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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

For the fiscal year ended December 31, 2004

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.  x

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

The aggregate market value of the common stock of the Registrant held by non-affiliates of the Registrant as of June 30, 2004 was approximately $240.2 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, 2005, was 22,155,806.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant’s definitive proxy statement to be issued in connection with the 2005 annual general meeting of shareholders are incorporated by reference into Part III of this Form 10-K.

GLOBAL CROSSING LIMITED AND SUBSIDIARIE S

For The Year Ended December 31, 2004

INDEX

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PART I

IT EM 1. BUSINESS

Introduction

Global Crossing Limited, or “New GCL,” was formed as an exempt company with limited liability under the laws of Bermuda in 2003. 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”). On December 9, 2003, the joint plan of reorganization of the GC Debtors (the “Plan of Reorganization”) became effective (the “Effective Date”) and pursuant to the Plan of Reorganization 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 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 electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).

As of March 1, 2005, we employed approximately 3,600 people, of whom approximately 98% are full-time employees and the balance are part-time or temporary employees. We consider our employee relations to be good. None of our employees is currently covered by a collective bargaining agreement, other than approximately 50 employees in the United Kingdom.

Although we managed our global operations on a centralized basis within only one business segment (i.e., telecommunications services) during 2004, we operated in four geographic areas: North America, Europe, Asia/Pacific and Latin America. In 2005, we expect to reorganize our operations into two separate reportable segments representing the operations of our Global Crossing (UK) Telecommunications Limited subsidiary (together with its subsidiaries, “GCUK”) and the operations of the rest of the Company. See Note 25, “Segment Reporting,” to our consolidated financial statements included in this annual report on Form 10-K.

Prior to August 13, 2004, we owned a second business segment engaged in the subsea cable installation and maintenance business: Global Marine Systems Limited (together with its subsidiaries, “Global Marine”). On August 13, 2004, we entered into a series of agreements with Bridgehouse Marine Limited (“Bridgehouse”) for the sale of Global Marine and the transfer of our forty-nine percent shareholding in SB Submarine Systems Company Ltd. (“SBSS”), a joint venture primarily engaged in the subsea cable installation and maintenance business in China, to Bridgehouse for consideration up to $15 million, subject to certain conditions set forth in the agreements. During the third quarter of 2004, we completed the sale of Global Marine for consideration of $1 million. No gain or loss was recorded on the sale. The sale of our interest in SBSS is not yet completed and is currently subject to the approval of the other joint venture holder and regulatory approval of the Chinese government, which is expected to occur by mid-2005. Our agreement for the transfer of our interest in SBSS to Bridgehouse expires in October 2005.

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Business Strategy

Global Crossing’s strategy is predicated on providing global data and Internet Protocol (“IP”)-based telecommunications solutions to enterprises, governments and telecommunications carriers. Our extensive global network and advanced IP service platform are key to achieving our mission, which is to attain market leadership in global data and IP services.

To achieve this mission, in October 2004 we announced a number of strategic initiatives to increase our focus on higher margin global data and IP services offerings to multi-national enterprises, governments and carriers. These initiatives include enhancements to our distribution capabilities intended to promote distribution through direct and indirect sales channels, including systems integrators and alliances with other carriers. At the same time, portions of our business that were underperforming relative to our financial expectations and that did not provide long-term strategic value were identified, and implementation plans were devised to achieve targeted levels of profitability or to exit those lines of business. These plans include downsizing our carrier voice business, primarily in North America, through pricing actions designed to maintain targeted gross margins for this service. These plans also include the divestiture or other exiting of our operations in consumer, small business, financial industry trader voice and calling card services. Finally, these plans called for workforce reductions, facility consolidation and other cost saving measures made possible by these strategic initiatives.

Customer segments with significant requirements for global IP services include enterprise customers in the financial services, high-tech, health care, transportation and distribution, and research and education sectors, as well as government customers, systems integrators, cable service providers and wireless service providers. We have aligned our direct sales channels around these segments and are developing alliances with major systems integrators and other carriers to reach large enterprise and government customers who seek turnkey solutions to their advanced telecommunications needs. By penetrating these markets with the advanced IP services that we offer, we intend to grow our IP services revenues and change the mix of business to expand margins.

We expect continued growth in the demand for global bandwidth and IP services 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-based 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. Finally, we expect a continuation of the industry shift of business applications to IP-based platforms.

The competitive landscape in the telecommunications industry is beginning to change rapidly, and we believe we are well positioned to take advantage of these changes. The large-scale mergers taking place in the North American market and the business combinations in Europe and Latin America will cause many of our competitors to experience varying degrees of disruption, delay and inefficiency while integration issues are addressed. Moreover, as the number of viable service providers diminishes with industry consolidation, we expect to experience greater demand from customers seeking network diversity and redundancy. Our existing customer base, capabilities and extensive network of suppliers globally position us as a viable global alternative provider.

We believe that the following factors provide us with competitive advantages as we seek to increase market share in our target markets:

Technology and Innovation

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Security

Customer Support

Our strategy also calls for the continued close scrutiny of our cost structure, including our direct costs to sell and third party access costs. Our initiatives to reduce access costs include facility network access optimization, use of alternative termination providers and other traditional means such as revenue assurance and dispute resolution.

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.

The 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 outstanding customer service, including prompt and accurate procurement and billing. Our uCommand^® Web-based network management tool allows customers to securely monitor their voice and data 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 service offerings.

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. During 2004, we carried more than five billion minutes per month over our global voice network. Voice services accounted for approximately 69%, 68% and 65% of our revenues in 2004, 2003 and 2002, respectively.

Our commercial voice services feature end-to-end service level agreements that apply to our dedicated commercial voice services globally and guarantee service availability along our network as well as local

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access circuits. The service level agreements support three key areas: end-to-end network availability, guaranteed time of installation and mean time to restore.

Data Services

We offer a broad range of telecommunications services that provide data and network interconnectivity to wholesale and enterprise customers; capacity services; and access services. In the aggregate, data services accounted for approximately 28%, 29% and 31% of our revenues in 2004, 2003 and 2002, respectively. Our data services include the following:

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Conferencing Services

We offer a full range of conferencing services, including the audio, video and web collaboration services described below. Conferencing services accounted for approximately 3%, 3% and 4% of our revenues in 2004, 2003 and 2002, respectively.

Sales and Principal Customers

We focus our sales and marketing efforts on target sectors within the enterprise and carrier markets that require significant telecommunications services. These target sectors are financial services, healthcare, high tech, transportation and distribution, government, research & education, systems integrators, telecommunications carriers, cable service providers and wireless service providers.

We currently employ approximately 675 sales and sales support employees worldwide for the following direct sales channels.

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

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America, Europe and a portion of the Asia Pacific region, which we either own or hold under long-term indefeasible rights of use (“IRUs”) from other carriers. These fiber-optic assets and related equipment (the “GC Fiber Network”) were engineered to provide seamless, broadband connectivity to over 30 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 that provide us with the ability to monitor and manage traffic over fiber-optic assets leased by us on a non-IRU basis. We refer to these portions of our network, together with the GC Fiber Network, as the “Core Network.”

The Core Network has approximately 800 points of presence (“POPs”) in over 200 major cities throughout the world (“Regional POPs”). 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.

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 IP, SONET (synchronous optical network), and ATM backbones, all traversing 2.5 and 10 Gbps dense wavelength division multiplexing (“DWDM”) transmission systems. IP, SONET 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 European network portion of the GC Fiber Network comprises approximately 14,000 route miles of fiber in the western region of the continent, 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 European network carries voice, data and private line services over our IP, SDH (synchronous digital hierarchy, which is a transmission format similar to SONET) 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 5,700 route miles of fiber, approximately 80% of which is owned by us. This network has approximately 270 GC Fiber Regional POPs, 156 of which interconnect to local network providers. Approximately 80% of the fiber cable runs in troughs along the UK rail system. The Global Crossing UK network carries voice, data and private line services over IP and ATM/Frame Relay backbones, all traversing DWDM and SDH transmission systems. The network extends to 150 towns and cities, reaching within two kilometers of 64% of UK central business delivery addresses tracked by Royal Mail.

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.

Our network assets in the Asia-Pacific region and those connecting the United States to this region include both IRUs and leased circuits on multiple subsea systems. We operate Regional POPs in Hong-Kong, Tokyo,

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Singapore and Sydney. All of these POPs support Internet access, IP VPN, ATM and Frame Relay services, with Hong Kong also supporting VoIP services. Our Core Network includes trans-Pacific capacity that we lease on the PC-1 fiber optic cable system, which is owned by Pacific Crossing Limited (“PCL”). We have entered into an agreement with PCL under which PCL has agreed that the capacity we currently utilize will continue to be made available to us until May 31, 2005. We have also agreed in principle with PCL that, prior to expiration of this short term agreement, we will enter into a long term agreement to secure the capacity and services provided to us on PC-1.

Our IP network comprises a service layer running on the Core Network and utilizes a single Autonomous System Number (“ASN”). We have 77 distinct IP hubs, 33 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”), more quickly 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 is considered a Tier 1 backbone and is quality-of-service 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. The network carries approximately 98 Gbps of total IP traffic, of which 8.5 Gbps is voice traffic, representing approximately 2.2 billion minutes of VoIP per month, or over 40% of all our voice minutes. Our VoIP platform is fully interoperable with our TDM network.

We operate our Core Network from three primary network operations centers. The Global Network Operations Center in London manages our subsea cable systems and our 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.

Network Security Agreement

On September 23, 2003, the U.S. Government granted approval under Section 721 of the Defense Production Act of the investment in New GCL by Singapore Technologies Telemedia Pte Ltd (“ST Telemedia”) pursuant to the Plan of Reorganization. In order to obtain this approval, 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 our 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”).

While our operations were generally consistent with the requirements of the Network Security Agreement prior to its execution, we have undertaken 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.

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The Network Security Agreement affects New GCL’s corporate governance as well. The New GCL Board of Directors maintains 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.

The Company’s compliance with the Network Security Agreement is subject to an audit by a neutral third-party auditor. In December 2004, the Company retained Telcordia Technologies Inc. to conduct such an audit, which commenced in January 2005. The audit will be conducted throughout the year and a final report is expected in December 2005. We are not aware of any areas of material non-compliance with 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 four years, a number of these competitors have attempted to reorganize, or have completed reorganizations, under bankruptcy and insolvency laws. 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 in the U.S., they also have allowed each regional Bell operating company (“RBOC”) to begin to provide long distance services in virtually every state in which it operates. 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. Many of these advantages are expected to increase with the recent trend toward consolidation by large industry participants, although it is possible that regulatory changes or conditions will be implemented in response to such consolidation in order to mitigate the impact on non-dominant carriers such as ourselves.

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 U.S., these are primarily the RBOCs, which include BellSouth, Verizon, Qwest Communications and SBC Communications. The recently announced proposed mergers between SBC Communications and AT&T and between Verizon and MCI could increase the economies of scale enjoyed by the combined entities. We face competition both outside and, in some cases, inside the United States from the foreign incumbents, including companies such as British Telecom, France Telecom, Telecom Italia, Telefónica, Telstra, TelMex and Deutsche Telekom.

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We compete with the incumbent carriers on the basis of product offerings, price, quality, capacity and reliability of network facilities, 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 network’s architecture 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. In their own primary markets, the incumbents have the additional advantages of network concentration, control over local exchange assets, significant existing customer bases and, in the case of many foreign incumbents, regulatory protection from competition.

Other Voice Service Competitors

In addition to the RBOCs, in the U.S., we face, and expect to continue to face, competition for local and long distance voice telecommunications services from competitors such as AT&T, MCI and Sprint Corporation, as well as hundreds of other companies that compete in the long distance marketplace. In light of the RBOCs’ receipt of FCC authorization to provide long distance voice services, we expect them to become increasingly significant competitors for those services. Outside the U.S., the local incumbents dominate the market for local and long distance voice services.

Other Data Service Competitors

In addition to the incumbents, we face, and expect to continue to face, competition for Internet access and other data services from telecommunications companies such as AT&T, MCI, Sprint Corporation, Cable and Wireless plc, Energis Communications Ltd., Colt Telecom Group plc and Equant N.V. and from online service providers, DSL service providers, ISPs and web hosting providers.

Other 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, Raindance, and Genesys.

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 recently built terrestrial and subsea fiber optic networks.

Regulatory Overview

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

Regulation in the United States

In the United States, our facilities and services are subject to regulation at both the federal and state level. The Communications Act of 1934, as amended, is the primary legislation governing our provision of interstate and international services. The two aspects of the federal/state regulatory scheme that most affect the Company’s operations are those provisions governing: (1) the cost that the Company must incur for access to local exchange facilities to originate and terminate traffic; and (2) to a lesser extent, the costs of and parameters governing local competition.

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U.S. Federal Regulation

The FCC exercises jurisdiction over our interstate and international services and, to some extent, the construction and operation of our facilities. We have authority from the FCC for the installation, acquisition and operation of our domestic network and for the provision of international facilities-based services.

Regulation of the Cost of Access

The cost of access to local exchange facilities and services to originate and terminate our traffic constituted approximately 70% of our revenues, excluding revenue from the non-cash amortization of IRUs, in 2004. The FCC and the states regulate the rates that incumbent local exchange carriers (“ILECs”) and competitive local exchange carriers (“CLECs”; together with ILECs, “LECs”) charge us for access to local exchanges. Conversely, our access rates are subject to federal and state regulation in those states where we operate as a CLEC. Access charges that LECs impose upon us consist of both usage-sensitive switched access charges and flat-rated transport and special access charges. With respect to their access services, the FCC regulates ILECs as dominant carriers. The Company also may enter into carrier-to-carrier contracts with other, principally long-distance, carriers to transport and terminate our traffic. These latter arrangements are typically not subject to tariff regulation.

ILEC Switched Access Charges

The LECs assess usage-sensitive switched access charges for the use of their switched facilities to originate and terminate switched traffic. In 2000, the FCC established a regime to govern the provision of switched access services by the ILECs over a five-year period, the “CALLS Plan.” Under the CALLS Plan, usage-sensitive rates were decreased over time in favor of increases in end-user charges and a transitional preferred interexchange carrier charge. The LECs’ preferred interexchange carrier charges have decreased over time and most of the largest ILECs have ceased assessing this charge, although smaller ILECs and some CLECs continue to assess it. The CALLS Plan expires in 2005 and the FCC is considering proposals to govern access charges prospectively (see Intercarrier Compensation Reform, below).

ILEC Special Access Charges

The FCC currently regulates ILEC flat-rate transport and special access charges under the terms of its Special Access Pricing Flexibility Order, adopted in 1999. Under the Special Access Pricing Flexibility Order, ILECs are afforded two different levels of pricing flexibility depending upon the extent of deployment of alternative facilities within particular Metropolitan Statistical Areas (“MSAs”). The ILECs have been granted Type I (or the more limited form of pricing flexibility) in most MSAs in the country and have been granted Type II pricing flexibility in a lesser number of MSAs.

AT&T previously petitioned the United States Court of Appeals for the District of Columbia Circuit to compel the FCC to consider a proposal to tighten its regulation of ILEC special access services. Although the Court declined to grant the petition, in January 2005 the FCC released a Notice of Proposed Rulemaking to consider how it should regulate ILEC special access services prospectively and whether it should tighten its regulation of special access services. The Company cannot predict the outcome of this proceeding.

CLEC Access Charges

Unlike the ILECs, the FCC regulates the CLECs as non-dominant carriers. The FCC permits a CLEC to file tariffs for its interstate access services so long as the CLEC’s rates do not exceed the rates of the ILEC that provides service in the territory that the CLEC services. However, a CLEC may charge the full benchmark rate even where it only provides a portion of the access service involved, i.e., in the case of jointly-provided access services. The FCC also permits CLECs to aggregate the traffic of other carriers, e.g., toll-free calls originating from wireless subscribers, although, in this circumstance, the CLEC is only permitted to charge for those portions of the access service it actually provides.

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Wireless Access Charges

The FCC has adopted a mandatory detariffing regime for access services that wireless carriers wish to provide. Wireless carriers may not file tariffs for their putative access services and must, instead, enter into voluntary contracts in order to assess access charges upon potential access customers.

Regulation of VoIP Traffic

The FCC has addressed the subject of the jurisdictional nature of and access charges applicable to VoIP traffic in response to a number of petitions for declaratory ruling (or comparable petitions). The FCC has also issued a Notice of Proposed Rulemaking seeking comment on how it should regulate VoIP traffic prospectively.

In November 2004, the FCC granted a petition filed by Vonage Holdings and declared that VoIP traffic that qualifies as an “enhanced” or “information” service (as specifically described in the Vonage petition) was jurisdictionally interstate and that state regulation of such traffic is preempted by federal law (the “Vonage Order”). The exact scope of the FCC’s decision is unclear, although at a minimum, it appears to cover traffic on which a net protocol conversion occurs, measured on an end-to-end basis. The FCC did not decide in the Vonage Order issues such as the intercarrier compensation regime governing VoIP traffic, emergency services obligations, universal service obligations and service quality regulation of VoIP services.

In 2003, the FCC concluded that Pulver.com’s “Free World Dialup” service, which does not make use of the public switched telephone network, is an unregulated information service.

In April 2004, the FCC concluded that AT&T’s “phone-to-phone IP” service, which makes use of the public switched telephone network and inserts an IP segment into the call path but as to which there is no net protocol conversion, is a telecommunications service, and not an information service, to which access charges are applicable, without regard to whether one or more service providers are involved (the “AT&T Order”).

Both the AT&T Order and the Vonage Order are subject to judicial review and the Company cannot predict the outcome of those judicial proceedings.

Additional petitions governing various aspects of VoIP services are currently pending before the FCC. In addition, the FCC has issued and received comment on a Notice of Proposed Rulemaking regarding how VoIP (or IP-enabled) services should be regulated.

Local Reciprocal Compensation

Local telephone companies that originate traffic that is terminated on the networks of other local carriers typically compensate the other local carriers for terminating that traffic. The FCC has established the general framework governing the level of such compensation, although the specific rates are established by the states. These rates vary from “bill-and-keep” to rates that approximate those for switched access. As is the case with access charges, the local reciprocal compensation rates are being examined in the FCC’s Intercarrier Compensation proceeding (see “Intercarrier Compensation Reform,” below).

Intrastate Access Charges

Intrastate access charges that LECs assess upon the Company (or that our CLECs are permitted to charge) are regulated by the states. Although certain LECs have elected to have intrastate access rates mirror interstate access rates, intrastate access rates are typically higher (often, significantly so) than interstate access rates. Intrastate access charges are also being examined in the FCC’s Intercarrier Compensation proceeding.

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Because interstate and intrastate access rates often differ significantly, there are a number of disputes involving the Company (and others) regarding the jurisdictional nature of access traffic. For example, petitions filed by the Company and Southwestern Bell are currently pending before the FCC (on referral from the United States District Court for the Eastern District of Missouri) relating to the jurisdictional nature of traffic that originates from wireless subscribers that the Company carries.

Intercarrier Compensation Reform

As described above, the current regime governing intercarrier compensation consists of a patchwork of different and inconsistent regulation depending upon such factors as the provider, jurisdiction and nature of traffic. To address this inconsistent pattern of regulation, in 2001 the FCC issued a Notice of Proposed Rulemaking to consider how to unify the regulation of intercarrier compensation. The FCC received numerous comments on the subject. On March 3, 2005, the FCC released a Further Notice of Proposed Rulemaking requesting further comment, including both comprehensive proposals and other measures to reform the current intercarrier compensation schemes. The Company cannot predict how the FCC and/or the courts will ultimately resolve the significant issues surrounding the subject of intercarrier compensation.

Universal Service

Both the FCC and approximately 23 states administer “universal service” funds the ostensible purpose of which is to provide for affordable local telephone service in rural and high-cost areas and to fund other social programs, such as Internet access to schools and libraries. In 2004, the Company contributed approximately $22.2 million to such funds.

Local Competition

The Telecommunications Act of 1996 (the “1996 Act”) substantially revised the 1934 Communications Act, in large part to address the subject of local competition. The 1996 Act delegated to the FCC and to the states significant discretion to implement the local competition provisions of the statute and imposed interconnection obligations on LECs, including that they provide unbundled network elements. The regime governing the framework for local competition has changed since the 1996 Act was enacted. The FCC’s February 2003 Triennial Review Order, which revised the unbundling rules, was vacated and remanded in part by the United States Court of Appeals for the District of Columbia Circuit in March 2004. In response, in December 2004 the FCC adopted its Triennial Review Remand Order which significantly restricts the types of facilities that ILECs must unbundle and provide to their local competitors and the circumstances under which those facilities must be unbundled and provided. The FCC’s decision will likely result in the cost of the Company’s CLEC business rising substantially. The prices of the local facilities that the Company obtains from incumbent local exchange carriers will increase as resale or commercial arrangements are substituted for the unbundled network element—platform services that ILECs no longer need to make available to competitors and as special access is substituted for the local loop and transport elements that are no longer subject to mandatory unbundling. The Triennial Review Remand Order is subject to judicial review. The Company cannot predict the outcome of any judicial review or subsequent FCC proceedings.

RBOC Entry into the Long Distance Business

The FCC has primary jurisdiction over the implementation of Section 271 of the 1996 Act, which provides that the regional Bell operating companies (“RBOCs”) cannot offer in-region long distance services until they meet certain prerequisites. The FCC has granted each of the RBOCs the authority to provide long distance service in virtually every state in which that RBOC operates.

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U.S. State Regulation

State regulatory commissions retain jurisdiction over our facilities and services to the extent they are used to provide intrastate communications. We are subject to direct state regulation in most, if not all, states in which we operate. 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.

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.

U.S. 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 systems 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.

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. The FCC has reviewed a number of recent and proposed combinations to determine whether the combination would undermine the market-opening incentives of the 1996 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. SBC and AT&T and Verizon and MCI, respectively, have announced plans to enter into business combinations. These transactions will be subject to review by the Department of Justice, the FCC and state commissions. We cannot predict whether and under what conditions the regulators will approve these transactions.

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 European network, we obtained telecommunications licenses in all countries where authorization is required for us to construct and operate facilities or provide network services, including voice telephony.

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 in the provision of bandwidth and call origination services, and consequently we are generally subjected to less intrusive regulation than providers that are deemed to possess such power, who are generally incumbents in the countries concerned.

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In April 2002, the then 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 are being introduced in due course following a series of national reviews of telecommunications markets defined in accordance with EC Recommendation 2003/311/EC. At this time, since a number of jurisdictions have yet to complete their reviews, it is not possible to accurately predict what the various remedies may ultimately entail, and their potential impact on our business.

Also included in the package of Directives are measures under the Authorisation 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. In those countries where the national telecommunications laws have been amended in accordance with the obligations under the Authorisation Directive, our licenses have been revoked in favor of a series of statutory rights to own, build and operate networks and to provide services, including voice.

The size of the EU increased on May 1, 2004 with the accession of a further ten countries. In principle, the Authorisation Directive and the package of related Directives apply in such countries with effect from that accession date.

At the present time, not all of the 25 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 that have not enacted appropriate implementing legislation. In addition, the various market review exercises that are required to be held in each Member State following its 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 measures to rectify perceived market failures.

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 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 in January 2003 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.

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.

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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. 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 World Trade Organization 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

This annual report on Form 10-K contains certain “forward-looking statements,” as such term is defined in Section 21E of the Exchange Act. 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 events or 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 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 Section 21E of the Exchange Act. 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 or events 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 2004 and will not generate funds from operations sufficient to meet all of our cash requirements in the near term and may not have access to sufficient capital to meet our long term funding needs.

For each period since inception, we have incurred substantial operating losses. For 2004, we posted an operating loss of approximately $293 million and had net cash used in operating and investing activities of approximately $262 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 2005 due to operating cash flow requirements and Plan of Reorganization-related payments in the year of $18 million for deferred reorganization costs. Based on our business plan, our expectation is that cash on hand together with proceeds from anticipated sales of non-core assets, marketable securities and IRUs, will provide us with the liquidity needed to fund our operations until we start to generate positive cash flow at some point in the second half of 2006. We can provide no assurance that our cash flows will improve or that we will be able to complete asset sales sufficient to meet our long-term liquidity needs.

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

The indenture governing New GCL’s $250 million aggregate original principal amount of 4.7% Senior Secured Mandatory Convertible Notes due 2008 (the “Convertible Notes”) contains covenants and events of default that are customary for high-yield senior notes. These provisions include (1) limitations on the ability of GCL and its subsidiaries (other than GCUK) to incur indebtedness or guarantee other indebtedness; (2) limitations on dividend and other payments to holders of equity and subordinated debt; (3) limitations on investments; (4) limitations on sale and leaseback transactions; (5) limitations on asset sales, consolidations, and mergers; (6) limitations on creating or assuming liens; and (7) limitations on transactions with affiliates. These provisions have limited exceptions, baskets and carve-outs. In particular, the limitation on indebtedness covenant

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permits the incurrence of (1) up to $150 million in additional debt under one or more working capital or receivables facilities; (2) up to $50 million in purchase money debt or capital lease obligations; (3) up to $50 million of additional indebtedness not otherwise permitted to be incurred; and (4) additional subordinated debt if we satisfy the leverage ratio specified in the indenture, although we do not expect to satisfy that ratio for the foreseeable future.

The indenture governing GCUK’s approximately $404 million original aggregate principal amount of senior secured notes due 2014 (the “GCUK Notes”) limits GCUK’s ability to, among other things: (1) incur or guarantee additional indebtedness; (2) pay dividends or make other distributions or repurchase or redeem its stock; (3) make investments or other restricted payments; (4) create liens; (5) enter into certain transactions with affiliates; (6) enter into agreements that restrict the ability of its material subsidiaries to pay dividends; and (7) consolidate, merge or sell all or substantially all of its assets. All of these limitations are subject to a number of important qualifications and exceptions set forth in the indenture.

The above financing arrangements are secured by liens on substantially all of our assets. A default under these financing agreements would allow the noteholders to accelerate our repayment obligations and foreclose on our assets, which would adversely affect our rights under other commercial agreements.

If we are unable to deliver common shares at the time of voluntary or mandatory conversion of the Convertible Notes as the result of any law, rule or regulation or administrative proclamation or any other reason, we must pay accrued interest on the Convertible Notes in cash at the annual rate of 11% (calculated retroactively from the issue date). If such conversion restriction were to exist on the maturity date of the Convertible Notes, we would also be required to redeem the notes for $250 million cash plus accrued interest at 11% (calculated retroactively from December 23, 2004).

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 transfers 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. Some 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 lack of retained earnings or 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.

In particular, GCUK serves as a source of funding for us and our other subsidiaries, and we expect to continue to use GCUK as a source of funding, subject to the covenants in the GCUK Notes and restrictions under English law. Because of losses that GCUK has accumulated, it will not be possible for GCUK to pay dividends to its parent company, an indirect subsidiary of ours, until such time as these losses have been eliminated and available profit exists under English law. Until that time, any funds to be made available by GCUK to us and our other subsidiaries will be made through inter-company loans. However, GCUK’s ability to make loans to us and our other subsidiaries, as well as its ability to pay dividends even after the point at which it is legally permitted to do so, is restricted by the indenture governing the GCUK Notes. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

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 indentures for the Convertible Notes and GCUK Notes and may trigger cross-default provisions under any working capital facility or other financing that we may arrange. This could lead the

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applicable debt holders to accelerate the maturity of their relevant debt instruments and foreclose on our assets, which would adversely affect our rights under other commercial agreements and could have a material adverse effect on our financial condition.

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. While we believe that our current provisions are reasonable and appropriate, we cannot assure you that these items will be settled for the amounts accrued or that additional exposures will not be identified in the future.

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 specifically addressed by the judiciary at the state or federal level in the United States or in most of 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.

The lack of a long-term agreement for trans-Pacific capacity 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

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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 imposes significant requirements on us. The inadvertent violation of the agreement could have severe consequences.

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.

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:

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. Further consolidation of incumbent carriers with other telecommunications service providers may make these problems more acute.

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 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 has a design life of generally 25 years, while each of our terrestrial systems has 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

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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 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, repair costs related to these systems and equipment are likely to be higher than they were prior to our reorganization. These higher costs, and the adverse impact of such higher costs 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 or at all. This could force us to cease offering products and services incorporating such property, thereby adversely affecting operating results.

We have substantial international operations and face political, legal, tax, regulatory 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, Asia and Europe. In

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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.

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 derive their revenue in currencies other than U.S. dollars but 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.

Certain of our governmental commercial customers periodically review our financial condition.

The U.K. Foreign & Commonwealth Office, or the FCO, our largest direct government commercial customer, and OGCbuying.solutions, the U.K. counterparty under our largest government framework agreement, recently completed a review of GCUK’s financial condition with a view toward, among other things, evaluating the impact of the issuance of the GCUK Notes on the finances of, and stakeholders in, GCUK and reviewing GCUK’s general financial position and considering our financial position. This review was intended to provide the FCO and OGCbuying.solutions with information that they and potentially other government entities can use to assess GCUK’s ability to continue providing services under their respective customer contracts. The FCO and OGCbuying.solutions retained an internationally recognized accounting firm to assist in this review and we cooperated with these parties in order to provide them with information useful in completing their review process. We have in the past provided and intend to continue to provide to these customers financial information about GCUK and us. While we believe that this review has been completed satisfactorily, these customers have informed GCUK that they intend to continue to review the periodic financial information GCUK provides to them. We have cooperated with OGCbuying.solutions in completing similar reviews in the past, including one that they initiated after GCUK underwent a change of control as a result of New GCL’s emergence from chapter 11 proceedings when ST Telemedia obtained its majority shareholding in New GCL. We view these reviews and investigations as part of our ongoing cooperative relationship with some of our most important government commercial customers.

We believe that these and other U.K. governmental commercial customers view us and our relationship with GCUK as important factors affecting GCUK’s financial condition and therefore its on-going ability to provide

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services under its contracts with them. Moreover, these customers view ST Telemedia’s investment in and relationship with us as a relevant consideration when making these assessments. As we have historically done, we will continue to engage in open dialogue with these important customers about GCUK’s relationship with us and ST Telemedia’s relationship with and involvement in us. However, should the FCO or OGCbuying.solutions or other customers become concerned about GCUK’s financial stability and therefore its ability to honor its contractual commitments, there may be a material and adverse effect on our business.

While the customers may not necessarily be able to terminate GCUK’s contracts with them, they could simply choose not to use services and move to another telecommunications provider. Although we believe that there are costs associated with established long-term customers’ moving services from GCUK to another provider, OGCbuying.solutions and FCO had established contingency plans to transfer telecommunications services from GCUK to another provider or take management of the service in-house at the time that the GC Debtors were in bankruptcy. They could rely upon such contingency plans to assist them in the orderly transition of services. The reduction in, or cessation of, the use of our services by them or by any of our major customers would have a material effect on our business.

Many of our most important government customers have the right to terminate their contracts with us in certain circumstances.

Many of GCUK’s government contracts contain broad change of control provisions that permit the customer to terminate the contract in the event that GCUK undergoes a change of control. A termination in many instances gives rise to other rights of the government customer, including in some instances, the right to purchase certain of our assets used in servicing those contracts. Certain change of control provisions may be triggered when any lender (other than a bank lender in the normal course of business) would have the right to control GCUK upon any event, including upon bankruptcy. If ST Telemedia’s ownership interest in us falls below certain levels, including in connection with a sale or transfer of the Convertible Notes issued to an affiliate of ST Telemedia, it could be deemed to be a direct or indirect change of control of GCUK. If GCUK undergoes a change of control under any of these government contracts and the customer decides to exercise its termination or other rights resulting from that change of control, we could experience a material and adverse effect on our business, operations and financial condition.

In addition, GCUK conducts a “value review” with the FCO on an annual basis each February. The purpose of these reviews is to agree to an overall discount amount for the FCO, for services provided by GCUK, for the next financial year, and to agree an indicative overall discount amount for the subsequent financial year. In relation to the February 2005 review only, the FCO has a single right to terminate the contract if the review is not completed, with an agreement with respect to the discount amounts, by June 2005. In this case the FCO has the option to terminate the contract in May 2007, without payment of compensation to us, on a minimum of 12 months’ notice. There has been no disagreement to date relating to the discount amounts and tentative agreed figures are in place up to and including 2008.

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. Similarly, future price decreases could be greater than we are anticipating.

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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 more 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 after having been 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 (including regulatory changes) 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. Many of these advantages are expected to increase with the recent trend toward consolidation by large industry participants.

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, evolving industry standards, changing customer needs, emerging competition and frequent new product and service introductions. The future success of our business will depend, in part, on our ability to adapt to these factors in a timely and cost-effective manner. 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, or if the technology choices we make prove to be incorrect, ineffective or unacceptably costly, 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 respond more quickly to customer demands.

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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 systems 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:

Attempts to limit the basic competitive framework of the 1996 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 1996 Act will remain in place. We expect that there will be attempts to modify, limit or eliminate this basic framework through a combination of

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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 involved in several legal proceedings that, among other things, challenge certain of our rights-of-way (and amounts payable by us therefor), and additional such proceedings could be instituted. Such proceedings 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.

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. In addition, it is becoming increasingly difficult to obtain adequate insurance for losses incurred as a result of terrorist attacks at reasonable rates; in some cases, such insurance may not be available. Uninsured losses as a result of terrorist attacks could have a material adverse effect on our business.

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,

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certain actions cannot be taken without the approval of holders of a majority of our voting stock including, without limitation, mergers, certain acquisitions and dispositions, issuances of additional equity securities (with certain enumerated exceptions), incurrences of indebtedness above specified amounts, the making of capital expenditures in excess of specified amounts, 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, subsidiaries of ST Telemedia hold the Convertible Notes and enjoy significant rights as creditors under the indenture for the Convertible Notes. Moreover, the Convertible Notes can be converted at any time into common shares of New GCL (16.2 million shares assuming conversion after four years), thereby increasing ST Telemedia’s ownership percentage in us.

A sale by ST Telemedia of a significant portion of its shareholdings in us could trigger contractual provisions tied to a change in control of the Company. For example, a change in control could result in the termination of significant contracts with UK government customers, the requirement that we offer to purchase the Convertible Notes and the GCUK Notes at a price equal to 101% of their outstanding principal amount plus accrued and unpaid interest, and the acceleration of the vesting of stock options and other incentive compensation awards granted to our officers, directors and employees.

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 approximately 22.2 million common shares of New GCL 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 preferred shares of 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 conditions 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 that regard, we and ST Telemedia recently reached an agreement in principle pursuant to which ST Telemedia intends to exercise one of its demand registration rights under the registration rights agreement entered into in connection with its original equity investment in the Company made on the Effective Date. Such agreement in principle contemplates that we will file a registration statement with the SEC no later than April 30, 2005 covering 800,000 shares of New GCL common stock issuable to employees of and other individuals affiliated with ST Telemedia upon the exercise of stock options granted to such individuals by ST Telemedia.

In addition to the shares outstanding as of the date of this annual report on Form 10-K, an additional 18,000,000 common shares have been reserved for issuance upon the conversion of the preferred shares held by ST Telemedia and its affiliates, and an additional 4,878,261 shares were initially reserved for issuance upon the exercise of stock options or other stock-based awards granted under New GCL’s stock incentive plan.

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 or Convertible Notes into common shares or the exercise or vesting of awards under the stock incentive plan. These actions could significantly depress the market price of New GCL’s common shares.

The continued listing of New GCL’s common shares on the Nasdaq National Market is subject to the Company’s timely filing of reports with the SEC.

In connection with the restatement of our 2003 financial results as a result of the understatement of our cost of access liabilities and expenses, during 2004 we fell out of compliance with SEC periodic reporting requirements and NASDAQ listing requirements. The NASDAQ Listing Qualifications Panel conditioned the

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continued listing of New GCL’s common shares on the Nasdaq National Market on our timely filing of all periodic reports with the SEC due on or prior to September 30, 2005. If we were to fail to file any such reports on a timely basis during this time frame, New GCL’s common shares would be subject to immediate delisting by the Nasdaq National Market, which would adversely impact the liquidity of and the market price for such common shares.

Other Risks

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 subjects of such investigations and are defendants in related class action and other pending lawsuits, including suits arising out of our April 27, 2004 announcement that we expected to restate our 2003 consolidated financial statements due to an understatement of cost of access expenses. The SEC and the other governmental agencies that are investigating us could 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.

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 23, “Commitments, Contingencies and Other” to our consolidated financial statements included in this annual report on Form 10-K, are descriptions of 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 23 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.

We have identified material weaknesses in our internal controls, processes and procedures and may face difficulties in strengthening our internal accounting systems and controls and in our ability to satisfy our financial reporting obligations on a timely basis.

We are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements.

Our history of rapid initial growth, expansion through acquisition with attendant integration issues, significant reorganization and restructuring activities and associated significant staffing reductions, budgetary constraints and attendant limitations on investment in internal systems, and multiple financial statement restatements and related governmental investigations and civil litigation, have increased the risk of internal control deficiencies.

Under Section 404 of the Sarbanes-Oxley Act, management is required to assess the effectiveness of our internal control over financial reporting on a periodic basis. At the current stage of our assessment of internal control as of December 31, 2004, we have preliminarily identified the material weaknesses described in Item 9A,

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“Controls and Procedures.” These weaknesses mean that there is more than a remote likelihood that we will not prevent or detect a material misstatement of financial statements. Although we are creating and have already begun implementing plans to remediate these weaknesses, there can be no assurances that we will be successful in this regard.

ITEM 2. PROPERTIES

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

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.

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 claims pending at that time could affect the Successor. The following is a description of those claims and of material legal proceedings in respect of claims alleged to have arisen after the commencement of the chapter 11 cases that were pending during or after the fourth quarter of 2004.

SBC Communications Inc. Claim

SBC Communications Inc. (“SBC”) has asserted that the Company is engaging in the misrouting of traffic through third-party intermediaries for the purpose of avoiding access charges payable to SBC’s LEC affiliates, allegedly in violation of the AT&T Order. SBC asserted that the Company owed it $18.65 million through July 15, 2004. The Company responded to SBC denying the claim in its entirety.

On November 17, 2004, SBC’s LEC affiliates commenced an action against the Company and other defendants in the United States District Court for the Eastern District of Missouri. The complaint alleges that the Company, through certain unnamed intermediaries, which are characterized as “least cost routers,” terminated long distance traffic in a manner designed to avoid the payment of interstate and intrastate access charges.

The complaint alleges five causes of action: (1) breach of federal tariffs; (2) breach of state tariffs; (3) unjust enrichment (in the alternative to the tariff claims); (4) fraud; and (5) civil conspiracy. Although the complaint does not contain a specific claim for damages, plaintiffs allege that they have been damaged in the amount of approximately $20 million for the time period of February 2002 through August 2004. The complaint also seeks an injunction against the use of “least cost routers” and the avoidance of access charges. The Company filed a motion to dismiss the complaint on January 18, 2005, which motion was mooted by the filing of a First Amended Complaint on February 4, 2005. The First Amended Complaint added as defendants five competitive local exchange carriers and certain of their affiliates (none of which are affiliated with the Company) and re-alleged the same five causes of action. The Company filed a motion to dismiss the First Amended Complaint on March 4, 2005.

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Restatement Class Action Litigation

Following the Company’s April 27, 2004 announcement that the Company expected to restate certain of its consolidated financial statements as of and for the year ended December 31, 2003, eight separate class action lawsuits all purporting to be brought on behalf of Company shareholders were commenced against the Company and certain of its officers and directors in the United States District Courts in New Jersey, New York and California. The cases were consolidated and transferred by the Judicial Panel on Multidistrict Litigation to Judge Gerard Lynch of the United States District Court for the Southern District of New York based on his past involvement in prior cases involving the Company. On February 18, 2005, lead plaintiffs filed an amended consolidated class action complaint against the Company and two of its past and present officers.

The consolidated amended complaint alleges that the Company defrauded the public securities markets by issuing false and misleading statements that failed to disclose or indicate (i) that the Company had materially understated its accrued cost of access liabilities by as much as $80 million, (ii) that the Company lacked sufficient internal controls to prevent material misstatements, (iii) that the Company lacked sufficient internal controls to properly record and report accrued cost of access liabilities and operating expenses, (iv) that its financial statements were not prepared in accordance with generally accepted accounting principles, (v) that the Company did not, contrary to its representations, consistently monitor the accuracy of its systems that measured cost of access, (vi) that the Company’s results were materially inflated, and (vii) that the Company did not have a “clean” balance sheet.

The consolidated amended complaint, on behalf of a class of persons who purchased or acquired the Company’s common stock between December 9, 2003 and April 26, 2004, asserts claims under the federal securities laws, specifically Sections 10(b) and 20(a) of the Exchange Act. Plaintiffs contend that the Company’s misstatement or omissions artificially inflated the price of the Company’s stock, which declined when the “true” costs were disclosed. Plaintiffs seek compensatory damages as well as other relief. If the case is not settled, defendants anticipate filing a motion to dismiss the consolidated amended complaint.

Securities and Exchange Commission Investigation

On February 5, 2002, the SEC commenced a formal investigation into the Company’s concurrent transactions for purchase and sale of telecommunications capacity and services between the Company and its carrier customers and related accounting and disclosure issues. The Company has cooperated with the SEC by providing documents and other information to the SEC staff, which has taken testimony from current and former officers and directors of Old GCL. To resolve the SEC’s investigation, the Company and certain former officials have entered into negotiations with the SEC staff with a view to settlement, although to date a final settlement has not been reached.

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 the Company’s concurrent transactions and related accounting and disclosure issues. The Company provided documents to the U.S. Attorney’s office and the FBI, and FBI representatives interviewed a number of current and former officers and employees of the Company. The Company does not know whether the investigation is ongoing or has concluded.

Department of Labor Investigation

In 2002, the Department of Labor (“DOL”) initiated an investigation related to the Company’s administration of its benefit plans, including the acquisition and maintenance of investments in the Company’s 401(k) employee savings plans. The Company cooperated with the DOL by providing documents and other information to the DOL staff, and the DOL interviewed a number of the officers and employees of the Company. Following its investigation, the DOL and certain current and former directors, officers and employees of Old

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GCL entered into settlement agreements in July 2004 resolving that investigation. Neither Old GCL nor New GCL is a party to any of those agreements. Any claims arising out of the DOL’s ability to impose a civil monetary penalty on the Company was discharged upon consummation of the Plan of Reorganization.

Claim by the United States Department of Commerce

A claim was filed in the Company’s bankruptcy proceedings by the United States Department of Commerce (the “Commerce Department”) on October 30, 2002 asserting that an undersea cable owned by Pacific Crossing Limited (“PCL”), a former subsidiary of the Company, violates the terms of a Special Use permit issued by the National Oceanic and Atmospheric Administration. The Company believes responsibility for the asserted claim rests entirely with the Company’s former subsidiary. An identical claim has also been filed in the bankruptcy proceedings of the former subsidiary in Delaware. On July 11, 2003, the Company and the Global Crossing Creditors’ Committee filed an objection to this claim with the bankruptcy court. Subsequently, the Commerce Department agreed to limit the size of the pre-petition portion of its claim to $13.5 million. Negotiations with PCL to resolve the remaining issues are ongoing but no final resolution has been reached.

United Kingdom Anti-Trust Investigation

In 2002, an investigation was commenced by the United Kingdom Office of Fair Trading (“OFT”) regarding an allegation that various subsea cable operator entities, including the Company, had engaged in an illegal agreement to collectively boycott a location in the United Kingdom as a means for the landing of subsea telecommunications cables in the United Kingdom. The Company responded to that investigation in 2002 denying the allegation.

In August 2003, the OFT extended its investigation in respect of allegations of price fixing and information sharing on the level of fees that the subsea entities would pay landowners for permission to land submarine telecommunication cables on their land in the United Kingdom. The Company responded to those allegations on October 10, 2003. The Company has cooperated fully with the investigation and has supplied additional factual materials including a number of formal witness statements. By letter dated December 2, 2004, the OFT informed the Company and others that its investigation is continuing and that it will be issuing a Statement of Objections to a number of parties under investigation. The OFT has not, however, indicated which parties will be receiving such a statement and to date no findings have been made against the Company and the Company continues to deny any wrongdoing.

Qwest Rights-of-Way Litigation

In May 2001, a purported class action was commenced against three of the Company’s subsidiaries in the United States District Court for the Southern District of Illinois. The complaint alleges that the Company 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, the Company has 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 the Company 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. The Company made a demand of Qwest to defend and indemnify the Company in the lawsuit. In response, Qwest has appointed defense counsel to protect the Company’s interests.

The Company’s 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 the Company’s ability to utilize large portions of the Company’s North American network. This litigation was stayed

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against the Company pending the effective date of the Plan of Reorganization, and the plaintiffs’ pre-petition claims against the Company were discharged at that time in accordance with the 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, the Company could lose its ability to operate large portions of its North American network, although it believes that it would be entitled to indemnification from Qwest for any losses under the terms of the IRU agreement under which the Company originally purchased this capacity. As part of a global resolution of all bankruptcy claims asserted against the Company by Qwest, Qwest agreed to reaffirm its obligations of defense and indemnity to the Company for the assertions made in this claim. 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, the court granted preliminary approval of the settlement and entered an order enjoining competing class action claims, except those in Louisiana. The settlement and the court’s injunction were opposed by a number of parties who intervened and an appeal was taken to the United States Court of Appeals for the Seventh Circuit. In a decision dated October 19, 2004, the Court of Appeals reversed the approval of the settlement and lifted the injunction. The case has been remanded to the District Court for further proceedings.

Customs Tax Audit

A tax authority in South America has concluded a preliminary audit of the Company’s books and records for the years ended December 31, 2001 and 2000 and has made certain initial findings adverse to the Company including the following: failure to disclose discounts on certain goods imported into the country, failure to include the value of software installed on certain computer equipment, and clerical errors in filed import documents. The Company has received a formal assessment in the amount of $9.3 million. The potential customs and duties exposure, including possible treble penalties to the Company, could be as high as $25 million to $35 million. The Company is continuing to work with the tax authority to resolve the audit.

Foreign Income Tax Audit

A tax authority in South America has issued a preliminary notice of findings based on an income tax audit for calendar years 2001 and 2002. The examiner’s initial findings take the position that the Company incorrectly documented its importations and incorrectly deducted its foreign exchange losses against its foreign exchange gains on loan balances. Based on a preliminary notice of findings, the Company estimates that a future assessment could be as high as $11 million, plus potential interest and penalties. The Company is continuing to work with the tax authority to resolve the issues.

Administrative Claims from the Chapter 11 Case

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 GC Debtors that far exceed the amount owed. The Successor has assumed these obligations and is in the process of resolving such Administrative Claims. The Company does not believe that the resolution of those claims will have a material adverse effect on the Successor.

Claim by Pacific Crossing Limited

This claim arises out of the management of the PC-1 cable, which was constructed, owned and operated by Pacific Crossing Limited (“PCL”), our former subsidiary. PCL asserts that the Company and Asia Global Crossing, another former subsidiary of ours, breached their fiduciary duties to PCL, improperly diverted revenue derived from sales of capacity on PC-1 and failed to account for the way revenue was allocated among the corporate entities involved with the ownership and operation of PC-1. The claim also asserts that revenues derived from operation and maintenance fees were also improperly diverted and that PCL’s expenses increased unjustifiably through agreements executed by the Company and Asia Global Crossing on behalf of PCL.

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Originally PCL filed an administrative expense claim in the Bankruptcy Court for $7.5 million in post-petition services plus unliquidated amounts arising from the Company’s alleged breaches of fiduciary duty and misallocation of PCL’s revenues. The Company objected to the claim and asserted that the losses claimed were the result of operational decisions made by PCL management and its corporate parent, Asia Global Crossing. On February 4, 2005, PCL filed an amended claim in the amount of $79 million claiming the Company failed to pay revenue for services and maintenance charges relating to PC-1 capacity, failed to pay PCL for use of the related cable stations and to recover a portion of the monies received by the Company under a settlement agreement entered into with Microsoft and an arbitration award against Softbank in favor of the Company. PCL claims that the Company acted as an agent for PCL under the original capacity commitment agreement with Microsoft and Softbank and that PCL is now entitled to a share of the proceeds of both the settlement and the arbitration award. The Company expects to file an objection to the amended claim shortly.

Network Rail Copper Lease

A portion of the GCUK Network is subject to a finance lease with Network Rail, the owner of the railway infrastructure in the UK. The finance lease includes provisions addressing copper cable and PABX equipment used by the Company to deliver managed voice services to UK train operating companies (the “Copper Provisions”). Under a prior agreement, the Copper Provisions of the finance lease could have been terminated on 12 months notice. In connection with its plans to modernize the signaling system on the UK railways, Network Rail issued a notice to terminate the Copper Provisions, which termination would have become effective March 31, 2005.

As this prospective termination of the Copper Provisions raised an issue regarding the Company’s ability to continue to provide managed voice services to train operating companies in the UK and could also have led to breaches of certain customer contracts pursuant to which the Company agreed to provide these services beyond March 31, 2005, negotiations were entered into with Network Rail to put in place a new agreement. On November 11, 2004, a new five-year agreement was put in place, enabling the Company to continue to serve these customers on commercially acceptable terms, and furthermore providing a revenue stream for services being provided to Network Rail over the same period.

Foreign Government Highways Tax

On December 20, 2004, representatives of one of the Company’s European subsidiaries were advised at a meeting with the applicable governmental agency for highways that a tax would be levied on the Company in respect of the Company’s network in that country. In particular, the tax was to be assessed on the estimated valuation of public lands across which the Company’s network is laid and would be retrospective to the date of occupancy by the Company of the lands at issue. The Company has received assessments totaling $3.7 million. We believe that many other telecommunications operators in this country whose network crosses these public lands are receiving similar assessments. The Company and the other operators have challenged the nature and calculation of this tax and have raised a number of technical and legal points against the assessments. The Company intends to appeal the tax assessments received in an attempt to reduce the amount assessed.

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I TEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2004 Annual General Meeting of Shareholders of the Company was held on December 15, 2004. Each of the Proposals submitted for Shareholder approval at the Annual General Meeting was approved. The results of the voting were as follows:

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

Market Information

During 2003, Old GCL’s common shares were quoted on the over-the-counter (“OTC”) market through the Effective Date of the Plan of Reorganization on December 9, 2003. On that date, New GCL’s common shares were distributed to ST Telemedia and the GC Debtors’ pre-petition creditors. 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, and such shares continue to be quoted on the Nasdaq National Market on the date of this annual report.

The table below sets forth, on a per share basis for the periods indicated, the following information:

The OTC bid prices in the above table represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions.

There were seventy-eight shareholders of record of New GCL’s common stock on March 1, 2005.

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 and also restrict the

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ability of New GCL’s subsidiaries to transfer funds to New GCL in the form of cash dividends, loans or advances. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for a discussion of such restrictions.

Description of New Global Crossing Equity Securities

New GCL is authorized to issue 55,000,000 common shares and 45,000,000 preferred shares. Pursuant to our Plan of Reorganization, on the Effective Date, New GCL issued 15,400,000 common shares to our pre-petition creditors and 6,600,000 common shares and 18,000,000 preferred shares to a subsidiary of ST Telemedia. 18,000,000 common shares were reserved for the conversion of ST Telemedia’s preferred shares. An additional 4,878,261 common shares are reserved for issuance under the 2003 Global Crossing Limited Stock Incentive Plan, as amended (the “2003 Stock Incentive Plan”), which is filed as an exhibit to this annual report on Form 10-K, and an additional approximately 16.2 million common shares are reserved for issuance upon conversion of the Convertible Notes.

The following is a brief description of New GCL’s common and preferred shares.

New Global Crossing Common Stock

Each common share of New GCL (“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 preferred shares 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 achieve specified financial targets. The New GCL Preferred Stock has a par value of $0.10 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.

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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, 2004.

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, 2004. The historical financial data as of December 31, 2004 and 2003 and for the year ended December 31, 2004, the period from December 10, 2003 to December 31, 2003, the period from January 1, 2003 to December 9, 2003, and the year ended December 31, 2002, 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.

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” (“SOP 90-7”). 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.

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Upon emergence from bankruptcy on 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 2, “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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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Prior to August 13, 2004, through our Global Marine subsidiary we also provided installation and maintenance services for subsea telecommunication systems as a separate reportable operating segment (see “Discontinued Operations” below for further information relating to Global Marine). In 2005, we expect to reorganize the telecommunications services segment into two separate reportable segments representing our telecommunications operations at GCUK and the rest of the Company’s telecommunications operations due to organizational and financial reporting changes being implemented as a result of the issuance of the GCUK Notes on December 23, 2004 (see below) and the planned registration with the SEC of an exchange offer in respect of such securities during 2005.

Industry

The telecommunications industry remains highly competitive. Over the last few 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 TDM voice and Frame Relay and ATM data products and services. We believe there will be significant continued pricing pressure for telecommunications services in the future that makes these services unprofitable or have very low profitability. As a result we have initiated a business restructuring plan to downsize, sell or otherwise exit several business areas and certain low margin services (see “Restructuring Activities” below for further information).

The competitive landscape in the telecommunications industry is beginning to change rapidly, and we believe we are well positioned to take advantage of these changes. The large-scale mergers taking place in the North American market and the business combinations in Europe and Latin America will cause many of our competitors to experience varying degrees of disruption, delay and inefficiency while integration issues are addressed. Moreover, as the number of viable service providers diminishes with industry consolidation, we expect to experience greater demand from customers seeking network diversity and redundancy. Our existing customer base, capabilities and extensive network of suppliers globally position us as a viable global alternative provider. However, industry consolidation is likely to lead to greater economies of scale and other competitive advantages for our competitors, although it is possible that regulatory changes or conditions will be implemented in response to such consolidation in order to mitigate the impact on non-dominant carriers such as ourselves.

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Strategy

See Item 1, “Business – Business Strategy” for a discussion of our business strategy.

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 changes in our key performance indicators.

The Company’s senior management review our cash performance on a weekly basis and compare it to our operating plan to assist us in making short-term and long-term decisions.

We use a 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 was approximately 3,600 as of March 1, 2005. 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.

We capture and analyze several non-financial metrics periodically, including metrics 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 network traffic growth (e.g., voice minutes carried over IP platform) and 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 as important as our cash performance discussed above and the following financial key performance indicators.

Financial key performance indicators in our business are focused on revenue growth in our core enterprise, conferencing and carrier data sales businesses, margin improvement and on our cost structure, including our direct costs to sell and 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 aggregating circuits with lower trunk speeds and migrating them to fewer high speed circuits, switched network access optimization through direct end office trunking versus tandem switching termination, use of alternative termination providers and other traditional means such as revenue assurance (access charges to billing reconciliations) and resolution of disputes with our access vendors.

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 us 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.

2004 Highlights

In October 2004 we announced a number of strategic initiatives to increase our focus on higher margin global data and IP services offerings to multi-national enterprises, governments and telecommunications carriers. These initiatives include enhancements to our distribution capabilities intended to promote distribution through direct and indirect sales channels, including systems integrators and alliances with other carriers. At the same

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time, portions of our business that were underperforming relative to our financial expectations and that did not provide long-term strategic value were identified, and implementation plans were devised to achieve targeted levels of profitability or to exit those lines of business. These plans include downsizing our carrier voice business, primarily in North America, through pricing actions designed to maintain targeted gross margins for this service. These plans also include the divestiture or other exiting of our operations in consumer, small business, trader voice and calling card services. Finally, these plans called for workforce reductions, facility consolidation and other cost saving measures made possible by these strategic initiatives. We believe that implementation of this restructuring plan will over time reduce our funding requirements, accelerate the date by which our operating cash flow will be sufficient to satisfy our anticipated liquidity requirements and lead to overall profitability for the Company. See “Business Restructuring” below for further information on our restructuring activities.

Our revenues decreased in 2004 compared with 2003 as a result of continued pricing reductions for telecommunications services, continual decline in non-core revenue streams such as small business and the financial industry’s trader voice products, actions taken by us in the first half of 2004 to tighten pricing and payment terms for our international long distance reseller customer base and the business restructuring initiatives taken by us in the fourth quarter discussed above. In addition, our revenue decreased due to lower non-cash amortization of prior period IRUs in 2004 compared with 2003 as a result of fresh start accounting on our emergence from bankruptcy on December 9, 2003. Since emerging from bankruptcy our focus has been on acquiring customers in key market segments including regional and multinational enterprises and federal government agencies sold directly or through indirect channels, including through systems integrators. In 2004, our sales volume for data and voice services increased as a result of increased sales to new and existing customers, although our voice services volume increased at a much lower rate than in past years as a result of our initiatives to tighten payment terms for international long distance customers and the downsizing of business with lower margin voice services customers. The increase in revenue as a result of sales volume increases was not significant enough to offset the decrease in revenue as a result of pricing reductions. Telecommunications pricing remained very competitive in 2004 for both voice and data services. Our average annual price declines were approximately 15% for voice services, over 35% for IP access services and lower rates than IP access services for broadband, IP VPN and managed data services.

Our cost of access expense is our single largest expense and was 69.7% and 73.8% of our revenues, excluding revenue from the non-cash amortization of IRUs, for the years ended December 31, 2004 and 2003, respectively. Our cost of access expense decreased in 2004 compared with 2003 as a result of initiatives to reduce access costs. These initiatives included shifting suppliers, contract renegotiations to lower access rates, tariffed discount plans, facility network access optimization, switched network access optimization through direct end office trunking and the continued review of access charges, special promotions and disputes resolution. The result of the improvement in cost of access unit charges and other initiatives was an improvement in gross margin, excluding non-cash amortization of IRU revenue, even though there were significant decreases in revenue. The improvement in cost of access unit charges also resulted in an improvement in gross margin percentage, despite the significant reductions in pricing.

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Total gross margin, excluding non-cash amortization of IRU revenue, is calculated as follows:

During 2004, our operations continued to generate negative cash flows and reduce our available liquidity. As a result, we determined we would need additional funds to meet our liquidity requirements for 2004 and beyond. As an interim financing arrangement during 2004, we borrowed $125 million from a subsidiary of ST Telemedia under a senior secured loan facility (the “Bridge Loan Facility”). On December 23, 2004, we completed a recapitalization plan, as described below (the “Recapitalization Plan”), to restructure existing indebtedness with ST Telemedia and its subsidiaries and to raise additional financing. Based on our business plan, our expectation is that cash on hand, together with proceeds from anticipated sales of non-core assets, marketable securities and IRU’s will provide us with the liquidity needed to fund our operations until we start to generate positive cash flow at some point in the second half of 2006.

Under the Recapitalization Plan, we repaid $75 million of principal amount of the $200 million 11% senior secured notes issued on the Effective Date (the “Exit Notes”) to a subsidiary of ST Telemedia. We also paid accrued interest of approximately $15 million on the Exit Notes and Bridge Loan Facility. The remaining $125 million of Exit Notes and the $125 million Bridge Loan Facility were exchanged for a $250 million aggregate principal amount of 4.7% payable-in-kind mandatory convertible notes (the “Convertible Notes”), which are held by subsidiaries of ST Telemedia.

As part of the Recapitalization Plan, GCUK issued $200 million in aggregate principal amount of 10.75% United States dollar denominated senior secured notes due 2014 and £105 million aggregate principal amount of 11.75% pounds sterling denominated senior secured notes due 2014 (collectively, the “GCUK Notes”). The United States dollar and sterling denominated notes were issued at a discount of approximately $3 million and £2 million, respectively, which resulted in the Company receiving gross proceeds, before underwriting fees, of approximately $398 million. (See “Liquidity and Capital Resources” below for further description of the Recapitalization Plan.)

2005 Outlook

In 2005, we expect our revenue to increase modestly for our enterprise and carrier data services businesses, including through expansion of indirect channels such as system integrators and alliances with other carriers. We expect to increase revenue in these areas through aggressive customer acquisition in specific target markets, including enterprise customers in the financial services, high-tech, health care, and transportation and distribution sectors, government customers, wireless and mobile operators, and regional LECs.

However, this increase in revenue from growth in our core business areas will not be large enough to offset significant decreases in revenue resulting from: the sale or other exiting of non-strategic parts of our business including the small business, consumer, financial industry trader voice, and calling card business lines; reductions in carrier voice services revenue due to pricing actions to maintain targeted gross margins which are

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expected to result in significant reductions in carrier voice sales volume; and continued pricing reductions for telecommunications services generally. We expect to see price declines for commoditized products such as long distance TDM voice services for enterprise customers and IP access and international private line data services in the range of 10% to 20% and 15% to 25%, respectively, as a result of continued intense competition throughout the industry. We expect minimal price declines for premium products such as IP VPN, video conferencing and managed services. We expect relative price stability in carrier voice services and will manage pricing to achieve targeted gross margins for these services.

We expect our access costs to decline significantly as a result of: the reduction in revenues described above; a change in revenue mix towards data and IP services, which have lower cost of access unit charges than voice services; and continuing cost of access initiatives to take further advantage of favorable contract discounts and rates, to optimize the network and to eliminate redundant circuits. We expect a modest decrease in gross margin dollars but a significant increase in our gross margin percentage as a result of increases in higher margin data and IP services revenues, improvements in margins for carrier voice services due to the pricing actions referenced above, and reductions in revenues from the non-strategic business areas discussed above. As discussed further below, as a result of the restructuring activities commenced in the fourth quarter of 2004, which include headcount reductions and facility closings, we expect significant savings in employee and related benefit expenses during 2005. This should result in significantly reduced operating expenses and a reduction in our operating loss when compared with 2004 results.

In 2005, we expect our cash flow used by operations to decrease as a result of the improvement in operating loss indicated above and lower payments related to deferred reorganization costs and restructuring costs. We expect a slight reduction in cash used for capital expenditures and repayments of capital lease obligations compared to 2004 levels. Cash used to pay interest obligations on our indebtedness will increase significantly as a result of the Recapitalization Plan discussed above. We expect to continue to sell capacity on our network in the form of IRUs and anticipate significant proceeds from non-core asset sales. Overall, we expect our cash and cash equivalents balance to decrease significantly in 2005 but at a lower rate than in 2004.

Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of the prevention or detection of misstatements.

Under Section 404 of the Sarbanes-Oxley Act (“SOX 404”), management is required to assess the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. We expect to complete our assessment in time to file an amendment to this Form 10-K prior to the May 2, 2005 SEC reporting deadline. At the current stage of our assessment process, we have identified the material weaknesses described in Item 9A, “Controls and Procedures.” Also as described in Item 9A, we are creating and implementing remediation plans for these material weaknesses.

Discontinued Operations

On August 3, 2004, New GCL’s Board of Directors approved a plan to divest Global Marine, a non-core business, and on August 13, 2004, we entered into a series of agreements with Bridgehouse for the sale of Global Marine and the transfer of our forty-nine percent shareholding in S.B. Submarine Systems Company Ltd. (“SBSS”), a joint venture primarily engaged in the subsea cable installation and maintenance business in China, for consideration up to $15 million, subject to certain conditions as defined in the agreements. We completed the sale of Global Marine during the third quarter for consideration of $1 million. No gain or loss was recorded on the sale. The sale of our holdings of SBSS is subject to approval by the other joint venture holder and regulatory

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approval by the Chinese government, which we expect to occur by mid-2005. Our agreement to transfer our shareholding in SBSS expires in October 2005. As a result of these transactions, Bridgehouse has assumed all of Global Marine’s capital and operating lease commitments.

Restructuring Activities

2004 Restructuring Plans

During the first three quarters of 2004, we adopted restructuring plans to combine previously segregated customer support functions for greater efficiency and to allow our sales force to increase its focus on customer acquisition rather than retention, to consolidate staff into a single location to reduce overhead charges and improve functional efficiency, and to achieve certain other targeted reductions. The plans resulted in the elimination of approximately 100 employees and closure of one facility. As a result, we recorded $3 million of restructuring charges, of which $2 million related to severance and related benefit obligations related to the eliminated employees and $1 million related to facility closure costs, net of estimated sublease rentals. All amounts accrued under these restructuring plans were paid during 2004.

On October 8, 2004, our board of directors approved a restructuring plan designed to focus on businesses that are consistent with our overall vision—to be a premier provider of global data and IP services to enterprises and carriers by building on our extensive network and technological capabilities. The restructuring plan involves concentrating our efforts in areas that we anticipate will provide profitable growth opportunities and moving away from a number of unprofitable and non-strategic parts of the business. We commenced the restructuring plan during the fourth quarter of 2004. We developed the restructuring plan in light of ongoing adverse conditions in the telecommunications industry, in particular the continued pricing pressures for telecommunications services. We believe that the implementation of the restructuring plan will, over time, reduce our funding requirements, accelerate the date by which our operating cash flow will be sufficient to satisfy our anticipated liquidity requirements and lead to overall profitability for the Company.

The October 2004 restructuring plan includes initiatives to increase our focus on our core enterprise, conferencing and carrier data sales business, as well as to pursue several new business development initiatives in areas where we can capitalize on our IP network and capabilities. These initiatives are focused principally on global IP offerings and on expanding our distribution capabilities through indirect channels such as system integrators as well as providing enhanced services for telecommunications carriers to resell. We plan to redeploy certain personnel and reorganize our sales and marketing efforts around these initiatives. The plan also includes downsizing our carrier voice business, primarily in North America, through pricing actions designed to maintain targeted gross margins for this service. The plan also includes the divestiture or other exiting of our operations in consumer, small business, trader voice and calling card services. Finally, the plan calls for implementing workforce reductions, facilities consolidation and other cost savings initiatives associated with the parts of the business being deemphasized noted above. To date, more than 450 reductions in headcount have been completed across a range of business functions and job classes, principally in our North American operations, representing annualized cost savings of approximately $36 to $38 million. As part of the restructuring plan, we also plan to close and consolidate two real estate facilities, with associated anticipated annual cost savings of approximately $1 million.

As a result of these efforts, we estimate that we will incur cash restructuring charges of approximately $12 million to $13 million for severance and benefits in connection with the anticipated workforce reduction and approximately $2 million related to the real estate consolidation. Payments due for these restructuring activities are expected to be completed during 2005 for employee terminations and continue through 2008 for real estate consolidations. The majority of the restructuring charges related to severance and benefits occurred in the final quarter of 2004 and the restructuring charges related to real estate consolidations have occurred in 2004 and will occur in 2006. During the quarter ended December 31, 2004, we recorded $12 million of restructuring charges, of which $11 million related to severance and associated benefit obligations resulting from employee eliminations

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and $1 million related to facility closure costs, net of estimated sublease rentals under this restructuring plan. As of December 31, 2004, we have eliminated approximately 400 employee positions and vacated one facility under this restructuring plan. As a result of these restructuring activities and asset impairments announced by other telecommunications companies during the second half of 2004, we performed a review of our long-lived assets to determine if any impairment exists. Based on our review, we have determined that no impairment exists at December 31, 2004.

2003 and Prior Restructuring Plans

During 2001 and 2002, we announced and implemented certain restructuring activities to reduce our operating expenses and cash flow requirements. The restructuring activities were taken as a result of the slow down of the economy and telecommunications industry as well as our efforts to restructure the Company while under bankruptcy protection. The restructuring activities included the realignment of regional organizational structures into integrated global functions and the elimination of certain positions within existing functions. As a result of these activities, the Company eliminated approximately 4,900 positions and vacated approximately 245 facilities through December 31, 2002.

During the period January 1 to December 9, 2003, we adopted restructuring plans to further integrate certain global functions to more appropriately align those functional units with regional operating needs. We also integrated responsibilities within the network operations, service delivery, and other functions. We determined the integration of these responsibilities would increase efficiency and reduce operating costs. As a result of these initiatives, we recorded a restructuring charge of $9 million in the period January 1 to December 9, 2003. This charge consists of $8 million related to employee terminations related to severance-related payments and outplacement costs for employees involuntarily terminated and $1 million related to facility closures net of anticipated sub-lease payments. As a result of these activities, we eliminated approximately 300 positions and vacated approximately 10 facilities during the period January 1, 2003 to December 9, 2003. In addition, during the period January 1 to December 9, 2003, we re-assessed the adequacy of the restructuring liability and determined that an additional $32 million would be required for continuing lease obligations related to surplus facilities included in previously announced restructuring plans. In total, for the period January 1 to December 9, 2003 we recorded restructuring charges of $41 million, which was recorded as a reorganization item (see Note 18 to the consolidated financial statements included in this annual report on Form 10-K).

On December 9, 2003, we emerged from chapter 11 bankruptcy proceedings and released $105 million of subject to compromise liabilities related to restructuring liabilities, in accordance with SOP 90-7. This consisted of $21 million related to stayed post-employment benefits, $75 million related to facility lease rejection claims, and $9 million related to other restructuring items. As of December 9, 2003, we maintained $3 million of this employee-related liability as deferred reorganization costs for non-priority payments to 556 former employees terminated more than 90 days prior to our bankruptcy filing but prior to receipt of their full severance benefit payout. These payments were approved by the Bankruptcy Court in 2002 subject to meeting certain conditions and disbursed in December 2003.

During the year ended December 31, 2004, we paid ongoing severance payments and continuing lease obligations committed to in these previously announced restructuring plans. As at December 31, 2004, our restructuring liability related to these plans was $150 million. We anticipate making payments under these restructuring plans, related to continuing lease obligations, through 2025.

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

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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 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 equity 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 Exit 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. 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 2, “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.

Critical Accounting Policies and Estimates

The 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 based on historical experience and available information. The following are the significant areas of our consolidated financial statements that involve significant judgment, assumptions, uncertainties and estimates. The estimates involved in these areas are considered critical because 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 3, “Basis of Presentation and Significant Accounting Policies,” to the accompanying consolidated financial statements.

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 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. As provided by the accounting rules, we used a one-year period following the Effective Date to finalize the allocation of the reorganization value to our assets and liabilities, excluding changes in amounts related to pre-confirmation contingencies, which are included in the determination of net income (loss). During the one-year allocation period, we adjusted the reorganization value among assets as well

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as between assets and liabilities as a result of additional information during 2004. These adjustments were recorded as reclassifications during 2004. The determination of the fair values of assets and liabilities was subject to significant estimation and assumption.

Receivable Reserves

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 which are recorded as a reduction in revenue. 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 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, and current industry trends. A specific reserve requirement review is performed on customer accounts with larger balances. A general reserve requirement is performed on accounts not subject to specific review 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 negotiations 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.

We have identified process deficiencies related to the establishment of our receivable reserves that we believe constitute a material weakness. See Item 9A, “Controls and Procedures” of this annual report on Form 10-K for further information.

Cost of Access Accruals

Background

Our cost of access primarily comprises usage-based voice charges paid to other carriers to originate and/or terminate switched voice traffic and charges for leased lines for dedicated facilities. Cost of access is our single largest expense, amounting to approximately 69.6% of our revenue for the year ended December 31, 2004.

As a result of a review we initiated in April 2004, we determined that there was a material weakness in our internal control over financial reporting related to cost of access accounting in our North American operations, including the failure to make use of available information to conduct an aggregate true-up of estimated cost of access expenses to actual cash payments made to access providers. This weakness resulted in an understatement

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of cost of access in 2003 and gave rise to the restatement of our 2003 financial statements. A description of this weakness and the remediation measures that have been and are being undertaken by us is set forth in Item 9A, “Controls and Procedures,” of our amended 2003 annual report on Form 10-K/A.

Set forth below is a summary of our current policy and procedures regarding cost of access accounting after giving effect to changes made in light of our cost of access review. This summary reflects significant changes in the processes utilized to validate the monthly estimates of the cost of access accrual produced by our underlying cost of access expense estimation processes in North America. Except for the implementation of the COA Overlay (as defined below), the overall design of our cost of access estimation process remains materially unchanged, although refinements have been made to improve the accuracy of inputs to the process.

Policy and Use of Management Estimates

Our policy is to record access expense as services are provided by vendors. Access costs for switched voice traffic are estimated and expensed based on the volume of access services purchased, as measured by the Company’s internal cost of access expense systems, and the access rates determined by contracts between the Company and its access providers and/or tariff rates obtained from industry data sources. Access costs for leased lines are expensed based on invoice data and on estimates of the impact of circuits acquired, disconnected or re-rated during the applicable month. We make a preliminary estimate of monthly access costs incurred based on this information. We then adjust this preliminary estimate based on an analysis of historical differences between such preliminary monthly estimates and the comparable amounts determined by the validation procedures described below, including the rebuilding of the cost of access accrual on a 90 day lag basis using aggregate cash payment information. The amount of the adjustment to our preliminary estimate is referred to in this annual report on Form 10-K as the “COA Overlay.” The recognition of access costs involves the use of significant management estimates and assumptions and requires reliance on non-financial systems.

The estimation and validation of cost of access expense is extremely complex due to the following: changing regulations regarding access rules and related charges; the frequency of pricing changes in the market; constantly changing traffic patterns; the volume of information and inconsistency or deficiencies in external databases, particularly regarding line ownership information; delays in invoicing by access vendors; and the receipt of multiple invoices from the same vendor. These complicating factors are especially relevant in North America, where approximately 84% of our total access charges were incurred in 2004. Thus, our estimates of our cost of access expense are imprecise and may differ from the actual costs for the relevant periods when they are finally settled in the ordinary course of business. As a result of the improved cost of access expense estimation and accrual validation processes reflected in the below summary, we believe that we have established appropriate reserves for our accrued cost of access liabilities.

Principal Estimation Systems

For switched voice traffic, each month the minutes recorded by our switches (the “minutes of use” or “MOUs”) are multiplied by the estimated rates for those minutes for that month; the result, after adjusting for any applicable COA Overlay, is the usage expense and accrued usage cost recorded for that month for switched voice traffic. We use proprietary systems to identify, capture, and measure usage-based access costs for voice traffic in North America using multiple sources of data, including: MOU data recorded by the Company’s switches; vendor identification and rate information in widely used industry databases; rate element estimates for smaller vendors; historical data; and actual contract rates for certain usage-based charges.

For leased lines, each month the expense is initially calculated based on the number of circuits and the average circuit costs, according to our leased line inventory system, adjusted for contracted rate changes. The result, after adjusting for any applicable COA Overlay, is the leased line expense and accrued leased line cost recorded for that month. Our inventory system is based on invoices received from facilities providers, which

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generally bill in advance of the period in which services are provided, as adjusted to track the daily changes in our circuit inventory that are due to customer acquisitions and disconnections. An outside service provider assists us in maintaining and managing our circuit inventory data.

We monitor the accuracy of our systems to measure network volumes and track circuits, and our rate tables are updated frequently to maintain the accuracy of the rate structure we have with our access providers and in accordance with the current tariff rates.

Accounting Entries for Cost of Access

The initial expenses estimated by our cost of access systems are expensed each month in our consolidated financial statements, with a corresponding increase in the cost of access accrual. As invoices for MOUs purchased or access lines leased in North America are received and approved for payment, the Company records balance sheet entries to reduce the accrual and increase accounts payable. Similarly, disbursement of cash to North American access vendors is also a balance sheet entry, reducing accounts payable and cash.

Outside of North America, invoices are expensed upon receipt and the related estimates are reversed. This methodology is practicable outside of North America using existing systems because there are far fewer invoices (particularly manual invoices) and access vendors and a lower level of regulatory complexity in those regions.

Validation of the North American Cost of Access Accrual

A reconciliation of North American cost of access charges at the individual invoice level is impracticable due to current system constraints and given the magnitude of invoices received (approximately 12,000 are received each month and many are manual), the incompatibility of vendor billing information with our cost of access estimation systems, and the high frequency of charges that we dispute with our access providers. We therefore use procedures designed to validate the cost of access accrual established by our cost of access estimation systems.

The primary validation procedures now used in North America are: a monthly rebuilding of the cost of access accrual on a 90 day lag basis using aggregate cash payment information from our financial systems; a comparison, by type of expense (e.g., domestic or international MOUs), of the expense estimates produced by our cost of access estimation systems to the actual amounts billed by major vendors that are captured in our vouchering system; a corroborative review by experienced and knowledgeable employees in the operational and financial cost of access management organizations; and a statistical analysis of the timing of the receipt and vouchering of cost of access invoices and their related service periods. In the fourth quarter of 2004, we also established a predictive test that calculates a forecast of the accrual balance required in the current month based on invoices received to date and the historical timing of invoice receipt versus actual service consumption. Due to delays by access vendors in sending invoices, which can result in our receipt of invoices up to 90 days after the end of the month in which the access services were provided, it is not possible to complete a comprehensive true-up to actual cash payments at the time of the issuance of the Company’s balance sheet within the time frames required by applicable periodic reporting requirements under the Exchange Act. Thus, cost of access accrual estimates are subject to the imprecision discussed above even after giving effect to the application of the Company’s cost of access estimate validation processes. Any mis-estimates reflected in a given balance sheet that are discovered through a subsequent true-up procedure are addressed through change in estimate adjustments made in the preparation of the ensuing balance sheet. We believe that our cost of access expense estimation and accrual validation processes allow us to establish appropriate reserves for our accrued cost of access liabilities and that any such change in estimate adjustments will therefore be immaterial.

Disputes

We perform monthly bill verification procedures to identify errors in vendors’ billing processes. The bill verification procedures include the examination of bills, comparing billed rates with rates used by the cost of access expense estimation systems during the cost of access monthly close process, evaluating the trend of

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invoiced amounts by vendors, and reviewing the types of charges being assessed. These procedures do not include a comparison of invoiced amounts to amounts accrued in the financial statements for North American operations. If we discover a bill that appears to contain possible inaccuracies in rate or volume data, we record a charge to the cost of access expense and a corresponding increase to the access accrual for the disputed amounts, unless past experience, regulatory rulings or other corroborating evidence indicates that it is not probable that the Company will ultimately be required to pay the invoiced amount. If we ultimately reach an agreement with an access vendor to settle a disputed amount for less than the corresponding accrual, we recognize the resulting gain in the period in which the settlement is reached. Disputes for which we have decided not to accrue an expense are tracked in a log and reviewed periodically to assess whether a loss has now become probable and reasonably estimable, in which case an accrual is established. We generally withhold payments on all amounts subject to dispute until the dispute is settled.

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 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.

As discussed in Note 2, “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.

As a result of the 2004 restructuring activities discussed above and asset impairments announced by other telecommunications companies during the second half of 2004, we performed a review of our long-lived assets to determine if any impairment exists. Based on the results of our review no impairment exists at December 31, 2004.

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

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loss positions, sufficient evidence exists to require a valuation allowance on a significant portion of the Company’s net asset balance for all operations except GCUK. Certain of the Company’s UK deferred tax assets have been recognized due to positive evidence of the future realization of those assets

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.

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 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 4, “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.

Stock-Based Compensation

On December 9, 2003, we adopted the provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), related to stock-based awards granted or modified on December 9, 2003 and thereafter, commencing with the stock option award issued in connection with the emergence event on December 9, 2003. In addition to the December 9, 2003 grant, options covering 504,600 shares of New GCL common stock were granted on December 15, 2004. 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 use the Black-Scholes option pricing model to determine the fair value of a stock option awarded. The Black-Scholes model requires several subjective inputs including expected volatility, expected life of the option and expected dividend yield. As we restructured our business through the bankruptcy process in 2002 and 2003, we have very limited historical experience 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 for 2003 and a mean-average of our Company’s stock volatility during 2004 and an average of our competitors assumptions. The assumptions used to calculate the fair value of the options granted on December 9, 2003 and December 15, 2004 are a 70% and 86%, respectively expected volatility, a 5-year expected life of the option and 0% dividend yield. The estimated 4% employee attrition rate is 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.

For a description of our stock-based compensation programs, see Note 20, “Stock-Based Compensation”, to the accompanying consolidated financial statements included in this annual report on Form 10-K.

Assessment of Loss Contingencies

We have legal and other contingencies that could result in significant losses upon the ultimate resolution of such contingencies. We have provided for losses in situations where we have concluded that it is probable that a loss has been or will be incurred and the amount of the loss is reasonably estimable. A significant amount of

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judgment is involved in determining whether a loss is probable and reasonably estimable due to the uncertainty involved in predicting the likelihood of future events and estimating the financial impact of such events. Accordingly, it is possible that upon the further development or resolution of a contingent matter, a significant charge could be recorded in a future period related to an existing contingent matter. For additional information, see Note 23, “Commitments, Contingencies and Other,” to the accompanying consolidated financial statements.

Comparison of Financial Results

In light of events and circumstances that occurred during the years ended December 31, 2004, 2003 and 2002, the results between periods are not necessarily comparable due to the following factors:

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 twelve months ended December 31, 2003 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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Results of Operations for the Year Ended December 31, 2004 compared to the Pro Forma Combined Results of Operations for the Twelve Months Ended December 31, 2003

The following discussion compares the restated results of operations of Successor for the year ended December 31, 2004 and Successor and Predecessor on a combined basis for the year ended December 31, 2003. 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.

Revenues. Revenues for the year ended December 31, 2004 and twelve months ended 2003 reflect the following changes:

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

In 2004 our commercial revenues decreased as a result of declines in the average unit prices of voice, data, and conferencing services and decreases in non-core areas of our commercial sales channel including small business, calling card and financial industry trader voice customers. Small business and financial industry trader voice revenue decreased $72 million to $148 million during 2004 compared with $220 million for 2003. The decrease in revenue as a result of lower average unit prices and the impact of our business restructuring activities was partially offset by modest increases in sales volume for voice and data services and significant sales volume increases for conferencing services. During 2004, we experienced a slight change in our sales mix towards the higher margin data and conferencing products (57% of total commercial revenues for the year ended

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December 31, 2004 compared with 55% for the same period in 2003) from the lower margin voice services products. This sales mix change was primarily a result of growth in our IP and global managed services sales, lower data customer attrition than voice customer attrition during the bankruptcy period, and decreases in non-core areas.

Voice services revenue decreased as a result of a greater than 10% decrease in average annual unit prices and as a result of reductions in calling card and small business voice services revenues. The decrease in average annual unit prices is a result of continued competition in the North American domestic wireline market. The decrease in revenue due to voice services price declines was partially offset by an increase in voice services sales volume of approximately 5%. The increase is a result of additional purchases from existing customers as well as sales to new customers.

Data services revenue decreased as a result of average unit price reductions and the attrition of certain financial market customers and, to a lesser degree, small business customers. We have seen significant pricing declines in data services such as IP access and private line services. The rate of price declines for these products has slowed from prior trends and pricing for premium products such as IP VPN and managed service applications have declined at a slower rate. The decrease in revenue was partially offset by an increase in sales volume for data service products. We have had significant increases in sales unit volume and revenues for our IP services products, including Internet access and IP VPN services.

Conferencing services revenue increased as a result of an over 25% increase in sales unit volume. The increase in sales volume is a result of greater collaboration between the conferencing and commercial sales force representatives to target new and existing customers not yet using Global Crossing’s conferencing services, the marketing of new video conferencing services to these customers, and changes in our pricing structure for conferencing services. The increase in revenue as a result of the greater sales volume was partially offset by an over 15% decrease in average annual unit prices for conferencing services. The decrease in pricing for conferencing services is a result of continued competition and pricing promotions.

Consumer revenues. We do not invest in our consumer business as we have determined this business is not core to our strategy. We have no plans to grow this business as the costs to maintain and acquire customers are expected to exceed the benefits to our future profitability. Therefore we expect consumer revenues to continue to decline as a result of customer attrition and price erosion of the existing customer base.

Carrier revenues. Service revenue in the carrier channel relates to the provision of voice and data services to our telecommunications carrier customers.

In 2004 our carrier service revenues decreased as a result of declines in the average unit prices of voice and data services, our actions to tighten pricing and payment terms for our international long distance reseller customers and our business restructuring activities, implemented in the fourth quarter of 2004, to downsize unprofitable parts of our carrier sales services which includes certain United States domestic and international long distance customers. The lower unit prices were partially offset by modest increases in sales unit volume of both voice and data services. During 2004, we experienced a slight change in our sales mix towards the higher margin data products (14% of total carrier revenues for the year ended December 31, 2004 compared with 13%

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for the twelve months ended December 31, 2003) from the lower margin voice services products. This sales mix change was primarily a result of growth in our IP services sales and a reduction of our voice services sales as a result of our business restructuring activities in the fourth quarter.

Voice services revenue decreased partially as a result of greater than 10% and 15%, respectively, decreases in average annual unit prices for our U.S. domestic and international long distance voice services products. The decreases are a result of continued competition in both the U.S. domestic wireline services and international long distance services markets. In addition, a portion of the decrease is a result of the tightening of our payment terms for long distance reseller customers, which resulted in the non-renewal of certain low margin wireless customer contracts and due to the business initiatives initiated in the fourth quarter to downsize our lower margin voice services customers. The decrease in revenue was partially offset by greater than 5% increases in sales unit volume for our U.S. domestic voice services. Our unit volume for international long distance services had a minimal increase.

Data services revenue decreased as a result of a decrease in average annual unit prices and a significant increase in data service sales to a larger carrier customer in 2003 that has since decreased its business with us significantly, partially offset by an increase in sales unit volume. The decrease in average unit prices is due to continued competition in the carrier markets. The majority of the increase in sales unit volume relates to sales of IP services (IP access to ISP/Enhanced Service Provider and research and education markets).

Revenue recognized relating to the amortization of IRUs sold in prior periods decreased in 2004 as compared with 2003 as a result of the adoption of fresh start accounting on the Effective Date. The adoption of fresh start accounting resulted in the elimination of approximately 90% of deferred revenue to reflect its then fair value.

Cost of access and maintenance. Cost of access and maintenance (“COA&M”) primarily includes the following: (i) usage based voice charges paid to local exchange carriers (“LECs”) and interexchange carriers (“IXCs”) to originate and/or terminate switched voice traffic; (ii) charges for leased lines for dedicated facilities and local loop (“last mile”) charges from both domestic and international carriers; and (iii) thirdparty maintenance costs incurred in connection with maintaining the terrestrial network, subsea fiber optic network (“wet maintenance”) and cable landing stations.