1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15D-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2000
------------------------------------
GT GROUP TELECOM INC.
Suite 700 - 20 Bay Street
Toronto, Ontario, Canada
M5J 2N8
(416) 848-2000
(Address of principal executive offices)
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[indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F]
Form 20-F X Form 40-F ___
[indicate by check mark whether the registrant by furnishing information contained
in this Form is also thereby furnishing the information to the Commission pursuant to
rule 12g3-2(b) under the Securities Exchange Act of 1934]
Yes __ No X
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2
ITEM 1:
GT GROUP TELECOM INC.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
(thousands of Canadian dollars)
3
GT GROUP TELECOM INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(thousands of Canadian dollars)
JUNE 30, SEPTEMBER 30,
2000 1999
----------- -------------
$
(UNAUDITED) $
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... 526,231 59,851
Accounts receivable
Trade..................................................... 32,799 1,192
Other..................................................... 7,786 2,592
Prepaid expenses............................................ 8,958 526
Inventory................................................... 201 545
--------- -------
575,975 64,706
PREPAYMENTS ON PROPERTY, PLANT AND EQUIPMENT................ 230,600 --
PROPERTY, PLANT AND EQUIPMENT............................... 778,926 73,817
LONG-TERM INVESTMENT........................................ 43,238 --
GOODWILL AND OTHER ASSETS................................... 199,710 1,291
--------- -------
1,828,449 139,814
--------- -------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................... 88,485 14,926
Unearned revenue............................................ 1,325 656
Current portion of long-term debt........................... 1,204 1,253
--------- -------
91,014 16,835
LONG-TERM UNEARNED REVENUE.................................. 1,080 1,494
LONG-TERM DEBT.............................................. 853,123 47,557
--------- -------
945,217 65,886
SHAREHOLDERS' EQUITY
SHARE CAPITAL AND OTHER EQUITY ITEMS (note 3)............... 971,468 87,010
DEFICIT..................................................... (88,236) (13,082)
--------- -------
883,232 73,928
--------- -------
1,828,449 139,814
========= =======
SUBSEQUENT EVENTS (note 7)
The accompanying notes form an integral part of these interim condensed
consolidated financial statements.
F-1
4
GT GROUP TELECOM INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(UNAUDITED)
(thousands of Canadian dollars, except for per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2000 1999 2000 1999
-------- ------- -------- ------
$ $ $ $
REVENUE............................................ 25,558 558 41,084 1,432
COST OF SALES...................................... 17,415 290 30,106 851
------- ------ -------- ------
8,143 268 10,978 581
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 30,984 2,179 62,058 5,432
------- ------ -------- ------
(22,841) (1,911) (51,080) (4,851)
AMORTIZATION....................................... 15,447 389 22,814 664
INTEREST AND FINANCING CHARGES, NET................ 14,488 (305) 27,866 (241)
------- ------ -------- ------
LOSS BEFORE INCOME TAXES........................... (52,776) (1,995) (101,760) (5,274)
RECOVERY OF FUTURE INCOME TAXES.................... (26,995) -- (26,606) --
------- ------ -------- ------
LOSS FOR THE PERIOD................................ (25,781) (1,995) (75,154) (5,274)
DEFICIT -- BEGINNING OF PERIOD..................... (62,455) (6,394) (13,082) (3,115)
------- ------ -------- ------
DEFICIT -- END OF PERIOD........................... (88,236) (8,389) (88,236) (8,389)
======= ====== ======== ======
LOSS PER SHARE (note 4)............................ (0.22) (0.10) (1.24) (0.32)
======= ====== ======== ======
The accompanying notes form an integral part of these interim condensed
consolidated financial statements.
F-2
5
GT GROUP TELECOM INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(thousands of Canadian dollars)
NINE MONTHS ENDED
JUNE 30,
-------------------
2000 1999
--------- ------
$ $
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period......................................... (75,154) (5,274)
Items not affecting cash
Amortization.............................................. 22,814 664
Non-cash interest expense................................. 41,676 --
Shares issued for interest on long-term debt.............. -- 171
Recovery of future income taxes........................... (26,606) --
--------- ------
(37,270) (4,439)
--------- ------
Changes in non-cash working capital items
Increase in accounts receivable........................... (36,537) (1,535)
Increase in prepaid expenses.............................. (8,227) (520)
Decrease in inventory..................................... 343 --
Increase in accounts payable and accrued liabilities...... 29,626 2,162
Increase in unearned revenue.............................. 257 2,238
--------- ------
(14,538) 2,345
--------- ------
Cash used in operating activities........................... (51,808) (2,094)
--------- ------
FINANCING ACTIVITIES
Issuance of shares.......................................... 396,036 42,718
Proceeds from long-term debt, net........................... 690,583 4,426
Proceeds from issuance of warrants.......................... 58,775 --
Issuance of loans to officers............................... (3,808) --
--------- ------
1,141,586 47,144
--------- ------
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (92,528) (8,883)
Purchase of long-term investment............................ (43,238) --
Increase in other assets.................................... (56,922) (548)
Business acquisitions....................................... (430,710) --
--------- ------
(623,398) (9,431)
--------- ------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 466,380 35,619
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD............ 59,851 2,476
--------- ------
CASH AND CASH EQUIVALENTS -- END OF PERIOD.................. 526,231 38,095
========= ======
Additional cash flow disclosures (note 5)
The accompanying notes form an integral part of these interim condensed
consolidated financial statements.
F-3
6
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
1 OPERATIONS AND BASIS OF PRESENTATION
The company markets and sells telecommunications services and related
products over fiber optic infrastructure to small and medium-sized
businesses in Canada. The company also uses Digital Subscriber Lines (DSL)
and fixed wireless technology to extend the reach of its network. The
company provides data, internet applications and voice services and derives
revenue from network usage and access, equipment sales, co-location and
consulting services and certain fiber optic leases.
The company's principal operations effectively began in the last quarter of
fiscal 1999, when its Vancouver telecommunication networks and facilities
were put into commercial service to provide customers with integrated
services. In fiscal 1999, the company also completed various agreements
with respect to financing and started developing telecommunication networks
and facilities under a national expansion strategy.
The company is a national facilities based provider of high-speed data,
internet application and voice services comprising a single operating
segment. Substantially all of the company's assets are located in Canada
and revenue is derived from services provided in Canada.
These condensed consolidated financial statements are prepared in
accordance with generally accepted accounting principles in Canada which,
in the case of the company, conform in all material respects with those in
the United States, except as outlined in note 8.
The information presented as at and for the interim periods ended June 30,
2000 and 1999 are unaudited. These unaudited interim financial statements
reflect all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods presented; all
such adjustments are of a normal recurring nature.
These condensed consolidated financial statements should be read in
conjunction with the company's consolidated financial statements for the
years ended September 30, 1999, 1998 and 1997. The results of operations
for the nine months ended June 30, 2000 are not necessarily indicative of
the results to be expected for the year ending September 30, 2000.
2 SIGNIFICANT TRANSACTIONS
(a) Pursuant to an offering circular and purchase agreement which closed
on February 1, 2000, the company issued 855,000 units, consisting of
US$855 million (issued at a price of 52.651%) of 13.25% Senior
Discount Notes due 2010 and 855,000 Warrants to Purchase 4,198,563
Class B non-voting shares. Gross proceeds amounted to US$450 million,
equivalent to approximately Cdn $651 million. Expenses related to the
offering amounted to approximately $20 million. Of the total proceeds
amounting to $651 million, $592 million was allocated to the Senior
Discount Notes and $59 million was allocated to the share purchase
warrants.
(b) On December 22, 1999, the company entered into an asset purchase and
subscription agreement with Shaw Communications Inc. ("Shaw
Communications") and Shaw FiberLink Ltd. ("Shaw FiberLink"). This
transaction closed on February 16, 2000. Under the purchase agreement,
the company purchased from Shaw FiberLink all of the property and
assets of Shaw FiberLink used in connection with the high-speed data
and competitive access business. The assets purchased include
equipment, computer hardware, fixed assets, replacement parts,
operational contracts, equipment contracts, supply contracts,
interconnect agreements, co-location agreements, customer contracts,
software licences, broadband wireless licences, vehicles, intellectual
property, permits, goodwill and
F-4
7
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
certain other fiber assets. The company and Shaw FiberLink also entered
into an indefeasible right to use agreement ("indefeasible right to
use") which grants the company an indefeasible right to use certain
specifically identified existing fibers in the fiber optic cable
networks of Shaw Communications for 60 years. In addition, the company
will receive an indefeasible right to use fibers to be built over the
next three years in mutually agreed regions. The company will also
assume certain obligations related to permits, operational contracts,
customer contracts, software licences and certain other obligations.
The purchase consideration of $760 million consisted of $360 million in
cash and 29,096,097 series B first preference shares of the company to
provide Shaw Communications with a 27.1% fully diluted interest in the
company at the date of the acquisition. The fair value of these shares
was determined to be $400 million. Acquisition costs amounted to $12
million.
Details of the assets and liabilities acquired at their fair value are
as follows:
$
-------
Indefeasible Right to Use Agreement
Property, plant and equipment representing indefeasible
rights to use constructed fibers....................... 329,000
Prepayment for indefeasible rights to use fibers to be
constructed............................................ 223,000
Shaw FiberLink acquisition
Property, plant and equipment............................. 100,000
Licence rights............................................ 13,800
Non-competition agreement................................. 15,000
Goodwill.................................................. 119,400
Future income taxes....................................... (28,200)
-------
772,000
=======
The prepayment of $223 million on property, plant and equipment
represents the prepayment of an indefeasible right to use certain fibers
to be built by Shaw Communications over the next three years.
Included in property, plant and equipment is an amount of $22 million
for an indefeasible right to use certain existing fibers located in New
Brunswick, Canada commencing in 2003.
Upon completion of the Initial Public Offering on March 15, 2000 (note
2(c)), the series B first preference shares issued to Shaw
Communications were automatically converted into Class A voting shares
of the company on a one-for-one basis.
(c) Pursuant to an Initial Public Offering which closed on March 15, 2000,
the company issued 18,000,000 Class B non-voting shares for aggregate
cash proceeds of US$232.9 million, net of US$19.1 million in
underwriting commissions and expenses of the offering. In addition, the
underwriters exercised their option to purchase an additional 2,700,000
Class B non-voting shares for net proceeds of US$35.2 million to the
company. Aggregate net proceeds of the Initial Public Offering amounted
to $391.7 million expressed in Canadian dollars.
F-5
8
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
Upon completion of the Initial Public Offering, 42,500,002 series A
first preference shares were automatically converted into 31,500,000
Class A voting shares and 11,000,002 Class B non-voting shares on a
one-for-one basis.
(d) On March 27, 2000, the company entered into an asset purchase
agreement with Moffat Communications Limited ("Moffat Communications").
This transaction closed on April 27, 2000. Under the purchase agreement,
the company purchased from Moffat Communications all the property and
assets used as a competitive access provider. The assets purchased
include equipment, operational contracts, customer contracts, software
licences, intellectual property, permits and certain other assets. The
company and Moffat Communications also entered into an indefeasible
right to use agreement ("indefeasible right to use") which granted the
company an indefeasible right to use certain specifically identified
existing fibers in the fiber optic cable networks of Moffat
Communications for 30 years. In addition, the company will receive an
infeasible right to use fibers to be built over the next three years in
mutually agreed upon regions. The company also assumed certain
liabilities related to permits, operational contracts, customer
contracts, software licences and certain other obligations.
The purchase consideration consisted of $68 million in cash and the
rights to acquire 1,667,000 Class B non-voting shares of the company. At
April 27, 2000, the closing date of this transaction, these shares had
an aggregate value of approximately $32 million. At June 30, 2000, these
shares remain unissued. Acquisition costs are estimated to be $3
million.
Details of the assets and liabilities acquired at their fair value are
as follows:
$
-------
Indefeasible Right to Use Agreement
Property, plant and equipment representing indefeasible
rights to use constructed fibers....................... 88,359
Prepayment for indefeasible rights to use fibers to be
constructed............................................ 7,600
Moffat Communications asset purchase
Property, plant and equipment............................. 7,397
-------
103,356
=======
The prepayment of $7.6 million on property, plant and equipment
represents the prepayment of an indefeasible right to use certain fibers
to be built by Moffat Communications over the next three years.
(e) On May 24, 2000, the company completed a multiple element agreement with
360networks Inc. Pursuant to this transaction, the company:
(i) purchased certain dark fibers to be constructed along Canadian
route paths for $137 million. Of this amount, $32 million was paid
in the quarter ended June 30, 2000 which is included in property,
plant and equipment. The balance will be paid over the next 3
years; and
(ii) purchased an indefeasible right to use certain dark fibers to be
constructed along United States route paths for $140 million. In
addition, the company acquired fiber optic capacity along a
diverse route in Canada and the United States under a long-term
lease arrangement giving the company exclusive telecommunication
rights on certain specific
F-6
9
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
wavelengths and acquired options to purchase additional wavelengths
on similar terms. Assets and obligations under these arrangements,
which will be accounted for as capital leases over 20 years
commencing in 2001, amount to approximately $85 million.
On April 12, 2000, the company purchased a less than 1% equity interest
in 360networks Inc. for $43 million in cash. The market value of the
investment at June 30, 2000 is $60 million.
3 SHARE CAPITAL AND OTHER EQUITY ITEMS
SHARE CAPITAL
Authorized
Common shares
Unlimited number of convertible Class A voting and Class B
non-voting common shares without par value
Preferred
50,000,000 Series A, convertible first preference shares without
par value
100,000,000 Series B, convertible first preference shares without
par value
JUNE 30, SEPTEMBER 30,
2000 1999
-------- -------------
$ $
Common shares issued
79,511,351 (September 30, 1999 -- 18,261,149)
Class A voting shares.................................. 463,246 12,573
37,698,571 (September 30, 1999 -- 4,148,569)
Class B non-voting shares.............................. 420,696 5,026
Preferred shares issued
Nil (September 30, 1999 -- 41,500,002) Series A, first
preference shares...................................... -- 67,281
------- ------
883,942 84,880
Shares to be issued (note 2(d))............................. 32,303 1,875
------- ------
916,245 86,755
Warrants (note 2(a))........................................ 58,776 --
Additional paid-in capital.................................. 255 255
Loans to officers........................................... (3,808) --
------- ------
971,468 87,010
======= ======
4 LOSS PER SHARE
Loss per share has been calculated using the weighted average number of
common shares outstanding for the periods presented. The weighted average
number of common shares for the three months ended June 30, 2000 amounted
to 118,375,924; 1999 -- 19,375,508 (nine months ended June 30, 2000 --
60,395,353; 1999 -- 16,743,424) shares.
Fully diluted loss per share has not been disclosed as it would be
anti-dilutive.
F-7
10
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
5 ADDITIONAL CASH FLOW DISCLOSURES
NON-CASH TRANSACTIONS
Purchases of property, plant and equipment of $101 million for the nine
months ended June 30, 2000 (nine months ended June 30, 1999 -- $12 million)
and purchases of other assets of $9 million at June 30, 2000 (nine months
ended June 30, 1999 -- $nil) were financed through long-term debt, notes
payable and through accounts payable and accrued liabilities. Accordingly,
these transactions are not reflected in the statements of cash flows.
6 RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2000, the company earned $6 million
(1999 -- $nil) of revenues and incurred $1 million (1999 -- $nil) of
administrative expenses in respect of transitional processing fees on the
Shaw FiberLink operations from a minority shareholder. The company has also
engaged this related company to process certain cash disbursements on its
behalf. Included in accounts receivable is $12 million (1999 -- $nil)
receivable from this customer, $6 million of which relates to balances
acquired upon the company's acquisition of Shaw FiberLink. Included in
accounts payable and accrued liabilities is $2 million (1999 -- $nil)
payable as at June 30, 2000 to this related company.
7 SUBSEQUENT EVENT
On July 13, 2000, the company entered into an asset purchase agreement with
Cable Atlantic Inc. ("Cable Atlantic"). This transaction closed on July 21,
2000. Under the purchase agreement, the company purchased from Cable
Atlantic all the property and assets used in connection with the fiber
optic business telecom operations. The assets purchased include property,
plant and equipment and specifically identified existing fibers in the
fiber optic cable networks of Cable Atlantic.
The purchase consideration consisted of $15 million in cash and the rights
to acquire 1,740,196 Class B non-voting shares of the company. The
aggregate fair value of the assets purchased is estimated to be $57
million. Acquisition costs are estimated to be $2 million.
F-8
11
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
8 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES
The company's condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
("GAAP") in Canada, which, in the case of the company conform in all
material respects with GAAP in the United States of America, except as
outlined below:
(A) NET LOSS AND SHAREHOLDERS' EQUITY
The following summary sets out the adjustments to the company's loss and
shareholders' equity, which would be made to conform to U.S. GAAP:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2000 1999 2000 1999
-------- ------- ------- ------
$ $ $ $
Loss for the period in accordance with
Canadian GAAP.............................. (25,781) (1,995) (75,154) (5,274)
Impact of U.S. accounting principles
Amortization of purchase price adjustment
(c)..................................... (230) -- (230) --
Deferred charges........................... -- (75) (15) (226)
Stock based compensation (d)............... (3,801) -- (7,610) --
Deferred foreign exchange (e).............. (5,993) -- 2,617 --
------- ------ ------- ------
Net loss in accordance with U.S. GAAP........ (35,805) (2,070) (89,392) (5,500)
Unrealized gains on securities net of tax
(f)..................................... 12,100 -- 12,100 --
------- ------ ------- ------
Comprehensive loss in accordance with U.S.
GAAP....................................... (23,705) (2,070) (68,292) (5,500)
======= ====== ======= ======
Net loss per share in accordance with U.S.
GAAP....................................... (0.30) (0.11) (1.48) (0.33)
======= ====== ======= ======
The reconciliation of shareholders' equity from Canadian to U.S. GAAP is
as follows:
AS AT
-------------------------
JUNE 30, SEPTEMBER 30,
2000 1999
-------- -------------
$
$ (AUDITED)
Shareholders' equity in accordance with Canadian GAAP....... 883,232 73,928
Purchase price adjustment, net of amortization of $230
(c)....................................................... 17,424 --
Deferred charges............................................ (417) (402)
Cumulative stock-based compensation expense (d)............. (7,925) (1,118)
Deferred stock based compensation expense................... (38,387) (287)
Net change in stock options................................. 46,312 1,405
Deferred foreign exchange (e)............................... 2,605 (12)
Other comprehensive income (f).............................. 12,100 --
------- ------
Shareholders' equity in accordance with U.S. GAAP........... 914,944 73,514
======= ======
F-9
12
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
(B) CONDENSED CONSOLIDATED BALANCE SHEETS
The following table indicates the restated amounts for the items in the
consolidated balance sheets of the company that would be affected had
the financial statements been prepared in accordance with U.S. GAAP:
AS AT
-------------------------
JUNE 30, SEPTEMBER 30,
2000 1999
-------- -------------
$
$ (AUDITED)
Property, plant and equipment............................... 782,315 73,817
Long-term investment........................................ 60,636 --
Deferred income taxes payable............................... 5,298 --
Goodwill and other assets................................... 208,573 877
Deferred stock-based compensation expense (c)............... (38,387) (287)
Share capital............................................... 989,588 85,480
Additional paid-in capital.................................. 337 337
Stock options outstanding (c)............................... 46,312 723
Cumulative other comprehensive income....................... 12,100 --
Deficit..................................................... (95,006) (14,614)
(C) PURCHASE PRICE ADJUSTMENT
For U.S. GAAP, the company has recorded the purchase price of the assets
acquired from Moffat Communications (Note 2 (d)), based on the fair
value of consideration agreed to on March 27, 2000, when the company
entered into an asset purchase agreement. The purchase consideration
consisted of $68 million cash and the rights to acquire 1,667,000 Class
B non-voting shares of the company, which had an aggregate value of
approximately $50 million at March 27, 2000. For U.S. GAAP purposes,
details of assets and liabilities acquired at their fair value are as
follows:
$
-------
Indefeasible Right to Use Agreement
Property, plant and equipment representing indefeasible
rights to use constructed fibers....................... 91,748
Prepayment for indefeasible rights to use fibers to be
constructed............................................ 7,600
Moffat Communications acquisition
Property, plant and equipment............................. 7,397
Non-competition agreement................................. 2,360
Goodwill.................................................. 11,905
-------
121,010
=======
For Canadian GAAP, the fair value of the shares to be issued as partial
consideration of the purchase price has been determined based on the
average stock price on April 27, 2000, the date the transaction closed.
F-10
13
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
(D) STOCK-BASED COMPENSATION
For U.S. GAAP, the company has chosen to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees". This method recognizes compensation cost as the amount by
which the fair value of the stock exceeds the exercise price at the date
of grant. The compensation cost is recognized over the vesting period.
For U.S. GAAP, the compensation cost not yet recognized is presented as
a deferred stock-based compensation charge, with a corresponding amount
included in stock options outstanding, both of which form part of
shareholders' equity. For Canadian GAAP, stock-based compensation
expense is not recorded in the accounts of the company.
Had the company determined compensation costs based on fair value at the
date of grant for its awards under a method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" the company's loss and loss per share would be as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
------------------ -----------------
$ $
Loss in accordance with U.S. GAAP..................... (35,805) (89,392)
Additional compensation expense....................... (678) (1,148)
------- -------
Pro forma net loss.................................... (36,483) (90,540)
======= =======
Pro forma loss per share.............................. (0.31) (1.50)
======= =======
The pro-forma compensation expense reflected above has been estimated using
the Black Scholes option-pricing model. Assumptions used in the pricing
model included: (i) risk free interest rate of between 4.10% - 6.41%; (ii)
expected volatility of ranging between nil - 65%; (iii) expected dividend
yield of nil; and (iv) an estimated average life of ranging from 2.67 - 3
years.
A summary of stock options outstanding at June 30, 2000 is set out below:
OUTSTANDING STOCK OPTIONS EXERCISABLE STOCK OPTIONS
--------------------------------------------- --------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
EXERCISE REMAINING AVERAGE AVERAGE
PRICE NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
-------- --------- ---------------- -------------- --------- --------------
$ $ $
0.50 97,827 0.54 years 0.50 97,827 0.50
1.00 37,500 0.33 years 1.00 37,500 1.00
1.25 887,933 2.84 years 1.25 709,060 1.25
1.50 1,064,056 3.92 years 1.50 718,167 1.50
1.875 373,505 3.29 years 1.875 247,561 1.875
3.00 2,056,221 4.18 years 3.00 429,860 3.00
8.00 1,932,421 4.63 years 8.00 241,265 8.00
20.40 367,864 4.83 years 20.40 32,252 20.40
--------- ---------- ------- --------- -------
6,817,327 4.00 years $ 4.79 2,513,492 $ 2.54
========= ========== ======= ========= =======
F-11
14
GT GROUP TELECOM INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
JUNE 30, 2000 AND 1999
(thousands of Canadian dollars)
(E) DEFERRED FOREIGN EXCHANGE
U.S. GAAP requires immediate recognition in income of unrealized foreign
currency exchange gains and losses on long-term monetary items with a fixed
or ascertainable life whereas Canadian GAAP requires that these unrealized
gains and losses be deferred and amortized over the remaining term of the
long-term monetary items.
(F) UNREALIZED GAIN ON SECURITIES
Under U.S. GAAP, portfolio investments which are considered to be
"available for sale" securities are measured at market value, with the
unrealized gains and losses included in comprehensive income/loss. Under
Canadian GAAP, the company's long-term investment is recorded at cost. The
concept of comprehensive income/loss does not exist under Canadian GAAP.
(G) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". This
statement establishes methods of accounting for derivative instruments,
including certain derivatives embedded in other contracts, and for hedging
activities. The statement requires that entities recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. The company is not required to adopt this
statement until its fiscal year ended September 30, 2001. The company is
currently evaluating the effect that implementation will have on its
results of operations and financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 on Revenue Recognition. The company is not
required to adopt any associated effects until the commencement of its
fiscal year ending September 30, 2001. The company has not yet quantified
the impact of implementing the Bulletin, if any.
F-12
15
GT GROUP TELECOM INC.
SUPPLEMENTAL INFORMATION TO INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(thousands of Canadian dollars)
JUNE 30, MARCH 31, DECEMBER 31,
2000 2000 1999
--------- --------- ------------
$ $ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................ 526,231 732,053 29,348
Accounts receivable
Trade.................................................. 32,799 12,801 1,922
Other.................................................. 7,786 2,456 3,858
Prepaid expenses......................................... 8,958 5,227 2,074
Inventory................................................ 201 201 545
--------- --------- -------
575,975 752,738 37,747
PREPAYMENT ON PROPERTY, PLANT AND EQUIPMENT.............. 230,600 223,000 --
PROPERTY, PLANT AND EQUIPMENT............................ 778,926 567,568 108,009
LONG-TERM INVESTMENT..................................... 43,238 -- --
GOODWILL AND OTHER ASSETS................................ 199,710 192,366 14,902
--------- --------- -------
1,828,449 1,735,672 160,658
========= ========= =======
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities................. 88,485 42,583 34,963
Unearned revenue......................................... 1,325 925 676
Current portion of long-term debt........................ 1,204 6,203 3,746
--------- --------- -------
91,014 49,711 39,385
LONG-TERM UNEARNED REVENUE............................... 1,080 1,219 1,356
LONG-TERM DEBT........................................... 853,123 781,447 57,028
FUTURE INCOME TAXES...................................... -- 28,200 --
--------- --------- -------
945,217 860,577 97,769
--------- --------- -------
SHAREHOLDERS' EQUITY
SHARE CAPITAL AND OTHER EQUITY ITEMS..................... 971,468 937,550 88,035
DEFICIT.................................................. (88,236) (62,455) (25,146)
--------- --------- -------
883,232 875,095 62,889
--------- --------- -------
1,828,449 1,735,672 160,658
========= ========= =======
F-13
16
GT GROUP TELECOM INC.
SUPPLEMENTAL INFORMATION TO INTERIM FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(thousands of Canadian dollars)
FOR THE THREE MONTHS ENDED,
-------------------------------------
JUNE 30, MARCH 31, DECEMBER 31,
2000 2000 1999
-------- --------- ------------
$ $ $
REVENUE.................................................... 25,558 13,259 2,267
COST OF SALES.............................................. 17,415 10,553 2,138
------- ------- -------
8,143 2,706 129
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 30,984 20,286 10,788
------- ------- -------
(22,841) (17,580) (10,659)
AMORTIZATION............................................... 15,447 6,169 1,198
INTEREST AND FINANCING CHARGES............................. 14,488 13,237 141
------- ------- -------
LOSS BEFORE INCOME TAXES................................... (52,776) (36,986) (11,998)
PROVISION FOR INCOME TAXES................................. (26,995) 323 66
------- ------- -------
LOSS FOR THE PERIOD........................................ (25,781) (37,309) (12,064)
DEFICIT -- BEGINNING OF PERIOD............................. (62,455) (25,146) (13,082)
------- ------- -------
DEFICIT -- END OF PERIOD................................... (88,236) (62,455) (25,146)
======= ======= =======
LOSS PER SHARE............................................. (0.22) (0.90) (0.54)
======= ======= =======
F-14
17
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
QUARTER ENDED JUNE 30, 2000
OVERVIEW
We experienced a significant amount of growth this period compared to prior
year period, therefore, the analysis of our results of operations on a year to
year basis is not useful. Accordingly, we have tailored our discussion to a
quarter by quarter comparison in order to provide valuable information.
During the quarter ended June 30, 2000, we experienced significant growth
in our business through the development of our own network and from business
acquisitions. Following our business plan, we continue to expand our presence as
a nationwide competitive local exchange carrier.
GROUP TELECOM -- OUR RESULTS OF OPERATIONS
Revenue
Total revenues increased by 93%, from $13 million to $26 million, from
March to June 2000, respectively. The increase was driven by strong growth in
both our voice and data/private services, as well as, additional customers from
the acquisitions of Moffat Communications' competitive access business and Shaw
FiberLink.
Cost of Sales
Total cost of sales increased by 65%, from $11 million to $17 million from
March to June 2000, respectively. The increase was related to large growth in
revenues for the same period. Gross margin totaled $8 million or 32% of revenues
compared with $3 million or 20% of revenues in the previous quarter. As the
company expanded its network, gross margin improved due to the migration of
off-net voice and data customers to the Group Telecom network. As well, the
company was able to serve a higher percentage of new revenue on its own network.
Selling, general and administrative expenses
Total sales, general and administrative expenses amounted to $31 million
for the current quarter compared to $20 million for the previous quarter,
representing an increase of 53%. Our growth continues to drive cost increases in
several areas such as salaries, rent, advertising and travel. This significant
growth will continue as we complete the buildup of our network and sales force.
EBITDA
Earnings before interest, taxes, depreciation and amortization (EBITDA)
related to data, application and voice services for the quarter ended June 30,
2000 was negative $23 million compared to negative $18 million for the previous
quarter.
Amortization
Amortization expenses increased significantly during the current quarter to
$16 million compared to $6 million for the previous quarter, representing an
increase of 150%. Significant additions to property, plant and equipment in
connection with the deployment of our network, and the impact of a full quarter
of depreciation and goodwill amortization related to the Shaw and Moffat
acquisitions contributed to this increase.
18
Interest and financing charges
Interest and financing charges were $14 million for the current quarter
compared to $13 million in the previous quarter. This increase was due to a $9
million increase in net interest cost related to the high yield debt and the
term loans entered into during the quarter ended March 31, 2000, partially
offset by a $7 million non-recurring foreign exchange translation gain related
to cash held in US dollars.
Recovery of future income taxes
Recovery of future income taxes for the quarter amounted to $27 million.
This recovery is attributed to the recognition of the tax benefit from operating
loss carry-forward to the extent of existing temporary differences arising from
the Shaw FiberLink acquisition.
Net loss
As a result of the above, the net loss for the quarter ended June 30, 2000
was $54 million or $0.46 per share compared to $37 million or $0.90 per share
for the quarter ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased during the quarter ended June 30, 2000
based on our operating requirements and due to the following significant cash
transactions:
- - Partial payment on the asset purchase from Moffat
Communications............................................ $68 million
- - Initial payment to 360networks Inc. for construction of
dark fiber................................................ $32 million
- - Investment in 360networks Inc............................. $43 million
During the quarter ended June 30, 2000, we purchased the assets used by
Moffat Communications as a competitive access provider. The purchase consisted
of $68 million cash and the rights to acquire 1,667,000 Class B non-voting
shares with an aggregate value of $32 million. Acquisition costs are estimated
to be $3 million. The assets purchased were as follows:
- - Property, plant and equipment representing indefeasible
rights to use constructed fibers.......................... $88 million
- - Prepayment for indefeasible right to use fibers to be
constructed............................................... $ 8 million
- - Property, plant and equipment............................. $ 7 million
During the quarter ended June 30, 2000, capital expenditures related to the
expansion of our network amounted to $91 million compared to $35 million for the
previous quarter, representing an increase of 34%.
GROUP TELECOM WORKING CAPITAL ITEMS
Increases in accounts receivable were due to growth in sales. Accordingly,
our trade receivables increased significantly to $33 million compared to $13
million in March 2000.
Other items such as prepaid expenses, accounts payable and accrued
liabilities increased from March 31 to June 30, 2000. These increases are
directly related to the growth of our company as a nationwide competitive local
exchange carrier.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GT GROUP TELECOM INC.
(Registrant)
Date August 3, 2000 By /s/ STEPHEN H. SHOEMAKER
-------------------------------------------
Stephen H. Shoemaker
Executive Vice-President
and Chief Financial Officer