10-Q 1 ntl6-01q.txt 6/30/01 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarterly Period Ended: JUNE 30, 2001 OR ( ) Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Transition Period from ________ to ________. Commission File Number 0-24792 NTL (TRIANGLE) LLC -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-4086747 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 110 East 59th Street New York, NY 10022 (212) 906-8440 -------------------------------------------------------------------------------- (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) -------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No ----- ----- -------------------------- As of June 30, 2001, there were 800,000 shares of the Registrant's common membership interests outstanding. The Registrant is an indirect, wholly owned subsidiary of NTL Incorporated and there is no market for the Registrant's Common Stock. The Registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 TABLE OF CONTENTS Page Number ------ PART I. FINANCIAL INFORMATION ------- --------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2001 (Unaudited) and December 31, 2000...............2 Condensed Consolidated Statements of Operations for the Six and Three Months Ended June 30, 2001 and 2000 (Unaudited)..............................................3 Condensed Consolidated Statement of Shareholder's Equity for the Six Months Ended June 30, 2001 (Unaudited).....4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2000 (Unaudited).......5 Notes to Condensed Consolidated Financial Statements (Unaudited)...............................................6 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............9 - 12 PART II.OTHER INFORMATION ------------------------- Item 6. Exhibits and Reports on Form 8-K.............................13 SIGNATURES...........................................................14 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 PART I. FINANCIAL INFORMATION ------- --------------------- ITEM 1. FINANCIAL STATEMENTS ------- --------------------

Note: The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date. See accompanying notes. 2

See accompanying notes. 3

See accompanying notes. 4

See accompanying notes. 5 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of NTL (Triangle) LLC (formerly NTL (Bermuda) Limited) (the "Company") have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six and three months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. The Company is an indirect, wholly-owned subsidiary of NTL Incorporated ("NTL"). Certain prior period amounts have been reclassified to conform to the current presentation. In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company has not yet determined what the effect of these tests will be on its results of operations and financial position. 2. Comprehensive Loss The Company's comprehensive loss for the six months ended June 30, 2001 and 2000 was (UK Pound)90.3 million and (UK Pound)61.4 million, respectively. The Company's comprehensive loss for the three months ended June 30, 2001 and 2000 was $34.8 million and $40.0 million, respectively. 3. Restructuring Costs The Company recorded restructuring costs in November 2000 as a result of the completion of a consolidation review. This charge consisted of employee severance and related costs of (UK Pound)5.6 million for approximately 470 employees to be terminated and lease exit costs of (UK Pound)2.9 million. As of June 30, 2001, (UK Pound)615,000 of the provision had been used for employee severance and related costs and approximately 80 employees had been terminated. The remaining restructuring reserve of (UK Pound)7.9 million includes (UK Pound)5.0 million for employees severance and related costs and (UK Pound)2.9 million for lease exit costs. 6 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 4. Property and Equipment Property and equipment consist of (in (UK Pound)000's):

5. Intangible Assets Intangible assets consist of (in (UK Pound)000's):

6. Joint Purchasing Alliance Agreement As of June 30, 2001 and December 31, 2000, other assets include a receivable for a deposit of (UK Pound)6.8 million and (UK Pound)21.3 million, respectively, which will be utilized under a Joint Purchasing Alliance Agreement entered into between subsidiaries of the Company and Diamond Cable Communications Limited, a subsidiary of NTL, for combined fixed asset purchases. The Company's original deposit was (UK Pound)51.9 million in March 1999. 7 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONCLUDED (Unaudited) 7. Related Party Transactions In October 2000, NTL Communications (Ireland) Limited (formerly Cablelink Limited), a wholly owned subsidiary of the Company entered into a loan agreement with a subsidiary of NTL to provide funding of up to IR(UK Pound)300.0 million ((UK Pound)229.5 million), of which IR(UK Pound)63.0 million ((UK Pound)48.2 million) and IR(UK Pound)32.0 million ((UK Pound)24.5 million) had been borrowed at June 30, 2001 and December 31, 2000, respectively. The outstanding borrowings are due in October 2007. Interest is payable quarterly in arrears from March 31, 2001. The annual interest rate is set on January 1 of each year at the 12-month EURIBOR rate plus 1%. The effective interest rate at June 30, 2001 was 5.69%. Accrued interest of IR(UK Pound)860,000 ((UK Pound)658,000) and IR(UK Pound)257,000 ((UK Pound)197,000) was included in due to affiliates in the consolidated balance sheet at June 30, 2001 and December 31, 2000, respectively. Since the acquisition of the Company by NTL in October 1998, a subsidiary of NTL has been providing management, financial, legal and technical services to the Company. Beginning in the fourth quarter of 1999, this subsidiary began charging the Company for these services using an allocation formula based on customers. For the six months ended June 30, 2001 and 2000, the Company was charged (UK Pound)27.3 million and (UK Pound)6.5 million, respectively, which is included in selling, general and administrative expenses and in due to affiliates in the consolidated balance sheet. It is not practicable to determine the amounts of these expenses that would have been incurred had the Company operated as an unaffiliated entity. In the opinion of management of the Company, the allocation method is reasonable. 8. Stock Options In July 2001, (subject to appropriate documentation) the NTL Compensation Committee approved an offer to all NTL employees, except George Blumenthal, the Chairman of the Board, Barclay Knapp, the Chief Executive Officer and the Board of Directors. NTL will offer to re-price some or all options with an exercise price above $20.01 per share to $13.25 per share. For these options for which this offer is accepted, a moratorium will be in effect until January 1, 2003 on further vesting and on all sales of shares that are obtained after re-pricing from the exercise of re-priced options. The expiration date for re-priced options will remain the same but in no event will be earlier than January 30, 2006. In July 2001, there were options to purchase an aggregate of approximately 29.3 million shares of NTL common stock with an average exercise price of $40.11 per share that would be subject to the re-pricing offer. In accordance with APB No. 25 and related interpretations, NTL will account for options that are subject to this offer as a variable plan. Options to purchase an aggregate of approximately 16.5 million shares of NTL common stock at an exercise price of $44.50 per share are already accounted for as a variable plan. The Company will recognize its share of non-cash compensation expense for the difference between the quoted market price of the common stock and the exercise price of the vested options while the options remain outstanding. The NTL Compensation Committee has taken this action to continue to provide the appropriate performance incentives to those affected. 9. Contingencies The Company is involved in legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position, results of operations or liquidity of the Company. 8 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Overview -------- NTL (Triangle) LLC (the "Company") is a holding company which holds all of the shares of various companies principally engaged in the development, construction, management and operation of broadband communications networks for telephone, cable television and Internet services in the United Kingdom ("UK") and Ireland. The Company owns the companies that have franchises for Darlington and Teesside (collectively, "Teesside") and Cambridge Holding Company Limited ("Cambridge") in the UK, and NTL Communications (Ireland) Limited (formerly Cablelink Limited) ("Cablelink"), which owns the companies that provide services in Dublin, Galway and Waterford, Ireland. Liquidity and Capital Resources ------------------------------- In November 1995, the Company issued $517.3 million principal amount at maturity of 11.20% Senior Discount Debentures due 2007 (the "2007 Discount Debentures"). Interest accreted on the 2007 Discount Debentures at 11.20% per annum compounded semiannually from November 15, 1995 to November 15, 2000, after which date interest became payable in cash on each May 15 and November 15 through November 15, 2007. The 2007 Discount Debentures contain restrictive covenants which limit the Company's ability to pay dividends. The Company currently estimates that it will require approximately (UK Pound)56.0 million from July 1, 2001 through June 30, 2002 for capital expenditures and debt service, net of cash from operations. Management expects that the (UK Pound)56.0 million required will be funded through cash on hand, debt or equity from NTL or its subsidiaries and from the Joint Purchasing Alliance Agreement deposit of (UK Pound)6.8 million. Subsidiaries of the Company and Diamond Cable Communications Limited, a subsidiary of NTL, entered into this agreement in 1999 for joint fixed asset purchases. The Company's ability to meet its long-term liquidity and capital requirements is contingent upon Cambridge, Teesside and Cablelink's ability to generate positive operating cash flow, or, if necessary, to obtain external financing, although there can be no assurance that any such financing will be obtained on acceptable terms and conditions. In October 2000, Cablelink entered into a loan agreement with a subsidiary of NTL to provide funding of up to IR(UK Pound)300.0 million ((UK Pound)229.5 million), of which (IR Pound)63.0 million ((UK Pound)48.2 million) and (IR Pound)32.0 million ((UK Pound)24.5 million) had been borrowed at June 30, 2001 and December 31, 2000, respectively. The outstanding borrowings are due in October 2007. Interest is payable quarterly in arrears from March 31, 2001. The annual interest rate is set on January 1 of each year at the 12-month EURIBOR plus 1%. The effective interest rate at June 30, 2001 was 5.69%. Accrued interest of IR(UK Pound)860,000 ((UK Pound)658,000) and IR(UK Pound)257,000 ((UK Pound)197,000) was included in due to affiliates in the consolidated balance sheet at June 30, 2001 and December 31, 2000, respectively. Condensed Consolidated Statements of Cash Flows ----------------------------------------------- Net cash provided by operating activities amounted to (UK Pound)1.5 million and (UK Pound)29.2 million for the six months ended June 30, 2001 and 2000, respectively. The decrease in net cash provided by operating activities is primarily due to the increase in cash paid during the period for interest and changes in working capital as a result of the timing of receipts and disbursements. Net cash used in investing activities amounted to (UK Pound)36.2 million and (UK Pound)14.0 million for the six months ended June 30, 2001 and 2000, respectively. During the six months ended June 30, 2001, net cash used in investing activities was entirely used for capital expenditures. 9 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 Net cash provided by (used in) financing activities amounted to (UK Pound)44.7 million and (UK Pound)(915,000) for the six months ended June 30, 2001 and 2000, respectively. During the six months ended June 30, 2001, net cash provided by financing activities includes (UK Pound)24.6 million in cash received by Cablelink from a subsidiary of NTL and contributions from NTL Group Limited of (UK Pound)20.4 million. Net cash used in financing activities of (UK Pound)915,000 in the six months ended June 30, 2000 was for principal payments. Results of Operations --------------------- Consolidated financial information for the Company for the six and three months ended June 30, 2001 and 2000 is as follows (in (UK Pound)000's, "NM" denotes percentage is not meaningful):

Substantially all of the increases in revenues, operating expenses, selling, general and administrative expenses and depreciation and amortization expense for the six and three months ended June 30, 2001, as compared to the same periods in 2000, are attributable to the continued development of the Company's operations and increased business activity resulting from the growth in the number of subscribers in Cambridge, Teesside and Cablelink. For the six and three months ended June 30, 2000, certain costs have been reclassified from selling, general and administrative expenses to operating costs to conform to the 2001 classification. 10 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 Selling, general and administrative expense were (UK Pound)39.5 million, (UK Pound)16.7 million, (UK Pound)30.1 million and (UK Pound)17.0 million for the six and three months ended June 30, 2001 and 2000, respectively. Beginning in the fourth quarter of 1999, a subsidiary of NTL began charging the Company for management, financial, legal and technical services it provides to the Company. These charges were (UK Pound)27.3 million, (UK Pound)12.6 million, (UK Pound)6.5 million and (UK Pound)3.7 million for the six and three months ended June 30, 2001 and 2000, respectively. After adjusting for the NTL charges, selling, general and administrative expenses as a percentage of revenues was 13.9%, 8.9%, 30.4% and 34.2% for the six and three months ended June 30, 2001 and 2000, respectively. During 2001, the Company intends to drive the majority of revenue growth from increases in average revenue per customer rather than through the addition of new customers. This allows the Company to achieve revenue targets, have a lower capital requirement due to fewer installations, and improve EBITDA as the Company reduces front-loaded costs such as customer acquisition costs and initial maintenance costs. Interest expense was (UK Pound)20.1 million, (UK Pound)10.3 million, (UK Pound)17.0 million and (UK Pound)8.8 million for the six and three months ended June 30, 2001 and 2000, respectively, representing increases of (UK Pound)3.1 million and (UK Pound)1.5 million as compared to the same periods in 2000. The increases are primarily attributable to the compounding of interest on the 2007 Discount Debentures. In October 2000, Cablelink entered into a loan agreement with a subsidiary of NTL to provide funding of up to IR(UK Pound)300.0 million ((UK Pound)229.5 million), of which IR(UK Pound)63.0 million ((UK Pound)48.2 million) had been borrowed at June 30, 2001. Interest expense to affiliate was (UK Pound)1.2 million and (UK Pound)683,000 for the six and three months ended June 30, 2001, respectively. Investment income was (UK Pound)148,000, (UK Pound)29,000, (UK Pound)798,000 and (UK Pound)467,000 for the six and three months ended June 30, 2001 and 2000, respectively, representing decreases of (UK Pound)650,000 and (UK Pound)438,000 as compared to the same periods in 2000. The decreases are primarily attributable to decreases in the average cash balances available for investment in 2001 as compared to the same periods in 2000. Exchange losses were (UK Pound)22.2 million, (UK Pound)3.0 million, (UK Pound)22.5 million and (UK Pound)15.8 million for the six and three months ended June 30, 2001 and 2000, respectively, representing decreases of (UK Pound)300,000 and (UK Pound)12.8 million as compared to the same periods in 2000. The decreases are primarily attributable to fluctuations in the valuation of the UK Pound Sterling on the 2007 Discount Debentures, which are denominated in US dollars. The Company's results of operations will continue to be affected by exchange rate fluctuations. The Company recorded restructuring costs in November 2000 as a result of the completion of a consolidation review. This charge consisted of employee severance and related costs of (UK Pound)5.6 million for approximately 470 employees to be terminated and lease exit costs of (UK Pound)2.9 million. As of June 30, 2001, (UK Pound)615,000 of the provision had been used for employee severance and related costs and approximately 80 employees had been terminated. The remaining restructuring reserve of (UK Pound)7.9 million includes (UK Pound)5.0 million for employees severance and related costs and (UK Pound)2.9 million for lease exit costs. 11 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 In July 2001, (subject to appropriate documentation) the NTL Compensation Committee approved an offer to all NTL employees, except George Blumenthal, the Chairman of the Board, Barclay Knapp, the Chief Executive Officer and the Board of Directors. NTL will offer to re-price some or all options with an exercise price above $20.01 per share to $13.25 per share. For these options for which this offer is accepted, a moratorium will be in effect until January 1, 2003 on further vesting and on all sales of shares that are obtained after re-pricing from the exercise of re-priced options. The expiration date for re-priced options will remain the same but in no event will be earlier than January 30, 2006. In July 2001, there were options to purchase an aggregate of approximately 29.3 million shares of NTL common stock with an average exercise price of $40.11 per share that would be subject to the re-pricing offer. In accordance with APB No. 25 and related interpretations, NTL will account for options that are subject to this offer as a variable plan. Options to purchase an aggregate of approximately 16.5 million shares of NTL common stock at an exercise price of $44.50 per share are already accounted for as a variable plan. The Company will recognize its share of non-cash compensation expense for the difference between the quoted market price of the common stock and the exercise price of the vested options while the options remain outstanding. The NTL Compensation Committee has taken this action to continue to provide the appropriate performance incentives to those affected. Recent Accounting Pronouncements -------------------------------- In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations" and No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company has not yet determined what the effect of these tests will be on its results of operations and financial position. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 -------------------------------------------------------------------------------- Certain statements contained herein constitute "forward-looking statements" as that term is defined under the provisions of the Private Securities Litigation Reform Act of 1995. When used herein, the words "believe," "anticipate," "should," "intend," "plan," "will," "expects," "estimates," "projects," "positioned," "strategy," and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated, projected, forecasted, estimated or budgeted, whether expressed or implied, by such forward-looking statements. Such factors include, among others: general economic and business conditions, technological developments, the Company's ability to continue to design networks, install facilities, obtain and maintain any required governmental licenses or approvals and finance construction and development, all in a timely manner at reasonable costs and on satisfactory terms and conditions, as well as assumptions about customer acceptance, churn rates, overall market penetration and competition from providers of alternative services, the impact of restructuring and integration actions, the impact of new business opportunities requiring significant up-front investment, interest rate and currency exchange rate fluctuations and availability, terms and deployment of capital. The Company assumes no obligation to update the forward-looking statements contained herein to reflect actual results, changes in assumptions or changes in factors affecting such statements. 12 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 PART II. OTHER INFORMATION -------- ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ------- -------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K: During the quarter ended June 30, 2001, the Company filed a current report on Form 8-K dated May 24, 2001 (filed May 24, 2001) reporting under Item 5, Other Events, that NTL Incorporated, the public parent company of NTL (Triangle) LLC, announced it signed a Strategic Outsourcing Deal with IBM which covers the provision of Information Technology (IT) services for NTL across the UK and Ireland. No financial statements were filed with this report. 13 NTL (TRIANGLE) LLC AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 2001 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NTL (TRIANGLE) LLC -------------------------------------------- (Registrant) By: NTL Group Limited Its Sole Managing Member Date: August 9, 2001 By: /s/ Stephen A. Carter -------------------------------------------- Stephen A. Carter (Director and Chief Operating Officer of NTL Group Ltd., the sole managing member) on behalf of registrant Date: August 9, 2001 By: /s/ Robert MacKenzie -------------------------------------------- Robert MacKenzie (Director and Secretary of NTL Group Ltd., the sole managing member) on behalf of registrant 14

NTL TRIANGLE LLC 10-Q