SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24792
NTL (Triangle) LLC
(Exact name of registrant as specified in its charter)
Delaware 13-4086747
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 East 59th Street
New York, NY 10022
(212) 906-8440
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K/A or any amendments to
this Form 10-K/A. X
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes No X
As of March 31, 2003, there were 800,000 membership interests of the Registrant
outstanding. The Registrant is an indirect, wholly-owned subsidiary of NTL
Incorporated, and there is no market for the Registrant's membership interests.
The Registrant meets the conditions set forth in General Instructions I(1)(a)
and I(1)(b) to Form 10-K/A and is filing this Form 10-K/A with the reduced
disclosure format set forth in General Instruction I(2) thereto.
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DOCUMENTS INCORPORATED BY REFERENCE
NONE
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2
TABLE OF CONTENTS
PART I
NTL CORPORATE STRUCTURE.....................................................*
Item 1. Business.........................................................*
Item 2. Properties.......................................................*
Item 3. Legal Proceedings................................................*
Item 4. Submission of Matters to a Vote of Security Holders..............*
PART II
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters..............................................*
Item 6. Selected Financial and Other Data................................*
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..............................4
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......*
RISK FACTORS................................................................*
Item 8. Financial Statements and Supplementary Data......................*
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..............................*
PART III
Items 10, 11, 12 and 13. .............................................**
Item 14. Controls and Procedures.........................................*
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K....................................................13
SIGNATURES.................................................................14
CERTIFICATIONS.............................................................15
- -------
* Previously filed
** Previously omitted pursuant to General Instruction I(2)(c) to Form 10-K
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995:
Certain statements contained herein constitute "forward-looking statements"
as that term is defined under the Private Securities Litigation Reform Act of
1995. When used in this Form 10-K/A, the words, "believe," "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Registrant, or industry results, to be materially
different from those contemplated or projected, forecasted, estimated or
budgeted, whether expressed or implied, by such forward-looking statements. Such
factors include, among others, those set forth under the caption "Risk Factors"
in the Company's Form 10-K filed on March 31, 2003, as well as: the ability of
the Company to obtain trade credit and shipments and terms with vendors and
service providers for current orders; the Company's ability to maintain
contracts that are critical to its operations; potential adverse developments
with respect to the Company's liquidity or results of operations; the ability to
fund and execute its business plan; the ability to attract, retain and
compensate key executives and associates; the ability of the Company to attract
and retain customers; general economic and business conditions, technological
developments, the Company's ability to continue to design networks, install
facilities, obtain and maintain any required governmental licenses or approvals
and finance construction and development, all in a timely manner at reasonable
costs and on satisfactory terms and conditions, as well as assumptions about
customer acceptance, churn rates, overall market penetration and competition
from providers of alternative services, the impact of restructuring and
integration actions, the impact of new business opportunities requiring
significant up-front investment and interest rate and currency exchange rate
fluctuations.
In this Amendment No. 1 to the Annual Report on Form 10-K/A, the "Company",
"we," "us" and "our" refer to NTL (Triangle) LLC and its subsidiaries except
where we expressly state that we are only referring to NTL (Triangle) LLC or the
context otherwise requires that we are only referring to NTL (Triangle) LLC and
"NTL" refers to NTL Incorporated and its consolidated subsidiaries except where
we expressly state that we are only referring to NTL Incorporated or the context
otherwise requires that we are only referring to NTL Incorporated.
3
Explanatory Note
We are filing this Amendment No. 1 on Form 10-K/A to our Annual Report on
Form 10-K for the period ending December 31, 2002, which was filed on March 31,
2002 (the "Form 10-K") to amend and restate Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations (1) to correct an
inadvertant error in the "Contractual Obligations and Commercial Commitments"
table by changing the payment due date in the line item "Other Long-Term
Obligations" from "After 5 Years" to "4-5 Years", and (2) to add text in the
"Description of Indebtedness" section to conform it to Note 8--Long-term Debt
and Note 9--Related Party Transactions in the Notes to Consolidated Financial
Statements. In addition, as required by Rule 12b-15, promulgated under the
Securities Exchange Act of 1934, as amended, our principal executive officer and
principal financial officer are providing Rule 13a-14 certifications in
connection with this Form 10-K/A and are also furnishing, but not filing,
written statements pursuant to Title 18 United States Code Section 1350, as
added by Section 906 of the Sarbanes-Oxley Act of 2002. Except as described
above, no other changes have been made to the Form 10-K.
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
NTL's Completed Restructuring
We are an indirect, wholly-owned subsidiary of NTL Incorporated. On May 8,
2002, NTL Incorporated (then known as NTL Communications Corp.), NTL Europe,
Inc. (then known as NTL Incorporated and the former parent company of NTL
Communications Corp.) and certain of their subsidiaries filed a pre-arranged
joint reorganization plan under Chapter 11 of the US Bankruptcy Code. We were
not included in the Chapter 11 filing, nor were the operating subsidiaries of
NTL Incorporated and NTL Europe, Inc. The Plan became effective on January 10,
2003, at which time NTL Incorporated, our indirect parent company, emerged from
Chapter 11 reorganization.
Pursuant to the Plan, the entity formerly known as NTL Incorporated and its
subsidiaries and affiliates were split into two separate groups, and NTL
Incorporated and NTL Europe, Inc. each emerged as independent public companies.
The entity formerly known as NTL Communications Corp. was renamed "NTL
Incorporated" and became the holding company for the former NTL group's
principal UK and Ireland assets including our ultimate parent company. Prior to
consummation of the Plan, we were a wholly-owned subsidiary of the entity then
known as NTL Incorporated, which, pursuant to the Plan, was renamed "NTL Europe,
Inc." and which became the holding company for the former NTL group's
continental European and certain other assets.
Background of Restructuring
Both the equity and debt capital markets experienced periods of significant
volatility in 2001 and 2002, particularly for securities issued by
telecommunications and technology companies. As a result, the ability of our
former ultimate parent company, then known as NTL Incorporated (now NTL Europe,
Inc.) and its subsidiaries to access those markets as well as its ability to
obtain financing from its bank lenders and equipment suppliers became severely
restricted. In addition, the former NTL Incorporated and its subsidiaries had no
further funds available, or were unable to draw upon funds under its credit
facilities. As a result of these factors, together with its substantial
leverage, on January 31, 2002, the former NTL Incorporated announced that it had
appointed professional advisors to advise on strategic and recapitalization
alternatives to strengthen its balance sheet, reduce debt and put an appropriate
capital structure in place for its business.
Promptly upon obtaining the requisite waivers from the lenders under its
credit facilities, in March 2002, the former NTL Incorporated commenced
negotiations with a steering committee of the unofficial committee of its
bondholders and the committee's legal and financial advisors.
4
The former NTL Incorporated and its subsidiaries failed to make interest
payments on some of the outstanding notes starting on April 1, 2002. It also
failed to declare or pay dividends on certain series of its outstanding
preferred stock, due to a lack of available surplus under Delaware law.
On April 16, 2002, the former NTL Incorporated announced that it and the
unofficial committee of its public bondholders had reached an agreement in
principle on a comprehensive recapitalization of the former NTL group. To
implement the proposed recapitalization plan, on May 8, 2002, the former NTL
Incorporated and certain of its subsidiaries, including ou current ultimate
parent company, then known as NTL Communications Corp. (now NTL Incorporated)
(collectively, the "Debtors") filed cases and a pre-arranged joint
reorganization plan under Chapter 11 of the US Bankruptcy Code. In connection
with the filing, some members of the unofficial creditors' committee of
bondholders entered into a credit facility agreement, referred to in this annual
report as the DIP facility, committing to provide a wholly-owned subsidiary of
the current NTL Incorporated with up to $500 million in new debt financing (NTL
Delaware committed to provide up to an additional $130 million to the current
NTL Incorporated and its subsidiaries under the DIP facility).
As a result of the payment defaults as well as the voluntary filing under
Chapter 11 by the Debtors on May 8, 2002, there was an event of default under
all of the former NTL Incorporated and its subsidiaries' credit facilities and
the indentures governing all of their publicly traded debt, other than debt of
NTL Triangle.
The Plan was confirmed by the Bankruptcy Court on September 5, 2002. During
the fall of 2002, the former NTL Incorporated negotiated with a group of lenders
to enter into a new financing arrangement to repay the DIP facility, to repay
certain obligations and to provide liquidity to NTL. The Plan became effective
on January 10, 2003 (referred to as the Effective Date), at which time the
Debtors emerged from Chapter 11 reorganization. In connection with the Debtors'
emergence from Chapter 11 reorganization, the current NTL Incorporated and
certain of its subsidiaries issued $558.249 million aggregate principal face
amount of 19% Senior Secured Notes due 2010 (the Exit Notes) on January 10,
2003. Initial purchasers of the Exit Notes also purchased 500,000 shares of the
current NTL Incorporated's common stock on that date. The gross proceeds from
the sale of the Exit Notes and such shares totaled $500 million. The proceeds
were used in part to repay amounts outstanding under the DIP facility (which was
repaid on the Effective Date) and to purchase from NTL Delaware a (pound)90
million note of NTL (UK) Group Inc. and to repay certain other obligations. Also
on January 10, 2003, NTL Incorporated and its lending banks amended its existing
credit facilities.
The Company has historically incurred operating losses and negative
operating cash flow. In addition, the Company required and expects to continue
to require significant amounts of capital to finance construction of its
networks, connection of customers to the networks, other capital expenditures
and for working capital needs including debt service requirements.
As of December 31, 2002, the Company had approximately (pound)18.2 million
in cash and cash equivalents on hand. The Company expects to require additional
cash in the twelve months from January 1, 2003 to December 31, 2003. The Company
estimates that its capital expenditures and debt service requirements, net of
cash from operations, will aggregate up to approximately (pound)32.0 million
from January 1, 2003 to December 31, 2003. Management of the Company believes
that cash and cash equivalents on hand at December 31, 2002, and cash from NTL
Incorporated will be sufficient for its and its subsidiaries' cash requirements
during the twelve months from January 1, 2003 to December 31, 2003.
Over the long term, the Company will continue to require cash to fund
operations, service its remaining debt and implement its strategy. In order to
fund these requirements, the Company anticipates that it will use cash flow from
operations and may also need to issue additional debt or equity securities or
may need to secure additional bank financing. Given the restrictions on
incurring additional debt that are in the indentures governing our outstanding
notes, there can be no assurance that these sources of funds will be available
to us.
During NTL's recapitalization process, the Company maintained normal and
regular trade terms with its suppliers and customers. There can be no assurance
that the Company's suppliers will continue to provide normal trade credit or
credit on acceptable terms, if at all, or that customers will continue to do
business or enter into new business with NTL. See also "Risk Factors" for a
summary of risks related to NTL's business in general and the recapitalization
process in particular.
5
Description of Indebtedness
In November 1995, the Company issued $517.3 million principal amount at
maturity of 11.2% Senior Discount Debentures due 2007 (the "2007 Discount
Debentures"). Interest accreted on the 2007 Discount Debentures at 11.2% per
annum compounded semiannually from November 15, 1995 to November 15, 2000, after
which date interest became payable in cash on each May 15 and November 15
through November 15, 2007. The 2007 Discount Debentures are redeemable at the
Company's option after November 15, 2000. The 2007 Discount Debentures contain
restrictive covenants which limit the Company's ability to enter into
arrangements for the sale of assets, mergers, the incurrence of additional debt
and the payment of dividends.
In October 2000, Cablelink entered into a loan agreement with a subsidiary
of NTL under which (pound)75.2 million and (pound)68.0 million had been borrowed
at December 31, 2002 and 2001, respectively. The outstanding borrowings are due
in October 2007. Interest is payable quarterly in arrears beginning March 31,
2001. The annual interest rate is set on January 1 of each year at the 12-month
EURIBOR rate plus 1%. The effective interest rate at December 31, 2002 and 2001
was 4.32% and 5.69%, respectively.
Consolidated Statement of Cash Flows
Net cash provided by (used in) operating activities amounted to (pound)16.6
million, (pound)(45.5) million and (pound)19.7 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The changes in net cash provided
by operating activities are primarily due to movements in working capital as a
result of the timing of receipts and disbursements.
Net cash used in investing activities was (pound)35.3 million, (pound)66.9
million and (pound)96.2 million for the years ended December 31, 2002, 2001 and
2000, respectively. Net cash used in investing activities in 2002, 2001 and 2000
was primarily used for capital expenditures and has reduced as a result of the
Company's continued effort to conserve cash.
Net cash provided by financing activities was (pound)1.7 million,
(pound)142.7 million and (pound)53.5 million for the years ended December 31,
2002, 2001 and 2000, respectively. Net cash provided by financing activities in
2002 includes (pound)2.7 million in cash received by Cablelink from a subsidiary
of NTL Incorporated. Net cash provided by financing activities in 2001 includes
(pound)43.8 million in cash received by Cablelink from a subsidiary of NTL
Incorporated and contributions from NTL Group Limited of (pound)99.4 million.
Net cash provided by financing activities in 2000 includes contributions from
NTL Group Limited of (pound)30.1 million and cash received by Cablelink from a
subsidiary of NTL Incorporated of (pound)24.8 million.
6
Contractual Obligations and Commercial Commitments
The Company's consolidated contractual obligations are summarized below,
and are fully disclosed in the Notes to Consolidated Financial Statements.
The Company has no significant commercial commitments as of December 31,
2002.
The following table includes aggregate information about the Company's
contractual obligations as of December 31, 2002 and the periods in which
payments are due.
Payments Due by Period
----------------------------------------
Less than 1-3 4-5 After 5
Contractual Obligations Total 1 Year Years Years Years
- ----------------------- ----- ------ ----- ----- -----
(In millions)
Long-Term Debt (pound) 321.4(pound) --(pound) --(pound) 321.4 (pound) --
Capital Lease
Obligations 2.6 0.7 1.5 0.3 0.1
Operating Leases 38.1 2.5 6.8 1.7 27.1
Unconditional
Purchase
Obligations 2.9 2.9 -- -- --
Other Long-Term
Obligations 75.2 -- -- 75.2 --
-------- ----- ----- ---------- -----
Total Contractual
Cash Obligations (pound) 440.2(pound) 6.1(pound) 8.3(pound)398.6(pound) 27.2
=============================================================
Critical Accounting Policies
The consolidated financial statements of the Company and related financial
information are based on the application of accounting principles generally
accepted in the United States, referred to as GAAP. GAAP requires the use of
estimates, assumptions, judgements and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported, as well as disclosures about contingencies, risk and financial
condition. The following critical accounting policies have the potential to have
a more significant impact on the Company's financial statements, either because
of the significance of the financial statement item to which they relate, or
because they require more judgement and estimation due to the uncertainty
involved in measuring, at a specific point in time, transactions which are
continuous in nature.
o A subsidiary of NTL provides infrastructure and management support
services to the Company. The related charges represent the Company's
portion of costs incurred by the subsidiary of NTL for the benefit of
all UK operations within NTL. The charges are made on the basis of an
allocation formula appropriate to each category of charge. The
allocation is based on management's judgement of a reasonable
methodology given the facts and circumstances.
o The Company maintains an allowance for doubtful accounts receivable for
estimated losses resulting from the potential inability of its
customers to make payments. The allowance is estimated based on the
current aging of receivables, prior collection experience and future
expectations of conditions that might impact the collectibility. If the
financial condition of our customers was to deteriorate resulting in an
impairment in their ability to make payments, additions to the
allowances may be required.
o The Company's determination of the treatment of contingent liabilities
in the financial statements is based on a view of the expected outcome
of the applicable contingency. Legal counsel is consulted on matters
related to litigation. Experts both within and outside the company are
consulted with respect to other matters that arise in the ordinary
course of business. A liability is accrued if the likelihood of an
adverse outcome is probable and the amount is estimable.
7
o The Company reviews long-lived assets and goodwill for impairment as
described in the Notes to Consolidated Financial Statements. In
analyzing potential impairments, projections of future cash flows from
the asset are used. The projections are based on assumptions,
judgements and estimates of growth rates for the related business,
anticipated future economic, regulatory and political conditions, the
assignment of discount rates relative to risk and estimates of terminal
values. Changes to these variables in the future may necessitate
impairment charges to reduce the carrying value to fair value.
o Fixed assets and intangible assets are assigned useful lives which
impact the annual depreciation and amortization expense. The assignment
of useful lives involves significant judgements and the use of
estimates. Changes in technology or changes in intended use of these
assets may cause the estimated useful life to change.
Selected Operating Data
The following table sets forth certain operating data of the Company as of
December 31, 2002. Comparative figures for December 31, 2001 are not available.
UK Franchises Cablelink
------------- ---------
As of As of
December 31 December 31(4)
----------- --------------
Homes passed (1) 563,000 474,900
Homes marketed (2) 503,800 474,900
Total customers 257,834 368,512
Digital cable subscribers 79,258 38,051
Analog cable subscribers 45,415 311,476
Broadband Internet subscribers 61,331 1,737
Dial-up Internet subscribers 58,128 2,500
Telephone subscribers 247,221 6,436
Penetration (Homes marketed) (3) 51.2% 77.6%
Average monthly revenue per customer (pound) 36.15 (pound) 12.38
Churn 16.7% 7.8%
1. Homes passed is the number of homes that have ducting buried outside.
2. Homes marketed is the number of homes activated for which the initial
marketing phase (including door to door direct marketing) has been completed.
3. Penetration is calculated by dividing the number of customers by the number
of homes marketed.
4. Cablelink is in the process of instituting a more rigorous credit policy that
is expected to lead to the involuntary disconnection of certain customers. As
a result of this, Cablelink anticipates that its residential customer base
will decline by approximately 25,000 net customers in 2003. As a result, we
expect a decline in revenue, programming costs and bad debt expense, but
taken together we believe these changes will not have a significant overall
impact on our results of operations or cash flows.
8
Results of Operations
Summary consolidated financial information for the Company for the three
years ended December 31, 2002, is as follows (in thousands, "NM" denotes
percentage is not meaningful):
Year Ended December 31, Increase/(Decrease)
2002 2001 (pound) %
-------------------------------------------------------------------
Revenues (pound) 194,241 (pound) 180,893 (pound) 13,348 7.4
Operating costs (88,632) (86,207) 2,425 2.8
Selling, general and (67,744) (77,551) (9,807) (12.6)
administrative expenses
Asset impairment (19,301) (291,617) (272,316) (93.4)
Other charges (14,275) (5,651) 8,624 152.6
Depreciation and amortization (73,716) (100,916) (27,200) (27.0)
----------- -----------
Operating loss (69,427) (381,049) (311,622) (81.8)
----------- -----------
Interest expense (38,832) (40,466) (1,634) (4.0)
Interest expense to affiliate (3,130) (2,951) 179 6.1
Investment income 1,177 504 673 133.5
Exchange gains/(losses) and
other
35,019 (10,353) 45,372 438.2
----------- -----------
(Loss) before income taxes (75,193) (434,315) (359,122) (82.7)
Income tax benefit 5,137 3,267 1,870 57.2
----------- -----------
Net (loss) (pound) (70,056) (pound) (431,048)(pound) (360,992) (83.7)
================= =================
Year Ended December 31, Increase/(Decrease)
-------------------------------------- -----------------------------
2001 2000 2001 2000
------------------ ------------------ ------------------ -----------
Revenues (pound) 180,893 (pound) 160,734 (pound) 20,159 12.5
Operating costs (86,207) (65,843) 20,364 30.9
Selling, general and administrative (77,551) (79,689) (2,138) (2.7)
expenses
Asset impairment (291,617) -- 291,617 NM
Other charges (5,651) (8,543) (2,892) (33.9)
Depreciation and amortization (100,916) (87,215) 13,701 15.7
----------- -----------
Operating loss (381,049) (80,556) 300,493 373.0
----------- -----------
Year Ended December 31, Increase/(Decrease)
-------------------------------------- -----------------------------
2001 2000 2001 2000
------------------- ------------------- -------------------------------
Interest expense (40,466) (36,251) 4,215 11.6
Interest expense to affiliate (2,951) (199) 2,752 1,382.9
Investment income 504 1,510 (1,006) (66.6)
Exchange losses and other (10,353) (27,588) (17,235) (62.5)
----------- -----------
(Loss) before income taxes (434,315) (143,084) 291,231 203.5
Income tax benefit 3,267 3,660 (393) (10.7)
----------- -----------
Net (loss) (pound) (431,048) (pound) (139,424) (pound) 291,624 209.2
================= =================
9
2002 compared with 2001
Although total customers decreased in 2002 due to capital constraints
including reduced capital expenditures to connect new customers, revenue
increased (pound)13.3 million in 2002 as compared with 2001. This rise is a
result of price increases including the introduction of charges for the
Company's dial-up Internet service (which was previously available without
charge), upselling additional services to customers and from growth in broadband
subscribers. The Company expects revenue increases in the future to be achieved
by further growth in services such as digital television and broadband services.
Operating costs as a percentage of service income were 45.6% and 47.7% in
2002 and 2001, respectively. This reduction resulted from further economies and
efficiencies achieved by NTL from integrating the Company's business into the
rest of NTL's UK business. In absolute terms, operating costs increased from
2001 to 2002 as a result of increases in interconnection and programming costs
owing to usage. Operating costs include certain costs which are charged by a
subsidiary of NTL for the provision of network services and support, the use of
NTL's national backbone telephony network for carriage of the Company's
telephony traffic, as well as the provision of the technical infrastructure and
network capacity by NTL for the Company's Internet service. In the years ended
December 31, 2002 and 2001, these charges were (pound)26.9 million and
(pound)21.3 million, respectively. The Company has reduced direct transactions
with third parties as a result of the continued integration of the Company with
NTL. As a result, costs arising directly from third parties declined
significantly in 2002, with a rise in the costs charged from a subsidiary of
NTL. Furthermore, commencing the first quarter of 2002, a subsidiary of NTL
began charging the Company for broadband and digital television services. In
2002, these charges totaled (pound)2.5 million and (pound)1.8 million,
respectively.
Selling, general and administrative expenses decreased in 2002 compared
with 2001 as a result of further economies of scale and efficiencies achieved by
NTL from integrating the Company's business into the rest of NTL's UK business.
Selling, general and administrative expense includes certain costs which are
charged by a subsidiary of NTL for the provision of corporate services,
including finance, legal, HR and facility services, and for the provision of IT
services, including the Company's use of the related IT equipment. These charges
were (pound)43.1 million and (pound)39.5 million in 2002 and 2001, respectively.
The increase in these charges is partly owing to the continued integration of
the Company with NTL. The Company has reduced its costs incurred directly from
third parties, with a rise in the costs charged by a subsidiary of NTL. Also,
the increase is partly owing to a rise in the charge for the Company's use of IT
and other capital equipment. During 2002, this charge increased by approximately
(pound)2.9 million. A significant portion of this increase, approximately
(pound)1.2 million, was an expense related to the write-off of certain projects
that had been abandoned.
Furthermore, the costs charged by a subsidiary of NTL in 2002 were affected
by the following:
o As a result of capital constraints imposed on its business, NTL
reduced its expenditure in a number of areas, including those related
to expanding its customer base, and those related to service
arrangements with third parties that provide capital improvements as
part of their services. These measures, as well as the significant
restructuring of NTL's business in 2002 in terms of headcount
reduction and departmental reorganization, have caused NTL to reassess
whether for some 2002 expenditures, assumptions and estimates relating
to the allocation of those costs between capital and operating expense
need to be revised. The result of this reassessment was to increase
the Company's costs for the year ended December 31, 2002 by (pound)2.9
million.
o During the year NTL undertook a review of certain balance sheet
accounts which identified that there were provisions that were no
longer necessary in light of the resolution of the issues and other
liabilities that such provisions sought to address. The review
resulted in a decrease in the Company's costs by (pound)3.0 million.
Asset impairment charges were (pound)19.3 million and (pound)291.6 million
in the years ended December 31, 2002 and 2001, respectively. Asset impairment
charges of (pound)19.3 million in 2002 are non-cash charges to write-down
certain assets to their estimated fair values based on an assessment that their
carrying value was not recoverable. These charges include license acquisition
costs of (pound)18.0 million and goodwill of (pound)1.3 million, and were
determined in accordance with SFAS No. 142. Asset impairment charges of
(pound)291.6 million in 2001 were the result of an analysis and review of the
recoverability of the Company's long-lived assets and associated goodwill that
indicated that the carrying value of certain assets would not be recoverable.
The Company recognized a charge of (pound)291.6 million in the fourth quarter of
2001 relating to the write-down of goodwill from the 1999 acquisition of
Cablelink.
10
Other charges of (pound)14.3 million in 2002 include (pound)7.5 million of
restructuring costs incurred by Cablelink and (pound)6.8 million of costs
allocated to the Company by a subsidiary of NTL. These allocated costs include
(pound)4.1 million of employee severance and related costs and (pound)2.7
million of recapitalization expenses. Other charges of (pound)5.7 million in
2001 were allocated to the Company by a subsidiary of NTL. The 2001 charges
include (pound)4.2 million in costs related to information technology
integration and for business rationalization consulting, plus (pound)1.5 million
for the Company's allocated share of NTL UK's restructuring costs. The charges
by a subsidiary of NTL are made on the basis of an allocation formula
appropriate to each category of charge that is based on management's judgement
of a reasonable methodology given the facts and circumstances.
The following table summarizes Cablelink's restructuring charges included
in other charges that were incurred and utilized in 2001 and 2002. The employee
severance and related costs in 2001 and 2002 were for approximately 20 and 55
employees, respectively, to be terminated, none of who are still employed by
Cablelink as of December 31, 2002 (in (pound)000's).
Employee
Severance Lease Exit
and Related Costs Costs Fixed Assets Total
----------------- -----
Charged to expense (pound) 249 (pound) -- (pound) -- (pound) 249
Utilized -- -- -- --
------ -- -- --------
Balance, December 31, 2001 (pound) 249 -- -- (pound) 249
2001 provision utilized (249) -- -- (249)
Charged to expense 1,139 1,390 5,008 7,537
2002 provision utilized (1,139) (121) (5,008) (6,268)
------ ------ ----- -------
Balance, December 31, 2002 (pound) -- (pound)1,269 (pound) -- (pound) 1,269
=========== =========== ============ =============
Depreciation and amortization decreased (pound)27.2 million in 2002
compared with 2001 primarily due to the (pound)30.6 million reduction in
amortization due to the adoption of SFAS No. 142 on January 1, 2002. Pursuant to
SFAS No. 142, the Company discontinued the amortization of goodwill and other
indefinite lived intangible assets. Amortization expense in the year ended
December 31, 2001, after deducting the amortization of goodwill and other
indefinite lived intangible assets of (pound)30.6 million, would have been
(pound)12.5 million.
Investment income movements are primarily attributable to variations in the
average cash balances available for investment.
Exchange (gains) and losses primarily result from the impact of
fluctuations in the valuation of the UK Pound Sterling on the 2007 Discount
Debentures, which are denominated in US Dollars. The Company's results of
operations will continue to be affected by foreign exchange rate fluctuations.
2001 compared with 2000
Revenue increased (pound)20.2 million in 2001 as compared with 2000 as a
result of price increases, upselling new services to customers and from growth
in the Company's customer base.
Operating costs as a percentage of service income was 47.7%, and 41.0% in
2001 and 2000 respectively. The increase in operating costs from 2000 to 2001 is
the result of increases in interconnection and programming costs owing to usage
and customer growth. Operating costs include certain costs which are charged by
a subsidiary of NTL for the provision of network services and support, the use
of NTL's national backbone telephony network for carriage of the Company's
telephony traffic, as well as the provision of the technical infrastructure and
network capacity by NTL for the Company's formerly subscription free Internet
service. In the years ended December 31, 2001 and 2000, these charges were
(pound)21.3 million and (pound)5.8 million, respectively. The increase in these
charges is primarily owing to the ongoing operating integration of the Company
with the rest of NTL, as well as the introduction of the Internet service. In
the fourth quarter of 2001, the Company's management adjusted certain operating
cost estimates. As a result, the Company recognized increased operating costs of
approximately (pound)2.7 million in the fourth quarter of 2001.
11
Selling, general and administrative expense includes certain costs which
are charged by a subsidiary of NTL for the provision of corporate services,
including finance, legal, HR and facility services, and for the provision of IT
services, including the Company's use of the related IT equipment. These charges
were (pound)39.5 million and (pound)23.9 million in 2001 and 2000, respectively.
The increase in these charges is primarily owing to the ongoing operating
integration of the Company with the rest of NTL.
In 1999 the acquisition of Cablelink was made against a background of
increasing consolidation and record valuations in the telecommunications
industry. In 2001, the Company performed a review of the recoverability of its
long-lived assets and associated goodwill which indicated that the carrying
value of certain assets would not be recoverable. As a result of this analysis
and review the Company recognized an asset impairment relating to the write-down
of goodwill in the fourth quarter of 2001 in the amount of (pound)291.6 million.
Other charges of (pound)5.7 million in 2001 were allocated to the Company
by a subsidiary of NTL. The 2001 and 2000 expenses include (pound)1.5 million
and (pound)8.5 million, respectively, for the Company's allocated share of NTL's
UK restructuring costs. These charges are made on the basis of an allocation
formula appropriate to each category of charge that is based on management's
judgement of a reasonable methodology given the facts and circumstances.
Interest expense increased by (pound)4.2 million from 2000 to 2001. The
increase from 2000 to 2001 is owing to the 2007 Discount Debentures reaching
their face value in November 2000.
Investment income movements are primarily attributable to variations in the
average cash balances available for investment.
The increase in exchange and losses and other changes was primarily the
result of the impact of fluctuations in the valuation of the UK Pound Sterling
on the 2007 Discount Debentures, which are denominated in US Dollars. The
Company's results of operations will continue to be affected by foreign exchange
rate fluctuations.
Recent Accounting Pronouncements
On December 31, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 148, "Accounting for Stock-Based Compensation--
Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for
Stock Based Compensation," to provide alternative methods of transition to SFAS
No. 123's fair value method of accounting for stock-based employee compensation.
SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB
Opinion No. 28, "Interim Financial Reporting."
In July 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 replaces Emerging Issues Task Force Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". SFAS No. 146
requires that a liability for costs associated with an exit or disposal activity
is recognized when the liability is incurred. Under Issue No. 94-3, a liability
for an exit cost as defined is recognized at the date of a commitment to an exit
or disposal plan. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002. The adoption of this standard is not
expected to have a significant effect on the results of operations, financial
condition or cash flows of the Company.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections", which is effective for the Company on January 1, 2003. The
adoption of SFAS No. 145 will require any gain or loss recognized on the
extinguishment of debt to be classified as income or loss from continuing
operations. Prior to SFAS No. 145, gain or loss from the extinguishment of debt
was classified as an extraordinary item.
12
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," effective for the Company on
January 1, 2002. This Statement superceded SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
other related accounting guidance. The adoption of this new standard had no
effect on the results of operations, financial condition or cash flows of the
Company.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," effective for the Company on January 1, 2003. This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible fixed assets and the associated asset
retirement costs. The adoption of this new standard is not expected to have a
significant effect on our results of operations, financial condition or cash
flows.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. Use of the pooling-of-interests method is no longer
permitted. SFAS No. 141 also includes guidance on the initial recognition and
measurement of goodwill and other intangible assets acquired in a business
combination that is completed after June 30, 2001. SFAS No. 142 ends the
amortization of goodwill and indefinite-lived intangible assets. Instead, these
assets must be reviewed annually (or more frequently under certain conditions)
for impairment in accordance with this statement. This impairment test uses a
fair value approach rather than the undiscounted cash flow approach previously
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company adopted SFAS No. 141
and SFAS No. 142 on January 1, 2002. Primarily owing to the significant
impairment charge that the Company recorded in 2001, the adoption of this new
standard did not result in an impairment charge on adoption.
Upon the adoption of SFAS No. 142, the Company performed an analysis of its
intangible assets acquired before July 1, 2001 to determine whether they should
be classified and accounted for as part of or separate from goodwill. The
Company determined that license acquisition costs would no longer be subject to
amortization since they are deemed to have an indefinite useful life. The
Company also determined that no changes in the remaining useful lives of the
customer lists were required. The Company performed an evaluation for impairment
of its goodwill and license acquisition costs as of January 1, 2002 and
determined that no impairment charge was required.
Estimated aggregate amortization expense for each of the five succeeding
fiscal years from December 31, 2002 is as follows: (pound)13.0 million in 2003,
(pound)7.0 million in 2004, (pound)6.0 million in 2005, (pound)2.0 million in
2006 and (pound)2.0 million in 2007.
The following table shows the Company's net loss as adjusted for the
adoption of SFAS No. 142, had SFAS No. 142 been in effect on January 1 of each
year (in (pound)000's).
Year Ended December 31,
----------------------------------------
2002 2001 2000
------------ ------------- -------------
Net loss - as reported
Amortization of: (pound)(70,056)(pound) (431,048)(pound)(139,424)
Goodwill - 23,336 23,027
Franchise costs - 7,214 7,214
- ------------ ------------
- 30,550 30,241
- ------------ ------------
Net loss - as adjusted (pound)(70,056)(pound) (400,498)(pound)(109,183)
================================ ===============
PART III
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (3) Exhibits.
Exhibit No.
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
NTL (TRIANGLE) LLC
(Registrant)
By: NTL Group Limited
its Sole Managing Member
(on behalf of Registrant)
/s/ Barclay Knapp
--------------------
Barclay Knapp
Director
Dated: April 7, 2003
14
CERTIFICATIONS
I, Barclay Knapp, certify that:
1. I have reviewed this amendment no. 1 to the annual
report on Form 10-K/A of NTL (Triangle) LLC;
2. Based on my knowledge, the annual report, as amended,
does not contain any untrue statement of a material
fact or omit to state a material fact necessary to
make the statements made, in light of the
circumstances under which such statements were made,
not misleading with respect to the period covered by
the annual report; and
3. Based on my knowledge, the financial statements, and
other financial information included in the annual
report, as amended, fairly present in all material
respects the financial condition, results of
operations and cash flows of the registrant as of,
and for, the periods presented in the annual report.
Date: April 7, 2003 /s/ Barclay Knapp
-----------------
Barclay Knapp
Director of NTL Group Limited,
the sole managing member of
NTL (Triangle) LLC*
I, Bret Richter, certify that:
1. I have reviewed this amendment no. 1 to the annual
report on Form 10-K/A of NTL (Triangle) LLC;
2. Based on my knowledge, the annual report, as amended,
does not contain any untrue statement of a material
fact or omit to state a material fact necessary to
make the statements made, in light of the
circumstances under which such statements were made,
not misleading with respect to the period covered by
the annual report; and
3. Based on my knowledge, the financial statements, and
other financial information included in the annual
report, as amended, fairly present in all material
respects the financial condition, results of
operations and cash flows of the registrant as of,
and for, the periods presented in the annual report.
Date: April 7, 2003 /s/ Bret Richter
----------------
Bret Richter
Director of NTL Group Limited,
the sole managing member of
NTL (Triangle) LLC*
- ------------
* The Company has no Chief Executive Officer or Chief Financial Officer. Barclay
Knapp and Bret Richter are Directors of NTL Group Limited, the sole managing
member of the Company, and are Chief Executive Officer and acting Chief
Financial Officer, respectively, of NTL Incorporated, the indirect parent of the
Company.
15
Exhibit 99.1
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with Amendment No. 1 to the Annual Report on Form 10-K/A of NTL
(Triangle) LLC (the "Company") for the year ended December 31, 2002 as filed
with the Securities and Exchange Commission on the date hereof (as amended
hereby, the "Report"), Barclay Knapp, as Director of NTL Group Limited, the sole
managing member of the Company, and Bret Richter, as Director of NTL Group
Limited, the sole managing member of the Company, each hereby certifies,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
/s/ Barclay Knapp
- -----------------
Name: Barclay Knapp
Title: Director of NTL Group Limited,
the sole managing member of NTL (Triangle) LLC*
Date: April 7, 2003
/s/ Bret Richter
- -----------------
Name: Bret Richter
Title: Director of NTL Group Limited,
the sole managing member of NTL (Triangle) LLC*
Date: April 7, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
- ------------
* The Company has no Chief Executive Officer or Chief Financial Officer. Barclay
Knapp and Bret Richter are Directors of NTL Group Limited, the sole managing
member of the Company, and are Chief Executive Officer and acting Chief
Financial Officer, respectively, of NTL Incorporated, the indirect parent of the
Company.
16