RNS Number:0147I
Colt Telecom Group PLC
26 February 2003
26 February 2003
COLT TELECOM GROUP PLC ANNOUNCES RESULTS FOR THE
THREE MONTHS AND YEAR ENDED 31 DECEMBER 2002
HIGHLIGHTS
* Turnover exceeds #1 billion
* Turnover up 13.9% (excluding infrastructure sales in 2001) to #1,027.2
million
* Turnover up 9.3% to #263.2 million in fourth quarter
* Gross margin before depreciation improves from 28.7% to 33.2% in fourth
quarter
* Bond buyback exceptional gain of #101.7 million
* Exceptional non-cash impairment charge of #551.0 million in 2002
* EBITDA (1) in 2002 up 190% (excluding infrastructure sales in 2001) to
#71.5 million
* EBITDA (1) up 290% to #27.7 million in fourth quarter
* Net cash inflow from operating activities in 2002 up 251% to #139.3
million
* Strong liquidity position with cash and liquid resources of #934.9 million
* Directly connected network and eBusiness customers up 36% to 15,523
* Staff levels including temporary and contract workers reduced by nearly
15% to 4,855
Commenting on the results COLT Telecom Group Chairman Barry Bateman said:
"While the operating environment has been, and remains, challenging COLT has
continued to make progress.
"2002 was a milestone year for COLT with turnover breaking the billion pound
barrier. Turnover at #1,027.2 million for the year and #263.2 million for the
fourth quarter increased by 13.9%, excluding infrastructure sales in 2001, and
9.3% respectively. The combination of turnover growth and ongoing cost
containment resulted in improved gross margins before depreciation and
exceptional items of 30.5% and 33.2% for the year and quarter respectively. We
achieved an almost three-fold increase in EBITDA(1) to #71.5 million for the
year and an almost four-fold increase in EBITDA(1) to #27.7 million for the
fourth quarter.
"Capital expenditure was #412.1 million for the year, including #72.4 million
for the fourth quarter, compared with #804.3 million for 2001 and #219.1 million
in the fourth quarter of 2001. This substantial reduction reflects the
completion of the infrastructure construction phase of our development. We
anticipate capital expenditure during 2003 to be between #220 million and #270
million.
"We do not underestimate the challenges we will face in 2003. However, with
#934.9 million of cash and liquid resources at the end of the year, our
reputation for excellent customer service and the action we have taken to
refocus COLT for its next phase of growth, we are well positioned to make
further progress. We remain on track to achieve our objective of becoming free
cash flow positive during 2005."
Steve Akin, COLT's President and Chief Executive Officer added:
"During 2002 we saw further belt tightening by our customers as they adjusted
their spending on telecommunication services reflecting their own business
prospects and the economic outlook generally. "Nonetheless COLT continued to
make progress in growing revenues, improving margins and winning new customers.
"COLT continues to be recognised as a company which excels in customer service.
We now have 15,523 directly connected and eBusiness customers, an increase
during 2002 of 36%. Another measure of our success was that we connected a
further 1,395 buildings to our networks bringing the total to 9,238. We also
grew our high bandwidth services increasing private wire VGEs by 33%. We have
continued to expand our IPVPN customer base and at the end of the year had 433
customers and served 1,989 sites. However, as well as winning new business we
have reduced our exposure to business that was not producing the desired level
of margin, particularly in the wholesale switched segment.
"Among major customer wins during the fourth quarter were SWIFT, the supplier of
secure messaging services to the financial industry, Zurich Financial Services
and Banco de Portugal. COLT has also provided an IPVPN solution for SwapsWire,
creating the world's first IP-based electronic dealing network for the OTC
derivatives market. An important new customer for COLT's range of very high
bandwidth services including SDH links from 155Mb/s to 2.5Gb/s and Ethernet
links from 10 Mb/s up to 1 Gb/s was Atos Origin, the IT services provider. A
contract for the provision of a 140 site IPVPN was awarded by HVB Info, a
subsidiary of Hypovereinsbank, the second largest bank in Germany. COLT also
continued to achieve success in the government sector with an important new
contract with the French Ministry of Agriculture for video streaming services.
"We have repositioned COLT to ensure that we have the right organisation
structure, systems and people to deliver the returns on the investment that has
been made in our network infrastructure and existing customer base. At the same
time we are ensuring that we can continue to grow and take advantage of the
opportunities in this tough but exciting market place. We have refocused the
organisation from one which was right and necessary as we entered new geographic
markets and built out our network infrastructure to one that is more suited to
harvesting that infrastructure; developing our portfolio of advanced services;
extending our global reach and growing profitable market share.
"At the same time as reorganising for the next phase of growth we have taken a
long hard look at our cost structure and have identified a number of areas where
we can improve efficiency as a result of the changes to the way we are running
our business. From our peak staffing levels of approximately 5,700 people,
including 355 temporary and contract workers, we are well along the path to
reducing numbers to approximately 4,300 during 2003 resulting in estimated full
year savings during 2004 of approximately #60 million. At the end of 2002 we had
4,855 employees including 171 temporary and contract workers.
"2002 was a tough year and there are no signs that the going will be any easier
in 2003. We will have to work harder to win new business. That said, COLT is
better positioned than most. I believe we can continue to make further progress
in 2003 and beyond."
KEY FINANCIAL DATA Three months ended Twelve months ended
31 December 31 December
2001 2002 2001 2002
#'000 #'000 #'000 #'000
Turnover 240.8 263.2 901.9(1) 1,027.2
Interconnect and network costs before exceptional (171.6) (175.7) (640.1)(1) (713.6)
items
Gross profit before depreciation and exceptional items 69.2 87.5 261.8 313.6
Gross profit % 28.7 % 33.2 % 29.0 % 30.5 %
Network depreciation including exceptional items (120.6) (50.8) (236.8) (720.0)
Exceptional interconnect and network costs (62.4) -- (62.4) (18.3)
Gross profit (loss) (113.8) 36.7 (37.4) (424.7)
EBITDA (2) 7.1 27.7 24.6(1) 71.5
OPERATING STATISTICS
02Q3 02Q4 Growth Growth
01Q4 01Q4 - 02Q4 02Q3 - 02Q4
Customers (at end of period)
North Region 3,241 3,793 4,282 32% 13%
Central Region (1) 3,501 4,698 5,255 50% 12%
South Region 3,231 4,048 4,381 36% 8%
eBusiness 1,413 1,626 1,605 14% -1%
11,386 14,165 15,523 36% 10%
Buildings Connected (at end of period)
North Region 2,387 2,663 2,730 14% 3%
Central Region 3,428 3,747 3,784 10% 1%
South Region 2,028 2,540 2,724 34% 7%
7,843 8,950 9,238 18% 3%
Switched Minutes (million) (for period)
North Region 2,028 1,234 1,354 -33% 10%
Central Region 2,645 2,506 2,682 1% 7%
South Region 849 852 967 14% 13%
5,522 4,592 5,003 -9% 9%
Private Wire VGEs (000) (at end of period)
North Region 6,013 7,724 8,749 46% 13%
Central Region 7,233 8,248 8,541 18% 4%
South Region 2,066 2,769 3,133 52% 13%
15,312 18,741 20,423 33% 9%
Racks (at end of period)
eBusiness 2,212 2,499 2,774 25% 11%
Headcount (at end of period)
North Region 1,482 1,418 1,365 -8% -4%
Central Region 1,710 1,593 1,447 -15% -9%
South Region 920 917 916 0% 0%
eBusiness 762 537 481 -37% -10%
ENS 234 244 242 3% -1%
Group/other 237 260 233 -2% -10%
5,345 4,969 4,684 -12% -6%
North Region comprises Belgium, Denmark, Ireland, The Netherlands, Sweden
and the United Kingdom. Central Region comprises Austria, Germany and
Switzerland. South Region comprises France, Italy, Portugal and Spain.
(1) Central Region customer numbers have been restated reflecting the change
from city to national customer management in Germany.
FINANCIAL REVIEW
Turnover
Turnover, excluding infrastructure sales, increased from #240.8 million and
#901.9 million for the three and twelve months ended 31 December 2001 to #263.2
million and #1,027.2 million for the three and twelve months ended 31 December
2002, increases of #22.4 million and #125.3 million or 9.3% and 13.9%,
respectively. Turnover from infrastructure sales for the twelve months ended 31
December 2001 was #3.8 million. There were no infrastructure sales during 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 #142.3 million and #532.6
million for the three and twelve months ended 31 December 2001 to #155.1 million
and #623.4 million for the three and twelve months ended 31 December 2002. For
the three and twelve month periods ended 31 December 2002 compared to the
equivalent periods of 2001, average switched revenue per minute increased by 20%
and 18%, 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 twelve months ended 31 December 2002 compared with 35% and 36%
for the comparable periods in 2001 and 33% for the three months ended September
2002. Total wholesale (carriers, resellers and ISPs) switched revenues
represented 51% and 53% of total switched revenues for the three and twelve
month periods in 2002 compared with 55% and 57% in the equivalent periods in
2001.
Turnover from non-switched services, increased from #98.0 million and #366.7
million for the three and twelve months ended 31 December 2001 to #107.8 million
and #402.1 million for the three and twelve months ended 31 December 2002.
Non-switched network services revenue increased from #83.4 million and #323.4
million in the three and twelve month periods in 2001 to #95.2 million and
#350.5 million in the equivalent periods in 2002. eBusiness revenue decreased
from #14.6 million for the three months ended 31 December 2001 to #12.6 million
for the corresponding period in 2002 reflecting the impact of the mothballing of
ISCs announced in February 2002. eBusiness revenue for the twelve month period
ended 31 December 2002 was #51.5 million compared with #43.3 million for the
twelve months ended 31 December 2001. For the year, the inclusion of Fitec
results following its acquisition in July 2001 contributed to the increase in
eBusiness revenue. 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 31
December 2002 COLT had approximately 20.4 million voice grade equivalent private
wires in service, an increase of 33% compared to 31 December 2001. The growth in
non-switched network services revenue also reflects the growing success COLT is
achieving in the provision of IPVPN services. At 31 December 2002, COLT had
2,774 racks installed, an increase of 25% compared to 31 December 2001 and 1,605
eBusiness customers. Non-switched turnover from retail customers represented 75%
and 72% of total non-switched turnover for the three and twelve months ended 31
December 2002 compared to 64% and 62% in the equivalent periods in 2001.
Turnover from other activities was #0.3 million and #1.8 million for the three
and twelve months ended 31 December 2002 and #0.5 million and #6.3 million for
the equivalent periods in 2001. Turnover from other activities in 2001 included
#3.8 million of infrastructure sales. There were no infrastructure sales during
2002.
Cost of Sales
Cost of sales, before exceptional items and excluding costs associated with
infrastructure sales, increased from #218.8 million and #803.5 million for the
three and twelve months ended 31 December 2001 to #226.5 million and #925.6
million for the three and twelve months ended 31 December 2002, increases of
#7.7 million and #122.1 million or 3.5% and 15.2% respectively. Cost of sales in
2001 included costs of #2.4 million in respect of infrastructure sales. There
were no infrastructure sales during 2002.
Interconnection and network costs, before exceptional items and excluding costs
associated with infrastructure sales, increased from #171.6 million and #640.1
million for the three and twelve months ended 31 December 2001 to #175.7 million
and #713.6 million for the three and twelve months ended 31 December 2002. For
the three month period the increase was primarily attributable to
interconnection charges. For the year, 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 before exceptional items increased from #47.2 million and
#163.4 million for the three and twelve months ended 31 December 2001 to #50.8
million and #212.0 million for the three and twelve months ended 31 December
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 twelve months ended 31 December 2002, exceptional charges totaling #18.3
million were recognised for severance provisions related to the staff reduction
programmes announced in February and September 2002. For the twelve months ended
31 December 2002 an impairment charge of #508.0 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.
In 2001 an impairment charge of #73.4 million was recognised relating to the
"mothballing" of ISCs and further charges of #62.4 million were recorded
relating to the write-down of inventory held for sale and provisions against
mothballed ISC rental and other obligations.
Operating Expenses
Operating expenses, before exceptional items, decreased from #78.3 million for
the three months ended 31 December 2001 to #69.0 million for the comparable
period in 2002 and increased from #284.1 million for the twelve months ended 31
December 2001 to #292.0 million for same period in 2002.
Selling, general and administrative (SG&A) expenses, before exceptional items,
decreased from #62.1 million for the three months ended 31 December 2001 to
#59.8 million for the three months ended 31 December 2002 reflecting the cost
containment measures introduced earlier in the year. SG&A expenses increased
from #237.1 million in the 12 months ended 31 December 2001 to #242.1 million
for the comparable period in 2002. The increase was 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 exceptional items in the three and twelve
months ended 31 December 2002 was 22.7% and 23.6% compared to 25.8% and 26.3% in
the equivalent periods of 2001.
Other depreciation and amortisation before exceptional items decreased from
#16.2 million for the three months ended 31 December 2001 to #9.1 million in the
comparable period in 2002 reflecting the effect of the impairment provisions and
the effect of other assets being fully depreciated. Other depreciation and
amortisation before exceptional items increased from #47.0 million for the
twelve months ended 31 December 2001 to #49.9 million in the comparable period
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 twelve months ended 31 December 2002, exceptional charges totalling
#18.9 million were recognised for severance provisions related to the staff
reduction programmes announced in February and September 2002. For the twelve
months ended 31 December 2002, an impairment charge of #43.0 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.
In 2001 an impairment charge of #12.0 million was recorded relating to the write
down in net book value of leasehold improvements in excess leased space and a
further charge of #27.9 million was also recognised relating to provisions
against future rents in the excess leased space.
Interest Receivable, Interest Payable and Similar Charges
Interest receivable decreased from #10.7 million and #60.7 million for the three
and twelve months ended 31 December 2001 to #8.4 million and #38.1 million for
the three and twelve months ended 31 December 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 #26.8 million and #112.0
million for the three and twelve months ended 31 December 2001 to #23.6 million
and #96.3 million for the equivalent periods in 2002. The decreases were due
primarily to a reduction in debt levels reflecting the cumulative purchases of
#342.4 million accreted amount of the Company's outstanding notes.
Interest payable and similar charges for the three and twelve months ended 31
December 2002 included: #8.6 million and #36.1 million, respectively, of
interest and accretion on convertible debt; #13.0 million and #57.5 million,
respectively, of interest and accretion on non-convertible debt; and #2.0
million and #2.7 million, respectively, of interest, bank commitment fees and
unwinding of discounts on provisions. Interest payable and similar charges for
the three months ended 31 December 2002 comprised #17.2 million and #6.4 million
of interest and accretion, respectively.
Amounts written of investment in own shares
For the three and twelve months ended 31 December 2002 and 2001, COLT recognised
a charge of #0.4 million and #2.8 million, respectively relating to the
revaluation of shares held in trust for certain compensation plans.
Gain on Purchase of Debt
Gains arising on the purchase of debt for the twelve months ended 31 December
2002 were #101.7 million compared with #58.8 million in 2001.
Exchange Gain (Loss)
For the three and twelve months ended 31 December 2002 COLT had exchange gains
of #2.6 million and #12.4 million compared with exchange losses of #2.8 million
and #5.2 million in the equivalent periods in 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 #4.8 million from the unwinding of the British pounds forward
contracts previously held as a condition of its bank facility which COLT
terminated in June 2002.
Tax on Loss on Ordinary Activities
For the three and twelve months ended 31 December 2001 and 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 flows. Capital expenditure has reduced
in 2002 and is expected to reduce further in 2003. Negative cash flows are
expected to continue until an adequate customer base and related revenue streams
have been established.
Net cash inflows from operating activities were #33.4 million and #39.7 million
for the three and twelve months ended 31 December 2001 respectively and #26.9
million and #139.3 million for the three and twelve months ended 31 December
2002, respectively. 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 the
effects of movements in provisions. Net cash outflow from returns on investments
and servicing of finance, capital expenditure and financial investment and from
acquisitions and disposals decreased from #215.0 million and #780.8 million in
the three and twelve months ended 31 December 2001 to #88.2 million and #439.3
million for the three and twelve months ended 31 December 2002.
The decreases in net cash outflow were primarily a result of reduced purchases
of tangible fixed assets, which decreased from #219.1 million and #804.3 million
for the three and twelve months ended 31 December 2001 to #72.4 million and
#412.1 million for the equivalent periods in 2002. Included within the returns
on investments and servicing of finance for the twelve months ended 31 December
2002 was the gain of #4.8 million from the unwinding of the forward foreign
currency contracts terminated in June 2002.
There were no proceeds from the exercise of options in the three months ended 31
December 2002, while proceeds of #0.1 million were raised during the twelve
months ended 31 December 2002. COLT had balances of cash and investments in
liquid resources at 31 December 2002 totaling #934.9 million compared to
#1,304.5 million at 31 December 2001.
Consolidated Profit and Loss Account
Three months ended 31 December
2001 2001 2001 2002 2002 2002 2002
Before Exceptional After Before Exceptional After After
Exceptional Items Exceptional Exceptional Items Exceptional Exceptional
Items Items Items Items Items
#'000 #'000 #'000 #'000 #'000 #'000 $'000
Turnover
Switched 142,293 -- 142,293 155,077 -- 155,077 249,596
Non-switched 97,970 -- 97,970 107,808 -- 107,808 173,517
Other 506 -- 506 291 -- 291 468
240,769 -- 240,769 263,176 -- 263,176 423,581
Cost of sales
Interconnect (171,583) (62,382) (233,965) (175,699) -- (175,699) (282,788)
and network
Network (47,197) (73,371) (120,568) (50,765) -- (50,765) (81,706)
depreciation
(218,780) (135,753) (354,533) (226,464) -- (226,464) (364,494)
Gross profit 21,989 (135,753) (113,764) 36,712 -- 36,712 59,087
(loss)
Operating
expenses
Selling, (62,098) (27,870) (89,968) (59,815) -- (59,815) (96,272)
general and
administrative
Other (16,186) (11,955) (28,141) (9,136) -- (9,136) (14,704)
depreciation
and amortisation
(78,284) (39,825) (118,109) (68,951) -- (68,951) (110,976)
Operating loss (56,295) (175,578) (231,873) (32,239) -- (32,239) (51,889)
Other income
(expense)
Interest 10,683 -- 10,683 8,364 -- 8,364 13,462
receivable
Gain on -- -- -- -- -- -- --
purchase of debt
Amounts written -- (2,757) (2,757) -- (409) (409) (658)
off investment
in own shares
Interest (26,768) -- (26,768) (23,594) -- (23,594) (37,975)
payable and
similar charges
Exchange gain (2,785) -- (2,785) 2,643 -- 2,643 4,254
(loss)
(18,870) (2,757) (21,627) (12,587) (409) (12,996) (20,917)
Loss on (75,165) (178,335) (253,500) (44,826) (409) (45,235) (72,806)
ordinary
activities
before taxation
Taxation -- -- -- -- -- -- --
Loss for period (75,165) (178,335) (253,500) (44,826) (409) (45,235) (72,806)
Basic and # (0.09) #(0.20) # (0.29) # (0.03) # (0.00) # (0.03) $ (0.05)
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 in Note 1 to these financial statements.
Consolidated Profit and Loss Account
Twelve months ended 31 December
2001 2001 2001 2002 2002 2002 2002
Before Exceptional After Before Exceptional After After
Exceptional Items Exceptional Exceptional Items Exceptional Exceptional
Items Items Items Items Items
#'000 #'000 #'000 #'000 #'000 #'000 $'000
Turnover
Switched 532,647 -- 532,647 623,383 -- 623,383 1,003,335
Non-switched 366,705 -- 366,705 402,053 -- 402,053 647,104
Other 6,335 -- 6,335 1,822 -- 1,822 2,933
905,687 -- 905,687 1,027,258 -- 1,027,258 1,653,372
Cost of sales
Interconnect (642,524) (62,382) (704,906) (713,615) (18,320) (731,935) (1,178,049)
and network
Network (163,393) (73,371) (236,764) (212,009) (508,000) (720,009) (1,158,855)
depreciation
(805,917) (135,753) (941,670) (925,624) (526,320) (1,451,944) (2,336,904)
Gross profit 99,770 (135,753) (35,983) 101,634 (526,320) (424,686) (683,532)
(loss)
Operating
expenses
Selling, (237,111) (27,870) (264,981) (242,095) (18,934) (261,029) (420,126)
general and
administrative
Other (47,012) (11,955) (58,967) (49,879) (43,000) (92,879) (149,489)
depreciation
and
amortisation
(284,123) (39,825) (323,948) (291,974) (61,934) (353,908) (569,615)
Operating loss (184,353) (175,578) (359,931) (190,340) (588,254) (778,594) (1,253,147)
Other income
(expense)
Interest 60,727 -- 60,727 38,108 -- 38,108 61,334
receivable
Gain on -- 58,774 58,774 -- 101,668 101,668 163,635
purchase of
debt
Amounts -- (2,757) (2,757) -- (409) (409) (658)
written off
investment in
own shares
Interest (111,952) -- (111,952) (96,300) -- (96,300) (154,995)
payable and
similar
charges
Exchange gain (5,230) -- (5,230) 12,401 4,844 17,245 27,756
(loss)
(56,455) 56,017 (438) (45,791) 106,103 60,312 97,072
Loss on (240,808) (119,561) (360,369) (236,131) (482,151) (718,282) (1,156,075)
ordinary
activities
before
taxation
Taxation -- -- -- -- -- -- --
Loss for (240,808) (119,561) (360,369) (236,131) (482,151) (718,282) (1,156,075)
period
Basic and # (0.32) # (0.16) # (0.48) # (0.16) # (0.32) # (0.48) $ (0.77)
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 in Note 1 to these financial statements.
Consolidated Statement of Total Recognised Gains and Losses
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Loss for the period (253,500) (45,235) (72,806) (360,369) (718,282) (1,156,075)
Exchange differences (11,330) 22,749 36,614 (23,590) 49,030 78,914
Total recognised losses (264,830) (22,486) (36,192) (383,959) (669,252) (1,077,161)
Consolidated Reconciliation of Changes in Equity Shareholders' Funds
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Loss for period (253,500) (45,235) (72,806) (360,369) (718,282) (1,156,075)
Issue of share capital 493,623 -- -- 510,064 170 273
Shares to be issued 89 16 26 (3,565) (267) (430)
Charges related to (44) -- -- (38) -- --
share schemes
Exchange difference (11,330) 22,749 36,614 (23,590) 49,030 78,914
Net changes in equity 228,838 (22,470) (36,166) 122,502 (669,349) (1,077,318)
shareholders' funds
Opening equity 1,395,521 977,480 1,573,254 1,501,857 1,624,359 2,614,406
shareholders' funds
Closing equity 1,624,359 955,010 1,537,088 1,624,359 955,010 1,537,088
shareholders' funds
Consolidated Balance Sheet
At 31 December 2001 At 31 December 2002
#'000 #'000 $'000
Fixed assets
Intangible fixed assets (net) 22,417 10,639 17,123
Tangible fixed assets (cost) 2,284,729 2,695,499 4,338,406
Accumulated depreciation (491,652) (1,316,690) (2,119,213)
Tangible fixed assets (net) 1,793,077 1,378,809 2,219,193
Investments in own shares 615 206 332
Total fixed assets 1,816,109 1,389,654 2,236,648
Current assets
Trade debtors 195,270 189,788 305,464
Prepaid expenses and other debtors 111,936 74,606 120,078
Investments in liquid resources 1,259,080 889,590 1,431,795
Cash at bank and in hand 45,397 45,292 72,897
Total current assets 1,611,683 1,199,276 1,930,234
Total assets 3,427,792 2,588,930 4,166,882
Capital and reserves
Called up share capital 37,681 37,688 60,658
Share premium 2,314,229 2,314,335 3,724,922
Merger reserve 27,170 27,227 43,822
Shares to be issued 721 454 731
Profit and loss account (755,442) (1,424,694) (2,293,045)
Equity shareholders' funds 1,624,359 955,010 1,537,088
Provisions for liabilities and charges 61,406 87,368 140,619
Creditors
Amounts falling due within one year 424,002 352,653 567,594
Amounts falling due after more than one year:
Convertible debt 657,417 639,829 1,029,805
Non-convertible debt 660,608 554,070 891,776
Total amounts falling due after more than one 1,318,025 1,193,899 1,921,581
year
Total creditors 1,742,027 1,546,552 2,489,175
Total liabilities, capital and reserves 3,427,792 2,588,930 4,166,882
Approved by the Board of Directors on 26 February 2003.
Consolidated Cash Flow Statement
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Net cash inflow 33,380 26,898 43,292 39,682 139,279 224,170
(outflow) from
operating activities
Returns on investments
and servicing of
finance
Interest received 20,527 8,553 13,766 81,020 39,227 63,136
Interest paid, finance (16,470) (24,396) (39,265) (54,671) (71,268) (114,706)
costs and similar
charges
Cancellation of forward -- -- -- -- 4,844 7,796
foreign currency
contracts
Net cash inflow 4,057 (15,843) (25,499) 26,349 (27,197) (43,774)
(outflow) from returns
on investments and
servicing of finance
Capital expenditure and
financial investment
Purchase of tangible (219,067) (72,393) (116,517) (804,251) (412,115) (663,299)
fixed assets
Net cash outflow from (219,067) (72,393) (116,517) (804,251) (412,115) (663,299)
capital expenditure and
financial investment
Acquisitions and
disposals
Purchase of subsidiary -- -- -- (2,676) -- --
undertakings
Net bank borrowings -- -- -- (232) -- --
acquired
Net cash outflow from -- -- -- (2,908) -- --
acquisitions and
disposals
Management of liquid (315,569) 62,649 100,834 330,164 400,390 644,428
resources
Financing
Issue of ordinary 493,623 -- -- 498,885 110 177
shares
Issue (purchase) of -- -- -- (59,946) (55,573) (89,445)
non-convertible debt
Issue (purchase) of -- -- -- (24,705) (41,704) (67,123)
convertible debt
Net cash inflow 493,623 -- -- 414,234 (97,167) (156,391)
(outflow) from
financing
Increase (decrease) in (3,576) 1,311 2,110 3,270 3,190 5,134
cash
Notes to Financial Statements
1. Basis of presentation and principal accounting policies
COLT Telecom Group plc ("COLT" or the "Company"), together with its
subsidiaries, is referred to as the Group. Consolidated financial statements
have been presented for the Company for the three and twelve months ended 31
December 2001 and 2002 and at 31 December 2001 and 31 December 2002.
The financial statements for the twelve months ended 31 December 2001 and 2002
and at 31 December 2001 and 2002 have been extracted from the Company's audited
financial statements for those periods and do not constitute the Company's
statutory accounts for those periods. The auditors have made a report on the
Company's financial statements for the years ended 31 December 2001 and 2002
under section 235 of the Companies Act 1985 which does not contain a statement
under sections 237 (2) or (3) of the Companies Act and is unqualified. The
statutory accounts for the twelve months ended 31 December 2001 have been and
the statutory accounts for the twelve months ended 31 December 2002 will be
filed with the Registrar of Companies.
The financial statements for the three months ended 31 December 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 generally accepted accounting principles. All
adjustments, with the exception of the exceptional charges described in Note 4,
were of a normal recurring nature.
Accounting policies and presentation applied are consistent with those applied
in preparing the Group's financial statements for the year ended 31 December
2001 with the exception of FRS19, Deferred tax.
The impact of applying FRS19 is not material to the Company's results.
Certain British pound amounts in the financial statements have been translated
into U.S. dollars at 31 December 2002 and for the periods then ended at the rate
of $1.60950 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.
Notes to Financial Statements
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 telecommunications carriers,
resellers and Internet service providers (ISPs). Retail turnover includes
services to corporate and government accounts
For the three months ended 31 December 2001 and 2002, turnover by region was as
follows:
Three months ended 31 December 2001
North Central South Region eBusiness Total
Region Retail Wholesale
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 46,501 65,071 30,721 -- 142,293 64,693 77,600
Non-switched 29,814 33,286 20,303 14,567 97,970 62,926 35,044
Other 29 351 126 -- 506 96 410
Total 76,344 98,708 51,150 14,567 240,769 127,715 113,054
Three months ended 31 December 2002
North Central South Region eBusiness Total
Region Retail Wholesale
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 49,062 69,392 36,623 -- 155,077 75,761 79,316
Non-switched 35,632 35,587 23,951 12,638 107,808 80,498 27,310
Other 8 160 123 -- 291 125 166
Total 84,702 105,139 60,697 12,638 263,176 156,384 106,792
For the twelve months ended 31 December 2001 and 2002, turnover by region was as
follows:
Twelve months ended 31 December 2001
North Central South Region eBusiness Total
Region Retail Wholesale
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 186,090 233,032 113,525 -- 532,647 231,191 301,456
Non-switched 116,286 133,797 73,344 43,278 366,705 225,673 141,032
Other 158 5,743 434 -- 6,335 615 5,720
Total 302,534 372,572 187,303 43,278 905,687 457,479 448,208
In 2001, other revenue in Central Region included infrastructure sales of #3.8
million which had a cost of sales of #2.4 million.
Twelve months ended 31 December 2002
North Central South Region eBusiness Total
Region Retail Wholesale
Region
#'000 #'000 #'000 #'000 #'000 #'000 #'000
Switched 187,595 285,724 150,064 -- 623,383 294,757 328,626
Non-switched 128,831 134,600 87,092 51,530 402,053 288,962 113,091
Other 65 1,328 429 -- 1,822 1,040 782
Total 316,491 421,652 237,585 51,530 1,027,258 584,759 442,499
Notes to Financial Statements
3. Profit (loss) per share
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Profit (loss) (253,500) (45,235) (72,806) (360,369) (718,282) (1,156,075)
for period
Weighted 871,107 1,507,238 1,507,238 745,550 1,507,164 1,507,164
average of
ordinary
shares ('000)
Basic and # (0.29) # (0.03) $ (0.05) # (0.48) # (0.48) $ (0.77)
diluted 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 #18.3 million
included in the total interconnect and network charges for the twelve months
ended 31 December 2002, together with the operational exceptional charge of
#18.9 million included in the selling, general and administration charges for
the same period, 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 #508.0 million shown under network depreciation and #43.0 million under
other depreciation and amortisation in the twelve months ended 31 December 2002
represent a non-cash impairment charge to write down the book value of fixed
assets. This charge was made effective 30 September 2002 and 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'. In 2001, network depreciation included an exceptional
charge of #73.4 million, other depreciation and amortisation included an
exceptional charge of #12.0 million.
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.
Investment in own shares
The Company recognised an exceptional charge of #0.4 million (2001: #2.8
million) relating to the revaluation of shares held in the COLT Qualifying Share
Ownership Trust for certain compensation plans.
Bond buy back
During the twelve months ended 31 December 2002 the Company made purchases in
aggregate of #198.9 million (2001:#143.5 million) of its outstanding convertible
and non-convertible notes for cash consideration of #97.2 million (2001:#84.7
million). Exceptional gains arising from the purchases were #101.7 million
(2001:#58.8 million).
Foreign Exchange Gain
COLT realised an exceptional exchange gain of #4.8 million from the unwinding of
the British pounds forward contracts previously held as a condition of its bank
facility which COLT terminated in June 2002.
Notes to Financial Statements
5 (a). Net cash inflow (outflow) from operating activities
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Operating loss (231,873) (32,239) (51,889) (359,931) (778,594) (1,253,147)
Depreciation, 148,709 59,901 96,410 295,731 812,888 1,308,344
amortisation of
fixed assets
Exchange (794) 20 32 (962) 540 869
differences
Decrease 28,842 -- -- 31,051 -- --
(increase) in
inventories
Decrease 27,549 8,021 12,910 10,243 56,881 91,550
(increase) in
debtors
Increase (459) (5,029) (8,094) 2,144 24,948 40,154
(decrease) in
creditors
Movement in 61,406 (3,776) (6,077) 61,406 22,616 36,400
provision for
liabilities and
charges
Net cash inflow 33,380 26,898 43,292 39,682 139,279 224,170
(outflow) from
operating
activities
5 (b). EBITDA reconciliation
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Net cash inflow 33,380 26,898 43,292 39,682 139,279 224,170
(outflow) from
operating activities
Adjusted for:
Exchange differences 794 (20) (32) 962 (540) (869)
Movement in (28,842) -- -- (31,051) -- --
inventories
Movement in debtors (27,549) (8,021) (12,910) (10,243) (56,881) (91,550)
Movement in 459 5,029 8,094 (2,144) (24,948) (40,154)
creditors
Total working (55,932) (2,992) (4,816) (43,438) (81,829) (131,704)
capital adjustments
Movement in (61,406) 3,776 6,077 (61,406) (22,616) (36,400)
provision
for liabilities and
charges
Add back
Exceptional 62,382 -- -- 62,382 18,320 29,486
interconnect and
network charges
Exceptional selling 27,870 -- -- 27,870 18,934 30,474
and
administrative
charges
EBITDA before 7,088 27,662 44,521 26,052 71,548 115,157
exceptional items
Exceptional charges (90,252) -- -- (90,252) (37,254) (59,960)
EBITDA after (83,164) 27,662 44,521 (64,200) 34,294 55,197
exceptional items
In 2002 there were no infrastructure sales. EBITDA resulting from infrastructure sales in 2001 was #1,414,000.
6. Changes in cash and investments in liquid resources
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Beginning of 1,000,387 978,094 1,574,243 1,654,591 1,304,477 2,099,556
period
Net increase 315,569 (62,649) (100,834) (330,164) (400,390) (644,428)
(decrease) in
investments in
liquid resources
before exchange
differences
Effects of (7,343) 16,747 26,954 (21,786) 30,900 49,734
exchange
differences in
investments in
liquid resources
Net increase (3,576) 1,311 2,110 3,270 3,190 5,134
(decrease) in
cash before
exchange
differences
Effects of (560) 1,379 2,219 (1,434) (3,295) (5,304)
exchange
differences in
cash
End of period 1,304,477 934,882 1,504,692 1,304,477 934,882 1,504,692
Notes to Financial Statements
7. Company Balance Sheet
At 31 December 2001 At 31 December 2002
#'000 #'000 $'000
Fixed Assets
Tangible fixed assets 21,267 14,044 22,604
Investments (i) 330,717 1,744,330 2,807,499
Total fixed assets 351,984 1,758,374 2,830,103
Current assets
Prepaid expenses and other debtors 2,233,254 6,663 10,724
Investments in liquid resources 1,259,080 424,980 684,005
Cash at bank and in hand 21 6 10
Total current assets 3,492,355 431,649 694,739
Total assets 3,844,339 2,190,023 3,524,842
Capital and reserves
Called up share capital 37,681 37,688 60,658
Share premium 2,314,229 2,314,335 3,724,922
Merger reserve 27,170 27,227 43,822
Shares to be issued 721 454 731
Profit and loss account 102,256 (1,424,694) (2,293,045)
Equity shareholders' funds 2,482,057 955,010 1,537,088
Provisions for liabilities and charges -- 3,611 5,812
Creditors
Amounts falling due within one year 44,257 37,503 60,361
Amounts falling due after more than one year:
Convertible debt 657,417 639,829 1,029,805
Non-convertible debt 660,608 554,070 891,776
Total amounts falling due after more than one year 1,318,025 1,193,899 1,921,581
Total creditors 1,362,282 1,231,402 1,981,942
Total liabilities, capital and reserves 3,844,339 2,190,023 3,524,842
(i) In order to reflect the impairment charges recorded in the consolidated financial statements and operating losses
incurred by subsidiaries, provision has been made against the Company's investments in and advances to its
subsidiaries.
8. Administrative petition
On 20 December 2002 the High Court dismissed Highberry Limited's (a hedge fund) petition for the appointment of an
administrator.
Notes to Financial Statements
9. Summary of differences between U.K. Generally Accepted Accounting Principles ("U.K. GAAP") and U.S. Generally
Accepted Accounting Principles ("U.S. GAAP")
a. Effects of conforming to U.S. GAAP - impact on net loss
Three months ended 31 December Twelve months ended 31 December
2001 2002 2002 2001 2002 2002
#'000 #'000 $'000 #'000 #'000 $'000
Profit (loss) for (253,500) (45,235) (72,806) (360,369) (718,282) (1,156,075)
period:
Adjustments:
Payments by COLT -- -- -- (58) -- --
Inc./ FMR Corp (i)
Amortisation of (97) 203 327 905 1,076 1,732
intangibles (iii)
Capitalised interest, 2,506 (1,064) (1,713) 13,159 3,662 5,894
net of depreciation
(iv)
Deferred compensation (4) (329) (529) (1,991) (1,946) (3,132)
(ii), (v)
Profit on sale of (221) 260 419 (900) 1,044 1,680
IRUs (vi)
Warrants (vii) 781 386 621 1,843 (991) (1,595)
Payroll taxes on (183) (68) (109) (611) (68) (109)
employee share
schemes (viii)
Installation revenue (6,175) (3,852) (6,200) (23,436) (3,172) (5,105)
(ix)
Direct costs 6,175 3,852 6,200 23,436 3,172 5,105
attributable to
installation revenue
(ix)
Amount written off 2,757 409 658 2,757 409 658
investment in own
shares (xii)
Unrealised gain on 51 -- -- 424 (424) (682)
forward foreign
exchange contracts
(x)
Impairment (xi) -- (2,810) (4,523) -- 104,390 168,016
Loss for period under (247,910) (48,248) (77,655) (344,841) (611,130) (983,614)
U.S. GAAP
Weighted average of 871,107 1,507,238 1,507,238 745,550 1,507,164 1,507,164
ordinary shares
('000)
Basic and diluted # (0.28) #(0.03) $(0.05) # (0.46) #(0.41) $(0.65)
loss per share
i) Pursuant to a contract with the Company, certain FMR Corp. employees provided consulting and other services to
the Company at agreed rates. FMR Corp. also provided additional compensation and benefits to these employees related
to services to the Company.
Under U.K. GAAP, this additional compensation is disclosed as a related party transaction; under U.S. GAAP, the
additional compensation is reflected as an expense and a capital contribution by the relevant entity.
(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 4.04
million Euros was paid at completion, with an additional 1.2 million Euros and 317,784 shares to be paid over the two
year period ending June 2003, subject to certain conditions being met.
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. The total
compensation charge for the three and twelve months ended 31 December 2002 was #0.1 million and #1.2 million,
respectively.
Notes to Financial Statements
(iii) In 2001, the Company adopted FAS 141 Business Combinations and FAS
142, Goodwill and Other Intangible Assets. FAS 142 requires that goodwill
and intangible assets with indefinite useful lives not be amortised but
should be tested for impairment annually. Goodwill on acquisitions made
before 1 July 2001 continued to be amortised until 31 December 2001. Hence
prior to 1 January 2002, the Company amortised the goodwill arising on the
acquisition of ImagiNet over its useful economic life of 10 years. Fitec was
acquired on 3 July 2001. Other intangibles assets of #2.5 million were
identified by management on the acquisition of Fitec.
Amortisation of intangibles for the three and twelve month periods ended 31
December 2001 and 2002 includes the resultant reduction in the associated
amortisation charge under U.S. GAAP for the ImagiNet acquisition.
At 30 September 2002, as set out in note (xi), the Company completed an
impairment review of its reporting units. As a result the goodwill and other
intangible assets attributable to Fitec were considered fully impaired and
written off. These were written off in full for UK GAAP purposes also.
The Company had unamortised goodwill of #6.6 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 #0.2 million and #1 million for the three
and twelve months ended 31 December 2002 respectively. The adjustment
includes the writeback of amortisation of goodwill for UK purposes of #1.6
million for Imaginet, net of the amortisation under US GAAP of other
intangible assets of approximately #0.5 million for Fitec.
(iv) Adjustment to reflect interest amounts capitalised under U.S. GAAP,
less depreciation for the period.
(v) 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.
During 2002, the Company adopted the provisions of EITF 00-23, "Issues
Related to the Accounting for Stock Compensation under APB Opinion No. 25
and FIN 44". The adoption of this guidance has not had a material affect on
the compensation charge made in respect of variable SAYE options in the
quarter or the year.
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. The total compensation charge for the three and twelve
months ended 31 December 2002 was #0.2 million, and #0.7 million,
respectively.
(vi) 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. In 2001, a gain
of #1.9 million was deferred net of the recognition of gains which had been
deferred from infrastructure sales in 2000 of #1.0 million. There were no
infrastructure sales in 2002, hence the adjustment reflects the recognition
of revenue previously deferred.
(vii) 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.
Notes to Financial Statements
(viii) 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.
(ix) In accordance with SAB 101 "Revenue Recognition in Financial
Statements", for the three and twelve month periods ended 31 December
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 #11.4 million for the three months
ended 30 June 2002. At 31 December 2002, the cumulative impact on net losses
under SAB 101 was nil, representing cumulative deferred installation
revenues of #76.8 million and costs of the same amount.
(x) The Company entered into forward foreign exchange contracts for
payments relating to its U.S. dollar denominated senior discount notes, a
portion of which have now been purchased. As a
result, the Company recognised an unrealised gain on that ineffective
portion of the hedge attributable to the purchased notes. As noted in Note
4, the forward contracts were cancelled in June 2002. The resulting gain of
#4.8 million was recognised for UK and US purposes. The adjustment of #0.4
million in 2002 is to reverse the unrealised gain already recognised in
2001.
(xi) 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 undiscounted
estimated future net cash flows associated with the asset are compared to
the asset's carrying amount to determine if an 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
#443.8 million under U.S. GAAP to reflect the impairment of goodwill (see
note ii), network and non-network fixed assets, resulting in a GAAP
difference of #107.2 million. In Q4, 2002 depreciation in the amount of #2.8
million was recorded in respect of the assets which had not been impaired
for U.S. GAAP purposes. The adjustment for the year reflects the net
position of these GAAP differences.
(xii) Under U.K. GAAP, shares held by a QUEST and similar employee share
trusts are recorded as fixed asset investments as 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.
b. Effects of conforming to U.S. GAAP - impact on net equity
At 31 December 2002
#'000 $'000
Equity shareholders' funds for the Company 955,010 1,537,088
U.S. GAAP adjustments:
Adjustment for deferred compensation (9,754) (15,699)
Unearned compensation (3,667) (5,902)
Additional paid in share capital 13,421 21,601
Own shares held in trust (i) (206) (332)
Amortisation of intangibles 3,900 6,277
Shares to be issued (82) (132)
Warrants 852 1,371
Impairment 104,390 168,016
Deferred profit on IRUs (18,767) (30,205)
Capitalised interest, net of depreciation 40,961 65,927
Approximate equity shareholders' funds under U.S. GAAP 1,086,058 1,748,010
(i) Under U.K. GAAP, shares held by a QUEST and similar employee share
trusts 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 2002.
Notes to Financial Statements
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 31 December 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
twelve month periods ended 31
December 2002 would have been #53.5 million ($86.1 million) and #628.0 million
($1,010.8 million) respectively.
e. New U.S. Accounting Standards
FAS 143, Accounting for Obligations Associated with the Retirement of Long-Lived
Assets, was issued in July 2001. This standard will be effective for the Group's
fiscal year beginning 1 January 2003. The standard provides the accounting
requirements for retirement obligations associated with tangible long-lived
assets. The standard requires that the obligation associated with the retirement
of tangible long-lived assets be capitalised into the asset cost at the time of
initial recognition. The liability is then discounted to its fair value at the
time of recognition using the guidance provided by that standard. The
requirements of this standard will be reflected as a cumulative effect
adjustment to income. Management has assessed the impact of the adoption of SFAS
143 on its consolidated financial statements and believes the impact will not be
material.
In May 2002, the FASB issued SFAS 145, "Rescission of FASB Statements No. 4, 44,
and 64,
Amendment of FASB Statement No. 13 and Technical Corrections as of April 2002".
Among other
things, SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from
extinguishment of Debt, and an amendment of that Statement. The provisions of
SFAS 145 related to the rescission of Statement 4 are to be applied in fiscal
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 issued 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 recognised when the liability is incurred. Under Issue
94-3, a liability for an exit cost as defined in Issue 94-3 was recognised at
the date of an entity's 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.
Notes to Financial Statements
e. New U.S. Accounting Standards (continued)
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure an amendment of FASB Statement No.
123" (SFAS 148) was issued in December 2002. This standard will be effective for
the Group's fiscal year beginning 1 January 2003. SFAS 148 amends FASB Statement
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123) and provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. SFAS 148 also amends
the disclosure provisions of SFAS 123 to require prominent disclosure about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. Management has assessed the impact
of the adoption of SFAS 148 on its consolidated financial statements and
believes the impact will not be material.
FASB Interpretation No. 46 ("FIN 46" or the "Interpretation"), "Consolidation of
Variable Interest Entities, an interpretation of ARB 51" was issued in January
2003. The primary objectives of FIN 46 are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities" or "VIEs") and how to
determine when and which business enterprise should consolidate the VIE (the
"primary beneficiary"). In addition, FIN 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. For any variable interest entities created
after 31 January 2003, FIN 46 is effective immediately. This Interpretation will
be effective for the Group's fiscal year beginning 1 January 2004. Management
believes the adoption of FIN46 will have no impact on its consolidated financial
statements.
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.
Enquiries
COLT Telecom Group plc
John Doherty
Director Investor Relations
Email: jdoherty@colt.net
Tel: +44 (0) 20 7390 3681
This information is provided by RNS
The company news service from the London Stock Exchange
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