LONDON, Oct. 24, 2002 (PRIMEZONE) -- Commenting on the results, COLT Telecom Group (LSE:CTM) (Nasdaq:COLT) Chairman Jim Curvey said:
"Against a background of economic uncertainty and turbulence in the telecom sector COLT has continued to win new customers and expand business with its existing customers resulting in turnover increasing by 12% to GBP259.0 million compared to the third quarter of 2001. Gross margin before depreciation improved to 31% compared to 29% in the third quarter last year and EBITDA increased by 203% to GBP19.4 million.
"Capital expenditure for the quarter was GBP90 million compared to GBP206 million in the third quarter of 2001 reflecting the completion of the construction of our core network infrastructure.
"Our cash position remains strong with cash and cash equivalents of approximately GBP1 billion at the end of the quarter. Reflecting the confidence we have in the strength of our financial position we continued to buy back our bonds and purchased approximately GBP57 million of debt securities during the quarter resulting in an exceptional gain of GBP28.5 million. COLT remains on track to achieve its objective of becoming free cashflow positive during 2005.
"Our results for the quarter also include a provision of GBP25 million in respect of the previously announced plan to further reduce employee numbers by up to 800 over the next 12 months and a non-cash exceptional charge of GBP551 million in respect of a write down of the value of certain assets. As at 30 September COLT's total assets and liabilities were GBP2,597 million and GBP1,620 million respectively."
Steve Akin, COLT's President and Chief Executive Officer said:
"I am encouraged by our performance. We continue to win high quality corporate business from current and new customers. EBITDA is growing, capital expenditure is reducing and we are strong financially.
"COLT's reputation for quality, reliability and excellent service continues to be recognised by our customers. For the second consecutive year we received the top award for customer care at the World Communication Awards. Also for the second year running, COLT was placed first for customer service in the Communication Managers Association survey of corporate customers.
"We remain encouraged by the demand we are seeing from corporate customers with revenues up 23%. We now have over 15,000 directly connected network services and eBusiness customers. Demonstrating the attractiveness of COLT's services to a wide range of business sectors were new wins from the football club FC Barcelona with whom COLT has a 3 year contract to provide all its hosting services including media streaming, the Federal Bureau of Statistics in Germany, the local government authority of Issy les Moulineaux, Europcar, the car rental company and McCann-Erikson, the media company. We have continued to win new business from large existing customers including Deutsche Borse Systems and Societe Generale.
"Average switched revenue per minute increased by 10% over the second quarter of 2002, reflecting a further improvement in mix and a more stable pricing environment generally. Sales to corporate customers have more than offset the decline in the wholesale market over the past year with private wire VGEs having increased by 34% over the position at 30 September 2001. eBusiness revenue decreased by 5.1% to GBP12.1 million compared to the third quarter of 2001.
"As we reposition COLT to be an increasingly pan-European businesswith global reach we continue to achieve important efficiencyimprovements. In the first nine months of 2002 we have reducedemployee numbers by 376 and temporary and contract workers by 170.These reductions in employee and other expenses have contributed toimproved gross and EBITDA margins. We will continue to improve ouroperating efficiencies and ensure that we are best placed to deliverthe product range and service quality demanded by our customers."
HIGHLIGHTS FOR THE QUARTER
- Turnover up 12% to GBP259.0 million
- Gross margin before depreciation improves to 31%
- EBITDA up 203% to GBP19.4 million
- Third quarter capital expenditure reduced to GBP90 million
- Bond buy back exceptional gain of GBP28.5 million
- Cash and cash equivalents of approximately GBP1 billion
- Directly connected network customers up 38% to 13,478
- Further recognition of COLT's excellent customer service
- Staff numbers down cumulatively by 546 including 170 temporary and contract workers
OPERATING STATISTICS
02Q2 02Q3 Growth Growth
01Q3 01Q3 - 02Q2 -
02Q3 02Q3
Customers (at end of period)
North 2,953 3,731 3,793 28% 2%
Region
Central 3,727 5,329 5,637 51% 6%
Region
South 3,054 3,728 4,048 33% 9%
Region
eBusiness 1,214 1,638 1,626 34% -1%
10,948 14,426 15,104 38% 5%
Buildings (at end of period)
North 2,291 2,564 2,663 16% 4%
Region
Central 3,249 3,676 3,747 15% 2%
Region
South 1,794 2,368 2,540 42% 7%
Region
7,334 8,608 8,950 22% 4%
Switched Minutes (million) (for period)
North 2,007 1,307 1,234 -39% -6%
Region
Central 2,169 2,862 2,506 16% -12%
Region
South 887 949 852 -4% -10%
Region
5,063 5,118 4,592 -9% -10%
Private Wire VGEs (000) (at end of period)
North 5,548 6,913 7,724 39% 12%
Region
Central 6,692 7,681 8,248 23% 7%
Region
South 1,724 2,570 2,769 61% 8%
Region
13,964 17,164 18,741 34% 9%
Racks (at end of period)
eBusiness 2,110 2,516 2,499 18% -1%
Headcount (at end of period)
North 2,002 1,470 1,418 n.a -4%
Region
Central 1,952 1,675 1,593 n.a -5%
Region
South 1,260 931 917 n.a -2%
Region
eBusiness -- 608 537 n.a -12%
ENS -- 244 244 n.a --
Group/other 24 203 260 n.a 28%
5,238 5,131 4,969 -5% -3%
North Region comprises Belgium, Denmark, Ireland, The Netherlands,Sweden and UK. Central Region comprises Austria, Germany andSwitzerland. South Region comprises France, Italy, Portugal andSpain.
Headcount data before 31 December 2001 reflect COLT's organisation prior to establishing North, Central and South Regions, European Network Services (ENS) and eBusiness as lines of business and accordingly, ENS, eBusiness and Group/other headcount for prior periods are included in geographies represented by North, Central and South Regions.
FINANCIAL REVIEW
Turnover
Turnover increased from GBP231.4 million and GBP664.9 million for the three and nine months ended 30 September 2001 to GBP259.0 million and GBP764.1 million for the three and nine months ended 30 September 2002, increases of GBP27.6 million and GBP99.2 million or 12% and 15%, respectively. Turnover for the nine months ended 30 September 2001 included GBP3.8 million in respect of infrastructure sales. There were no infrastructure sales during the equivalent periods in 2002. The increases in turnover were driven by continued demand for COLT's services from existing and new customers and new service introductions. However, the rates of growth have been affected by the slowdown in economic growth across Europe generally and reduced demand in some areas, particularly the wholesale market.
Turnover from switched network services increased from GBP136.5 million and GBP390.4 million for the three and nine months ended 30 September 2001 to GBP157.2 million and GBP468.3 million for the three and nine months ended 30 September 2002. For the three and nine month periods ended 30 September 2002 compared to the equivalent periods of 2001, average switched revenue per minute increased by 27% and 17%, respectively, as a result of changes in mix and a more stable pricing environment. Carrier revenues represented 33% and 34% of total switched revenue for the three and nine months ended 30 September 2002 compared with 38% and 36% for the comparable periods in 2001 and 34% for the three months ended June 2002. Total wholesale (carriers, resellers and ISPs) switched revenues represented 51% and 53% of total switched revenues for the three and nine month periods in 2002 compared with 56% and 57% in the equivalent periods in 2001.
Turnover from non-switched services, increased from GBP94.4 million and GBP268.7 million for the three and nine months ended 30 September 2001 to GBP101.7 million and GBP294.2 million for the three and nine months ended 30 September 2002. Non-switched network services revenue increased from GBP81.7 million and GBP240.0 million in the three and nine month periods in 2001 to GBP89.6 million and GBP255.3 million in the equivalent periods in 2002. eBusiness revenue decreased from GBP12.7 million for the three months ended 30 September 2001 to GBP12.1 million for the corresponding period in 2002 reflecting the impact of the mothballing of ISCs announced in February 2002. eBusiness revenue for the nine month period ended 30 September 2002 was GBP38.9 million compared with GBP28.7 million for the nine months ended 30 September 2001. Growth in non-switched network services revenue reflected the growth in demand for local, national and international bandwidth services from retail customers, partially offset by circuit cancellations from selected carriers either exiting the market or rationalising their networks. At 30 September 2002 COLT had approximately 18.7 million voice grade equivalent private wires in service, an increase of 34% compared to 30 September 2001. The growth in non-switched network services revenue also reflects the growing success COLT is achieving in the provision of IPVPN services. At 30 September 2002, COLT had 2,499 racks installed, an increase of 18% compared to 30 September 2001 and 1,626 eBusiness customers. Non-switched turnover from retail customers represented 71% of total non-switched turnover for both the three and nine months ended 30 September 2002 compared to 64% and 61% in the equivalent periods in 2001.
Turnover from other activities was GBP0.2 million and GBP1.5 million for the three and nine months ended 30 September 2002 and GBP0.5 million and GBP5.8 million for the equivalent periods in 2001. Turnover from other activities in 2001 included GBP3.8 million of infrastructure sales. There were no infrastructure sales during the equivalent periods in 2002.
Cost of Sales
Cost of sales, before exceptional items and excluding costs associated with infrastructure sales increased from GBP209.7 million and GBP584.7 million for the three and nine months ended 30 September 2001 to GBP236.3 million and GBP699.2 million for the three and nine months ended 30 September 2002, increases of GBP26.6 million and GBP114.5 million or 13% and 20% respectively.
Interconnection and network costs, before exceptional items and excluding costs associated with infrastructure sales, increased from GBP164.4 million and GBP468.5 million for the three and nine months ended 30 September 2001 to GBP178.8 million and GBP537.9 million for the three and nine months ended 30 September 2002. For the three month period the increase was primarily attributable to interconnection charges. For the nine month period, the inclusion of Fitec results following its acquisition in July 2001, and the introduction of additional services on COLT's inter-city network contributed to the increase in interconnect and network costs.
Network depreciation increased from GBP45.3 million and GBP116.2 million for the three and nine months ended 30 September 2001 to GBP57.5 million and GBP161.2 million for the three and nine months ended 30 September 2002. The increases were attributable to further investment in fixed assets to support the growth in demand for services, new service developments in existing markets, expansion into new markets and the introduction of additional services on COLT's inter-city network.
For the three and nine months ended 30 September 2002, an exceptional charge of GBP12.6 million and GBP18.3 million, respectively, was recognised for severance provisions related to the staff reduction programmes announced in February and September 2002. For the three and nine months ended 30 September 2002, an impairment charge of GBP508.0 million was recognised to ensure that the asset base remained aligned with the realities of the market place. See Note 4 to the Financial Statements for further details.
Operating Expenses
Operating expenses, before exceptional items, increased from GBP205.8 million for the nine months ended 30 September 2001 to GBP223.0 million for same period in 2002 and decreased from GBP74.0 million for the three months ended 2001 to GBP73.7 million for the comparable period in 2002.
Selling, general and administrative expenses, before exceptional items, increased from GBP60.6 million and GBP175.0 for the three and nine months ended 30 September 2001 to GBP60.8 million and GBP182.3 million for the equivalent periods in 2002. The increases were primarily due to marketing and information technology expenses associated with the expansion of COLT's customer base, new services development and expansion into new markets. SG&A as a proportion of turnover excluding infrastructure sales and exceptional items in the three and nine months ended 30 September 2002 was 23.5% and 23.9% compared to 26.2% and 26.5% in the equivalent periods of 2001.
Other depreciation and amortisation decreased from GBP13.4 million for the three months ended 30 September 2001 to GBP12.9 million in 2002 reflecting the effect of the impairment provisions taken at the end of 2001 and the effect of other assets being fully depreciated. Other depreciation and amortisation increased from GBP30.8 million for the nine months ended 30 September 2001 to GBP40.7 million in 2002. The increase was due mainly to depreciation on increased investment in information technology, customer service and support systems and office equipment in existing and new markets.
For the three and nine months ended 30 September 2002, an exceptional charge of GBP12.4 million and GBP18.9 million, respectively, was recognised for severance provisions related to the staff reduction programmes announced in February and September 2002. For the three and nine months ended 30 September 2002, an impairment charge of GBP43.0 million was recognised to ensure that the asset base remained aligned with the realities of the market place. See Note 4 to the Financial Statements for further details
Interest Receivable, Interest Payable and Similar Charges Interest receivable decreased from GBP14.1 million and GBP50.0 million for the three and nine months ended 30 September 2001 to GBP9.2 million and GBP29.7 million for the three and nine months ended 30 September 2002 due to decreased average balances of cash and investments in liquid resources and lower rates of return during the period.
Interest payable and similar charges decreased from GBP27.9 million and GBP85.2 million for the three and nine months ended 30 September 2001 to GBP22.5 million and GBP72.7 million for the equivalent periods in 2002. The decreases were due primarily to a reduction in debt levels reflecting the cumulative purchases of GBP342.4 million accreted amount of the Company's outstanding notes.
Interest payable and similar charges for the three and nine months ended 30 September 2002 included: GBP8.8 million and GBP27.5 million, respectively, of interest and accretion on convertible debt; GBP13.6 million and GBP44.5 million, respectively, of interest and accretion on non-convertible debt; and GBP0.1 million and GBP0.7 million, respectively, of interest and bank commitment fees. Interest payable and similar charges for the three months ended 30 September 2002 comprised GBP16.0 million and GBP6.5 million of interest and accretion, respectively.
Gain on Purchase of Debt
Gains arising on the purchase debt for the three and nine months ended 30 September 2002 were GBP28.5 million and GBP101.7 million respectively, compared with GBP58.8 million for the same periods in 2001.
Exchange Gain (Loss)
For the three and nine months ended 30 September 2002 COLT had exchange gains of GBP2.5 million and GBP9.8 million compared with exchange gains of GBP8.7 million in the three months ended 30 September 2001 and losses of GBP2.4 million in the nine months ended 30 September 2001. These gains and losses were due primarily to movements in the British pound relative to the U.S. dollar on cash and debt balances denominated in U.S. dollars.
COLT realised an exceptional exchange gain of GBP4.8 million from theunwinding of the British pounds forward contracts previously held asa condition of it's bank facility which COLT terminated in June 2002.
Tax on Loss on Ordinary Activities
For the three and nine months ended 30 September 2001 and 30 September 2002, COLT generated losses on ordinary activities and therefore did not incur a tax obligation.
Financial Needs and Resources
The costs associated with the initial installation and expansion of COLT's networks and services, including development, installation and initial operating expenses have resulted in negative cash flow which is expected to continue until an adequate customer base and related revenue stream have been established.
Net cash inflows from operating activities increased from GBP1.5 million and GBP6.3 million for the three and nine months ended 30 September 2001 to GBP55.1 million and GBP112.4 million for the three and nine months ended 30 September 2002. Changes to cash flow from operations include the effect of the timing of stage billings and payments with telecommunications operators associated with the construction of the Company's inter-city network and effects of movements in provisions. Net cash outflow from returns on investments and servicing of finance and from capital expenditure and financial investment decreased from GBP204.0 million and GBP562.9 million in the three and nine months ended 30 September 2001 to GBP89.3 million and GBP351.1 million for the three and nine months ended 30 September 2002.
The decreases in net cash outflow were primarily a result of reduced purchases of tangible fixed assets, which decreased from GBP205.8 million and GBP585.2 million for the three months ended 30 September 2001 to GBP89.9 million and GBP339.7 for the equivalent periods in 2002.
There were no proceeds from the exercise of options in the three months ended 30 September 2002, while proceeds of GBP0.1 million were raised during the nine months ended 30 September 2002. COLT had balances of cash and investments in liquid resources at 30 September 2002 totaling GBP978.1 million compared to GBP1,304.5 million at 31 December 2001.
INDEPENDENT REVIEW REPORT TO COLT TELECOM GROUP PLC
Introduction
We have been instructed by the Company to review the financial information which comprises the profit and loss account, the balance sheet, the cash flow statement, the statement of total recognised gains and losses, the reconciliation of changes in total equity shareholders' funds and the related notes (excluding the paragraph titled Forward Looking Statements) and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.
Directors' Responsibilities
The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. The Listing Rules of the Financial Services Authority require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of management and applying analytical procedures to the financial information and underlying financial data and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with the Auditing Standards in the United Kingdom or the United States of America and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the three and nine months ended 30 September 2002.
PricewaterhouseCoopers
Chartered Accountants
London
24 October 2002
Consolidated Profit and Loss Account (Unaudited)
Three months ended 30 September
2001 2002 2002 2002 2002
Before Exceptional After After
Exceptional Items Exceptional Exceptional
Items Items Items
GBP'000 GBP'000 GBP'000 GBP'000 $'000
Turnover
Switched 136,548 157,162 -- 157,162 246,744
Non-switched 94,418 101,659 -- 101,659 159,605
Other 458 211 -- 211 331
231,424 259,032 -- 259,032 406,680
Cost of sales
Interconnect (164,380) (178,824) (12,640) (191,464) (300,599)
and network
Network (45,302) (57,511) (508,000) (565,511) (887,852)
depreciation
(209,682) (236,335) (520,640) (756,975) (1,188,451)
Gross profit 21,742 22,697 (520,640) (497,943) (781,771)
(loss)
Operating
expenses
Selling, (60,615) (60,818) (12,360) (73,178) (114,889)
general and
administrative
Other (13,403) (12,889) (43,000) (55,889) (87,746)
depreciation
and
amortisation
(74,018) (73,707) (55,360) (129,067) (202,635)
Operating (52,276) (51,010) (576,000) (627,010) (984,406)
loss
Other income
(expense)
Interest 14,071 9,182 -- 9,182 14,416
receivable
Interest (27,944) (22,460) -- (22,460) (35,262)
payable and
similar
charges
Gain on 58,774 -- 28,516 28,516 44,770
purchase of
debt
Exchange 8,661 2,459 -- 2,459 3,861
gain (loss)
Profit 1,286 (61,829) (547,484) (609,313) (956,621)
(loss) on
ordinary
activities
before
taxation
Taxation -- -- -- -- --
Profit/ 1,286 (61,829) (547,484) (609,313) (956,621)
(loss) for
period
Basic and GBP0.00 GBP(0.04) GBP(0.36) GBP(0.40) $(0.63)
diluted
profit/(loss)
per share
There is no difference between the loss on ordinary activities before taxation and the retained loss for the periods stated above, and their historical cost equivalents.
All of the Group's activities are continuing.
The basis on which this information has been prepared is described in Note 1 to these financial statements.
Consolidated Profit and Loss Account (Unaudited)
Nine months ended 30 September
2001 2002 2002 2002 2002
Before Exceptional After After
Exceptional Items Exceptional Exceptional
Items Items Items
GBP'000 GBP'000 GBP'000 GBP'000 $'000
Turnover
Switched 390,354 468,306 -- 468,306 735,240
Non-switched 268,735 294,245 -- 294,245 461,965
Other 5,829 1,531 -- 1,531 2,404
664,918 764,082 -- 764,082 1,199,609
Cost of
sales
Interconnect (470,941) (537,916) (18,320) (556,236) (873,291)
and network
Network (116,196) (161,244) (508,000) (669,244) (1,050,713)
depreciation
(587,137) (699,160) (526,320) (1,225,480) (1,924,004)
Gross 77,781 64,922 (526,320) (461,398) (724,395)
profit
(loss)
Operating
expenses
Selling, (175,013) (182,280) (18,934) (201,214) (315,906)
general and
administrative
Other (30,826) (40,743) (43,000) (83,743) (131,476)
depreciation
and amortisation
(205,839) (223,023) (61,934) (284,957) (447,382)
Operating (128,058) (158,101) (588,254) (746,355) (1,171,777)
loss
Other
income
(expense)
Interest 50,044 29,744 -- 29,744 46,698
receivable
Interest (85,184) (72,706) -- (72,706) (114,149)
payable and
similar
charges
Gain on 58,774 -- 101,668 101,668 159,619
purchase of
debt
Exchange (2,445) 9,758 4,844 14,602 22,925
gain (loss)
Profit (106,869) (191,305) (481,742) (673,047) (1,056,684)
(loss) on
ordinary
activities
before
taxation
Taxation -- -- -- -- --
Loss for (106,869) (191,305) (481,742) (673,047) (1,056,684)
period
Basic and GBP(0.15) GBP(0.13) GBP(0.32) GBP(0.45) $(0.70)
diluted
loss per
share
There is no difference between the loss on ordinary activities before taxation and the retained loss for the periods stated above, and their historical cost equivalents.
All of the Group's activities are continuing.
The basis on which this information has been prepared is described inNote 1 to these financial statements.
Consolidated Balance Sheet
At 31 (Unaudited)
December 2001 At 30 September 2002
GBP'000 GBP'000 $'000
Fixed assets
Intangible fixed 22,417 10,929 17,159
assets (net)
Tangible fixed 2,284,729 2,580,952 4,052,095
assets (cost)
Accumulated (491,652) (1,238,515) (1,944,469)
depreciation
Tangible fixed 1,793,077 1,342,437 2,107,626
assets (net)
Investments in own 615 615 966
shares
Total fixed assets 1,816,109 1,353,981 2,125,751
Current assets
Trade debtors 195,270 184,077 289,001
Prepaid expenses 111,936 81,304 127,647
and other debtors
Investments in 1,259,080 935,492 1,468,722
liquid resources
Cash at bank and 45,397 42,602 66,885
in hand
Total current 1,611,683 1,243,475 1,952,255
assets
Total assets 3,427,792 2,597,456 4,078,006
Capital and
reserves
Called up share 37,681 37,688 59,170
capital
Share premium 2,314,229 2,314,335 3,633,506
Merger reserve 27,170 27,227 42,747
Shares to be 721 438 688
issued
Profit and loss (755,442) (1,402,208) (2,201,467)
account
Equity 1,624,359 977,480 1,534,644
shareholders'
funds
Creditors
Amounts falling 424,002 374,114 587,359
due within one
year
Amounts falling
due after more
than one year
Convertible debt 657,417 612,284 961,286
Non-convertible 660,608 544,375 854,668
debt
Total amounts 1,318,025 1,156,659 1,815,954
falling due after
more than one year
Total creditors 1,742,027 1,530,773 2,403,313
Provisions for 61,406 89,203 140,049
liabilities and
charges
Total liabilities, 3,427,792 2,597,456 4,078,006
capital and
reserves
Approved by the Board of Directors on 24 October 2002 and signed on its behalf by:
Steve Akin, President, Chief Executive Officer and Director
Andrew Steward, Chief Financial Officer
Consolidated Cash Flow Statement (Unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Net cash 1,548 55,084 86,482 6,302 112,381 176,438
inflow
(outflow)
from
operating
activities
Returns on
investments
and
servicing
of finance
Interest 12,176 9,486 14,893 60,493 30,674 48,158
received
Interest (10,329) (8,900) (13,973) (38,201) (46,872) (73,589)
paid,
finance
costs and
similar
charges
Gain on -- -- -- -- 4,844 7,605
cancellation
of forward
foreign
currency
contracts
Net cash 1,847 586 920 22,292 (11,354) (17,826)
inflow
(outflow)
from
returns on
investments
and
servicing
of finance
Capital
expenditure
and
financial
investment
Purchase of (205,812)(89,905)(141,151)(585,184)(339,722)(533,363)
tangible
fixed
assets
Net cash (205,812)(89,905)(141,151)(585,184)(339,722)(533,363)
outflow
from
capital
expenditure
and
financial
investment
Acquisitions
and
disposals
Purchase of (2,676) -- -- (2,676) -- --
subsidiary
undertakings
Net bank (232) -- -- (232) -- --
borrowings
acquired
Net cash (2,908) -- -- (2,908) -- --
outflow
from
acquisitions
and
disposals
Management 297,123 78,152 122,699 645,733 337,741 530,253
of liquid
resources
Financing
Issue of 422 -- -- 5,262 110 173
ordinary
shares
Issue (24,705)(18,782)(29,488) (24,705) (64,328) (100,995)
(purchase)
of
non-convertible
debt
Issue (59,946) (9,563) (15,014) (59,946) (32,949) (51,730)
(purchase)
of
convertible
debt
Net cash (84,229) (28,345) (44,502) (79,389) (97,167) (152,552)
inflow
(outflow)
from
financing
Increase 7,569 15,572 24,448 6,846 1,879 2,950
(decrease)
in cash
Consolidated Statement of Total Recognised Gains and Losses
(Unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Profit 1,286 (609,313) (956,621) (106,869) (673,047)(1,056,684)
(loss) for
the period
Exchange 27,225 (25,892) (40,650) (12,260) 26,280 41,260
differences
Total 28,511 (635,205) (997,271)(119,129)(646,767)(1,015,424)
recognised
gains
(losses)
Consolidated Reconciliation of Changes in Equity Shareholders'
Funds (Unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Profit 1,286 (609,313)(956,621)(106,869)(673,047)(1,056,684)
(loss) for
period
Issue of 7,913 60 94 16,441 170 267
share
capital
Shares to 632 (71) (112) (3,654) (296) (465)
be issued
Charges (65) -- -- 6 14 22
related to
share
schemes
Exchange 27,225 (25,892) (40,650) (12,260) 26,280 41,260
difference
Net 36,991 (635,216)(997,289)(106,336)(646,879)(1,015,600)
changes in
equity
shareholders'
funds
Opening 1,358,530 1,612,696 2,531,933 1,501,857 1,624,359 2,550,244
equity
shareholders'
funds
Closing 1,395,521 977,480 1,534,644 1,395,521 977,480 1,534,644
equity
shareholders'
funds
1. Basis of presentation and principal accounting policies COLT Telecom Group plc ("COLT" or the "Company"), together with itssubsidiaries, is referred to as the Group. Consolidated financialstatements have been presented for the Company for the three and ninemonths ended 30 September 2001 and 2002 and at 31 December 2001 and30 September 2002.
The financial statements for the three and nine months ended 30 September 2001 and 2002 are unaudited and do not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. In the opinion of management, the financial statements for these periods reflect all the adjustments necessary to present fairly the financial position, results of operations and cash flows for the periods in conformity with U.K. Generally Accepted Accounting principles ("U.K. GAAP"). A summary of the differences between U.K. GAAP and U.S. Generally Accepted Accounting Principles ("U.S. GAAP) is shown in Note 9. All adjustments, with the exception of the exceptional charges described in Note 4, were of a normal recurring nature. The Balance Sheet at 31 December 2001 has been extracted from the Group's audited statements for that period and does not constitute the Group's statutory accounts for that period.
Accounting policies and presentation applied are consistent with those applied in preparing the Group's financial statements for the year ended 31 December 2001.
Certain British pound amounts in the financial statements have been translated into U.S. dollars at 30 September 2002 and for the periods then ended at the rate of $1.5700 to the British pound, which was the noon buying rate in the City of New York for cable transfers in British pounds as certified for customs purposes by the Federal Reserve Bank of New York on such date. Such translations should not be construed as representations that the British pound amounts have been or could be converted into U.S. dollars at that or any other rate.
2. Segmental information
North Region comprises Belgium, Denmark, Ireland, The Netherlands, Sweden and UK. Central Region comprises Austria, Germany and Switzerland. South Region comprises France, Italy, Portugal and Spain.
Non-switched turnover in North, Central and South Regions includes managed and non-managed network services data and bandwidth services. Non-switched turnover in eBusiness segment includes hosting and professional services.
Wholesale turnover includes services to other telecommunicationscarriers, resellers and Internet service providers (ISPs). Retailturnover includes services to corporate and government accounts.
For the three months ended 30 September 2001 and 2002, turnover byregion was as follows:
Three months ended 30 September 2001 (unaudited)
North Central South EBusiness Total Retail Wholesale
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Switched 47,849 60,088 28,611 -- 136,548 60,415 76,133
Non- 29,677 32,750 19,259 12,732 94,418 60,672 33,746
switched
Other 38 327 93 -- 458 90 368
Total 77,564 93,165 47,963 12,732 231,424 121,177 110,247
Three months ended 30 September 2001 (unaudited)
North Central South EBusiness Total Retail Wholesale
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Switched 47,679 71,284 38,199 -- 157,162 76,270 80,892
Non- 32,807 34,530 22,242 12,080 101,659 72,375 29,284
switched
Other 12 95 104 -- 211 97 114
Total 80,498 105,909 60,545 12,080 259,032 148,742 110,290
For the nine months ended 30 September 2001 and 2002, turnover byregion was as follows:
Nine months ended 30 September 2001 (unaudited)
North Central South EBusiness Total Retail Wholesale
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Switched 139,589 167,961 82,804 -- 390,354 166,498 223,856
Non- 86,472 100,511 53,041 28,711 268,735 162,747 105,988
switched
Other 129 5,392 308 -- 5,829 519 5,310
Total 226,190 273,864 136,153 28,711 664,918 329,764 335,154
Other revenue in Central Region includes infrastructure sales of GBP3.8 million which had a cost of sales of GBP2.4 million.
Nine months ended 30 September 2002 (unaudited)
North Central South EBusiness Total Retail Wholesale
Region Region Region
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Switched 138,533 216,332 113,441 -- 468,306 218,996 249,310
Non- 93,199 99,013 63,141 38,892 294,245 208,464 85,781
switched
Other 57 1,168 306 -- 1,531 915 616
Total 231,789 316,513 176,888 38,892 764,082 428,375 335,707
3. Profit (loss) per share (unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Profit 1,286 (609,313)(956,621)(106,869)(673,047) (1,056,684)
(loss)
for
period
Ordinary 705,475 1,507,226 1,507,226 703,238 1,507,138 1,507,138
shares
used in
calculation
of
basic
earnings
per share
('000)
Effect of
dilutive
shares
Options 10,860 -- -- -- -- --
Deferred 865 -- -- -- -- --
Fitec
share
consideration
('000)
Ordinary 717,200 1,507,226 1,507,226 703,238 1,507,138 1,057,138
shares
used in
calculation
of
diluted
earnings
per share
('000)
Basic and GBP0.00 GBP(0.40) $(0.63) GBP(0.15) GBP(0.45) $(0.70)
diluted
profit
(loss)
per share
4. Exceptional items
Severance provisions
On 21 February 2002, the Company announced an operational effectiveness review programme to reduce staff levels by approximately 500. On 27 September 2002, the Company further announced a move to a pan-European organisational structure following the completion of the construction of its core network infrastructure enabling the reduction of employee numbers by up to a further 800 over the following twelve months. The operational exceptional charge of GBP12.6 million and GBP18.3 million included in the total interconnect and network charges for the three and nine months ended30 September 2002, together with the operational exceptional charge of GBP12.4 million and GBP18.9 million included in the selling, general and adminstration charges for the same periods, represent the provisions in respect of the cost of these programmes.
Impairment
On 27 September 2002, the Company also announced that given the recent downturn in the telecommunications industry and in the overall economic environment that it was prudent to take further action to ensure that its asset base remained aligned with the realities of the market. As a result, the operating exceptional items of GBP508.0 million shown under network depreciation and GBP43.0 million under other depreciation and amortisation in the three and nine months ended 30 September 2002 represent a non-cash impairment charge to write down the book value of fixed assets. This charge resulted from a review covering all of the Group's tangible fixed assets and goodwill and was computed in accordance with the requirements of FRS11 'Impairment of fixed assets and goodwill'.
It is the Group's accounting policy to review its tangible and intangible fixed assets for impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. An impairment loss is recognised to the extent that the carrying amount of an asset exceeds its recoverable amount, being the higher of its value in use and net realisable value. In computing the impairment charge described above in accordance with this policy and the requirements of FRS11, the carrying amounts of the relevant assets were compared to recoverable amount, represented by the present value of discounted cash flows projected to arise from their use.
Bond buy back
During the three and nine months ended 30 September 2002 the Company made purchases in aggregate of GBP56.8 million and GBP198.9 million, respectively, of its outstanding convertible and non-convertible notes for cash consideration of GBP28.3. million and GBP97.2. million respectively. Exceptional gains arising from the purchases for the three and nine months ended 30 September 2002 were GBP28.5 million and GBP101.7 million respectively.
5. Net cash inflow (outflow) from operating activities (unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Operating (52,276) (627,010)(984,406)(128,058)(746,355) (1,171,777)
loss
Depreciation, 58,705 621,400 975,598 147,022 752,987 1,182,189
amortisation
of fixed
assets
Exchange 423 (442) (694) (168) 520 816
differences
Decrease (53) -- -- 2,209 -- --
(increase)
in
inventories
Decrease 335 14,485 22,741 (17,306) 48,860 76,710
(increase)
in debtors
Increase (5,586) 26,471 41,560 2,603 29,977 47,064
(decrease)
in creditors
Movement -- 20,180 31,683 -- 26,392 41,436
in
provision
for
liabilities
and
charges
Net cash 1,548 55,084 86,482 6,302 112,381 176,438
inflow
(outflow)
from
operating
activities
6. Changes in cash and investments in liquid resources (unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Beginning 1,264,226 1,058,150 1,661,299 1,654,591 1,304,477 2,048,028
of period
Net (297,123) (78,152) (122,699) (645,733) (337,741) (530,253)
increase
(decrease)
in
investments
in
liquid
resources
before
exchange
differences
Effects 24,848 (15,761) (24,745) (14,443) 14,153 22,220
of
exchange
differences in
investments
in
liquid
resources
Net 7,569 15,572 24,448 6,846 1,879 2,950
increase
(decrease)
in
cash
before
exchange
differences
Effects 867 (1,715) (2,693) (874) (4,674) (7,338)
of
exchange
differences
in
cash
End of 1,000,387 978,094 1,535,607 1,000,387 978,094 1,535,607
period
7. Company Balance Sheet
At 31 (Unaudited)
December 2001 At 30 September 2002
GBP'000 GBP'000 $'000
Fixed Assets
Tangible fixed 21,267 13,025 20,449
assets
Investments (i) 330,717 1,701,716 2,671,694
Total fixed assets 351,984 1,714,741 2,692,143
Current assets
Prepaid expenses 2,233,254 4,911 7,710
and other debtors
Investments in 1,259,080 454,971 714,305
liquid resources
(ii)
Cash at bank and 21 3 5
in hand
Total current 3,492,355 459,885 722,020
assets
Total assets 3,844,339 2,174,626 3,414,163
Capital and
reserves
Called up share 37,681 37,688 59,170
capital
Share premium and 2,375,238 2,341,562 3,676,253
merger reserve
Shares to be 721 438 688
issued
Profit and loss 68,417 (1,402,208) (2,201,467)
account
Equity 2,482,057 977,480 1,534,644
shareholders'
funds
Creditors
Amounts falling 44,257 39,362 61,798
due within one
year
Amounts falling
due after more
than one year
Convertible debt 657,417 612,284 961,286
Non-convertible 660,608 544,375 854,668
debt
Total amounts 1,318,025 1,156,659 1,815,954
falling due after
more than one year
Total creditors 1,362,282 1,196,021 1,877,752
Provisions for ---- 1,125 1,767
liabilities and
charges
Total liabilities, 3,844,339 2,174,626 3,414,163
capital and
reserves
(i) In order to reflect the impairment charges recorded in theconsolidated financial statements and operating losses incurred bysubsidiaries, provision has been made against the Company'sinvestments in and advances to its subsidiaries.
(ii) The Group's investments in liquid resources of GBP935,492,000 are held principally by the Company and its wholly owned subsidiary COLT Telecom Finance Euro.
8. Bondholder announcement
On 22 October 2002, Highberry Limited (a Hedge Fund) filed a petition for the appointment of an administrator. The Company, which has sought legal advice believes that the petition has no merit.
9. Summary of differences between U.K. Generally Accepted AccountingPrinciples ("U.K. GAAP") and U.S. Generally Accepted AccountingPrinciples ("U.S. GAAP")
a. Effects of conforming to U.S. GAAP - impact on net profit (loss)(Unaudited)
Three months ended 30 Nine months ended 30
September September
2001 2002 2002 2001 2002 2002
GBP'000 GBP'000 $'000 GBP'000 GBP'000 $'000
Profit
(loss)
for
period:
Profit 1,286 (609,313)(956,621)(106,869)(673,047)(1,056,684)
(loss)
for
period
for
Company
Adjustments:
Payments -- -- -- (58) -- --
by COLT
Inc./ FMR
Corp (i)
Amortisation 602 384 603 1,002 873 1,370
of
intangibles
(ii)
Capitalised 3,308 1,147 1,801 10,653 4,726 7,420
interest,
net of
depreciation
(iii)
Deferred (1,321) (356) (559) (1,987) (1,617) (2,538)
compensation
(ii) (iv)
Profit on 255 262 411 (679) 784 1,231
sale of
IRU (v)
Warrants (8,525) (154) (242) 1,062 (1,377) (2,162)
(vi)
Payroll (156) -- -- (428) -- --
taxes on
employee
share
schemes
(vii)
Installation(5,189) (4,043) (6,437) (17,261) 680 1,068
revenue
(viii)
Direct 5,189 4,043 6,437 17,261 (680) (1,068)
costs
attributable
to
installation
revenue
(viii)
Unrealised 373 -- -- 373 -- --
gain on
forward
foreign
exchange
contracts
(ix)
Impairment -- 107,200 168,304 -- 107,200 168,304
(x)
Loss for (4,178) (500,830)(786,303)(96,931) (562,458) (883,059)
period
under US
GAAP
Ordinary 705,475 1,507,226 1,507,226 703,238 1,507,138 1,507,138
shares
used in
calculation
of
basic and
diluted
loss per
share
('000)
Basic and GBP(0.01) GBP(0.33) $(0.52) GBP(0.14) GBP(0.37) $(0.59)
diluted
loss per
share
(i) Pursuant to a contract with the Company, certain FMR Corp.employees provided consulting and other services to the Company atagreed rates. FMR Corp. also provided additional compensation andbenefits to these employees related to services to the Company. Under U.K. GAAP, this additional compensation is recorded as relatedparty transactions; under U.S. GAAP, the additional compensation isreflected as an expense and a capital contribution by the relevantentity.
(ii) On 15 July 1998 the Company completed the acquisition of ImagiNet. A total of 1,395,292 ordinary shares were issued at completion. An additional 476,208 ordinary shares were deferred for issue, subject to certain conditions being met during 1999 and 2000. On 3 July 2001 the Company acquired all the share capital of Fitec. A total of 1,518,792 ordinary shares and 26.5 million French francs was paid at completion. An additional 7.7 million French francs and 317,784 shares will be paid over the next 2 years subject to certain conditions.
Under U.K. GAAP, the deferred shares and payments have been included in the purchase consideration. The excess purchase consideration over the fair value of assets and liabilities acquired is attributed to goodwill and is being amortised over its estimated economic life. Under U.S. GAAP, these deferred shares and payments are excluded from the purchase consideration and recognised as compensation expense in the profit and loss accounts over the period in which the payments vest. Amortisation of intangibles for the three and nine month periods ended 30 September 2001 and 2002 includes the resultant reduction in the associated amortisation charge under U.S. GAAP for the ImagiNet acquisition.
Effective 1 January 2002, the company adopted FAS 141 Business Combinations, FAS 142, Goodwill. FAS 142 requires that goodwill and intangible assets with indefinite useful lives not be amortised but should be tested for impairment annually.
At 30 September 2002, as set out in note (x), the Company completed an impairment review of its reporting units. As a result the goodwill and other intangible assets attributable to Fitec totaling GBP11.5 million have been written off in full.
The Company had unamortised goodwill of GBP6.6 million at 1 January 2002, which is no longer amortised under US GAAP but will be assessed for impairment annually in accordance with FAS 142. Amortisation expense related to goodwill, under UK GAAP, was GBP0.3 million and GBP0.8 million for the three and nine months ended 30 September 2002 respectively.
(iii) Adjustment to reflect interest amounts capitalised under U.S. GAAP, less depreciation for the period.
(iv) The Company operates an Inland Revenue approved Savings-Related Share Option Scheme ("SAYE Scheme"). Under this scheme, options may be granted at a discount of up to 20%. Under U.K. GAAP no charge is taken in relation to the discount. Under U.S. GAAP, the difference between the market value of the shares on the date of grant and the price paid for the shares is charged as a compensation cost to the profit and loss account over the period over which the shares are earned. The total expected compensation cost is recorded within equity shareholders' funds as unearned compensation and additional paid in share capital, with unearned compensation being charged to the profit and loss account over the vesting period.
(v) The Company has concluded a number of infrastructure sales in the form of 20-year indefeasible rights-of-use ("IRU") with characteristics which qualify the transactions as outright sales under U.K. GAAP. Under U.S. GAAP, these sales are treated as 20-year operating leases.
(vi) The Company has received warrants from certain suppliers in the ordinary course of business. Under U.K. GAAP, warrants are treated as financial assets and recorded at the lower of cost or fair value. At 31 December 2000, under U.S. GAAP, the warrants were recorded at fair value with unrecognised gains included in "Other Comprehensive Income" within equity shareholders' funds. As required by FAS 133 "Accounting for Derivative Instruments" ("FAS 133"), as amended by FAS 137 and FAS 138, which came into effect on 1 January 2001, the unrealised gain at 31 December 2000 and subsequent changes in fair value are reflected in the profit and loss account.
(vii) The Company operates a number of employee share schemes on which it incurs employer payroll taxes. Under U.K. GAAP, the cost of employer payroll taxes is recognised over the period from the date of grant to the end of the performance period. Under U.S. GAAP, the cost is recognised when the tax obligation arises.
(viii) In accordance with SAB 101 "Revenue Recognition in Financial Statements", for the three and nine month periods ended 30 September 2001 and 2002, customer installation revenues together with attributable direct costs, up to the level of the associated revenue, are recognised over the expected customer relationship period. The relationship period for wholesale customers was reduced during the three months ended 30 June 2002 and resulted in an additional release of GBP11.4 million for the three months ended 30 June 2002. At 30 September 2002, the cumulative impact on net losses under SAB 101 was nil, representing cumulative deferred installation revenues of GBP72.9 million and costs of the same amount.
(ix) The Company has entered into forward foreign exchange contractsfor payments relating to its U.S. dollar denominated senior discountnotes, a portion of which have now been purchased. As a result, the Company has recognised an unrealised gain on thatineffective portion of the hedge attributable to the purchased notes.
(x) FAS 144 requires long-lived assets be evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset is not recoverable. On a regular basis, the estimated future net cash flows associated with the asset are compared to the asset's carrying amount to determine if impairment has occurred. If such assets are deemed impaired, an impairment loss equal to the amount by which the carrying amount exceeds the fair value of the assets is recognised. If quoted market prices for the assets are not available, the fair value is calculated using the present value of estimated expected future net cash flows. The cash flow calculations are based on management's best estimates, using appropriate assumptions and projections at the time.
During the quarter ended September 30, 2002, the Company recorded charges of GBP443.8 million to reflect the impairment of goodwill (see note ii) and network and non-network assets.
b. Effects of conforming to U.S. GAAP - impact on net equity (unaudited)
At 30 September 2002
GBP'000 $'000
Equity shareholders' funds for 977,480 1,534,644
the Company
U.S. GAAP adjustments:
Adjustment for deferred (9,425) (14,797)
compensation
Unearned compensation (2,123) (3,333)
Additional paid in share 11,548 18,130
capital
Own shares held in trust (i) (615) (966)
Amortisation of intangibles 3,697 5,804
Shares to be issued (66) (104)
Warrants 466 732
Payroll taxes on employee 68 107
share schemes
Impairment 107,200 168,304
Deferred profit on operating (19,027) (29,872)
leases
Capitalised interest, net of 42,025 65,979
depreciation
Approximate equity 1,111,228 1,744,628
shareholders' funds under U.S.
GAAP
(i) Under U.K. GAAP, shares held by the QUEST are recorded as fixed asset investments at cost less amounts written off. Under U.S. GAAP, these shares are recorded at historical cost in the balance sheet as a deduction from shareholders' funds. The adjustment reflects the net impact on U.S. GAAP equity after the U.K. GAAP write-off recorded in 2001.
c. Effects of conforming to U.S. GAAP - cash flow statement
The Group's audited financial statements present the cash flow statement prepared in accordance with U.K. Accounting Standard FRS 1 (revised), "Cash Flow Statements" which presents substantially the same information as that required under U.S. Statement of Financial Accounting Standard No.95 ("FAS 95"). FAS 95 requires presentation of the cash flows from operating, investing and financing activities. Under U.S. GAAP cash flows from operating activities and returns on investments and servicing of finance would be included in operating activities; cash flows from capital expenditure and financial investment would be included in investing activities. Under U.K. GAAP liquid resources are considered cash equivalents while under U.S. GAAP they are included in the 'Increase (decrease) in cash and cash equivalents'.
d. Effects of conforming to U.S. GAAP - stock options
At 30 September 2002 the Company had certain options outstanding under its Option Plan. As permitted by SFAS No.123, "Accounting for Stock-Based Compensation", the Company elected not to adopt the recognition provisions of the standard and to continue to apply the provisions of Accounting Principles Board Opinion No.25, "Accounting for Stock Issued to Employees," in accounting for its stock options and awards. Had compensation expense for stock options and awards been determined in accordance with SFAS No.123, the Company's loss for the three and nine month periods ended 30 September 2002 would have been GBP503.7 million ($790.8 million) and GBP580.7 million ($911.7 million) respectively.
Notes to Financial Statements
e. New U.S. Accounting Standards
FAS 143, Accounting for Obligations Associated with the Retirement ofLong-Lived Assets, was issued in July 2001. This standard will beeffective for the Group's fiscal year beginning 1 January 2003. Thestandard provides the accounting requirements for retirementobligations associated with tangible long-lived assets. The standardrequires that the obligation associated with the retirement oftangible long-lived assets be capitalised into the asset cost at thetime of initial recognition. The liability is then discounted to itsfair value at the time of recognition using the guidance provided bythat standard. The requirements of this standard will be reflected asa cumulative effect adjustment to income. Management has assessed theimpact of the adoption of SFAS 143 on its consolidated financialstatements and believes the impact will not be material.
In May 2002, the FASB issued SFAS 145, "Rescission of FASB StatementsNo. 4, 44, and 64, Amendment of FASB Statement No. 13 and TechnicalCorrections as of April 2002". Among other things, SFAS 145 rescindsFASB Statement No. 4, Reporting Gains and Losses from Extinguishmentof Debt, and an amendment of that Statement. The provisions of SFAS145 related to the rescission of Statement 4 are to be applied infiscal years beginning after May 15, 2002.
Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in Opinion 30 for classification as an extraordinary item should be reclassified. The Company has early adopted SFAS 145. Consequently the gain on the buy back of the bonds is no longer classified as an extraordinary item.
In June 2002, the FASB issues SFAS 146 "Accounting for Costs Associated with Exit or Disposal" ("SFAS 146") which nullifies 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 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as defined in Issue 94-3 was recognized at the date of an entity' commitment to an exit plan. SFAS 146 also establishes that fair value is the objective for initial measurement of the liability. The provisions of SFAS 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Management has assessed the impact of the adoption of SFAS 146 on its Consolidated Financial Statements and believes the impact will not be material. In January 2002, the EITF reached a consensus in issue 42(c) of EITF 00-23 that, under APB No. 25, an employer's offer to enter into a new SAYE contract at a lower price causes variable accounting for all existing awards subject to the offer. Variable accounting commences for all existing awards when the offer is made, and for those awards that are retained by employees because the offer is declined, variable accounting continues until the awards are exercised, are forfeited, or expire unexercised. New awards would be accounted for as variable to the extent that previous higher priced options were canceled. The Task Force reached a consensus that the guidance in Issue 42(c) should be applied prospectively to new offers after January 24, 2002. To date, management has made no offers that would be affected by this consensus.
Forward Looking Statements
This report contains "forward looking statements" including statements concerning plans, future events or performance and underlying assumptions and other statements which are other than statements of historical fact. The Company wishes to caution readers that any such forward looking statements are not guarantees of future performance and certain important factors could in the future affect the Company's actual results and could cause the Company's actual results for future periods to differ materially from those expressed in any forward looking statement made by or on behalf of the Company. These include, among others, the following: (i) any adverse change in the laws, regulations and policies governing the ownership of telecommunications licenses, (ii) the ability of the Company to expand and develop its networks in new markets, (iii) the Company's ability to manage its growth, (iv) the nature of the competition that the Company will encounter and (v) unforeseen operational or technical problems. The Company undertakes no obligation to release publicly the results of any revision to these forward looking statements that may be made to reflect errors or circumstances that occur after the date hereof.
This information is provided by RNS, the company news service from the London Stock Exchange