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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2003

OR

Commission File Number: 001-16201

GLOBAL CROSSING LIMITED

WESSEX HOUSE

45 REID STREET

HAMILTON HM12, BERMUDA

(Address Of Principal Executive Offices)

(441) 296-8600

(Registrant’s Telephone Number, Including Area Code)

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

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Title of Class

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x    No  ¨

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Act.).   Yes  ¨    No  x

The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant as of June 30, 2003, based on the average bid and asked prices of the common stock of the Registrant’s predecessor company on the over-the-counter market on such date of $0.019 per share, was approximately $17.3 million.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  x    No  ¨

The number of shares of the Registrant’s common stock, par value $0.01 per share, outstanding as of March 1, 2004, was 22,000,000.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant’s definitive proxy statement to be issued in connection with the 2004 annual general meeting of shareholders (Part III).

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GLOBAL CROSSING LIMITED AND SUBSIDIARIES

For The Year Ended December 31, 2003

INDEX

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PART I

ITEM 1. BUSINESS

Introduction

Global Crossing Limited, or “New GCL,” was formed under the laws of Bermuda in 2003. As discussed below in this Item 1 under “Our Chapter 11 Reorganization,” Global Crossing Ltd., a company formed under the laws of Bermuda in 1997 (“Old GCL”), and a number of its subsidiaries (collectively, the “GC Debtors”) had commenced cases under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”). December 9, 2003 was the effective date for the joint plan of reorganization of the GC Debtors. On that date, Old GCL transferred substantially all of its assets to New GCL. New GCL thereby became the parent company of the Global Crossing consolidated group of companies and succeeded to Old GCL’s reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Except as otherwise noted herein, references in this annual report on Form 10-K to “Global Crossing,” “the Company,” “we,” “our” and “us” in respect of time periods on or prior to December 9, 2003 mean Old GCL and its subsidiaries (collectively, the “Predecessor”), while such references in respect of time periods after December 9, 2003 mean New GCL and its subsidiaries (collectively, the “Successor”).

We provide telecommunications services in most major business centers in the world. We serve many of the world’s largest corporations, providing a full range of managed data and voice products and services.

Our overall strategy is to be a premier provider of broadband communications services in commercial centers worldwide. We seek to attain market leadership in global data and Internet Protocol (“IP”) services by taking advantage of our extensive broadband network and technological capabilities. Through our Global Marine Systems Limited subsidiary (“Global Marine”), we also provide installation and maintenance services for subsea telecommunications systems.

Our principal executive offices are located at Wessex House, 45 Reid Street, Hamilton, Bermuda. Our principal administrative offices are located at 200 Park Place, Suite 300, Florham Park, New Jersey 07932. Our Internet address is www.globalcrossing.com, where you can find copies of this annual report on Form 10-K and our quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) of the Exchange Act, all of which we will make available free of charge as soon as reasonably practicable after such reports are filed or furnished with the Securities and Exchange Commission (the “SEC”).

As of March 1, 2004, we employed approximately 5,000 people, including approximately 4,000 in our telecommunications services segment. Our employee base includes full-time, part-time and temporary employees. We consider our employee relations to be good. None of our employees are currently covered by a collective bargaining agreement, other than approximately 50 employees in our telecommunications services business in the United Kingdom.

We report our results in two business segments: telecommunications services and installation and maintenance services. Although we manage our global operations on a centralized basis, we operate in four geographic segments: North America, Europe, Asia/Pacific and Latin America. See Note 30, “Segment Reporting,” to our consolidated financial statements included in this annual report on Form 10-K.

Business Strategy

Our strategy has evolved since our inception. In 1997, we began constructing the world’s first independent fiber optic network and initially operated as a “carriers’ carrier” to providers of international telecommunications services. With the completion of our core network and various strategic acquisitions, by mid-2001, we were able to offer an extensive line of IP services, Internet access, and data and voice services to telecommunications

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carriers and business customers on a cost-effective basis. This broadened focus reflected our transformation from a construction-based wholesaler of network capacity to a value-added telecommunications services provider to global enterprises and carriers. This strategy required significant capital expenditures for continued incremental expansion of the network and for value-added service offerings to new and existing customers.

However, the downturn in the economy and the telecommunications industry in 2001 restricted the amount of capital available to us to invest in our existing business plan. As a result, we focused our resources on selling a standard suite of products and services. We changed our strategy from a growth model requiring significant cash expenditures to a retention model, with a focus on conserving cash and improving services to existing customers. As part of this effort, we integrated global functions such as network operations, customer care, information systems, finance, human resources and sales to align those functional units more appropriately with various regional operating needs. These efforts also resulted in additional reductions of capital expenditures and personnel and the consolidation of real estate facilities, thereby reducing overall operating expenses and streamlining operations.

We believe that these restructuring efforts have allowed us to operate more effectively and efficiently. As conditions improve in the telecommunications market, we expect that our restructuring will leave us well positioned to implement our strategy to be a premier provider of broadband communications services in commercial centers worldwide. We seek to attain market leadership in global data and IP services by taking advantage of our extensive broadband network and technological capabilities. Post-emergence, we have shifted our focus from customer retention to customer acquisition. Our strategy is based on targeting growth market segments with significant requirements for global and multi-national IP and data services. These market segments include regional and multi-national enterprises, federal government agencies, international and domestic carriers, ISPs and wireless service providers. We have aligned our direct sales channels around these segments and are developing partnerships with major systems integrators to reach large enterprise and government customers who seek turn-key solutions to their advanced telecommunications needs. To cover the small business and consumer markets, we are using an indirect channel strategy that includes reseller agents and value-added resellers. By penetrating these markets with the advanced IP services that we can offer, we intend to grow our revenues and change the mix of business to expand margins.

We expect continued growth in the demand for global bandwidth due to a variety of trends. End-user traffic should continue to grow due to increased adoption of broadband access to the Internet by businesses and consumers. We expect the demand for data communications to be driven by the introduction of more powerful computers and software applications, facilitating higher download rates, and increased usage of e-mail, voice-over-IP (“VoIP”) services, streaming video, wireless local area networks, teleconferencing and other innovations. In addition, we expect global enterprises to continue to outsource their networking needs as companies require the use of networks to interact internally as well as with partners, customers and vendors, driving the demand for IP-virtual private networks (“VPNs”) and managed services. We also expect mobile traffic growth to remain strong due to increased adoption of mobile communications, increased usage per mobile connection and increased usage of mobile data applications.

Overview of Our Business

We provide telecommunications services using a global IP-based network that directly connects more than 300 cities in over 30 countries and delivers services to more than 500 major cities in over 50 countries around the world. We serve many of the world’s largest corporations, providing a full range of managed data and voice products and services.

Our Telecommunications Services

The telecommunications services we provide include voice services, data services and conferencing services. These services are built around a streamlined global service delivery model intended to provide

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outstanding customer service, including prompt and accurate procurement and billing. Our uCommand^® Web-based network management tool allows customers to securely monitor their voice services, create utilization reports, reroute traffic, order new services, create and track trouble tickets and perform online bill payment.

The following is a brief description of our key telecommunications service offerings. See “Comparison of Financial Results” in Item 7 for a breakdown of revenues between voice and data services for 2003, 2002 and 2001.

Voice Services

Our voice services include switched and dedicated outbound and inbound voice services for domestic and international long-distance traffic, toll-free enhanced routing services, calling cards and, in the United Kingdom, commercial managed voice services. Voice services accounted for approximately 68% of our total telecommunications services revenues in 2003.

We carry more than five billion minutes per month over our global voice network. Voice traffic is routed over our network using a VoIP packet-based and time division multiplexing (“TDM”) platform. For carriers who use VoIP for their own voice customers, which is a technology we expect to grow rapidly, we recently introduced a VoIP termination service providing wholesale IP interconnection, transport and call completion of packet-based voice traffic using IP and VoIP and TDM switch technologies.

Our commercial voice services feature end-to-end service level agreements (“SLAs”) that apply to our dedicated commercial voice services globally and guarantee service availability along our network as well as local access circuits. The SLAs support three key areas: end-to-end network availability, guaranteed time of installation and mean time to restore.

Data Services

In addition to our voice and conferencing services, we offer a broad range of telecommunications services that we refer to generally as “data services.” These services include services that provide network interconnectivity to wholesale and retail customers; capacity services; and access services. In the aggregate, data services accounted for approximately 29% of our total telecommunications services revenues in 2003.

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Conferencing Services

We offer a full range of conferencing services, including those described below. Conferencing services accounted for approximately 3% of our total telecommunications services revenues in 2003.

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Telecommunications Sales and Principal Customers

We focus our sales and marketing efforts on enterprise and carrier customers requiring significant telecommunications services. We currently employ approximately 790 sales and sales support employees worldwide for the following sales channels.

Carrier Sales Channel

We offer telecommunications carriers access to our fiber optic network providing a robust combination of global reach and bandwidth. As an owner and operator of an international network, we can offer carriers a broad range of voice, data and infrastructure services at competitive price and service levels. We focus on local, national and global cable and wireless telecommunications carriers and on facilities and non-facilities based resellers, systems integrators and application service providers. We provide services in North America, Latin America, Europe and the Asia/ Pacific region. There are approximately 1,000 carriers in these markets.

Enterprise Sales Channel

Through the enterprise sales channel, we target mid-sized businesses, large multi-national enterprises, systems integrators, higher educational institutions and governmental entities. We target these customers in North America, Europe, Latin America and the Asia/Pacific region.

Conferencing Sales Channel

This channel is used to offer audio, video and Web-based conferencing services to commercial enterprises and both governmental and non-governmental organizations.

Our Network

Our network comprises a series of network assets that operate in most major business centers in the world. At the base of our network are subsea and terrestrial fiber-optic cables that connect North America, South America and Western Europe which we own or, in certain cases, in respect of which we hold long-term indefeasible rights of use (“IRUs”). These fiber-optic assets and related equipment (the “GC Fiber Network”) were engineered to be a state-of-the-art telecommunications network providing seamless, broadband connectivity to over 20 countries through a combination of subsea cables, national and international networks and metropolitan networks.

In addition to the GC Fiber Network, we own network switching and routing equipment providing us with the ability to monitor and manage traffic over fiber-optic assets leased by us on a non-IRU basis (including our rights in respect of East Asia Crossing and Pacific Crossing-1, as described below under “Asian Operations”). We refer to these portions of our network, together with the GC Fiber Network, as the “Core Network.”

The Core Network has points of presence (“POPs”) throughout the world, including approximately 800 major, regional POPs (“Regional POPs”) in over 200 major cities. These Regional POPs serve multiple customers and have the capability to add and drop multiple customer and network circuits onto and off of our backbone network. As described below, approximately 500 of these Regional POPs are located on the GC Fiber Network and house transmission add/drop multiplex equipment (devices similar to routers that can add or drop signals) that we own (“GC Fiber Regional POPs”). The remaining approximately 300 Regional POPs are located on leased transmission facilities. We have over 400 additional POPs that house minor IP peering points or legacy financial markets segment-related equipment, or that serve dedicated customer locations.

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The North American network portion of the GC Fiber Network comprises approximately 19,000 route miles of fiber in the U.S. and Canada, most of which consists of IRUs in fibers purchased from other carriers. It has approximately 170 GC Fiber Regional POPs, 22 integrated service platform sites, three subsea cable landing stations and five primary international voice gateway sites. The North American network carries voice, data and private line services over our SONET, IP and ATM backbones, all traversing 2.5 and 10 Gbps dense wavelength division multiplexing (“DWDM”) transmission systems. IP and ATM are methods of sending audio, video and computer data at the same time over one high-speed digital line. DWDM technology makes it possible simultaneously to transmit data at more than one wavelength, thereby allowing the transmission of multiple signals through the same fiber at different wavelengths.

The Western European network portion of the GC Fiber Network comprises approximately 14,000 route miles of fiber, most of which is contained in cable that we own on an IRU basis. This network has approximately 60 GC Fiber Regional POPs, six cable landing stations, and two international voice and three international data gateway sites. The Western European network carries voice, data and private line services over our SDH, IP and ATM backbones, all traversing 2.5 and 10 Gbps DWDM transmission systems.

The Global Crossing UK network portion of the GC Fiber Network comprises approximately 6,400 route miles of fiber, most of which is leased. This network has approximately 270 GC Fiber Regional POPs, 49 of which are core nodes and 173 of which are in customer locations.

The subsea network portion of the GC Fiber Network comprises five rings of fiber optic cable owned by us: Atlantic Crossing-1 (“AC-1”), Atlantic Crossing-2 (“AC-2”), Mid-Atlantic Crossing (“MAC”), South American Crossing (“SAC”) and Pan American Crossing (“PAC”). SAC is integrated with a 1,600 mile terrestrial route connecting Argentina and Chile, and PAC is integrated with a 2,300 mile terrestrial ring route within Mexico. In the aggregate, these systems span approximately 39,000 route miles and have 27 landing points on three continents, North America, South America and Europe. These are all two or four fiber strand pair cables equipped with 10 Gbps DWDM transmission systems. AC-2 consists of two fiber strand pairs in a cable containing four fiber strand pairs that was co-built with Level 3 Communications, Inc. These systems include 17 GC Fiber Regional POPs in the Latin America and Caribbean regions. In addition, as described below under “Overview of our Business—Asian Operations,” we have rights in capacity on trans-Pacific (“PC-1”) and Asia/Pacific (“EAC”) fiber optic cable systems owned by former subsidiaries of ours or their successors.

Our IP network utilizes a single Autonomous System Number (“ASN”). We have 85 distinct IP hubs, 41 of which have public or private peering interconnect circuits. The single ASN implies a greater degree of integration than that which exists in a multiple ASN system. Having a global ASN allows us to deploy certain technologies, such as MultiProtocol Label Switching (“MPLS”), sooner and on a global basis. It also provides our international customers with a more global appearance in the global Internet routing table.

Our IP network utilizes a MPLS Cisco core with a mixture of Cisco and Juniper devices at the edge of the network. The network carries approximately 80 Gbps of total IP traffic, of which 8 Gbps is voice traffic. The network is considered a Tier 1 backbone and is quality-of-service (“QOS”) enabled, which allows different types of data to be assigned different priorities, such that, for example, voice can always have priority over IP VPN and Internet traffic.

We operate our Core Network from three primary network operations centers. The Global Network Operations Center (“GNOC”) in London manages our subsea cable systems and our Western European and Global Crossing UK networks. The North America Network Operations Center, located in Southfield, Michigan, manages the global voice network and the North American transport network. The Global Data Services Network Operating Center, located in Phoenix, Arizona, manages the global IP and Frame Relay/ATM networks. In addition, we have a small network operating center in New York City that provides redundant IP and ATM network management capability.

Together with those locations connected directly by the Core Network, through network to network interface agreements with other service providers we deliver services in total to more than 500 major cities in over 50 countries worldwide.

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Asian Operations

Asia Global Crossing Ltd. (together with its consolidated subsidiaries, “Asia Global Crossing”) was originally established as a joint venture on November 24, 1999. We contributed to the joint venture our development rights in East Asia Crossing (“EAC”), an approximately 11,000 mile undersea network intended to link several countries in eastern Asia, and our then majority interest in Pacific Crossing-1 (“PC-1”), an undersea system connecting the United States and Japan. Softbank Corporation (“Softbank”) and Microsoft Corporation (“Microsoft”) each contributed $175 million in cash to Asia Global Crossing and together committed to purchases of at least $200 million in capacity on our network over a three-year period. Softbank and Microsoft also agreed to use Asia Global Crossing’s network in the region, subject to specified conditions. The resolution of these commitments is described below in Item 3, “Legal Proceedings.” On October 12, 2000, Asia Global Crossing completed an initial public offering of shares of common stock, and we contributed to Asia Global Crossing certain joint venture interests we had in networks in Japan and Hong Kong. After giving effect to the initial public offering and related transactions, our equity interest in Asia Global Crossing was reduced to 56.9%.

Prior to November 17, 2002, we provided services in most of the major markets of East and Southeast Asia using a fiber optic cable system owned by Asia Global Crossing and through local partners. On November 17, 2002, Asia Global Crossing and one of its wholly owned subsidiaries, Asia Global Crossing Development Company, filed voluntary petitions for relief under the Bankruptcy Code. On the same date, Asia Global Crossing commenced joint provisional liquidation proceedings in the Bermuda Supreme Court. Similarly, on July 19, 2002, Pacific Crossing Ltd., a majority owned subsidiary of Asia Global Crossing, and certain of its subsidiaries (together, “PCL”) filed voluntary petitions for relief under the Bankruptcy Code. The services we provide between the United States and Asia are provided on the PC-1 fiber optic cable system, which is owned by PCL. Asia Global Crossing’s and PCL’s bankruptcy cases are being administered separately from each other and were not consolidated with the GC Debtors’ chapter 11 cases.

On March 10, 2003, Asia Netcom Corporation Limited (“Asia Netcom”), an investment vehicle that was wholly-owned by a consortium consisting of China Netcom International Limited (“China Netcom”), Newbridge Capital LLC and SB Asia Infrastructure Fund L.P., purchased substantially all of the assets of Asia Global Crossing in a sale pursuant to Section 363 of the Bankruptcy Code. China Netcom subsequently acquired the interests of its other two partners in Asia Netcom. On June 11, 2003, Asia Global Crossing’s bankruptcy cases were converted into chapter 7 liquidation proceedings, one result of which will be that our equity stake in Asia Global Crossing will be canceled for no consideration.

On April 15, 2003, PCL entered into an asset purchase agreement pursuant to which it agreed to sell substantially all of its assets, including PC-1, to Pivotal Telecom, LLC (“Pivotal”). However, such sale was not consummated and we understand that a subsequent dispute has arisen between PCL and Pivotal regarding the asset purchase agreement. In any case, we will receive no recovery in PCL’s bankruptcy case in our capacity as an indirect equity holder in PCL.

We entered into an agreement with PCL under which PCL has agreed that the trans-Pacific capacity that we currently utilize will continue to be made available to us until September 30, 2004. Prior to the expiration of such agreement, we expect to extend this short-term arrangement or to secure trans-Pacific capacity on a long-term basis. We and PCL each have outstanding disputed claims against the other. PCL claims that monies are owed to it by us principally as a result of the prior provision of capacity and maintenance services to us on PC-1. Our claims against PCL relate to network operation and subsea maintenance services provided by us to PCL and ancillary matters.

On March 5, 2003, we entered into a settlement agreement with Asia Global Crossing (the “AX Settlement Agreement”) pursuant to which, among other things:

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The rights and obligations of Asia Global Crossing under the AX Settlement Agreement have been assigned to and assumed by Asia Netcom.

As of December 31, 2003 and January 15, 2004, we entered into a series of agreements with Asia Netcom pursuant to which, among other things, (i) the Intra-Asia Telecom Services Arrangement was extended through December 31, 2005, (ii) each party purchased certain telecommunications capacity from the other and (iii) we purchased certain telecommunications equipment from Asia Netcom. A portion of the consideration provided by us to Asia Netcom was in the form of a $2.5 million reduction of the EAC Credit.

We ceased consolidating Asia Global Crossing’s results effective as of November 17, 2002, the date of Asia Global Crossing’s bankruptcy petition. Accordingly, the financial position and results of operations of Asia Global Crossing are presented as discontinued operations for the periods presented in this annual report on Form 10-K. See Note 7 “Discontinued Operations and Dispositions” to our consolidated financial statements included in this annual report on Form 10-K.

Our Installation and Maintenance Services

In addition to our telecommunications services business, we own an installation and maintenance services business called Global Marine, which installs and maintains subsea fiber optic cable systems for carrier customers worldwide with a fleet of cable-laying and maintenance vessels. Global Marine is the world’s largest submarine cable maintenance and installation company. None of the Global Marine operating entities filed for bankruptcy protection.

Global Marine operates an advanced fleet of cable ships and subsea vehicles consisting of 15 cable ships, one installation barge, 23 remotely operated vehicles and 9 cable ploughs.

Global Marine employs approximately 1,000 people worldwide, with most of them based at sea. Almost half of its total staff comprises temporary or part-time personnel. Global Marine’s head office is in Chelmsford, Essex in the United Kingdom, with regional offices in Singapore, covering South East Asia and the Pacific Rim, and Ft. Lauderdale, Florida, covering North and South America. Global Marine also has depots in Batangas, Philippines; Batam, Indonesia; Bermuda; Kobe, Japan; Portland, UK; Suva, Fiji; and Victoria, British Columbia, Canada. In addition, Global Marine works closely with joint venture partners in Singapore, Japan and China.

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Global Marine’s range of services includes:

Since the late 1980s, there has been over 880,000 kilometers of fiber optic cable installed worldwide, with approximately 800,000 kilometers remaining after recovery of redundant cable. Global Marine has installed approximately 30% of the cable laid and has performed approximately 40% of reported worldwide repairs. Due to adverse conditions in the telecommunications industry, during 2002 and 2003 subsea installation of fiber optic cable accounted for only $68 million (approximately 32%) and $42 million (approximately 25%), respectively, of Global Marine’s aggregate revenues in those years, as compared to $364 million or approximately 68% of aggregate revenues in 2001. These adverse conditions in the subsea installation business are expected to continue for the foreseeable future in light of the current worldwide surplus of fiber optic capacity, and have had a material adverse impact on Global Marine’s results of operations and financial condition. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Financial Condition and State of Liquidity.”

In addition to subsea telecommunication cable installation and maintenance, Global Marine provides a comprehensive range of associated services, including route engineering, charting services, fishery liaison, shallow water services and specialized training for cable jointers at its UK training school and, in conjunction with a local partner, at a training school in Shanghai, China. In addition, Global Marine plans to diversify its business by entering or increasing its activity in marine markets such as oil and gas, environmental/scientific monitoring, defense/security and alternative forms of power generation. It is premature to predict the outcome of these diversification efforts.

On February 27, 2004, we announced that we had retained Citigroup Global Markets Inc. as our financial advisor to assist us in exploring strategic alternatives regarding Global Marine, including the potential sale of such business.

Network Security Agreement

Consummation of the purchase agreement described below under the caption “Our Chapter 11 Reorganization” was conditioned on the receipt of all required regulatory approvals, including the approval of the U.S. Government under Section 721 of the Defense Production Act, of the investment in New GCL by Singapore Technologies Telemedia Pte Ltd (“ST Telemedia”). In order to obtain this approval, which was received on September 23, 2003, we entered into an agreement (the “Network Security Agreement”) with certain agencies of the U.S. Government to address the U.S. Government’s national security and law enforcement concerns. The Network Security Agreement is intended to ensure that New GCL’s operations do not impair the U.S. Government’s ability (1) to carry out lawfully-authorized electronic surveillance of communications that originate and/or terminate in the United States; (2) to prevent and detect foreign-based espionage and electronic surveillance of U.S. communications; and (3) to satisfy U.S. critical infrastructure protection requirements. Failure to comply with our obligations under the Network Security Agreement could result in the revocation of our telecommunications licenses by the Federal Communications Commission (“FCC”).

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While our operations were generally consistent with the requirements of the Network Security Agreement, we have initiated a number of operational improvements in order to ensure full implementation of, and compliance with, the Network Security Agreement. These improvements relate to information storage and management, traffic routing and management, physical, logical, and network security arrangements, personnel screening and training, and other matters. Implementation of and compliance with the Network Security Agreement requires significant upfront and ongoing capital and operating expenditures that are incremental to the Company’s historical levels of such expenditures. We estimate that these incremental expenditures will be approximately $5 million in 2004 and approximately $2.5 million in subsequent years; however, the actual costs could significantly exceed these estimates. While implementation of the Network Security Agreement may increase our ability to compete for contracts to provide telecommunications services to the U.S. Government, there can be no assurance that any such contracts will be awarded.

The Network Security Agreement affects New GCL’s corporate governance as well. The New GCL Board of Directors must maintain a Security Committee comprised solely of directors who are U.S. citizens and who already possess or are eligible to possess a U.S. security clearance. These “Security Directors” must satisfy the independent director requirements of the New York Stock Exchange, regardless of whether any of New GCL’s securities are listed on such exchange. At least half of the members of the New GCL board nominated by ST Telemedia must be Security Directors. See Item 10 below. A Security Director must be present at every meeting of the board of directors of New GCL and of any of our U.S. subsidiaries unless such meeting in no way addresses or affects our obligations under the Network Security Agreement.

Competition

The telecommunications industry is intensely competitive and has undergone significant change in recent years. Beginning in the late 1990s, a number of new competitors entered the market and commenced network construction activities, resulting in a significant expansion of worldwide network capacity. In 2001, it became clear that, at least in the short-term, actual demand was failing to keep pace with available supply, resulting in intense price pressure and, in many cases, an unsustainably low ratio of revenues to fixed costs. Market valuations of debt and equity securities of telecommunications companies, particularly new providers, decreased precipitously as the financial condition of many carriers deteriorated. In the last three years, a number of these competitors have attempted to reorganize, or have completed reorganizations, under chapter 11 of the Bankruptcy Code. Several competitors have emerged from bankruptcy with significant improvements to their financial condition or as newly formed entities that have acquired the assets of others at substantial discounts relative to their original cost.

At the same time, the regulatory environment has changed and continues to change rapidly. Although the Telecommunications Act of 1996 and actions by the FCC and state regulatory authorities have had the general effect of promoting competition in the provision of communications services, they also have allowed the incumbent carriers to begin to provide long distance services in many states. These effects, together with new technologies, such as VoIP, and the importance of data services, have blurred the distinctions among traditional communications markets. As a result, a competitor in any of our business areas is potentially a competitor in our other business areas.

Many of our existing and potential competitors have significant competitive advantages, including greater market presence, name recognition and financial, technological and personnel resources, superior engineering and marketing capabilities, and significantly larger installed customer bases. The following summarizes the competition we face by type of competitor.

Incumbent Carriers

In each market that we serve, we face, and expect to continue to face, significant competition from the incumbent carriers, which currently dominate the local telecommunications markets. In the United States, these are primarily the domestic regional Bell operating companies, or RBOCs, which include BellSouth, Verizon,

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Qwest Communications and SBC Communications. Outside the United States, in many markets we face competition from the foreign incumbents, including companies such as British Telecom, France Telecom, Telecom Italia, Telefónica, Telstra and Deutsche Telekom. We compete with the incumbent carriers in our markets for local exchange and other services on the basis of product offerings, price, quality, capacity and reliability of network facilities, state-of-the-art technology, route diversity, ease of ordering and customer service. Because our fiber optic systems have been recently installed, compared to some of the networks of the incumbent carriers, our networks’ architectures and technology may provide us with cost, capacity, and service quality advantages over some existing incumbent carrier networks. However, the incumbent carriers have long-standing relationships with their customers and provide those customers with various transmission and switching services that we, in many cases, do not currently offer. Competition, however, is not based on any proprietary technology. Domestic incumbent carriers also have received regulatory approval to provide and have begun to provide long distance voice service in a number of regions. In their own domestic markets, the foreign incumbents have the advantages of network concentration, significant existing customer bases and, in many cases, regulatory protection from competition.

Other Voice Service Competitors

We face, and expect to continue to face, competition for local and long distance voice telecommunications services from competitors and potential competitors in addition to the incumbent carriers, primarily AT&T, MCI and Sprint Corporation in the United States and the foreign incumbents outside the United States. With respect to U.S. long distance telecommunications services, although the market is dominated by these incumbents, hundreds of other companies, such as Qwest Communications, also compete in the long distance marketplace. In addition, as the RBOCs continue to receive FCC authorization to provide long distance telecommunications services, we would expect them to become increasingly significant competitors for those services.

Data Service Competitors

We face, and expect to continue to face, competition for Internet access and other data services from telecommunications companies, including AT&T, MCI, Sprint Corporation, Colt Telecom Group plc, Equant N.V., the foreign incumbents, online service providers, DSL service providers and Internet service providers and web hosting providers.

Conferencing Competitors

In addition to competitors that provide voice and data services generally, our conferencing business competes with companies that specialize in conference communications, such as InterCall, a division of West Corporation.

Other Business Competitors

In addition to the above providers, we have other competitors, including XO Communications, Level 3, IDT Corporation and WilTel Communications, which are companies that deliver bandwidth-enabled services internationally on newly built or undeveloped terrestrial and subsea fiber optic networks.

Installation and Maintenance Competition

Although Global Marine is the world’s leading independent marine services company to the telecommunications industry based on revenue, it faces competition from multiple market participants. There are currently two other major system supply and maintenance companies in the subsea cable industry, Tyco and Alcatel Submarine Networks.

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Our Chapter 11 Reorganization

Events Leading Up to the Chapter 11 Reorganization

Our business plan until late 2001 called for significant capital expenditures to continue the incremental expansion of our network, particularly in metropolitan areas, and to develop broad managed service offerings to new enterprise customers. These capital requirements were to have been funded by the sale of capacity on the completed network or through asset sales. However, we became unable to fund our business plan due to (i) the downturn in the economy in 2001, particularly in the telecommunications sector, which adversely affected our operating results and (ii) increased fiber system builds by new entrants and increased competition, which depressed prices for telecommunications services and lowered profitability. The financial difficulties experienced by industry participants severely impacted available capital for the telecommunications sector. As capital tightened up, many companies, including us, were forced to seek bankruptcy protection.

Commencement of the Chapter 11 and Bermuda Cases

On January 28, 2002 (the “Commencement Date”), Old GCL and fifty-four of its subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the Bankruptcy Court.

On the same date, Old GCL and certain of its Bermuda subsidiaries commenced insolvency proceedings in the Supreme Court of Bermuda (the “Bermuda Court”). On such date, the Bermuda Court granted an order appointing Malcolm Butterfield, Jane Moriarty and Philip Wallace, partners of KPMG, as Joint Provisional Liquidators (“JPLs”) in respect of Old GCL and those Bermuda subsidiaries. The Bermuda Court granted the JPLs the power to oversee the continuation and reorganization of these companies’ businesses under the control of their boards of directors and under the supervision of the Bankruptcy Court and the Bermuda Court.

Twenty-five additional subsidiaries of Old GCL subsequently commenced chapter 11 cases and, where applicable, Bermuda insolvency proceedings under the supervision of the JPLs to coordinate the restructuring of those companies with the restructuring of Old GCL.

The Purchase Agreement and the Plan of Reorganization

On March 25, 2002, the Bankruptcy Court approved bidding and auction procedures for the potential sale of the Company’s businesses. As the auction process came to an end in late July of 2002, Hutchison Telecommunications Limited (“Hutchison”) and ST Telemedia were invited by us and representatives of our creditors to negotiate the definitive terms of a proposed investment in the Company. Extensive negotiations led to the execution of a definitive Purchase Agreement, dated as of August 9, 2002, among the Company, Global Crossing Holdings Ltd., the JPLs, Hutchison, and ST Telemedia (the “Purchase Agreement”).

Under the Purchase Agreement, Hutchison and ST Telemedia agreed to invest a total of $250 million for a 61.5 percent equity interest in New GCL, a newly formed Bermuda company to which Old GCL would transfer substantially all of its assets (including stock in subsidiaries). The Purchase Agreement also set forth the basic terms of a restructuring with our banks and unsecured creditors. In summary, those parties were to receive common shares representing 38.5 percent of the equity in New GCL, approximately $328 million in cash, $221 million in cash payments beyond the Effective Date under agreed upon terms and $200 million of new debt in the form of senior secured notes (the “New Senior Secured Notes”). Based on subsequent agreement among the parties, our banks and unsecured creditors received an additional $200 million in cash rather than the New Senior Secured Notes, and ST Telemedia invested $200 million and became the holder of the New Senior Secured Notes. The Bankruptcy Court approved the Purchase Agreement on August 9, 2002.

On September 16, 2002, we filed a chapter 11 plan of reorganization (as amended, the “Plan of Reorganization”) and accompanying disclosure statement (as amended, the “Disclosure Statement”) with the Bankruptcy Court. The Plan of Reorganization implements the terms of the Purchase Agreement with respect to

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the chapter 11 cases. On October 21, 2002, the Bankruptcy Court approved the Disclosure Statement and related voting procedures. On October 24, 2002, Old GCL and each of the other GC Debtors incorporated in Bermuda were granted approval by the Bermuda Court to hold meetings of their creditors for the purpose of considering and voting on schemes of arrangement (the “Schemes”). The Schemes implement the terms of the Purchase Agreement with respect to the Bermuda cases, essentially by incorporating the terms of the Plan of Reorganization. On December 26, 2002, the Bankruptcy Court entered an order confirming the Plan of Reorganization. Similarly, on January 3, 2003, the Bermuda Court sanctioned the Schemes (the Bermuda equivalent to confirmation).

Consummation of the Purchase Agreement was subject to various conditions, including the receipt of regulatory approvals. In particular, each of the parties had the right to terminate its obligations under the Purchase Agreement in the event that such regulatory approvals had not been obtained by April 30, 2003 (the “Voluntary Termination Date”). On the Voluntary Termination Date, we had not obtained all the regulatory approvals necessary to complete the transaction and it became apparent that the Committee on Foreign Investment in the United States (“CFIUS”) would not approve the transaction with Hutchison participating in it. On that date, Hutchison withdrew from the Purchase Agreement and ST Telemedia exercised its option under the Purchase Agreement to assume all of Hutchison’s rights and obligations thereunder. As a result, ST Telemedia agreed to increase its original $125 million investment to a total of $250 million for a 61.5 percent equity interest in New GCL on the effective date of our Plan of Reorganization. The withdrawal by Hutchison and related assumption by ST Telemedia required us to file amended applications for regulatory approvals with CFIUS, the FCC and other regulatory authorities.

After several extensions of the Voluntary Termination Date and the receipt of all regulatory approvals required to effectuate the Purchase Agreement, on November 28, 2003, we decided to amend the Plan of Reorganization to provide an additional $200 million of cash to our banks and unsecured creditors in lieu of the New Senior Secured Notes. ST Telemedia advised us that it would purchase the New Senior Secured Notes to provide the funding to effectuate that amendment. The amendment was approved by the Bankruptcy Court on December 4, 2003 and by the Supreme Court of Bermuda on December 5, 2003. The Plan of Reorganization became effective on December 9, 2003.

Effect of Consummation

The Plan of Reorganization governs the treatment of claims against and interests in each of the GC Debtors. On the effectiveness of the Plan of Reorganization, all pre-petition claims against and interests in each of the GC Debtors (other than interests and certain claims held by us) were discharged and terminated. Creditors of the GC Debtors received the following distributions under the plan:

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As a result of the effectiveness of the Plan of Reorganization, New GCL became the parent company of the Global Crossing group and, among other things, succeeded to Old GCL’s reporting obligations under the Exchange Act. However, New GCL and its subsidiaries did not assume any liabilities of Old GCL or the other GC Debtors other than the “Assumed Liabilities,” which are generally defined in the Plan of Reorganization to include the following: (i) ordinary course administrative expense claims, (ii) priority tax claims, (iii) certain secured claims, (iv) obligations under agreements assumed by the GC Debtors in our chapter 11 cases and (v) obligations under the Purchase Agreement. In addition, prior to the effectiveness of the Plan of Reorganization, New GCL elected to assume essentially all the administrative claims against Old GCL and the GC Debtors rather than setting aside an estimate of the funds needed to cover those amounts.

The GC Debtors’ bankruptcy proceedings in general, and the Plan of Reorganization in particular, have had and will have many other important consequences for us. For example, many of the executory contracts and leases of the GC Debtors were rejected in the bankruptcy process, significantly decreasing our contractual obligations going forward. In addition, the GC Debtors transferred to a liquidating trust established for the benefit of the creditors approximately $7 million in cash and certain of the GC Debtors’ rights, credits, claims and causes of action for preferences, fraudulent transfers and other causes of action and rights to setoff. Reference is made to the Plan of Reorganization attached to the Disclosure Statement, which is filed as an exhibit to our 2002 annual report on Form 10-K, for a complete description of the GC Debtors’ plan of reorganization and the consequences of its consummation.

Accounting for Consummation of the Plan

We have a significantly restructured balance sheet as a result of the consummation of the Plan of Reorganization and the resultant discharge of the GC Debtors’ prepetition liabilities. We have implemented the “fresh start” accounting provisions of AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code,” which we refer to as SOP 90-7. The fresh start accounting provisions required us to establish a “fair value” basis for the carrying value of the assets and liabilities for reorganized Global Crossing. The impact of the implementation of “fresh start” accounting is set forth in our current report on Form 8-K filed with the SEC on December 23, 2003.

Cost Reduction Initiatives

We initiated significant cost reduction and related restructuring efforts commencing in August 2001 that continued throughout our chapter 11 reorganization. These efforts resulted in year-over-year reductions in “other operating expenses” from approximately $2.080 billion in 2001 to approximately $1.208 billion in 2002 and $908 million in 2003. In addition, we completed the construction of our core network of interconnecting subsea and terrestrial fiber-optic cables in 2001 and we substantially reduced non-critical capital spending, resulting in a decrease in cash paid for purchases of property and equipment from approximately $2.643 billion in 2001 to approximately $281 million in 2002 and $152 million in 2003. We intend to continue to focus on cash conservation and cost containment, although future reductions in operating and capital expenditures of the magnitude realized during our chapter 11 reorganization will not be possible.

Regulatory Overview

Overview

The construction and operation of our facilities and our provision of telecommunications services subjects us to regulation in many countries throughout the world.

In the United States, the Telecommunications Act of 1996, or the Telecom Act, which substantially revised the Communications Act of 1934, has established the regulatory framework for the introduction of competition for local telecommunications services by new competitive entrants such as us. Prior to the passage of the Telecom Act, states typically granted an exclusive franchise in each local service area to a single dominant

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carrier—often a former subsidiary of AT&T, known as a regional Bell operating company, or RBOC—which owned the entire local exchange network and operated a virtual monopoly in the provision of most local exchange services in most locations in the United States. The RBOCs, following some recent consolidation, now consist of the following companies: BellSouth, Verizon, Qwest Communications and SBC Communications.

Among other things, the Telecom Act prohibits state and local governments from barring any entity from providing telecommunications service, which has the effect of eliminating prohibitions on entry that existed in almost half of the states at the time the Telecom Act was enacted. At the same time, the Telecom Act preserved state and local jurisdiction over many aspects of local telephone service, and, as a result, we are subject to varying degrees of federal, state and local regulation. Consequently, federal, state and local regulation, and other legislative and judicial initiatives relating to the telecommunications industry could significantly affect our business in the United States.

We believe that the Telecom Act provided the opportunity to accelerate the development of competition at the local level by, among other things, requiring the incumbent carriers to cooperate with competitors’ entry into the local exchange market. We have developed our business and designed and constructed our networks in part to take advantage of the features of the Telecom Act that require cooperation from the incumbent carriers, and believe that the continued viability of the provisions relating to these matters is critical to the success of the competitive regime contemplated by the Telecom Act.

Federal Regulation

The FCC exercises jurisdiction over our communication facilities and services in the United States. We have authority from the FCC for the installation, acquisition or operation of our domestic network facilities and to provide facilities-based international services.

The following is a summary of the interconnection and other rights granted by the Telecom Act that are most important for full local competition and our belief as to the effect of the requirements on our business, if properly implemented:

As part of its statutorily required periodic review of its list of unbundled elements, the FCC initiated its “Triennial Review” proceeding and, on August 21, 2003, the FCC released its Triennial Review Order, which is

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in excess of eight hundred pages. Numerous parties, including both incumbent and competitive carriers, filed petitions for review of the Triennial Review Order in various of the federal courts of appeals throughout the country. These petitions have been consolidated and transferred to the United States Court of Appeals for the District of Columbia Circuit. We cannot predict the outcome of these consolidated proceedings.

In the Triennial Review Order, the FCC altered the framework of its prior decisions implementing the Telecom Act. The Order preserves the basic structure of the Telecom Act, although it contains provisions that may make it more difficult for competitive carriers such as us to compete with the RBOCs. In addition, in USTA v. FCC, the United States Court of Appeals for the District of Columbia Circuit vacated and remanded substantial portions of the Triennial Review Order. Given the breadth and complexity of the Order and because it is subject to further judicial review, it is difficult for us to evaluate its overall effect on our operations. We summarize those portions of the FCC’s Triennial Review Order and the D.C. Circuit’s decision in USTA with the most direct relevance to our operations below.

The FCC’s decision contains the following relevant provisions:

“Network Element”: The FCC reaffirmed its previous interpretation of the definition of “network element,” as requiring incumbent local exchange carriers (“ILECs”) to make available to competing (or requesting) carriers discrete network elements that are capable of being used in the provision of a telecommunications service, including features, functions, and capabilities of a physical facility or equipment. The FCC also revised its definition of the statutory “impair” standard (which determines when an ILEC must make unbundled network elements (“UNEs”) available to its competitors) and added a definition of “qualifying service” (which determines for what purposes an ILEC must make unbundled network elements so available).

Unbundled Switching Network Element Platform (UNE/P) for High Capacity Enterprise Customers: The FCC found that, in most areas, competitive local exchange carriers can overcome barriers to serving enterprise customers, i.e. those served by DS1 and higher capacity loops (transmission facilities from telephone company switching offices to customer premises), using their own switching facilities in combination with unbundled loops (or loop facilities). The FCC found on a national level (subject to the outcomes of state commission proceedings) that requesting carriers are not impaired without access to unbundled local circuit switching to serve enterprise customers.

In addition, current rules provide that ILECs are not obligated to provide unbundled local circuit switching to requesting carriers for serving customers with four or more voice grade (DS0) loops in density zone one of the top fifty metropolitan areas (“MSAs”). While this rule will remain in effect on an interim basis, the states are to consider the extent to which this rule should remain in effect.

Dedicated Transport: The FCC revised the definition of the dedicated transport network element to include only those transmission facilities within an ILEC’s network that connect ILEC switches and wire centers within a LATA (local access and transport area).

In addition, the FCC found on a national level that requesting carriers are not impaired without access to certain unbundled high capacity (OCn) transport facilities. On the other hand, the FCC found on a national level that requesting carriers are impaired without access to dark fiber transport, DS3 transport, and DS1 transport, subject to analysis of specific routes by the state commissions.

Shared Transport: The FCC defined shared transport as the transmission facilities shared by more than one carrier, including the ILEC, between end office switches, between end office switches and tandem switches, and between tandem switches in the ILEC’s network. The FCC concluded that, because switching and shared transport are inextricably linked, requesting telecommunications carriers are impaired without access to shared transport only to the extent that they are impaired without access to unbundled switching. Accordingly, the FCC directed state commissions to include in their analyses of impairment for unbundled circuit switching the economic characteristics of shared transport and other backhaul.

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Combinations of Unbundled Network Elements: The FCC affirmed the right of competitive local exchange carriers (“CLECs”) to obtain both new combinations of unbundled network elements, including the loop-dedicated transport combination (enhanced extended link, or EEL), and to convert special access to UNEs.

The FCC also determined that a competitive carrier may obtain network element combinations and combine them with special access circuits. However, the FCC did establish certain service eligibility criteria for permitting competitive carriers to obtain network element combinations, primarily to ensure that such competitors were actually in the business of providing local telephone service.

Clarifications of the FCC’s Pricing Standards: The FCC clarified that the risk-adjusted cost of capital used in calculating UNE prices should reflect the risks associated with a market in which there exists facilities-based competition. The FCC explained that in this type of competitive market, all facilities-based carriers would face the risk of losing customers to other facilities-based carriers, and that risk should be reflected in TELRIC prices (as defined immediately below). The FCC also clarified that the cost of capital may be different for different UNEs in order to reflect any unique risks (above and beyond the competitive risks) associated with new services that might be provided over certain facilities.

Pricing Standards Rulemaking: The FCC also initiated a rulemaking process to consider whether and to what extent it should modify its rules governing the pricing standard used to determine the prices for UNEs and for resale of ILEC services (i.e., total element long run incremental cost or “TELRIC”).

“Pick and Choose” Rulemaking: The FCC initiated a rulemaking process to determine whether it should reinterpret the requirements of Section 252(i) of the Telecom Act to facilitate commercial negotiations between ILECs and CLECs. Under the FCC’s current interpretation, that Section permits CLECs to adopt individual and related provisions of interconnection agreements. The FCC tentatively concluded that once an ILEC obtains state approval of a statement of generally available terms and conditions (“SGAT”) pursuant to Section 252(f) of the Telecom Act, which would essentially function as a standardized interconnection agreement, ILECs and CLECs would be permitted to negotiate an alternative agreement based upon the SGAT that third parties could opt into only in its entirety or not at all. The FCC proposed that if an ILEC does not obtain approval of an SGAT, the current pick-and-choose rule would continue to apply to all of the ILEC’s approved interconnection agreements.

In USTA, the D.C. Circuit Court vacated and remanded significant portions of the Triennial Review Order. The Court stayed issuance of its mandate until sixty days from the date of the Order or until denial of any petition for rehearing or rehearing en banc.

First, the Court vacated the FCC’s subdelegation to the state Public Service Commissions the decisions to determine whether specific network elements should or should not be unbundled. In particular, the Court vacated the FCC’s decisions to require the unbundling nationwide of mass market switching and of DS1, DS3 and dark fiber transport and found fault with the FCC’s route-specific impairment analysis.

Second, the Court remanded the FCC’s determination to exclude entrance facilities from the list of network elements potentially subject to unbundling obligations.

Third, the Court remanded the FCC’s decisions that enhanced extended links are subject to a “qualifying service” test. The Court found no support in the statute for such a test.

Fourth, the Court upheld generally the FCC’s determinations that high capacity loops are not subject to mandatory unbundling requirements.

The D.C. Circuit Court’s decision may be subject to petitions for rehearing or rehearing en banc or to petitions for certiorari requesting that the Supreme Court review the decision. We cannot predict the outcome of such proceedings, if any.

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Regulation of the RBOCs’ Ability to Provide Long Distance Service

The FCC has primary jurisdiction over the implementation of Section 271 of the Telecom Act, which provides that the RBOCs cannot offer in-region long distance services until they have demonstrated that:

The FCC has granted each of the RBOCs the authority to provide long distance service in a number of states. We expect that the RBOCs will have received such authority with respect to most of the remaining states in the near term. Although we cannot predict when such approvals will be granted, RBOC entry into the long distance market could have an adverse affect on our ability to compete if not accompanied by safeguards to ensure that the RBOCs continue to comply with the market-opening requirements of Section 271 or if approvals are granted prematurely, before the RBOCs have completely satisfied the local market-opening requirements.

In its Triennial Review Order, the FCC reasserted that Section 271 establishes an independent obligation for RBOCs to provide access to loops, switching, transport, and signaling, regardless of their obligations under Section 251. The pricing standard, however, may vary for UNEs depending on whether they also must be unbundled under Section 251. For the UNEs that must be unbundled, the pricing standard under Section 271 is TELRIC, the same as for Section 251. For UNEs that must be provided under Section 271, but are not required to be provided under Section 251, the pricing standard is found in Sections 201 and 202, that is, whether they are priced on a just, reasonable, and not unreasonably discriminatory basis. Prices that comply with this requirement could be either prices that the RBOC provides to other carriers from its wholesale tariffs, or prices found in arms-length agreements with other similarly situated carriers. In USTA, the D.C. Circuit Court affirmed this aspect of the Triennial Review Order.

In 1997, the FCC established a significantly expanded federal telecommunications subsidy regime known as “universal service”. The FCC established new subsidies for services provided to qualifying schools and libraries and rural health care providers, and expanded existing subsidies to low income consumers. Most telecommunications companies, including us, must pay for these programs based on their projected interstate and international telecommunications end user revenues. The contribution factor for the first and second quarters of 2004 stands at 8.7%.

Intercarrier Compensation Reform

Currently, communications carriers are required to pay other carriers for interstate access charges and local reciprocal compensation charges, both of which are being considered for reform.

Interstate Access Charges

Long distance carriers pay local facilities-based carriers interstate access charges for both originating and terminating the interstate calls of long distance customers on the local carriers’ networks. Historically, the RBOCs set access charges higher than cost and justified this pricing to regulators as a subsidy to the cost of providing local telephone service to higher cost customers. With the establishment of an explicit and competitively neutral universal service subsidy mechanism, however, the FCC has taken steps to lower the access charges assessed by both incumbent and competitive carriers. For example, the FCC issued a decision in 2001 setting the rates that competitive local carriers charge to long distance carriers at a level that will gradually

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decrease over three years from a maximum of $0.025 per minute to the rates charged by incumbent carriers. So long as a local exchange carrier is in compliance with the FCC’s rate schedule, the FCC’s order forbids long distance carriers from challenging its interstate access rates. The FCC also issued a declaratory ruling in the summer of 2002 that had the effect of precluding wireless carriers from assessing interstate access charges on long-distance carriers pursuant to tariff. The FCC is also considering, in a declaratory ruling proceeding commenced in November 2002, the question of whether voice over the Internet services or services utilizing an Internet protocol should be made subject to interstate access charges in the same manner as traditional telephony. The FCC also has announced that it will initiate a more comprehensive review of the regulatory treatment of VoIP services. Like a growing number of carriers and some of our customers, we utilize Internet protocol for a portion of our traffic. Until the FCC issues it’s ruling in the current proceeding, it is unclear how such traffic will be treated for intercarrier compensation purposes.

The FCC issued a decision in the Pulver.com proceeding finding that Pulver’s “Free World Dialup” service, which makes no use of the public switched telephone network, constitutes an unregulated information service. The FCC also released a notice of proposed rulemaking to consider issues surrounding VoIP, such as application of access charges, E911 connectivity and Carrier Assistance to Law Enforcement Act issues.

Local Reciprocal Compensation Charges

Local telephone companies that originate traffic that is terminated on the network of other carriers typically compensate the other local carriers for terminating that traffic. These payments flow in both directions between any two carriers. Some competitors, however, have a customer base that generates many more minutes of terminating traffic from other carriers than originating traffic destined for other carriers. For example, a competitor that has a customer base that has many information service providers typically will have a large amount of compensation being paid to it by other carriers, while it will owe very little reciprocal compensation to other carriers. The FCC revamped the local reciprocal compensation structure in 2001 on an interim basis for three years to eliminate or reduce the opportunity for carriers to take advantage of an imbalance of originating and terminating traffic flows due to traffic terminated to information service providers. The FCC also initiated a rulemaking process to examine inter-carrier compensation more comprehensively. Under the decision, at the election of the incumbent carrier, terminating traffic that is out-of-balance by a ratio of more than 3 to 1 can be compensated at a lower rate, or in some cases, at no charge.

Regulation of Business Combinations

The FCC, along with the U.S. Department of Justice and state commissions, has jurisdiction over business combinations involving telecommunications companies. For example, the FCC’s approval was required to implement certain aspects of our chapter 11 reorganization. The FCC has reviewed a number of recent and proposed combinations to determine whether the combination would undermine the market-opening incentives of the Telecom Act by permitting the combined company to expand its operations without opening its local markets to competition or have other anti-competitive effects on the telecommunications and Internet access markets. In some cases, the FCC has set conditions for its approval of the proposed business combination. We cannot predict whether any conditions imposed will be effective, nor can we predict whether the FCC will impose similar conditions should it approve future business combinations.

State Regulation

State regulatory commissions retain jurisdiction over our facilities and services to the extent they are used to provide intrastate communications. We expect that we will be subject to direct state regulation in most, if not all, states in which we operate in the future. Many states require certification before a company can provide intrastate communications services. We are certified in all states where we have operations and certification is required. We cannot be sure that we will retain such certifications or that we will receive authorization for markets in which we expect to operate or to require certification in the future.

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Most states require us to file tariffs or price lists setting forth the terms, conditions and prices for services that are classified as intrastate. In some states, our tariff can list a range of prices for particular services. In other states, prices can be set on an individual customer basis. Several states where we do business, however, do not require us to file tariffs. We are not subject to price cap or to rate of return regulation in any state in which we currently provide service.

Under the regulatory arrangements contemplated by the Telecom Act, state authorities continue to regulate matters related to universal service, public safety and welfare, quality of service and consumer rights. All of these regulations, however, must be competitively neutral and consistent with the Telecom Act, which generally prohibits state regulation that has the effect of prohibiting us from providing telecommunications services in any particular state. State commissions also enforce some of the Telecom Act’s local competition provisions, including those governing the arbitration of interconnection disputes between the incumbent carriers and competitive telephone companies and the setting of rates for unbundled network elements.

Local Government Regulation

In certain locations, we must obtain local franchises, licenses or other operating rights and street opening and construction permits to install, expand and operate our fiber-optic networks in the public right-of-way. In some of the areas where we provide network services, our subsidiaries pay license or franchise fees based on a percentage of gross revenues or on a per linear foot basis. Cities that do not currently impose fees might seek to impose them in the future, and after the expiration of existing franchises, fees could increase. Under the Telecom Act, state and local governments retain the right to manage the public rights-of-way and to require fair and reasonable compensation from telecommunications providers, on a competitively neutral and nondiscriminatory basis, for use of public rights-of-way. As noted above, these activities must be consistent with the Telecom Act, and may not have the effect of prohibiting us from providing telecommunications services in any particular local jurisdiction.

If an existing franchise or license agreement were to be terminated prior to its expiration date and we were forced to remove our fiber from the streets or abandon our network in place, our operations in that area would cease, which could have a material adverse effect on our business as a whole. We believe that the provisions of the Telecom Act barring state and local requirements that prohibit or have the effect of prohibiting any entity from providing telecommunications service should be construed to limit any such action. Although none of our existing franchise or license agreements has been terminated, and we have received no threat of such a termination, there can be no assurance that one or more local authorities will not attempt to take such action. Nor is it clear that we would prevail in any judicial or regulatory proceeding to resolve such a dispute.

International Regulation

Our construction and operation of telecommunications networks and our provision of telecommunications services in foreign countries require us to obtain a variety of permits, licenses, and authorizations in the ordinary course of business. In addition to telecommunications licenses and authorizations, we may be required to obtain environmental, construction, zoning and other permits, licenses, and authorizations, as well as rights of way (or their equivalent in foreign jurisdictions) necessary for our fiber optic cable lines to pass through property owned by others. The construction and operation of our facilities and our provision of telecommunications services may subject us to regulation in other countries at the national, state, provincial, and local levels.

Europe

In connection with the construction and operation of our Western European network, we have obtained telecommunications licenses in all nations where authorization is required for us to construct and operate facilities or provide network services, including voice telephony. While construction of our Western European network is substantially complete, we expect to obtain additional telecommunications authorizations in Europe in the ordinary course of business, should they be required as a consequence of further network growth.

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Our activities in Europe are subject to regulation by the European Union (“EU”) and national regulatory authorities. The level of regulation and the regulatory obligations and rights that attach to us as a licensee or authorised operator in each country vary. In all Member States of the EU, we, as a competitive entrant, are currently considered to lack significant market power (“SMP”) in the provision of bandwidth and call origination services, and consequently we are generally subjected to less regulation than providers that are deemed to possess SMP, who are generally incumbents in the countries concerned.

In April 2002, the 15 EU Member States agreed to introduce a harmonized set of telecommunications regulations by July 25, 2003, in accordance with a framework as set out in Directive 2002/21/EC and a package of related Directives.

Under the Framework Directive (2002/21/EC), the EU has adopted a revised policy for dealing with the definition and regulation of significant market power. Regulatory remedies will be introduced in due course following a series of reviews of telecommunications markets defined in accordance with EC Recommendation 2003/311/EC. At this time, it is not possible to accurately predict what those remedies may entail, and their potential impact on our business.

Also included in the package of Directives are measures under Directive 2002/20/EC to remove the necessity for telecommunications network operators and service providers to obtain individual licenses and/or authorizations, save for use of scarce resources such as numbering addresses and radio spectrum.

However, not all EU Member States have adopted the changes to their national laws to implement the EU’s telecommunications-related Directives and the European Commission is understood to have commenced infringement proceedings against those whose legislative changes have not yet been enacted. In addition, the various market review exercises that are required to be held in each Member State following their respective enactment of the new legal framework have not yet been concluded. However, once the market review procedures are concluded at the Member State level, new suites of regulatory remedies will be adopted with the aim of putting in place specific ex ante measures to rectify perceived market failures.

It should be noted that the membership of the EU is scheduled to increase effective May 1, 2004 when ten additional countries are scheduled to accede to the EU. Upon a country’s accession, the harmonized package of EU telecommunications-related Directives is intended to take effect and hence subsequent market entry is expected to be possible in due course without the requirement for additional licenses.

Asia

The status of liberalization of the telecommunications regulatory regimes of the Asian countries in which we intend to operate varies. Some countries allow full competition in the telecommunications sector, while others limit competition for most services. Similarly, some countries in Asia maintain foreign ownership restrictions which limit the amount of foreign direct investment and require companies to seek joint venture partners.

Most of the countries in the region have committed to liberalizing their telecommunications regimes and opening their telecommunications markets to foreign investment as part of the World Trade Organization (“WTO”) Agreement on Basic Telecommunications Services, which came into force in February 1998. Additionally, the adoption of the Free Trade Agreement between the United States and Singapore establishes a new standard of liberalization based on bilateral negotiations with the United States. We cannot predict what effect, if any, this agreement will have on other countries in the region or whether the United States will pursue similar agreements with those countries. We also cannot be certain whether this liberalizing trend will continue or accurately predict the pace and scope of liberalization. It is possible that one or more of the countries in which we intend to operate will slow or halt the liberalization of its telecommunications markets. The effect on us of such an action cannot be accurately predicted.

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The telecommunications regulatory regimes of many Asian countries are in the process of development. Many issues, such as regulation of incumbent providers, interconnection, unbundling of local loops, resale of telecommunications services, offering of voice services and pricing have not been addressed fully or at all. We cannot accurately predict whether or how these issues will be resolved and their impact on our operations in Asia.

Latin America

Our MAC, PAC and SAC fiber optic cable systems connect to Latin America. In connection with the construction of these systems, we have obtained cable landing licenses and/or telecommunications licenses in Argentina, Brazil, Chile, Mexico, Panama, Peru, Uruguay, Venezuela and the United States. While construction of our core Latin American network is complete, we expect to obtain additional telecommunications authorizations in Latin America in the ordinary course of business, should they be required as a consequence of further network growth and expansion of the regional service portfolio.

As in Asia, the status of liberalization of the telecommunications markets of Latin America varies. All of the countries in which we currently operate are members of the WTO and most have agreed to the Agreement on Basic Telecommunications Services, thereby committing to liberalizing their telecommunications markets and lifting foreign ownership restrictions. Some countries now permit competition for all telecommunications facilities and services, while others allow competition for some facilities and services, but restrict competition for other services. Some countries in which we operate currently impose limits on foreign ownership of telecommunications carriers.

The telecommunications regulatory regimes of many Latin American countries are in the process of development. Many issues, such as regulation of incumbent providers, interconnection, unbundling of local loops, resale of telecommunications services, and pricing have not been addressed fully or at all. We cannot accurately predict whether or how these issues will be resolved and their impact on our operations in Latin America.

Cautionary Factors That May Affect Future Results

(Cautionary Statements Under Section 21E of the Securities Exchange Act of 1934)

Forward-Looking Statements

Our disclosure and analysis in this annual report on Form 10-K contain certain “forward-looking statements,” as such term is defined in Section 21E of the Securities Exchange Act of 1934. These statements set forth anticipated results based on management’s plans and assumptions. From time to time, we also provide forward-looking statements in other materials we release to the public as well as oral forward-looking statements. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. We have tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will” and similar expressions in connection with any discussion of future operating or financial performance or strategies. Such forward-looking statements include, but are not limited to, statements regarding:

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We cannot guarantee that any forward-looking statement will be realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to update publicly forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K. Also note that we provide the following cautionary discussion of risks and uncertainties related to our businesses. These are factors that we believe, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by the Section 21E of the Securities Exchange Act of 1934. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

Risk Factors

Our forward-looking statements are subject to a variety of factors that could cause actual results to differ significantly from current beliefs and expectations. In addition to the risk factors identified under the captions below, the operation and results of our business are subject to risks and uncertainties identified elsewhere in this annual report on Form 10-K as well as general risks and uncertainties such as those relating to general economic conditions and demand for telecommunications services.

Risks Related to Liquidity and Financial Resources

We incurred substantial operating losses in 2003 which have continued in 2004, and, in the near term, we will not generate funds from operations sufficient to meet all of our cash requirements.

For each period since inception, we have incurred substantial operating losses. For 2003, we posted an operating loss of approximately $141 million. In the near term, our existing and projected operations are not expected to generate cash flows sufficient to pay our expected operating expenses, fund our expected capital expenditure requirements, meet our debt service obligations and meet our restructuring cost requirements. We expect our available liquidity to substantially decline in 2004 due to operating cash flow requirements and Plan of Reorganization-related payments in 2004 of $128 million for deferred reorganization costs and $30 million for the final fees and expenses of retained professionals under the bankruptcy proceedings. We currently expect that we will need to obtain up to $100 million in financing to fund our anticipated liquidity requirements through the end of 2004. We are currently seeking to arrange a working capital facility or other financing to provide us with this necessary liquidity. We are in the midst of substantial planning for periods beyond 2004, having just recently emerged from reorganization. Based on our current projections, we will need to raise substantial additional financing to meet our anticipated liquidity needs beyond 2004.

If we cannot arrange a working capital facility or raise other financing during 2004, ST Telemedia has indicated its intention to provide us with up to $100 million of financial support to fund our operating needs on such terms and conditions as we and ST Telemedia may agree. ST Telemedia’s intention is based on our commitment to adhere to an operating plan requiring no more than $100 million in additional funds in 2004. If provided, this financial support could be in the form of (1) a guarantee or other support by ST Telemedia in respect of borrowings by us under a working capital facility or other financing or (2) a subordinated loan from ST Telemedia. The indenture for the New Senior Secured Notes does not permit ST Telemedia to lend to us directly

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on a secured or senior basis. While ST Telemedia has indicated its intention to provide financial support to us and management expects ST Telemedia to make such financial support available, ST Telemedia does not have any contractual obligation to provide financial support to us, and we can provide no assurance that ST Telemedia will provide any such financial support.

We can provide no assurance that our cash flows will improve or that we will be able to arrange financing sufficient to meet our liquidity needs for 2004 and beyond. It is likely that amendments to the indenture for the New Senior Secured Notes will be required by the lenders as a condition to their willingness to provide financing. Although a wholly owned subsidiary of ST Telemedia currently holds the New Senior Secured Notes, ST Telemedia is under no obligation to continue to hold such notes for any designated period.

The covenants in our debt instruments restrict our financial and operational flexibility.

The indenture for the $200 million principal amount of New Senior Secured Notes issued by our subsidiary, Global Crossing North American Holdings, Inc., and guaranteed by New GCL contains covenants that restrict, among other things, our ability to borrow money, grant additional liens on our assets, make particular types of investments or other restricted payments, engage in transactions with affiliates, sell assets or merge or consolidate. However, the covenants in the indenture contain exceptions permitting under certain conditions the incurrence of debt under one or more senior working capital facilities secured by a first priority lien on substantially all of our assets (other than the assets of Global Marine and Global Crossing UK) in an aggregate principal amount of up to $150 million (individually, a “Working Capital Facility” and collectively, the “Working Capital Facilities”). There can be no assurance that lenders will be willing to provide a Working Capital Facility on terms permitted by the indenture for the New Senior Secured Notes, and it is possible that amendments to that indenture may be required by lenders as a condition to their willingness to provide financing. Under the terms of the indenture, ST Telemedia may not be the lender under a Working Capital Facility, although the indenture does not prohibit ST Telemedia from guaranteeing our obligations under a Working Capital Facility. The indenture allows ST Telemedia to make loans to us only on a subordinated basis and subject to other significant restrictions. Except for the indication of interest described immediately above, ST Telemedia has not indicated any willingness or commitment to extend credit to us or to guarantee credit extended to us by third parties. Although a wholly owned subsidiary of ST Telemedia currently holds the New Senior Secured Notes, the notes could be sold to a third party at any time.

In addition, the indenture contains cross-default provisions which could result in the acceleration of our repayment obligations in the event that New GCL or the issuer of the New Senior Secured Notes or one or more of our other subsidiaries were to default on certain other indebtedness exceeding $2.5 million or were to become the subject of bankruptcy or insolvency proceedings. We expect that any Working Capital Facility would contain similar restrictions, as well as financial covenants that would require us to meet certain financial tests.

The security for the New Senior Secured Notes consists of, and the security for any future Working Capital Facility will likely consist of, liens on substantially all of our assets. A default under these financing agreements would allow ST Telemedia (or transferee noteholders) or the Working Capital Facility lenders to accelerate our repayment obligations, foreclose on our assets and adversely affect our rights under other commercial agreements.

These financing agreements also could affect our financial and operational flexibility as follows:

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Our international corporate structure limits the availability of our consolidated cash resources for intercompany funding purposes and reduces our financial restructuring flexibility.

As a holding company, all of our revenues are generated by our subsidiaries and substantially all of our assets are owned by our subsidiaries. As a result, we are dependent upon dividends and inter-company transfer of funds from our subsidiaries to meet our debt service and other payment obligations. Our subsidiaries are incorporated and are operating in various jurisdictions throughout the world. A number of our subsidiaries have cash on hand that exceeds their immediate requirements but that cannot be distributed or loaned to us or our other subsidiaries to fund our or their operations due to contractual restrictions or legal constraints related to the solvency of such entities. These restrictions could cause us or certain of our other subsidiaries to become and remain illiquid while other subsidiaries have sufficient liquidity to meet their liquidity needs. A number of the non-GC Debtors had significant capital lease obligations that were not discharged in our bankruptcy proceedings. These subsidiaries were generally not included in our U.S. chapter 11 bankruptcy proceedings since such inclusion may have triggered the commencement of liquidation proceedings against such entities in jurisdictions that do not recognize an equivalent of a chapter 11 reorganization. Some of these subsidiaries could be forced into local insolvency proceedings if their operating results and financial condition do not improve.

A default by any of our subsidiaries under any capital lease obligation or debt obligation totaling more than $2.5 million, as well as the bankruptcy or insolvency of any of our subsidiaries, could trigger cross-default provisions under the indenture for the New Senior Secured Notes and may trigger cross-default provisions under any working capital facility or other financing that we may arrange. This could lead ST Telemedia (or transferee noteholders) or other lenders to accelerate the maturity of their relevant debt instruments, foreclose on our assets and adversely affect our rights under other commercial agreements, which would have a material adverse effect on our financial condition.

Our Global Marine subsidiary faces significant financial challenges and must successfully restructure its operations to ensure its continued viability.

Due to adverse industry conditions and significant decreased demand for subsea cable installation services, Global Marine’s revenues decreased from $537 million in 2001 to $213 million in 2002 and $169 million in 2003. In addition, as a result of the non-renewal of a customer contract, commencing January 1,2004, Global Marine has lost a contract to provide subsea maintenance services with revenue of approximately $53 million per annum. Global Marine has implemented restructuring initiatives that have partially offset the impact of declining revenues, but Global Marine nevertheless expects to experience negative cash flows during 2004. If Global Marine is unable to increase its revenues through new business and improve its cash flow performance or is unable to raise additional funding, it may default on its capital lease and other obligations. Additional funding may not be available on acceptable terms or at all, particularly since Global Marine does not own significant unencumbered assets that it could use as collateral.

A significant portion of Global Marine’s current cash outflows consists of payments under ship charters and capital lease obligations. Certain of these charters and capital leases contain covenants that reduce Global Marine’s financial flexibility and restrict, among other things, its ability to grant liens on assets. Global Marine expects to be in default under one financial ratio covenant contained in two of these agreements as of June 30, 2004 and in default under a second such financial ratio covenant as of the end of 2004. Global Marine is in discussions with the counterparties to these agreements to address the expected breaches of such financial covenants, and is discussing with its principal ship charter creditors a possible restructuring of the payment schedules under its agreements with such creditors. If Global Marine is unsuccessful in these efforts, these parties could terminate these agreements and accelerate Global Marine’s required payments thereunder. Such an action would trigger cross-default provisions in Global Marine’s other ship charters and capital lease obligations as well as the cross-default provisions under the indenture for the New Senior Secured Notes and other financing agreements of ours which could accelerate our repayment of indebtedness.

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Our access to capital is likely to be limited.

Many telecommunications companies, including us, have defaulted on debt securities and bank loans in recent years and had their equity positions eliminated in bankruptcy reorganizations. This history has led to limited access to the capital markets by companies in our industry. Our access to the capital markets may also be limited for the foreseeable future in light of our recent financial troubles. Restrictions on our ability to access capital will diminish our financial and operational flexibility, and could adversely affect our ability to take advantage of opportunities for expansion of our network and capabilities and for growth through business acquisitions.

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

Global Crossing consists of a group of legal entities incorporated and operating in jurisdictions throughout the world, thereby subjecting us to multiple sets of complex and varying tax laws and rules. We cannot predict the amount of future tax liabilities to which we may become subject. Any increase in the amount of taxation incurred as a result of our operations or due to legislative or regulatory changes could result in a material adverse effect on our net loss and, accordingly, our financial condition and results of operations. Certain unsettled tax liabilities may have survived our bankruptcy proceedings. We cannot assure you that we have made adequate provision for all potential tax liabilities that may arise.

Risks Related to Our Operations

Our rights to the use of the dark fiber that make up our network may be affected by the financial health of our fiber providers.

The majority of our North American network and some of the other transmission facilities comprising our global network are held by us through long-term leases or IRU agreements with various companies that provide us access to fiber owned by them. A bankruptcy or financial collapse of one of these fiber providers could result in a loss of our rights under such leases and agreements with the provider, which in turn could have a negative impact on the integrity of our network and ultimately on our results of operations. Beginning in 2001, there has been increasing financial pressure on some of our fiber providers as part of the overall weakening of the telecommunications market. Several such providers have sought bankruptcy protection. To our knowledge, the rights of the holder of such rights in strands of fiber in the event of bankruptcy have not been squarely addressed by the judiciary at the state or federal level in the United States or in the foreign jurisdictions in which we operate and, therefore, our rights with respect to dark fiber agreements under such circumstances are unclear.

We may not be able to continue to connect our network to incumbent carriers’ networks or maintain Internet peering arrangements on favorable terms.

We must be party to interconnection agreements with incumbent carriers and certain independent carriers in order to connect our customers to the public telephone network. If we are unable to renegotiate or maintain interconnection agreements in all of our markets on favorable terms, it could adversely affect our ability to provide services in the affected markets.

Peering agreements with Internet service providers allow us to access the Internet and exchange transit for free with these providers. Depending on the relative size of the carriers involved, these exchanges may be made without settlement charge. Recently, many Internet service providers that previously offered peering have reduced or eliminated peering relationships or are establishing new, more restrictive criteria for peering and an increasing number of these service providers are seeking to impose charges for transit. Increases in costs associated with Internet and exchange transit could have a material adverse effect on our margins for our products that require Internet access. We may not be able to renegotiate or maintain peering arrangements on favorable terms, which would impair our growth and performance.

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The loss of our indirect majority interest in Pacific Crossing Ltd. and our resultant dependence on its interim operator to provide services to the Asia/Pacific region could adversely affect our operations and operating results.

We currently have no definitive long-term agreements with providers of the trans-Pacific capacity required by us to provide services between the United States and the Asia/Pacific region. We cannot provide any assurance that we will be able to enter into any such agreements on acceptable pricing and other terms. In the absence of capacity to the region, we will be unable to conduct that part of our business which involves providing services to the Asia/Pacific region. In addition, to the extent that we are unable to secure such long-term capacity, we may be in breach of certain agreements with our existing customers to provide them with long-term IRUs in trans-Pacific capacity. Any of these developments could result in significant liability or adversely affect our operating results.

The Network Security Agreement requires significant operating and capital expenditures. The inadvertent violation of the agreement could have severe consequences.

Implementation of and compliance with the Network Security Agreement will require significant upfront and ongoing capital and operating expenditures that are incremental to the Company’s historical levels of such expenditures. We estimate that these incremental expenditures will be approximately $5 million in 2004, and approximately $2.5 million in each subsequent year beginning in 2005; however, the actual costs could significantly exceed these estimates. While implementation of the Network Security Agreement may increase our ability to compete for contracts to provide telecommunications services to the U.S. Government, there can be no assurances that any such contracts will be awarded.

In addition, the Network Security Agreement imposes significant requirements on us related to information storage and management; traffic routing and management; physical, logical, and network security arrangements; personnel screening and training; corporate governance practices; and other matters. While we expect to comply fully with our obligations under the Network Security Agreement, it is impossible to eliminate completely the risk of an inadvertent violation of the agreement. The consequences of a violation of the Network Security Agreement could be severe, potentially including the revocation of our FCC licenses in the U.S., which would result in the cessation of our U.S. operations and would have a material adverse effect on our operations and financial condition.

The bankruptcies of potential customers in the Internet and communications-related industries have diminished our sales prospects and may have an adverse effect on our results of operations.

We historically have provided services to, and generated significant revenues from, customers that conduct business in the Internet and communications-related sectors. Many businesses that operated in those segments, particularly start-ups in the Internet service provider segment, have liquidated, otherwise gone out of business, or modified their business plans in ways that have significantly reduced their need for communications services. These developments have decreased significantly the size of the potential market for many of our wholesale and carrier-related services, particularly data transport services. Those of our Internet and communications-related customers that remain in business and have not sought bankruptcy protection nevertheless have been adversely affected by recent business trends in the Internet and “dot com” industries. To the extent the credit quality of these customers deteriorates or these customers seek bankruptcy protection, we may not be able to collect all amounts due from them and our ability to generate revenue in future periods from them could be adversely affected.

It is expensive and difficult to switch new customers to our network, and lack of cooperation of incumbent carriers can slow the new customer connection process.

It is expensive and difficult for us to switch a new customer to our network because:

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Many of our principal competitors, the domestic and international incumbent carriers, are already established providers of local telephone services to all or virtually all telephone subscribers within their respective service areas. Their physical connections from their premises to those of their customers are expensive and difficult to duplicate. To complete the new customer provisioning process, we rely on the incumbent carrier to process certain information. The incumbent carriers have a financial interest in retaining their customers, which could reduce their willingness to cooperate with our new customer provisioning requests, thereby adversely impacting our ability to compete and grow revenues.

We depend on our key personnel and qualified technical staff and, if we lose their services, our ability to manage the day-to-day aspects of our business and complex network will be weakened. We may not be able to hire and retain qualified personnel, which could adversely affect our operating results.

We are highly dependent on the services of our management and other key personnel. The loss of the services of members of our senior executive management team or other key personnel could cause us to make less successful strategic decisions, which could hinder the introduction of new services or make us less prepared for technological or marketing problems, which could reduce our ability to serve our customers or lower the quality of our services.

We believe that a critical component for our success will be the attraction and retention of qualified, professional technical and sales personnel. We have experienced intense competition for qualified personnel in our business with the sales, technical and other skill sets that we seek and, as a result of the bankruptcy, we lost qualified personnel. We may not be able to attract, develop, motivate and retain experienced and innovative personnel. If we fail to do so, there will be an adverse effect on our ability to generate revenue and operate our business.

The operation, administration, maintenance and repair of our systems are subject to risks that could lead to disruptions in our services and the failure of our systems to operate as intended for their full design life.

Each of our systems is and will be subject to the risks inherent in large-scale, complex fiber optic telecommunications systems. The operation, administration, maintenance and repair of our systems require the coordination and integration of sophisticated and highly specialized hardware and software technologies and equipment located throughout the world. Our systems may not continue to function as expected in a cost-effective manner. The failure of the hardware or software to function as required could render a cable system unable to perform at design specifications.

Each of our subsea systems either has or is expected to have a design life of generally 25 years, while each of our terrestrial systems either has or is expected to have a design life of at least 20 years. The economic lives of these systems, however, are expected to be shorter than their design lives, and we cannot provide any assurances as to the actual useful life of any of these systems. A number of factors will ultimately affect the useful life of each of our systems, including, among other things, quality of construction, unexpected damage or deterioration and technological or economic obsolescence.

Interruptions in service or performance problems, for whatever reason, could undermine confidence in our services and cause us to lose customers or make it more difficult to attract new ones. In addition, because many of our services are critical to our customers’ businesses, a significant interruption in service could result in lost profits or other loss to customers. Although we attempt to disclaim liability for these losses in our service agreements, a court might not enforce a limitation on liability under certain conditions, which could expose us to financial loss. In addition, we often provide customers with guaranteed service level commitments. If we are

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unable to meet these guaranteed service level commitments for whatever reason, we may be obligated to provide our customers with credits, generally in the form of free service for a short period of time, which could negatively affect our operating results.

As part of our reorganization efforts, we entered into settlement agreements with a number of our significant suppliers. Certain of these settlement agreements have resulted in reductions of up to approximately two years in warranty coverage related to our SAC, PAC and MAC subsea systems and to telecommunications equipment we use throughout our worldwide network. As a result, commencing in 2004, repair costs related to these systems and equipment will likely increase relative to prior years. This increase, and the adverse impact of such increase on operating results, could be material if the rate of failure of such systems and equipment were to increase relative to prior years.

The failure of our operations support systems to perform as we expect could impair our ability to retain customers and obtain new customers, or provision their services, or result in increased capital expenditures, which would adversely affect our revenues or capital resources.

Our operations support systems are an important factor in our success. Critical information systems used in daily operations perform sales and order entry, provisioning, billing and accounts receivable functions, and cost of service verification and payment functions, particularly with respect to facilities leased from incumbent carriers. If any of these systems fail or do not perform as expected, it would adversely affect our ability to process orders and provision sales, and to bill for services efficiently and accurately, all of which could cause us to suffer customer dissatisfaction, loss of business, loss of revenue or the inability to add customers on a timely basis, any of which would adversely affect our revenues. In addition, system failure or performance issues could have an adverse impact on our ability to effectively audit and dispute invoicing and provisioning data provided by service providers from whom we lease facilities. Furthermore, processing higher volumes of data or additionally automating system features could result in system breakdowns and delays and additional unanticipated expense to remedy the defect or to replace the defective system with an alternative system.

Intellectual property and proprietary rights of others could prevent us from using necessary technology.

While we do not believe that there exists any technology patented by others, or other intellectual property owned by others, that is necessary for us to provide our services and that is not now subject to a license allowing us to use it, there can be no assurances in this regard. If such intellectual property is owned by others and not licensed by us, we would have to negotiate a license for the use of that property. We may not be able to negotiate such a license at a price that is acceptable. This could force us to cease offering products and services incorporating such property, thereby adversely affecting operating results.

Physical space limitations in office buildings and landlord demands for fees or revenue sharing could limit our ability to connect customers to our networks and increase our costs.

In some circumstances, connecting a customer who is a tenant in an office building to our network requires installation of in-building cabling through the building’s risers from the customer’s office to our fiber in the street or building equipment room, or our antenna on the roof. In some office buildings, particularly the premier buildings in the largest markets, the risers are already close to their maximum physical capacity due to the entry of other competitive carriers into the market. Direct connections require us to obtain access to rooftops from building owners. Moreover, the owners of these buildings are increasingly requiring competitive telecommunications service providers like us to pay fees or otherwise share revenue as a condition of access to risers and rooftops. Although we generally do not agree to revenue sharing arrangements, we may continue to be required to pay fees to access buildings, particularly for buildings located in larger markets, which would reduce our operating margins.

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

We derive a substantial portion of our revenue from international operations and have substantial physical assets in several jurisdictions along our routes, including countries in Latin America and Western Europe. In addition, we lease capacity and obtain services from carriers in those and other regions. As a result our business is subject to particular risks from operating in some of these areas, including:

In addition, managing operations in multiple jurisdictions may place further strain on our ability to manage growth.

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

Included in “Legal Proceedings” in Item 3 and Note 28, “Commitments, Contingencies and Other” to our consolidated financial statements included in this annual report on Form 10-K are descriptions of our important contingent liabilities. If one or more of these contingent liabilities were to be resolved in a manner adverse to us, we could suffer losses that are material to our financial condition. We have not established reserves for many of these contingent liabilities. Moreover, as described in “Legal Proceedings” and in Note 28 to the consolidated financial statements, certain of these contingent liabilities could have a material adverse effect on our operations in addition to the effect of any potential monetary judgment or sanction against us.

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

Many of our current and prospective customers that derive their revenue in currencies other than U.S. dollars are invoiced by us in U.S. dollars. The obligations of customers with substantial revenue in foreign currencies may be subject to unpredictable and indeterminate increases in the event that such currencies depreciate in value relative to the U.S. dollar. Furthermore, such customers may become subject to exchange control regulations restricting the conversion of their revenue currencies into U.S. dollars. In either event, the affected customers may not be able to pay us in U.S. dollars. In addition, where we invoice for our services in currencies other than U.S. dollars, our net loss may suffer due to currency translations in the event that such currencies depreciate relative to the U.S. dollar and we do not elect to enter into currency hedging arrangements in respect of those payment obligations. Declines in the value of foreign currencies relative to the U.S. dollar could adversely affect our ability to market our services to customers whose revenues are denominated in those currencies.

Risks Related to Competition and Our Industry

The prices that we charge for our services have been decreasing, and we expect that such decreases will continue over time.

We expect price decreases in our industry to continue as we and our competitors increase transmission capacity on existing and new networks. Accordingly, our historical revenues are not indicative of future revenues based on comparable traffic volumes. If the prices for our services decrease for whatever reason and we are unable to increase volumes through additional services or otherwise, our operating results would be adversely affected.

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Technological advances and regulatory changes are eroding traditional barriers between formerly distinct telecommunications markets, which could increase the competition we face and put downward pressure on prices.

New technologies, such as VoIP, and regulatory changes, particularly those permitting incumbent local telephone companies to provide long distance services, are blurring the distinctions between traditional and emerging telecommunications markets. In addition, the increasing importance of data services has focused the attention of most telecommunications companies on this growing sector. As a result, a competitor in any of our business areas is potentially a competitor in our other business areas, which could impair our prospects, put downward pressure on prices and adversely affect our operating results.

We face competition in each of our markets from the incumbent carrier in that market and from recent market entrants, including long distance carriers seeking to enter, reenter or expand entry into the local exchange marketplace and incumbent carriers seeking to enter into the long distance market as they are granted the regulatory authority to do so. This competition places downward pressure on prices for local and long distance telephone service and data services, which can adversely affect our operating results. In addition, we could face competition from other companies, such as other competitive carriers, cable television companies, microwave carriers, wireless telephone system operators and private networks built by large end-users. If we are not able to compete effectively with these industry participants, our operating results would be adversely affected.

Many of our competitors have superior resources, which could place us at a cost and price disadvantage.

Many of our existing and potential competitors have significant competitive advantages, including greater market presence, name recognition and financial, technological and personnel resources, superior engineering and marketing capabilities, and significantly larger installed customer bases. As a result, some of our competitors can raise capital at a lower cost than we can, and they may be able to adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily, and devote greater resources to the development, marketing and sale of products and services than we can. Also, our competitors’ greater brand name recognition may require us to price our services at lower levels in order to win business. Our competitors’ financial advantages may give them the ability to reduce their prices for an extended period of time if they so choose.

Our selection of technology could prove to be incorrect, ineffective or unacceptably costly, which would limit our ability to compete effectively.

The telecommunications industry is subject to rapid and significant changes in technology. Most technologies and equipment that we use or will use, including wireline and wireless transmission technologies, circuit and packet switching technologies, multiplexing technologies, data transmission technologies, including the DSL, ATM and IP technologies, and server and storage technologies may become obsolete. If we do not replace or upgrade technology and equipment that becomes obsolete, we will be unable to compete effectively because we will not be able to meet the expectations of our customers, which could cause our results to suffer.

The introduction of new technologies may reduce the cost of services similar to those that we plan to provide. As a result, our most significant competitors in the future may be new entrants to the telecommunications industry or existing providers that upgrade equipment with new technologies. These providers may not be burdened by an installed base of outdated equipment and, therefore, may be able to more quickly respond to customer demands.

Additionally, the markets for data and Internet-related services are characterized by rapidly changing technology, evolving industry standards, changing customer needs, emerging competition and frequent new product and service introductions. The future success of our data services business will depend, in part, on our ability to accomplish the following in a timely and cost-effective manner:

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Our pursuit of necessary technological advances may require substantial time and expense. Moreover, in the course of our business we must make choices regarding technology based on our understanding of technological trends. If the technology choices we make prove to be incorrect, ineffective or unacceptably costly, our ability to meet our customers’ demands for existing and future telecommunications services could be impaired, which would adversely affect our growth and operating results.

Our operations are subject to regulation in the United States and abroad and require us to obtain and maintain a number of governmental licenses and permits. If we fail to comply with those regulatory requirements or obtain and maintain those licenses and permits, we may not be able to conduct our business. Moreover, those regulatory requirements could change in a manner that significantly increases our costs or otherwise adversely affects our operations.

In the United States, our intrastate, interstate, and international telecommunications networks and services are subject to regulation at the federal, state, and local levels. We also have facilities and provide services in numerous countries in Europe, Latin America, and the Asia/Pacific region. Our operations in those countries are subject to regulation at the regional level (e.g., European Union), the national level and, in some cases, at the state, provincial, and local levels. These regulatory requirements subject us to the following risks:

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Attempts to limit the basic competitive framework of the Telecom Act could interfere with the successful implementation of our business plan.

Successful implementation of our business plan is predicated on the assumption that the basic framework for competition in the local exchange services market established by the Telecom Act will remain in place. We expect that there will be attempts to modify, limit or eliminate this basic framework through a combination of federal legislation, new rulemaking proceedings by the FCC and challenges to existing and proposed regulations by the RBOCs. It is not possible to predict the nature of any such action or its impact on our business and operation, though the effect of certain changes could be material.

Potential regulation of Internet service providers could adversely affect our operations.

The FCC has to date treated Internet service providers as enhanced service providers. Enhanced service providers are currently exempt from federal and state regulations governing common carriers, including the obligation to pay access charges and contribute to the universal service funds. The FCC is currently examining the status of Internet service providers and the services they provide. If the FCC were to determine that Internet service providers, or the services they provide, are subject to FCC regulation, including the payment of access charges and contribution to the universal service funds, it could significantly increase our cost structure and have a material adverse effect on our business.

The requirement that we obtain and maintain permits and rights-of-way for our network increases our cost of doing business and could adversely affect our performance and results.

In order for us to acquire and develop our fiber optic networks, we must obtain and maintain local franchises and other permits, as well as rights-of-way and fiber capacity from entities such as incumbent carriers and other utilities, railroads, long distance companies, state highway authorities, private persons and companies, local governments and transit authorities. The process of obtaining these permits and rights-of-way is time-consuming and burdensome and increases our cost of doing business.

We may not be able to maintain our existing franchises, permits and rights-of-way that we need for our business. We may also be unable to obtain and maintain the other franchises, permits and rights-of-way that we require. In particular, we are a defendant in several lawsuits that, among other things, challenge certain of our rights-of-way (and amounts payable by us therefor), and additional such suits could be instituted. This litigation may increase our costs and adversely affect our profitability. Moreover, a sustained and material failure to obtain or maintain required rights could materially adversely affect our performance in the affected area and our operating results.

In addition, a portion of the Global Crossing UK Network is subject to a finance lease with Network Rail, the owner of the railway infrastructure in the UK. Those provisions of the finance lease addressing copper cable and PABX equipment used by us to deliver managed voice services to UK train operating companies (the “Copper Provisions”) may be terminated on 12 months notice. In connection with its plans to modernize the signalling system on the UK railways, Network Rail has indicated that it will terminate the Copper Provisions effective as of March 31, 2005.

Negotiations with Network Rail to secure commercially reasonable alternative arrangements are ongoing. It is possible that we may not be able to reach agreement with Network Rail in this regard, in which case we would need to put in place alternative arrangements with third parties in order to continue to provide managed voice

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services to train operating companies in the UK and to avoid the breach of certain customer contracts pursuant to which we have agreed to provide these services beyond March 31, 2005. Even if we secure alternative arrangements with Network Rail or a third party, such arrangements may be on terms significantly less favorable than those contained in the current lease.

As commercial discussions are continuing, it is difficult at this time to fully to assess the potential impact on revenue or costs. The total revenue attributable to the managed voice services we provide to UK train operating companies was approximately $82 million in 2003, with approximately $34 million directly related to the assets covered by the Copper Provisions. Although we expect to be able to address the termination of the Copper Provisions without losing this revenue stream and without incurring material incremental costs, no assurance can be made in this regard.

The aforementioned finance lease with Network Rail also addresses other assets of ours located along the UK railways, including fibre optic cable. The provisions of the finance lease addressing substantially all these other assets will not terminate until at least 2010, and in most cases well beyond that. The balance of Global Crossing’s network assets in the UK, which are unconnected with Network Rail, are also unaffected by the anticipated termination of the Copper Provisions.

We depend on third parties for many functions. If the services of those third parties become unavailable to us, we may not be able to conduct our business.

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

We cannot provide any assurances that third parties will perform their contractual obligations or that they will not be subject to political or economic events which may have a material adverse effect on their ability to provide us with necessary services. If they fail to perform their obligations, or if any of these relationships are terminated and we are unable to reach suitable alternative arrangements on a timely basis, we may not be able to conduct our business as currently contemplated.

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

The September 11, 2001 terrorist attacks had a significant impact on world financial markets. Future terrorist attacks against the United States or other countries in which we operate are possible. Since telecommunications networks and equipment may be considered critical infrastructure, it is possible that our physical facilities or network control systems could be the target of such attacks, or that such attacks could impact other telecommunications companies in a manner that disrupts our operations. These concerns also could lead to volatility or illiquidity in world financial markets and could cause consumer confidence and spending to decrease or otherwise adversely affect the economy. These events could adversely affect our business and our ability to obtain financing on favorable terms.

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Risks Related to Our New Common Stock

ST Telemedia is our majority stockholder.

A subsidiary of ST Telemedia beneficially owns 61.5% of New GCL’s outstanding equity securities. As a result, ST Telemedia has the power to elect the majority of New GCL’s directors. Under applicable law and New GCL’s articles of association and bye-laws and the certificate of designations for New GCL’s preferred stock, certain actions cannot be taken without the approval of holders of a majority of our voting stock including, without limitation, mergers and amendments to our articles of association and bye-laws. New GCL’s bye-laws include significant additional corporate governance rights of ST Telemedia. These rights effectively dilute the rights of other shareholders. In addition, a subsidiary of ST Telemedia holds the New Senior Secured Notes and enjoys significant rights as a creditor under the indenture for the New Senior Secured Notes.

Future sales of New GCL’s common stock could adversely affect its price and/or our ability to raise capital.

Future sales of substantial amounts of New GCL’s common stock, or the perception that such sales could occur, could adversely affect the market price of such stock and our ability to raise capital.

There are 22,000,000 shares of New GCL’s common stock outstanding. 6,600,000 of these shares are restricted shares held by a subsidiary of ST Telemedia. In addition, ST Telemedia’s subsidiary holds 18,000,000 shares of restricted preferred stock in New GCL, which are convertible into shares of New GCL’s common stock on a one-for-one basis. These common shares will be restricted unless certain criteria are met. All such restricted shares may be sold only under a registration statement or an exemption from Securities Act registration requirements. However, ST Telemedia may cause us to register sales of such restricted stock at any time.

In addition to the shares outstanding as of the date of this annual report on Form 10-K, an additional 18,000,000 shares of common stock have been reserved for issuance upon the conversion of the preferred shares held by ST Telemedia and its affiliates, and an additional 3,478,261 shares have been reserved for issuance upon the exercise of stock options or other stock-based awards granted under New GCL’s 2003 Stock Incentive Plan. 2.2 million stock options were granted under the 2003 Stock Incentive Plan on December 9, 2003, and restricted stock units covering an additional 1.2 million shares were granted under the plan on March 8, 2004.

The shares of New GCL common stock available for sale on the open market could increase materially as a result of a decision by ST Telemedia to reduce or eliminate its equity stake in New GCL, or as a result of the conversion of ST Telemedia’s preferred shares into common shares or the exercise of awards under the 2003 Stock Incentive Plan. These actions could significantly depress the market price of New GCL’s common stock.

Other Risks

Our adoption of “fresh start” accounting and changes due to acquisitions and dispositions make comparisons of our financial position and results of operations with those of prior periods more difficult.

In connection with our emergence from bankruptcy, we implemented “fresh start” accounting for periods following the reorganization. Fresh start accounting required us to allocate our reorganization value to all our assets and liabilities in accordance with SOP 90-7 (see Note 3 “Fresh Start Accounting” to the accompanying consolidated financial statements). As a result, the consolidated financial statements for periods after our emergence from bankruptcy are not comparable to our consolidated financial statements for the periods prior to our emergence from bankruptcy, which were prepared on an historical cost basis. The application of “fresh start” accounting makes it more difficult to compare our post-emergence operations and results to those in pre-emergence periods and could therefore adversely affect trading in and the liquidity of New GCL’s common stock. Comparability difficulties also may arise due to changes in our business due to acquisitions and dispositions of business units and significant assets over time, as described in the notes to the consolidated financial statements included in this annual report on Form 10-K.

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We and certain of our current and former officers and directors are involved in various governmental investigations and lawsuits.

As described below in Item 3, “Legal Proceedings,” we are the subject of investigations by the SEC and certain other governmental agencies. In addition, certain of our current and former officers and directors are also the subject of such investigations and are defendants in related class action and other pending and future lawsuits. As part of the chapter 11 process, the SEC filed a proof of claim asserting contingent and unliquidated amounts against us. However, on November 14, 2003, the Bankruptcy Court approved a stipulation among us, the SEC and our unsecured creditors committee in which the SEC withdrew its proof of claim, with prejudice. Nevertheless, the SEC and the other governmental agencies that are investigating us could still impose non-monetary penalties on us that could affect our capital-raising or other activities. Moreover, the ongoing involvement in these governmental investigations and civil lawsuits by certain of our current officers and directors could distract such individuals and reduce their productivity on our behalf. Finally, our involvement and the involvement of our current and former officers and directors in these investigations and lawsuits could adversely affect the perception of us by investors, customers, suppliers, employees and others, which in turn could adversely affect our operating results and hamper our ability to raise capital.

ITEM 2. PROPERTIES

We lease our principal executive offices in Hamilton, Bermuda. We also lease corporate office space in Basingstoke, England; Billings, Montana; Chelmsford, England; Crewe, England; Dublin, Ireland; Florham Park, New Jersey; London, England; Miami, Florida; Montreal, Canada; New York, New York; Phoenix, Arizona; Rochester, New York; Southfield, Michigan; and Westminster, Colorado. We also own or lease sales, administrative and other support offices worldwide.

In our telecommunications services segment, we own or lease numerous cable landing stations throughout the world related to undersea and terrestrial cable systems. Furthermore, we own or lease properties to house and operate our fiber optic backbone and distribution network facilities, our point-to-point distribution capacity, our switching equipment and connecting lines between other carriers’ equipment and facilities and our customers’ equipment and facilities.

In our installation and maintenance services segment, we own, lease and operate a fleet of vessels used in the planning, installation, and maintenance of undersea fiber optic cable systems.

Our existing properties are in good condition and are suitable for the conduct of our business.

ITEM 3. LEGAL PROCEEDINGS

Under the Plan of Reorganization, which became effective on December 9, 2003, essentially all claims against the GC Debtors that arose prior to the commencement of the chapter 11 cases were discharged. Claims for monetary damages (and equitable claims that give rise to a right to payment), including most of the legal proceedings pending against the Company at that time, were included in that discharge. However, certain legal proceedings pending at that time could have adverse affects on the Successor. The following is a description of those legal proceedings, the status of claims alleged to have arisen during the chapter 11 cases, and the status of certain proceedings maintained by the Company against third parties, followed by a brief description of certain legal proceedings against or relating to the Predecessor.

Securities and Exchange Commission Investigation

On February 5, 2002, the SEC commenced a formal investigation into concurrent transactions for the purchase and sale of telecommunications capacity and services between us and our carrier customers and related accounting and disclosure issues. We have been cooperating with the SEC by providing documents and other information to the SEC staff, which has taken testimony from our current and former directors, officers, and

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employees. To resolve the SEC’s investigation, we and certain former officers and directors of Old GCL have entered into negotiations with the SEC staff with a view to settlement, although to date settlement has not been reached. As part of the chapter 11 process, the SEC filed a proof of claim asserting contingent and unliquidated amounts against us. However, on November 14, 2003, the Bankruptcy Court approved a stipulation among us, the SEC and our unsecured creditors committee in which the SEC withdrew its proof of claim, with prejudice.

Department of Justice Inquiry

In early 2002, the U.S. Attorney’s Office for the Central District of California, in conjunction with the Federal Bureau of Investigation (the “FBI”), began conducting an investigation into our concurrent transactions and related accounting and disclosure issues. We have provided documents to the U.S. Attorney’s office and the FBI, and FBI representatives have interviewed a number of our current and former officers and employees. We do not know whether the investigation is ongoing or has concluded.

Department of Labor Investigation

The Department of Labor (“DOL”) is conducting an investigation related to the administration of our benefit plans, including the acquisition and maintenance of investments in Old GCL’s common stock in our 401(k) employee savings plans. We have been cooperating with the DOL by providing documents and other information to the DOL staff, and the DOL has interviewed a number of the former officers and employees of Old GCL. We and certain of the former officers and directors of Old GCL have been negotiating with the DOL staff over the terms of a potential settlement, but no agreement has been reached. Any claim arising out of the DOL’s ability to impose a civil monetary penalty on us was discharged upon the effectiveness of our Plan of Reorganization.

Qwest Rights-of-Way Litigation

In May 2001, a purported class action was commenced against three of our subsidiaries in the United States District Court for the Southern District of Illinois. The complaint alleges that we had no right to install a fiber optic cable in rights-of-way granted by the plaintiffs to certain railroads. Pursuant to an agreement with Qwest Communications Corporation, we have an indefeasible right to use certain fiber optical cables in a fiber optic communications system constructed by Qwest within the rights-of-way. The complaint alleges that the railroads had only limited rights-of-way granted to them that did not include permission to install fiber optic cable for use by Qwest or any other entities. The action has been brought on behalf of a national class of landowners whose property underlies or is adjacent to a railroad right-of-way within which the fiber optic cables have been installed. The action seeks actual damages in an unstated amount and alleges that the wrongs done by us involve fraud, malice, intentional wrongdoing, willful or wanton conduct and/or reckless disregard for the rights of the plaintiff landowners. As a result, plaintiffs also request an award of punitive damages. We have made a demand of Qwest to defend and indemnify us in the lawsuit. In response, Qwest has appointed defense counsel to protect our interests.

Our North American network includes capacity purchased from Qwest on an IRU basis. Although the amount of the claim is unstated, an adverse outcome could have an adverse impact on our ability to utilize large portions of our North American network. This litigation was stayed against us pending the effective date of our Plan of Reorganization, and the plaintiffs’ pre-petition claims against us were discharged at that time in accordance with our Plan of Reorganization. By agreement between the parties, the Plan of Reorganization preserved plaintiffs’ rights to pursue any post-confirmation claims of trespass or ejectment. If the plaintiffs were to prevail, we could lose our ability to operate large portions of our North American network, although we believe that we would be entitled to indemnification from Qwest for any losses under the terms of the IRU agreement under which we originally purchased this capacity.

In September 2002, Qwest and certain of the other telecommunication carrier defendants filed a proposed settlement agreement in the United States District Court for the Northern District of Illinois. On July 25, 2003,

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the court granted preliminary approval of the settlement and entered an order enjoining competing class action claims, except for certain claims in Louisiana. The settlement and the court’s injunction are opposed by some, but not all, of the plaintiffs’ counsel and are on appeal before the U.S. Court of Appeals for the Seventh Circuit.

Administrative Claims from the Chapter 11 Cases

Under the Plan of Reorganization, claims arising after the commencement of the GC Debtors’ chapter 11 cases (“Administrative Claims”) are to be paid in full. As is typical in chapter 11 cases, Administrative Claims were asserted against the Company that far exceed the amount owed. The Successor has assumed these obligations and we are in the process of objecting to those Administrative Claims that we dispute. We do not expect the resolution of these claims to have a material adverse affect on our results of operations or financial condition.

Softbank Arbitration and Microsoft Settlement

At the time of the formation of the Asia Global Crossing joint venture, Microsoft and Softbank each committed to purchases of at least $100 million in capacity on our network over a three-year period. Softbank failed to satisfy that commitment, and its remaining unsatisfied commitment of $85.5 million, which it was required to utilize by December 31, 2002, was the subject of an arbitration proceeding that concluded in October 2003. The arbitration, commenced by us in September 2002, alleged that Softbank breached its contractual obligations to us and sought $85.5 million in damages. Softbank’s defense was that its commitment was extinguished as a result of our loss of control of Asia Global Crossing and Pacific Crossing Limited, and that in any event it was entitled to offset any monies owed against various credits and abatements due from us. In a final award issued on October 30, 2003, the arbitration panel found that Softbank is liable to Global Crossing for breach of the underlying commercial commitment agreement in the net amount of approximately $20 million, after abatements and offsets, together with an additional award of interest in the amount of approximately $0.2 million. On December 3, 2003, we received $20 million plus interest from Softbank.

On April 1, 2003 we entered into a settlement agreement with Microsoft to resolve a number of contractual disputes regarding its remaining capacity commitment obligations, including allegations by Microsoft that were similar to those made by Softbank in the above-referenced arbitration proceedings. The settlement resulted in a reduction in Microsoft’s remaining unsatisfied commitment from approximately $76 million to approximately $61 million. During 2003, Microsoft satisfied a portion of its remaining unsatisfied commitment by prepaying for $23 million in capacity and services from us. On January 9, 2004, Microsoft satisfied the balance of its remaining unsatisfied commitment by prepaying for $38 million in additional capacity and services from us.

Predecessor Legal Proceedings

The following pending legal proceedings are not expected to affect the Company going forward, except to the extent that (1) certain of the Successor’s officers and employees are defendants in these actions and such involvement could distract them from their duties at the Company or (2) the Company advances defense costs for present or Old GCL’s directors, officers and employees who are defendants in these actions (the “Individual Defendants”).

During the pendency of the GC Debtors’ chapter 11 cases, the Company determined that it was in its best interests for its litigation counsel (the “Joint Counsel”) to represent as many as possible of its current and Old GCL’s directors, officers and employees in addition to the Company. The Company determined that such joint representation would ensure the prosecution of a coordinated, timely and effective defense of and response to the SEC investigation and the other pending or threatened actions or investigations concerning the Company. With the approval of the Bankruptcy Court, the Company agreed, as an administrative expense, to advance the fees and expenses of the Joint Counsel in defending the Individual Defendants in these actions so long as there was no actual conflict of interest in such representation. The Company expects to receive reimbursement under its

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directors and officers liability insurance policies for the majority of the defense costs that it has advanced in the past and anticipates advancing in the future. Most of the amounts advanced in the past have already been reimbursed by the applicable insurance carriers.

Shareholder Class Actions and Other Actions

Following our filing for bankruptcy on January 28, 2002, approximately 50 purported shareholder class action lawsuits were filed against certain of Old GCL’s then current and former officers, directors and employees. The plaintiffs allege that the defendants committed fraud under the federal securities laws in connection with Old GCL’s financial statements and disclosures and certain other public statements made by our representatives and seek compensatory damages, costs and expenses, and equitable and other relief. The class actions have been consolidated in the United States District Court for the Southern District of New York under the caption In re Global Crossing Ltd. Securities Litigation. In addition, a number of individual securities cases or other actions based on federal or state law claims and arising out of similar underlying facts have been filed (and in the future, additional cases may be filed) against certain of our current and former officers, directors, and employees, seeking damages for alleged violations of federal and state securities laws, breach of fiduciary duties, violations of state whistle-blower statutes, and allegations that certain former employees were improperly restricted from selling Old GCL common stock before the price collapsed. We are involved only indirectly in these cases and are not a named defendant.

On March 19, 2004, the United States District Court for the Southern District of New York entered an order preliminarily approving a settlement between the plaintiffs and the individual officers, directors and employees of Old GCL who are defendants in the consolidated securities action. Any monetary liability that we may have had in respect of these cases was discharged upon the effectiveness of our Plan of Reorganization.

ERISA Class Actions

Following our filing for bankruptcy on January 28, 2002, plaintiffs filed over 15 purported class actions against our current and former officers, directors, and employees pursuant to the Employee Retirement Income Security Act of 1974 (“ERISA”) in connection with the administration of our 401(k) retirement savings plans. The plaintiffs allege, among other things, that the ERISA fiduciaries breached their duties to the 401(k) plan participants by directing or otherwise being responsible for the plans’ acquiring and continuing to maintain investments in Old GCL’s common stock. The United States District Court for the Southern District of New York has consolidated most of these actions under the caption In re Global Crossing Ltd. ERISA Litigation. The consolidated complaint seeks, among other things, a declaration that the defendants breached their fiduciary duties to the plaintiff class, an order compelling defendants to make good on the losses sustained by the plans, the imposition of a constructive trust on any amounts by which the defendants were unjustly enriched by their actions, and an order of equitable restitution. Although Old GCL is named as a defendant in the consolidated ERISA case, plaintiffs asserted in their consolidated complaint that they would not prosecute their action against Old GCL unless or until the Bankruptcy Court were to lift or grant relief from the automatic stay of litigation imposed by the Bankruptcy Code. No such relief was granted prior to the effective date of our Plan of Reorganization.

On April 30, 2002, an additional case, Pusloskie v. Winnick et al., was commenced in the United States District Court for the Southern District of New York against certain of our current and former directors, officers and employees. This case is brought on behalf of a putative class of our former employees and asserts claims for breach of fiduciary duties in connection with the administration of one of our 401(k) retirement plans. This additional case does not name us as a defendant and was not consolidated with the other ERISA cases.

On March 19, 2004, the United States District Court for the Southern District of New York entered an order preliminarily approving a settlement between the plaintiffs and the individual officers, directors and employees of Old GCL who are defendants in the ERISA actions. Any monetary liability that we may have had in respect of these cases was discharged upon the effectiveness of our Plan of Reorganization.

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Change-of-Control Severance Plan Class Action

Plaintiffs filed a purported class action against our current and former officers, directors, and employees and against the Frontier Corporation/Global Crossing Change of Control Severance Plan (the “Severance Plan”) under ERISA in connection with the administration of the Severance Plan. The plaintiffs alleged, among other things, that the purported ERISA fiduciaries and the Severance Plan breached their duties to the plan’s participants in suspending payments of severance benefits in connection with our bankruptcy filing. The case has been coordinated (but not consolidated) with the securities and the other ERISA class actions in the Southern District of New York, where it is pending under the caption Simonetti v. Perrone. We are not named as a defendant in the Simonetti case and the plaintiffs have voluntarily dismissed the Severance Plan as a defendant. On March 19, 2004, the United States District Court for the Southern District of New York entered an order preliminarily approving a settlement between the plaintiffs and the individual officers, directors and employees who are defendants in that case. Any monetary liability that we may have had in respect of this case was discharged upon the effectiveness of our Plan of Reorganization.

JPMorgan Chase Litigation

On October 27, 2003, the Predecessor’s primary lender, JPMorgan Chase Bank, in its role as administrative agent for a consortium of banks participating in the Predecessor’s $2.25 billion senior secured corporate credit facility, filed an action in the New York State Supreme Court for New York County, captioned JPMorgan Chase Bank v. Winnick, et al., against a number of current and former officers, directors and employees of the Company alleging that the defendants fraudulently reported misleading and untrue financial statements and records of compliance with certain financial covenants in the credit facility. The complaint asserts claims of fraud, aiding and abetting fraud, conspiracy to commit fraud, negligent misrepresentation, and aiding and abetting negligent misrepresentation. The complaint seeks damages of at least $1.7 billion, pre-judgment interest, and costs and expenses, including attorneys’ fees. The Company is not a defendant in the litigation. Any claims that the plaintiffs could have asserted against the Company in this case were discharged upon the effectiveness of the Plan of Reorganization. On March 19, 2004, the plaintiff and the outside directors entered into a stipulation of settlement by which the outside directors will be dismissed from the JPMorgan Chase action.

Initial Public Offering Litigation

On June 12, 2002, certain plaintiffs filed a consolidated complaint captioned In re Global Crossing Ltd. Initial Public Offering Securities Litigation in the United States District Court for the Southern District of New York alleging that certain of our current and former officers and directors violated the federal securities laws through agreements with underwriters in connection with Old GCL’s initial public offering and other offerings of its shares. The complaint seeks damages in an unstated amount, pre-judgment and post-judgment interest, and attorneys’ and expert witness fees. This consolidated action involving Old GCL is further consolidated in the United States District Court for the Southern District of New York with cases against approximately 309 other public issuers and their underwriters under the caption In re Initial Public Offering Securities Litigation. Pursuant to the automatic stay of litigation imposed by the Bankruptcy Code, we are not a defendant in this action. We believe that any liability we may have in respect of this action is subject to indemnification by the firms that acted as underwriters in the applicable securities offerings. Any monetary liability was, in any event, discharged upon the effectiveness of our Plan of Reorganization.

Resolution of Pre-petition Claims

Although claims arising prior to the commencement of the GC Debtors’ chapter 11 cases were discharged under the Plan of Reorganization, the holders of certain of those claims are entitled to share in the distributions under the plan. Many claims were filed against the GC Debtors that were overstated, unliquidated, or unsupported. As is typical in a large chapter 11 case, the resolution of those claims will take place over a number of months after the effective date of our Plan of Reorganization. The Plan of Reorganization turned this

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administrative process over to an “Estate Representative,” appointed by representatives of our largest pre-petition creditor groups. The resolution of disputes in connection with these pre-petition claims will not have an adverse effect on the Successor or change the aggregate treatment of the classes of claims and interests receiving distributions under the Plan of Reorganization.

Estate Representative Actions

Under the Plan of Reorganization, certain claims and causes of action against third parties for preferences, fraudulent transfers, and other causes of actions belonging to the GC Debtors were transferred to a liquidating trust for the benefit of certain classes of pre-petition creditors. The Estate Representative is responsible for prosecuting, settling or otherwise resolving the causes of action transferred to the liquidating trust.

For a discussion of certain other legal proceedings involving us, see Note 28, “Commitments, Contingencies and Other,” to our consolidated financial statements included in this annual report on Form 10-K.

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

No matters were submitted to a vote of security holders during the year ended December 31, 2003, other than matters voted on by holders of our debt securities in the ordinary course of our then-pending bankruptcy proceedings.

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PART II

Market Information

Old GCL’s common stock traded on the New York Stock Exchange (“NYSE”) under the symbol “GX” until January 28, 2002, at which time the NYSE suspended trading of Old GCL’s common stock due to our chapter 11 bankruptcy filing. As a result of the suspension and subsequent de-listing of Old GCL’s common stock from the NYSE, the shares began quotation on the over-the-counter (“OTC”) market under the symbol “GBLXQ” on January 29, 2002. The table below sets forth, on a per share basis for the periods indicated, the intra-day high and low sales prices for Old GCL’s common stock as reported by the NYSE and the closing high and low bid prices as reported on the OTC market; provided that the first quarter 2002 high price reflects the NYSE high sales price prior to Old GCL’s delisting on January 28, 2002, and the first quarter 2002 low price reflects the OTC market low bid price during the balance of the quarter. In addition, the fourth quarter 2003 high price reflects the OTC market high bid price through the Effective Date of the Plan of Reorganization on December 9, 2003, and the fourth quarter 2003 low price reflects the cancellation of all interests in Old GCL’s common stock effective on that date. The OTC bid prices represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions.

Immediately prior to the cancellation of Old GCL’s common stock on December 9, 2003, there were approximately 31,500 stockholders of record of such stock.

New GCL’s common stock was distributed to ST Telemedia and the GC Debtors’ pre-petition creditors on December 9, 2003, when the Plan of Reorganization became effective. Such shares traded on the OTC market from December 10, 2003 through January 22, 2004, the date they were accepted for quotation on the Nasdaq National Market. During the period from December 10, 2003 through December 31, 2003, the closing high and low bid prices as reported on the OTC market were $34 and $25.75, respectively. There were seven shareholders of record of New GCL’s common stock on March 1, 2004.

Dividends

Old GCL never declared or paid a cash dividend on its common stock. New GCL has not declared or paid dividends on its common stock, and we do not expect it to do so for the foreseeable future. The payment of future dividends, if any, will be at the discretion of New GCL’s board of directors and will depend upon, among other things, our operations, capital requirements and surplus, general financial condition, contractual restrictions and such other factors as our board of directors may deem relevant. In addition, covenants in our financing agreements significantly restrict New GCL’s ability to pay cash dividends on its capital stock. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a discussion of the terms of these agreements.

Description of New Global Crossing Equity Securities

New GCL is authorized to issue 55,000,000 shares of common stock and 45,000,000 shares of preferred stock. Pursuant to our Plan of Reorganization, on the effective date of our Plan of Reorganization, New GCL

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issued 15,400,000 shares of common stock to our pre-petition creditors and 6,600,000 shares of common stock and 18,000,000 shares of preferred stock to a subsidiary of ST Telemedia. 18,000,000 shares of common stock were reserved for the conversion of ST Telemedia’s preferred shares, while an additional 3,478,261 shares of common stock were reserved for issuance under New GCL’s 2003 Stock Incentive Plan, which is described below under “—Equity Compensation Plan Information.” The following is a brief description of New GCL’s common and preferred shares.

New Global Crossing Common Stock

Each share of New GCL common stock (“New GCL Common Stock”) has a par value of $.01 and entitles the holder thereof to one vote on all matters to be approved by stockholders. The amended and restated bye-laws of New GCL contain certain special protections for minority shareholders, including a maximum discount applicable to rights offerings made prior to December 9, 2006, and certain obligations of ST Telemedia, or other third parties, to offer to purchase shares of New GCL Common Stock under certain circumstances. Certain other minority protections expired when the New GCL Common Stock was listed on the Nasdaq National Market, including certain pre-emptive rights and certain limitations on transactions with ST Telemedia or its affiliates. The amended and restated bye-laws of New GCL are filed as an exhibit to this annual report on Form 10-K.

New Global Crossing Preferred Stock

The 18,000,000 shares of preferred stock issued to a subsidiary of ST Telemedia on the effective date of our Plan of Reorganization (the “New GCL Preferred Stock”) accumulate dividends at the rate of 2% per annum. Those dividends will be payable in cash after New GCL and its subsidiaries (other than Global Marine and its subsidiaries) achieve specified financial targets. The New GCL Preferred Stock has a par value of $.10 per share and a liquidation preference of $10 per share (for an aggregate liquidation preference of $180 million). The New GCL Preferred Stock ranks senior to all other capital stock of New GCL, provided that any distribution to shareholders following a disposition of all or any portion of the assets of New GCL will be shared pro rata by the holders of New GCL Common Stock and New GCL Preferred Stock on an as-converted basis. Each share of New GCL Preferred Stock is convertible into one share of New GCL Common Stock at the option of the holder.

The New GCL Preferred Stock votes on an as-converted basis with the New GCL Common Stock, but has class voting rights with respect to any amendments to the terms of the New GCL Preferred Stock. As long as ST Telemedia beneficially owns a certain minimum percentage of the outstanding New GCL Common Stock, its approval will be required for certain major corporate actions of New GCL and/or its subsidiaries. Those corporate actions include (i) the appointment or replacement of the chief executive officer, (ii) material acquisitions or dispositions, (iii) mergers, consolidations or reorganizations, (iv) issuance of additional equity securities (other than enumerated exceptions), (v) incurrence of indebtedness above specified amounts, (vi) capital expenditures in excess of specified amounts, (vii) the commencement of bankruptcy or other insolvency proceedings, and (viii) certain affiliate transactions. New GCL’s amended and restated bye-laws and the certificate of designations for the New GCL Preferred Stock are filed as exhibits to this annual report on Form 10-K.

Securities Law Matters Relating to New Global Crossing Equity Securities

Section 1145(a) of the Bankruptcy Code generally exempts from registration under the Securities Act of 1933, as amended (the “Securities Act”), the offer or sale of a debtor’s securities under a chapter 11 plan if such securities are offered or sold in exchange for a claim against, or an equity interest in, such debtor. In reliance upon this exemption, the New GCL Common Stock issued to creditors under the Plan of Reorganization generally will be exempt from the registration requirements of the Securities Act. Accordingly, such securities may be resold without registration under the Securities Act or other federal securities laws pursuant to an exemption provided by section 4(1) of the Securities Act, unless the holder is an “underwriter” with respect to such securities, as that term is defined in the Bankruptcy Code. In addition, such securities generally may be

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resold without registration under state securities laws pursuant to various exemptions provided by the respective laws of the several states. However, recipients of securities issued under our Plan of Reorganization are advised to consult with their own legal advisors as to the availability of any such exemption from registration under state law in any given instance and as to any applicable requirements or conditions to such availability.

Section 1145(b) of the Bankruptcy Code defines “underwriter” for purposes of the Securities Act as one who (i) purchases a claim with a view to distribution of any security to be received in exchange for the claim other than in ordinary trading transactions, (ii) offers to sell securities issued under a plan for the holders of such securities, (iii) offers to buy securities issued under a plan from persons receiving such securities, if the offer to buy is made with a view to distribution of such securities, or (iv) is a control person of the issuer of the securities or other issuer of the securities within the meaning of Section 2(11) of the Securities Act. The legislative history of section 1145 of the Bankruptcy Code suggests that a creditor who owns at least ten percent (10%) of the securities of a reorganized debtor may be presumed to be a “control person.”

Notwithstanding the foregoing, statutory underwriters may be able to sell their securities pursuant to the resale limitations of Rule 144 promulgated under the Securities Act. Rule 144 would, in effect, permit the resale of securities received by statutory underwriters pursuant to a chapter 11 plan, subject to applicable volume limitations, notice and manner of sale requirements, and certain other conditions. Parties who believe they may be statutory underwriters as defined in section 1145 of the Bankruptcy Code are advised to consult with their own legal advisors as to the availability of the exemption provided by Rule 144. Whether any particular person would be deemed to be an “underwriter” with respect to any security issued under our Plan of Reorganization would depend upon the facts and circumstances applicable to that person. Accordingly, we express no view as to whether any particular person who received distributions under our Plan of Reorganization would be an “underwriter” with respect to any security issued under the plan.

In view of the complex, subjective nature of the question of whether a particular person may be an underwriter or an affiliate of ours, we make no representations concerning the right of any person to trade in the New GCL Common Stock distributed pursuant to the Plan of Reorganization. Accordingly, we recommend that recipients of New GCL Common Stock consult their own counsel concerning whether they may freely trade such securities.

The shares of New GCL’s preferred and common stock sold to a subsidiary of ST Telemedia under the Purchase Agreement were issued in a private placement transaction pursuant to Section 4(2) of the Securities Act. New GCL entered into a registration rights agreement with such subsidiary of ST Telemedia with respect to shares of New GCL Common Stock owned by it and its affiliates, including shares that may be acquired by them upon conversion of shares of New GCL Preferred Stock. Under this registration rights agreement, such subsidiary of ST Telemedia and certain of its transferees have demand and piggyback registration rights and will receive indemnification and, in some circumstances, expense reimbursement, from New GCL in connection with the registration of ST Telemedia’s New GCL Common Shares under the Securities Act. The registration rights agreement is filed as an exhibit to this annual report on Form 10-K.

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Equity Compensation Plan Information

Table of Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth the indicated information regarding our equity compensation plans and arrangements as of December 31, 2003. This table does not reflect interests in respect of Old GCL’s common stock, all of which were canceled on December 9, 2003, the effective date of our Plan of Reorganization.

ITEM 6. SELECTED FINANCIAL DATA

The table below presents selected consolidated financial data of the Company as of and for the five years ended December 31, 2003. The historical financial data as of December 31, 2003 and 2002 and for the period from December 10, 2003 to December 31, 2003, the period from January 1, 2003 to December 9, 2003, and the years ended December 31, 2002 and 2001, have been derived from the historical consolidated financial statements presented elsewhere in this annual report on Form 10-K and should be read in conjunction with such consolidated financial statements and accompanying notes. We previously restated our consolidated financial statements as of and for the year ended December 31, 2000. The data presented in the table below reflect those restatements.

The consolidated financial statements of Predecessor for the period from January 1, 2003 to December 9, 2003 and the year ended December 31, 2002, were prepared while the Company was still involved in chapter 11 proceedings and, accordingly, were prepared in accordance with Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”. As a result, the selected historical financial data for such periods does not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that would have resulted if Predecessor were deemed not to have been continuing as a going concern.

Upon emergence from bankruptcy on December 9, 2003 (the “Effective Date”), we adopted fresh start accounting and reporting, which resulted in material adjustments to the historical carrying amounts of our assets and liabilities (see Note 3 “Fresh Start Accounting” to the accompanying consolidated financial statements). As a result, the historical financial data of Predecessor may not be entirely comparable to the historical financial data of Successor and may be of limited value in evaluating our financial and operating prospects in the future.

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In reading the above selected historical financial data, please note the following:

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The following discussion and analysis should be read together with our consolidated financial statements and related notes appearing in this annual report on Form 10-K.

Some of the statements contained in the following discussion of our financial condition and results of operations refer to future expectations and business strategies or include other “forward-looking” information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived from numerous assumptions. See Item 1, “Business—Cautionary Factors That May Affect Future Results,” for risk factors that should be considered when evaluating forward-looking information detailed below. These factors could cause our actual results to differ materially from the forward-looking statements.

Executive Summary

Overview

We are a global provider of telecommunications services to carriers and commercial enterprises around the world. The principal services we offer to our customers include voice, data and conferencing services. We offer these services using a global IP-based network that directly connects more than 300 cities in over 30 countries and delivers services to more than 500 major cities in over 50 countries around the world. The majority of our telecommunications services revenues and cash flows are generated based on monthly recurring services. We also provide installation and maintenance services for subsea telecommunications systems through our Global Marine subsidiary.

Industry and Economic Factors

The telecommunications industry remains highly competitive. Over the last two years many of our competitors have attempted to reorganize or have completed reorganizations, which has resulted in competitors emerging from bankruptcy with significant improvements in their financial condition and competitiveness. The result to the industry has been significant price erosion for voice and data products and services. We believe there will be significant continued pricing pressure in the future. Slow economic growth rates in most developed countries’ economies have hindered growth rates in demand for telecommunications products and services. We believe that if the growth rate in these economies increases, demand for telecommunication services will improve, but not at a rate sufficient to eliminate the impacts of price erosion.

Strategy

We differentiate ourselves from our competition through our IP service platform and our extensive broadband network. The industry shift of business applications to IP-based platforms favors our assets. We are striving to become the market leader in global data and IP services, building upon our extensive broadband network and technology advantages and the way we bring these to our customers.

Since emergence from bankruptcy, the Company has shifted its focus on customer acquisition rather than customer retention, which had been the focus during our bankruptcy proceedings. Specific target markets include regional and multi-national enterprises, federal government agencies, international and domestic carriers, Internet service providers and wireless providers. Our distribution system has been realigned around these customers using both direct and indirect channels, including partnerships with system integrators, to reach these targeted customers. We anticipate that this shift in our customer segmentation strategy and our ability to migrate our existing customers to advanced IP services will support a change in our revenue and product mix towards higher margin services and customers. In addition, the shift in voice traffic from traditional TDM equipment to VoIP

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significantly reduces our capital cost per minute. Our ability to provide voice services over a network optimized for IP to customers in both the carrier and commercial channels provides significant unit cost efficiencies for the Company which is expected to assist our penetration into the higher margin customers we target and improve our profitability.

Our carrier business is expected to remain a critical channel going forward throughout the execution of the above change in customer segmentation. We are driving more of our carrier traffic towards targeted customers such as wireless providers and cable and Internet service providers as opposed to the current concentration of CLECs and resellers within our carrier revenue mix. We anticipate that the carrier market will enhance our revenue and margin, as a result of increased network utilization that will lead to greater economies of scale. We will also continue to pursue a number of key initiatives including strategic purchasing agreements with access providers (including shifting of providers where necessary) and network optimization.

Key Performance Indicators

We utilize a focused group of financial and non-financial key performance indicators, which are reviewed by senior management at least monthly. This reporting facilitates timely and effective communication of results and key decisions, allowing our global business to react more quickly to changing requirements and shortfalls in our key performance indicators.

The Company and its senior management were required to focus on cash performance during the bankruptcy proceedings in order to survive the reorganization process and this focus has continued post-emergence. We have daily reporting of our cash position and our performance against our expected cash flows is measured and updated weekly. The expected impact on short-term and long-term cash performance is a critical topic in each significant business decision. Our most important cash related key performance indicator is “cash margin”. Cash margin is determined by comparing the cash collections from recurring service contracts in our telecommunications services business to the cash disbursements processed to our access providers. As discussed below in “Liquidity and Capital Resources”, our cash margin approximated $775 million in 2003. Improvement in this metric in 2004 will not only reflect improvements in cash management, but it will serve as an early indicator that our margin initiatives are working and our payment terms with vendors are becoming more favorable post-bankruptcy.

We have implemented a very successful headcount management reporting process within the Company, based upon our globally structured organization. All employees have been categorized into, and are managed within, globally integrated functional groups such as sales, customer service, network operations, information technology, finance, legal and human resources. Our headcount in the telecommunications services segment is approximately 4,000 as of March 1, 2004. This metric is tracked monthly via a system-generated report from our human resources database maintained on our SAP software system. Actual records are tracked against budgeted headcount not only by the functions mentioned, but also by location and against expected payroll dollars.

As discussed above, there are several non-financial metrics captured periodically, which measure our service capabilities (e.g., days required to provision a circuit between two of our points of presence), network performance (e.g., average availability), IP traffic growth (e.g., voice minutes carried over IP platform) and cost management (e.g., headcount). In order to achieve our strategic objectives and the profitability needed to succeed as a business, the tracking and execution of these non-financial objectives is just as important as our cash performance metrics discussed above and the following financial key performance indicators.

Financial key performance indicators in our business are focused on margin improvement and on our cost structure, including our direct costs to sell, especially third party access costs. Our cost of access management team executes cost initiatives, which are tracked each month to measure how the initiatives are impacting needed cost reductions to offset the declining pricing currently being experienced across all our product lines. The initiatives include facility network access optimization which includes extending the access network closer to the customer as well as migrating lower speed circuits to higher speeds, switched network access optimization

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through direct end office trunking versus tandem switching termination, use of competitive access alternate providers (evidenced by the signing of significant new access agreements by the Company over the last several months) and other traditional means such as revenue assurance (access charges to billing reconciliations) and dispute resolution.

Another key measure for our margin performance is average revenue per minute (ARPM). ARPM inherently reflects the “quality” of the minutes sold and is a key indicator of whether our customer segment mix is shifting in line with our goals. This metric is closely tracked each week to assist the Company in identifying targeted customers and product sets that are deteriorating in ARPM. It also serves to assist us in our volume and pricing statistics, which are closely monitored to track the performance of the sales organization throughout the year.

2003 Highlights and 2004 Outlook

Our revenues for both the telecommunications services and installation and maintenance segments continued to decline in 2003 as a result of continued pricing reductions for telecommunications services, lower demand for the installation and maintenance of subsea cables systems and customer concerns over our ability to emerge from bankruptcy. While we were in bankruptcy our primary focus was to maintain our revenue base by focusing on customer retention, rather than growing through new customer acquisitions. During 2003 we increased our overall volumes of telecommunications services sold but the average pricing decreases of approximately 10% for voice services and over 20% for data services resulted in a net decrease in our telecommunications segment revenues. In 2004, we will be focusing on acquiring customers and growing our business with them. We will focus on key market segments including regional and multinational enterprises, wireless providers, federal government agencies and systems integrators. In 2004, on an actual results basis, we expect to see a decrease in our telecommunications services segment revenues compared with 2003 due primarily to the elimination of certain low margin lines of business, continued price declines and the impact of fresh start accounting on deferred revenue, which reduces the revenue recognized for IRUs sold in prior periods. Price declines are expected in 2004 at an average of over 15% for voice and data services in the carrier and the commercial sales channels, which the Company anticipates to offset with its customer segmentation strategy, which will include migrating customers to advanced IP services resulting in a shift of the revenue mix towards higher margin services and customers. We anticipate a revenue reduction in the range of $75 million to $125 million annually as a result of tightening our pricing and payment terms particularly within the international voice long distance reseller customer base. Management expects to improve cash flow through reviewing its lines of business to specifically address volatile and low margin services. The anticipated revenue decreases are expected to be partially offset by anticipated volume increases in voice and data services. We also expect a slight increase in the higher margin data services revenue as a percentage of total revenue in 2004 as a result of our emergence from bankruptcy and our bringing to market an advanced suite of IP and data products. Excluding the impacts of the reduction of amortization of prior period IRU revenue ($78 million) and the impact of the international long distance initiative (up to $125 million), we expect our telecommunications services segment revenue to be flat to slightly higher in 2004.

We expect installation and maintenance segment revenue to decline in 2004 due in large part to the expiration of a significant ($53 million in revenue in 2003) maintenance contract as of January 1, 2004. We expect to see some recovery in installation revenue in the second half of 2004 through increased activity in the Middle and Far East as well as demand for regional networks. On February 27, 2004 we retained Citigroup Global Markets Inc. as our financial advisor to assist in exploring strategic alternatives regarding our Global Marine installation and maintenance services business, including the potential sale of that business. Any strategic transaction involving Global Marine would require approval of New GCL’s Board of Directors. In the event of a sale of Global Marine, any net proceeds received by us, after settlement of liabilities and deal costs, would be required to be used to repay the New Senior Secured Notes.

Our cost of access expense represents the most significant portion of our consolidated operating expenses at 62% of the total in 2003. Although in 2003 our overall sales volumes increased, our cost of access charges decreased as a result of cost of access reduction initiatives. These initiatives included shifting suppliers, contract

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and tariff renegotiations to lower access rates, facility network access optimization, switched network access optimization through direct end office trunking and increased review of access charges, special promotions and disputes resolution. The result of the improvement in cost of access charges on the overall telecommunications segment was a relatively stable telecommunications gross margin and a minor improvement in telecommunications gross margin percentage. In 2004, we expect to see further declines in cost of access as a result of additional access initiatives and a modest change in revenue mix towards higher margin data services, resulting in higher telecommunications gross margin and gross margin percentage. The Company is also pursuing significant strategic access purchasing agreements, some of which have already been signed, that over time are expected to result in significantly lowering our access costs over the term of the agreements.

Telecommunications gross margin for the years ended December 31, 2003 and 2002 is calculated as follows:

We experienced negative cash flow from operations in 2003. At December 31, 2003, we had $290 million of unrestricted cash and cash equivalents. We expect our available liquidity to decline in 2004 due to operating cash flow requirements and expect disbursements in 2004 of approximately $128 million for deferred reorganization costs, and $30 million for final fees and expenses of retained professionals in the bankruptcy proceedings. We anticipate the need to raise up to $100 million in financing to have adequate financial resources through January 1, 2005. We are currently seeking to arrange a working capital facility or other financing to provide us this necessary liquidity. If we cannot raise this financing, ST Telemedia has indicated its non-binding intention to provide us up to $100 million of financial support subject to certain restrictions.

The financial information presented in this report comprises the consolidated financial information of (i) Successor at December 31, 2003 and for the period from December 10, 2003 to December 31, 2003; and (ii) Predecessor at and for the years ended December 31, 2002 and 2001 and for the period from January 1, 2003 to December 9, 2003 and for the year ended December 31, 2002. The consolidated financial statements of the Predecessor for the period from January 1, 2003 to December 9, 2003 were prepared while the Predecessor was still engaged in chapter 11 proceedings and, accordingly, were prepared in accordance with SOP 90-7. These financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that would have resulted had Predecessor not been accounted for as a going concern.

Successor emerged from chapter 11 bankruptcy proceedings on December 9, 2003. On the Effective Date, we executed fresh start accounting in accordance with SOP 90-7. Unlike the consolidated financial statements for Predecessor contained herein, the consolidated financial statements for Successor reflect reorganization adjustments for the discharge of debt, the elimination of the Predecessor’s capital structure including all accumulated losses, and the adoption of fresh start reporting. This resulted in significant changes to the following balance sheet captions: cash and cash equivalents (including restricted cash), other long-term assets, property and equipment, deferred revenue, deferred reorganization costs, liabilities subject to compromise, and stockholders’ equity (deficit).

Reorganization

As a result of the downturn in the telecommunications industry in 2001, increased competition, downward pricing trends, customer demand falling short of expectations and the deterioration of our operating performance, on January 28, 2002, Old GCL and fifty-four of its wholly-owned subsidiaries filed voluntary petitions of relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On the same date, Old GCL and certain

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Bermuda subsidiaries commenced insolvency proceedings in the Bermuda Court. Additional subsidiaries filed petitions in the Bankruptcy Court and commenced insolvency proceedings in the Bermuda Court during 2002. In March 2002, the Bankruptcy Court approved a bidding and auction process for the sale of our business, either in whole or in part. The eventual outcome of the auction process was an agreement for the sale of a 61.5% equity interest in New GCL for $250 million to ST Telemedia. After receiving the necessary regulatory, Bankruptcy Court and Bermuda Court approvals, the Successor emerged from bankruptcy on December 9, 2003. See “Our Chapter 11 Reorganization” under Item 1 for a more complete description of our reorganization.

The consummation of the Plan of Reorganization on December 9, 2003 resulted in the following:

After giving effect to the Purchase Agreement, the board of directors of New GCL consists of ten members, comprised of leaders with distinguished backgrounds in industry and government. Eight members of the board of directors have been designated by ST Telemedia, and two members of the board of directors have been designated by the former creditors of Old GCL. The following individuals are now directors of New GCL: Edward C. “Pete” Aldridge Jr., Archie Clemins, Donald L. Cromer, Richard R. Erkeneff, Lee Theng Kiat, Charles Macaluso, Michael Rescoe, Robert J. Sachs, Peter Seah Lim Huat, and Lodewijk Christiaan van Wachem.

Accounting Impact of Reorganization

As a result of our chapter 11 filing in the Bankruptcy Court, the consolidated financial statements of Predecessor have been prepared in accordance with SOP 90-7. SOP 90-7 requires an entity to distinguish pre-petition liabilities as subject to compromise from post-petition liabilities on its consolidated balance sheet. The liabilities subject to compromise reflect our estimate of the amount of pre-petition claims that were restructured in the GC Debtors’ chapter 11 cases. In addition, our consolidated statement of operations reflects ongoing operations separately from any revenues, expenses, realized gains and losses, and provisions resulting from the reorganization, otherwise known as reorganization items, except those required to be reported as discontinued operations and extraordinary items in conformity with Accounting Principles Board Opinion No. 30, “Reporting

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the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, as amended by SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

On the Effective Date, we implemented the “fresh start” accounting provisions of SOP 90-7 to the financial statements of Successor. Under fresh start accounting, we allocated the reorganization value to our assets and liabilities based upon their estimated fair values. The reorganization value of $407 million was determined pursuant to our Plan of Reorganization and ST Telemedia’s $250 million equity investment for 61.5% ownership. The fair value of the assets and liabilities of Successor, on the Effective Date, of approximately $2.2 billion comprised $200 million in New Senior Secured Notes, $407 million in New GCL common and preferred stock and additional paid in capital and approximately $1.6 billion of other liabilities, including obligations under various capital leases, that were not eliminated or discharged under the terms of the Plan of Reorganization. As described in Item 1 under “Our Chapter 11 Reorganization,” the Plan of Reorganization resulted in the cancellation of all Old GCL outstanding common and preferred stock and additional paid in capital and all pre-petition indebtedness of the GC Debtors. See Note 3, “Fresh Start Accounting,” to the accompanying consolidated financial statements for a full description of the impact of fresh start accounting on Successor’s consolidated balance sheet on the Effective Date. As a result of these changes to the capital structure, Successor’s interest expense and preferred dividend obligations will be significantly less than we incurred in periods prior to our bankruptcy filing.

Restructuring

We commenced a restructuring of our costs in August 2001. Since that time through December 31, 2003, 5,700 employees have been terminated and 257 sites consisting of approximately 4.1 million square feet have been vacated as a result of our restructuring plans. These announced restructuring efforts initially centered around the realignment and integration of our then current regional organizational structure into integrated global functions such as network operations, customer care, information systems, finance and sales and marketing functions.

From August 2001 through December 31, 2003, these efforts resulted in aggregate charges related to employee related costs of $135 million; costs related to facility closures of $354 million; and $62 million of other charges. See Note 6, “Restructuring Costs and Related Impairments,” to the accompanying consolidated financial statements for further information on our restructuring activities.

On January 1, 2003 we adopted SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”), for any exit or disposal activities initiated after December 31, 2002.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Management continually evaluates its judgments, estimates and assumptions, including those related to the critical accounting policies described below based on historical experience and available information. The following are our critical accounting policies that affect significant areas of our financial statements and involve significant judgment, assumptions, uncertainties and estimates. If actual results or events differ materially from those contemplated by management in making these estimates, the impact on our consolidated financial statements could be material. For a full description of our significant accounting policies, see Note 4, “Basis of Presentation and Significant Accounting Policies,” to the accompanying consolidated financial statements.

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Fresh Start Accounting and Reporting

Upon emergence from bankruptcy, we adopted fresh start accounting and reporting which resulted in material adjustments to the historical carrying amount of our assets and liabilities. Fresh start accounting and reporting was applied in accordance with SOP 90-7, which required us to allocate the reorganization value to our assets and liabilities based upon their estimated fair values. The fair value of the assets, as determined for fresh start reporting, was based on estimates of anticipated future cash flows of these assets discounted at appropriate current rates. Liabilities existing at the Effective Date were stated at the present values of expected amounts to be paid discounted at appropriate current rates. The Company engaged an independent appraiser to assist in the allocation of the reorganization value and in determining the fair market value of its property and equipment and intangible assets. Deferred taxes were reported in conformance with existing generally accepted accounting principles. Debt issued in connection with the Plan of Reorganization was recorded at fair value. The determination of the fair values of assets and liabilities was subject to significant estimation and assumption.

Revenue Recognition and Related Reserves

Telecommunications Services

Revenues derived from telecommunication and maintenance services, including sales of capacity under operating type leases, are recognized as services are provided. Payments received in advance of providing services are deferred until the period in which these services are provided.

Telecommunications Installation Revenues

We recognize revenue related to telecommunication installation services and equipment in accordance with guidance included in SEC Staff Accounting Bulletin 101, “Revenue Recognition in Financial Statements” (“SAB No. 101”) as amended by SEC Staff Accounting Bulleting 104, “Revenue Recognition” (SAB No. 104). Under the provisions of SAB No. 101, as amended by SAB No. 104, installation revenues and the associated costs related to installation are to be recognized over the longer of the contractual period or expected customer relationship. We have determined our average expected customer relationship to be approximately 2 years as at December 31, 2003 and as such, that is the period over which we amortize our installation revenue unless the contractual period exceeds two years. The determination of the term of our average expected customer relationship is based on historical experience and future expectations that are subject to significant estimation and assumption.

Percentage-of-Completion

Revenue and estimated profits under long-term contracts for subsea telecommunication installation by Global Marine are recognized under the percentage-of-completion method of accounting, whereby sales and profits are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs to complete. Provisions for anticipated losses are made in the period in which they first become determinable. The determination of estimated costs to complete involves significant estimation and assumption.

Sales Credit Reserves

During each reporting period we must make estimates for potential future sales credits to be issued in respect of current revenues, related to billing errors, service interruptions and customer disputes. We analyze historical credit activity and changes in customer demands related to current billing and service interruptions when evaluating our credit reserve requirements. We reserve known billings errors and service interruptions as incurred. We review customer disputes and reserve against those we believe to be valid claims. We also estimate a general sales credit reserve related to unknown billing errors and disputes based on such historical credit activity. The determination of the general sales credit and customer dispute credit reserve requirements involves significant estimation and assumption.

Allowance for Doubtful Accounts

During each reporting period we must make estimates for potential losses resulting from the inability of our customers to make required payments. We analyze our reserve requirements using several factors, including the

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length of time the receivables are past due, changes in the customer’s creditworthiness, the customer’s payment history, the length of the customer’s relationship with us, the current economic climate, current industry trends and other relevant factors. A specific reserve requirement review is performed on customer accounts with larger balances. A general reserve requirement is performed on most accounts utilizing the factors previously mentioned. We have historically experienced significant changes month to month in reserve level requirements, primarily due to unanticipated large customer bankruptcy filings or other insolvency proceedings. Due to the current economic climate, the competitive environment in the telecommunications sector and the volatility of the financial strength of particular customer segments including resellers and CLECs, the collectibility of receivables and credit worthiness of customers can become more difficult and unpredictable. Changes in the financial viability of significant customers, worsening of economic conditions and changes in our ability to meet service level requirements may require changes to our estimate of the recoverability of the receivables. In some cases receivables previously charged off are recovered through litigation and are recognized as a reduction in bad debt expense in the period realized. Appropriate adjustments will be recorded to the period in which these changes become known. The determination of both the specific and general allowance for doubtful accounts reserve requirements involves significant estimation and assumption.

Cost of Access Accruals

Cost of access, which is our single largest expense and amounted to approximately 69% of telecommunications services segment revenue in 2003, is expensed as incurred. The recognition of these costs involves the use of various management estimates and assumptions and requires reliance on non-financial systems. Consistent with other costs recorded in each reporting period, there are a significant amount of services incurred for which vendors have not yet billed the Company. We therefore need to make significant estimates for our access costs, specifically regarding traffic resulting in usage based access costs. As discussed later in this Item 7, our cost of access is primarily comprised of usage based voice charges paid to other carriers to originate and/or terminate switched voice traffic, charges for leased lines for dedicated facilities and local loop (“last mile”) charges from both domestic and international carriers, along with internet peering charges incurred in transporting IP traffic and other enhanced services. The usage based voice charges are a direct result of the traffic volume in the particular month for which we do not have invoices at the time of the close of our monthly reporting period. We utilize the minute volumes reported by internal usage reports from our switched network that feed into an internal access system, which also maintains our access supplier contract and tariff rates on a rate table to assist in estimating our usage based access costs. Dedicated facility access costs are also estimated based on the number of circuits and the average circuit costs, based on our internal records, adjusted for contracted rate changes. We consistently monitor the accuracy of our systems to measure network volumes, track circuits and our rate tables are updated multiple times between monthly reporting periods to maintain the accuracy of the rate structure we have with our access providers and per the current regulated tariff rates. Upon receipt of the invoice from the access provider (which can occur up to 90 days following the close of the monthly reporting period), we adjust our estimate accordingly. In certain instances a reconciliation process commences in order to arrive at a mutual understanding of the appropriate level of charges, which process can sometimes take several months to complete. During this period the Company maintains its accrual level at amounts equivalent to the amount invoiced by the access provider and in many cases pays this amount in accordance with agreed upon terms.

Due to the complexity of the combination of changing regulations, pricing fluctuations, measuring traffic volumes, new supplier agreements and multiple invoices from the same vendor (especially from large carriers), the estimates are subject to change. Changing regulations regarding access rules and related charges also create uncertainty regarding how the changes may impact our rate tables maintained internally. Although regulations are expected to continue to evolve, especially regarding enhanced services (See “Regulatory Overview” in Item 1), we believe we have established adequate reserves due to our approach in the access accrual process.

Impairment of Goodwill and Other Long-Lived Assets

We assess the possible impairment of long-lived assets composed of property and equipment, goodwill, other intangibles and other assets held for a period longer than one year, whenever events or changes in circumstances indicate that the carrying amount of the asset(s) may be impaired. Goodwill and other intangible assets are also reviewed annually for impairment whether or not events have occurred that may indicate

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impairment. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the undiscounted net future cash flows expected to be generated by the asset. If these projected future cash flows are less than the carrying amount, impairment would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured by the amount by which the carrying amounts of the assets exceed their fair value. Calculating the future net cash flows expected to be generated by assets to determine if impairment exists and to calculate the impairment involves significant assumptions, estimation and judgment. The estimation and judgment involves, but is not limited to, industry trends including pricing, estimating long term revenues, revenue growth, operating expenses, capital expenditures, and expected periods the assets will be utilized.

During the year ended December 31, 2001, long-lived tangible and intangible asset impairments of $17.181 billion were recorded to continuing operations in the accompanying consolidated statement of operations. Additional long-lived asset impairments of $2.399 billion were recorded to discontinued operations during the year ended December 31, 2001. These impairment charges were recorded in accordance with SFAS No. 121. See Note 5, “Impairment of Long-Lived Assets,” to the accompanying consolidated financial statements included in this annual report on Form 10-K for a further description of these impairment charges.

As discussed in Note 3, “Fresh Start Accounting,” to the accompanying consolidated financial statements included in this annual report on Form 10-K, we adopted fresh start accounting upon our emergence from bankruptcy under SOP 90-7, which resulted in a change in the value of our long-lived assets. The change was a result of allocating the reorganization value to our assets and liabilities based upon their estimated fair values.

Pension and Other Post Retirement Benefits

We maintain benefit plans for our employees, including defined benefit pension plans and other post retirement benefit plans. On a consolidated basis, the fair value of benefit obligations exceeds pension plan assets resulting in expense. Other post retirement benefit plans are immaterial. The calculation of pension expense and pension liability requires the use of a number of estimates and assumptions. Significant benefit plan assumptions include the assumed discount rate used, the long-term rate of return of plan assets and rate of future increases in compensation. The assumptions we use are based on historical experience and by evaluating predictions on matters such as rates of return and mortality provided by third party advisors such as actuaries and investment advisors. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can materially differ from the assumptions.

Deferred Taxes

Our current and deferred income taxes, and associated valuation allowances, are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-recurring items. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax on income and deductions. Actual realization of deferred tax assets and liabilities may materially differ from these estimates as a result of changes in tax laws as well as unanticipated future transactions impacting related income tax balances.

The assessment of a valuation allowance on deferred tax assets is based on the weight of available evidence that some portion or all of the deferred tax asset will not be realized. Deferred tax liabilities were first applied to the deferred tax assets reducing the need for a valuation allowance. Future utilization of the remaining net deferred tax asset would require the ability to forecast future earnings. Based on past performance resulting in net loss positions, sufficient evidence exists to require a full valuation allowance on the net asset balance.

As a result of our bankruptcy, estimates have been made that impact the deferred tax balances. The factors resulting in estimation include but are not limited to the fresh start valuation of assets and liabilities, implications of cancellation of indebtedness income and various other matters. Additional information and analysis is required in order to finalize these preliminary calculations.

Restructuring

We have engaged in restructuring activities, which require us to make significant judgments and estimates in determining restructuring charges, including, but not limited to, future severance costs and other employee

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separation costs, sublease income or disposal costs, length of time on market for abandoned rented facilities, and contractual termination costs. Such estimates are inherently judgmental and changes in such estimates, especially as they relate to contractual lease commitments and related anticipated third party sub-lease payments, could have a material effect on the restructuring liabilities and consolidated results of operations.

See further discussions in this Item and Note 6, “Restructuring Costs and Related Impairments,” to the accompanying consolidated financial statements included in this annual report on Form 10-K, for information on restructuring activities for the period December 10 to December 31, 2003, the period January 1 to December 9, 2003 and the years ended December 31, 2002 and 2001.

Telecommunications Installation Costs

We recognize costs related to the purchase of third party telecommunication installation services and equipment in accordance with the guidance included in SAB No. 101 as amended by SAB No. 104. Under this guidance, installation costs are recognized over the longer of the contractual period or expected customer relationship. We have determined our average expected customer relationship to be approximately 2 years as at December 31, 2003 and, as such, this is the period over which we amortize our third party installation costs unless the contractual period exceeds two years. The determination of the term of our expected customer relationship is based on historical experience and future expectations that are subject to significant estimation and assumption.

Stock-Based Compensation

On December 9, 2003, Successor adopted the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), to stock option awards granted or modified commencing with the stock option award issued in connection with the emergence event on December 9, 2003. Once the fair value of a stock option is calculated we estimate the number of options expected to actually vest (total options granted less options reduced by expected employee attrition) to determine total expected stock compensation expense. The total expected stock compensation expense is amortized on a straight-line basis over the option vesting term; provided that the amount amortized as of a given date may be no less than the portion of the options vested as of such date. We used the Black-Scholes option pricing model to determine the fair value of a stock option awarded under SFAS No. 123. The Black-Scholes model requires several subjective inputs including expected volatility, expected life of the option and expected dividend yield. As we have restructured our business through the bankruptcy process, we do not have appropriate historical experience (especially towards the volatility input due to our short market trading history as of December 31, 2003) to assist us in determining the inputs and have therefore based our inputs, excluding dividend yield which is based on our expectation, on the average of a select group of our competitors’ assumptions. The assumptions used to calculate the fair value of the options are a 70% expected volatility, a 5-year expected life of the option and 0% dividend yield. The estimated 6% employee attrition was based on a review of historical attrition, prior to entering into bankruptcy, and current telecommunications market trends. The determination of inputs used in the Black-Scholes option pricing model and expected employee attrition involves significant estimation and assumption. The impact on compensation expense recognized by Successor during the period December 10 to December 31, 2003 relating to the December 9, 2003 stock option grant was an expense of approximately $1 million.

For a description of our stock-based compensation programs, see Note 24, “Stock Option Plan”, to the accompanying consolidated financial statements included in this annual report on Form 10-K.

Comparison of Financial Results

In light of events and circumstances that occurred during the years ended December 31, 2003, 2002 and 2001, the results between periods are not necessarily comparable due to the following factors:

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Inclusion of Results of Operations of Successor and Predecessor during 2003

On the Effective Date, New GCL emerged with a new capital structure and with no retained earnings or accumulated losses. This resulted in a new reporting entity under a new basis of accounting, thereby resulting in a second accounting period in 2003 for the Company. Following the transaction closing late in the business day on December 9, 2003, Successor commenced operations on December 10, 2003 and thus experienced a 22 day operating period in 2003. The results for the period January 1, 2003 through December 9, 2003 represent the Predecessor’s operations.

As required by Item 303(a) of Regulation S-K, the below discussion and analysis of results covers all periods for which financial statements are presented, even when those periods relate to periods shorter than a full 12 month period. Such shortened periods are not directly comparable to full-year periods. Therefore, in order to provide an informative comparison of results in this Item 7, we use pro forma information below for the entire 2003 fiscal year by combining the results of operations of Predecessor from January 1, 2003 through December 9, 2003 with the results of operations of Successor from December 10, 2003 through December 31, 2003.

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Pro Forma Combined Results of Operations for the Year Ended December 31, 2003 and Predecessor Results of Operations for the Year Ended December 31, 2002

The following discussion compares the results of operations of Successor and Predecessor on a combined basis for the year ended December 31, 2003 with the historical results of operations of Predecessor for the year ended December 31, 2002. The discussion is provided for comparative purposes only, but the value of such a comparison may be limited. The pro forma combined results of operations for the year ended December 31, 2003 combines the results of operations for Predecessor for the period from January 1, 2003 to December 9, 2003 with the results of operations for Successor for the period from December 10, 2003 to December 31, 2003. Such pro forma combined financial information does not reflect the results of operations that either Predecessor or Successor would have achieved for a full 12-month operating cycle in 2003. The pro forma combined financial information for the year ended December 31, 2003 is merely additive and does not give pro forma effect to the Predecessor’s results as if the consummation of the Plan of Reorganization and the related fresh start and other adjustments had occurred at the beginning of the period presented. In addition, Successor has a significantly different capital structure than Predecessor as a result of the reorganization.

The tables and discussion below reflect the selected statement of operations data for the years ended December 31, 2003 and December 31, 2002 as a combination of the results of Predecessor for the year ended December 31, 2002 and the period from January 1, 2003 to December 9, 2003, and the results of Successor, for the period from December 10, 2003 to December 31, 2003.

Revenues. Revenues for the years ended December 31, 2003 and 2002 reflect the following changes:

Commercial revenues. Commercial revenues relates to the provision of voice, data and conferencing services to our customers, other than carriers and consumers.