GLOBENET COMMUNICATIONS GROUP LTD
10-Q, 2000-08-14
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                      __________________________________

                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934.


     For the quarterly period ended June 30, 2000


                                      OR


[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934.

                      Commission file number:  333-86461

                     GLOBENET COMMUNICATIONS GROUP LIMITED
            (Exact name of registrant as specified in its charter)


                                    Bermuda
                        (State or other jurisdiction of
                        incorporation or organization)


                              2 Carter's Bay Road
                          Southside, St. David's DDBX
                                    Bermuda
         (Address, including zip code, of principal executive offices)


                                (441) 296-9000
             (Registrant's telephone number, including area code)


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 [_]

The number of shares, $1.50 par value per share, of the registrant's common
shares outstanding as of June 30, 2000: 17,210,679 shares.
<PAGE>

                     GLOBENET COMMUNICATIONS GROUP LIMITED

                               Table of Contents

Part I.   FINANCIAL INFORMATION


Item 1. Financial Statements (Unaudited)

 Consolidated Balance Sheets ..........................................    1

 Consolidated Statements of Operations.................................    2

 Consolidated Statements of Cash Flows.................................    3

 Notes to Unaudited Consolidated Financial Statements..................    4


Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations..................................    6

Item 3. Quantitative and Qualitative Disclosures About
  Market Risk..........................................................    14


Part II.  OTHER INFORMATION

Item 1.  Legal Proceedings..............................................   15

Item 2.  Changes in Securities and Use of Proceeds......................   15

Item 3.  Defaults Upon Senior Securities................................   15

Item 4.  Submission of Matters to a Vote of Security Holders............   15

Item 5.  Other Information..............................................   16

Item 6.  Exhibits and Reports on Form 8-K...............................   16
<PAGE>

                                    PART I.
                             FINANCIAL INFORMATION

ITEM 1. Financial Statements.


                     GlobeNet Communications Group Limited

                          Consolidated Balance Sheets
                                  (Unaudited)
--------------------------------------------------------------------------------

      (in thousands of U.S. dollars, except share and per share amounts)

<TABLE>
<CAPTION>

                                                                              June 30,          December 31,
                                                                                  2000                  1999
                                                                                     $                     $

<S>                                                                        <C>                  <C>
Assets

Current assets
Restricted cash                                                                 79,998                79,998
Accounts receivable (net of allowance of $224; 1999 - $224)                      2,395                 2,096
Other receivables                                                                  219                   150
Prepaid expenses and deposits                                                    1,871                 1,632
                                                                           ------------------------------------

                                                                                84,483                83,876

Restricted cash                                                                275,202               448,399
Fixed assets                                                                    50,736                49,148
Construction in progress                                                       266,340                98,062
Other assets                                                                    24,310                25,847
                                                                           ------------------------------------

                                                                               701,071               705,332
                                                                           ------------------------------------

Liabilities

Current liabilities
Accounts payable                                                                44,296                36,179
Accrued liabilities                                                             21,114                21,117
                                                                           ------------------------------------

                                                                                65,410                57,296

Long-term debt                                                                 400,000               400,000

Deferred revenue                                                                 6,500                 6,455
                                                                           ------------------------------------

                                                                               471,910               463,751
                                                                           ------------------------------------

Shareholders' Equity

Share capital
Class B shares, 2,000 shares authorized, par value $1.50 each
      1,000 (1999 - nil) shares issued and outstanding                               2                     2
Common shares, 24,000,000 authorized, par value $1.50 each
      17,210,679 (1999 - 17,043,900) shares issued and outstanding              25,816                25,566

Additional paid-in capital                                                     256,759               246,866

Deficit                                                                        (53,416)              (30,853)
                                                                           ------------------------------------

                                                                               229,161               241,581
                                                                           ------------------------------------

                                                                               701,071               705,332
                                                                           ====================================
</TABLE>


 The accompanying  notes are an integral part of these consolidated financial
                                  statements.

--------------------------------------------------------------------------------
                                                                          Page 1
<PAGE>

                     GlobeNet Communications Group Limited

                     Consolidated Statements of Operations
               For the three months ended June 30, 2000 and 1999
--------------------------------------------------------------------------------

      (in thousands of U.S. dollars, except share and per share amounts)

<TABLE>
<CAPTION>
                                                         Three months ended June 30,             Six months ended June 30,
                                                    ------------------------------------   ------------------------------------

                                                              2000               1999                2000               1999
                                                                 $                  $                   $                  $
<S>                                                 <C>                          <C>       <C>                         <C>
Revenues
Telecommunications services                                  6,852               6,930             13,196              12,965
IRU capacity                                                    79                  80                158                 157
                                                    ---------------------------------------------------------------------------

                                                             6,931               7,010             13,354              13,122
                                                    ---------------------------------------------------------------------------

Expenses
Carrier charges                                              1,940               3,355              4,389               6,060
General and administrative expenses                         18,178               2,599             27,698               4,704
Amortization of fixed assets                                   680                 409              1,368                 815
                                                    ---------------------------------------------------------------------------

                                                            20,798               6,363             33,455              11,579
                                                    ---------------------------------------------------------------------------

Operating (loss) income                                    (13,867)                647            (20,101)              1,543

Interest on long-term debt                                   6,582                 876             16,190               1,737
Accrued contingent interest                                      -                 260                  -                 495
Interest income                                             (6,675)                (33)           (13,785)               (116)
                                                    ---------------------------------------------------------------------------

Loss before income taxes and equity accounted
      for investments                                      (13,774)               (456)           (22,506)               (573)

Provision for income taxes                                     (31)                (10)               (57)                (19)
                                                    ---------------------------------------------------------------------------

Loss before equity accounted for investments               (13,805)               (466)           (22,563)               (592)

Loss from equity accounted for investments                       -                (232)                 -                (464)
                                                    ---------------------------------------------------------------------------

Net loss and comprehensive loss for the period             (13,805)               (698)           (22,563)             (1,056)
                                                    ===========================================================================

Basic and fully diluted loss per common share
      (note 5)                                               (0.81)              (0.20)             (1.32)             (0.30)
                                                    ===========================================================================
</TABLE>


 The accompanying  notes are an integral part of these consolidated financial
                                  statements.

--------------------------------------------------------------------------------
                                                                          Page 2
<PAGE>

                     GlobeNet Communications Group Limited

                     Consolidated Statements of Cash Flows

                For the six months ended June 30, 2000 and 1999
--------------------------------------------------------------------------------

      (in thousands of U.S. dollars, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                     2000                  1999
                                                                        $                     $
<S>                                                             <C>                      <C>
Cash provided by (used in)

Operating activities
Net loss for the period                                           (22,563)               (1,056)
Items not involving cash
      Amortization of fixed assets                                  1,368                   815
      Amortization of other assets                                  2,094                   160
      Loss from equity accounted for investments                        -                   464
      Accrued contingent interest                                       -                   495
      Compensatory share options                                    9,246                     -
Net change in non-cash operating items
      Accounts receivable                                            (299)               (1,035)
      Other receivables                                               (69)                  589
      Note receivable                                                 (16)                  (16)
      Prepaid expenses and deposits                                  (239)                 (263)
      Accounts payable                                             (1,234)                  461
      Accrued liabilities                                             118                 5,834
      Interest payable                                               (121)                  768
      Deferred revenue                                                 45                   (62)
                                                                ----------------------------------

                                                                  (11,670)                7,154
                                                                ----------------------------------

Financing activities
Issuance of share options                                             897                     -
Proceeds from issuance of long-term debt                                -                   500
Payments of long-term debt                                              -                (3,150)
Deferred financing costs                                             (616)               (1,001)
                                                                ----------------------------------

                                                                      281                (3,651)
                                                                ----------------------------------

Investing activities
Restricted cash                                                   173,197                     -
Purchase of fixed assets                                           (2,956)               (6,851)
Construction in progress                                         (158,927)                    -
Change in other assets                                                 75                     4
Due from related party                                                  -                 1,363
                                                                ----------------------------------

                                                                   11,389                (5,484)
                                                                ----------------------------------

Decrease in cash for the period                                         -                (1,981)

Cash - Beginning of period                                              -                 3,032
                                                                ----------------------------------

Cash - End of period                                                    -                 1,051
                                                                ==================================

Interest and income taxes paid
Interest                                                           24,802                   793
Income taxes                                                          104                    11
</TABLE>


 The accompanying  notes are an integral part of these consolidated financial
                                  statements.

--------------------------------------------------------------------------------
                                                                          Page 3
<PAGE>

                     GlobeNet Communications Group Limited

                  Notes to Consolidated Financial Statements
                            June 30, 2000 and 1999
--------------------------------------------------------------------------------

      (in thousands of U.S. dollars, except share and per share amounts)


1    Nature of operations

     GlobeNet Communications Group Limited ("the Company") provides
     international telecommunications services to both residential and
     commercial customers and is a provider of telecommunications capacity. The
     Company is currently developing a fibre optic submarine cable system called
     Atlantica-1 that will link Bermuda, North and South America and offer
     capacity between major cities in the United States, Bermuda, Brazil,
     Venezuela and Argentina. Atlantica-1 is currently being constructed.

     In November 1997, the Company deployed a fibre optic submarine cable system
     which connects Bermuda and the United States ("BUS-1"). The Company
     provides international telecommunications services to both residential and
     commercial customers in Bermuda through a subsidiary company, TeleBermuda
     International Limited ("TBI") through the BUS-1.

     On January 10, 1997, TBI was granted its public telecommunications service
     licence in Bermuda under the provisions of the Telecommunications Act, 1986
     and the Public Telecommunication Service (Licence) Regulations, 1988 for a
     five-year term and began commercial operations in May 1997. TBI has an
     interconnection agreement with the Bermuda Telephone Company ("BTC"), the
     domestic carrier in Bermuda. No consideration was paid by the Company in
     relation to these agreements.

2    Interim unaudited consolidated financial statements

     The unaudited consolidated balance sheet as at June 30, 2000 and the
     unaudited consolidated statements of operations for the six months ended
     June 30, 2000 and June 30, 1999 and the three months ended June 30, 2000
     and June 30, 1999 and the unaudited consolidated statements of cash flows
     for the six months ended June 30, 2000 and June 30, 1999, in the opinion of
     management, have been prepared on the same basis as the audited
     consolidated financial statements and include all adjustments necessary for
     the fair statement of the results of the interim periods. All adjustments
     reflected in the consolidated financial statements are of a normal
     recurring nature. The data disclosed in the notes to the consolidated
     financial statements for these periods are also unaudited. Results for the
     three and six month periods ended June 30, 2000 and 1999 are not
     necessarily indicative of the results to be expected for the full year.

3    Recent accounting pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
     ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
     Activities," which is effective for fiscal years beginning after June 15,
     2000. SFAS 133, as amended, requires the Company to recognize all
     derivatives as either assets or liabilities and measure those instruments
     at fair value. It further provides criteria for derivative instruments to
     be designated as fair value, cash flow and foreign currency hedges and
     establishes respective accounting standards for reporting changes in the
     fair value of the derivative instruments. Upon adoption, the Company will
     be required to adjust hedging instruments to fair value in the balance
     sheet and recognize the offsetting gains or losses as adjustments to be
     reported in net income or other comprehensive income, as appropriate.
     Management has not determined the impact of this statement on its financial
     position, results of operations and cash flows.

--------------------------------------------------------------------------------
                                                                          Page 4

<PAGE>

                     GlobeNet Communications Group Limited

                  Notes to Consolidated Financial Statements
                            June 30, 2000 and 1999
--------------------------------------------------------------------------------

      (in thousands of U.S. dollars, except share and per share amounts)


     FASB Interpretation No. 43, "Real Estate Sales - an interpretation of FASB
     Statement No. 66," was issued in June 1999. It clarifies the standards for
     recognition of profit on all real estate sales transactions, including
     those related to fibre optic cable that cannot be removed and used
     separately from the real estate without incurring significant costs. This
     interpretation is effective for all applicable transactions after June 30,
     1999. However, no such transactions have been entered into after June 30,
     1999 and we have not yet completed our analysis of the applicability or the
     impact of this statement on future transactions.

4    Common share options

     During the six months ended June 30, 2000, the Board of Directors granted
     477,521 options at an exercise price of $20.40 to employees and certain
     officers and directors. The difference between the market price and the
     exercise price on the grant date has been reflected as deferred
     compensation in shareholders' equity and has being amortized over the
     vesting period. As at June 30, 2000, as a result of the acquisition of the
     Company by 360networks inc., outstanding stock options covering 1,640,420
     shares of common stock vested and were converted to stock options on common
     stock of 360networks inc. at a ratio of 1 to 2.51.

5    Basic and fully diluted loss per common share

     The basic loss per common share is calculated using the weighted average
     number of common shares outstanding of 17,127,290 (1999 - 3,515,927). The
     weighted average number of common shares on a fully diluted basis is
     calculated on the same basis as the basic weighted average number of shares
     as the Company is in a loss position and the effects of possible conversion
     would be anti-dilutive.

6    Acquisition of the Company

     On June 20, 2000, a transaction was finalized whereby 360networks inc.
     acquired all of the common shares of GlobeNet in exchange for 2.51
     360networks inc.'s subordinate voting shares.

--------------------------------------------------------------------------------
                                                                          Page 5
<PAGE>

ITEM 2.   Management's Discussion And Analysis Of Financial Condition And
          Results Of Operations.

     You should read the discussion in this section in conjunction with our
unaudited interim consolidated financial statements and the notes thereto
included elsewhere in this report. Certain information contained in this
section, including information with respect to our plans and expectations for
our business, is forward-looking. You should carefully consider the factors set
forth in this section under the caption "Forward-Looking Statements" and
elsewhere in this report and in the "Business--Risk Factors" section of the
Company's annual report on Form 10-K for the fiscal year ended December 31, 1999
(file no. 333-86461) on file with the Securities and Exchange Commission for a
discussion of important factors that could cause actual results to differ
materially from any forward-looking statements contained in this Form 10-Q.

Overview

     GlobeNet Communications Group Limited was incorporated and registered on
June 25, 1998 as a Bermuda exempt company as part of a reorganization of the
TeleBermuda International Limited ("TBI") group of companies. Under the
reorganization, TBI, which was incorporated on January 6, 1995, became our
wholly owned subsidiary, and the issued shares of TBI were exchanged for our
common shares on a one-for-one basis with substantially the same rights and
privileges.

     Historically, through our wholly owned subsidiary TBI, we have provided
retail international telecommunications services to, from and through Bermuda.
In November 1997, we successfully completed the deployment of the BUS-1 undersea
fiber optic cable system which connects Bermuda and the United States. The BUS-1
system established us as a full-service facilities-based provider, a company
that has its own long-distance transmission and switching facilities, of
international long-distance service for traffic originating and terminating in
Bermuda.

     We plan to extend our business to become a provider of city-to-city
international telecommunications network solutions on a wholesale "carriers'
carrier" basis using a combination of undersea fiber optic cable systems and
terrestrial extensions. We are currently developing the Atlantica-1 Network, an
undersea fiber optic cable system, as part of this plan. We will incorporate the
BUS-1 system into the Atlantica-1 Network.

     Our international telecommunications network solutions business is in the
development stage and, accordingly, our historical consolidated financial
information relates primarily to TBI's retail international telecommunications
business and is not necessarily indicative of future results.

     We report our results in U.S. dollars, although historically a significant
portion of our revenues and expenses have been settled in Bermuda dollars, which
are pegged to the U.S. dollar at par. Therefore, currency fluctuations have not
affected the results of our existing operations. Substantially all of our costs
incurred in connection with the Atlantica-1 Network will be incurred in U.S.
dollars. While we expect to invoice a majority of our customers in U.S. dollars,
we may be required to invoice certain customers in other currencies. To the
extent we receive revenues in currencies other than U.S. dollars, our results of

--------------------------------------------------------------------------------
                                                                          Page 6
<PAGE>

operations may be impacted by currency fluctuations.

360networks inc. Transaction

     On June 20, 2000, a transaction was finalized whereby 360networks
inc.("360networks") acquired all of the common shares of GlobeNet in exchange
for 2.51 360networks' subordinate voting shares. 360networks offers broadband
network services for telecommunications companies, Internet service providers,
application service providers and data-centric enterprises. 360networks is
completing a technologically advanced 90,300-kilometer (56,100 mile) network,
including a fiber optic terrestrial network in North America and Europe and
undersea cables linking North America and Europe. 360networks and its
predecessors have been developing communications networks since 1988.

Revenues

     Revenues from international long-distance services are derived from the
number of minutes of use billed by us and are recorded as the services are
rendered, after deducting an estimate for the traffic for which revenue will not
be collected. Historically deductions have not been material. Revenues from
prepaid calling cards are recognized at the time of usage or upon expiration of
the card. Revenues from private line services are recognized as earned on a
monthly basis.

     Customers may enter into agreements to purchase capacity from us in the
form of the granting of indefeasible rights of use, or IRUs, portable IRUs or
capacity leases. Revenue from the sale of capacity by us is recognized at the
date a customer first has access to the capacity, provided certain conditions
are met. IRU and portable IRU sales are methods of transferring rights to fiber
optic cable capacity that grant to the purchaser an indefeasible right to use
the unit of capacity sold for the time, usually the remaining life of the
system, to which the IRU applies. Once the IRU is granted to the purchaser, the
purchase price is non-refundable and the purchaser is required to pay
operations, administration and maintenance fees for as long as connectivity is
maintained. The proceeds from the long-term operating lease of capacity are
deferred and amortized over the term of the contract.

Recent accounting pronouncements

     FASB Interpretation No. 43, "Real Estate Sales - an interpretation of FASB
Statement No. 66", was issued in June 1999. It clarifies the standards for
recognition of profit on all real estate sales transactions, including those
related to fiber optic cable that cannot be removed and used separately from the
real estate without incurring significant costs. This interpretation is
effective for all applicable transactions after June 30, 1999. However, no such
transactions have been entered into after June 30, 1999 and we have not yet
completed our analysis of the applicability or the impact of this statement on
future transactions. In addition, we note that the accounting for sales of
capacity is evolving, and is currently under consideration by accounting
standard setters. Any change in accounting literature may affect the timing and
method of recognition of these revenues and related costs.

Carrier Charges and Cost of IRU Capacity

     TBI's cost of services is comprised primarily of local access charges and
international termination costs. Local access charges are paid to the Bermuda
Telephone Company for each minute of traffic that we originate or terminate in
Bermuda. As of January 1, 1999, the Minister of Telecommunications and
Technology's December 1998 directive reduced TBI's local access charge to $0.15
per minute for both originating and terminating traffic. The directive mandated
a second reduction on July 1, 1999 to $0.10 per minute and a third reduction on
July 1, 2000 to $0.07.

     International terminations are completed through our correspondent carriers
and are charged to us on the basis of prevailing international settlement rates.

--------------------------------------------------------------------------------
                                                                          Page 7
<PAGE>

We receive return traffic on the major routes that effectively offset our
payments for Bermuda-originated traffic. Our primary correspondent carriers are
MCI WorldCom and British Telecom. The current settlement rates with carriers in
the United States and the United Kingdom, which comprise the largest markets for
Bermuda-originated traffic, are $0.15 per minute and the equivalent of $0.48 per
minute, respectively. The rates for international terminations have declined
recently and we expect they will continue to decline as international
conventions are modified and competition among international carriers
intensifies.

     For our wholesale carriers' carrier business, costs to build our systems
are capitalized. The cost of capacity sales are calculated on a pro rata basis
of total capacity sold in relation to the estimated total capacity.

Operating Expenses

     Our operating expenses include network expenses and general and
administrative costs incurred to sustain and expand our Bermuda operations, as
well as to plan and finance the intended construction of the Atlantica-1
Network. As our systems develop, additional resources will be required to
provide for operations and for sales of capacity. On July 19, 2000, a subsidiary
of GlobeNet entered into a wet maintenance service agreement with Alcatel
(defined below) that will provide for the undersea plant maintenance repair of
the Atlantica-1 Network. We expect to recover a substantial portion of our
operating, administration and maintenance costs from periodic payments by
customers. The amounts of these payments will be based on the pro rata capacity
purchased by the customer in relation to the total capacity of the system. Each
customer's pro rata share will be capped and therefore, our share of operation,
administration and maintenance costs will be higher at the outset and will
decline over time as capacity is sold.

Results of Operations - Three Months Ended June 30, 2000 Compared With
Three Months Ended June 30, 1999

Revenues

     Revenues decreased to $6.9 million for the three months ended June 30,
2000 compared to $7.0 million for the three months ended June 30, 1999, a
decrease of 1.4%.

     Outbound revenues decreased to $4.8 million for the three months ended June
30, 2000 compared to $5.3 million for the three months ended June 30,1999, a
decrease of 9.4%. This decrease was largely the result of a decrease in the
average rate per minute. The average rate per outbound minute realized was $0.80
for the three months ended June 30, 2000 compared to $0.87 for the three months
ended June 30, 1999. Outbound traffic volumes increased to 6.1 million minutes
for the three months ended June 30, 2000 from 6.0 million minutes for the three
months ended June 30, 1999. These volume increases were a response to an
increase in marketing and advertising by the Company and were reflective of a
positive response to the rate reductions.

     Inbound revenue decreased to $0.8 million during the three months ended
June 30, 2000 compared to $1.2 million during the three months ended June 30,
1999, a decrease of 33.3%. This decrease was largely the result of a decrease in
our settlement rate with our primary correspondent carrier. Further, revenue
from TBI's debit card product increased to $442,000 during the three months
ended June 30, 2000 compared to $337,000 during the three months ended June 30,
1999,an increase of 31.2%. Sales of international private lines increased from
$94,000 for three months ended June 30, 1999 to $682,000 for the three months
ended June 30, 2000 due to more effective marketing of this product.

--------------------------------------------------------------------------------
                                                                          Page 8
<PAGE>

Carrier Charges

     Carrier Charges decreased to $1.9 million during the three months ended
June 30, 2000 compared to $3.4 million during the three months ended June 30,
1999, a decrease of 44.1%.

     Local access charges for Bermuda originating and terminating traffic
decreased to $1.2 million for the three months ended June 30, 2000 from $1.3
million for the three months ended June 30, 1999. The decrease reflects
reductions in the settlement rates paid to the Bermuda Telephone Company which
were reduced from $0.27 per minute to $0.10 per minute for outbound traffic and
from $0.24 per minute to $0.10 per minute for inbound traffic. This impact of
lower settlement rates was partially offset by an increase in traffic volume.

     Foreign settlements for the three months ended June 30, 2000 decreased to
$0.7 million from $2.1 million for the three months ended June 30, 1999, a
decrease of 66.7%. This decrease was largely due to a reduction in the
settlement rate to terminate calls to the U.S. which decreased from $0.35 to an
average rate of $0.17. The impact of lower settlement rates was partially offset
by an increase in traffic volume.

General and Administrative Expenses

     General and administrative expenses increased during the three months ended
June 30, 2000 to $18.1 million compared to $2.6 million during the three
months ended June 30, 1999, an increase of 596.2%. This increase was
primarily due to marketing, promotions and administrative costs associated with
the Atlantica-1 Network and commitment fees related to the Atlantica-1 Network
financing. The increase also reflects costs of $4.5 million related to the
360networks inc. transaction as well as an increase in compensation expense of
$6.4 million resulting from the vesting of certain stock options to the
Company's directors and officers.

Amortization Expense

     Amortization of capital assets for the three months ended June 30, 2000
increased to $0.7 million from $0.4 million for the three months ended June 30,
1999, an increase of 75.0%. This increase resulted largely from the amortization
expense attributed to increased ownership in the BUS-1 cable, which was acquired
in November 1999 when the Company increased its ownership in TeleBermuda
International L.L.C. from 20% to 100%.  Pursuant to this transaction, the
Company's effective interest in the BUS-1 cable increased from 50% to 100%.

     Amortization of deferred financing costs during the three months ended
June 30, 2000 increased to $1.0 million compared to $87,000 for the
three months ended June 30, 1999. This increase resulted from the amortization
of deferred financing costs incurred as a result of the financing of the
Atlantica-1 Network.

Interest on Long-Term Debt

     Interest on long-term debt increased to $5.6 million for the three months
ended June 30, 2000 from $0.9 million for the three months ended June 30,
1999, an increase of 522.2%. This increase was a result of interest costs on the
debt financing for the development of the Atlantica-1 Network secured by the
Company in July 1999.

Interest income

     Interest income during the three months ended June 30, 2000 increased to
$6.7 million from $33,000 during the three months ended June 30, 1999.
This increase was a result of investing certain proceeds from our July 1999
financing for the Atlantica-1 Network.

--------------------------------------------------------------------------------
                                                                          Page 9
<PAGE>

Results of Operations - Six Months Ended June 30, 2000 Compared With
Six Months Ended June 30, 1999

Revenues

     Revenues increased to $13.4 million for the six months ended June 30,
2000 compared to $13.1 million for the six months ended June 30, 1999, an
increase of 2.3%.

     Outbound revenues decreased to $9.6 million for the six months ended June
30, 2000 compared to $10.2 million for the six months ended June 30, 1999, a
decrease of 5.9%. This decrease was the result of a decrease in the average rate
per minute partially offset by higher traffic volumes. The average rate per
outbound minute realized was $0.82 for the six months ended June 30, 2000
compared to $0.92 for the six months ended June 30, 1999. Outbound traffic
volumes increased to 11.8 million minutes for the six months ended June 30, 2000
from 11.1 million minutes for the six months ended June 30, 1999. These volume
increases were a response to an increase in marketing and advertising by the
Company and were reflective of a positive response to the rate reductions.

     Inbound revenue decreased to $1.9 million during the six months ended June
30, 2000 compared to $2.1 million during the six months ended June 30, 1999, a
decrease of 9.5%. This decrease was largely the result of a decrease in our
settlement rate with our primary correspondent carrier. Further, revenue from
TBI's debit card product increased to $0.6 million during the six months ended
June 30, 2000 compared to $0.5 million during the six months ended June 30,
1999,an increase of 20%. Sales of international private lines increased from
$0.2 million for the six months ended June 30, 1999 to $1.0 million for the six
months ended June 30, 2000 due to more effective marketing of this product.

Carrier Charges

     Carrier Charges decreased to $4.4 million during the six months ended June
30, 2000 compared to $6.1 million during the six months ended June 30, 1999, a
decrease of 27.9%.

     Local access charges for Bermuda originating and terminating traffic
decreased to $2.5 million for the six months ended June 30, 2000 from $2.6
million for the six months ended June 30, 1999. The decrease reflects
reductions in the settlement rates paid to the Bermuda Telephone Company which
were reduced from $0.27 per minute to $0.10 per minute for outbound traffic and
from $0.24 per minute to $0.10 per minute for inbound traffic. This impact of
lower settlement rates was partially offset by an increase in traffic volume.

     Foreign settlements for the six months ended June 30, 2000 decreased to
$1.9 million from $3.4 million for the six months ended June 30, 1999, a
decrease of 44.1%. This decrease was largely due to a reduction in the
settlement rate to terminate calls to the U.S. which decreased from $0.35 to an
average rate of $0.19. The impact of lower settlement rates was partially offset
by an increase in traffic volume.

General and Administrative Expenses

     General and administrative expenses increased during the six months ended
June 30, 2000 to $27.7 million compared to $4.7 million during the six
months ended June 30, 1999, an increase of 489.4%. This increase was
primarily due to marketing, promotions and administrative costs associated with
the Atlantica-1 Network and commitment fees related to the Atlantica-1 Network
financing. The increase also reflects costs of $5.4 million related to the
360networks inc. transaction as well as an increase in compensation expense of
$9.2 million resulting from the vesting of certain stock options to the
Company's directors and officers.

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                                                                         Page 10
<PAGE>

Amortization Expense

     Amortization of capital assets for the six months ended June 30, 2000
increased to $1.4 million from $0.8 million for the six months ended June 30,
1999, an increase of 75.0%. This increase resulted largely from the amortization
expense attributed to increased ownership in the BUS-1 cable, which was acquired
in November 1999 when the Company increased its ownership in TeleBermuda
International L.L.C. from 20% to 100%.  Pursuant to this transaction, the
Company's effective interest in the BUS-1 cable increased from 50% to 100%.

     Amortization of deferred financing costs during the six months ended
June 30, 2000 increased to $2.0 million compared to $0.2 million for the
six months ended June 30, 1999. This increase resulted from the amortization
of deferred financing costs incurred as a result of the financing of the
Atlantica-1 Network.

Interest on Long-Term Debt

     Interest on long-term debt increased to $14.2 million for the six months
ended June 30, 2000 from $1.6 million for the six months ended June 30,
1999, an increase of 787.5%. This increase was a result of interest costs on the
debt financing for the development of the Atlantica-1 Network secured by the
Company in July 1999.

Interest income

     Interest income during the six months ended June 30, 2000 increased to
$13.8 million from $0.1 million during the six months ended June 30, 1999.
This increase was a result of investing certain proceeds from our July 1999
financing for the Atlantica-1 Network.

Liquidity and Capital Resources

     On July 14, 1999, the Company secured financing totaling $986.0 million for
the development and construction of the Atlantica-1 fiber optic undersea cable
system that will link North America, Bermuda and South America. The financing is
comprised of the following components:

 .   A private placement of common shares issued at $20.40 per share (par value
     $1.50) and Class B shares, which have special voting rights, for aggregate
     proceeds of $270.6 million. The Company subsequently used $30.6 million of
     these proceeds to redeem 1,500,000 common shares at an aggregate price of
     $20.40 per share (less expenses) from existing shareholders.

 .   The issuance of debt in the principal amount of $300.0 million in the form
     of 13% senior notes maturing July 15, 2007. Interest on these notes accrues
     at a rate of 13% per annum, payable semi-annually in arrears on each
     January 15 and July 15 commencing January 15, 2000. The notes are
     unsecured.

 .   A bank credit facility of up to $400.0 million that consists of various
     term facilities totaling $390.0 million and a $10.0 million revolving
     credit facility. Our subsidiary GlobeNet Communications Holdings Ltd.
     ("Holdings"), the borrower under the credit facility, may also request an
     additional facility of up to $50.0 million, subject to lender approval and
     other restrictions. All loans under Holdings' bank credit facility mature
     on June 30, 2005 except for one of the term facilities of $100.0 million,
     which matures on September 30, 2005. The interest rates on the loans under
     the credit facility initially range from London Interbank Offered Rate, or
     LIBOR, plus 3.5% to LIBOR plus 4.0%. Availability of funds under the credit
     facility is subject to certain terms and conditions. Substantially all of
     the assets of Holdings and of its present and future direct and indirect
     subsidiaries have been pledged as collateral for the credit facility. In
     addition, the ultimate parent company of the supplier for the Atlantica-1
     Network has provided an

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                                                                         Page 11
<PAGE>

     initial guarantee of $100.0 million of one of the term facilities subject
     to certain conditions and adjustments.

 .   The retirement of subordinated loans in the principal amount of $13.5
     million when our former subordinated lenders elected to effectively convert
     the principal and $1.9 million of accrued interest on their subordinated
     loans into 1,635,286 common shares.

     In September 1999, the Company borrowed $100 million under one of its term
facilities of Holdings' bank credit facility.

Future Capital Expenditures and Capital Resources

     The development of the Atlantica-1 Network will require us to make
significant capital expenditures in connection with building the undersea cable
system and the related landing stations, and securing terrestrial capacity to
connect the landing stations with major cities. We estimate the total cost to
build the Atlantica-1 Network, including the secondary strand of the Rio
extension (which will connect Fortaleza, Brazil and Rio de Janeiro, Brazil),
landing stations and capital contingencies, will be approximately $825 million.
This $825 million estimate does not include potential capital costs, if any,
associated with securing terrestrial capacity, including any terrestrial
extension to Buenos Aires, Argentina. We expect the primary ring of the
Atlantica-1 Network (which will connect Tuckerton, New Jersey, St. David's,
Bermuda, Fortaleza, Brazil, Punta Gorda, Venezuela and Boca Raton, Florida) to
be RFS in January 2001.

     We have commitments under our supply contract with Alcatel Submarine
Networks and Alcatel Submarine Networks, Inc. (collectively, "Alcatel") to make
payment installments in varying amounts as construction milestones are achieved
on the Atlantica-1 Network. The total of these payment installments for the
years ending December 31, 2000 and December 31, 2001 are $506.4 million and
$207.1 million, respectively.

     We expect to use the net proceeds we received from the private offering of
our 13% senior notes and the private equity financing (net of the proceeds we
used to repurchase outstanding shares of the Company from existing
shareholders), together with available funds under Holdings' bank credit
facility, to finance:

 .   the construction of the Atlantica-1 Network, including the secondary strand
     of the Rio extension, landing stations and capital contingencies, and

 .   pre-RFS working capital requirements.

     We have already repaid our subordinated loans and TBI's credit facility,
paid transaction costs related to our financings, paid certain working capital
requirements, made an initial payment under our contract with Alcatel and paid
commitment fees and interest on Holdings' bank credit facility from these funds.

     Our expectations of required capital expenditures are based upon our
current estimates. Our actual capital expenditures could vary from our estimates
and these variations could be material. We expect that any additional capital
requirements will be funded by 360networks.

     The Company's use of cash is generally restricted under the terms of
Holdings' bank credit facility to operating and capital expenditures related to
the Atlantica-1 Network and to other telecommunications activities. The
investment of the cash is restricted to investments with a minimum credit rating

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                                                                         Page 12
<PAGE>

of A-1 by Standard & Poor's or P-1 by Moody's.

Historical Capital Expenditures and Capital Resources

  We have incurred significant operating losses and capital expenditures
related to the development of TBI. We have financed these expenditures through a
combination of borrowings under TBI's retired credit facility and the retired
subordinated loans, and equity contributions.

  Net cash used in operating activities was $11.7 million for the six
months ended June 30, 2000, as compared to net cash provided by operating
activities of $7.2 million for the six months ended June 30, 1999. The use
of cash by operations in 2000 was due primarily to operating losses, costs
associated with the 360networks inc. transaction.

  Cash provided by financing activities was $0.3 million for the six months
ended June 30, 2000. Cash used in financing activities was $3.6 million for the
six months ended June 30, 1999 and relates to repayments on our retired term
loan and operating credit facility.

  Cash provided by investing activities was $11.4 million for the six
months ended June 30, 2000. These funds were provided from a reduction of $173.2
million in our restricted cash investments offset by $158.9 million costs on the
Atlantica-1 project. The cash used in investing activities was $5.5 million
for the six months ended June 30, 1999 resulting from the receipt of a
related party receivable and offset by network asset purchases.

Seasonality

  Our Bermuda operations experience seasonal fluctuations that are a function
of the volume of tourist traffic. Traffic declines during the winter months when
tourist traffic is low.


Forward-Looking Statements

  This report includes forward-looking statements. We may use words like
"believe," "anticipate," "expect," "estimate," "may," "will," "should" and
similar expressions to help identify these forward-looking statements. Forward-
looking statements contained in this report include, for example, statements
concerning our plans to design, construct, operate and sell capacity on our
planned cable systems, expectations as to funding our future capital
requirements and other discussions of future plans and strategies, anticipated
developments and other matters that involve predictions of future events.

  We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks and uncertainties, some of which may be outside of our control,
including, among other things:

 .  our failure to complete our planned cable systems within the currently
   estimated time frame and budget,

 .  our failure to be early to market,

 .  our failure to sell capacity on our planned cable systems,

 .  our failure to obtain and maintain all necessary permits, licenses or
   authorizations to construct, land and operate our planned cable systems,

 .  our failure to contract for or build any necessary backhaul facilities
   to provide city-to-city connectivity on our planned cable systems,

 .  our failure to accurately project levels of demand for telecommunications
   capacity,

 .  political, economic, legal or regulatory changes that negatively affect

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                                                                         Page 13
<PAGE>

   our operations, and

 . our failure to compete effectively in a rapidly evolving marketplace
  characterized by intense price competition and incremental new capacity.

  This list is only an example of some of the risks, uncertainties and
assumptions that may affect the forward-looking statements contained in this
report. In light of these and other risks, uncertainties or assumptions, the
actual events or results may be very different from those expressed or implied
in the forward-looking statements in this report or may not occur. For
additional factors that could affect the validity of our forward-looking
statements, you should carefully consider the risk factors in our annual report
on Form 10-K for the fiscal year ended December 31, 1999 (file no. 333-86461) on
file with the Securities and Exchange Commission and the other information in
this Form 10-Q. We do not intend to publish updates or revisions of any forward-
looking statement to reflect new information, future events or otherwise.


ITEM 3.  Quantitative And Qualitative Disclosures About Market Risk.

  We are exposed to various market risks relating to changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market prices and rates, such as foreign
currency exchange and interest rates. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.

Foreign Currency Exposure

  We are exposed to fluctuations in foreign currencies relative to the U.S.
dollar. Because the Bermuda dollar is pegged to the U.S. dollar, there is no
foreign currency exposure for transactions conducted in this currency. Our
foreign currency exposures as at June 30, 2000 were as follows:

  Note Receivable: We had a note receivable of (British Pounds)250,000 which
is non-interest bearing and due November 20, 2000.

  Account Payable: We had an account payable of 874,005 SDR's, a notional
currency tied to a basket of European currencies, to one of our carriers. This
payable is current and non-interest bearing.

  Settlements on International Traffic: Settlements on international traffic
are largely made in U.S. dollars. For the six months ended June 30, 2000,
approximately 11% of the Company's cost of sales and 1% of the Company's revenue
was denominated in a currency other than the U.S. dollar.

Interest Rate Exposure

  Long-term debt: As at June 30, 2000, we owed $100.0 million of
variable-rate long-term debt which is due September 30, 2005. The interest rate
on this debt fluctuates with LIBOR. On December 22, 1999, we entered into an
interest rate cap transaction for $50.0 million of this debt, capping the
LIBOR rate at 7.0% for a three-year term. The interest rate exposure on this
debt is also mitigated by the fact that the proceeds from this debt are invested
in short-term investments, the return on which also fluctuates with market
interest rates. As at June 30, 2000, we also owed $300.0 million on our
outstanding senior notes, which is due July 15, 2007 and has a fixed interest
rate of 13%.

  Short-term investments: We held $344.8 million in money market investments
at June 30, 2000. The return on this investment portfolio fluctuates with
market interest rates.

  The table below provides information about the interest rates of our debt
obligations and the interest rate cap transaction. The table shows the amount of
debt and average interest rates as of June 30, 2000, by expected maturity

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                                                                         Page 14
<PAGE>

dates.

                            EXPECTED MATURITY DATES


<TABLE>
<CAPTION>
                                           2000       2001    2002       2003       2004   Thereafter     Total        Fair Value
                                                                                                       06/30/2000      06/30/1999
                                           -----------------------------------------------------------------------------------------
                                                                   (in thousands)
<S>                                        <C>        <C>     <C>        <C>        <C>    <C>         <C>           <C>        <C>
U.S. DOLLAR
DEBT

13% Series B Senior Notes                      -       -          -         -       -       300,000      300,000     300,000     N/A
due 2007
  Average interest rates - fixed                                                                 13%

Bank Credit Facility due 2005                  -       -          -         -       -       100,000      100,000     100,000     N/A
  Average interest rates - variable                                                             (1)

DERIVATIVE INSTRUMENTS

Interest Rate Cap for                          -       -     50,000(2)      -       -            --       50,000      50,537     N/A
  contract notional amount
</TABLE>

_________________

(1)  The interest rate is calculated at LIBOR plus 4.0%. The interest rate as of
     June 30, 2000 was 10.81%.

(2)  The interest rate cap fixes the LIBOR rate at 7% for $50,000 of Holdings'
     bank credit facility.


                                   PART II.

                               OTHER INFORMATION

ITEM 1. Legal Proceedings.

     On June 8, 2000, the Minister of Telecommunications and E-Commerce Affairs
in Bermuda amended the licenses of certain local ISPs so that they could compete
with TBI in the international voice services market by offering voice over
Internet protocol service to the Bermuda market. The ability of TBI and Cable &
Wireless, TBI's largest competitor, to provide Internet services under their
licenses was also restricted to the provision of commercial Internet services.
TBI is presently party to an appeal of the June 8, 2000 decision, which is
scheduled to be heard by the Supreme Court of Bermuda on September 18, 2000. In
the event that the appeal is unsuccessful, these developments may adversely
impact our revenues from TBI's Bermuda long-distance business.

     As a consequence of the change in policy represented by the June 8, 2000
decision of the Minister of Telecommunications and E-Commerce Affairs, the
Bermuda ISP that had filed for declaratory relief in order to challenge the
Minister's refusal to permit it to provide voice over Internet protocol
service, withdrew its appeal of the dismissal of its lawsuit on July 14,
2000.

     In addition to the foregoing, we are, from time to time, a party to
litigation that arises in the normal course of our business operations. We are
not a party to any such litigation the resolution of which we expect to have a
material adverse effect on our business, financial condition and results of
operations.

ITEM 2. Changes In Securities And Use Of Proceeds.

  Not applicable.

ITEM 3. Defaults Upon Senior Securities.

  Not applicable.

ITEM 4. Submission Of Matters To A Vote Of Security Holders.

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                                                                         Page 15
<PAGE>

     Holders of common shares and Class B restricted voting shares of the
Company met on May 10, 2000 at separate court meetings and with 11,961,958
common share s represented in person or by proxy and 793 Class B restricted
voting shares represented in person or by proxy, approved the scheme of
arrangement under which the Company became a wholly owned subsidiary of
360networks inc. There were no votes cast against the scheme and there were no
abstentions. On June 20, 2000, 360networks inc. completed its acquisition of the
Company and acquired all of the common shares of the Company in exchange 2.51
360networks inc. subordinated voting shares. Under the scheme, holders of class
B restricted voting shares transferred their class B restricted voting shares
360networks inc for no consideration.








ITEM 5. Other Information.

  Not applicable.

ITEM 6. Exhibits And Reports On Form 8-K.

  (a)  Exhibits

Exhibit Number                        Description
--------------                        -----------


     2.1       Agreement and Plan of Arrangement between Worldwide Fiber Inc.
               (now known as 360networks inc.) and GlobeNet Communications Group
               Limited dated as of March 11, 2000 (incorporated by reference to
               Exhibit 10.31 to 360networks inc.'s Registration Statement on
               Form F-1 (File No. 333-95621)).

     3.1       Memorandum of Association of GlobeNet Communications Group
               Limited (incorporated by reference to Exhibit 3.1 to GlobeNet
               Communications Group Limited's Registration Statement on Form S-4
               (File No. 333-86461)).

     3.2       Bye-Laws of GlobeNet Communications Group Limited dated July 12,
               1999 (incorporated by reference to Exhibit 3.2 to GlobeNet
               Communications Group Limited's Registration Statement on Form S-4
               (File No. 333-86461)).

     4.1       Indenture between GlobeNet Communications Group Limited and
               Bankers Trust Company, dated as of July 14, 1999 (incorporated by
               reference to Exhibit 4.1 to GlobeNet Communications Group
               Limited's Registration Statement on Form S-4 (File No. 333-
               86461)).

     4.2       Registration Rights Agreement among GlobeNet Communications Group
               Limited, TD Securities (USA) Inc. and Credit Suisse First Boston
               Corporation, dated as of July 14, 1999 (incorporated by reference
               to Exhibit 4.2 to GlobeNet Communications Group Limited's
               Registration Statement on Form S-4 (File No. 333-86461)).

     4.3       Credit Agreement among GlobeNet Communications Holdings Ltd.,
               Various Financial Institutions and Other Persons, Toronto
               Dominion (Texas) Inc., Credit Suisse First Boston, and TD
               Securities (USA) Inc., dated as of July 14, 1999 (incorporated by
               reference to Exhibit 4.3(a) to GlobeNet Communications Group
               Limited's Registration Statement on Form S-4 (File No. 333-
               86461)).

     4.4       Guaranty by Alcatel in favor of Lenders under Holdings' Bank
               Credit Facility (see Exhibit 4.3) and Toronto Dominion (Texas)
               Inc., dated as of July 14, 1999 (incorporated by reference to
               Exhibit 4.3(b) to GlobeNet Communications Group Limited's
               Registration Statement on Form S-4 (File No. 333-86461)).

     4.5       Reimbursement Agreement between GlobeNet Communications Holdings
               Ltd. and Alcatel, dated as of July 14, 1999 (incorporated by
               reference to Exhibit 4.3(c) to GlobeNet Communications Group
               Limited's Registration Statement on Form S-4 (File No. 333-
               86461)).

     27.1      Financial Data Schedule


(b) Report on Form 8-K

None

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                                                                         Page 16
<PAGE>

                                   SIGNATURE


  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.


        GLOBENET COMMUNICATIONS GROUP LIMITED



August 14, 2000       By:  /s/ Lin Gentemann
                         -------------------------------------------
                         Name:  Lin Gentemann
                         Title: Executive Vice President, Secretary and
                                    General Counsel
                                 (duly authorized officer)

                      By:  /s/ Will Walls
                         -------------------------------------------
                         Name: Will Walls
                         Title: Chief Financial Officer
                           (principal financial or chief accounting officer)

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                                                                         Page 17


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