivity and opportunities for growth.
    Customer Process Improvement:We align our processes and tools strategy across all
customer and network facing operations and beyond. Sales and Marketing We sell our products and services through three direct sales channels, which we organized by region
in 2004 into the Americas, Europe, and Asia Pacific. We also have one indirect channel including
our relationship with SITA and France Telecom. As of December 31, 2004,
our sales force consists of 397 sales staff, compared
with 471 sales staff as of December 31, 2003. We hire sales and technical personnel experienced in
communications and other relevant 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 reinforced our sales and consultancy skills by hiring new staff and
training existing staff to ensure our ability to support these activities. Currently, our sales
force is concentrated in 40 key countries, that represent the largest markets for telecom and related
services. We also serve countries where we do not have a direct presence either from the respective
region or through partners. Account Management.All of our significant customers are assigned to an account manager. We also
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 with these particular customers across all regions. This
program currently focuses on approximately 25 companies, and we have diverted some sales staff to
develop these 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 to ensure that we
understand each customers requirements well and tailor unique solutions for each one. In some
cases, the appropriate customer solution may require a combination of our products and services
with those we acquire from others. We actively market additional products and services from our
portfolio to our existing customers. In some cases, customers migrate from a vending to an
outsourcing arrangement with us where we take ownership of customer contracts, assets, or people.
These outsourcing relationships represent a growing market for us, and is one on which we
increasingly focus. Indirect Sales.Our major indirect sales channels complement our direct sales force and are an
integral part of our strategy. These channels include market specific distributors, such as Sprint
in the United States and Deutsche Telekom in Germany, and sector specific channels such as SITA.
SITA continues to be our most important 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. Our Services We provide telecommunications services and solutions for MNCs. These solutions may comprise any or
all of the following services and service elements or customized variations thereof. Network Services We provide a full range of
MDNS, using established industry protocols. MDNS is the generic name
given to WAN data transport services managed by a supplier with a higher degree of functionality,
security, reliability and cost effectiveness than data transport services provided by traditional
public telecommunications organizations comprised of leased lines from other providers. For any
customer, the availability of a particular access method, transmission speed, or telecommunications
service is dependent upon a combination of factors, including: 16




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
    the local telecommunications infrastructure;
    the regulatory considerations in the relevant jurisdiction; and
    the nature of the customers 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. IP Services Equant IP VPN.Our IP VPN provides a private and secure connection through an MPLS-based
architecture. The key features are:  
    An IP VPN Plug through which we deliver all IP services to the customer.
    A fully secured VPN using MPLS technology affording customers a unique and fully secured
closed user group, as secure as our legacy frame relay or leased line network technologies.
    A variety of access methods, including native IP, leased line, Frame Relay, ATM, dial
access, dedicated satellite access, Internet access bundled with IPSec, and DSL.
    A Classes of Service (CoS) management, or as is otherwise known as application
awareness, allowing prioritization of customer applications between video, voice, and data
traffic with four levels of priority. 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 2004, we
introduced an internet service provider resale solution, which is a one stop management capability
for customers. We also enhanced 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. 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 our management of routers, switches, and other Customer Premises Equipment (CPE).
Selecting a managed CPE option avoids the need for customers to invest in maintaining and upgrading
their own hardware. Customers increasingly prefer this managed CPE option for us to handle a
portfolio of Cisco routers or Nortel switches on the customers premises, as they believe this will
improve performance and better reduce their total cost of ownership. ATM Service.Our ATM service 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. ATM/Frame Relay/LAN Access Product Developments.We continually enhance our portfolio of WAN
services. In 2004, we continued to integrate our back office operations to improve productivity in
the delivery and maintenance of our services. In addition, a number of additional features were
introduced to maintain the competitive profile of our Frame Relay / LAN Access/ATM competitive
profile including new access methodologies using DSL, Internet and satellite technology. 17




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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. 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 to monitor
performance of the services we provide and observe our progress in resolving problems. Equant
WebVision is a web-based, real-time monitoring tool that provides customers with information on
traffic, connections, and configurations. Equant WebVision also allows customers to view reports of
problems or errors. WebVision includes a suite of services that are offered over our portfolio of
IP and Data services under the Customer Select Program. With the addition of the 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 launched a fully managed version of Equant WebVision
for the Asia Pacific region in 2004. IS, PS and ITS
Please see our description of IS, PS and ITS services on page 15. Convergence Solutions.Our convergence solutions are as follows: Equant Voice VPN:Equant Voice VPN relies on a switched voice network 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. The Equant Contact Center for IP VPN provides public access
numbers in 40 countries and directs in-country calls to domestic or international contact centers
through our Network. We will continue to enhance our convergence services with more detailed
reporting, improved service management and SLAs and small office solutions with DSL. Mobility Services: In
2004, we expanded our GPRS coverage, introduced public Wireless LAN services
and developed mobilized applications, such as messaging. 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. Service Revenues The following table shows our revenues by geographic region. Revenues are attributed to the region
in which the ultimate customer is located. For the year ended December 31,2004
    
    
    2003
    
    
    2002(U.S. dollars in millions, except percentages)Europe, Middle East and Africa
    
    
    2,167.1
    
    
    
    2,188.8
    
    
    
    2,153.5As a percentage of revenues
    
    
    74.4
    %
    
    
    74.2
    %
    
    
    72.4
    %Americas
    
    $
    585.9
    
    
    $
    595.3
    
    
    $
    660.6As a percentage of revenues
    
    
    20.1
    %
    
    
    20.2
    %
    
    
    22.2
    %Asia Pacific and Japan
    
    
    160.9
    
    
    
    164.8
    
    
    
    159.0As a percentage of revenues
    
    
    5.5
    %
    
    
    5.6
    %
    
    
    5.4
    %Total
    
    $
    2,913.9
    
    
    $
    2,948.9
    
    
    $
    2,973.1
 18




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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 desire 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. The following tables depicts our revenue by Services: For the year ended December 31,2004
    
    
    2003
    
    
    2002(U.S. dollars in millions, except percentages)Network services:IP-based
    
    $
    839.9
    
    
    $
    605.9
    
    
    $
    443.3As a percentage of
Network Services revenues
    
    
    55.9
    %
    
    
    37.7
    %
    
    
    28.3
    %Traditional MDNS
    
    
    663.0
    
    
    
    1,001.2
    
    
    
    1,123.8As a percentage of
Network Services
revenues
    
    
    44.1
    %
    
    
    62.3
    %
    
    
    71.7
    %Total
    
    $
    1,502.9
    
    
    $
    1,607.1
    
    
    $
    1,567.1Integration services:Fulfillment
    
    $
    231.6
    
    
    $
    166.8
    
    
    $
    135.1As a percentage of
Integration Services
revenues
    
    
    39.0
    %
    
    
    35.0
    %
    
    
    29.8
    %Hosting and applications
    
    
    150.3
    
    
    
    133.0
    
    
    
    122.5As a percentage of
Integration Services
revenues
    
    
    25.3
    %
    
    
    27.9
    %
    
    
    27.0
    %Other Integration Services
    
    
    212.0
    
    
    
    176.8
    
    
    
    195.8As a percentage of
Integration Services
revenues
    
    
    35.7
    %
    
    
    37.1
    %
    
    
    43.2
    %Total
    
    $
    593.9
    
    
    $
    476.6
    
    
    $
    453.4Other services:Convergence solutions
    
    $
    159.1
    
    
    $
    140.0
    
    
    $
    149.6As a percentage of Other
Services revenues
    
    
    59.5
    %
    
    
    62.4
    %
    
    
    62.6
    %Other Services provided
to France Telecom
Affiliates
    
    
    108.3
    
    
    
    84.2
    
    
    
    89.3As a percentage of Other
Services revenues
    
    
    40.5
    %
    
    
    37.6
    %
    
    
    37.4
    %Total
    
    $
    267.4
    
    
    $
    224.2
    
    
    $
    238.9SITA Contract (1)
    
    $
    549.7
    
    
    $
    641.0
    
    
    $
    713.7Total
    
    $
    2,913.9
    
    
    $
    2,948.9
    
    
    $
    2,973.1
  Our Customers Our target customers are global MNCs and other large international institutions requiring
multi-year, multi-service contracts. Our target customers typically:  
    operate in globalized industries such as including finance and mining;
    have a large number of international locations with highly complex business applications; and
    desire to minimize the number of internal staff by outsourcing their managed services. 19




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The multinational organizations who make up our target customer base typically acquire their
telecommunications needs through competitive bidding. Our typical contract for communications
services is for three years, although some of our contracts are for longer or shorter terms. In 2004, our ten largest customers accounted for 44% of our revenues, with the largest customer,
SITA, accounting for approximately 19% of revenues, as compared to 22% of our revenues in 2003. Our
second largest customer, France Telecom accounts for approximately 16% of our revenues in 2004 as
compared to 13% in 2003. See Item 5. Operating and Financial Review and Prospects  Results of
Operations for the Year ended December 31, 2004 for more details. Markets and Competition Market Trends We operate in a very dynamic, highly competitive, and fragmented market that is in a constant state
of change and is experiencing continuous erosion in prices for telecommunications connectivity.
Bankruptcy filings and consolidation trends highlight the current transition in the industry. The
acquisition and merger announcements by Infonet and BT, AT&T and SBC, and MCI and Verizon exemplify
the continuing consolidation in our market. Despite cautiously optimistic expectations, the IT and telecom budgets of our customers for
traditional communications services stayed flat in 2004, and cost savings are still an imperative
for a vast majority of companies. At the same time there is a significant growth of traffic due to
the continuous expansion of Internet usage and e-business, and an increasing demand for
media-rich applications and customized solutions.
Expansion in these areas increases the use of
intranets, extranets, e-mail messaging, collaborative applications, electronic data interchange,
and other applications to facilitate electronic transactions. Communications network service providers continue to improve network infrastructure with new
technology to meet expanding customer expectations and requirements. 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 and handle dynamic capacity demands well. MPLS is used in many of these networks to provide
virtual private networking capability and varied levels of service depending on the particular
application. Another trend in the communication infrastructure business is the migration of customers toward a
hybrid of public and private IP services in small and remote locations to reduce the cost of
transmitting increasing volumes of data in those areas. Business customers are also concerned with
the quality of service and the need for service level agreements as a means of ensuring
availability, minimal latency, and guarantees against losses in application performance. Competitors We face competition from both established global service providers and from competitors outside the
traditional telecommunications sector. The competitive landscape is becoming increasingly complex
as boundaries between IT and telecommunication sectors disappear. Information technology vendors
are willing to expand their expertise toward networking while network providers are expanding their
portfolio towards integration services. In addition, the equipment and network providers continue
to partner as they extend 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 MCI. The established companies provide a
range of data services alongside their entrenched voice services. Nevertheless, these competitors
are becoming more competitive in the fast growing data services market. 20




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
    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 that 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 countries 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 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 a companys
ability to offer a broad variety of reliable products and services tailored to customer needs and
related support. As the market becomes more competitive, we believe that price, end-to-end
solutions, and customer service will increasingly create a competitive advantage for us.  
    System Integrators /Outsourcing Companies Customers also require design, implementation, and support services for network and desktop
technologies, as well as the 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, Accenture, 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. Our Competitive Strengths The continuing convergence of multiple network infrastructures for voice, data and video and
multiple network infrastructures has significantly increased the cost and complexity of
implementing and maintaining such networks. In addition, 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 highly-customized, reliable, and
secure applications. 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.
    Global Support Infrastructure.Many of our customers operate on a global basis and
require us to provide local support to their entire operations. We operate five Global
Customer Service Centers, and seven Hosting Centers, with staff based in approximately 299
cities in 149 countries. In approximately 117 of these countries we operate through our
employees and in 32 countries we are represented by our partners, of which SITA is by far
the largest partner. 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.
    Network Strength.Our Network is designed to support high bandwidth, multimedia
applications and is continually upgraded to take advantage of new technology, while we
maintain full operational control over it.
    Combined Network and Services Expertise.Our strategy is to deliver customized,
telecommunications 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 provides us with a competitive advantage. 21




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
    Customized Service Offerings.We provide our customers with a wide range of services
complementing our data and IP network products. We are able to deliver consulting, project
management, service management, and 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 2004, such as 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.
    Highly qualified personnel.We consistently focuse on developing our employees technical
skills and customer service, particularly when addressing emerging technologies and new
markets. We currently have a solid portfolio of staff certified to provide technical
support, solutions development, implementation, and consultancy in Cisco, Nortel,
Microsoft, Project Management, CompTIA, SUN, and Lotus products. In 2004, Equant rolled out
a Skills and Learning Management system to support skills development. This system was
implemented across the entire the company in the first quarter of 2005. REGULATION As with any international telecommunications 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 services are
now deregulated, and in some cases no license 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 services. Nevertheless, some restrictive telecommunications laws and
practices in certain countries give rise to constraints, risks and uncertainties which will affect
our short-term 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. Corporate Presence In a number of jurisdictions, we are permitted to provide service to our 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 through the
incumbent PTO. 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. Regulators generally characterize these services
for licensing purposes as data transmission services or value added services. We are authorized by
law or by license (either individually or by 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 with other operators
pursuant to contractual arrangements, pending the regulatory 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. 22




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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 further over time with the long-term trend of
regulatory liberalization. Furthermore, in such countries, the impact on our revenues and operating
ability would not likely be material if such regulatory action were to occur. 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 what 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 carefully monitor regulatory pronouncements on
this subject for our future compliance. 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 IP-enabled services has not been
authoritatively resolved in the United States. Certain IP-enabled services may be subject to
regulation in the future. 23




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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. Private carriers and information service
providers are subject to the FCCs ancillary Title I jurisdiction. 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 within the United
States and 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 our affiliation with France Telecom. Specifically, we are
classified as a dominant common carrier on the international routes between the United States and
Argentina, France, Jordan, Mauritius, and Poland. As a dominant common 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. Equant also provides non-common carrier services. Agreement with the Federal Bureau of Investigation and the 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 and the Department of Justice 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 in operating 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 The 5 goals of the new regulatory framework that was implemented in 2003 are:  
    to promote more effective competition in the electronic communications markets;
    to react to technological and market components;
    to remove unnecessary regulation and simplify associated administrative procedures;
    to strengthen the internal market; and
    to guarantee basic user interests (consumer protection) that would not be guaranteed by market forces. Primary Instruments Four Directives and a Decision were adopted by a 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. Authorization Directiveintroducing a system of general authorization, instead of individual
licenses and the like, to facilitate entry in the market and reduce administrative burdens on
operators. 24




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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 Decisionestablishing 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 has liberalized 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 Powersetting 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 18 different markets, retail and wholesale, that national regulators are
reviewing under new regulatory framework obligations. Implementing the New Regulatory Framework Transposition in the 25 Member States, based on the 10th Implementation Report (European
Commission, DG INFSO, 2004): Member States were required to transpose the EU regulatory framework by July 24, 2003 (EU 15) as
regards the core directives and by October 30, 2003 as regards the ePrivacy Directive; it applied
in its entirety from May 1, 2004 for the ten new Member States. Twenty Member States have completed the adoption of primary legislation and notified the Commission
thereof. This is a major achievement that in all cases has involved either a complete recasting of
existing laws or the introduction of major new legislation. However, five Member States, although they have in all cases carried out significant steps in the
legislative process, still need to adopt primary legislation to transpose the framework: Belgium, Czech Republic, Estonia, Greece, and Luxembourg have yet to adopt primary legislation
implementing the regulatory framework. Equant already held operating rights in all of the old EU15 countries under the old framework.
These rights have been grand fathered under the newly implemented regulatory framework, although
both Finland and Ireland required a notification within a month of implementation. We now operate
in all of these EU15 countries under General Authorizations. In the countries without primary legislation to implement the new EU Regulatory Framework, 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. Accession Countries On May 1, 2004, ten countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, Slovakia, and 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, as mentioned above. We are already licensed to provide services in all but two of these
countries, Cyprus and Malta. 25




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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 S.A.
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 S.A.,
has obtained the Authorizations under the new authorization regime, covering the same scope as the
L33 and L34 licenses. The Authorizations succeeding the legacy individual licenses L33-1 and L34-1,
held by Equant Telecommunications S.A., were cancelled in 2004 since our new operating entity,
Equant France S.A., is authorized for the same set of services under the new framework. 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. In 2004 we extended the scope to cover the whole of
Germany. 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 was adopted in 2004. Our
licenses were automatically transferred to the General Authorization regime under the new EU
framework, as transposed in Germany. United Kingdom Under the old EU framework regime, we provided our managed data services on an international basis
under the Telecommunication Services class license (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. The General Authorization regime under the new EU framework was implemented on July 25, 2003. Both
the licenses held by EGN B.V. and Global One CHL were automatically transferred on that date and
these General Authorizations permit the full portfolio of services as previously provided under the
old framework. We will continue to operate under both General Authorizations 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 European 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 environments. It is possible that we may not timely conform our service offerings to the
changing regulatory environments. 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, Indonesia, 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. India and
Malaysia have begun to liberalize their markets, and we have obtained limited licensing and are
investigating possibilities to acquire additional licenses such that our current agreements with
local operators could be supplemented or replaced. 26




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South and Central America and the Caribbean.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 and
the Caribbean. We currently provide data and switched and packet voice in these countries, to the
extent permitted under our own licenses or through arrangements with licensed local operators. 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 European countries, some of which have joined the EU in
2004 and therefore have implemented, or are in the process of implementing, the EU New Regulatory
Framework, which entails full liberalization of their respective telecommunications markets. For
example, in the Czech Republic, the Slovak Republic, Poland, and Hungary, we are authorized to
provide our full data and corporate voice service portfolio. In Russia, we also hold the necessary
licenses to provide our full service portfolio. Elsewhere, the Baltic States have also joined the EU in 2004 and their telecommunications markets
are 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. 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 54.1% of our shares. As consequence
of the Combination Agreement described in Item 7. Major Shareholders and Related Party
Transactions  Related Party Transactions we will become a 100%
subsidiary of France Telecom and Equant N.V. will be liquidated. Our significant subsidiaries are as follows: Country of
    
    Shareholder within theName of subsidiary
    
    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. Equant Holdings
    
    
    100
    %Equant, Inc.
    
    Delaware, U.S.A.
    
    U.S., Inc.
    
    
    100
    %Equant S.A.
    
    France
    
    Equant Finance B.V.
    
    
    100
    %Equant Network Services
International Limited
    
    Ireland
    
    EGN B.V.
    
    
    100
    %
 E. PROPERTY, PLANT AND EQUIPMENT At December 31, 2004, the total net book value of our property, plant and equipment was $971
million, of which Network assets, such as packet switches and routers, accounted for approximately
54%. 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. 27




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F. 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.CoS
    
    Class of service.CPE
    
    Customer Premises Equipment refers to assets located at a customers
site but required to allow the customer to access Equants network
connectivity services. These assets are owned by the Company.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.IS
    
    Integration ServicesIRU
    
    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.
 28




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Term
    
    DefinitionLNO
    
    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.NS
    
    Network ServicesPPP
    
    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.SDSL
    
    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
 29




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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 differ 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. Given the fundamental difference in the treatment of the business combination of Equant and Global
One on June 29, 2001 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. Operating and Financial Review under French GAAP Overview We are a recognized industry leader in global communications services for MNCs. A France
Telecom subsidiary, we combine our network expertise, including unmatched seamless network reach in
220 countries and territories and local support in 149 countries, with our expanded services
capabilities to provide global, integrated and customized communications services that enable our
customers key business processes. Our principal revenue stream continues to be the provision of
MDNS to MNCs that use the Network to carry their mission critical data. During 2004, we announced
many new customers and contract renewals, including, Akzo Nobel, Allianz, Globalstar, Merck KgaA,
Spencer Stuart, STMicroelectronics and Swiss Re, as well as a six-year, $144 million communications
outsourcing contract with JT International. We have direct channels to market using our own sales
force in 40 key countries, and we also use indirect channels, which include SITA, France Telecom
Transpac, China Netcom, Japan Telecom, Sprint and Deutsche Telekom. A growing portion of our
business is communications services and solutions, which consists of consulting,
project management, service management, integration services and managed services based on
approximately 3,000 globally dispersed service professionals. 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 and staging and
installation of local and wide area infrastructure worldwide. In 2004, we continued to enhance our services and solutions portfolio, unveiling the solution for
MNCs mobile users as part of France Telecoms Business Everywhere initiative, introducing
satellite VPN solutions in partnership with Intelsat and iDirect, as well as the industrys first
global LAN utility service. We continue to roll out broadband DSL access with over 2200 connections
at year-end. Proposed Purchase of Assets and Liabilities by France Telecom On January 22, 2005, we received an offer from France Telecom to purchase substantially all of our
assets and liabilities for $1.6 billion
(1.26 billion). Approval of this transaction requires the
unanimous approval of the Independent Directors of the Supervisory Board, the majority approval of
both the Management and Supervisory Boards, and the majority approval of our shareholders at a
general meeting. On February 9, 2005, our Supervisory and Management Boards signed a
combination agreement with France Telecom that provides for France Telecom to purchase substantially all of our
assets in exchange for the assumption of all of our liabilities and a cash payment. Following the closing of this transaction, we will distribute the cash payment we receive from
France Telecom to our Shareholders in substitution and satisfaction of their ownership interests in
us, will suspend our shares from trading and delist from the New York Stock Exchange and the
Euronext Paris, and will deregister from the U.S. Securities and Exchange Commission. An
extraordinary general meeting is scheduled for May 24, 2005 for our shareholders to vote on the
February 9, 2005 combination agreement, the selection of a liquidator, and our ultimate liquidation
after the distribution of the cash proceeds from France Telecom to our shareholders, among other
items. 30




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Summary of Results Revenues fell approximately 1% in 2004. Revenues from Network Services fell by over six per
cent as a result of continuing pricing pressure and a higher level of disconnections, particularly
in North America, as customers moved to lower cost IP solutions. Network Services indirect channels
continued to be weak, mainly due to a reduction in revenues from Sprint, Deutsche Telekom and
Radianz. In addition, revenues from SITA fell due to the expiry of the minimum revenue commitment
(MRC) on July 1, 2003, and the ongoing move from older technologies to unmanaged internet-based
solutions. In contrast, IS recorded strong growth reflecting our success in delivering services
and solutions. Gross margins decreased from
31.1% to 23.4% reflecting not just lower revenues but
higher direct costs principally due to the adverse impact of foreign exchange rate movements,
additional fulfillment costs and a change in revenue mix. Selling, general and administrative
expenses fell from 21.2% of revenues to 18.8% reflecting the reduced personnel costs
and lower support
costs. We expect to make further reductions in selling, general and administrative expenses in 2005
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 decreased by 55 percent to
$132 million in
2004, and as a percentage of revenues, decreased from 9.9% to 4.5%. 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. The
decrease reflects reduced revenues, the change in revenue mix, the expiry of the SITA MRC and the
net negative effect of currency movements, partially offset by lower expenses. Our operating loss increased from
$276 million in 2003 to $375 million in 2004, an increase
of 36%, largely as a result of the decrease in operating result before depreciation, amortization,
share plans and restructuring and integration. There were significant movements in exchange rates, particularly in the dollar/euro rate, during
2004. Foreign exchange had a positive effect on revenues of approximately $82 million while
operating costs were negatively impacted by approximately $165 million. We recognized a foreign
exchange gain of $11 million in 2004 compared to a loss of $22 million in 2003. The net loss for 2004 of
$274 million is 23% below the net loss of $356 million incurred in
2003, but includes a profit of $90 million arising from the disposal of our equity investment in
Radianz. See below, Significant Factors Affecting Our Results  Radianz, Our Joint Venture with
Reuters. Financing Our net cash and loans balance at December 31, 2004, amounted to $404 million. This was a decrease
of $75 million compared with the net cash and loans position at December 31, 2003. We received $110
million in November 2004 on the disposal of our equity investment in Radianz. In February 2005,
France Telecom agreed to make available to us a $250 million credit facility on normal commercial
terms which is an addition to the existing $50 million treasury agreement in place since May 2002. Despite rigorously controlling capital expenditures, operating free cash flow, which we define as
operating result before depreciation, amortization, share plans and restructuring and integration
less capital expenditures, was negative at $103 million in 2004, compared with an inflow of $12
million in 2003, as a result of deterioration in the Summary of Results discussed above. We have
minimal external borrowings and therefore believe 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. Staffing We had 9,313 employees (full-time and full-time equivalents) at December 31, 2004, compared with
9,547 at December 31, 2003. The net decrease reflects our focus on reducing Selling, General and
Administrative expenditures. 31




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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 incured
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 $564.0 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
($69.7 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. 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 described in Item 7. Major Shareholders and Related Party Transactions
and Item 10. Additional Information  Material
Contracts of our Annual Report on Form 20-F for the year ended
December 31, 2003 filed with the Commission on May 12, 2004. 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 $713.7 million
in 2002 to $641.0 million in 2003 and $549.7 million in 2004. Pricing Policies The prices we charge for our network 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. 32




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Radianz, Our Joint Venture With Reuters In the second quarter of 2000, Reuters and Equant formed Radianz, a company which was 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. We had equal representation on the board of Radianz with Reuters and certain provisions of the
shareholders agreement we entered into with Reuters regarding Radianz suggested that operating
decisions were to be jointly controlled. However, in practice we were unable to invoke joint
control because Reuters remained both the dominant supplier and customer of Radianz, and
accordingly was in a position to affect significantly the operations of Radianz without our prior
approval. We accounted for our 49% interest in the venture on the equity basis since we were unable to
exercise joint control over Radianz. Our share of the results was shown as a single line item
Equity in loss of affiliate, and supplementary summary information, including details of our
share of the net result of Radianz, as well as the gross revenues and costs of the joint venture
company, is included in Note 12 of the Consolidated Financial Statements. On November 16, 2004, we disposed of our equity investment in Radianz for cash proceeds of $110
million, recognizing a gain of approximately $90 million. 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. 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. Impairment of Goodwill and Long-Lived Assets Long-lived assets are reviewed for impairment on a collective basis since we have no lower level of
identifiable cash flows that are independent from other assets and liabilities below the single
operating segment level, because long-lived assets are used throughout the geographic regions to
generate cash flows jointly due to the nature of the network service revenues, which require
traffic to be carried between the various regions. Under French GAAP, long-lived assets, including goodwill, are subject to an impairment review when,
as a result of events or changes in circumstances, their Recoverable Value appears to be
permanently less than their carrying value. Such events or circumstances include significant
declines, other than temporary, in the market price of our ordinary shares, difficult market
conditions in the telecommunications sector that are not expected to be of a short-term duration
and the receipt of notification from capacity suppliers that they are no longer able to honor their
contractual commitments to provide capacity. Recoverable Value is the higher of net selling price
and value in use. The value in use is determined by reference to the sum of discounted cash flows
based on economic assumptions and forecasted operating activities approved by our management. Given a combination of a current period operating loss combined with a history of operating losses
and a current expectation that, more likely than not, the minority interest of Equant will be sold
to France Telecom, we performed an impairment test at December 31, 2004. There was no impairment of long-lived assets in 2004 under French GAAP because the recoverable
amount exceeded the carrying value. We used the net selling price as the recoverable amount, based
on the offer price received from France Telecom on January 22, 2005 to purchase substantially all
of the assets and liabilities of the Company for $1.6 billion. Impairments of long-lived assets of $154.8 million, nil and nil, were recognized in the years ended
December 2002, 2003 and 2004, respectively. 33




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##### 



Under U.S. GAAP, long-lived assets, including intangible assets with definite lives, are written
down when, as a results of events or changes in circumstances and 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 long-lived assets of nil, nil and $114.4 million, were
recognized in the years ended December 2002, 2003 and 2004, respectively. There was an impairment of long-lived assets of $114.4 million in 2004 under U.S. GAAP because the
carrying value exceeded the fair value. France Telecom retained independent valuers to produce a
valuation report on the fair value of Equant as a single operating unit. The independent valuers
utilized three valuation approaches being the market multiple methodology, comparable transaction
and a discounted cash flow model and presented in their valuation report a range of fair values
from $1,000 million to $1,400 million, based on a weighted average of the results from the three
different approaches. We concluded that the best estimate of fair value was $1,219 million based on
managements evaluation of the report. The impairment charge was allocated to tangible and
intangible assets on a pro-rata basis in the amounts of $102.1 million and $12.3 million,
respectively. 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. Under U.S. GAAP, SFAS No. 142, Goodwill and Other Intangible Assets (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 no longer be amortized but tested for
impairment at least annually (or more frequently if impairment indicators arise). We evaluated
impairment using a prescribed two-step process on adoption. First, we test 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. Under U.S. GAAP, amounts of $2,423.5 million, nil and nil for the years ended December 31, 2002,
2003 and 2004, respectively, were recorded as impairment charges. 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. Revenue Recognition Like many companies in the telecommunications industry, revenue recognition is one of our critical
accounting policies because of its potential effect on our results of operations and financial
position. This policy is critical in that 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 network services, 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. See, Item 4- Business Overview. Management
judgments and estimates must be 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. 34




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##### 



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. We frequently enter into bundled service contracts with customers, which we account for by
considering if there are multiple deliverable elements in the contracts and whether the delivered
elements have a standalone value and the undelivered elements have an objective and reliable
evidence of the fair value. If these two conditions are met, then each element is recognized based
on the revenue recognition guidance specific to that element. If elements may not be separated,
application of revenue recognition criteria would be applied to the combined elements. 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. Our 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 customers 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 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 $296.3 million, $372.0 million and $450.7 million, respectively, in 2002,
2003 and 2004. 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 2002, 2003 and 2004, revenues of $196.1 million, $142.4 million and $132.8
million, respectively, were recognized. 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. Given this limited risk in providing these services, we earn a fee of cost plus 0.5% 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. 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. 35




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##### 



We purchase capacity on major international routes where it is economic to do so. The agreements we
have entered to date (known as Indefeasible Rights of Use or IRUs) are capitalized if we have the
right to use a specific amount of capacity on specific fiber optic cables and related equipment for
a specific time period. IRUs are capitalized if we have the right to use the total capacity from
the specific underlying assets (specific fibers or wavelengths) and if the IRU lease term is
greater than 75% of the estimated economic life of the underlying asset. IRUs are amortized over
the shorter of ten years or the contract term. IRUs that do not meet these criteria are accounted
for as service contracts. 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 Consolidated
Statement of Operations. 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, 2003 and 2004, $139.2 million and
$128.8 million, respectively, was recognized as the net book value of intangible assets, under
French GAAP, for capacity purchases qualifying as capital leases. The amount recognized under U.S.
GAAP within property, plant and equipment as at December 31, 2004 was $115.3 million, as a result
of the allocation of the impairment loss recorded under U.S. GAAP described above in Impairment
of Goodwill and Long-lived Assets, to the carrying value of capacity contracts. 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, 2003 and 2004, there were no amounts recognized
on the balance sheet for purchases of capacity qualifying as service contracts. 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 Equant 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 prior to June 29, 2001 are excluded from the income statement. 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. 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 assets 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. 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 was accounted for under the equity method of accounting until its
disposal because we were unable to exercise joint control over its operations, although we had
equal representation on the board and certain provisions of the shareholders agreement we entered
into with Reuters regarding Radianz suggested that operating decisions were made jointly. Reuters
was both the dominant supplier and customer of Radianz and therefore was in a position to affect
significantly the operations of Radianz without our prior approval. We also accounted for our
investment in Radianz 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 us. 36




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##### 



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, 2004, 2003 and 2002 would have been reduced by
$34.8 million, $85.1 million and $98.1 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 were
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 post-retirement benefit costs or
credits may occur in the future due to changes in the assumptions. The key assumptions used in developing our 2004 net pension benefit charge were a weighted average
discount rate of 5.09% (2003 was 5.30%), an expected return on plan assets of 7.58% (2003 was
8.03%) and a rate of compensation increase of 3.46% (2003 was 2.89%). The changes in the
assumptions from 2003 reflect current market conditions in those countries providing the plans.
Compared with 2003, our net pension benefit charge in 2004 increased by $1 million to $13 million,
however this increase has been restricted due to changes in the French GAAP rules governing
accounting for pension benefits. Our net pension benefit charge is expected to increase to
approximately $15 million during 2005, primarily as a result of changes in economic conditions,
lower discount rates and exchange rate fluctuations. Holding all other assumptions constant, a
one-half percent increase or decrease in the discount rate would have increased or decreased 2004
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 2004 pre-tax loss by $0.5 million. 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. 37




---



##### 



We accounted for awards to employees under the Share Option Plan as a liability arrangement until
January 1, 2004 because eligible employees had the option of settling the awards either in shares
or in cash. These plans are now accounted for as equity-settled because we settled a significant
option exercise during 2004 with the issuance of shares. 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. 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, 2003 and 2004, a valuation allowance
of $625.4 million and $797.1 million, respectively, was recognized against deferred tax assets of
$633.4 million and $797.1 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, among 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 2004, our trade debtors were $630.3
million and $435.8 million, respectively, and the provision for bad debts was $71.6 million and
$46.5 million, respectively. 38




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##### 



Results of Operations for the Year Ended December 31, 2004, compared to the Year Ended December 31,
2003 based on French GAAP The following table sets forth our statement of operations for the years ended December 31, 2004
and 2003. The table includes certain pro forma financial information for the year ended December
31, 2003 calculated by applying the average 2004 exchange rates to our 2003 revenues and costs. The
unaudited pro forma financial information is not intended to be a substitute for, and should be
read in conjunction with, the Consolidated Financial Statements included in Item 17, including the
notes thereto. We believe that this unaudited pro forma financial information provides useful
disclosure because it separately identifies the effects of exchange fluctuations on our operations. For the year ended December 31,2004
    
    
    2003
    
    
    2003Actual
    
    
    Pro Forma (2)(U.S. dollars in millions, exceptpercentages)Revenues
    
    $
    2,913.9
    
    
    $
    2,948.9
    
    
    $
    3,030.4Cost of services and products sold
    
    
    (2,365.9
    )
    
    
    (2,174.4
    )
    
    
    (2,300.5
    )Other operating income
    
    
    132.8
    
    
    
    142.4
    
    
    
    145.5Gross profit
    
    $
    680.8
    
    
    $
    916.9
    
    
    $
    875.4Selling, general and administrative costs
    
    $
    (548.5
    )
    
    $
    (625.3
    )
    
    $
    (666.3
    )Operating result before depreciation, amortization, share plans and
restructuring and integration charges (1)
    
    $
    132.3
    
    
    $
    291.6
    
    
    $
    209.1Depreciation and amortization, excluding goodwill
    
    
    (472.5
    )
    
    
    (482.4
    )
    
    
    (514.7
    )Restructuring and integration charges
    
    
    (34.8
    )
    
    
    (85.1
    )
    
    
    (91.9
    )Operating loss
    
    $
    (375.0
    )
    
    $
    (275.9
    )
    
    $
    (397.5
    )Finance income (charges)
    
    $
    9.5
    
    
    $
    (21.7
    )
    
    $
    (21.4
    )Income taxes
    
    
    0.1
    
    
    
    (17.0
    )
    
    
    (16.9
    )Equity in income (loss) of affiliate
    
    
    5.8
    
    
    
    (40.6
    )
    
    
    (40.6
    )Profit on disposal of affiliate
    
    
    90.1
    
    
    
    
    
    
    
    Other non-operating charges, net
    
    
    (4.8
    )
    
    
    (0.9
    )
    
    
    (1.1
    )Net loss before minority interests
    
    $
    (274.3
    )
    
    $
    (356.1
    )
    
    $
    (477.5
    )Minority interests
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    (0.1
    )Net loss
    
    $
    (274.2
    )
    
    $
    (356.2
    )
    
    
    (477.6
    )
  (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
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. 39




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##### 



(2)
    
    The unaudited pro forma financial information
reflects the impact of applying the 2004 monthly average exchange rates to our 2003 revenues and costs,
as shown in the following table: 2003
    
    
    Foreign
    
    
    2003Actual
    
    
    exchange (2)
    
    
    Pro Forma (2)Revenues
    
    $
    2,948.9
    
    
    $
    81.5
    
    
    $
    3,030.4Cost of services and products sold
    
    
    (2,174.4
    )
    
    
    (126.1
    )
    
    
    (2,300.5
    )Other operating income
    
    
    142.4
    
    
    
    3.1
    
    
    
    145.5Gross profit
    
    $
    916.9
    
    
    $
    (41.5
    )
    
    $
    875.4Selling, general and administrative
    
    
    (625.3
    )
    
    
    (41.0
    )
    
    
    (666.3
    )Operating result before depreciation,
amortization, share plans and restructuring and
integration charges (1)
    
    $
    291.6
    
    
    $
    (82.5
    )
    
    $
    209.1Depreciation and amortization, excluding goodwill
    
    
    (482.4
    )
    
    
    (32.3
    )
    
    
    (514.7
    )Restructuring and integration charges
    
    
    (85.1
    )
    
    
    (6.8
    )
    
    
    (91.9
    )Operating loss
    
    $
    (275.9
    )
    
    $
    (121.6
    )
    
    $
    (397.5
    )Financial charges
    
    
    (21.7
    )
    
    
    0.3
    
    
    
    (21.4
    )Income taxes
    
    
    (17.0
    )
    
    
    0.1
    
    
    
    (16.9
    )Equity in loss of affiliate
    
    
    (40.6
    )
    
    
    
    
    
    
    (40.6
    )Other non-operating charges, net
    
    
    (0.9
    )
    
    
    (0.2
    )
    
    
    (1.1
    )Net loss before minority interests
    
    $
    (356.1
    )
    
    $
    (121.4
    )
    
    $
    (477.5
    )Minority interests
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net loss
    
    $
    (356.2
    )
    
    $
    (121.4
    )
    
    $
    (477.6
    )
 40




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##### 



Revenues The following tables set forth our revenues, on an actual and a pro forma basis, broken down by
line of business. Pro forma revenues are calculated by applying the
2004 monthly average foreign exchange
rates to our 2003 revenues. Year ended December 31,2004
    
    
    2003
    
    
    2003Actual
    
    
    Pro Forma(U.S. dollars in millions, except percentages)Network Services
    
    $
    1,502.9
    
    
    
    1,607.1
    
    
    
    1,656.4As a percentage of
revenues
    
    
    51.6
    %
    
    
    54.5
    %
    
    
    54.7
    %Integration Services
    
    
    593.9
    
    
    
    476.6
    
    
    
    494.2As a percentage of
revenues
    
    
    20.4
    %
    
    
    16.2
    %
    
    
    16.3
    %Other Services
    
    
    267.4
    
    
    
    224.2
    
    
    
    238.8As a percentage of
revenues
    
    
    9.2
    %
    
    
    7.6
    %
    
    
    7.9
    %SITA contract
    
    
    549.7
    
    
    
    641.0
    
    
    
    641.0As a percentage of
revenues
    
    
    18.8
    %
    
    
    21.7
    %
    
    
    21.1
    %Total
    
    $
    2,913.9
    
    
    
    2,948.9
    
    
    
    3,030.4
 Our revenues declined by 1.2%, or $35.0 million, to $2,913.9 million for the year ended December
31, 2004 compared to $2,948.9 million for the year ended December 31, 2003. Compared with 2003,
foreign exchange movements had a positive effect of $81.5 million on our revenues, driven in
particular by the appreciation of the Euro against the U.S. dollar. On a pro forma basis our revenues fell by 3.8% from $3,030.4 million. This reflects increases in
revenues from Integration Services and Other Services, offset by decreases in revenues from Network
Services and SITA. Our Network Services business enjoyed volume increases offset by significant
price declines. The growth in Integration Services reflects our concentration on our services
strategy and the success of our outsourcing activities. The following table shows our revenues broken down by geographic region. Revenues are attributed to
the region in which the ultimate customer is located, rather than the region from which the related
services are invoiced. Year ended December 31,2004
    
    
    2003(U.S. dollars in millions, except in percentages)Europe, Middle East and Africa
    
    $
    2,167.1
    
    
    $
    2,188.8As a percentage of revenues
    
    
    74.4
    %
    
    
    74.2
    %Americas
    
    $
    585.9
    
    
    $
    595.3As a percentage of revenues
    
    
    20.1
    %
    
    
    20.2
    %Asia Pacific
    
    
    160.9
    
    
    
    164.8As a percentage of revenues
    
    
    5.5
    %
    
    
    5.6
    %Total
    
    $
    2,913.9
    
    
    $
    2,948.9
 Revenues in each region declined by between 1% and 3%. There was no change in the relative
significance of any individual region. 41




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##### 



Network Services The following table sets forth the revenues from our Network Services primary product lines. Year ended December 31,2004
    
    
    2003(U.S. dollars in millions, except in percentages)IP-related
    
    $
    839.9
    
    
    $
    605.9As a percentage of NS revenues
    
    
    55.9
    %
    
    
    37.7
    %Traditional MDNS
    
    
    663.0
    
    
    
    1,001.2As a percentage of NS revenues
    
    
    44.1
    %
    
    
    62.3
    %Total
    
    $
    1,502.9
    
    
    $
    1,607.1
 Revenues from network services declined by 6.5%, or $104.2 million, to $1,502.9 million in
2004, as compared to $1,607.1 million in 2003. On a pro forma
basis, calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues, network services revenues
fell by 9.3%, or $153.5 million, from $1,656.4 million in 2003. The pro forma decrease in revenues reflects continuing price erosion on contract renewals, and
competition remained strong in the marketplace. We experienced a higher level of disconnections,
particularly in North America, as customers moved to lower cost IP solutions. Both of these trends
have especially affected revenues from legacy data products such as X.25, X.28, Frame Relay and
ATM, whereas revenues from IP-based products continued to grow, as shown in the table above. Both our direct and indirect sales channels have experienced declines in revenues. Year ended December 31,2004
    
    
    2003
    
    
    2003Actual
    
    
    Pro Forma(U.S. dollars in millions, except percentages)Direct
    
    $
    1,288.0
    
    
    $
    1,348.3
    
    
    
    1,389.7As a percentage of NS revenues
    
    
    85.7
    %
    
    
    83.9
    %
    
    
    83.9
    %Indirect
    
    
    214.9
    
    
    
    258.8
    
    
    
    266.7As a percentage of NS revenues
    
    
    14.3
    %
    
    
    16.1
    %
    
    
    16.1
    %Total
    
    $
    1,502.9
    
    
    $
    1,607.1
    
    
    $
    1,656.4
 On a pro forma basis, direct revenues decreased by 7.3%, or $101.7 million, from $1,389.7 million
in 2003. The pro forma decrease in revenues reflects the trends described above. On a pro forma basis, indirect channel revenues fell by 19.4%, or $51.8 million, from $266.7
million in 2003. Actual revenues from Sprint, Deutsche Telekom and Radianz, former shareholders in
Global One, totaled approximately $114 million in 2004 compared with approximately $177 million in
2003. As a percentage of total Network Services revenues, direct revenues increased from 83.9% in 2001 to
85.7% in 2004, reflecting the ongoing reduction in revenues from wholesale channels. 42




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##### 



Integration Services The following table sets forth our Integration Services revenues by product line. Pro forma
revenues are calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues. Year ended December 31,2004
    
    
    2003
    
    
    2003Actual
    
    
    Pro Forma(U.S. dollars in millions, except percentages)Fulfillment
    
    $
    231.6
    
    
    
    166.8
    
    
    
    170.0As a percentage of IS revenues
    
    
    39.0
    %
    
    
    35.0
    %
    
    
    34.4
    %Hosting and applications
    
    
    150.3
    
    
    
    133.0
    
    
    
    142.1As a percentage of IS revenues
    
    
    25.3
    %
    
    
    27.9
    %
    
    
    28.8
    %Other integration services
    
    
    212.0
    
    
    
    176.8
    
    
    
    182.1As a percentage of IS revenues
    
    
    35.7
    %
    
    
    37.1
    %
    
    
    36.8
    %Total
    
    $
    593.9
    
    
    
    476.6
    
    
    
    494.2
 Revenues for 2004 increased by 24.6%, or $117.3 million, to $593.9 million compared to $476.6
million in 2003. On a pro forma basis our integration services revenues grew by 20.2% from $494.2
million in 2003, reflecting the impact of our focus on skills-based services (see Item 4. Business
Overview). Compared with 2003, fulfillment revenues increased by 38.8%, or $64.8 million, of which 2.6% was
due to the positive effects of foreign exchange movements, with strong growth in the European,
Middle East and Africa region. Hosting and applications revenues grew by 13.0%, or $17.3 million, in 2004 compared with 2003
benefiting from increased activity outside France and the positive effects of currency movements of
$9.1 million. Other Integration Services revenues include those from maintenance field services, project
management and certain consultancy services. In 2004, Other Integration Services revenues showed an
increase of 19.9%, or $45.2 million, compared with 2003, of which 3.5% was due to the positive
effects of foreign exchange movements. The pro forma increase of $39.9 million arises mainly as a
result of increased demand for our skills-based services, and despite a decrease in revenues from
desk-top maintenance services in the US. Other Services The following table sets forth our Other Services revenues by type. Pro forma revenues are
calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues. Year ended December 312004
    
    
    2003
    
    
    2003Actual

    
    
    Pro Forma(U.S. dollars in millions, except percentages)Convergence solutions
    
    $
    159.1
    
    
    $
    140.0
    
    
    $
    146.2As a percentage of Other
Services revenues
    
    
    59.5
    %
    
    
    62.4
    %
    
    
    61.2
    %Services provided to France Telecom
affiliates
    
    
    108.3
    
    
    
    84.2
    
    
    
    92.6As a percentage of Other
Services revenues
    
    
    40.5
    %
    
    
    37.6
    %
    
    
    38.8
    %Total
    
    $
    267.4
    
    
    $
    224.2
    
    
    $
    238.8
 43




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##### 



Revenues from Other Services rose by 19.3%, or $43.2 million, to $267.4 million in 2004 from $224.2
million in 2003. On a pro forma basis revenues increased by 12.0%, or $28.6 million, from $238.8
million in 2003. The 8.8% increase in pro forma convergence revenues reflects additional voice revenues from new
outsourcing contracts. The 17.0% increase in pro forma affiliation fees reflects increased product management fees from
France Telecom Transpac, as a result of a change in the pricing structure of the Transpac contract.
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 declined by 31.5%, or $91.3 million, to $549.7 million in 2004
from $641.0 million in 2003. Approximately $47 million of the decrease was due to the reduction in
revenues following expiry on June 30, 2003 of the MRC. The remainder reflects lower activity
levels as SITAs customers moved away from traditional services to internet-based solutions. Costs of Services and Products sold Costs of services and products sold increased by 8.8% or $191.5 million, to $2,365.9 million in
2004 from $2,174.4 million in 2003. On a pro forma basis costs of products and services increased
by 2.8%, or $65.4 million, from $2,300.5 million in 2003, largely as a result of increased costs
required to support the additional fulfillment and outsourcing revenues described above. We have experienced increases in customer access and data and voice termination costs as a result
of our success in securing additional outsourcing customers  customer access costs have increased
by 2.3% on a pro forma basis, and voice termination costs have increased by over 31%. Our ongoing focus on cost optimization has delivered reductions in a number of aspects of our
underlying cost base  our transmission costs declined by almost 10% during 2004, or almost 15% if
the effects of exchange are excluded. We intend to continue to pursue aggressive cost reduction
initiatives in 2005, particular in the areas of customer access costs and national and
international circuits. We employed 6,235 people in the Network at December 2004 compared to 5,936 at December 2003, an
increase of 299 or 5%, in line with the pro forma increase in staff-related expenditure. We expect
to see a reduction in staff-related expenditure in 2005 as our efforts to improve service quality
through the centralization of our customer support resources yield results. 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. We recognized $132.8
million of Other Operating Income in 2004, compared to $142.4 million in 2003, a decrease of 6.7%,
or $11.6 million. Switched voice services In 2004, we entered into a new contract with France Telecom that provided for us to retain
ownership, management and financial responsibility for our switched voice business and switched
voice platform, most of which we acquired in the merger with Global One. As part of this
arrangement, we provide services to France Telecom on a cost recovery basis. We recognized income
of $89.0 million from France Telecom in 2004 under these arrangements, compared to $95.4 million in
2003, a decline of 6.7%, or $6.4 million. We have also recorded an amount of $56.5 million within
deferred income relating to future France Telecom cost recoveries pursuant to this new agreement. 44




---



##### 



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 $43.8
million for these support services in 2002, compared to $47.0 million in 2003. Gross Profit Gross profit declined by 25.8%, or $236.1 million, to $680.8 million in 2004 from $916.9 million in
2003. On a pro forma basis, gross profit declined by 22.2%, or $194.6 million, from $875.4 million
in 2003. The gross profit reduction reflects a significant decrease in revenues from Network Services and
SITA, which have not been offset by a decrease in network costs. This revenue decrease, mainly
driven by price erosion and by the expiry of the SITA MRC, amounts to approximately $196 million,
or approximately $245 million on a pro forma basis. Our gross margin in 2004 was 23.4% compared to 31.1% in 2003, a decline of 7.7%, or 5.5% on a pro
forma basis. Our ability to increase margins will depend, among other things, on our ability to
successfully manage the continuing decline in Network Services revenues, to increase customer
demand for our higher margin skills-based services and to reduce our network costs. Margins may in
fact remain static or decline. Selling, general and administrative costs Selling, general and administrative (SG&A) costs comprise expenses incurred to promote and sell
our products and services, as well as expenses incurred by central and local management functions
to monitor our performance. SG&A costs decreased by 12.3%, or $76.8 million, to $548.5 million in 2004 from $625.3 million in
2003. On a pro forma basis the decline amounted to 21.5%, or $117.8 million, from $666.3 million.
SG&A expenses as a percentage of revenue declined to 18.8% compared with 21.2% in 2003, or 22.0% on
a pro forma basis. We released bad debt allowances of $22.2 million in 2004, compared to recognizing a charge of $0.1
million in 2003, as we were able to more accurately assess the recoverability of our receivables
following the implementation of improved accounting and reporting systems. Our ongoing focus on indirect costs yielded considerable benefits during 2004. We achieved a 12% reduction in property and telecommunications costs, or approximately 16% on a
pro forma basis, as the cost saving initiatives launched in 2003 delivered results. We reduced
marketing and advertising expenditure by a further 12%, or approximately 14% on a pro forma basis,
as we improved the focus of our marketing activities. Increases in professional fees relating to
our compliance with the Sarbanes-Oxley Act and the implementation of International Financial
Reporting Standards, and increased branding and corporate identity fees for the use of France
Telecom support services partially offset these improvements were. We experienced a 9% reduction in staff-related expenditure in 2004, or approximately 15% on a pro
forma basis, as staff numbers fell from 3,611 at the beginning of the year to 3,078 at the end of
the year. Operating result before depreciation, amortization and restructuring and integration charges Operating result before depreciation, amortization and restructuring and integration charges
decreased by 54.6%, or $159.3 million, to $132.3 million in 2004 from $291.6 million in 2003. As a
percentage of revenue, it declined from 9.9% in 2003 to 4.5% in 2004. This change includes the net
negative impact of currency movements of $82.5 million. 45




---



##### 



On a pro forma basis, operating result before depreciation, amortization and restructuring and
integration charges decreased by $76.8 million or 26.3% in 2004 from $209.1 million in 2003. The
pro forma decrease reflects reduced revenues and the impact of a change in revenue mix, which were
partially offset by a reduction in SG&A expenses. Depreciation and amortization, excluding goodwill Depreciation and amortization decreased by 2.1%, or $9.9 million, in 2004 to $472.5 million from
$482.4 million in 2003. As a percentage of revenue, depreciation and amortization decreased
slightly from 16.4% in 2003 to 16.2% in 2004. On a pro forma basis, depreciation and amortization decreased by 8.2%, or $42.2 million, in 2004
from $514.7 million in 2003. The depreciation charge is substantially above the current rate of
capital expenditure, reflecting the high levels of capital expenditure in past years, however is
declining as assets purchased in 2000 and 2001 become fully depreciated. Restructuring and integration charges The following table sets forth the components of our restructuring and integration charges for the
periods indicated. Year ended December 31,2004
    
    
    2003(U.S. dollars in millions)Restructuring and integration
of Equant, Global One and SITA
Equant network Joint Venture
    
    $
    5.7
    
    
    $
    191.6Strategic reorganization
    
    
    29.1
    
    
    
    6.1Total
    
    $
    34.8
    
    
    $
    197.7Reimbursement due from FT
    
    $
    
    
    
    $
    (112.6
    )Total
    
    $
    34.8
    
    
    $
    85.1
 Restructuring and integration charges in 2004 amounted to $34.8 million. This comprised $29.1
million of restructuring costs in connection with our strategic reorganization and $5.7 million of
integration costs following the France Telecom transactions. During 2004, we incurred employee termination costs of $16.8 million and lease exit costs of $12.3
million in connection with our strategic reorganization. We expect to incur additional expenditure
in 2005 as we continue our transformation into a services-focused organization. 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 $564.0 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
($69.7 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. Operating loss We recorded an operating loss of $375.0 million in 2004 compared to $275.9 million in 2003. This
change reflects the decrease in operating result before depreciation, amortization, share plans and
restructuring and integration, partially offset by the decrease in restructuring and integration
expenses. 46




---



##### 



Financial income (charges) The following table sets forth the components of our financial income/(charges) for the periods
indicated. Year ended December 31,2004
    
    
    2003(U.S. dollars in millions)Interest income
    
    
    9.8
    
    
    
    6.7Interest expense
    
    
    (11.0
    )
    
    
    (6.4
    )Foreign exchange gain (losses)
    
    $
    10.7
    
    
    $
    (22.0
    )Financial income (charges)
    
    $
    9.5
    
    
    $
    (21.7
    )
 Net interest expense for 2004 was $1.2 million compared to net interest income of $0.3 million
in 2003, a decrease of $1.5 million. At December 31, 2004 we had cash balances of $404.4 million (including $289.0 million on deposit
with France Telecom), compared to $330.1 million (including $138.2 million on deposit with France
Telecom) as at December 31, 2003. At December 31, 2004 these deposits were earning interest at
rates of 2.33% per annum, compared to 1.06% per annum on December 31, 2003. At December 31, 2003,
we were also earning interest at a rate of 1.56% per annum on a short-term loan of $150 million to
France Telecom that was repaid in July 2004. 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
$2.4 million in 2004 to $2.5 million in 2004, as well as interest on bank loans and overdrafts. In 2003, the U.S. dollar lost 16.2% in value against the euro, 10.1% against sterling and 9.7%
against the yen. In the first half of 2004, the dollar actually increased in value against the euro
and the yen, while depreciating against sterling. In the second half of 2004, the dollar resumed
its longer term downward trend against all major counterparts, resulting in net losses for the year
of 6.9%, 9.5% and 2.9%, respectively against the euro, sterling and the yen. We recognized a foreign exchange gain of $10.7 million in 2004 compared to a loss of $22.0 million
in 2003. We ceased entering into foreign exchange contracts to provide cover against fluctuations
in foreign exchange rates in 2004. Income taxes We recognized a tax credit of $0.1 million in 2004 compared to a tax charge of $17.0 million in
2003, largely as a result of our ability to recover historic tax payments through the carryback of
tax losses. The following table sets forth the calculation of our tax charge for the periods indicated. Year ended December 31,2004
    
    
    2003(U.S. dollars in millions)Current tax
    
    $
    (8.1
    )
    
    $
    25.0Deferred tax charge
    
    
    8.0
    
    
    
    (8.0
    )Total provision
    
    $
    (0.1
    )
    
    $
    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. 46




---



##### 



Certain of our subsidiaries, particularly 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 in the immediate future. Estimated net operating loss carry forwards at December 31, 2004 and 2003 and their expiration
dates as at December 31, 2004 are shown below: Net operating loss
    
    
    Net operating lossExpiration
    
    2004
    
    
    2003(U.S. dollars in millions)1 to 4 years
    
    $
    74.0
    
    
    $
    113.55 years or longer
    
    
    646.1
    
    
    
    585.4No expiration
    
    
    2,064.5
    
    
    
    1,802.2$
    2,784.6
    
    
    $
    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 that they will be resisted. At December 31, 2004 the deferred tax asset was $797.1 million, including those related to
operating losses of $691.5 million and to fixed asset and other temporary timing differences of
$105.7 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 immediate future. While
we provided for these assets , the tax losses remain available for use in the future. The comparable figures at December 31, 2003 were a deferred tax asset of $633.4 million with a
valuation allowance of $625.4 million. Equity in income ( loss) of affiliate We recognized a gain of $5.8 million in 2004 in respect of our share of the results of Radianz,
compared to a loss of $40.6 million in 2003. This reflects the improvement in Radianzs
operational performance in the period prior to disposal, as well as our $15.0 million share of a
gain on the disposal of Radianzs voice business. Profit on disposal of affiliate We disposed of our equity investment in Radianz in November 2004 for cash proceeds of $110.0
million. Our commitment to provide future services to Radianz free of charge was also deemed to be
satisfied upon termination of the joint venture agreement, and we therefore recognized a gain of
$90.1 million upon disposal. Other non-operating charges (net) Other non-operating charges (net) comprises the following components: Year ended December 31,2004
    
    
    2003(U.S. dollars in millions)Employee profit sharing
    
    $
    (0.8
    )
    
    $
    0.9Employee share purchase scheme
    
    
    1.7
    
    
    
    Pension charge
    
    
    3.9
    
    
    
    $
    4.8
    
    
    $
    0.9
 48




---



##### 



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. These costs were negative in 2004 as a result of the receipt of a
partial reimbursement of historic contributions from France Telecom. Employees of majority-owned subsidiaries of France Telecom in certain countries, including France,
the United Kingdom and the United States, were eligible to purchase shares at a discount to market
value in 2004. We incurred a charge of $1.7 million in respect of this program. We were required to record a charge of $3.9 million in connection with our adoption of
Recommendation 2003-R.01 of the French National Accounting Board (Conseil National de la
Comptabilité  CNC) relating to the rules for accounting for and the measurement of pension
obligations and similar benefits, as this new standard expanded the scope of those arrangements
covered by the rule. We also recorded a further $38.0 charge to Shareholders equity to recognize
a previously unrecognized actuarial loss on the balance sheet. See Note 17 to the Consolidated
Financial Statements for more detail. Net loss We recorded a net loss of $274.2 million in 2004 compared to $356.2 in 2003, a decrease of 23.0%.
This change reflects the gain on disposal of Radianz, and the increases in equity in result of
affiliate and financial income, partially offset by the increased operating loss. The net loss per share decreased by 23.0% to $0.94 per share, from $1.22 per share in 2003. 49




---



##### 



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 ended
    
    
    % changeDecember 31,
    
    
    from 2002 to2003
    
    
    2002
    
    
    2003(U.S. dollars in millions, except percentages)Revenues
    
    $
    2,948.9
    
    
    $
    2,973.1
    
    
    
    (0.8
    )%Cost of services and products sold
    
    
    (2,174.4
    )
    
    
    (2,269.9
    )
    
    
    (4.2
    )%Other operating income
    
    
    142.4
    
    
    
    196.1
    
    
    
    (27.4
    )%Gross profit
    
    $
    916.9
    
    
    $
    899.3
    
    
    
    2.0
    %Selling, general and administrative
    
    $
    (625.3
    )
    
    $
    (707.3
    )
    
    
    (11.6
    )%Operating result before depreciation,
amortization, share plans and
restructuring and integration charges
(1)
    
    $
    291.6
    
    
    $
    192.0
    
    
    
    51.9
    %Depreciation
and amortization, excluding goodwill
    
    
    (482.4
    )
    
    
    (487.7
    )
    
    
    (1.1
    )%Share plan costs (2)
    
    
    
    
    
    
    9.9
    
    
    
    n/aRestructuring and integration charges (3)
    
    
    (85.1
    )
    
    
    (98.1
    )
    
    
    (13.2
    )%Operating loss
    
    $
    (275.9
    )
    
    $
    (383.9
    )
    
    
    (28.1
    )%Financial (charges) income
    
    $
    (21.7
    )
    
    $
    13.3
    
    
    
    n/aIncome taxes
    
    
    (17.0
    )
    
    
    (11.9
    )
    
    
    42.9
    %Equity in loss of affiliate
    
    
    (40.6
    )
    
    
    (27.3
    )
    
    
    48.7
    %Other non-operating charges, net
    
    
    (0.9
    )
    
    
    (0.3
    )
    
    
    200.0
    %Net loss
before minority interests and goodwill amortization
    
    $
    (356.1
    )
    
    $
    (410.1
    )
    
    
    (13.2
    )%Goodwill amortization
    
    $
    
    
    
    $
    (178.9
    )
    
    
    n/aMinority interests
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    (83.6
    )%Net loss
    
    $
    (356.2
    )
    
    $
    (589.7
    )
    
    
    (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.(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. 50




---



##### 



Revenues The following table sets forth our revenues broken down by line of business: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions, Except percentages)Network Services
    
    $
    1,607.1
    
    
    $
    1,567.1As a percentage of revenues
    
    
    54.5
    %
    
    
    52.7
    %Integration Services
    
    
    476.6
    
    
    
    453.4As a percentage of revenues
    
    
    16.2
    %
    
    
    15.3
    %Other Services
    
    
    224.2
    
    
    
    238.9As a percentage of revenues
    
    
    7.6
    %
    
    
    8.0
    %SITA contract
    
    
    641.0
    
    
    
    713.7As a percentage of revenues
    
    
    21.7
    %
    
    
    24.0
    %Total
    
    $
    2,948.9
    
    
    $
    2,973.1
 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. After excluding the effect of changes in exchange rates, our Network Services business
enjoyed volume increases, but these were more than offset by price declines. The following table sets forth our revenues broken down by geographic region: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions, Except percentages)Europe, Middle East and Africa
    
    
    2,188.8
    
    
    
    2,153.5As a percentage of revenues
    
    
    74.2
    %
    
    
    72.4
    %Americas
    
    $
    595.3
    
    
    $
    660.6As a percentage of revenues
    
    
    20.2
    %
    
    
    22.2
    %Asia Pacific
    
    
    164.8
    
    
    
    159.0As a percentage of revenues
    
    
    5.6
    %
    
    
    5.4
    %Total
    
    $
    2,948.9
    
    
    $
    2,973.1
 Revenues are attributed to the region in which the ultimate customer is located, rather than
the region from which the related services are invoiced. 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. 51




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##### 



Network Services The following table sets forth the revenues from each of our Network Services primary product
lines: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions, Except percentages)IP-based
    
    $
    605.9
    
    
    $
    443.3As a percentage of
Network Services revenues
    
    
    37.7
    %
    
    
    28.3
    %Traditional MDNS
    
    
    1,001.2
    
    
    
    1,123.8As a percentage of
Network Services revenues
    
    
    62.3
    %
    
    
    71.7
    %Total
    
    $
    1,607.1
    
    
    $
    1,567.1
 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. If the effects of movements in currencies is excluded,
revenues decreased by approximately 2%. 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 experienced increased demand for high speed protocols, but this was
partially offset by falling demand for low speed protocols. The following table sets forth our Network Services revenues split by direct and indirect channels: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions, except percentages)Direct
    
    $
    1,348.3
    
    
    $
    1,244.9As a percentage of Network Services
revenues
    
    
    83.9
    %
    
    
    79.4
    %Indirect
    
    
    258.8
    
    
    
    322.2As a percentage of Network Services
revenues
    
    
    16.1
    %
    
    
    20.6
    %Total
    
    $
    1,607.1
    
    
    $
    1,567.1
 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
increased from 79.4%, in 2002 to 83.9% in 2003. 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. 52




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##### 



We continued to experience price declines on contract renewals due to the ongoing focus on cost
control of our target market, however continued to perform well in securing contracts in
competitive tenders, winning approximately 60% of opportunities in 2003. Although our contracts
typically average three years, three of the top ten orders (by total order value) during the fourth
quarter of 2003 were for terms of more than five years. Integration Services The following table sets forth our Integration Services revenues by product line. Year ended December 31,2003
    
    
    2002(U.S. dollars in millions, except percentages)Fulfillment
    
    $
    166.8
    
    
    $
    135.1As a percentage of Integration Services revenues
    
    
    35.0
    %
    
    
    29.8
    %Hosting and applications
    
    
    133.0
    
    
    
    122.5As a percentage of Integration Services revenues
    
    
    27.9
    %
    
    
    27.0
    %Other integration services
    
    
    176.8
    
    
    
    195.8As a percentage of Integration Services revenues
    
    
    37.1
    %
    
    
    43.2
    %Total
    
    $
    476.6
    
    
    $
    453.4
 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. If these effects are
excluded, revenues decreased by approximately 1%. Revenues from fulfillment increased by $31.7 million or 23.5%, primarily due to an extremely strong
fourth quarter. If the effects of movements in exchange rates are excluded, revenues increased by
approximately 21%, with most regions showing good growth. 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. If these effects are excluded, 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 decreased by 9.7%, following a fall in demand for field
services, particularly in North America. Other Services The following table sets forth our Other Services revenues by type: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions, except percentages)Convergence solutions
    
    $
    140.0
    
    
    $
    149.6As a percentage of
Other Services
revenues
    
    
    62.4
    %
    
    
    62.6
    %Services provided to France Telecom
    
    
    84.2
    
    
    
    89.3As a percentage of
Other Services
revenues
    
    
    37.6
    %
    
    
    37.4
    %Total
    
    $
    224.2
    
    
    $
    238.9
 53




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##### 



Revenues from Other Services fell by 6.2% or $14.7 million to $224.2 in 2003 from $238.9 million in
2002. If the effects of movements in exchange rates are excluded, revenues decreased by
approximately 15%. The underlying drop in revenues reflects a 12% reduction in revenues from
Convergence Solutions, primarily consisting of the significant circuit-switched voice activity we
acquired with Global One, as we migrated customers to voice over IP, as well as a 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 were removed
from the network. Costs of Services and Products sold The cost of services and products sold 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 employed 5,936 people 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. The network restructuring and integration activities performed since July 2001 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
experienced an 18% reduction in the cost of transmission over the same period. Our total network
costs decreased 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%. Switched Voice Services We entered into agreements at the time of the merger with Global One 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. These agreements included joint
planning and financial arrangements to ensure that the switched voice business did not materially
affect our profitability, and were cancelled in 2004 following negotiation of a new agreement
pursuant to which we retained full responsibility for the switched voice business. We recognized
income of $95.4 million from France Telecom in 2003 under these arrangements, compared to $131.1
million in 2002. 54




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##### 



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 30.3% in 2002. The improvement in gross margin was
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 arose 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, which was partially offset by the reduction in revenues from SITA and the conditions
facing our indirect Network Services business as described above (see Item 3. Key
InformationRisk Factors). Selling, General and Administrative Costs 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 33 sales and administrative offices. We achieved a 26% reduction in marketing and advertising expenditure, as we 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. 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 reflected 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%. 55




---



##### 



The depreciation charge is substantially above the current rate of capital expenditure, reflecting
the high levels of capital expenditure in past years. 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 31,2003
    
    
    2002(U.S. dollars in millions)Restructuring and
integration of Equant,
Global One and SITA Equant
network Joint Venture
    
    $
    191.6
    
    
    $
    193.3Strategic reorganization
    
    
    6.1
    
    
    
    Other
    
    
    
    
    
    
    (0.8
    )Total
    
    $
    197.7
    
    
    $
    192.5Reimbursement due from FT
    
    $
    (112.6
    )
    
    $
    (94.4
    )Total
    
    $
    85.1
    
    
    $
    98.1
 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. 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. 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 reflected 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. 56




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##### 



Financial (charges) income The following table sets forth the components of our financial (charges) income for the periods
indicated. Year ended December 31,2003
    
    
    2002(U.S. dollars in millions)Interest income
    
    
    6.7
    
    
    
    7.1Interest expense
    
    
    (6.4
    )
    
    
    (2.0
    )Foreign exchange (losses) gains
    
    $
    (22.0
    )
    
    $
    8.2Financial (charges) income
    
    $
    (21.7
    )
    
    $
    13.3
 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 a cash balance of $330.1 million, (including $138.2 million on deposit
with France Telecom), compared to $452.2 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 a
rate of 1.06% per annum, compared to 1.36% per annum on December 31, 2002. At December 31, 2003,
we were also earning interest at a rate of 1.56% per annum on a short-term loan of $150 million to
France Telecom that was repaid in July 2004. 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 of 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. 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 entered into are not treated as hedges for accounting
purposes, but were intended to provide cover against fluctuations in exchange rates. 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. Income taxes Our tax charge increased by 43.7% 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 31,2003
    
    
    2002(U.S. dollars in millions)Current tax
    
    $
    25.0
    
    
    $
    11.9Deferred tax
    
    
    (8.0
    )
    
    
    Total provision
    
    $
    17.0
    
    
    $
    11.9
 57




---



##### 



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 in the immediate future. Estimated net operating loss carry forwards at December 31, 2003 and 2002 and their expiration
dates as at December 31, 2003 are shown below: Net operating loss
    
    
    Net operating lossExpiration
    
    2003
    
    
    2002(U.S. dollars in millions)1 to 4 years
    
    $
    113.5
    
    
    $
    117.95 years or longer
    
    
    585.4
    
    
    
    378.0No expiration
    
    
    1,802.2
    
    
    
    1,413.2$
    2,501.1
    
    
    $
    1,909.1
 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 that they will be resisted. At December 31, 2003 our 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 recorded a valuation allowance of $625.4 million against the asset to reflect our
estimate that it was not probable that we would realize the full value of the asset in the
immediate future. The comparable figures at December 31, 2002 were a deferred tax asset of $554.5 million with a 100%
valuation allowance. Equity In Loss Of Affiliate Our equity in the loss of Radianz 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. Other non-operating charges (net) Other non-operating charges (net) comprises the following components: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions)Employee profit sharing
    
    $
    0.9
    
    
    $
    0.6Reversal of impairment loss
    
    
    
    
    
    
    (0.3
    )$
    0.9
    
    
    $
    0.3
 58




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##### 



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. 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. 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. Liquidity And Capital Resources The
following table summarizes our cash flows by activity: Year ended December 31,2004
    
    
    2003
    
    
    2002(U.S. dollars in millions)Operating activities
    
    $
    53.6
    
    
    $
    312.4
    
    
    $
    383.1Investing activities
    
    
    (125.2
    )
    
    
    (282.4
    )
    
    
    (367.8
    )Financing activities
    
    
    151.8
    
    
    
    (156.7
    )
    
    
    50.4Foreign exchange
impact
    
    
    (5.9
    )
    
    
    4.6
    
    
    
    0.7Increase (decrease)
in cash
    
    $
    74.3
    
    
    $
    (122.1
    )
    
    $
    66.4
 Our cash and cash equivalents balance as at December 31, 2004 totaled $404.4 million.
Approximately 88% of this was held in U.S. dollars, 5% in Euros and 7% in other currencies. Operating Activities 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 $51.4 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. 59




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##### 



In 2004, we generated cash inflows from operating activities of $53.6 million. This resulted
primarily from a net loss for the period of $274.2 million, which however included the significant
non-cash items
of $472.5 million for depreciation and amortization, a gain of $90.1 million on the disposal of our
equity investment in Radianz and a net movement of $21.3 million in provisions and allowances
against doubtful accounts. Our working capital requirements increased by $83.5 million in the
period. We introduced a large number of initiatives to reduce our working capital requirements
during the second half of 2004, and continue to see improvements into 2005. 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 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. In 2004, we purchased property and equipment with a value of $227.6 million and IRUs of $7.6
million, and received cash proceeds of $110.0 million on the disposal of our equity investment in
Radianz. This capital expenditure was funded by our existing cash resources, the cash received on
disposal of Radianz, and funds generated from operating activities. Financing Activities 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. Net cash
provided by financing activities in 2004 primarily represents the repayment by France Telecom of
the $150 million loan made in July 2003 as well as proceeds from the issuance of shares. We believe that our existing cash resources and funds generated from operations are sufficient to
meet our planned cash needs beyond the end of 2005. Our subsidiaries and we have a number of
available unsecured lines of credit and other borrowing arrangements. At December 31, 2004, the
unutilized portion of these totaled approximately $81.7 million. On February 9, 2005, we entered
into a $250 million revolving credit facility with France Telecom, under which we were required to
pay an arrangement fee of $0.5 million, an annual charge of 75 basis points on the undrawn amount
and interest on amounts drawn down of 220 basis points above three month LIBOR. The credit
facility can be withdrawn in the event that France Telecoms shareholding in Equant falls below
34%. Capital Expenditures The telecommunications industry is generally characterized as highly capital intensive, although
data networks can be significantly less capital intensive than traditional voice networks. The following table sets forth our capital expenditures in each of the three years ended December
31, 2004, by category: 60




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##### 



Year ended December 31,2004
    
    
    2003
    
    
    2002(U.S. dollars in millions)Capital expenditure by
category:Network and customer premises
equipment
    
    $
    137.8
    
    
    $
    218.1
    
    
    $
    301.5Computer hardware and software
    
    
    75.0
    
    
    
    37.5
    
    
    
    40.8Other
    
    
    22.4
    
    
    
    24.5
    
    
    
    26.9Total
    
    $
    235.2
    
    
    $
    280.1
    
    
    $
    369.2
 Our capital expenditures totaled $235.2 million in 2004, primarily relating to the expansion of the
network, the improvement of customer service and the further development of products and services
including $7.6 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 $45 million, or 16%, from 2003 to 2004. This decrease is primarily
due to decreased purchases of network equipment, partially offset by increased purchases of
computer hardware and software. 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. All significant capital expenditure requires the approval of our Investment
Committee, and we only incur expenditure to support revenue growth or to support operational
efficiencies. As a percentage of revenues, our capital expenditure fell from 12.4% in 2002 to 9.5%
in 2003, and to 8.1% in 2004. Approximately 59% of our capital expenditures in 2004 were in network equipment (both switching and
transmission) and customer premises equipment, as compared to 78% in 2003 and 82% in 2002. We
expect to increase the proportion of capital expenditure that is revenue growth-driven in 2005, and
to reduce the proportion spent supporting the transmission infrastructure. Commitments and contingencies The following summarizes our contractual obligations and commercial commitments at December 31,
2004, 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
    
    
    2-3 years
    
    
    4-5 years
    
    
    After 5 years(U.S. dollars in millions)Bank loans and overdrafts
    
    $
    0.2
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations (a)
    
    
    1,019.2
    
    
    
    398.6
    
    
    
    356.4
    
    
    
    131.7
    
    
    
    132.5Purchase obligations (b)
    
    
    48.1
    
    
    
    48.1
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    1,067.7
    
    
    $
    447.1
    
    
    $
    356.4
    
    
    $
    131.7
    
    
    $
    132.5
 (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. 61




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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)
    
    $
    105.1
    
    
    $
    20.6
    
    
    $
    13.4
    
    
    $
    5.0
    
    
    $
    66.1Defined benefit schemes (c)
    
    
    80.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80.7Credit lines (d)
    
    
    331.7
    
    
    
    331.7
    
    
    
    
    
    
    
    
    
    
    
    Other commercial commitments
    
    
    121.3
    
    
    
    90.0
    
    
    
    9.8
    
    
    
    15.8
    
    
    
    5.7Total Commercial Commitments
    
    
    638.8
    
    
    $
    442.3
    
    
    $
    23.2
    
    
    $
    20.8
    
    
    $
    152.5
 (a)
    We have contingent liabilities, including guarantees provided to third parties, totaling
$105.1 million at December 31, 2004. 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.(c)
    We sponsor defined benefit pension schemes in a number of contracts, some of which were
under-funded at December 31, 2004. 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.(d)
    Our subsidiaries and we have a number of available unsecured lines of credit and other
borrowing arrangements. At December 31, 2004, the unutilized portion of these totaled $81.7
million, however on February 9, 2005, we entered into a $250 million revolving credit facility
with France Telecom that is included in the above analysis. 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,
Japanese Yen and Swiss Franc. We calculate prices for our network services activities in U.S. dollars, and approximately 65% of
our 2004 revenues were accounted for in U.S. dollars. 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. 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. We
no longer enter into foreign exchange contracts to provide cover against fluctuations in foreign
exchange rates. In the first half of 2004, the dollar actually increased in value against the euro and the yen,
while depreciating against sterling. In the second half the dollar resumed its longer term downward
trend against all major counterparts, resulting in net losses for the year of 6.9%, 9.5% and 2.9%,
respectively against the euro, sterling and the yen. Our 2004 revenues benefited by approximately
$82 million from this depreciation, however our expenses increased by approximately $83 million
over the same period. Our consolidated net foreign exchange gain for 2004 amounted to $10.7
million. 62




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##### 



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
increases in shareholders equity of $89.5 million, $107.4 million and $20.3 million in 2002, 2003
and 2004, 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 not yet adopted French GAAP: The following CRC Standards, set for first-time application on January 1, 2005, were drawn up with
the aim of harmonizing French accounting standards with International Financial Reporting Standards
(IFRS). As the France Telecom Group will publish its consolidated financial statements under IFRS
from January 1, 2005, we did not choose an early application of these standards and will not adopt
these standards at any future date as we will no longer report under French GAAP. CRC Standard 04-06 of November 23, 2004 relating to the definition, accounting treatment and
measurement of assets. This Standard endorses the provisions of CNC Opinion 2004-15 of June 23, 2004 relating to the
definition, accounting treatment and measurement of assets. This Opinion was drawn up with a view
to bringing French accounting standards into line with IFRS (IAS 16 Property, Plant and Equipment,
IAS 38 Intangible Assets, IAS 2 Inventories and IAS 23 Borrowing Costs). CRC Standard 02-10 of December 12, 2002 on depreciation, amortization and impairment of assets This Standard redefines the notions of depreciation, amortization and impairment and indicates the
circumstances when an impairment test should be performed on property, plant and equipment and
intangible assets. We are required to adopt IFRS for the year ended December 31, 2005. However as discussed in Note 28
to our Consolidated Financial Statements, if the France Telecom purchase of our assets and
liabilities is completed as anticipated, we will be de-listed before we will be required to prepare
and file financial statements under IFRS. 63




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##### 



U.S. GAAP: In March 2004, the EITF reached a consensus on Issue 03-01, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments (EITF 03-01 or the Issue). EITF 03-01 is
applicable to (a) debt and equity securities within the scope of SFAS 115, (b) debt and equity
securities within the scope of SFAS 124 and that are held by an investor that reports a performance
indicator, and (c) equity securities not within the scope of SFAS 115 and not accounted for under
the APB 18s equity method (e.g., cost method investments). EITF 03-01 provides a step model to
determine whether an investment is impaired and if an impairment is other-than-temporary. In
addition, it requires that investors provide certain disclosures for cost method investments and,
if applicable, other information related specifically to cost method investments, such as the
aggregate carrying amount of cost method investments, the aggregate amount of cost method
investments that the investor
did not evaluate for impairment because an impairment indicator was not present, and the situations
under which the fair value of a cost method investment is not estimated. The disclosures relating
to cost method investments should not be aggregated with other types of investments. The effective
date for the prospective application of EITF 03-01 impairment model to all current and future
investments has been delayed by FASB Issues FASB Staff Position EITF 03-01-1. The recognition and
measurement requirements are effective for annual periods for fiscal years ending after June 15,
2004. The adoption of the disclosure requirements as of December 31, 2004 did not have a material
impact on our results of operations, financial position or cash flows. We do not anticipate that
adoption of application of the impairment model will have a material impact on our results of
operations, financial position or cash flows. At the November 17  18, 2004 meeting, the EITF reached a consensus on EITF 03-13, Applying the
Conditions in Paragraph 42 of SFAS 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, in Determining Whether to Report Discontinued Operations.The purpose of the EITF is to
clarify when a disposition should be classified as a discontinued operation caused by the
contravening wording of paragraph 42 of SFAS 144. The Task Force reached a consensus that
classification of a disposed component as a discontinued operation is appropriate only if the
ongoing entity: Step 1: Has no continuing direct cash flows (a term EITF 03-13 introduces to interpret paragraph
42(a)), and Step 2: Does not retain an interest, contract, or other arrangement sufficient to enable it to
exert significant influence over the disposed components operating and financial policies after
the disposal transaction (an interpretation of paragraph 42(b)). EITF 03-13 should be applied to components that are disposed of or classified as held for sale in
periods beginning after December 15, 2004. Previously reported operating results within an
enterprises fiscal year that includes the ratification date may be reclassified to reflect the
consensus. We do not anticipate that the adoption of EITF 03-13 will have a material impact on
our results of operations, financial position or cash flows. On November 24, 2004, the FASB issued SFAS 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. The amendments made by SFAS 151 clarify that abnormal amounts of idle facility
expense, freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges require the allocation of fixed production overheads to inventory based on
the normal capacity of the production facilities. SFAS 151 is the result of a broader effort by the
FASB to improve the comparability of cross-border financial reporting by working with the
International Accounting Standards Board (IASB) toward development of a single set of high-quality
accounting standards. The FASB and the IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories,
are both based on the principle that the primary basis of accounting for inventory is cost. Both of
those accounting standards also require that abnormal amounts of idle freight, handling costs,
and wasted materials be recognized as period costs; however, the Boards noted that differences in
the wording of the two standards could have led to the inconsistent application of those similar
requirements. The FASB concluded that clarifying the existing requirements in ARB 43 by adopting
language similar to that used in IAS 2 is consistent with its goals of improving financial
reporting in the United States and promoting convergence of accounting standards internationally.
The guidance is effective for inventory costs incurred during fiscal years beginning after June 15,
2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning
after November 23, 2004. We do not anticipate that the adoption of SFAS 151 will have a material
impact on our results of operations, financial position or cash flows. In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments or SFAS 123R.
This statement eliminates the option to apply the intrinsic value measurement provisions of APB 25,
Accounting for Stock Issued to Employees to stock compensation awards issued to employees.
Rather, SFAS 123R requires companies to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the award. That cost will
be recognized over the period during which an employee is required to provide services in exchange
for the award-the requisite service period (usually the vesting period). SFAS 123R applies to all
awards granted after the required effective date and to awards modified, repurchased, or cancelled
after that date. For public entities that do not file as small business issuers, standard is
effective for the annual reporting period that begins after June 15, 2005. We currently record
compensation expense from
stock options granted in accordance with SFAS 123 and do not anticipate that the adoption of SFAS
123R will have a material impact on our results of operations, financial position or cash flows. In December 2004, the FASB issued SFAS 153, Exchanges of Nonmonetary Assets  an amendment of APB
Opinion No. 29, which amends APB 29, Accounting for Nonmonetary Transactions to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. We are currently evaluating the impact of SFAS 153 on our results of operations, financial
position and cash flows. 64




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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 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 $104 million at December 31, 2004 arising on the acquisition, which are being
amortized over periods of between four and 20 years. 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 $564.0 million of such costs, of which France Telecom reimbursed $286.2
million. 65




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##### 



Results of Operations for the Year Ended December 31, 2004, compared to the Year Ended December 31,
2003 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, 2004 and 2003 and the percentage change between the two periods. % changeYear ended December 31,
    
    
    From 20032004
    
    
    2003
    
    
    to 2004(U.S. dollars in millions)Revenues
    
    $
    2,913.9
    
    
    $
    2,948.9
    
    
    
    (1.2
    )%Cost of services and
products sold
    
    
    (2,648.4
    )
    
    
    (2,475.3
    )
    
    
    7.0
    %Gross profit
    
    $
    265.5
    
    
    $
    473.6
    
    
    
    (43.9
    )%Selling, general and
administrative expenses
    
    $
    (632.9
    )
    
    $
    (727.0
    )
    
    
    (12.9
    )%Restructuring and
integration charges
    
    
    (34.8
    )
    
    
    (197.7
    )
    
    
    (82.4
    )%Loss on impairment of
long-lived assets
    
    
    (114.4
    )
    
    
    
    
    
    
    n/aOperating loss
    
    $
    (516.6
    )
    
    $
    (451.1
    )
    
    
    14.5
    %Equity in income (loss)
of affiliate
    
    
    5.3
    
    
    
    (41.1
    )
    
    
    n/aGain on sale of affiliate
    
    
    91.1
    
    
    
    
    
    
    
    n/aInterest income (net)
    
    $
    1.3
    
    
    $
    2.7
    
    
    
    (51.9
    )%Loss before taxes and
minority interests
    
    $
    (418.9
    )
    
    $
    (489.5
    )
    
    
    (14.4
    )%Income taxes
    
    
    (2.0
    )
    
    
    (9.8
    )
    
    
    (79.6
    )%Minority interests
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    n/aNet loss
    
    $
    (420.8
    )
    
    $
    (499.4
    )
    
    
    (15.7
    )%
 Revenues Revenues decreased $35.0 million or 1.2% to $2,913.9 million for the year ended December 31, 2004
compared to $2,948.9 million for the year ended December 31, 2003. See Operating and Financial
Review under French GAAP  Results of Operations for the Year ended December 31, 2004, compared to
the Year ended December 31, 2003 based on French GAAP  Revenues. Cost of services and products sold Costs of services and products sold 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, as well as the costs of goods and services purchased for resale. Costs of services and products sold for the year ended December 31, 2004 increased by $173.1
million or 7.0% to $2,648.4 million (90.9% of revenues) compared to $2,475.3 million (83.9% of
revenues) for the year ended December 31, 2003. This was largely due to the impact of movements in
foreign exchange rates, and increased costs associated with providing services to new outsourcing
and fulfillment customers, partially offset by reductions in depreciation of network assets. See
"Operating and Financial Review under French GAAP  Results of Operations for the Year ended
December 31, 2004, compared to the Year ended December 31, 2003 based on French GAAP  Cost of
Services and Products sold. 66




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##### 



Selling, general and administrative expenses Selling, general and administrative expenses for the year ended December 31, 2004 decreased by
$94.1 million or 12.9% to $632.9 million compared to $727.0 million for the year ended December 31,
2003. See Operating and Financial Review under French GAAP  Results of Operations for the Year
ended December 31, 2004, compared to the Year ended December 31, 2003 based on French GAAP -
Selling, general and administrative expenses. Restructuring and integration charges The following table sets forth the components of our restructuring and integration charges for the
periods indicated. Year ended December 31,2004
    
    
    2003(U.S. dollars in millions)Restructuring
    
    $
    29.1
    
    
    $
    123.7Integration
    
    
    5.7
    
    
    
    74.0Total
    
    $
    34.8
    
    
    $
    197.7
 Restructuring and integration charges in 2004 amounted to $34.8 million. This comprised $29.1
million of restructuring costs in connection with our strategic reorganization and $5.7 million of
integration costs following the France Telecom transactions. During 2004, we incurred employee termination costs of $16.8 million and lease exit costs of $12.3
million in connection with our strategic reorganization. We expect to incur additional expenditure
in 2005 as we continue our transformation into a services-focused organization. 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 $564.0 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 ($69.7
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 reimbursement 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 long-lived assets Given a combination of a current period operating loss combined with a history of operating losses
and the expectation that, more likely than not, the minority interest of Equant will be sold to
France Telecom, we performed an impairment test at December 31, 2004. We recorded an impairment charge of $114.4 million in 2004 because the carrying value exceeded the
undiscounted cash flows of the asset group. France Telecom retained independent valuers to produce
a valuation report on the fair value of Equant as a single operating unit. The independent valuers
utilized three valuation approaches being the market multiple methodology, comparable transaction
and a discounted cash flow model and presented in their valuation report a range of fair values
from $1,000 million to $1,400 million, based on a weighted average of the results from the three
different approaches. We concluded that the best estimate of fair value was $1,219 million based on
managements evaluation of the report. The impairment charge was allocated to tangible and intangible assets in the amounts of $102.1
million and $12.3 million, respectively. 67




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##### 



Depreciation We recognized a depreciation charge in 2004 of $472.5 million compared to $482.4 million in 2003.
The decrease of $9.9 million reflects the impact of reduced levels of capital expenditure in recent
years. As a percentage of revenue, depreciation and amortization charges decreased from 16.4% to
16.2%. The depreciation charge is still substantially above the current rate of capital expenditure,
reflecting the high levels of capital expenditure in recent years. We expect depreciation to
decline significantly in the future 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 31,2004
    
    
    2003(U.S. dollars in millions)Cost of revenue
    
    $
    385.3
    
    
    $
    403.2Selling, general and administrative
expenses
    
    
    87.2
    
    
    
    79.2Total
    
    $
    472.5
    
    
    $
    482.4
 Operating loss We recorded an operating loss of $516.6 million in 2004 compared to $451.1 million in 2003. This
change primarily reflects the reduction in gross profit and the impact of the impairment charge
recorded in 2004, partially offset by decreased selling, general and administrative expenses and
restructuring and integration charges. Equity in income (loss) of affiliate Equity in the loss of affiliate comprises our share of the results of Radianz in the period to
disposal. Gain on sale of affiliate We recognized a gain of $91.1 million upon disposing of our equity investment in Radianz in
November 2004. The difference from the gain recognized under French GAAP relates to the impact of
share-based compensation expenses related to Radianz. Interest income (net) We recognized interest income of $1.3 million in 2004 compared to $2.7 million in 2003, a decrease
of $1.4 million. At December 31, 2004 we had cash balances of $404.4 million, including $289.0 million on deposit
with France Telecom, compared to $330.1 million (including $138.2 million on deposit with France
Telecom) as at December 31, 2003. At December 31, 2004 these deposits were earning interest at
rates of 2.33% per annum, compared to 1.06% per annum on December 31, 2003. At December 31, 2003,
we were also earning interest at a rate of 1.56% per annum on a short-term loan of $150 million to
France Telecom that was repaid in July 2004. See Liquidity and Capital Resources. Loss before taxes and minority interests Loss before taxes and minority interests fell by $70.6 million or 14.4% to $418.9 million for the
year ended December 31, 2004 compared to $489.5 million for the year ended December 31, 2003. This
decrease primarily resulted from the gain on disposal of our investment in Radianz. Income Taxes Income taxes fell by $7.8 million or 79.6% to $2.0 million for the year ended December 31, 2004
compared to $9.8 for the year ended December 31, 2003. This primarily reflects the effect of the
group reorganization on the mix of profitability by entity. Net loss We recorded a net loss of $420.8 million in 2004 compared to $499.4 million in 2003, a reduction of
15.7%. This change primarily reflects the gain on disposal of our investment in Radianz. The net loss per share decreased by 15.8% to $1.49 per share, from $1.77 per share in 2003. 68




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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, 2003 and 200 and the percentage change between the two periods. % changeYear ended December 31,
    
    
    from 20022003
    
    
    2002
    
    
    to 2003(U.S. dollars in millions)Revenues
    
    $
    2,948.9
    
    
    $
    2,973.1
    
    
    
    (0.8
    )%Cost of products and
services
    
    
    (2,475.3
    )
    
    
    (2,496.9
    )
    
    
    (0.9
    )%Gross profit
    
    $
    473.6
    
    
    $
    476.2
    
    
    
    (0.5
    )%Selling, general and
administrative
expenses
    
    $
    (727.0
    )
    
    $
    (781.3
    )
    
    
    (6.9
    )%Restructuring and
integration charges
    
    
    (197.7
    )
    
    
    (192.5
    )
    
    
    2.7
    %Loss on impairment
of goodwill and
other intangible
assets
    
    
    
    
    
    
    (2,440.9
    )
    
    
    n/aOperating loss
    
    $
    (451.1
    )
    
    $
    (2,938.5
    )
    
    
    (84.6
    )%Equity in loss of
affiliate
    
    
    (41.1
    )
    
    
    (168.9
    )
    
    
    (75.7
    )%Interest income (net)
    
    $
    2.7
    
    
    $
    7.1
    
    
    
    (62.0
    )%Loss before taxes
and minority
interests
    
    $
    (489.5
    )
    
    $
    (3,100.3
    )
    
    
    (84.2
    )%Income taxes
    
    
    (9.8
    )
    
    
    (4.7
    )
    
    
    108.5
    %Minority interests
    
    
    (0.1
    )
    
    
    (0.7
    )
    
    
    (85.7
    )%Net loss
    
    $
    (499.4
    )
    
    $
    (3,105.7
    )
    
    
    (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, as well as the 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. 69




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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. Restructuring and integration charges The following table sets forth the components of our restructuring and integration charges for the
periods indicated. Year ended December 31,2003
    
    
    2002(U.S. dollars in millions)Restructuring of Equant, Global One and
SITA Equant network Joint Venture
    
    $
    123.7
    
    
    $
    41.0Integration of Equant, Global One and
SITA Equant network Joint Venture
    
    
    74.0
    
    
    
    151.5Total
    
    $
    197.7
    
    
    $
    192.5
 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. Loss on impairment of goodwill and Other Intangible Assets 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 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 charges increased from 15.6% to
16.4%. 70




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The depreciation charge is substantially above the current rate of capital expenditure, reflecting
the high levels of capital expenditure in recent years. The depreciation charge is reflected in the financial statements based on the nature of costs and
related assets as follows: Year ended December 31,2003
    
    
    2002(U.S. dollars in millions)Cost of revenue
    
    $
    403.2
    
    
    $
    400.5Selling, general and administrative
expenses
    
    
    79.2
    
    
    
    63.1Total
    
    $
    482.4
    
    
    $
    463.6
 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 31,2003
    
    
    2002(U.S. dollars in millions)Share in loss of affiliate
    
    $
    41.1
    
    
    $
    29.0Impairment loss
    
    
    
    
    
    
    139.9Total
    
    $
    41.1
    
    
    $
    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. 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. 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 $452.2 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. 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. 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. 71




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Item 6. Directors, Senior Management and Employees Directors and Senior Management 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 names and positions of the members of our Supervisory and Management Boards and our
executive officers are set forth below. During the past five years, none of the persons set forth
below (i) has been convicted in a criminal proceeding or (ii) has been a party to any judicial or
administrative proceeding (except for matters that were dismissed without sanction or settlement)
that resulted in a judgment, decree for final order enjoining from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a finding of any violation
of such U.S. federal or state securities laws. Supervisory Board The Supervisory Board currently consists of nine supervisory directors, all of whom are
appointed and removed by our shareholders at a general meeting. 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 provided by France Telecom, SITA, and the Nominating Committee.
The lists are binding as long as two or more candidates are nominated for each seat. Nonetheless,
at a general meeting of the shareholders, the binding list can be rendered non-binding with a
two-thirds vote representing more than half of our issued capital. The chairperson of the Supervisory Board is appointed by the Supervisory Directors from among its
members. 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. 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 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. Our current supervisory directors are: Barbara Dalibard[Chairperson].Born 1958. Elected 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. At France Telecom, she was appointed Executive Vice President of Enterprise Communication
Services of France Telecom in April 2004. She had served as Executive Vice President of the
Corporate Solutions Division of France Telecom since January 2003. Ms. Dalibard began her career
with France Telecom S.A. in 1982, holding various commercial sales management positions. In 1998,
Ms. Dalibard joined Alcanet International S.A.S., a subsidiary of the Alcatel Group, as Chairman,
then joined Alcatel CIT as commercial director for new operators, before becoming sales director
for France. Ms. Dalibard returned to France Telecom S.A. in early 2001 to become Director of
Business Markets for Orange France and Vice President of Orange Business. Ms. Dalibard is a
graduate of the Ecole Normale Supérieure, a qualified math teacher and a graduate of the Ecole
Nationale Supérieure des Telecommunications. She is a French citizen. 72




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Michel Combes. Born 1962. Elected as a France Telecom nominee on July 15, 2004, for an indefinite
term. At France Telecom, he was appointed Senior Executive Vice President of Financial Rebalancing
and Value Creation in February 2005. He was appointed Senior Vice President of Group Finance and
Chief Financial Officer in January 2003. Mr. Combes began his career at France Telecom in 1986 in
the External Networks Division, and then moved to the Industrial and International Affairs
Division. He was appointed technical advisor to the Minister for Postal Services,
Telecommunications and Space in 1991, and then to the Minister for Equipment, Transportation and
Tourism. Mr. Combes re-joined France Telecom in June 1995 as Deputy Managing Director of TDF, a
position he held from June 1996 until the end of 1999 while also serving as Chairman and Chief
Executive Officer of GlobeCast. He then served as Executive Vice President of the Nouvelles
Frontières group from December 1999 to the end of 2001, when he moved to the position of Chief
Executive Officer of ASSYSTEM, a company specializing in industrial engineering. He is Chairman of
the Board of Directors of PagesJaunes and Chairman of the Supervisory Board of ASSYSTEM-BRIME. Mr.
Combes is a graduate of the Ecole Polytechniqueand the Ecole Nationale Supérieure des
Telecommunications. He is a French citizen. Frank Dangeard.Born 1958. Elected as a France Telecom nominee on February 19, 2003, for an
indefinite term. From 1999 to 2002, he was a Senior Executive Vice-President and Vice-Chairman of
Thomson SA. From 2002 to September 2004, he was a Senior Executive Vice President and a member of
the Executive Committee, in charge of Financial Rebalancing and Value Creation, at France Telecom.
Since September 2004, he has been Chairman and CEO of Thomson SA. He is also a member of the Board
of EDF (Electricite de France) and Orange. He is a French citizen. Stéphane Pallez. Born 1959. Elected as a France Telecom nominee on December 14, 2004, for an
indefinite term. At France Telecom, she was appointed Senior Vice President assisting the Senior
Executive Vice President in charge of Financial Rebalancing and Value Creation in April 2004. Prior
to joining France Telecom, Stéphane Pallez was Head of the Department for European and
International Affairs at the Treasury Department of the Ministry of the Economy, Finance and
Industry, Chairman of the Club de Paris and Director of the European Investment Bank between 2000
and 2004. During her career at the Treasury Department, she held the position of Deputy in charge
of State Holdings between 1998 and 2000 and Deputy Director for Insurance. Between 1991 and 1993,
she was a technical advisor on industrial matters to the Cabinet of the Minister of Economy and
Finance, successively Pierre Béregovoy then Michel Sapin. Between 1988 and 1990, she was a
Substitute Director at the World Bank in Washington D.C. Stéphane Pallez is a graduate of the
Institut dEtudes Politiques de Paris(1980) and Ecole Nationale dAdministration(1984). She is a
Knight of the French Ordre National du Mérite. She is a French citizen. Fritz Fröhlich.Born 1942. Elected as a member of Equants Supervisory Board, as an independent
director, on February 19, 2003, for an indefinite term. From 1998 to April 2004, he was Deputy
Chairman and Chief Financial Officer of Akzo Nobel NV. 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. He is a German citizen. Hans-Peter Kohlhammer. Born 1947. Elected as the SITA Nominee, on July 24, 2003, for an indefinite
term. From 1999 to June 2000, he was President, Western Europe, of GTS in London. From 2000 to
April 2001, he was running his own company. From April 2001 to 2003, he was CEO of Grundig AG.
Since July 1, 2003, he has been the CEO and Director General of SITA SC. He is also a member of the
Supervisory Board of Mobilcom AG. He is a German citizen. James Meyer. Born 1954. Elected as a France Telecom Nominee, on February 19, 2003, for an
indefinite term. From 1988 to 2001, he worked in various positions at Thomson in Indianapolis, most
particularly as a Senior Executive Vice President between 1997 and 2001. Since November 2001, he
has been President of Aegis Ventures, Inc. He is also President-Operations and Sales of Sirius
Satellite Radio Inc., since May 2004 and a member of the Board of Gemstar-TV Guide and Progressive
Gaming, Inc. He is an American citizen. Roberto Quarta.Born 1949. Elected as an independent director, on May 23, 2002, for an indefinite
term. From 1993 to 2001, he was CEO of BBA Group plc. He has also served as a non-executive
director of Powergen plc. Since 2001, he has been a Principal of Clayton, Dubilier & Rice
International, Inc. and Clayton, Dubilier & Rice Limited, a private equity firm. He is also
non-executive Chairman of BBA Group plc. and a member of the Board of Directors of Azure Dynamics
and CD&R Investment Associates VI, Inc. He is an Italian citizen. Irving Yoskowitz.Born 1945. Elected as an independent director, on October 15, 1998, for an
indefinite term. He is an attorney with Crowell & Moring, and Senior Partner of Global Technology
Partners, LLC. He also served as a director for BBA Group plc. until 2004, and he currently serves
as a director of SIRVA, Inc. He is an American citizen. Supervisory Board Resignations: Thierry Breton.Born 1955. He was a France Telecom nominee on the Supervisory Board until he
resigned on September 28, 2004. He was elected to the Supervisory Board, as a France Telecom
Nominee, on February 19, 2003. Jacques Champeaux.Born 1948. He was a France Telecom nominee on the Supervisory Board until he
resigned on July 15, 2004. 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. 73




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Strategy Committee Our Strategy Committee is a committee of the Supervisory Board comprised of 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. Our Supervisory
Board exercises its guidance and direction over our long-term business strategy. Nominating Committee In accordance with our Articles of Association, our Nominating Committee is a committee of the
Supervisory Board with four members, three of whom 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. The current
members of our Nominating Committee are Charles Dehelly, Barbara Dalibard, Roberto Quarta and
Irving Yoskowitz. Mr. Yoskowitz serves as the chairman of the Committee. Jacques Champeaux
resigned from the Committee effective July 15, 2004. 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 Michel Combes, 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. Barbara Dalibard resigned from the Committee on
July 15, 2004. Duties of the Audit Committee include assisting the Supervisory Board in its review of financial
matters, recommending the appointment and dismissal of our independent auditors, and meeting with
the auditors periodically. 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 our
responses to such letters, our interim and annual financial statements, changes in our accounting
policies and practices, and our internal audit function and its evaluations and recommendations. Our Supervisory Board has adopted a charter referred to 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 be responsible for the following duties by function: Duties  External Audit Function  
    To recommend the appointment and dismissal of the external auditor and to review the
audit fee;
    To confirm and assure the independence and objectivity of the external auditor; to this
end, the Committee shall: (a) review in advance and approve any proposed provision of
material non-audit services by the external auditor (with materiality to be defined by the
Committee taking into account the limits set out in the France Telecom guidelines); (b)
receive regular reports of any continuing non-audit services provided by the external
auditor; (c) require the external auditor to submit to it on a periodic basis a formal
written statement delineating all relationships between the auditor and the Company; and
(d) ensure the key audit partners are rotated at appropriate intervals;
    To review the auditors quality control procedures and steps taken by the auditor to
respond to changes in regulatory and other requirements;
    To discuss with the external auditor before the audit commences the nature and scope of
the audit or quarterly review and associated fees;
    To advise senior management and the external auditor that they are expected to provide
a timely analysis of significant current financial reporting issues (i.e. SEC
pronouncements) and practices; 74




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
    To review with senior management and the external auditor the results of annual audits
and quarterly reviews and related comments, including reviewing disputes with management,
significant changes in the auditors plan, or other matters deemed appropriate;
    To investigate the accuracy of the auditors opinions about whether managements choice
of accounting principle is conservative, moderate, or aggressive from the perspective of
income, asset, and liability recognition, and whether those principles are common practice
or are minority practices;
    To review the Auditors Management Letter and the Management Boards responses;
    To have access to any Management Letters issued to any Group Company. Duties  Finance Function  
    To review the annual report, the annual financial statements, the quarterly or other
interim financial information that the Company plans to release to the public, and the
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; (c) possible
significant adjustments resulting from the audit; (d) compliance with current accounting
standards; (e) compliance with current stock exchange and other regulatory requirements,
with particular reference to the Sarbanes-Oxley Act;
    The Chairman of the Disclosure Committee will confirm on an annual basis that the SEC
rules and Regulatory Requirements have been met.
    To consider the suitability and effectiveness of the internal control environment;
    To review the adequacy of accounting and financial human resources and the adequacy of
succession planning process;
    To confirm with the Chief Accounting Officer on an annual basis that all non-audit
services are in compliance with policy. Duties  Internal Audit Function  
    To discuss with or request reports from management on any matter relating to financial
and accounting practices, including, among other things: (a) significant accounting
policies and principles; (b) our policies and procedures with respect to business ethics
and our compliance therewith; (c) any significant exposures or risks, including those
relating to litigation or regulatory matters, and any steps being taken to address these
risks; and (d) our tax policies and any pending audits or assessments;
    To review for adequacy the Internal Audit Departments charter, budget, and staffing;
    To review the appointment, replacement, reassignment, or dismissal of the Head of
Internal Audit;
    To review and evaluate the Internal Audit function including independence of its
reporting obligations, the proposed audit plan for the year (including those audits to be
performed by the Internal Audit department of France Telecom) and the co-ordination of
such plan with the external auditors;
    To review the results of the Internal Audit Departments work at least twice annually. Compensation Committee The Supervisory Board appoints the Compensation Committee and a Chairman who must also 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. The current members of the Compensation Committee are Irving Yoskowitz, Michel Combes, and Barbara
Dalibard. Mr. Yoskowitz serves as the Chairman of the Committee. Jacques Champeaux resigned from
the Committee effective July 15, 2004. 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. The Supervisory Board decides, by majority vote, on
material business resolutions specified by the Management Board. 75




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Under the Articles of Association, the Management Board must obtain prior approval from the
Supervisory Board to:  
    issue, repurchase, or redeem any shares or other equity securities (including
securities convertible into or exchangeable or exercisable for our shares or other equity
securities) that
we or one of our subsidiaries issues or that a general or limited partnership in which we,
or a subsidiary who is a partner, issues;
    make any application for a registration with the intention to list or quote or shares,
or withdraw a listing or quotation on any stock exchange of any of our securities;
    enter into or terminate any alliance or long-term agreement for cooperation by us or
any of our affiliates, with any third party, or the enter into or terminate any material
joint venture, partnership, or other similar arrangement;
    acquire by us or by a subsidiary, a material participation in another legal entity;
    amend our Articles of Association;
    merge, legally split, consolidate or dissolve;
    file any petition for bankruptcy or for a suspension of payment or other such
protection pursuant to any applicable law for the protection of creditors;
    adopt or significant change any business plan or budget of ours, or any investment
levels in us;
    reduce our issued capital;
    sell any portion of the shares we hold in any significant subsidiary;
    accrue any material debt exceeding 5% of our consolidated assets (other than the
extension, refinancing, or replacement of existing debt);
    expend capital in any financial year in excess of the capital expenditures approved in
our approved annual consolidated budget;

    declare any dividends or other distributions on capital stock, other than to any of our
wholly-owned subsidiaries; and
    approve the results of any audit. 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 our outstanding shares. The general meeting of shareholders can
render the Supervisory Boards binding list of its candidates non-binding, if 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 on its own. 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: Charles Dehelly.Born 1950. Appointed President and Chief Executive Officer on December 23, 2004,
and ratified by the shareholders and elected a managing director on January 26, 2005. He was
formerly Senior Executive Vice President and a member of the Executive Committee of Thomson SA.
Mr. Dehelly started his professional career in 1974 in manufacturing operations at Esswein, where
he was appointed General Manager in 1977. From 1984 to 1987, he was President of the Home
Appliances Division of the Thomson Group. From 1987 to 1992, he was President of the Television
Division of the Thomson Group in Europe and Asia. In 1992, Mr. Dehelly joined Bull, where he was responsible
for Industrial Operations. From 1993 to February 1998, he was Senior Executive Vice President of
Bull
Group, President of Bull S.A., President of the PC Division and President of Bull Europe. Mr.
Dehelly returned to Thomson SA in February 1998 as Senior Executive Vice President in
charge of Strategic Business Units (SBUs) as
well as Sourcing, IT Systems and Business Performance
Improvement programs. He was appointed Chief Operating Officer in September 2001 and was CEO from
October 2002 to September 2004. He is a French citizen. 76




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Hervé Kauffmann. Born 1962.
Appointed Chief Operating Officer effective July 1, 2004, and elected
a managing director on October 27, 2004. From 1999 to 2001, he was employed by Dutchone (now Orange
Netherlands), first as a Vice President-Business Market, then as the Deputy CEO. Between 2001 and
2003, he was the CEO of Uni2, a subsidiary of France Telecom and an alternative telecom
operator in Spain. From 2003 to 2004, he was in charge of Business Development for France Telecoms
corporate customers and was responsible for strategy definition, partnership management, and
business development. He is a French citizen. Yves Guillaumot.Born 1958. Appointed Chief Financial Officer on February 1, 2005 and elected a
managing director on April 1, 2005. From July 1998 to May 2004, he worked at Gemplus International
SA, first as a Corporate Controller, then from March 2002 as an Executive Vice-President and
Chief Financial Officer. Prior to Gemplus, he held several executive finance functions at Digital
Equipment, including positions in the US and the SEMEA regions from 1987 to 1998. He is a French
citizen. Management Board Resignations: Daniel Caclin, our former Chief Executive Officer, resigned effective December 23, 2004. Jacques Kerrest, our former Chief Financial Officer, resigned effective September 10, 2004. Howard Ford,our former head of Sales and Marketing, resigned effective April 1, 2005. Compensation The following table summarizes the amounts paid to our Managing Directors in 2004: Year Ended 31 December, 2004Pension
    
    
    
    
    
    
    Benefits in
    
    
    
    
    
    
    TotalBase
    
    
    
    
    
    
    Bonus(1)
    
    
    
    
    
    
    Benefits
    
    
    
    
    
    
    Kind
    
    
    
    
    
    
    paymentsDaniel Caclin
    
    
    U.S.$
    
    
    
    671,113
    
    
    
    U.S.$
    
    
    
    240,879
    
    
    
    U.S.$
    
    
    
    53,297
    
    
    
    U.S.$
    
    
    
    198,898
    
    
    
    U.S.$
    
    
    
    1,164,187Jacques Kerrest
    
    
    
    
    
    
    293,262
    
    
    
    
    
    
    
    201,419
    
    
    
    
    
    
    
    13,077
    
    
    
    
    
    
    
    34,114
    
    
    
    
    
    
    
    541,872Howard Ford
    
    
    
    
    
    
    537,086
    
    
    
    
    
    
    
    182,696
    
    
    
    
    
    
    
    78,577
    
    
    
    
    
    
    
    88,929
    
    
    
    
    
    
    
    887,288Hervé Kauffmann
    
    
    
    
    
    
    145,827
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,463
    
    
    
    
    
    
    
    18,505
    
    
    
    
    
    
    
    189,795U.S.$
    
    
    
    1,647,288
    
    
    
    U.S.$
    
    
    
    624,994
    
    
    
    U.S.$
    
    
    
    170,414
    
    
    
    U.S.$
    
    
    
    340,446
    
    
    
    U.S.$
    
    
    
    2,783,142
 (1)
    Bonus payments relate to 2003 performance. An allocation of 2004 bonus accrual has not yet been finalized. In addition to the amounts shown above, we accrued $1.6 million as a severance payment for
Mr. Caclin. 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 $2
million out of the total compensation paid in 2004 to provide pension, retirement or similar
benefits for our Managing Directors. 77




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In 2004, 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 all
Supervisory Board directors. We paid approximately $0.4 million to our Supervisory Board directors
as a group in 2004. Where intercontinental travel is required, each day of travel is considered as
if it involved a meeting to the extent that meeting schedules require that significant portions of
a day are devoted to travel, an additional meeting fee of $2,000 is provided. We also pay
Supervisory Board directors a taxable fee as if a meeting occurred for any day directors spend a
significant amount of time outside of the regular board and committee meetings at our request or
the Supervisory Board, if this effort by directors has been approved by the Chairperson or the
independent directors acting jointly or as a committee. All Supervisory Board directors who are
also employees of France Telecom have declined to accept the retainer and meeting fees. We pay all
fees to Supervisory Board directors in the currency of the country of their primary residence;
payments are converted to such currency using the average exchange rates over the period beginning
five days prior to the date the director was elected to the Supervisory Board by the general
meeting and ending five days following such date. Our policy is to use business days in which the
exchange currency markets are open. In addition, the Supervisory Board directors are issued options valued at two times their annual
retainer. The Supervisory Board Directors who served during 2004 received 91,641 options (at a
price of 7.89). For more detail on the options granted to our managing directors and supervisory
directors, see   Share Ownership. Share Option Plans 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, 2004, there were approximately 7.8 million 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 set an exercise price for options we will grant during a certain period, or
on a rare occasion, we may specify an exercise price for any options granted in the employment
agreement for a particular employee. This may lead us to recognize additional compensation costs
relating to these specific grants depending on our share price at the time of grant. In 2004, we granted 50,000 options
to Hervé Kauffmann at 5.02, 200,000 options to Daniel Caclin at
a weighted average price of 8.34, 50,000 options to Howard Ford at 8.43, and 1,235,000 options to
senior management and other employees (at a weighted average price of 8.10). Employees We had 9,877
temporary and permanent contractors and staff and had 9,313 full-time employees at December 31, 2004. The following table
shows, at the dates indicated, our employees by function: 2004
    
    
    
    2003
    
    
    
    2002Direct
    
    
    
    6,235
    
    
    
    
    5,936
    
    
    
    
    6,405Selling, general and administrative
    
    
    
    3,078
    
    
    
    
    3,611
    
    
    
    
    3,7279,313
    
    
    
    
    9,547
    
    
    
    
    10,132
 We do not maintain any relations with labor unions, however by statutory requirement, we do have
works councils for certain subsidiaries in several non-U.S. jurisdictions. 78




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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,
2004, our managing and supervisory directors held the following stock options: Expiry Date
    
    Number of Shares
    
    
    Exercise PriceJuly 21, 2008
    
    
    36,061
    
    
    $
    27.00October 15, 2008
    
    
    1,346
    
    
    $
    37.14March 25, 2009
    
    
    110,000
    
    
    $
    82.06May 25, 2010
    
    
    2,716
    
    
    $
    36.83June 29, 2010
    
    
    20,560
    
    
    $
    41.84May 10, 2011
    
    
    3,568
    
    
    $
    28.03July 20, 2011
    
    
    6,944
    
    
    $
    14.40March 26, 2012
    
    
    500,000
    
    
    
    13.12April 1, 2012
    
    
    4,426
    
    
    
    12.88May 22, 2012
    
    
    6,560
    
    
    
    8.62July 23, 2012
    
    
    1,200,000
    
    
    
    13.12July 23, 2012
    
    
    1,000,000
    
    
    
    30.00March 31, 2013
    
    
    65,707
    
    
    
    4.46February 25, 2014
    
    
    150,000
    
    
    
    8.43February 28, 2014
    
    
    100,000
    
    
    
    8.25March 31, 2014
    
    
    53,109
    
    
    
    7.89July 22, 2014
    
    
    50,000
    
    
    
    5.02
 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 independence. 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. On December 9, 2003 a Dutch corporate governance code, known as the Tabaksblat-Report (Code)
was published. At the end of 2004, Dutch corporate law was amended to require publicly listed
companies to describe in their annual reports the extent to which they comply with the provisions
of the Code. Equants Management and Supervisory Boards evaluated the provisions of the Code, and
the Supervisory Board appointed a Special Committee to evaluate our corporate governance provisions
in relation to the Code. As a result of this evaluation, our Supervisory Board suggested certain
changes in our best practices and corporate governance provisions. 79




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Our Supervisory Board resolved
to implement these suggestions subject to the transactions contemplated in our Combination
Agreement with France Telecom not closing, since the Code will not apply to us as a privately held,
limited liability company. See Item 7. Major Shareholders and Related Party Transactions for more
information. Item 7. Major Shareholders and Related Party Transactions MAJOR SHAREHOLDERS As of December 31, 2004, we had 282,926,881 ordinary shares outstanding and 10,000,000
convertible preference shares outstanding. During the year, we issued 113,117 ordinary shares in
respect of share options that were exercised. To our knowledge as of May 19, 2005, France Telecom owned
148,567,348, or 52.51%, of our ordinary shares, and public shareholders held 134,359,533, or 47.49%, of our ordinary shares. France Telecom holds 100% of our preference shares. As of December 31, 2004, the Government of the Republic of France controlled directly or indirectly
42.25% of the voting share capital of France Telecom S.A. As of December 31, 2004, our U.S. shareholders of record as of that date held a total of 3,415,100
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. 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 of our Annual Report on form 20-F for the year ended December 31, 2003 filed with the Commission on May 12, 2004. RELATED PARTY TRANSACTIONS The Combination Agreement With France Telecom The following is a summary of the material terms of the combination agreement The Asset Sale The combination agreement provides for us to sell all of our assets to France Telecom, other than:  
    the consideration to be received by us from France Telecom pursuant to the combination
agreement;
    our rights under the combination agreement; 80




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
    the employee option plan and the proceeds of any exercise of options thereunder; and
    records relating to our corporate organization. In exchange for such assets, the combination agreement provides that France Telecom will:  
    assume all of our liabilities other than those relating to our obligation to make the
liquidating distribution, withholding taxes, outstanding stock options, and agreements and
covenants contained in the combination agreement to be performed by us; and
    pay us 1,259,585,588.30 or approximately $1.6 billion, plus additional cash payments
equal to the sum of the proceeds that would be payable by us under the terms of the
combination agreement for our outstanding stock options (see Stock Options). The cash consideration will be paid by France Telecom directly into one of our segregated bank
accounts and will only be withdrawn to make the liquidating distribution or to satisfy liabilities
retained by us. France Telecoms Note France Telecom has elected to pay
681,839,596.40, or approximately $900 million, of
the consideration due to us under the combination agreement with a promissory note payable on the
date of the liquidating distribution. France Telecom will, until the note has been paid or discharged in full,
hold no less than 148,567,348 of our ordinary shares and 10,000,000 of our convertible preference
shares. France Telecom may set off any amounts it would have paid to us for this promissory note
against what we would have otherwise paid to them for the liquidating distribution to our
shareholders. If France Telecom fails to pay any amount due on such note, then France Telecom will lose any
rights to receive any portion of our liquidating distribution due to it as one of our shareholders
in proportion to the amount it still owes to us. Completion of the Asset Sale The completion of the asset sale will take place within five business days following the
waiver or satisfaction of all of the conditions to the asset sale in the combination agreement,
other than those conditions that by their nature are to be satisfied at the completion of the asset
sale. For more information see Conditions to the Asset Sale below. We intend to complete the
asset sale as promptly as possible, subject to receipt of shareholder approval. The completion of the asset sale will occur when we execute a notarial deed of transfer of the
shares of Equant Finance, B.V., to be renamed Equant B.V., a wholly owned subsidiary of ours, to
France Telecom before a Dutch civil law notary. Liquidating Distribution and Liquidation In relation to the combination agreement, we will as promptly as possible after the completion of
the asset sale, make one or more liquidating distributions to our shareholders of the consideration
we receive from France Telecom, which represents an implied consideration of 4.30 for each share. If
the liquidating distribution is subject to Dutch withholding tax, we will withhold the amount of
such tax from the distribution. We do not at the time of this filing believe that the liquidating
distribution will be subject to Dutch withholding tax. Stock Options Pursuant to the combination agreement, on February 19, 2005, we accelerated the vesting of all of
our outstanding employee stock options. As required by the combination agreement:  
    each vested option that is exercised by the option holder by or on the twentieth day
prior to the business day immediately preceding the date of the liquidating distribution,
which we refer to as the liquidating distribution record date, will be converted into
the number of our shares issuable thereunder and will participate in the liquidating
distribution; 81




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
    each vested option that is exercised by the option holder after the twentieth day prior
to the liquidating distribution record date and prior to or on the fifteenth day after the
liquidating distribution record date will be converted into the right to receive a payment
equal to the greater of:  °
    4.30 less the applicable exercise price for such option; and°
    an amount equal to the value of such option calculated in accordance
with the Black-Scholes formula (a mathematical formula for calculating the
theoretical value of options); and  
    each vested option that remains outstanding and unexercised as of the fifteenth day
after the liquidating distribution record date will be converted into the right to receive
an amount equal to the value of such option calculated in accordance with the
Black-Scholes formula. The above payments made by us for the outstanding stock options under our employee option plan will
be made to the persons entitled to them by the twenty-fifth day following the date of the
liquidating distribution. In calculating the value of the options using the Black-Scholes formula, the expected life of the
options is capped at 5.5 years and the volatility is assumed to be 50%. Representations and Warranties Both France Telecom and we made customary representations and warranties in the combination
agreement. These representations and warranties may (i) have been qualified by disclosures
contained in separate disclosure schedules, (ii) be qualified by materiality standards, and (iii)
no longer continue to be true as of any given date. Therefore, you should not assume that the
inclusion of representations and warranties below as they are stated in the combination agreement
necessarily means that such representations and warranties are accurate as to current
circumstances. The combination agreement contains customary representations and warranties with respect to us and
our subsidiaries relating to, among other things,  
    our due organization and good standing;
    our authority to enter into, execute, and perform the combination agreement and
enforceability of the combination agreement;
    our capitalization;
    our ownership of our subsidiaries;
    that we are not in violation of charter documents, applicable law, order, or other
restriction of a governmental authority or arbitral tribunal or contracts as a result of
the combination;
    that we obtained any required consents, approvals, authorizations or waivers from any
governmental authority or third person in connection with the combination;
    our title to assets;
    our assets and liabilities;
    the accuracy of information contained in our reports filed with the SEC, with The
Netherlands Authority for Financial Markets, with the trade register of the chamber of
commerce in Amsterdam, The Netherlands, and with the French stock exchange and
authorities, including the financial statements contained in reports filed with the SEC;
    the absence of our undisclosed liabilities;
    the absence of material corporate income taxes resulting from the combination; 82




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
    our employee benefit plans;
    our collective bargaining agreements and collective representation; and
    our compliance with applicable laws. In addition, France Telecom made representations and warranties regarding, among other things:  
    its due organization and good standing;
    its authority to enter into, execute and perform the combination agreement and
enforceability of the combination agreement;
    of its compliance with charter documents, applicable law or order or other restriction
of a governmental authority or arbitral tribunal, or contracts resulting from the
combination; and
    itsobtaining any required consents, approvals, authorizations or waivers from any
governmental authority or third person in connection with the combination. Conduct of Business Covenant We have agreed that until the completion of the combination, we and our subsidiaries will operate
our business as we always have. In particular, we agreed to use reasonable best efforts to
preserve our operations, organization, goodwill and relationships, and will be subject to certain
restrictions with respect to:  
    declaring, setting aside, making or paying any dividends or repurchasing, redeeming, or
otherwise acquiring capital stock of our or our subsidiaries;
    transferring, issuing, selling, or disposing of our capital stock or that of our
subsidiaries, or granting options, warrants, calls, or other rights to purchase our shares
or our subsidiaries capital stock, other than in connection with the employee option
plan;
    recapitalizing, reclassifying, or splitting our outstanding shares of capital stock;
    amending our and our subsidiaries articles of association or other organizational
documents;
    entering into any merger or consolidation with, engaging in any new business or
investment in, making a loan, advance or capital contribution to, or acquiring securities
of any other person;
    entering into a contract involving payments in excess of $5 million in the aggregate
(other than contracts entered into by a subsidiary of ours in the ordinary course of
business);
    other than in the ordinary course of business or as required by an agreement in effect
as of the date of the combination agreement, (a) increasing the annual level of
compensation of any
employee, (b) granting benefits or other compensation to any employee, (c) increasing
coverage or benefits available under existing employee benefit plans or arrangements or
amending or terminating any existing benefit plans or arrangements, in each case to, for or
with any director, officer, employee or agent of our or of our subsidiaries, or (d)
entering into any employment agreement, other than at-will employment without severance,
with any director, officer, or employee of ours or of any of our subsidiaries;
    other than as required by law or by a collective bargaining agreement existing as of the date of the combination agreement, entering into, modifying, or terminating any collective bargaining agreement or committing to incur any material liability to any labor organization; 83




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
    other than legal proceedings in the ordinary course of business involving our
subsidiaries and not Equant, commencing or settling any legal proceeding not related to the
combination agreement or to the combination; or
    agreeing to do any of the things listed above or taking any actions that would cause any
representation and warranty to be untrue. Mutual Covenants with France Telecom France Telecom and we have agreed to:  
    use commercially reasonable efforts to obtain all consents and approvals required to
consummate the combination including those consents necessary to transfer our contracts to
France Telecom;
    make any required filings under applicable laws;
    use commercially reasonable efforts to take all actions necessary or appropriate to consummate the combination; and
    except as required by law, obtain the approval of the other party before issuing any
press releases or making any public announcements with respect to the combination agreement
or the combination. Non Negotiation; Non-Solicitation The combination agreement provides that we will not and will not permit any subsidiary or director,
officer, employee, investment banker, financial advisor, attorney, accountant or other advisor of
ours or any of our subsidiaries to:  
    solicit, initiate, or knowingly encourage any acquisition proposal (as described below)
by a third party; or
    participate in discussions or negotiations, or furnish information or cooperate with any
person regarding any acquisition proposal. The combination agreement further provides that we and our subsidiaries will terminate all existing
discussions and negotiations with third parties relating to an acquisition proposal, and request
the return or destruction of all confidential information furnished to any third party in
connection with such discussions or negotiations. However, until such time as our shareholders approve the combination agreement, we may provide
information to and negotiate with a third party if:  
    we receive a bona fide, unsolicited written acquisition proposal from such third party;
    our Boards determine in good faith, after consultation with legal and financial
advisors, that it is reasonably likely that the acquisition proposal will result in a
superior proposal (as described below);
    our Boards determine in good faith after consultation with legal advisors that the
action is reasonably necessary in order to comply with their fiduciary duties under
applicable law; and
    we notify France Telecom of the acquisition proposal and such determination. We must provide France Telecom with any information that is provided to such third party prior to
or as soon as reasonably practicable after it is provided to such third party. An acquisition proposal means an inquiry, proposal or offer from a third party with respect to
(1) a merger, consolidation, dissolution, recapitalization or other business combination involving
us, (2) the issuance of 33 1/3% or more of our equity securities as
consideration for the assets or securities of a third party, or (3) the purchase or acquisition in
any matter, directly or indirectly, of 33 1/3% or more of our assets. 84




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A superior proposal means an acquisition proposal that any of our Supervisory Board, our
Management Board, or the Special Committee (after consultation with a financial advisor) determines
in good faith to be more favorable to us and our shareholders, employees, and other stakeholders
from a financial, strategic, business, or operational point of view than the combination
contemplated by our agreement with France Telecom, and reasonably capable of being completed in a
reasonable time. Extraordinary General Meeting; Recommendation We have agreed that as promptly as possible following the date of the combination agreement, we
will hold a meeting of our shareholders for the purposes of obtaining the affirmative vote of a
majority of such shareholders to approve the resolution of our Management Board to enter into the
combination agreement. France Telecom has agreed to vote, or cause to be voted, all of our shares
owned by it or its affiliates in favor of such resolution. The combination agreement requires that:  
    through our Supervisory and Management Boards, we recommend that our shareholders
approve of the combination; and
    none of our Supervisory Board, our Management Board, or the Special Committee withdraw
(or modify in a manner that is adverse to France Telecom) our approval or recommendation of
the combination. However, our Boards or the Special Committee may withdraw or modify (in a manner that is adverse to
France Telecom) their recommendation if:  
    we receive a superior proposal;
    our Supervisory Board, our Management Board, or the Special Committee, as the case may
be, determines in good faith after consultation with legal advisors that withdrawal or
modification is reasonably necessary in order to comply with our fiduciary duties under
applicable law;
    our Supervisory Board, our Management Board, or the Special Committee, as the case may
be, provides France Telecom with five days notice of our intent to withdraw or modify our
recommendation, including the terms and conditions of the superior proposal we received
from the third-party; and
    our Supervisory Board, our Management Board, or the Special Committee, as the case may
be, continues to believe after five days, after taking into account any legally binding
offer from France Telecom to modify the terms of the combination agreement, that such
acquisition proposal continues to be a superior proposal. Finally, nothing in the combination agreement shall prohibit either our Board or the Special
Committee from making any required disclosure to our shareholders or to the public at large if
after consultation with legal counsel, our Boards or the Special Committee expect that failure to
do so would break the law. Employee Matters Our employees who, immediately prior to the completion of the asset sale, fall within the scope of
Article 7:662 of the Dutch Civil Code will by operation of law enter the employment, effective as
of the completion of the asset sale, of France Telecom on identical terms and conditions as those
which applied to such employees prior to the completion of the asset sale. France Telecom will
offer employment with France Telecom, a subsidiary or ours, effective as of the completion of the
asset sale, to each of our employees whose employment will not transfer by operation of law to
France Telecom in connection with the combination (i) at the same annual salary or hourly wage rate
payable to such employee prior to the completion of the asset sale, (ii) in a position with
comparable responsibilities to such employees position prior to the completion of the asset sale
and in the same principal work location as such employee was employed prior to the completion of
the asset sale and which otherwise meets the requirements described in the next paragraph. 85




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For the one-year period following the completion of the asset sale, France Telecom will, or will
cause its subsidiaries to, (a) pay each of our employees who is located outside of Europe and
continues employment with France Telecom or its subsidiaries after the completion of the asset
sale, who we refer to as non-European employees, an annual base salary or hourly wage rate no less
than that provided to the employee prior to the completion of the asset sale and (b) provide
benefits (excluding bonus compensation) that are substantially similar in the aggregate to those
provided to the non-European employees prior to the completion of the asset sale, in
each case subject to France Telecoms and its subsidiaries applicable transfer and mobility
policies. France Telecom will provide the non-European employees with service credit for their
employment with us and our subsidiaries prior to the completion of the asset sale for purposes of
eligibility and vesting and, with respect to vacation and severance benefits, benefit accrual in
any benefit plan in which the non-European employees are eligible to participate after the
completion of the asset sale to the same extent service was recognized under the analogous plan
maintained by us prior to the completion of the asset sale. However, the combination agreement
does not entitle any non-European employee to continue employment with France Telecom or its
affiliates other than as required by applicable law. The combination agreement also specifies the
treatment of pre-existing conditions, deductibles, and waiting periods with respect to non-European
employees under health plans in which the non-European employees participate after the completion
of the asset sale. France Telecom also agreed to assume each or our severance plans in which our employees participate
prior to the completion of the asset sale and to maintain such plans of ours as they are in effect
immediately prior to the closing for at least one year following completion of the asset sale.
France Telecom will use reasonable efforts to not knowingly take or omit to take and to not permit
any of its subsidiaries to knowingly take or omit to take any action that would subject any
non-European employee to a tax pursuant to Section 409A of the Internal Revenue Code in connection
with the transactions contemplated by the combination agreement. Delisting and Deregistration We have further agreed that as promptly as practicable following the completion of the asset sale
we will, subject to (and in accordance with) applicable laws and regulations, suspend the listing
and trading of our ordinary shares on, and cause our ordinary shares to be delisted from, the
Euronext Paris and the New York Stock Exchange. It is currently anticipated that the listing and
trading of Equant ordinary shares on the Euronext Paris and the New York Stock Exchange will be
suspended on or as promptly as practicable following the date of the extraordinary general meeting.
We have also agreed to terminate the registration of our ordinary shares under the Exchange Act
and suspend our reporting obligations thereunder. Indemnification and Insurance Subject to certain limitations, France Telecom has agreed to indemnify all of our and our
subsidiaries past and present directors, officers, and employees for all acts or omissions
occurring at or prior to the completion of the asset sale in connection with such persons duties
as such or in connection with the combination agreement and the contemplated transactions, to the
fullest extent permitted under applicable law, our or our subsidiaries charter, or any contract
that may affect such indemnification. In the event of any legal proceeding possibly requiring such
indemnification, France Telecom shall pay on no more than a monthly basis the reasonable fees and
expenses of counsel selected by the indemnified party on demand. The combination agreement requires that, for a period of at least five years after the completion
of the asset sale, France Telecom will maintain directors and officers liability insurance on
behalf of all of our officers and directors who are covered as of the date of the combination
agreement by the directors and officers insurance maintained by France Telecom with respect to
acts and omissions occurring on or prior to their resignation or the expiration of the officers or
directors terms. Such directors and officers insurance will be no less advantageous to the
covered officers and directors than the coverage then in place for France Telecoms officers and
directors. Conditions to the Asset Sale France Telecoms and our obligations to effect the asset sale are conditioned upon the approval of
our shareholders at the upcoming extraordinary general meeting of all of the resolutions required
to effect the combination, including the amendment of our articles of association as further
detailed below in Item 10. Additional Information, by an absolute majority of our shareholders. In addition, France Telecoms obligation to effect the combination is subject to the satisfaction
or waiver of the following conditions:  
    our representations and warranties in the combination agreement being true and correct,
except where the failure to be true and correct would not reasonably be expected to have,
in the aggregate, a material adverse effect on us or our ability to consummate the
transactions contemplated in the combination agreement in a timely manner or to complete
the liquidation within a reasonable period of time after the completion of the asset sale; 86




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
    our having performed all of our obligations and covenants under the combination
agreement, except where the failure to so perform would not reasonably be expected to have,
in the aggregate, a material adverse effect on us or our ability to consummate the transactions contemplated in the combination agreement in a timely manner or
to complete the liquidation within a reasonable period of time after the completion of the
asset sale;
    the absence, since the date of the combination agreement, of any natural catastrophe,
act of terrorism, act of war, act of God, international calamity or emergency, or material
suspension or limitation of trading of ordinary shares on the New York Stock Exchange or
Euronext Paris that, individually or in the aggregate, has had or caused or could
reasonably be expected to have or cause (a) a material adverse effect on Equant and our
subsidiaries taken as a whole or (a) a material adverse effect on the ability of France
Telecom or Equant to consummate the transactions contemplated by the combination agreement,
perform their obligations under the combination agreement by December 31, 2005, or, with
respect to Equant, to complete the liquidation within a reasonable period of time after the
completion of the asset sale;
    France Telecom shall have made the filings under the Exchange Act required in connection
with the combination agreement; and
    the absence of any law or order that would prohibit, or materially modify or restrict, the combination: 
    issued by a governmental authority of the European Union, or any member state thereof, or the United States; or
    issued by any other jurisdiction and that could reasonably be expected to have a
material adverse effect on France Telecom or its ability to consummate the
combination, or could reasonably be expected result (as determined in good faith
after consulting legal counsel) in personal liability to the directors or executive
officers of France Telecom or its subsidiaries. In addition, our obligation to effect the combination is subject to the satisfaction or waiver of
the following conditions:  
    France Telecoms representations and warranties in the combination agreement (other than
representations and warranties made as of a specified date, which need be true only as of
the specified date) being true and correct (without giving effect to any qualifications or
exceptions relating to materiality or material adverse effect), except where the failure to
be true and correct would not reasonably be expected to have, in the aggregate, a material
adverse effect on France Telecom;
    France Telecom having performed all of its obligations and covenants under the
combination agreement, except where the failure to so perform (without giving effect to any
qualifications or exceptions relating to materiality or material adverse effect) would not
reasonably be expected to have, in the aggregate, a material adverse effect on France
Telecoms ability to consummate the transactions contemplated by the combination agreement
in a timely manner;
    our having made the filings with the SEC, New York Stock Exchange, and Euronext Paris
required in connection with the combination, and received the related approvals from the
New York Stock Exchange and Euronext Paris.
    the absence of any law or order that would prohibit, or materially modify or restrict, the combination:
    issued by a governmental authority of the European Union or the United States; or,
    issued by any other jurisdiction and that could reasonably be expected to have a
material adverse effect on us or our ability to consummate the combination, or could
reasonably be expected to result (as determined in good faith after consulting legal
counsel) in personal liability to the members of our Management Board, our Supervisory
Board or the Special Committee. 87




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Termination The combination agreement may be terminated at any time prior to the completion of the asset sale:  
    by the mutual written consent of France Telecom and us;
    by France Telecom or us, if:
    the combination has been completed on or prior to December
31, 2005, provided that this right to terminate will not be available to any party whose
action or failure to act has been the principal cause of or resulted in the failure of the
combination to occur by December 31, 2005; or
    our Management Board, our Supervisory Board or the Special Committee has withdrawn or
modified in a manner that is adverse to France Telecom our approval or recommendation of
the combination agreement as permitted by the combination agreement in connection with a
superior proposal or as required to avoid a violation of applicable law, see 
Extraordinary General Meeting; Recommendation.
    by France Telecom, if:
    we breach any representation, warranty, covenant, or agreement contained in the
combination agreement that would result in the failure of a condition to the completion of
the asset sale being satisfied and is incapable of being cured or is not cured within 30
calendar days after written notice of the breach is given to us; and
    by us, if:
    there has been a breach by France Telecom of any representation, warranty, covenant, or
agreement contained in the combination agreement that would result in the failure of a
condition to the completion of the asset sale being satisfied and is incapable of being
cured or is not cured within 30 calendar days after written notice of the breach is given
to France Telecom. Special Committee Authority We have agreed to consult with the Special Committee and our representatives with respect to any
matter relating to the combination agreement, and to give due consideration to any views expressed
by the Special Committee or our representatives in connection therewith. We also have granted the
independent directors an irrevocable and exclusive power of attorney on our behalf and at our
reasonable expense to implement and enforce the terms of the combination agreement in the event
that the Special Committee determines in good faith that we have failed to timely and properly
enforce and perform the combination agreement in any material respect. This power of attorney does
not include the right to cause us to consent to any amendment, supplement, or waiver of any portion
of the combination agreement. Amendment The parties may amend, supplement or waive any provision of the combination agreement only in
writing signed by the party against whom enforcement of the amendment is sought and, with respect
to any amendment or waiver by us, only with the prior written consent of our independent directors
then in office. Expenses France Telecom and we have each agreed to pay our own expenses in connection with the combination
agreement and the completion of the combination except that all costs and expenses incurred by us
after the completion of the asset sale that are reasonably necessary for our dissolution and
liquidation and our continued existence through the date of its final liquidation will be borne by
France Telecom. Liquidation Process General The resolution to dissolve us will become effective immediately following the completion of the
asset sale and will be irreversible. Our corporate purpose from then onwards will be focused
solely on the liquidation of our remaining assets. We will not immediately cease to exist at the
completion of the asset sale, but will continue to exist for as long as is necessary to liquidate
our assets, without carrying on any activity other than liquidation-related activities. 88




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Effective as of the appointment of the liquidator (as explained in detail below under Appointment
of Liquidator), the Management Board will dissolve, and the liquidator appointed at the
extraordinary general meeting will take on the same duties and responsibilities as a member of our
management board to the extent they are consistent with the liquidation process. The liquidators
actions will be supervised by our Supervisory Board. The liquidator will prepare a statement of account showing the amount and composition of the
liquidation surplus. In addition, the liquidator will prepare a plan of distribution. Both the
statement of account and the plan of distribution will be made available for inspection at our
offices and the trade register of the Chamber of Commerce in Amsterdam. The liquidator must
announce in a newspaper with a national distribution in The Netherlands where and until what date
the documents will be available for inspection. At the date of the announcement, a two-month
opposition period commences. During this period any creditor or person entitled to the liquidation
proceeds (i.e., our shareholders) may oppose the statement of account or the plan of distribution
by submitting objections to the competent district court. After the two-month opposition period
has lapsed and any objections are either withdrawn or irrevocably resolved, the liquidator may
proceed with the final distribution of the liquidation surplus. We will cease to exist at the moment that all payments to creditors as part of the liquidation
process have been settled and all liquidation surplus has been distributed. All of our shares will
automatically cease to exist upon final liquidation. Pursuant to Dutch law, if at any time after a company has ceased to exist an asset or liability
becomes apparent that was not taken into account at the time of the liquidation, the competent
court may reopen the liquidation at the request of an interested party. The reopening of the
liquidation of a company may result in a claim against the beneficiaries of the liquidated surplus
(i.e., our shareholders) for repayment of any excess distributions. However, in accordance with
the combination agreement, as of the completion of the combination, France Telecom will bear the
risk of substantially all liabilities and is entitled to substantially all assets of ours,
including those liabilities and assets that are unknown to us and France Telecom at the time of the
liquidation. See  The Combination Agreement. Shareholders distribution As part of the liquidation process, the liquidator may make provisional distribution payments to
our shareholders prior to the availability of the statement of account and plan of distribution
referred to above under  General, if the liquidator has established that either all liabilities
are satisfied or that we will continue to be able to satisfy any remaining liabilities after the
provisional distribution payments have been made. In the combination agreement, France Telecom has agreed to assume, pay, perform and discharge when
due and indemnify and hold us harmless against, substantially all current and future liabilities
(See  The Combination Agreement). On the basis of this arrangement, we expect that as promptly
as practicable following the completion of the asset sale, the liquidator will make a single
provisional liquidating distribution to our shareholders. The aggregate amount of the liquidating
distribution will equal the sum of (a) the cash purchase price plus (b) the additional cash
payments and the proceeds from the exercise of options exercised in time to participate in the
liquidating distribution in respect of such options, together yielding an amount equal to 4.30 per
share, plus (c) any interest received by us on such amounts. Shareholders who hold our New York
Shares will receive, in accordance with existing arrangements with JPMorgan Chase Bank N.A., our
New York transfer agent and registrar, the U.S. dollar equivalent thereof in cash converted at the
spot rate at the time of conversion, which shall be as soon as reasonably practicable following the
liquidating distribution (net of expenses of the conversion of euros into U.S. dollars). The liquidating distribution will be made to the holders of our outstanding ordinary shares, and
our convertible preference shares, each of our convertible preference shares being given the same
entitlement to such distribution as one ordinary share. The liquidating distribution record date
will be the business day immediately preceding the liquidating distribution. Subject to any final
distribution of the liquidation surplus (and noting that it is currently intended that a single
liquidating distribution be made for the entire amount to be so distributed), our shareholders
holding shares on the liquidating distribution record date will not be eligible to receive any
further payments of any kind. Furthermore, because our ordinary shares will be suspended from
trading on and subsequently delisted from Euronext Paris and the New York Stock Exchange on or as
promptly as practicable following the date of the extraordinary general meeting, there is expected
to be no active trading market for our ordinary shares after the approval of the combination at the
upcoming extraordinary general meeting. 89




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In accordance with Dutch law and our articles of association, any liquidating distribution that is
not successfully paid out to a shareholder will be held by us for a further period of six months
pending collection by such shareholder, and any liquidating distribution that remains unclaimed thereafter will be deposited with the Dutch Public
Administrator of Unclaimed Debts (consignatiekas). Appointment of Liquidator ENV Liquidator B.V., a newly formed wholly owned subsidiary of Freeland Corporate Advisors NV,
which we refer to as the Liquidator, has been selected by the Management Board and Supervisory
Board, with the agreement of France Telecom and the Special Committee, to be appointed by our
shareholders to act as our liquidator (vereffenaar) to be effective immediately after the
completion of the asset sale. The Liquidator will be assisted by Freeland Corporate Advisors NV,
which will provide accompanying liquidation support services. Biographical information on the sole
managing director of the Liquidator, Mr. Timothy C. Koster, is provided below. Should Mr. Koster be
unwilling or unable to act as the managing director of the Liquidator for any reason, Freeland
Corporate Advisors has agreed to make available another qualified person to be agreed upon by the
Supervisory Board. Mr. Koster, who was born in 1957, is a managing director and principal of Freeland Group and
Freeland Corporate Advisors NV in Rotterdam. Mr. Koster is currently also liquidator of formerly
Dutch publicly listed Rodamco North America NV i.l. and managing director of NSS Liquidator BV, the
liquidator of formerly Dutch/U.S. publicly listed New Skies Satellites NV i.l. Mr. Koster is also a
managing director of a number of Dutch listed investment companies, including DIM Vastgoed NV.
Previously, Mr. Koster was general counsel of Rodamco N.V. and Rodamco Continental Europe B.V.,
senior legal counsel of Mountleigh International Plc/Mountleigh Coroco Holding B.V. and an attorney
with Trenité Van Doorne. Mr. Koster is also principal of DBR Asset Management, LLC, a U.S.
investment management firm, based in Fort Lauderdale, Florida. Our Management Board and Supervisory Board have proposed that the Liquidator and Freeland Corporate
Advisors be remunerated (before taking into account applicable Dutch Value Added Tax and any
reasonable out-of-pocket expenses that may be incurred by the Liquidator or Freeland Corporate
Advisors on behalf of or for the benefit of us (other than the cost of incorporation of the
Liquidator), in each case to be reimbursed by us) as follows: (i) a fixed fee of  70,000 for the
first year, (ii) a fixed fee of  30,000 for any further years (50% of which will be used as a
credit against the variable hourly fee for the relevant year calculated in accordance with the
hourly rates set forth below) and (iii) a variable hourly fee calculated in accordance with the
following hourly rates (which hourly rates will be adjusted for inflation on January 1 of each year
beginning on January 1, 2006) for certain other services of the Liquidator and Freeland Corporate
Advisors: Partner (including Mr. Koster)
    
    290Associate
    
    150-180, depending on seniorityAdministrative staff
    
    100Support staff
    
    60
 France Telecom has agreed to assume the costs of the liquidation. In addition, France Telecom has
agreed to indemnify the Liquidator against all losses to the extent arising from or relating to any
actual or threatened legal proceeding in respect of actions or omissions occurring or alleged to
have occurred in connection with the fact that the liquidator is or was our liquidator (except in
the case such losses arise out of actions or omissions constituting an intentional material breach
of the combination agreement by the Liquidator). In the case of such an actual or threatened legal
proceeding, France Telecom would pay the reasonable fees and expenses of counsel selected by the
liquidator (but not the fees or expenses of more than one counsel in any jurisdiction). At the extraordinary general meeting, our shareholders will be asked to, inter alia (a) appoint the
Liquidator as our liquidator, (b) approve the remuneration of the Liquidator and Freeland Corporate
Advisors and (c) amend our articles of association twice, first to change our name effective upon
completion of the asset sale, and second to make certain changes agreed to in the combination
agreement effective upon the later to occur of payment of the final liquidating distribution and
delisting of ordinary shares from Euronext Paris and the New York Stock Exchange. (See The
Extraordinary General Meeting of Shareholders  Matters to be Considered). In accordance with our articles of association, the liquidator must designate a custodian to keep
our books and records for a period of seven years after the liquidation. The Liquidator has
designated France Telecom to be appointed as custodian at the extraordinary general meeting. 90




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Pursuant to article 31.1 of our articles of association, the Supervisory Board is responsible for
supervising and overseeing our liquidation to be effective immediately after the completion of the
asset sale. The combination agreement provides, however, that the term of the Supervisory Boards independent directors will automatically expire upon the later to
occur of the liquidating distribution of the consideration from the asset sale to our shareholders
and the delisting of ordinary shares from Euronext Paris and the New York Stock Exchange. Credit Facility Concurrent with the signing of our Combination Agreement with France Telecom, we entered into a
$250 million revolving credit facility agreement with France Telecom. Under the revolving credit
facility, France Telecom made available to us a maximum of $250 million. Draw downs are available
in a variety of currencies during the period February 9, 2005 until June 30, 2008. However no draw
downs have been made as of the date hereof. In connection with the revolving credit facility, we
paid France Telecom an up-front fee equal to 0.20% of the maximum draw down amount, and have also
agreed to pay France Telecom a commitment fee of 0.75 % on the undrawn and uncancelled amounts of
the facility. Interest will be charged at the three-month LIBOR plus 220 basis points per annum on
the net balance outstanding under the agreement. A material adverse effect on our financial
position constitutes an event of default under the credit agreement. 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. In addition it contemplates
that we will provide for certain back-office support services to Transpac. There is a minimum
revenues guarantee of 297 million, or approximately $381 million, which is 85% of the wholesale
revenue component of 349 million combined with the price under the service order for the
back-office support services (86.6 million). With effect of January 1, 2004, as approved by our
Independent Directors, the Affiliation Agreement was amended to reflect the pricing for 2004 and
update the scope of services we will provide. Voice Services Agreement with France Telecom In October 2004, we and France Telecom entered into an agreement pursuant to which we assumed
managerial and financial responsibility for the multilateral switched voice network that was
previously operated by France Telecom. In addition, the transition period during which customers
will be migrated from the switched voice platform to the newly launched Voice over IP platform was
extended to the end of 2006 when the switched voice platform will be decomissioned. Item 8. Financial Information CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION For our Consolidated Statements and Other Financial Information, see Item 17. 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. 91




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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 None. 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)2000
    
    $
    126 9/16
    
    
    $
    23 13/16
    
    
    
    128.90
    
    
    
    27.402001
    
    $
    31.88
    
    
    $
    7.86
    
    
    
    34.10
    
    
    
    8.252002
    
    $
    12.90
    
    
    $
    2.35
    
    
    
    14.47
    
    
    
    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
    
    
    
    5.54Fourth Quarter 2003
    
    $
    9.59
    
    
    $
    7.64
    
    
    
    8.06
    
    
    
    6.48First Quarter 2004
    
    $
    11.15
    
    
    $
    8.65
    
    
    
    8.95
    
    
    
    7.10Second Quarter 2004
    
    $
    9.73
    
    
    $
    6.11
    
    
    
    7.95
    
    
    
    5.07Third Quarter 2004
    
    $
    7.37
    
    
    $
    3.50
    
    
    
    6.11
    
    
    
    2.91October 2004
    
    $
    4.20
    
    
    $
    3.75
    
    
    
    3.36
    
    
    
    3.04November 2004
    
    $
    5.28
    
    
    $
    4.13
    
    
    
    4.08
    
    
    
    3.29December 2004
    
    $
    5.29
    
    
    $
    5.02
    
    
    
    3.99
    
    
    
    3.75January 2005
    
    $
    5.59
    
    
    $
    4.49
    
    
    
    4.21
    
    
    
    3.36February 2005
    
    $
    5.70
    
    
    $
    5.36
    
    
    
    4.27
    
    
    
    4.14March 2005
    
    $
    5.74
    
    
    $
    5.41
    
    
    
    4.28
    
    
    
    4.26April 2005
    
    $
    5.56
    
    
    $
    5.38
    
    
    
    4.28
    
    
    
    4.27May 2005 (through
May 20, 2005)
    
    $
    5.51
    
    
    $
    5.29
    
    
    
    4.29
    
    
    
    4.28
 92




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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. 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 Marché, and 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 Continucategory, 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. 93




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Item 10. Additional Information MEMORANDUM AND ARTICLES OF ASSOCIATION Amendment of Equants Articles of Association At our upcoming extraordinary general meeting, our shareholders will vote to approve two amendments
to our articles of association. First, our shareholders vote on an amendment to change our the name to ENV International N.V.,
effective upon the completion of the asset sale. The intent of this name change is to prevent
confusion following the asset sale in the markets in which we operate because France Telecom
intends to continue our current operations under the Equant brand name. Second, in accordance with the combination agreement, our shareholders will vote on an amendment to
be effective upon the later to occur of payment of the final liquidating distribution and the
delisting of our ordinary shares from the New York Stock Exchange and Euronext Paris, to eliminate
(a) any requirement thereafter that the Supervisory Board include any independent directors, and
(b) the special functions and powers of such independent directors. Each of the independent directors of the Supervisory Board has submitted to us a letter of
resignation from the Supervisory Board effective upon this amendment of our articles of association
as agreed to in the combination agreement. 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. Objects Our objects are set forth in Article 3 of the Articles of Association and entail:  
    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;
    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;
    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
    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, unless the general meeting of shareholders designates a person for that purpose
or 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. 94




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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. 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 95




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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. 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. 96




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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. 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. 97




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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. MATERIAL CONTRACTS 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 to exclusively deliver its services to the Air Transport Community. Under the Umbrella
Agreement, SITA has become our sole distributor to the air transport community. 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. The 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. 98




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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. 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. 99




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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. 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. 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. 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. 100




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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 our arrangements with SITA, we own, operate, and manage the Network
(where permitted). In certain countries, SITA cannot yet transfer ownership of the Network, and
thus we cooperate with SITA in the management of the network to ensure the orderly and seamless
operation of the SITA local network with the Equant global network, and we are responsible to fund
the costs of network operations 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.The TMA provides that to the extent legally possible within each
country, and as soon as possible after July 1, 2001, SITA shall transfer to us the local 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 local network includes the transfer of network 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 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, the Transition and Management Agreement provides for the execution of a local network
access arrangement on a country by country basis 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. 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 was completed by the end of 2004, the transition project was materially
completed in 2003. See The Voice Services Agreement at the end of this section. 101




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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 fund 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 that
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. 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. 102




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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. 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. The Voice Services Agreement Please refer to Item 7. Major Shareholders and Related Party Transactions  for the
specific terms of the Voice Services Agreement. The Agreement to Sell Radianz to Reuters In November 2004, we entered into an agreement to sell to Reuters for $110 million our 49 percent
equity stake in Radianz, our joint venture with Reuters to provide extranet and related
telecommunications services to the financial community. The Combination Agreement With France Telecom Please refer to Item 7. Major Shareholders and Related Party Transactions section for the
specific terms of the Combination Agreement. 103




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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. 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, 2004, 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. 104




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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. 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:  
    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; or
    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; or
    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.   105




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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. 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. 106




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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. 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. 107




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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. 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 Item19. Exhibits 108




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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 or
foreign currency 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. 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 intended to protect us against volatility and adverse movements in
exchange rates that provides for all material transactional exposures that can be
estimated with reasonable certainty to be hedged through the use of natural hedges, or
by executing a transaction in the external market. When we have purchased foreign exchange
derivatives we have primarily used forward exchange contracts with a term of less than 3 months. At December 31, 2004, we had no foreign exchange contracts outstanding. Our primary net foreign
currency exposures at December 31, 2004 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. 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. 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,
2004, as all borrowings outstanding on 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, 2004. The fair values included in the table have been based on quoted
market values at December 31, 2004. The table presents principal cash flows and related interest
rates. At December 31, 2004Notional Amount
    
    Fair Value(U.S. dollars in millions, except percentages)Debt  short termVariable rate (Brazilian
real)
    
    $
    0.2
    
    
    $
    0.2Average interest rate
    
    
    18.50
    %
    
    
    18.50
    %
 109




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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 by our management 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. 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, 2004. 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 Our principal accountant, Deloitte & Touche LLP provided audit services to us. We paid Deloitte &
Touche LLP $5,950,000 and $8,138,000 in 2003 and 2004 respectively. Audit Related Fees We did not purchase any audit related services in 2003 or 2004 from our principal accountant. Tax Fees We did not purchase any tax related services in 2003 or 2004 from our principal accountant. All Other Fees We did not purchase any other services from our principal accountant in 2003 or 2004. 110




---



##### 



PART III Item 17. 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 18. Financial Statements The registrant has responded to Item 17 in lieu of responding to this Item. 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/ Charles DehellyName: Charles DehellyTitle: Managing DirectorDated: May 23, 2004
 111




---



##### 



EXHIBIT INDEX 1
    
    ·
    
    Articles of Association entered into on June 29, 2001
(Incorporated by reference to our Annual Report on Form
20-F filed with the commission July 01, 2002)2 (a)
    
    ·
    
    February 9, 2005 Credit
Facility Agreement between France Telecom and Equant N.V.·
    
    Equants Shareholders Circular filed April 25, 2005
(Incorporated by reference to 6-K filed April 25, 2005)4(a)
    
    ·
    
    February 9, 2005 Combination Agreement between France
Telecom and Equant N.V. (Incorporated by reference to 6-K·
    
    filed February 16, 2005)
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)·
    
    Redacted copies of the Umbrella Agreement for Switched
Voice Services*4(b)
    
    ·
    
    Severance Agreement of Daniel Caclin·
    
    Severance Agreement of Howard Ford·
    
    Dutch and French Employment Agreement of Charles Dehelly·
    
    Dutch and French Employment Agreement of Hervé Kauffmann·
    
    Dutch and French Employment Agreement of Yves Guillaumot12
    
    ·
    
    Certifications of Principal Executive Officer And Principal
Financial Officer.
  *
    Pursuant to a request for Confidential Treatment under Rule 24b-2 of the Securities and Exchange
Act of 1934, as amended, confidential portions have been omitted and filed separately with the
Commission.




---



##### 



Equant N.V. INDEX TO THE ANNUAL REPORT
    
    
    F-1Report of the Independent Registered Public Accounting Firm
    
    
    F-2Report of
the Independent Auditors
    
    
    F-3Consolidated Statements of Operations
    
    
    F-4Consolidated Balance Sheets
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Consolidated Statements of Shareholders Equity
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-8
 F-1




---



##### 



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM To the Board of
Directors and Shareholders of Equant N.V. We have audited the accompanying consolidated balance
 sheets of Equant N.V. and subsidiaries as of December 31, 2003 and 2004, and the related
 consolidated statements of operations, shareholders equity, and cash flows for the two
 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 standards
 of the Public Company Accounting Oversight Board (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.  The Company is not required to have, nor
 were we engaged to perform, an audit of its internal control over financial reporting.
 An audit includes consideration of internal control over financial reporting as a basis
 for designing audit procedures that are appropriate in the circumstances, but not for the
 purpose of expressing an opinion on the effectiveness of the
Companys internal control
 over financial reporting.  Accordingly, we express no such opinion.  An audit also 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, such consolidated financial statements present fairly, in all material
 respects, the financial position of Equant N.V. and subsidiaries as of December 31, 2003
 and 2004, and the results of their operations and their cash flows for the two years
 then ended, in conformity with accounting principles generally accepted in France.


As discussed in Note 3 to the consolidated financial statements, in 2004 the Company
 changed its basis for accounting for pensions to conform to Recommendation 2003-r-01. Accounting principles generally accepted in
 France vary in certain significant respects from accounting principles generally accepted
 in the United States of America. Information relating to the nature and effect of such
 differences is presented in Note 30 to the consolidated financial statements. Deloitte & Touche
LLP
London, England February 9, 2005 except for Note 30 as to
 which the date is March 23, 2005 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 sheet of Equant N.V.
and its subsidiaries (the Company) at December 31, 2002 and the
related consolidated statement of operations, shareholders equity, and
cash flows for the year 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 audit in accordance with the standards of the Public
Company Accounting Oversight Board (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. The
Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting.  Accordingly, we
express no such opinion. 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, 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 the consolidated results of their operations and
their 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. The application of the latter would have affected
shareholders equity as of December 31, 2002 and net loss for the
years then ended to the extent summarized in Note 30 to the consolidated
financial statements. Ernst & Young LLP
    
    PricewaterhouseCoopers LLPLondon, United Kingdom
    
    London, United KingdomFebruary 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 31Note
    
    2002
    
    
    2003
    
    
    2004Sales of services and products
    
    25,26
    
    $
    2,973.1
    
    
    $
    2,948.9
    
    
    $
    2,913.9Cost of services and products sold
    
    25
    
    
    (2,269.9
    )
    
    
    (2,174.4
    )
    
    
    (2,365.9
    )Other operating income
    
    25
    
    
    196.1
    
    
    
    142.4
    
    
    
    132.8Gross profit
    
    
    
    
    899.3
    
    
    
    916.9
    
    
    
    680.8Selling, general and administrative expenses
    
    
    
    
    (707.3
    )
    
    
    (625.3
    )
    
    
    (548.5
    )Operating result before depreciation, amortization, share
plans and restructuring and integration
    
    
    
    
    192.0
    
    
    
    291.6
    
    
    
    132.3Depreciation and amortization, excluding goodwill
    
    11
    
    
    (487.7
    )
    
    
    (482.4
    )
    
    
    (472.5
    )Share plans
    
    23
    
    
    9.9
    
    
    
    
    
    
    
    Restructuring and integration
    
    7
    
    
    (98.1
    )
    
    
    (85.1
    )
    
    
    (34.8
    )Operating loss
    
    
    
    
    (383.9
    )
    
    
    (275.9
    )
    
    
    (375.0
    )Financial income/(charges)
    
    8
    
    
    13.3
    
    
    
    (21.7
    )
    
    
    9.5Income taxes
    
    9
    
    
    (11.9
    )
    
    
    (17.0
    )
    
    
    0.1Equity share in (loss)/gain of affiliate
    
    12
    
    
    (27.3
    )
    
    
    (40.6
    )
    
    
    5.8Profit on disposal of affiliate
    
    12
    
    
    
    
    
    
    
    
    
    
    90.1Other non-operating charges, net
    
    5
    
    
    (0.3
    )
    
    
    (0.9
    )
    
    
    (4.8
    )Net loss before minority interests and goodwill
amortization
    
    
    
    
    (410.1
    )
    
    
    (356.1
    )
    
    
    (274.3
    )Goodwill amortization
    
    10
    
    
    (24.1
    )
    
    
    
    
    
    
    Exceptional amortization of goodwill
    
    10
    
    
    (154.8
    )
    
    
    
    
    
    
    Minority interests
    
    21
    
    
    (0.7
    )
    
    
    (0.1
    )
    
    
    0.1Net loss
    
    
    
    $
    (589.7
    )
    
    $
    (356.2
    )
    
    $
    (274.2
    )Per share data - basic and dilutedNet loss per share
    
    
    U.S.
    $
    (2.01
    )
    U.S.
    $
    (1.22
    )
    U.S.
    $
    (0.94
    )Basic weighted average number of shares (thousands)
    
    4
    
    
    292,706
    
    
    
    292,729
    
    
    
    292,904
 The accompanying notes are an integral part of these Consolidated Financial Statements. F-4




---



##### 



Equant N.V.
Consolidated Balance Sheets
(U.S. dollars in millions) At December 31Note
    
    2002
    
    
    2003
    
    
    2004ASSETSGoodwill and other intangible assets
    
    10
    
    $
    
    
    
    $
    
    
    
    $
    Long-lived assets, plant property and equipment, net
    
    11
    
    
    1,154.4
    
    
    
    1,030.8
    
    
    
    842.3Long-lived assets, indefeasable rights of use, net
    
    11
    
    
    151.9
    
    
    
    139.2
    
    
    
    128.8Investments accounted for under the equity method
    
    12
    
    
    101.4
    
    
    
    59.1
    
    
    
    Investments accounted at cost
    
    12
    
    
    5.1
    
    
    
    5.1
    
    
    
    5.1Long-term lease receivables
    
    15, 18
    
    
    4.6
    
    
    
    4.9
    
    
    
    5.0Other non-current assets
    
    
    
    
    47.1
    
    
    
    56.8
    
    
    
    40.1Total non-current assets
    
    
    
    
    1,464.5
    
    
    
    1,295.9
    
    
    
    1,021.3Inventories
    
    13
    
    
    17.1
    
    
    
    14.5
    
    
    
    13.4Trade accounts receivable from related parties
    
    14, 25
    
    
    581.5
    
    
    
    448.3
    
    
    
    345.4Trade accounts receivable, other
    
    14
    
    
    422.9
    
    
    
    354.6
    
    
    
    313.4Short-term lease receivables
    
    15
    
    
    13.7
    
    
    
    3.6
    
    
    
    2.2Deferred income taxes
    
    9
    
    
    
    
    
    
    8.0
    
    
    
    Sales and other taxes recoverable
    
    
    
    
    115.0
    
    
    
    148.2
    
    
    
    171.2Other current assets and prepaid costs
    
    
    
    
    127.3
    
    
    
    106.8
    
    
    
    132.2Short-term loan to France Telecom
    
    2, 25
    
    
    
    
    
    
    150.0
    
    
    
    Cash and cash equivalents
    
    2
    
    
    452.2
    
    
    
    330.1
    
    
    
    404.4Total current assets
    
    
    
    
    1,729.7
    
    
    
    1,564.1
    
    
    
    1,382.2Total assets
    
    
    
    $
    3,194.2
    
    
    $
    2,860.0
    
    
    $
    2,403.5LIABILITIES 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
    
    
    
    2,912.5
    
    
    
    2,915.3Accumulated deficit
    
    
    
    
    (524.6
    )
    
    
    (1,114.3
    )
    
    
    (1,508.5
    )Net loss for the year
    
    
    
    
    (589.7
    )
    
    
    (356.2
    )
    
    
    (274.2
    )Statutory reserves
    
    22
    
    
    0.8
    
    
    
    0.8
    
    
    
    0.8Cumulative foreign currency translation adjustment
    
    
    
    
    (24.9
    )
    
    
    82.5
    
    
    
    102.8Total shareholders equity
    
    
    
    
    1,777.3
    
    
    
    1,528.6
    
    
    
    1,239.5Minority interests
    
    21
    
    
    0.7
    
    
    
    0.5
    
    
    
    0.3Provisions for liabilities and charges
    
    19
    
    
    39.8
    
    
    
    70.9
    
    
    
    107.9Long-term capital leases, less current portion
    
    16, 18
    
    
    0.7
    
    
    
    0.2
    
    
    
    Other non-current liabilities
    
    20
    
    
    83.9
    
    
    
    70.1
    
    
    
    18.6Total non-current liabilities
    
    
    
    
    124.4
    
    
    
    141.2
    
    
    
    126.5Bank loans and overdrafts
    
    2, 16
    
    
    7.0
    
    
    
    1.0
    
    
    
    0.2Current portion of capital leases
    
    16
    
    
    0.5
    
    
    
    0.3
    
    
    
    0.2Trade accounts payable to related parties
    
    25
    
    
    344.6
    
    
    
    280.6
    
    
    
    138.3Trade accounts payable, other
    
    
    
    
    303.0
    
    
    
    272.0
    
    
    
    212.7Accrued liabilities
    
    
    
    
    220.8
    
    
    
    176.8
    
    
    
    217.2Deferred income
    
    
    
    
    78.3
    
    
    
    79.4
    
    
    
    131.0Employee liabilities
    
    
    
    
    84.0
    
    
    
    150.1
    
    
    
    130.5Taxation liabilities
    
    
    
    
    134.8
    
    
    
    162.3
    
    
    
    152.9Other current liabilities
    
    
    
    
    89.9
    
    
    
    43.9
    
    
    
    17.5Short-term provisions
    
    19
    
    
    28.9
    
    
    
    23.3
    
    
    
    36.7Total current liabilities
    
    
    
    
    1,291.8
    
    
    
    1,189.7
    
    
    
    1,037.2Total liabilities and Shareholders equity
    
    
    
    $
    3,194.2
    
    
    $
    2,860.0
    
    
    $
    2,403.5
 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 31Note
    
    2002
    
    
    2003
    
    
    2004OPERATING ACTIVITIESNet loss
    
    
    
    $
    (589.7
    )
    
    $
    (356.2
    )
    
    $
    (274.2
    )Adjustments to reconcile net loss to net cash provided by operating activitiesMinority interests
    
    21
    
    
    0.7
    
    
    
    0.1
    
    
    
    (0.1
    )Impairment of long-lived assets and disposals
    
    11
    
    
    
    
    
    
    3.9
    
    
    
    5.5Depreciation and amortization
    
    10, 11
    
    
    666.6
    
    
    
    482.4
    
    
    
    472.5Share plans
    
    23
    
    
    (0.1
    )
    
    
    
    
    
    
    Restructuring asset write off
    
    7
    
    
    74.2
    
    
    
    40.7
    
    
    
    Movement on provisions
    
    19
    
    
    
    
    
    
    25.5
    
    
    
    46.4Changes in allowances for doubtful accounts
    
    14
    
    
    
    
    
    
    (21.6
    )
    
    
    (25.1
    )Profit on disposal of affiliate
    
    12
    
    
    
    
    
    
    
    
    
    
    (90.1
    )Write back of investments accounted at cost
    
    12
    
    
    (0.3
    )
    
    
    
    
    
    
    Equity in loss/(gain) of affiliate
    
    12
    
    
    27.3
    
    
    
    40.6
    
    
    
    (5.8
    )Deferred income taxes
    
    9
    
    
    
    
    
    
    (8.0
    )
    
    
    8.0Net cash provided by operating activities before changes in
operating assets and liabilities
    
    
    
    
    178.7
    
    
    
    207.4
    
    
    
    137.1Changes in operating assets and liabilities
    
    
    
    
    204.4
    
    
    
    105.0
    
    
    
    (83.5
    )Net cash flows provided by operating activities
    
    
    
    
    383.1
    
    
    
    312.4
    
    
    
    53.6INVESTING ACTIVITIESPurchase of property, plant and equipment
    
    11
    
    
    (332.3
    )
    
    
    (234.0
    )
    
    
    (227.6
    )Purchase of indefeasable rights of use (IRUs)
    
    11
    
    
    (36.9
    )
    
    
    (46.1
    )
    
    
    (7.6
    )Proceeds on disposal of affiliate
    
    12
    
    
    
    
    
    
    
    
    
    
    110.0Net cash effect of acquisitions
    
    21
    
    
    
    
    
    
    (2.3
    )
    
    
    Proceeds from disposal of investments accounted at cost
    
    12
    
    
    1.4
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    
    
    (367.8
    )
    
    
    (282.4
    )
    
    
    (125.2
    )FINANCING ACTIVITIESProceeds from issuance of shares
    
    23
    
    
    
    
    
    
    
    
    
    
    2.9Short-term loan to France Telecom
    
    2, 25
    
    
    
    
    
    
    (150.0
    )
    
    
    150.0Decrease in bank loans and overdrafts
    
    16
    
    
    (2.2
    )
    
    
    (6.0
    )
    
    
    (0.8
    )Decrease in capital leases
    
    16
    
    
    (2.4
    )
    
    
    (0.7
    )
    
    
    (0.3
    )France Telecom reimbursement under Contribution Agreement
    
    1
    
    
    18.0
    
    
    
    
    
    
    
    Proceeds from the settlement of foreign exchange contracts
    
    8
    
    
    37.0
    
    
    
    
    
    
    
    Net cash provided by / (used in) financing activities
    
    
    
    
    50.4
    
    
    
    (156.7
    )
    
    
    151.8Effect of changes in exchange rates on cash and cash equivalents
    
    
    
    
    0.7
    
    
    
    4.6
    
    
    
    (5.9
    )Increase / (decrease) in cash and cash equivalents
    
    
    
    
    66.4
    
    
    
    (122.1
    )
    
    
    74.3Cash and cash equivalents at beginning of the year
    
    
    
    
    385.8
    
    
    
    452.2
    
    
    
    330.1Cash and cash equivalents at end of the year
    
    
    
    $
    452.2
    
    
    $
    330.1
    
    
    $
    404.4
 The table below provides supplemental cash flow information: Years ended December 312002
    
    
    2003
    
    
    2004Income taxes paid
    
    $
    (18.2
    )
    
    $
    (3.7
    )
    
    $
    (39.0
    )Interest paid
    
    $
    (0.4
    )
    
    $
    (4.0
    )
    
    $
    (8.5
    )Interest received
    
    $
    7.1
    
    
    $
    6.7
    
    
    $
    9.8Cash spent on restructuring and integration of Equant, Global One
and SITA Equant network Joint Venture
    
    $
    (134.5
    )
    
    $
    (125.6
    )
    
    $
    (5.7
    )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-6




---



##### 



Equant N.V.
Consolidated Statements of Shareholders Equity
(U.S. dollars in millions, unless otherwise stated) CumulativeforeignOrdinary and
    
    
    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 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
    
    
    $
    1,528.6Transfer of prior year result
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (356.2
    )
    
    
    356.2
    
    
    
    
    
    
    
    
    
    
    
    Net loss for the year 2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274.2
    )
    
    
    
    
    
    
    
    
    
    
    (274.2
    )Exercise of stock options
    
    23
    
    
    103,704
    
    
    
    
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.8Exercise of restricted shares

    
    23
    
    
    9,413
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension adjustment - CNC
Recommendation 2003-01
    
    17
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38.0
    )Unrealized translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.3
    
    
    
    20.3Balance at December 31, 2004
    
    
    
    
    292,926,881
    
    
    $
    3.3
    
    
    $
    2,915.3
    
    
    $
    (1,508.5
    )
    
    $
    (274.2
    )
    
    $
    0.8
    
    
    $
    102.8
    
    
    $
    1,239.5
 The accompanying notes are an integral part of these Consolidated Financial Statements. F-7




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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 territories, 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 entitled shareholders, except France Telecom and the Foundation,
to receive up to 15.00 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. France Telecom paid the holders of the CVRs 15.00 in cash in July 2004. 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-8




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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. 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). During the year ended December 31,
2004, the Company negotiated an agreement to retain ownership of the Voice network assets (see
Switch Voice Services 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. 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. 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 312002
    
    
    2003
    
    
    2004Operating result before depreciation, amortization, share plans
and restructuring and integration
    
    $
    192.0
    
    
    $
    291.6
    
    
    $
    132.3Purchase of property, plant and equipment
    
    
    (332.3
    )
    
    
    (234.0
    )
    
    
    (227.6
    )Purchase of IRUs
    
    
    (36.9
    )
    
    
    (46.1
    )
    
    
    (7.6
    )Operating free cash flow
    
    $
    (177.2
    )
    
    $
    11.5
    
    
    $
    (102.9
    )
 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. The Company defines Net cash and loans as the total of Cash and cash equivalents and
Short-term loan to France Telecom less Bank loans and overdrafts, and these are set out below: At December 312002
    
    
    2003
    
    
    2004Cash and cash equivalents
    
    $
    452.2
    
    
    $
    330.1
    
    
    $
    404.4Short-term loan to France Telecom
    
    
    
    
    
    
    150.0
    
    
    
    Bank loans and overdrafts
    
    
    (7.0
    )
    
    
    (1.0
    )
    
    
    (0.2
    )Net cash and loans
    
    $
    445.2
    
    
    $
    479.1
    
    
    $
    404.2
 Included in cash and cash equivalents were amounts deposited with France Telecom of $307.8,
$138.2 and $289.0 at December 31, 2002, 2003 and 2004, 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 which is
automatically renewed each year end, and a $250.0 revolving credit facility that was entered into
with France Telecom in February 2005 (see Notes 16 and 28). Of the Companys total Cash and Cash Equivalents at December 31, 2002, 2003 and 2004, $3.5, $4.3
and $5.3, respectively, related to restricted cash. These amounts relate primarily to commitments
to third parties for facility rental agreements. F-9




---



##### 



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 accounting
principles generally accepted 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) and comply with the financial reporting
requirements included in Part 9 of Book 2 of the Netherlands Civil Code. Management considers that its cash resources and the commitments from France Telecom at the
date of approval of these Consolidated Financial Statements are sufficient to fund its operations
for at least twelve months. The Company is investigating its financing options for its long-term
business needs. Furthermore, as described in Note 28 , on January 22, 2005, the Company received an
offer from France Telecom to purchase all of the assets and liabilities of the group for $1.6
billion (1.26 billion). If this transaction is completed as planned, the Company will be
liquidated after distribution of the disposal proceeds to its Shareholders. The disposal proceeds
are in excess of the net book value of the Companys assets and liabilities. In consideration of
the above, the Consolidated Financial Statements have been prepared using principles consistent
with the going concern basis of accounting. 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 include additional disclosure of Share plans and
Restructuring and integration as separate line items. These additional line items are defined in
the accounting policies for Stock-based compensation and Restructuring and integration,
respectively. The results arising from discontinued operations are separately disclosed, where
applicable, from continuing operations. The principal accounting policies which, with the exception of the first time application of CNC
Recommendation 2003-01 relating to pension obligations, have been applied 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. F-10




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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 65% of the
Companys revenues were accounted for in U.S. dollars in 2004. Revenue Recognition Revenue is 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. The Company frequently enters into bundled service contracts with customers. The Company accounts
for these contracts by considering if there are multiple deliverable elements in the contracts and
whether the delivered elements have a standalone value and the undelivered elements have an
objective and reliable evidence of the fair value. If these two conditions are met, then each
element is recognized based on the revenue recognition guidance specific to that element. If
elements may not be separated, application of revenue recognition criteria would be applied to the
combined elements. 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 other organizations to provide 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. These costs are incurred by Equant in those locations
where France Telecom does not have local infrastructure and 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-11




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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. A restructuring cost is recognized when the appropriate level of management has committed to an
exit plan and it has been publicly announced, specifying the business concerned, locations and
employees affected, estimated related costs and the timing of plan implementation. 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. 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. Trade Accounts Receivable Trade accounts receivable are reduced to expected recoverable amounts by credit note
provisions and allowances for doubtful accounts. These provisions and allowances are based on an
individual or statistical assessment of non-recoverability. F-12




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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 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 is 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. 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. IRUs are capitalized as part of long-lived assets if the
Company has the right to use the total capacity from the specific underlying assets (specific
fibers or wavelengths) and if the IRU lease term is greater than 75% of the estimated economic life
of the underlying asset. IRUs are amortized over the shorter of ten years or the contract term.
IRUs that do not meet these criteria are accounted for as service contracts. Long-lived assets are stated at historical cost less depreciation and amortization, calculated on a
straight-line base over the expected useful lives of the relevant assets. Asset lives are reviewed
on an annual basis, or upon occurrence of events or changes in circumstances indicating that the
asset life may be reduced, and adjusted as necessary. 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
 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 F-13




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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 reviewed for impairment on a collective basis since there is no lower level
of identifiable cash flows that is independent from other assets and liabilities in the Company
below the single operating segment level, because long-lived assets are used throughout the
geographic regions to generate cash flows jointly due to the nature of the network service
revenues, which require traffic to be carried between the various regions. 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. Such events or
circumstances include significant declines, other than temporary, in the market price of our
ordinary shares, difficult market conditions in the telecommunications sector that are not expected
to be of a short-term duration and the receipt of notification from capacity suppliers that they
are no longer able to honor their contractual commitments to provide capacity. Recoverable Value
is the higher of net selling price and value in use. For assets to be held and used, the need for impairment is principally determined by comparing
their carrying value with fair value. Fair value is determined by reference to the higher of
Recoverable value and the 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 appropriate based on the accounting
policy above. 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. The difference between the cost
of the investment and Equants share of net assets at the date of acquisition is recorded as
goodwill. Dividends received from these investees reduce the carrying value of the investments. 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. 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. The gain or loss on disposal is calculated as the difference between the carrying value of the
investment and proceeds, less costs of disposal. 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. F-14




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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. 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. The Company adopted CNC Recommendation 2003-01 with effect from January 1, 2004. The
application of the rule resulted in a charge to the Consolidated
Statement of Operations of $3.9
and a further $38.0 charge to Shareholders equity (see Note 17). 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 settlement of 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. First Time Application of Accounting Standards CRC Standard 04-03 of May 4, 2004 The Financial Security Law (Loi de Sécurité Financière) of August 1, 2003 includes an
accounting provision that eliminates the requirement of owning shares in a controlled company in
order for the company to be consolidated. This accounting provision amended the provisions of CRC
Standard 04-03, which was applicable from January 1, 2004. The application of the rule at December
31, 2004 did not have any impact on Net income or Shareholders equity. F-15




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Recommendation 2003-R.01 of April 1, 2003 Recommendation 2003-R.01 of April 1, 2003 of the French National Accounting Board (Conseil
National de la Comptabilité  CNC) relating to the rules for accounting for and the measurement of
pension obligations and similar benefits and CNC statement of July 22, 2004 specifying terms and
conditions for first time application. This Recommendation establishes rules relating to the accounting treatment and measurement of
pension obligations and is applicable from January 1, 2004. Its scope covers post-employment
benefits, other long-term benefits, compensation indemnities for employment terminations and the
related social charges and tax contributions. The Company adopted CNC Recommendation 2003-01 with
effect from January 1, 2004. The application of the rule resulted in a charge to the Consolidated
Statement of Operations of $3.9 and a further $38.0 charge to Shareholders equity (see Note 17). Comité dUrgence Opinion 2004-F of October 13, 2004, relating to the accounting treatment of
individual rights to training (Droit individuel à la
formation  DIF) This Opinion considers expenditure incurred in respect of employees individual rights to
training as consideration for employees future, and not past, services, and therefore as a
short-term obligation under the CRC Standard on liabilities. As a result, where an agreement has
been reached between the Company and the employee on a forthcoming training schedule, any
expenditure incurred in this respect is recorded as a current expense, and no provision is
recognized. In certain limited cases, such as a claim for individual training leave , resignation or dismissal,
where these expenses cannot be treated as consideration for future services, a provision is
recognized in the related period as soon as the obligation towards the employee becomes more
probable than not in accordance with the CRC Standard on liabilities. The application of the rule at December 31, 2004 did not have any material impact on Net income or
Shareholders equity Volume-based or time-based incentives and loyalty programs Comité dUrgence Opinion 2004-E of October 13, 2004 relating to the accounting treatment of
volume-based or time-based sales incentives (rebates, free or discounted goods and services)
granted by companies to their customers. This Opinion, effective immediately, sets out the rules
for accounting for volume-based or time-based incentives (rebates, free or discounted goods and
services) granted by companies to their customers. The scope of this Opinion includes sales
incentives based either on time or volume which grant benefits to be redeemed in the future by the
customer. The nature of the award can either be a reduction of price or a free product or service. The application of the rule at December 31, 2004 did not have any material impact on Net income or
Shareholders equity. Standards Applicable from January 1, 2005 The following CRC Standards, set for first-time application on January 1, 2005, were drawn up
with the aim of harmonizing French accounting standards with International Financial Reporting
Standards (IFRS). As the France Telecom Group will publish its consolidated financial statements
under IFRS from January 1, 2005, the Company did not choose an early application of these
standards. CRC Standard 04-06 of November 23, 2004 relating to the definition, accounting treatment and
measurement of assets. This Standard endorses the provisions of CNC Opinion 2004-15 of June 23, 2004 relating to the
definition, accounting treatment and measurement of assets. This Opinion was drawn up with a view
to bringing French accounting standards into line with IFRS (IAS 16 Property, Plant and Equipment,
IAS 38 Intangible Assets, IAS 2 Inventories and IAS 23 Borrowing Costs). CRC Standard 02-10 of December 12, 2002 on depreciation, amortization and impairment of assets This Standard redefines the notions of depreciation, amortization and impairment and
indicates the circumstances when an impairment test should be performed on property, plant and
equipment and intangible assets. F-16




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##### 



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 7,015,034, 8,144,234 and 8,245,463 for the years ended December 31, 2002,
2003 and 2004, respectively. These amounts were not included in the diluted earnings per share
calculations in 2002, 2003 and 2004, as they would have been anti-dilutive. 5. Other Non-Operating Charges Set out below is an analysis of Other Non-Operating income/(charges): Years ended December 312002
    
    
    2003
    
    
    2004Reversal of provision for investments accounted
for at cost (see Note 12)
    
    $
    0.3
    
    
    $
    
    
    
    $
    Employee profit sharing (charge)/credit (Note 25)
    
    
    (0.6
    )
    
    
    (0.9
    )
    
    
    0.8Pension charge (see Note 17)
    
    
    
    
    
    
    
    
    
    
    (3.9
    )Charge for FT employee share purchase scheme (Note 25)
    
    
    
    
    
    
    
    
    
    
    (1.7
    )$
    (0.3
    )
    
    $
    (0.9
    )
    
    $
    (4.8
    )
 6. Personnel Costs and Staff Numbers Set out below is an analysis of personnel costs: Years ended December 312002
    
    
    2003
    
    
    2004Salaries and wages
    
    $
    671.6
    
    
    $
    692.3
    
    
    $
    710.1Social security contributions
    
    
    117.1
    
    
    
    117.4
    
    
    
    106.4Pension costs (Note 17)
    
    
    24.2
    
    
    
    34.8
    
    
    
    58.0812.9
    
    
    
    844.5
    
    
    
    874.5Temporary staff
    
    
    104.1
    
    
    
    51.8
    
    
    
    46.9$
    917.0
    
    
    $
    896.3
    
    
    $
    921.4
 Set out below is an analysis of permanent employees by function: At December 312002
    
    
    2003
    
    
    2004Direct
    
    
    6,405
    
    
    
    5,936
    
    
    
    6,235Selling, general and administrative
    
    
    3,727
    
    
    
    3,611
    
    
    
    3,07810,132
    
    
    
    9,547
    
    
    
    9,313
 Included in the above personnel costs and staff numbers are amounts for people working on
behalf of Equant, but legally employed by SITA. F-17




---



##### 



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 312002
    
    
    2003
    
    
    2004Restructuring and integration of Equant, Global One and SITA
Equant network Joint Venture
    
    $
    193.3
    
    
    $
    191.6
    
    
    $
    5.7Strategic reorganisation
    
    
    
    
    
    
    6.1
    
    
    
    29.1Other
    
    
    (0.8
    )
    
    
    
    
    
    
    192.5
    
    
    
    197.7
    
    
    
    34.8Reimbursement due from France Telecom
    
    
    (94.4
    )
    
    
    (112.6
    )
    
    
    Total Restructuring and integration
    
    $
    98.1
    
    
    $
    85.1
    
    
    $
    34.8Restructuring
    
    $
    65.1
    
    
    $
    123.7
    
    
    $
    29.1Integration
    
    
    127.4
    
    
    
    74.0
    
    
    
    5.7Total Restructuring and integration
    
    $
    192.5
    
    
    $
    197.7
    
    
    $
    34.8
 The nature of restructuring and integration costs incurred during the years ended December
31, 2002, 2003 and 2004 as a result of these transactions and the provision movement comprises: Liability at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability atDecember
    
    
    
    
    
    
    Reserves
    
    
    
    
    
    
    December31, 2001
    
    
    Additions
    
    
    Utilized
    
    
    Other
    
    

31, 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
 Liability at
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Liability atDecember
    
    
    
    
    
    
    Reserves
    
    
    
    
    
    
    December31, 2003
    
    
    Additions
    
    
    Utilized
    
    
    Other
    
    

31, 2004Employee termination
    
    $
    13.6
    
    
    $
    16.8
    
    
    $
    (26.0
    )
    
    $
    
    
    
    $
    4.4Intergration teams
    
    
    
    
    
    
    5.7
    
    
    
    (5.7
    )
    
    
    
    
    
    
    Lease exit costs
    
    
    50.9
    
    
    
    12.3
    
    
    
    (10.3
    )
    
    
    
    
    
    
    52.9$
    64.5
    
    
    $
    34.8
    
    
    $
    (42.0
    )
    
    $
    
    
    
    $
    57.3Short-term provisions
    
    $
    18.1
    
    
    $
    
    
    
    $
    (7.7
    )
    
    $
    
    
    
    $
    10.4Long-term provisions
    
    
    46.4
    
    
    
    34.8
    
    
    
    (34.3
    )
    
    
    
    
    
    
    46.9$
    64.5
    
    
    $
    34.8
    
    
    $
    (42.0
    )
    
    $
    
    
    
    $
    57.3
 F-18




---



##### 



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, 2002, 2003 and 2004, the amounts due for reimbursement by France Telecom but not
yet paid amounted to $31.8, $nil 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, 2002 and 2003, the Company identified 1050 and 606 positions to be
eliminated, respectively. 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 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. These initiatives continued into 2004. 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. In the year ended December 31, 2004, 163 people had been notified that they would be made redundant
as a result of this process and the Company had incurred $16.8 in respect of these costs. As part
of these reorganizations, the Company has incurred lease termination costs of $12.3. Although management has not yet committed to any plans, it is likely that there will be further
Strategic Reorganizations in 2005. F-19




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements (U.S. dollars in millions, unless otherwise stated)
 8. Financial Income / (Charges) Financial income / (charges) consists of the following: Years ended December 312002
    
    
    2003
    
    
    2004Foreign exchange gain / (loss) (Note 18)
    
    $
    8.2
    
    
    $
    (22.0
    )
    
    $
    10.7Interest income
    
    
    7.1
    
    
    
    6.7
    
    
    
    9.8Interest expense
    
    
    (2.0
    )
    
    
    (6.4
    )
    
    
    (11.0
    )$
    13.3
    
    
    $
    (21.7
    )
    
    $
    9.5
 The foreign exchange net (loss) / gain above arises 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. In the years ended December 31, 2002, 2003 and 2004, interest expense included amounts in respect
of unwinding the discount on the Radianz commitments (see Note 20) of $1.6, $2.4 and $2.5,
respectively. On November 16, 2004, the Company disposed of its investment in Radianz (see Note
12). 9. Income Taxes The income tax charge / (benefit) consists of the following: Years ended December 312002
    
    
    2003
    
    
    2004Current income taxesThe Netherlands
    
    $
    (0.1
    )
    
    $
    
    
    
    $
    Other
    
    
    12.0
    
    
    
    25.0
    
    
    
    (8.1
    )Total current
    
    
    11.9
    
    
    
    25.0
    
    
    
    (8.1
    )Deferred income taxesThe Netherlands
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (8.0
    )
    
    
    8.0Total deferred
    
    
    
    
    
    
    (8.0
    )
    
    
    8.0Total tax charge/(benefit)
    
    $
    11.9
    
    
    $
    17.0
    
    
    $
    (0.1
    )
 The source of net loss before minority interests and income taxes for the years ended
December 31, 2002, 2003 and 2004, is as follows: Years ended December 312002
    
    
    2003
    
    
    2004The Netherlands
    
    $
    64.5
    
    
    $
    88.5
    
    
    $
    48.2Other countries
    
    
    (641.6
    )
    
    
    (427.6
    )
    
    
    (322.6
    )Net loss before minority interests and income taxes
    
    $
    (577.1
    )
    
    $
    (339.1
    )
    
    $
    (274.4
    )
 The tax charge for the year has been reconciled to the standard tax rate applicable in The
Netherlands for corporate income. A reconciliation of Equants statutory and effective income tax
rates for the years ended December 31, 2002, 2003 and 2004, is as follows: Years ended December 312002
    
    
    2003
    
    
    2004Statutory rate applicable in The Netherlands
    
    
    34.5
    %
    
    
    34.5
    %
    
    
    34.5
    %Jurisdictional differences in tax rates
    
    
    (19.3
    )%
    
    
    (29.9
    )%
    
    
    (4.8
    )%Goodwill write off and amortization
    
    
    (10.7
    )%
    
    
    
    
    
    
    Change in valuation allowance
    
    
    (9.1
    )%
    
    
    (18.5
    )%
    
    
    (36.4
    )%Equity in loss of affiliate
    
    
    (1.6
    )%
    
    
    (4.1
    )%
    
    
    0.7
    %Non-taxable / deductible items and prior year adjustments
    
    
    (1.5
    )%
    
    
    1.5
    %
    
    
    (5.0
    )%Disposal of Radianz
    
    
    
    
    
    
    
    
    
    
    11.0
    %Reimbursement of restructuring costs
    
    
    5.6
    %
    
    
    11.5
    %
    
    
    Effective tax rate
    
    
    (2.1
    )%
    
    
    (5.0
    )%
    
    
    (0.0
    )%
 F-20




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements (U.S. dollars in millions, unless otherwise stated)
 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. As of January 1, 2004, Equants inter-entity pricing method was changed, consistent with its new
business strategy, to a residual profit-split method which results in most entities having a share
in the Groups operating profit/loss. For 2004 this has resulted in less losses arising in Ireland,
and accordingly the jurisdictional rate effects are reduced but the valuation allowance effects are
increased. 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. The book profit on the disposal of Radianz is a loss on a historic cost basis but the disposal is a
tax-free event due to tax rules on substantial shareholdings. The deferred tax assets by nature of temporary difference are analyzed as follows: Years ended December 312002
    
    
    2003
    
    
    2004Operating losses carried forward
    
    $
    495.2
    
    
    $
    547.0
    
    
    $
    691.5Timing differences relating to fixed assets
    
    
    32.0
    
    
    
    40.7
    
    
    
    60.4Other temporary differences
    
    
    27.3
    
    
    
    45.7
    
    
    
    45.2Total deferred tax asset
    
    
    554.5
    
    
    
    633.4
    
    
    
    797.1Less: valuation allowances
    
    
    (554.5
    )
    
    
    (625.4
    )
    
    
    (797.1
    )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, 2002, deferred tax assets were subject to a 100% valuation allowance. As at December 31, 2003, most of the deferred tax assets shown above were unlikely to be utilized
or reversed against taxable profits in 2004 and therefore were subject to full valuation
allowances. However, at the time there was a strong probability that taxable profits would arise
in certain countries and accordingly $8.0 of allowances were reversed. The likelihood of utilization of deferred tax assets was reassessed at December 31, 2004 and
accordingly, were subject to a 100% valuation allowance. Estimated net operating losses carried forward and their expiration dates are as follows: Expiration period
    
    At December 31,2002
    
    
    2003
    
    
    20041 to 4 years
    
    $
    117.9
    
    
    $
    113.5
    
    
    $
    74.05 years or longer
    
    
    378.0
    
    
    
    585.4
    
    
    
    646.1No expiry
    
    
    1,413.2
    
    
    
    1,802.2
    
    
    
    2,064.5$
    1,909.1
    
    
    $
    2,501.1
    
    
    $
    2,784.6
 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, 2004, 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. At December 31, 2004, Equant has income taxes prepaid and recoverable of $52.3 of which $14.6 is
recoverable in two to five years. These amounts are classified on the Balance Sheet within Sales
and other taxes recoverable. F-21




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##### 



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 312002
    
    
    2003
    
    
    2004Net book
    
    
    Net book
    
    
    
    
    
    
    Accumulated
    
    
    Net bookvalue
    
    
    value
    
    
    Cost
    
    
    amortization
    
    
    valueGoodwill
    
    $
    
    
    
    $
    
    
    
    $
    61.8
    
    
    $
    (61.8
    )
    
    $
    Other intangible assets
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    (2.9
    )
    
    
    $
    
    
    
    $
    
    
    
    $
    64.7
    
    
    $
    (64.7
    )
    
    $
    
 During the year ended December 31, 2004, the Company disposed of its investment in Radianz,
and as a result Cost and Accumulated amortization of goodwill were reduced by $163.3. An analysis of the cost and accumulated amortization for the years ended December, 31 2002, 2003
and 2004, is set out below: At December 312002
    
    
    2003
    
    
    2004Cost
    
    $
    228.0
    
    
    $
    228.0
    
    
    $
    64.7Accumulated amortization
    
    
    (228.0
    )
    
    
    (228.0
    )
    
    
    (64.7
    )Net book value
    
    $
    
    
    
    $
    
    
    
    $
    
 Changes in the net book value of goodwill and other intangible assets are as follows: At December 312002
    
    
    2003
    
    
    2004Balance at beginning of the year
    
    $
    180.2
    
    
    $
    
    
    
    $
    Amortization expense
    
    
    (24.1
    )
    
    
    
    
    
    
    Exceptional amortization
    
    
    (154.8
    )
    
    
    
    
    
    
    Translation adjustment
    
    
    (1.3
    )
    
    
    
    
    
    
    Balance at end of the year
    
    $
    
    
    
    $
    
    
    
    $
    
 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-22




---



##### 



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 312002
    
    
    2003
    
    
    2004Net book
    
    
    Net book
    
    
    
    
    
    
    Accumulated
    
    
    Net bookvalue
    
    
    value
    
    
    Cost
    
    
    depr / amort
    
    
    valueOwned land and buildings
    
    $
    1.2
    
    
    $
    1.9
    
    
    $
    2.4
    
    
    $
    (1.6
    )
    
    $
    0.8Leasehold improvements
    
    
    108.2
    
    
    
    101.9
    
    
    
    243.6
    
    
    
    (162.5
    )
    
    
    81.1Network assets
    
    
    752.6
    
    
    
    634.7
    
    
    
    2,502.3
    
    
    
    (2,106.1
    )
    
    
    396.2Computer equipment
    
    
    66.5
    
    
    
    49.1
    
    
    
    348.6
    
    
    
    (319.2
    )
    
    
    29.4Office equipment, furniture and motor
vehicles
    
    
    34.4
    
    
    
    24.6
    
    
    
    121.5
    
    
    
    (110.7
    )
    
    
    10.8Assets in course of construction
    
    
    64.9
    
    
    
    58.1
    
    
    
    37.4
    
    
    
    
    
    
    
    37.4Software applications
    
    
    126.6
    
    
    
    160.5
    
    
    
    582.2
    
    
    
    (295.6
    )
    
    
    286.6Property, plant and equipment
    
    
    1,154.4
    
    
    
    1,030.8
    
    
    
    3,838.0
    
    
    
    (2,995.7
    )
    
    
    842.3IRUs
    
    
    151.9
    
    
    
    139.2
    
    
    
    212.0
    
    
    
    (83.2
    )
    
    
    128.8Total long-lived assets
    
    $
    1,306.3
    
    
    $
    1,170.0
    
    
    $
    4,050.0
    
    
    $
    (3,078.9
    )
    
    $
    971.1
 An analysis of the cost and accumulated depreciation for the years ended December 31, 2002,
2003 and 2004, is set out below: At December 312002
    
    
    2003
    
    
    2004Cost
    
    $
    3,032.2
    
    
    $
    3,469.7
    
    
    $
    4,050.0Accumulated depreciation
    
    
    (1,725.9
    )
    
    
    (2,299.7
    )
    
    
    (3,078.9
    )Net book value
    
    $
    1,306.3
    
    
    $
    1,170.0
    
    
    $
    971.1
 Changes in the net book value of long-lived assets are as follows: At December 312002
    
    
    2003
    
    
    2004Balance at beginning of the year
    
    $
    1,390.5
    
    
    $
    1,306.3
    
    
    $
    1,170.0Additions of property, plant and equipment
    
    
    332.3
    
    
    
    234.0
    
    
    
    227.6Additions of IRUs
    
    
    36.9
    
    
    
    46.1
    
    
    
    7.6Write downs of assets and disposals
    
    
    (74.2
    )
    
    
    (44.6
    )
    
    
    (5.5
    )Depreciation of property, plant and equipment
    
    
    (417.2
    )
    
    
    (461.0
    )
    
    
    (454.3
    )Amortization of IRUs
    
    
    (70.5
    )
    
    
    (21.4
    )
    
    
    (18.2
    )Translation adjustment
    
    
    108.5
    
    
    
    110.6
    
    
    
    43.9Balance at end of the year
    
    $
    1,306.3
    
    
    $
    1,170.0
    
    
    $
    971.1
 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. F-23




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements (U.S. dollars in millions, unless otherwise stated)
 Capital Leases The Company has capital leases on all classes of property, plant and equipment except owned
land and buildings, software applications and assets in the course of construction. The net book value of assets under capital leases, excluding SITA assets, are as follows: At December 312002
    
    
    2003
    
    
    2004Cost
    
    $
    32.8
    
    
    $
    15.1
    
    
    $
    13.9Accumulated depreciation
    
    
    (23.1
    )
    
    
    (11.0
    )
    
    
    (0.6
    )Net book value
    
    $
    9.7
    
    
    $
    4.1
    
    
    $
    13.3
 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 Local Network
Operations groups (LNO groups), where some of these assets are deployed. Equant accounts for
these expenditures as prepaid capital leases. The net book value of SITA assets are as follows: At December 312002
    
    
    2003
    
    
    2004Cost
    
    $
    238.6
    
    
    $
    237.2
    
    
    $
    240.5Accumulated depreciation
    
    
    (142.9
    )
    
    
    (173.7
    )
    
    
    (197.5
    )Net book value
    
    $
    95.7
    
    
    $
    63.5
    
    
    $
    43.0
 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. F-24




---



##### 



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 312002
    
    
    2003
    
    
    2004Investments accounted for under the equity method
    
    $
    101.4
    
    
    $
    59.1
    
    
    $
    Investments accounted for at cost
    
    
    5.1
    
    
    
    5.1
    
    
    
    5.1Total investments
    
    $
    106.5
    
    
    $
    64.2
    
    
    $
    5.1
 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 was owned 49% by the Company and 51% by
Reuters and started operations on July 1, 2000. Equant contributed $225.0 in cash, a number of employees, and certain customer contracts. Equant
also agreed to provide $125.0 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 was accounted for under the equity accounting method as management considered that Equants
ability to invoke joint control was not achieved because Reuters remained both the dominant
supplier and customer of Radianz, and accordingly was in a position to affect significantly the
operations of Radianz without the prior approval of Equant. On November 16, 2004, the Company disposed of its equity investment in Radianz. The profit on
disposal is calculated as follows: Cash proceeds
    
    $
    110.0Share of net assets at date of disposal
    
    
    (64.7
    )Release of liability in respect of future service obligations
    
    
    44.8Profit on disposal
    
    $
    90.1
 Set out below is an analysis of the closing investment in Radianz at December 31, 2002, 2003
and 2004: At December 31,2002
    
    
    2003
    
    
    2004Initial investment
    
    
    
    $
    329.3
    
    
    $
    329.3
    
    
    $
    329.3Share of (loss)/profit
    At January 1
    
    
    (34.8
    )
    
    
    (62.1
    )
    
    
    (102.7
    )Result for the year
    
    
    (27.3
    )
    
    
    (40.6
    )
    
    
    5.8At December 31
    
    
    (62.1
    )
    
    
    (102.7
    )
    
    
    (96.9
    )Goodwill Amortization
    At January 1
    
    
    (24.9
    )
    
    
    (163.3
    )
    
    
    (163.3
    )Charge for the year
    
    
    (138.4
    )
    
    
    
    
    
    
    At December 31
    
    
    (163.3
    )
    
    
    (163.3
    )
    
    
    (163.3
    )Cumulative foreign currency translation adjustment
    
    
    (2.5
    )
    
    
    (4.2
    )
    
    
    (4.4
    )Amount charged to Shareholders Equity
    
    
    (227.9
    )
    
    
    (270.2
    )
    
    
    (264.6
    )Share of net assets at date of disposal
    
    
    
    
    
    
    
    
    
    
    (64.7
    )Closing investment
    
    $
    101.4
    
    
    $
    59.1
    
    
    $
    
 F-25




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements (U.S. dollars in millions, unless otherwise stated)
 Investments accounted at Cost Investments at cost at December 31, 2004, consist of the following: Net carrying
    
    
    MarketHolding
    
    
    Cost
    
    
    Provision
    
    
    value
    
    
    valueSTSN, Inc.
    
    
    1.2
    %
    
    $
    30.1
    
    
    $
    (30.1
    )
    
    $
    
    
    
    $
    iPass Inc.
    
    
    1.4
    %
    
    
    5.1
    
    
    
    
    
    
    
    5.1
    
    
    
    6.3Total investments
    
    
    
    
    
    $
    35.2
    
    
    $
    (30.1
    )
    
    $
    5.1
    
    
    $
    6.3
 The Company disposed of its investment in Tripeze, which was acquired in 2000, for $0.3 in 2002.
This gain was recognized as a write-back to Loss on impairment of investments accounted for at
cost. In 2002, the Company disposed of $1.1 of marketable securities acquired in 2001. At December 31, 2004 the market value of iPass exceeded its carrying value. 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 its investments accounted at
cost. No dividends were received from these investments in the years ended December 31, 2002, 2003
or 2004. 13. Inventories Inventories consist of the following: At December 312002
    
    
    2003
    
    
    2004Finished goods for resale
    
    $
    20.1
    
    
    $
    27.7
    
    
    $
    24.2Provision for obsolete and slow-moving inventory
    
    
    (3.0
    )
    
    
    (13.2
    )
    
    
    (10.8
    )Total inventories, net
    
    $
    17.1
    
    
    $
    14.5
    
    
    $
    13.4
 14. Trade Accounts Receivable A summary of trade accounts receivable is as follows: At December 312002
    
    
    2003
    
    
    2004Trade accounts receivable from related parties
    
    $
    581.5
    
    
    $
    448.3
    
    
    $
    345.4Trade accounts receivable, other
    
    
    422.9
    
    
    
    354.6
    
    
    
    313.4$
    1,004.4
    
    
    $
    802.9
    
    
    $
    658.8Trade accounts receivable
    
    $
    989.1
    
    
    $
    750.7
    
    
    $
    560.9Unbilled receivables
    
    
    247.5
    
    
    
    244.2
    
    
    
    269.6Gross trade accounts receivable
    
    
    1,236.6
    
    
    
    994.9
    
    
    
    830.4Less: provision for credit notes
    
    
    (131.2
    )
    
    
    (120.4
    )
    
    
    (125.1
    )Less: provisions against trade accounts receivable
    
    
    (101.0
    )
    
    
    (71.6
    )
    
    
    (46.5
    )Trade accounts receivable, net
    
    $
    1,004.4
    
    
    $
    802.9
    
    
    $
    658.8
 The majority of unbilled receivables represents revenues earned in the year, not yet invoiced. Such
amounts are generally billed in the next month. Included in Selling, general and administrative expenses is a charge/(credit) for doubtful
accounts of $28.1, $0.1 and $(22.2) for the years ended December 31, 2002, 2003 and 2004
respectively. Trade accounts receivable from related parties are further described in Note 25 Related party
transactions and cost sharing agreement. F-26




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 15. Lease Receivables Lease receivables consist of the following: At December 312002
    
    
    2003
    
    
    2004Gross finance lease receivables
    
    $
    18.7
    
    
    $
    8.7
    
    
    $
    7.4Unearned income
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (0.2
    )Net finance lease receivables
    
    
    18.3
    
    
    
    8.5
    
    
    
    7.2Less: current portion
    
    
    (13.7
    )
    
    
    (3.6
    )
    
    
    (2.2
    )Long-term finance lease receivables
    
    $
    4.6
    
    
    $
    4.9
    
    
    $
    5.0
 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, 2004, are as follows: 2005
    
    $
    2.22006
    
    
    1.82007
    
    
    1.52008
    
    
    1.22009
    
    
    0.7Total lease receivables, gross
    
    
    7.4Less: Unearned finance charges
    
    
    (0.2
    )Total lease receivables, net
    
    $
    7.2
 16. Debt and Borrowing Arrangements Debt and borrowing arrangements consist of the following: 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
 At December 31, 2004Current
    
    
    Long-term
    
    
    Totalmaturity
    
    
    maturity
    
    
    maturityBank loans and overdrafts
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.2Capital leases
    
    
    0.2
    
    
    
    
    
    
    
    0.2Debt and borrowings
    
    $
    0.4
    
    
    $
    
    
    
    $
    0.4
 The denominations of bank loans and overdrafts by currency at December 31, 2004 are as
follows: Interest
    
    
    Amount of
    
    
    AmountMaturity

    
    
    rate
    
    
    facility
    
    
    drawn downU.S. Dollar 50 million treasury
management agreement
    
    
    2005
    
    
    LIBOR+0.4%
    
    $
    50.0
    
    
    $
    Brazilian Real 2.9 million facility
    
    
    2005
    
    
    
    18.50
    %
    
    
    1.0
    
    
    
    0.2On demand credit lines, other currencies
    
    
    
    
    
    
    
    
    
    
    30.7
    
    
    
    $
    81.7
    
    
    $
    0.2
 F-27




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Bank loans and overdrafts The carrying value of bank loans and overdrafts, denominated in Brazilian Real and Japanese
Yen at December 31, 2002, 2003 and 2004, approximated fair value. On May 2, 2002, the Company entered into a $50.0 treasury management agreement with France Telecom,
under which France Telecom has made available to the Company an uncommitted credit facility of
$50.0. Interest will be charged at LIBOR plus 0.4% on the net balance outstanding under the
agreement. The agreement is automatically renewed unless cancelled by Equant on December 31 each
year. In February 2005, the Company entered into a $250.0 revolving credit facility with France Telecom
(see Note 28). Under the facility the Company will pay a one time arrangement fee of $0.5, an
annual charge of 0.75% of the amount of the facility not drawn down, and interest on amounts drawn
down at three month US dollar LIBOR plus 2.2%. Capital Leases The Company leases certain items of property, plant and equipment under long-term capital
leases. At December 31, 2002, 2003 and 2004, the present value of minimum lease payments was $1.2,
$0.5 and $0.2, respectively. Future minimum lease payments for assets held under capital lease
arrangements at December 31, 2004 are as follows: At December 31, 2004: 2005
    
    $
    0.22006
    
    
    Total minimum lease payments
    
    
    0.2Less: amount representing interest
    
    
    Present value of minimum lease payments
    
    
    0.2Less: capital lease obligations included in current portion of long-term debt
    
    
    (0.2
    )Long-term capital lease obligations
    
    $
    
 F-28




---



##### 



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, defined
contribution and other post-retirement schemes that cover the majority of worldwide employees. An
analysis of the provisions relating to these plans is shown below (see Note 19): Years ended December 312002
    
    
    2003
    
    
    2004Short-term provisions for employee liabilities
    
    $
    11.2
    
    
    $
    5.2
    
    
    $
    26.3Provisions for liabilities and charges
    
    
    18.3
    
    
    
    24.5
    
    
    
    61.0$
    29.5
    
    
    $
    29.7
    
    
    $
    87.3
 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, 2004 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, 2002, 2003 and 2004,
can be analyzed as follows: (Cost) / benefit
    
    Years ended December 312002
    
    
    2003
    
    
    2004Service cost for benefits earned during year
    
    $
    (10.2
    )
    
    $
    (11.7
    )
    
    $
    (12.1
    )Interest cost on projected benefits
    
    
    (5.6
    )
    
    
    (7.1
    )
    
    
    (9.0
    )Expected return on plan assets
    
    
    5.6
    
    
    
    5.6
    
    
    
    7.7Recognized actuarial (loss)/gain
    
    
    (0.4
    )
    
    
    2.8
    
    
    
    Net amortization and deferral
    
    
    (0.7
    )
    
    
    (2.0
    )
    
    
    Net periodic pension costs
    
    $
    (11.3
    )
    
    $
    (12.4
    )
    
    $
    (13.4
    )
 The following assumptions were utilized in determining the funded status of the Companys
defined benefit pension plans: Years ended December 312002
    
    
    2003
    
    
    2004Weighted average discount rate
    
    
    5.52
    %
    
    
    5.30
    %
    
    
    5.09
    %Weighted average rate of compensation increase
    
    
    3.44
    %
    
    
    2.89
    %
    
    
    3.46
    %Expected long-term rate of return
    
    
    8.06
    %
    
    
    8.03
    %
    
    
    7.58
    %
 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. The status of the Companys defined benefit plans, both funded and unfunded, at December 31, 2002,
2003 and 2004 is reported in the tables below: Years ended December 312002
    
    
    2003
    
    
    2004Benefit obligation at beginning of year
    
    $
    (84.4
    )
    
    $
    (126.8
    )
    
    $
    (166.2
    )Service cost
    
    
    (10.2
    )
    
    
    (11.7
    )
    
    
    (12.1
    )Interest cost
    
    
    (5.6
    )
    
    
    (7.1
    )
    
    
    (9.0
    )Employees contributions
    
    
    (2.8
    )
    
    
    (3.1
    )
    
    
    (3.1
    )Acquisition
    
    
    (7.8
    )
    
    
    
    
    
    
    Actuarial decrease
    
    
    (10.4
    )
    
    
    (14.3
    )
    
    
    (3.8
    )Benefits paid
    
    
    4.2
    
    
    
    9.0
    
    
    
    6.0Currency translation adjustment
    
    
    (9.8
    )
    
    
    (16.7
    )
    
    
    (15.9
    )Plan amendments/curtailments
    
    
    
    
    
    
    4.5
    
    
    
    1.9Actuarial present value of benefit obligation at end of year
    
    $
    (126.8
    )
    
    $
    (166.2
    )
    
    $
    (202.2
    )
 F-29




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The increase in the benefit obligation and the net periodic pension cost for the year ended
December 31, 2004 is mainly attributable to a change in actuarial assumptions. Years ended December 312002
    
    
    2003
    
    
    2004Fair value of plan assets at beginning of year
    
    $
    58.5
    
    
    $
    66.1
    
    
    $
    98.7Actual return on plan assets
    
    
    (7.4
    )
    
    
    13.3
    
    
    
    10.7Employers contributions
    
    
    10.7
    
    
    
    16.8
    
    
    
    11.0Employees contributions
    
    
    2.8
    
    
    
    3.1
    
    
    
    3.1Acquisition
    
    
    0.1
    
    
    
    
    
    
    
    Benefits paid
    
    
    (4.2
    )
    
    
    (9.0
    )
    
    
    (6.0
    )Currency translation adjustment
    
    
    5.6
    
    
    
    8.4
    
    
    
    9.9Other
    
    
    
    
    
    
    
    
    
    
    (5.9
    )Fair value of plan assets at end of year
    
    $
    66.1
    
    
    $
    98.7
    
    
    $
    121.5
 The funded status of the defined benefit plans and amounts recognized in the Consolidated
Balance Sheets consist of the following: Years ended December 312002
    
    
    2003
    
    
    2004Funded status
    
    $
    (60.7
    )
    
    $
    (67.5
    )
    
    $
    (80.7
    )Unrecognized net asset
    
    
    (0.3
    )
    
    
    (0.3
    )
    
    
    Unamortized prior service cost
    
    
    2.3
    
    
    
    1.6
    
    
    
    Unrecognized net actuarial loss
    
    
    32.2
    
    
    
    36.7
    
    
    
    0.7Net defined benefit pension accrued liability
    
    $
    (26.5
    )
    
    $
    (29.5
    )
    
    $
    (80.0
    )
 On January 1, 2004, the Company adopted CNC Recommendation 2003-01 and recorded a net charge
of $38.0 to Accumulated deficit to recognize previously unrecognized actuarial gains and losses
as a liability on the Balance Sheet. In addition, a Non-operating charge of $3.9 was recorded in
respect of certain US post-retirement benefits schemes (see Note 5). 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. Other Plans In the year ended December 31, 2004 of $6.7, the Company recognized a pension liability and
related asset in respect of certain German post-retirement benefits. As required in some European countries by labor legislation, a provision for end of service
indemnities has been provided for a portion of employees annual salaries, indexed for inflation.
The expected cost of such agreements is recognized over the period of the expected employee service
based on actuarial assumptions. 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. F-30




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Interest Rate Risk Management At December 31, 2002, 2003 and 2004, 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 with France Telecom and third parties bear interest at market
rates (See Note 25). Exchange Risk Management Until September 2004 the Company entered 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 (see Note 8). The Company had forward exchange contracts outstanding at December 31, 2002 and 2003, in various
currencies principally against U.S. dollars, and recognized the net unrealized losses in its
accounts. At December 31, 2004 the Company had no forward exchange contracts outstanding. 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, 2002
    
    $
    227.0
    
    

    $
    
    
    
    $
    (3.8
    )Forward exchange contracts at December 31, 2003
    
    $
    265.7
    
    
    $
    1.3
    
    
    $
    (9.5
    )Forward exchange contracts at December 31, 2004
    
    $
    
    
    
    $
    
    
    
    $
    
 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. The estimated fair values of the Companys financial instruments at December 31, 2002, 2003 and
2004, are as follows: At December 31, 2002
    
    
    At December 31, 2003
    
    
    At December 31, 2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    value
    
    
    amount
    
    
    valueNon-derivativesLong-term lease receivables (Note 15)
    
    $
    4.6
    
    
    $
    4.6
    
    
    $
    4.9
    
    
    $
    4.9
    
    
    $
    5.0
    
    
    $
    5.0Long-term debt and borrowings (Note 16)
    
    $
    (0.7
    )
    
    $
    (0.7
    )
    
    $
    (0.2
    )
    
    $
    (0.2
    )
    
    $
    
    
    
    $
    DerivativesForward exchange contracts
    
    $
    (3.8
    )
    
    $
    (3.8
    )
    
    $
    (8.2
    )
    
    $
    (8.2
    )
    
    $
    
    
    
    $
    
 Accounts receivable, accounts payable and accrued expenses are reflected in the Consolidated
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 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-31




---



##### 



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, 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
 At December 31, 2004Short-term
    
    
    Long-term
    
    
    TotalPension and retirement
    
    $
    26.3
    
    
    $
    61.0
    
    
    $
    87.3Restructuring and integration
    
    
    10.4
    
    
    
    46.9
    
    
    
    57.3$
    36.7
    
    
    $
    107.9
    
    
    $
    144.6
 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 future lease payments, which are
typically greater than twelve months. 20. Other Non-current Liabilities Other non-current liabilities consist of the following: At December 312002
    
    
    2003
    
    
    2004Radianz commitments (Notes 8, 12 and 25)
    
    $
    51.2
    
    
    $
    41.8
    
    
    $
    Long-term deferred revenues
    
    
    13.1
    
    
    
    27.9
    
    
    
    18.2Other non-current liabilities
    
    
    19.6
    
    
    
    0.4
    
    
    
    0.4$
    83.9
    
    
    $
    70.1
    
    
    $
    18.6
 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
$125.0 in services over a ten year period from June 2000 and were deemed to have been satisfied
upon termination of the Joint Venture agreement on November 16, 2004. The undiscounted onerous
contract liabilities amounted to $93.8 and $81.3 at December 31, 2002 and 2003 respectively. The
Company disposed of its investment in Radianz on November 16, 2004 (see Note 25). 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). 21. Minority interests Changes in minority interests are as follows: At December 312002
    
    
    2003
    
    
    2004Balance at beginning of the year
    
    $
    0.4
    
    
    $
    0.7
    
    
    $
    0.5Charge/(profit) for the year
    
    
    0.7
    
    
    
    0.1
    
    
    
    (0.1
    )Other changes
    
    
    (0.4
    )
    
    
    (0.3
    )
    
    
    (0.1
    )Balance at end of the year
    
    $
    0.7
    
    
    $
    0.5
    
    
    $
    0.3
 During the year ended December 31, 2003, the Company purchased the outstanding minority interests
of entities in Egypt and Russia for $2.3. No goodwill arose on the purchase of the outstanding
minority interest. F-32




---



##### 



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, 2004 is as follows: Nominal Value
    
    
    
    
    
    
    
    
    
    
    Issued and fully paid shareper share
    
    
    Number of shares
    
    
    capitalEuro
    
    
    Authorized
    
    
    Issued
    
    

Euro
000
    
    

U.S.
$000Ordinary shares
    
    
    0.01
    
    
    
    989,000,000
    
    
    
    282,926,881
    
    
    
    2,829.0
    
    
    
    3,259.0Convertible
preference shares
    
    
    0.01
    
    
    
    11,000,000
    
    
    
    10,000,000
    
    
    
    100.0
    
    
    
    85.0
 On June 29, 2006, 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 4,908, 104,707 and 113,117 ordinary shares relating to the exercising of options
and restricted shares during the years ended December 31, 2002, 2003 and 2004, 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. 23. Stock-based Compensation Amounts Expensed The Company pays 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 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. Social charges/(income) in relation to the stock-based compensation in the years ended December 31,
2002, 2003 and 2004 were ($9.9), $nil and $nil, respectively. 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 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. As a result of the France Telecom Transactions, the SITA certificates were converted into France
Telecom and Equant 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. There have been no awards granted since December 31, 2001. F-33




---



##### 



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
    
    
    2004France Telecom shares (number)
    
    
    568,586
    
    
    
    137,260
    
    
    
    57,776Equant shares (number)
    
    
    36,116
    
    
    
    
    
    
    
    Cash
    
    $
    4.9
    
    
    $
    6.7
    
    
    $
    7.2
 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. On March 29, 2004 the Company vested 70,839 discretionary shares for awards granted in 2001. In
the year ended December 31, 2004, the Company vested an additional 6,818 discretionary shares that
were also granted throughout the year 2001. There are no more unvested shares being held in the
Equant Employee Trust. 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, which the
Supervisory Board has further limited to 11.0 million shares. As of December 31, 2003, the Company
had granted options and awards under the option plan, less forfeitures, covering 8,514,815 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. During the year ended December 31, 2004, the Company issued 113,117 shares relating to the exercise
of 103,704 options and the exercise of 9,413 restricted shares. In 2004, discretionary grants
totaling 91,641, 300,000 and 1,235,000 options were granted to Supervisory Board Directors,
Management Board Directors and other top management, respectively. The table below provides details of the unexercised restricted shares as at December 31, 2002, 2003
and 2004: Number ofsharesUnexercised
restricted shares -  December 31, 2002
    
    
    124,936Restricted shares granted
    
    
    Exercised
    
    
    (71,367
    )Forfeited
    
    
    (3,757
    )Unexercised
restricted shares  - December 31, 2003
    
    
    49,812Restricted shares granted
    
    
    Exercised
    
    
    (9,413
    )Forfeited
    
    
    (2,420
    )Unexercised
restricted shares  - December 31, 2004
    
    
    37,979
 Of the unexercised restricted shares outstanding, 8,333 remain unvested, and will vest in
2005. F-34




---



##### 



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, 2002, 2003 and 2004: WeightedAverageNumber of
    
    
    
    
    
    
    
    Exerciseshares
    
    
    
    
    
    
    
    PriceUnexercised 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
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    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.$
    20.23Options grantedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    1,626,641
    
    
    
    
    
    
    
    10.33Options exercised
    
    
    (103,704
    )
    
    
    
    
    
    
    27.00Options forfeitedAt exercise price range of U.S.$nil to U.S.$50.00
    
    
    (1,429,194
    )
    
    
    
    
    
    
    21.05At exercise price range of U.S.$50.01 to U.S.$100.00
    
    
    (111,902
    )
    
    
    
    
    
    
    86.70At exercise price range of U.S.$100.01 to
U.S.$150.00
    
    
    (4,324
    )
    
    
    
    
    
    
    109.74Total options forfeited in year
    
    
    (1,545,420
    )
    
    
    
    
    
    
    26.05Unexercised
options granted   December 31, 2004
    
    
    7,792,907
    
    
    
    
    
    
    U.S.$
    16.92
 The options exercised in 2004 had associated CVR (see Note 1), and therefore the holder
received 15.00 directly from France Telecom. Equant incurred no expense in relation to this CVR. The vesting dates of the number of options outstanding at December 31, 2004 are as follows: At December 31, 2004
    
    
    4,052,4832005
    
    
    1,839,6562006
    
    
    1,407,8882007
    
    
    492,8807,792,907
 F-35




---



##### 



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, 2004: Timing of obligation / commercial commitmentLess than
    
    
    One to five
    
    
    More thanNote reference
    
    
    one year
    
    
    years
    
    
    five years
    
    
    TotalContractual commitmentsBank loans and overdrafts
    
    
    16
    
    
    $
    0.2
    
    
    $
    
    
    
    $
    
    
    
    $
    0.2Capital lease commitments
    
    
    16
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Operating lease commitments
    
    
    24
    
    
    
    398.6
    
    
    
    488.1
    
    
    
    132.5
    
    
    
    1,019.2Irrevocable purchase commitments
    
    
    24
    
    
    
    48.1
    
    
    
    
    
    
    
    
    
    
    
    48.1$
    447.1
    
    
    $
    488.1
    
    
    $
    132.5
    
    
    $
    1,067.7Other commercial commitmentsCredit lines
    
    
    16
    
    
    $
    331.7
    
    
    $
    
    
    
    $
    
    
    
    $
    331.7Guarantees
    
    
    24
    
    
    
    20.6
    
    
    
    18.4
    
    
    
    66.1
    
    
    
    105.1Defined benefit schemes
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    80.7
    
    
    
    80.7Other commercial commitments
    
    
    24
    
    
    
    90.0
    
    
    
    25.6
    
    
    
    5.7
    
    
    
    121.3$
    442.3
    
    
    $
    44.0
    
    
    $
    152.5
    
    
    $
    638.8
 Credit lines shown in the table above represent total facilities available as of the date of the
approval of these Consolidated Financial Statements, which have been partially utilized (see Note
16). $250.0 of these credit lines were made available after December 31, 2004 (see Note 28). Operating Lease Commitments Operating lease expense consists of the following: Year ended December 312002
    
    
    2003
    
    
    2004Office space, equipment and motor vehicles
    
    $
    156.9
    
    
    $
    117.1
    
    
    $
    127.2Circuits and IRU operating and maintenance
    
    
    1,001.6
    
    
    
    854.6
    
    
    
    851.9$
    1,158.5
    
    
    $
    971.7
    
    
    $
    979.1
 At December 31, 2004, the approximate future minimum lease payments under non-cancelable
operating leases are as follows: Office space,
    
    
    IRU operating andequipment and motor
    
    
    maintenance
    
    
    Circuitvehicles
    
    
    commitments
    
    
    leases
    
    
    Total2005
    
    $
    112.8
    
    
    $
    6.6
    
    
    $
    279.2
    
    
    $
    398.62006
    
    
    78.6
    
    
    
    8.7
    
    
    
    149.3
    
    
    
    236.62007
    
    
    68.4
    
    
    
    8.6
    
    
    
    42.8
    
    
    
    119.82008
    
    
    57.2
    
    
    
    8.6
    
    
    
    3.5
    
    
    
    69.32009
    
    
    54.5
    
    
    
    7.9
    
    
    
    
    
    
    
    62.42010 and thereafter
    
    
    102.4
    
    
    
    30.1
    
    
    
    
    
    
    
    132.5$
    473.9
    
    
    $
    70.5
    
    
    $
    474.8
    
    
    $
    1,019.2
 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, $22.5 are included on the balance sheet at December 31, 2004, in lease exit costs
provisions (see Notes 7 and 19) relating to

IRUs that the Company has placed beyond economic use,
but still has operating and maintenance obligations to pay to suppliers. F-36




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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 $18.9 in the year ended December 31, 2005. These commitments are
purchase commitments with France Telecom. As part of outsourcing contracts entered into during the year ended December 31, 2004, the Company
has committed to purchase approximately $29.2 of network assets in the year ended December 31,
2005. Guarantees The Company and its subsidiaries have provided guarantees to non-consolidated entities,
totaling $105.1 at December 31, 2004. The majority of the guarantees are in respect of operating
lease commitments. Defined Benefit Pension Schemes As described in Note 17, the Company sponsors defined benefit pension schemes in a number of
countries. At December 31, 2004, the present value of the Companys obligations exceeded the fair
value of plan assets by $80.7 of which $80.0 is included as a liability in the Balance Sheet. Other Commercial Commitments and Contingent Liabilities Other commercial commitments include purchase orders raised by the Company, but for
which the related product or service has not been delivered to the Company, and therefore no
liability has been recognized. 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. 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. F-37




---



##### 



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 During the year, 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 312002
    
    
    2003
    
    
    2004Revenues
    
    SITA
    
    $
    714.0
    
    
    $
    641.0
    
    
    $
    549.7Radianz
    
    
    109.4
    
    
    
    88.6
    
    
    
    54.9France Telecom
    
    
    296.3
    
    
    
    372.0
    
    
    
    450.7$
    1,119.7
    
    
    $
    1,101.6
    
    
    $
    1,055.3Cost of sales
    
    SITA
    
    $
    475.2
    
    
    $
    233.9
    
    
    $
    205.1France Telecom
    
    
    221.2
    
    
    
    172.0
    
    
    
    167.8$
    696.4
    
    
    $
    405.9
    
    
    $
    372.9
 At December 312002
    
    
    2003
    
    
    2004Accounts receivable
    
    SITA
    
    $
    188.0
    
    
    $
    183.5
    
    
    $
    159.7Radianz
    
    
    37.0
    
    
    
    10.9
    
    
    
    4.7France Telecom
    
    
    356.5
    
    
    
    253.9
    
    
    
    181.0$
    581.5
    
    
    $
    448.3
    
    
    $
    345.4Accounts payable
    
    SITA
    
    $
    109.6
    
    
    $
    72.0
    
    
    $
    58.1Radianz
    
    
    
    
    
    
    5.8
    
    
    
    0.2France Telecom
    
    
    235.0
    
    
    
    202.8
    
    
    
    80.0$
    344.6
    
    
    $
    280.6
    
    
    $
    138.3
 SITA and SITA Equant network Joint Venture Pursuant to agreements that came into effect on June 29, 2001, the Company is responsible for
operating and managing the network (see Note 1). 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
below). 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. Local network operations In certain countries, legal ownership of LNO groups is transferred by SITA to the Company
upon fulfillment of certain conditions. 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 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 2004, SITA transferred to the Company two LNO groups (Taiwan and Egypt). These transfer
included a total of 69 employees to support the network. Due to local Egyptian filing requirements
the 60 staff with employment contracts in Egypt officially transferred to Equant on January 1, 2005 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 by the Company. F-38




---



##### 



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, the Company set up a joint venture with Reuters called Radianz in
2000. Equant contributed approximately $225.0 in cash at the incorporation of the joint venture. In
addition, Equant agreed to provide approximately $125.0 in services to Radianz over a period of up
to ten years, of which $12.5 was provided during each of the years ended December 2002 and 2003,
respectively and $10.4 was provided in the year ended December 31, 2004. The Company disposed of
its investment in Radianz on November 16, 2004. The net present value of the outstanding
obligations, included in Other liabilities is as follows: At December 312002
    
    
    2003
    
    
    2004Falling due within twelve months
    
    $
    10.1
    
    
    $
    9.5
    
    
    $
    Falling due after twelve months (Note 20)
    
    
    51.2
    
    
    
    41.8
    
    
    
    $
    61.3
    
    
    $
    51.3
    
    
    $
    
 The Company was 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
$60.4, $25.5 and $nil during the years ended December 2002, 2003 and 2004, 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, 2004, these were as follows: Income
    
    ExpenseAmount
    
    Classification
    
    Amount
    
    ClassificationEquant sales to France Telecom
    
    $
    450.7
    
    
    Revenue
    
    ----Not applicable-----France Telecom sales to Equant
    
    -----Not applicable-----
    
    $
    167.8
    
    
    Cost of ServicesAncillary support services with respect to the network
    
    $
    43.8
    
    
    Other income
    
    -----Not applicable-----Switched voice services
    
    $
    89.0
    
    
    Other income
    
    -----Not applicable-----Pre-paid & Post-paid calling cards & voice carrier services
    
    $
    7.4
    
    
    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 $185.0, $393.0 and
$392.4 for 2003, 2004 and 2005 respectively. Revenues from these sales will be included in revenues
as accrued. For 2006 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 supplies 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-39




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Switched voice services During the year ended December 31, 2004, the Company and France Telecom agreed that Equant
would retain ownership, 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).
As part of this arrangement the Company provides services on a cost recovery basis. The Company
expects to migrate gradually its voice business to a voice over IP platform. Reimbursements from
France Telecom in relation to these arrangements for voice services are shown within Other
operating income. Included within Deferred Income on the Balance Sheet at December 31, 2004 is an amount of $56.5
relating to future France Telecom cost recoveries. 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 a distributor for France
Telecoms voice carrier business outside France. The Company earns a fee of 10.5 % of revenues for
the limited risk countries and a fee of 0.5% commissionaire countries. The amounts invoiced are
passed through to France Telecom less the Companys fees. The revenues for the limited risk
countries and commissionaire countries from these activities are $65.3, $4.6 and $5.1 and $7.4,
$5.2 and $2.3 for the years ended December 31, 2002, 2003 and 2004, respectively. The revenues from
these activities are netted against costs. Non-Operating Charges 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 year ended December 31, 2004, the Company received a partial
reimbursement of prior year contributions from France Telecom. Employees of majority-owned subsidiaries of France Telecom in certain countries, including France,
UK and US were eligible to purchase shares at a discount to market value in 2004. The Company
incurred a charge of $1.7 in 2004 in respect of this program. Cash on deposit and loans with France Telecom At December 31, 2002, 2003 and 2004, respectively, the Company had deposited $307.8, $138.2,
and $289.0 of surplus funds with France Telecom under a centralized cash management program.
Amounts on deposit are repayable to the Company on demand. The Company had placed $150.0 on
short-term loan with France Telecom in July 2003. This loan was repaid 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 $3.8, $3.2 and $1.9 in the years ended December 31, 2002,
2003 and 2004, respectively. Other Related Party Transactions 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). In 2004, the Company generated revenue from iPass and STSN of $2.8 and $nil, respectively. Accounts
receivable from these companies at December 31, 2004 were $0.3 and $nil, respectively. F-40




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 26. Segmental Information The Company has a single operating segment based on the internal organization that is used by
management for allocating resources and assessing performance although revenues continue to be
measured by product lines. Revenues by Product Lines Years ended December 312002
    
    
    2003
    
    
    2004Network Services
    
    $
    1,567.1
    
    
    $
    1,607.1
    
    
    $
    1,502.9Integration Services
    
    
    453.4
    
    
    
    476.6
    
    
    
    593.9Other services
    
    
    238.9
    
    
    
    224.2
    
    
    
    267.4SITA contract
    
    
    713.7
    
    
    
    641.0
    
    
    
    549.7$
    2,973.1
    
    
    $
    2,948.9
    
    
    $
    2,913.9
 Revenues Split Between Products and Services Years ended December 312002
    
    
    2003
    
    
    2004Services revenues
    
    $
    2,838.0
    
    
    $
    2,779.6
    
    
    $
    2,681.2Product revenues
    
    
    135.1
    
    
    
    169.3
    
    
    
    232.7$
    2,973.1
    
    
    $
    2,948.9
    
    
    $
    2,913.9
 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, 2004Revenues from external customers
    
    $
    1,071.0
    
    
    $
    15.4
    
    
    $
    520.8
    
    
    $
    556.2
    
    
    $
    750.5
    
    
    $
    2,913.9Long-lived assets
    
    $
    33.3
    
    
    $
    71.2
    
    
    $
    194.2
    
    
    $
    111.7
    
    
    $
    560.7
    
    
    $
    971.1December 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
    
    
    $
    1,306.3
 The Company invoices a number of global customers, including SITA, from a legal entity in
Ireland. Reliance on Major Customers The following table presents sales of services and products to customers that contribute over
10% of revenues: FranceSITA
    
    
    Telecom
    
    
    Other
    
    
    TotalDecember 31, 2004
    
    $
    549.7
    
    
    $
    450.7
    
    
    $
    1,913.5
    
    
    $
    2,913.9As a percentage of total revenues
    
    
    18.9
    %
    
    
    15.5
    %
    
    
    65.6
    %December 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
    %
 F-41




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 27. Other information Advertising and Marketing Advertising and marketing costs are expensed as incurred. Advertising and marketing costs
incurred in the years ended December 31, 2002, 2003 and 2004, were $19.8, $14.5 and $13.0,
respectively. 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 $0.3, $0.3 and $0.4 during the years ended
December 31, 2002, 2003 and 2004, 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. 28. Subsequent Events On January 22, 2005, the Company received an offer from France Telecom to purchase
substantially all of the assets and liabilities of the group for $1.6 billion (1.26 billion).
France Telecom also agreed to accelerate the vesting of all existing Equant option plans and then
cancel these options at their option value. Approval of this transaction requires the unanimous
approval of the Independent Directors of the Supervisory Board, the majority approval of both the
Management and Supervisory Boards, and the majority approval of the Shareholders of the Company at
a General Meeting. The approvals of the Independent Directors and the Management and Supervisory Boards were obtained
on February 9, 2005. The approval of the Shareholders has not yet been obtained. The Company
will distribute a shareholders circular setting out details of the proposed transaction and will
arrange an Extraordinary General Meeting. If the transaction is completed as planned, Equant NV will be de-listed and liquidated. On February 9, 2005, the Company entered into a $250.0 credit facility with France Telecom. Under
the facility the Company will pay a one time arrangement fee of $0.5, an annual charge of 0.75% of
the amount of the facility not drawn down, and interest on amounts drawn down at three month LIBOR
plus 2.2%. This loan is repayable in the event that France Telecoms ownership of the Company
falls below 34%. On January 26 2005, the Company disposed of its investment in iPass for $5.1. F-42




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 29. List of Subsidiaries and Affiliates Subsidiaries and affiliates are created and liquidated in response to the operating needs of
the Company. The subsidiaries and affiliates of the Company at December 31, 2004 are stated below: 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%Belgium
    
    Equant S.C.R.L.
    
    100%
    
    100%Bermuda
    
    Equant (Bermuda) 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 SAE
    
    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 Comunications 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%India
    
    Equant India Pte. Ltd.
    
    100%
    
    100%Ireland
    
    Equant Network Services International Ltd.
    
    100%
    
    100%
 F-43




---



##### 



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
    
    Global One (Telecommunications World Group) Israel
    
    100%
    
    100%Italy
    
    Equant Italy SpA.
    
    100%
    
    100%Ivory Coast
    
    Equant Ivory Coast S.A.
    
    100%
    
    100%Jamaica
    
    Equant Jamaica Ltd.
    
    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%Malta
    
    Equant Malta Ltd.
    
    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
    
    Equant Portugal 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) SAU
    
    100%
    
    100%Singapore
    
    Equant Pte. Ltd.
    
    100%
    
    100%Singapore
    
    Equant Integration Services Pte. Ltd.
    
    100%
    
    100%
 F-44




---



##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Country
    
    Name of Company
    
    Control
    
    InterestSingapore
    
    Global One Communications Pte. Ltd.
    
    
    100
    %
    
    
    100
    %Slovakia
    
    Equant Slovakia s.r.o.
    
    
    100
    %
    
    
    100
    %Slovenia
    
    Equant d.o.o. Ljubljana
    
    
    100
    %
    
    
    100
    %South Africa
    
    Equant South Africa Pty. Ltd.
    
    
    100
    %
    
    
    100
    %Spain
    
    Equant Spain S.A.
    
    
    100
    %
    
    
    100
    %Sweden
    
    Equant Sweden A.B.
    
    
    100
    %
    
    
    100
    %Sweden
    
    FT Nordphone AB
    
    
    100
    %
    
    
    100
    %Sweden
    
    Global One Communications AB
    
    
    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. Sirketi
    
    
    100
    %
    
    
    99.9
    %Turkey
    
    Artemis Iletisim Hizmetleri Anonim Sirketi
    
    
    100
    %
    
    
    100
    %Turkey
    
    Equant Istanbul Telekomünikasyon Anonim Sirketi
    
    
    100
    %
    
    
    100
    %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 Services 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
    %
 F-45




---



##### 



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 Cash flow 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, 2002, 2003 and 2004. Years ended December 31,Note
    
    2002
    
    
    2003
    
    
    2004Net loss as reported in the Consolidated Statement of
Operations
    
    
    
    $
    (589.7
    )
    
    $
    (356.2
    )
    
    $
    (274.2
    )Adjustments to conform to U.S. GAAP:Impairment of goodwill
    
    B
    
    
    (2,423.5
    )
    
    
    
    
    
    
    Amortization of intangible assets arising on acquisition
of Equant
    
    C
    
    
    (20.5
    )
    
    
    (20.5
    )
    
    
    (17.4
    )Reverse exceptional amortization of goodwill under
French GAAP
    
    B
    
    
    21.6
    
    
    
    
    
    
    
    Impairment of tangible assets
    
    D
    
    
    
    
    
    
    
    
    
    
    (102.1
    )Impairment of intangible assets
    
    D
    
    
    
    
    
    
    
    
    
    
    (12.3
    )Reimbursement of restructuring and integration costs
    
    E
    
    
    (94.4
    )
    
    
    (112.6
    )
    
    
    Share-based compensation
    
    F
    
    
    (8.8
    )
    
    
    (12.1
    )
    
    
    (14.3
    )Pension accounting and other
    
    I
    
    
    2.4
    
    
    
    (5.2
    )
    
    
    1.6Tax effect of above adjustments
    
    J
    
    
    7.2
    
    
    
    7.2
    
    
    
    (2.1
    )Net loss as adjusted for U.S. GAAP
    
    
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )
    
    $
    (420.8
    )Loss per share as adjusted for U.S. GAAPNet loss per share, basic and diluted
    
    H
    
    U.S.$
    (10.99
    )
    
    U.S.$
    (1.77
    )
    
    U.S.$
    (1.49
    )Weighted average number of shares (thousand)
    
    
    
    
    282,706
    
    
    
    282,729
    
    
    
    282,904
 Set out below is an analysis of comprehensive income under U.S. GAAP for the years ended
December 31, 2002, 2003 and 2004: Years ended December 31,Note
    
    2002
    
    
    2003
    
    
    2004Net loss adjusted for U.S. GAAP
    
    
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )
    
    $
    (420.8
    )Other comprehensive (loss) / income:Foreign currency translation adjustments
    
    
    
    
    89.5
    
    
    
    107.4
    
    
    
    20.3Unrealised gain on investment held for sale
    
    G
    
    
    
    
    
    
    8.6
    
    
    
    (7.4
    )Change in additional minimum pension liability
    
    I
    
    
    (8.4
    )
    
    
    (4.0
    )
    
    
    1.1Comprehensive income
    
    
    
    $
    (3,024.6
    )
    
    $
    (387.4
    )
    
    $
    (406.8
    )
 F-46




---



##### 



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, 2002, 2003 and 2004: As at December 31,Note
    
    2002
    
    
    2003
    
    
    2004Shareholders equity as reported in the Consolidated Balance Sheet
    
    
    
    $
    1,777.3
    
    
    $
    1,528.6
    
    
    $
    1,239.5Adjustments 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
    )Impairment of historical Global One intangible assets
    
    D
    
    
    (179.2
    )
    
    
    (179.2
    )
    
    
    (179.2
    )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
    
    
    (9,723.0
    )
    
    
    (9,723.0
    )
    
    
    (9,723.0
    )Intangible assets, net
    
    C
    
    
    177.8
    
    
    
    133.3
    
    
    
    103.6Impairment of tangible assets
    
    D
    
    
    
    
    
    
    
    
    
    
    (102.1
    )Deferred tax liabilities
    
    A
    
    
    (62.2
    )
    
    
    (31.0
    )
    
    
    (33.1
    )Reimbursement of restructuring and integration costs
    
    E
    
    
    (31.8
    )
    
    
    
    
    
    
    Share-based compensation
    
    F
    
    
    (16.0
    )
    
    
    (28.0
    )
    
    
    (7.1
    )Unrealised gain on investment held for sale
    
    G
    
    
    
    
    
    
    8.6
    
    
    
    1.2Pension accounting and other
    
    I
    
    
    (4.8
    )
    
    
    (16.1
    )
    
    
    24.5Shareholders equity as adjusted for U.S. GAAP
    
    
    
    $
    1,840.3
    
    
    $
    1,595.4
    
    
    $
    1,226.5
 F-47




---



##### 



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 31,2002
    
    
    2003
    
    
    2004Net loss
    
    $
    (3,105.7
    )
    
    $
    (499.4
    )
    
    $
    (420.8
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation
    
    
    463.6
    
    
    
    482.4
    
    
    
    472.5Amortization
    
    
    20.5
    
    
    
    20.5
    
    
    
    17.4Loss on impairment of goodwill
    
    
    2,440.9
    
    
    
    
    
    
    
    Loss on impairment of long-lived assets
    
    
    
    
    
    
    
    
    
    
    114.4Other adjustments to reconcile net loss to funds generated from operations
    
    
    362.3
    
    
    
    48.5
    
    
    
    (60.7
    )Funds generated from operations
    
    
    181.6
    
    
    
    52.0
    
    
    
    122.8Changes in operating assets and liabilities (net)
    
    
    60.6
    
    
    
    115.1
    
    
    
    (69.2
    )Net cash provided by operating activities
    
    
    242.2
    
    
    
    167.1
    
    
    
    53.6Cashflow from investing activities:Purchase of property, plant and equipment
    
    
    (369.2
    )
    
    
    (280.1
    )
    
    
    (235.2
    )Proceeds from disposal of affiliate
    
    
    
    
    
    
    
    
    
    
    110.0Net cash effect of acquisitions
    
    
    
    
    
    
    (2.3
    )
    
    
    Other investing activities (net)
    
    
    1.4
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (367.8
    )
    
    
    (282.4
    )
    
    
    (125.2
    )Cashflow from financing activities:Proceeds from issuance of ordinary shares
    
    
    
    
    
    
    
    
    
    
    2.9Capital contribution from France Telecom
    
    
    158.9
    
    
    
    145.3
    
    
    
    Short-term loan to France Telecom
    
    
    
    
    
    
    (150.0
    )
    
    
    150.0Proceeds from the settlement of foreign exchange contracts
    
    
    37.0
    
    
    
    
    
    
    
    Other financing activities (net)
    
    
    (4.6
    )
    
    
    (6.7
    )
    
    
    (1.1
    )Net cash provided by / (used in) financing activities
    
    
    191.3
    
    
    
    (11.4
    )
    
    
    151.8Effect of changes in exchange rates on cash and cash equivalents
    
    
    0.7
    
    
    
    4.6
    
    
    
    (5.9
    )Increase / (decrease) in cash and cash equivalents
    
    
    66.4
    
    
    
    (122.1
    )
    
    
    74.3Cash and cash equivalents at beginning of the year
    
    
    385.8
    
    
    
    452.2
    
    
    
    330.1Cash and cash equivalents at end of the year
    
    $
    452.2
    
    
    $
    330.1
    
    
    $
    404.4
 There were no significant non-cash investing or financing activities in the years ended December
31, 2002, 2003 or 2004. 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, 2002, 2003 and 2004 respectively: Years ended December 31,2002
    
    
    2003
    
    
    2004Funds generated by operations:French GAAP
    
    $
    178.7
    
    
    $
    207.4
    
    
    $
    137.1U.S. GAAP
    
    $
    181.6
    
    
    $
    52.0
    
    
    $
    122.8Net cash provided by operating activities:French GAAP
    
    $
    383.1
    
    
    $
    312.4
    
    
    $
    53.6U.S. GAAP
    
    $
    242.2
    
    
    $
    167.1
    
    
    $
    53.6Net cash provided by / (used in) financing activities:French GAAP
    
    $
    50.4
    
    
    $
    (156.7
    )
    
    $
    151.8U.S. GAAP
    
    $
    191.3
    
    
    $
    (11.4
    )
    
    $
    151.8
 The major differences noted above in the Consolidated Statements of Cash Flows under U.S. GAAP for
the years ended December 31, 2002 and 2003 relate to the classification of amounts received from
France Telecom in respect of the reimbursement of restructuring and integration costs, which are
included under U.S. GAAP as Capital contributions from France Telecom, a component of Financing
Activities, but are included under French GAAP as a component of operating activities. F-48




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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 was accounted for under the method set out
in paragraph 215 of CRC Rule 99-02. Equant is treated as the accounting acquirer and thus
the historic financial statements of the registrant prior to the merger are those of Equant.-
    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. Global One is treated as the accounting acquirer
and thus the historic financial statements of the registrant prior to the merger are those
of Global One. The 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 of
Global Ones interest in the assets and liabilities of Equant is recorded as goodwill and
other identifiable intangible assets. The cost of acquisition of the 54.27% of Equant
acquired by Global One is set out in the table below: 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-49




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) The cost of acquisition 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 ten 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
was to pay 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 fair value of
CVRs was estimated at U.S.$8 per CVR as of November 19, 2000, based on an option pricing
model. The CVRs entitled 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. France Telecom paid the holders of the CVRs 15 per CVR in cash
in July 2004.6.
    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-50




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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 recognized for acquired temporary differences, using the
applicable weighted average statutory tax rates.9.
    The excess of the cost of acquisition 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. 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 and intangible assets
with indefinite lives 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. The Company adopted SFAS 142 with effect from January 1, 2002. From that date all goodwill is no
longer amortized, but 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 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 to
be impaired. Under U.S. GAAP, goodwill as of December 31, 2003 and 2004 is as follows: At December 31,2003
    
    
    2004Goodwill
    
    $
    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 the cost of acquisition over
the net book value of assets acquired 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, amounts of $2,423.5, $nil and $nil for the years ended December 31, 2002, 2003 and
2004, respectively, were recognized as impairment charges. The impairment charge in 2002 was
recognized as a result of the annual goodwill impairment test and resulted in a remaining book
value of $nil. F-51




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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 that
goodwill may not be recoverable, and the need for recording an impairment and measuring such
impairment was made with reference to discounted cash flows. Under French GAAP, the decline in
valuations in the telecommunications market in the year ended December 31, 2002 resulted in a need
to assess the carrying value of goodwill, and 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 investment 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 had been written off in the business combination. C) Intangible Assets Under U.S. GAAP, intangible assets consist of the following: At December 31,2003
    
    
    2004Trademarks
    
    $
    116.8
    
    
    $
    98.4Contracts
    
    
    16.0
    
    
    $
    4.8Licences
    
    
    0.5
    
    
    
    0.4Intangible pension asset
    
    
    1.2
    
    
    
    1.2Total intangible assets
    
    
    134.5
    
    
    
    104.8Accumulated amortization
    
    
    
    
    
    
    Other intangible asets, net
    
    $
    134.5
    
    
    $
    104.8
 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 $20.5, $20.5 and $17.4 for the
years ended December 31, 2002, 2003, and 2004, respectively. The Company recorded an impairment in
the year ended December 31, 2004 of $12.3 described below in Impairment of long-lived assets. D) Impairment of Long-Lived Assets Under French GAAP, long-lived assets are reviewed on an annual basis, or upon occurrence of
events or changes in circumstances indicating that the asset life may be reduced, and adjusted as
necessary. Long-lived assets are reviewed for impairment on a collective basis since there is no
lower level of identifiable cash flows that is independent from other assets and liabilities in the
Company below the single operating segment level, because long-lived assets are used throughout the
geographic regions to generate cash flows jointly due to the nature of the network service
revenues, which require traffic to be carried between the various regions. 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. Given a combination of a current period
operating loss combined with a history of operating losses and a current expectation that, more
likely than not, the minority interest of Equant will be sold to France Telecom, the Company
performed an impairment test at December 31, 2004. There was no impairment of long-lived assets in 2004 under French GAAP because the recoverable
amount exceeded the carrying value. As disclosed in Note 3, recoverable value is the higher of net
selling price and value in use. The Company used the net selling price as the recoverable amount,
based on the offer price received from France Telecom on January 22, 2005 to purchase substantially
all of the assets and liabilities of the Company for $1.6 billion. 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 is 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. 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. F-52




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) Given a combination of a current period operating loss combined with a history of operating losses
and a current expectation that, more likely than not, the minority interest of Equant will be sold
to France Telecom, the Company
performed an impairment test at December 31, 2004. There was an impairment of long-lived
assets of $114.4 for the year ended December 31, 2004 because the carrying value exceeded the fair
value. France Telecom retained independent valuers to produce a valuation report on the fair value
of the Company as a single operating unit. The independent valuers utilized three valuation
approaches being the market multiple methodology, comparable transaction and a discounted cash flow
model and presented in their valuation report a range of fair values from $1,000 to $1,400, based
on a weighted average of the results from the three different approaches. The Company concluded
that the best estimate of fair value was $1,219 based on managements evaluation of the report. The
impairment charge was allocated to tangible and intangible assets in the amounts of $102.1 and
$12.3, respectively. 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) were recorded as a reduction of restructuring and integration
costs. Under U.S. GAAP these amounts were 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 described in SFAS 148, Accounting for Stock-Based
Compensation - Transition and
Disclosure. 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. The Company had accounted for awards to employees under the Share
Option Plan as a liability arrangement until January 1, 2004 because eligible employees had the
option of settling the awards either in shares or in cash. These plans are now accounted for as
equity-settled because the Company settled a significant option exercise during 2004 with the
issuance of shares. 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 prior to the disposal of
the investment, is included in the share-based compensation adjustments included on the
reconciliations of net income and shareholders equity. G) Investments The Company holds equity securities of iPass, which in July 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, and has been classified as an available-for-sale security from that
date. 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 and 2004, the fair value of iPass exceeded historic
cost by $8.6 and $1.2, respectively, and the unrealized gain has been recorded in Other
comprehensive income. Subsequent to December 31, 2004, the Company sold its investment for
proceeds of $5.1. F-53




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) 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, basic earnings per share is calculated
based on the weighted average number of
ordinary shares outstanding only. 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 The Company changed its French GAAP policy on January 1, 2004 to adopt CRC recommendation
2003- r-01. The Company recorded a cumulative adjustment in equity of
$38.0 to recognize the fair
value of the assets and pension benefit obligation as at January 1, 2004. The new French GAAP
policy requires the following: (a) using actuarial techniques to make a reliable estimate of the
amount of benefit that employees have earned in return for their service in the current and prior
periods; (b) discounting that benefit using the Projected Unit Credit Method in order to determine
the present value of the defined benefit obligation and the current service cost; (c) determining
the fair value of any plan assets; (d) determining the total amount of actuarial gains and losses
and the amount of those actuarial gains and losses that should be recognized; (e) where a plan has
been introduced or changed, determining the resulting past service cost, and; (f) where a plan has
been curtailed or settled, determining the resulting gain or loss. Under U.S. GAAP, the Company continues to account for pensions in accordance with SFAS 87,
Employers Accounting for Pensions. U.S. GAAP requires a minimum pension liability to be
recognized that is at least equal to the unfunded accumulated benefit obligation. The corresponding
debit 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. Under U.S. GAAP, the Company has recognized an additional minimum pension liability of
$7.2 and $6.1 at December 31, 2003 and 2004, respectively, of which $6.0 and $4.9 have been
recorded within accumulated other comprehensive income as of December 31, 2003 and 2004,
respectively. $1.2 has been recorded as intangible assets at December 31, 2003 and 2004,
respectively. The pension adjustment also includes the effects of continuing under U.S. GAAP to
amortize actuarial gains and losses that arose prior to January 1, 2004 whereas under CRC
recommendation 2003- r-01, the full fair value of the assets and the pension benefit obligation at
January 1, 2004 were recognized on the balance sheet. J) Taxes Under French GAAP and U.S. GAAP, deferred taxation is provided for all temporary differences
(differences between the carrying value of assets and liabilities and their corresponding tax
bases). Under French GAAP, deferred tax assets are recognized, net of a valuation allowance, to
the to the extent that their recovery is considered probable. Under U.S. GAAP, deferred tax assets
are recognized, net of a valuation allowance, to the to the extent that it is more likely than not
that the benefit will be realized. Under French GAAP, a valuation allowance of $625.4 and $797.1 was recognized against deferred tax
assets of $633.4 and $797.1 as of December 31, 2003 and 2004, respectively, and no deferred tax
liabilities have been recognized. Thus, a net deferred tax asset of $8.0 and $nil was recognized
under French GAAP at December 31, 2003 and 2004, respectively. Under U.S. GAAP, the Company recognized a deferred tax liability of $46.7 and $35.7 as of December
31, 2003 and 2004, respectively, for the temporary difference associated with intangible assets
recognized in connection with the combination between Equant and Global One. The deferred tax
liability recognized under U.S. GAAP was partially offset against deferred tax assets of $15.7 as
of December 31, 2003 in the Netherlands which resulted in a reduction of the valuation allowance
under U.S. GAAP of $15.7 in the year ended December 31, 2003. In 2004, the decrease in deferred
tax assets in the Netherlands from $15.7 to $2.6, resulting from use of the remaining net operating
losses in the Netherlands and an increase in the temporary differences arising from the impairment
of tangible assets, has been recognized in the income statement. Other temporary differences
which differ between French GAAP and U.S. GAAP have been recognized net of a full valuation
allowance, resulting in no additional differences between net deferred tax assets under French GAAP
and U.S. GAAP. Under U.S. GAAP, the Company recognized a net deferred tax liability of $23.0 and
$33.1 as of December 31, 2003 and 2004, respectively. F-54




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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, 2002, 2003 and 2004 totaled $196.1, $142.4 and $132.8, 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 in operating
loss. Goodwill Amortization In accordance with French GAAP, goodwill amortization including that related to the investment in
Radianz, has been classified as a non-operating expense, whereas from January 1, 2002, goodwill was
no longer amortized for U.S. GAAP purposes following adoption of SFAS 142. Indefeasible Rights of Use The Company purchases capacity (known as Indefeasible Rights of Use or IRUs) on major international
routes where it is economic to do so. 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. IRUs are
capitalized as part of long-lived assets if the Company has the right to use the total capacity
from the specific underlying assets (specific fibers or wavelengths) and if the IRU lease term is
greater than 75% of the estimated economic life of the underlying asset. IRUs are amortized over
the shorter of ten years or the contract term. IRUs that do not meet these criteria are accounted
for as service contracts. 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. As of December 31, 2003 and 2004, $139.2
and $115.3, respectively, was recognized as the net book value for capacity purchases qualifying as
capital leases. Discount on Onerous Contract Liability As discussed in Note 20, the Company 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 years ended December 31, 2003 and 2004, and within
Equity in loss of affiliate in the year ended December 31, 2002. Unwinding of the discount was
$1.6, $2.4 and $2.5 in the years ended December 31, 2002, 2003 and 2004, respectively. Foreign Exchange Gains / (Losses) In the years ended December 31, 2002, 2003 and 2004, the Company recognized foreign exchange gains
/ (losses) of $8.2, $(22.0) and $10.7. Under French GAAP, these amounts were recognized within
Financial income / (charges) whereas under U.S. GAAP, these amounts were recognized within
operating expenses. Supplemental Disclosure under U.S. GAAP a) New accounting pronouncements not yet adopted  
    In March 2004, the EITF reached a consensus on Issue 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments (EITF 03-01 or
the Issue). EITF 03-01 is applicable to (a) debt and equity securities within the scope of
SFAS 115, (b) debt and equity securities within the scope of SFAS 124 and that are held by
an investor that reports a performance indicator, and (c) equity securities not within the
scope of SFAS 115 and not accounted for under the APB 18s equity method (e.g., cost method
investments). EITF 03-01 provides a step model to determine whether an investment is
impaired and if an impairment is other-than-temporary. In addition, it requires that
investors provide certain disclosures for cost method investments and, if applicable, other
information related specifically to cost method investments, such as the aggregate carrying
amount of cost method investments, the aggregate amount of cost method investments that the
investor did not evaluate for impairment because an impairment indicator was not present,
and the situations under which the fair value of a cost method investment is not estimated.
The disclosures relating to cost method investments should not be aggregated with other
types of investments. The effective date for the prospective application of EITF 03-01
impairment model to all current and future investments has been delayed by FASB Issues FASB
Staff Position EITF 03-01-1. The recognition and measurement requirements are effective for
annual periods for fiscal years ending after June 15, 2004. The adoption of the disclosure
requirements as of December 31, 2004 did not have a material impact on the results of
operations, financial position or cash flows of the Company. The Company does not
anticipate that adoption of application of the impairment model will have a material impact
on its results of operations, financial position or cash flows. F-55




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated)  
    At the November 17  18, 2004 meeting, the EITF reached a consensus on EITF 03-13,
Applying the Conditions in Paragraph 42 of SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, in
Determining Whether to Report Discontinued Operations.The purpose of the EITF is to
clarify when a disposition should be classified as a discontinued operation caused by the
contravening wording of paragraph 42 of SFAS 144. The Task Force reached a consensus that
classification of a disposed component as a discontinued operation is appropriate only if
the ongoing entity: Step 1: Has no continuing direct cash flows (a term EITF 03-13 introduces to interpret
paragraph 42(a)), and Step 2: Does not retain an interest, contract, or other arrangement sufficient to enable it
to exert significant influence over the disposed components operating and financial
policies after the disposal transaction (an interpretation of paragraph 42(b)). EITF 03-13 should be applied to components that are disposed of or classified as held for
sale in periods beginning after December 15, 2004. Previously reported operating results
within an enterprises fiscal year that includes the ratification date may be reclassified
to reflect the consensus. The Company does not anticipate that the adoption of EITF 03-13
will have a material impact on its results of operations, financial position or cash flows.  
    On November 24, 2004, the FASB issued SFAS 151, Inventory Costs, an amendment of ARB
No. 43, Chapter 4. The amendments made by SFAS 151 clarify that abnormal amounts of idle
facility expense, freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges require the allocation of fixed production overheads
to inventory based on the normal capacity of the production facilities. SFAS 151 is the
result of a broader effort by the FASB to improve the comparability of cross-border
financial reporting by working with the International Accounting Standards Board (IASB)
toward development of a single set of high-quality accounting standards. The FASB and the
IASB noted that ARB 43, Chapter 4 and IAS 2, Inventories, are both based on the principle
that the primary basis of accounting for inventory is cost. Both of those accounting
standards also require that abnormal amounts of idle freight, handling costs, and wasted
materials be recognized as period costs; however, the Boards noted that differences in the
wording of the two standards could have led to the inconsistent application of those
similar requirements. The FASB concluded that clarifying the existing requirements in ARB
43 by adopting language similar to that used in IAS 2 is consistent with its goals of
improving financial reporting in the United States and promoting convergence of accounting
standards internationally. The guidance is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory
costs incurred during fiscal years beginning after November 23, 2004. The Company does not
anticipate that the adoption of SFAS 151 will have a material impact on its results of
operations, financial position or cash flows.
    In December 2004, the FASB issued SFAS 123 (revised 2004), Share-Based Payments or
SFAS 123R. This statement eliminates the option to apply the intrinsic value measurement
provisions of APB 25, Accounting for Stock Issued to Employees to stock compensation
awards issued to employees. Rather, SFAS 123R requires companies to measure the cost of
employee services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized over the period during
which an employee is required to provide services in exchange for the award-the requisite
service period (usually the vesting period). SFAS 123R applies to all awards granted after
the required effective date and to awards modified, repurchased, or cancelled after that
date. For public entities that do not file as small business issuers, standard is
effective for the first annual reporting period that begins after June 15, 2005.
The Company currently records compensation expense from stock options granted in
accordance with SFAS 123 and does not anticipate that the adoption of SFAS 123R will have a
material impact on its results of operations, financial position or cash flows.
    In December 2004, the FASB issued SFAS 153,
Exchanges of Nonmonetary Assets -  an
amendment of APB Opinion No. 29, which amends APB 29, Accounting for Nonmonetary
Transactions to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. SFAS 153 is effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company is currently
evaluating the impact of SFAS 153 on its results of operations, financial position and cash
flows.
    The Company is required to adopt International Financial Reporting Standards (IFRS) for
the year ended December 31, 2004. However as discussed in Note 28, if the France Telecom
purchase of the assets and liabilities of the Company is completed as anticipated, the
Company will be de-listed before it will be required to prepare and file financial
statements under IFRS. F-56




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##### 



Equant N.V.
Notes to the Consolidated Financial Statements
(U.S. dollars in millions, unless otherwise stated) b) 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, 2004. Bad debt
    
    
    Deferred taxprovision
    
    
    allowanceBalance at January 1, 2002
    
    $
    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
    )
    
    
    (47.5
    )Charged to costs and expenses
    
    
    0.1
    
    
    
    118.4Balance at December 31, 2003
    
    $
    71.6
    
    
    $
    625.4Utilized
    
    
    (2.9
    )
    
    
    (48.2
    )(Released)/charged to costs and expenses
    
    
    (22.2
    )
    
    
    219.9Balance at December 31, 2004
    
    $
    46.5
    
    
    $
    797.1
 c) Property, Plant and Equipment Property, plant and equipment stated at cost less accumulated depreciation consist of the following: At December 31,2003
    
    
    
    2004Gross costOwned land and buildings
    
    $
    2.2
    
    
    
    $
    0.7Leasehold improvements
    
    
    243.4
    
    
    
    
    72.6Network assets
    
    
    2,143.4
    
    
    
    
    354.5Computer equipment
    
    
    334.8
    
    
    
    
    26.3Office equipment, furniture and motor vehicles
    
    
    107.3
    
    
    
    
    9.7Assets in course of construction
    
    
    58.1
    
    
    
    
    33.5Software applications
    
    
    372.5
    
    
    
    
    256.43,261.7
    
    
    
    
    753.7IRUs
    
    
    208.0
    
    
    
    
    115.3$
    3,469.7
    
    
    
    $
    869.0Accumulated depreciation
    
    $
    (2,299.7
    )
    
    
    $
    Net book value
    
    $
    1,170.0
    
    
    
    $
    869.0
 F-57